WASHINGTON BANCORP
                  
                               1998 Annual Report


<PAGE>


                               WASHINGTON BANCORP

                                TABLE OF CONTENTS


Letter to Stockholders                                      
Selected Consolidated Financial Information        
Management's Discussion and Analysis of
 Financial Condition and Results of Operations    
Report of Independent Auditors                
Consolidated Financial Statements                  
Directors and Executive Officers                    
Stockholder Information                        





CONSOLIDATED FINANCIAL HIGHLIGHTS

June 30, 1998
(Dollars in Thousands)

Total assets ................................................           $94,327
Total loans, net ............................................            65,885
Investment securities and other
  earning assets ............................................            23,584
Deposits ....................................................            66,595
Borrowings ..................................................            15,724
Net income ..................................................               823
Stockholders' equity ........................................            10,971
Stockholders' equity as a percent of
  assets ....................................................             11.63%



--------------------------------------------------------------------------------

                                 ANNUAL MEETING

                The Annual Meeting of Stockholders of Washington
              Bancorp will be held on October 20, 1998 at 4:00 P.M.
                at the office of the Company, located at 102 East
                         Main Street, Washington, Iowa.

--------------------------------------------------------------------------------

<PAGE>


                               WASHINGTON BANCORP
                              102 East Main Street
                             Washington, Iowa 52353



September 18, 1998



Dear Fellow Stockholder,

          It is with  pleasure  and  pride  that  the  Board of  Directors,  the
Officers and the Staff of Washington  Bancorp and its  subsidiaries,  Washington
Federal Savings Bank and the Rubio Savings Bank present our third annual report.
In 1996, when this  organization  first became a public stock  corporation,  our
total assets were $60,890,943.  When our year officially ended on June 30, 1998,
those assets had grown to $94,326,945.

          This has been an exciting and enriching  year with the addition of the
Rubio  Savings Bank of Brighton with its assets of more than  approximately  $24
million to the Washington  Bancorp family.  The Rubio Bank is a  state-chartered
bank which began back in 1906 in the little village of Rubio.  As one of the few
banks to remain open  throughout the  Depression,  the Bank moved its offices to
nearby  Brighton in 1941, as that community had been without the services of any
Bank for more than a decade.  This stable history links very nicely with that of
Washington Federal Savings Bank, which began in the dark days of banking,  1934,
when around 50 local citizens  invested $100 apiece to be able to provide secure
savings and affordable loans to local citizens.

          As the horizon opens ahead of us in fiscal 1999, Washington Federal is
in the process of finalizing  plans to open branch Banks in the  communities  of
Wellman and Richland.  At the time this letter was written the applications were
in the  approval  process  with the  Office  of Thrift  Supervision.  Management
anticipates receiving approval in the fourth quarter of calendar year 1998. This
will spread the services and involvement of Washington Bancorp across Washington
County from north to south.

          Our mission is to be a community involved  financial  institution that
provides diversified products and services. We try to be as friendly and helpful
as we can be in supporting our customers with their needs. This customer focused
attitude helps to build lasting relationships for years to come.

          The  Annual   Report  and  the  Annual   Meeting  are  for  you,   our
stockholders,  and we invite your  participation and appreciate your support and
confidence. Our present Bancorp family consists of more than 400 individuals who
own our stock.  We thank you for your support and confidence and look forward to
an exciting 1999.

Sincerely,


/s/ Stan Carlson
-----------------
Stan Carlson
President & CEO


<PAGE>


                   SELECTED CONSOLIDATED FINANCIAL INFORMATION

          The following  consolidated  financial information does not purport to
be complete and is  qualified in its entirety by reference to the more  detailed
consolidated financial information contained elsewhere herein.

<TABLE>
                                                                         At June 30,
                                                       -----------------------------------------------
                                                        1998      1997      1996      1995      1994
                                                       -----------------------------------------------
                                                                       (in Thousands)
<S>                                                    <C>        <C>      <C>       <C>       <C>
Selected Financial Condition Data:
Total assets .......................................   $94,327   $64,875   $60,891   $55,100   $52,985
Loans receivable, net ..............................    65,885    52,530    40,906    40,435    37,461
Cash and cash equivalents ..........................     3,306       808     1,903     1,658       735
Investment securities ..............................    20,254     9,850    14,628    11,517    13,280
Investment in Federal Home Loan Bank ("FHLB")  Stock       812       466       369       362       320
Goodwill, net ......................................     1,375      --        --        --        --
Deposits ...........................................    66,595    44,754    44,176    42,950    43,872
Borrowed funds .....................................    15,724     8,652     5,505     7,230     4,489
Stockholders' equity ...............................    10,971    10,675    10,548     4,400     4,141
</TABLE>
<TABLE>

                                                                        Year Ended June 30,
                                                            -------------------------------------------
                                                             1998    1997      1996      1995     1994
                                                            -------------------------------------------
                                                                          (in Thousands)
<S>                                                         <C>       <C>      <C>      <C>       <C>  
Selected Operations Data:
Total interest income ...................................   $6,034   $4,990   $4,207    $3,939   $3,854
Total interest expense ..................................    3,259    2,553    2,499     2,181    2,043
                                                            -------------------------------------------
  Net interest income ...................................    2,775    2,437    1,708     1,758    1,811
Provision for loan losses ...............................       89       40       15        --       --
                                                            -------------------------------------------
                                                                                                                                
                                                             2,686    2,397    1,693     1,758    1,811
Total noninterest income ................................      320      231      197       138      209
Total noninterest expense ...............................    1,744    1,712    1,206     1,278    1,149
                                                            -------------------------------------------

Income before income taxes ..............................    1,262      916      684       618      871
Income tax expense ......................................      439      351      243       259      291
                                                            -------------------------------------------
Net income ..............................................   $  823   $  565   $  441    $  359   $  580
                                                            ===========================================

Earnings per common share:
  Basic .................................................   $ 1.36   $ 0.92   $ 0.25*      N/A      N/A
                                                            -------------------------
  Diluted ...............................................   $ 1.33   $ 0.91   $ 0.25*      N/A      N/A
                                                            -------------------------
<FN>
*    Earnings  per  share  information  for the  year  ended  June  30,  1996 is
     calculated  by  dividing  net  income,  subsequent  to the  mutual to stock
     conversion,  by the  weighted  average  number of shares  outstanding.  Net
     income  subsequent to the conversion was $150,832 for the period ended June
     30, 1996.
</FN>
</TABLE>
<PAGE>

<TABLE>
                                                                           Year Ended June 30,
                                                             ------------------------------------------
                                                             1998      1997      1996     1995     1994
                                                             ------------------------------------------
<S>                                                          <C>       <C>       <C>      <C>      <C> 
Selected Financial Ratios and Other Data:
Performance Ratios:
  Return on assets (ratio of  net  earnings to         
    average total assets) ...........................        1.06%     0.90%     0.78%    0.67%    1.14%
Interest rate spread information:
  Average during period .............................        2.95      3.09      2.55     3.04     3.44
  End of period .....................................        2.95      3.09      2.96     2.91     3.47
  Net interest margin(1) ............................        3.70      3.97      3.13     3.38     3.70
  Ratio of operating expense to  average total assets        2.24      2.72      2.15     2.38     2.27
  Return on equity (ratio of net  income to average .        7.56      5.34      6.94     8.41    15.06
equity)

Quality Ratios:
  Non-performing assets to total  assets at end of       
    period(2) .......................................        0.09      0.35      0.07     0.54     0.39
  Allowance for loan losses to non-performing loans .      435.99     98.52    475.00    68.81    98.07

Capital Ratios:
  Equity to total assets at end of period ...........       11.63     16.45     17.32     7.99     7.82
  Average equity to average assets ..................       13.99     16.80     11.31     7.96     7.60
  Ratio of average interest-earning assets to average     
   interest-bearing liabilities .....................      117.22    121.22    112.79   108.01   106.24

Number of full service offices                                  2         1         1        1        1
---------------------
<FN>
(1)  Net interest income divided by average interest-earning assets.

(2)  Non-performing assets consist of nonaccruing loans, accruing loans past-due
     90 or more days and foreclosed assets.
</FN>
</TABLE>

Capital  Requirements.  The  following  table  sets forth  Washington  Federal's
compliance with its capital requirements at June 30, 1998.


                                                          Capital Level
                                 OTS Requirement        at June 30, 1998(1)
                                 ---------------    ----------------------------
                                  % of               % of               Amount
                                 Assets   Amount    Assets   Amount   of Excess
                                 ---------------    ----------------------------
                                               (Dollars in Thousands)
Capital Standard

Tangible Capital .........        1.50%   $1,048     9.65%   $6,740     $5,692
Core Capital .............        4.00%   $2,795     9.65%   $6,740     $3,945
Risk-based Capital .......        8.00%   $4,013    13.99%   $7,017     $3,004


(1)   Tangible  and core  capital  figures are  determined  as a  percentage  of
      adjusted  total assets;  risk-based  capital  figures are  determined as a
      percentage of risk-weighted assets in accordance with OTS regulations.

The following table sets forth Rubio Savings Bank's  compliance with its capital
requirements at June 30, 1998.

                                                           Capital Level
                                      Requirement        at June 30, 1998(1)
                                     --------------   --------------------------
                                             % of               % of    Amount
                                     Assets  Amount    Assets  Amount  of Excess
                                     --------------   --------------------------
                                              (Dollars in Thousands)

Tier 1 or Leverage Capital ....      3.00%  $  698    10.76%  $2,503       7.76%
Tier 1 Risk-based Capital .....      4.00%     429    23.30    2,503      19.30
Risk-based Capital ............      8.00%     859    24.15    2,594      16.15
<PAGE>



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


Forward-Looking Statements

          When used in this Annual Report or future  filings by the Company with
the Securities and Exchange Commission, in the Company's press releases or other
public  or  shareholder  communications,  or in oral  statements  made  with the
approval of an authorized  executive officer,  the words or phrases "will likely
result," "are  expected  to," "will  continue,"  "is  anticipated,"  "estimate,"
"project,"   "believe"   or  similar   expressions   are  intended  to  identify
"forward-looking  statements"  within  the  meaning  of the  Private  Securities
Litigation  Reform Act of 1995.  The  Company  wishes to caution  readers not to
place undue reliance on any such forward-looking statements, which speak only as
of the date made, and to advise readers that various factors, including regional
and national  economic  conditions,  changes in levels of market interest rates,
credit risks of lending  activities,  and  competitive  and regulatory  factors,
could affect the Company's  financial  performance and could cause the Company's
actual results for future periods to differ materially from those anticipated or
projected.

          The  Company  does  not  undertake,  and  specifically  disclaims  any
obligations,  to revise any forward-looking statements to reflect the occurrence
of anticipated or unanticipated  events or circumstances  after the date of such
statements.

General

          Washington  Bancorp  ("Washington",  and  with its  subsidiaries,  the
"Company"),  an Iowa  corporation,  became the  holding  company  of  Washington
Federal  Savings  Bank  ("Washington  Federal")  on March 11,  1996.  Washington
Federal is a federally chartered stock savings bank headquartered in Washington,
Iowa. On June 24, 1997,  Washington  entered into a merger  agreement to acquire
Rubio Savings Bank of Brighton,  Brighton,  Iowa  ("Rubio").  Rubio is held as a
separate  subsidiary of Washington.  In January 1998,  Washington  became a bank
holding company upon the completion of its  acquisition of Rubio.  The principal
assets of the  Company  are  Washington  Federal  and Rubio  (collectively,  the
"Banks").  The Company  presently  has no separate  operations  and its business
consists  only of the  business of the Banks.  All  references  to the  Company,
unless  otherwise  indicated,  at or before  March 11, 1996 refer to  Washington
Federal.

          The  earnings  of the  Company  depend  primarily  on its level of net
interest   income,   which  is  the  difference   between   interest  earned  on
interest-earning assets,  consisting primarily of mortgage loans, and investment
securities,  and the interest paid on interest-bearing  liabilities,  consisting
primarily  of  deposits.  Net  interest  income is a function  of the  Company's
"interest rate spread," which is the difference between the average yield earned
on  interest-earning  assets  and the  average  rate  paid  on  interest-bearing
liabilities.  The interest rate spread is affected by  regulatory,  economic and
competitive  factors  that  influence  interest  rates,  loan demand and deposit
flows.  The  Company,   like  other  financial   institutions,   is  subject  to
interest-rate  risk to the degree  that its  interest-earning  assets  mature or
reprice at different times, or on a different basis,  than its  interest-bearing
liabilities.  To a lesser  extent,  the  Company's  operating  results  are also
affected by the amount of its non-interest income, including service charges and
loan fees, and other income which includes  commissions  from sales of insurance
by Washington  Federal's  service  corporation.  Non-interest  expense  consists
primarily  of  compensation  and  benefits,  occupancy  and  equipment,  federal
insurance premiums, data processing, and other operating expenses. The Company's
operating results are significantly affected by general economic conditions,  in
particular, the changes in market interest rate, government policies and actions
by regulatory authorities.

          The  Company's  basic  mission  is to  originate  mortgage  loans on a
profitable  basis to the  communities it serves.  In seeking to accomplish  this
mission,  the Board of Directors and management have adopted a business strategy
designed (i) to maintain the  Company's  capital  level in excess of  regulatory
requirements;  (ii) to maintain the Company's  asset  quality;  (iii) to control
operating expenses;  (iv) to maintain,  and if possible,  increase the Company's
interest rate spread and other income;  and (v) to manage the Company's exposure
to changes in interest  rates.  The Company has attempted to achieve these goals
by  focusing on  originating  first  mortgage  home  loans,  consumer  loans and
commercial loans and by offering a full range of deposit products.
<PAGE>


Financial Condition

          Total Assets.  Total assets  increased  from $60.9 million at June 30,
1996 to $64.9  million at June 30, 1997 to $94.3  million at June 30, 1998.  The
net  increase  from  1996 to 1997  was  primarily  funded  by  $3.1  million  in
borrowings  from the  Federal  Home Loan Bank  ("FHLB") of Des Moines and a $4.8
million  decrease  in  investment  securities  due to the  maturity  and call of
certain of such securities. The net increase from 1997 to 1998 was primarily due
to the  acquisition of Rubio,  with total assets of $25.1 million,  as well as a
$5.5  million  increase  in Loans  receivable,  net  partially  offset by a $1.3
million decrease in investment securities.

          Loans Receivable.  Loans receivable,  net increased from $42.9 million
at June 30, 1996 to $52.5  million at June 30, 1997 to $65.9 million at June 30,
1998.  The increase from 1996 to 1997 was primarily due to increased loan demand
in the Company's  market area.  The increase from 1997 to 1998 was primarily due
to the  acquisition  of Rubio with the loans  receivable,  net of $7.8  million.
There  was also a $5.5  million  increase  in loans  receivable,  net due to the
continued  increase in loan demand in the Company's  market area.  The Company's
non-performing  assets were  $89,000 or .09% of total assets at June 30, 1998 as
compared to $229,000 or .35% of total  assets at June 30,  1997.  Management  is
committed to maintaining the  non-performing  assets to total asset ratio within
industry standards.

          Deposits.  Deposits increased  $600,000 or 1.36% to $44.8 million,  at
June 30,  1997 from $44.2  million at June 30,  1996.  Transaction  and  savings
deposits increased as a percentage of total deposits from $13.9 million or 31.2%
at June 30, 1996 to $14.3  million or 32.0% at June 30,  1997.  Certificates  of
deposit  decreased as a percentage of total deposits from $30.3 million or 68.3%
at June 30, 1996 to $30.4 million or 68.0% at June 30, 1997.

          Deposits  increased $21.8 million or 48.7 % to $66.6 million,  at June
30, 1998 from $44.8 million at June 30, 1997.  Transaction and savings  deposits
increased as a percentage of total  deposits from $14.3 million or 32.0% at June
30, 1997 to $24.3  million or 36.4% at June 30,  1998.  Certificates  of deposit
decreased as a percentage of total  deposits from $30.4 million or 68.0% at June
30, 1997 to $42.3 million or 63.6% at June 30, 1998. This decrease in percentage
was a result of the Rubio  acquisition  and their  larger  amount of  commercial
checking accounts.

          Stockholders'  Equity.   Stockholders'  equity  increased  from  $10.5
million at June 30, 1996 to $10.7  million at June 30, 1997 to $11.0  million at
June 30, 1998.  The increase  from June 30, 1996 to June 30, 1997 was  primarily
due to net  income of  $565,000,  the  amortization  of  compensation  under the
Recognition  and  Retention  Plan of $72,000,  the net  reduction in  unrealized
losses on available for sale securities of $65,000, and the allocation of shares
in the Employee Stock Ownership Plan of $57,000, partially offset by $349,000 in
payments for the  repurchase of 26,300 shares of the Company's  common stock and
dividends paid of $214,000. The increase from June 30, 1997 to June 30, 1998 was
primarily  due to net  income  of  $823,000,  the  allocation  of  shares in the
Employee Stock Ownership Plan of $72,000, the amortization of compensation under
the Recognition  and Retention Plan of $67,000,  the exercise of 1,096 shares of
common  stock under the Stock Option Plan of $12,000,  and the net  reduction in
unrealized losses on available for sale securities of $3,000 partially offset by
$308,000 in payments for the repurchase of 16,500 shares of the Company's common
stock, dividends paid of $268,000, of redeemable common stock under the Employee
Stock  Ownership  Plan of $84,000 and the  retirement  of 1,096 shares of common
stock of $21,000.  The portfolio of available  for sale  securities is comprised
primarily of investment securities carrying fixed interest rates. The fair value
of these  securities is subject to changes in interest  rates and the fair value
of these securities is less than their carrying value as of June 30, 1998.
<PAGE>


Net Interest Income Analysis

          The  following  table  presents  for the periods  indicated  the total
dollar amount of interest  income from average  interest-earning  assets and the
resultant  yields,  as well as the total  dollar  amount of interest  expense on
average interest-bearing  liabilities and the resultant rates. No tax equivalent
adjustments were made. All average balances are monthly average balances.
<TABLE>
                                                                                              Year Ended June 30,
                                                                           ---------------------------------------------------------
                                                          1998                          1997                          1996
                                            ------------------------------ ---------------------------- ----------------------------
                                              Average   Interest            Average   Interest           Average    Interest
                                            Outstanding   Earned/   Yield/ Outstanding  Earned/  Yield/ Outstanding  Earned/  Yield/
                                              Balance     Paid      Rate    Balance     Paid     Rate    Balance     Paid      Rate
                                            ------------------------------ ---------------------------- ----------------------------
                                                                              (Dollars in Thousands)
<S>                                         <C>         <C>         <C>    <C>        <C>        <C>    <C>         <C>       <C>
Interest-earning assets:
  Loans receivable(1) .....................   $59,089    $ 5,138    8.69%   $47,538   $4,128     8.68%   $41,329    $3,446     8.34%
  Investment securities ...................    13,622        800    5.87     11,528      757     6.57      9,580       632     6.60
  FHLB stock ..............................       596         40    6.77        411       29     7.01        366        26     7.10
  Other interest-earning assets ...........     1,654         56    3.40      1,822       76     4.18      3,311       103     3.11
                                              ------------------            ----------------             -----------------
    Total interest-earning assets(1).......   $74,961    $ 6,034    8.05    $61,299   $4,990     8.14    $54,586    $4,207     7.71
                                              ==================            ================             =================

Interest-bearing liabilities:
  Certificates of deposit .................   $35,753    $ 2,060    5.76    $30,682   $1,741     5.68    $30,658    $1,746     5.70
  NOW, money market and passbook savings ..    16,508        558    3.38     13,226      472     3.57     12,955       496     3.83
  Advances from borrowers for taxes and 
    insurance .............................       167          2    1.02        155        2     1.02        163         2     1.52
    FHLB advances .........................    11,519        639    5.55      6,504      337     5.19      4,621       253     5.48
                                              ------------------            ----------------             -----------------
    Total interest-bearing liabilities ....   $63,947    $ 3,259    5.10    $50,567   $2,553     5.05    $48,397    $2,497     5.16
                                              =======                       ================             =================

Net interest income .......................              $ 2,775                      $2,437                        $1,708
                                                         =======                      ======                        ======  
Net interest rate spread(2) ...............                         2.95%                        3.09%                         2.55%
                                                                    =====                        =====                         =====
Net interest-earning assets ...............   $11,014                        $10,732                     $ 6,189
                                              =======                        =======                     =======
Net yield on average interest-earnings 
  assets ..................................                         3.70%                        3.97%                         3.13%
                                                                    =====                        =====                         =====
Average interest-earning assets to average
  interest-earning liabilities ............              117.22%                      121.22%                       112.79%   
                                                         =======                      =======                       =======
<FN>
(1)  Calculated net of deferred loan fees, loan discounts,  loans in process and
     loss reserves.

(2)  Net interest  rate spread  represents  the  difference  between the average
     yield on  interest-earning  assets and the average rate on interest-bearing
     liabilities.
</FN>
</TABLE>
<PAGE>


          The following  table  presents the weighted  average  yields on loans,
investments and other  interest-earning  assets,  and the weighted average rates
paid on deposits and borrowings  and the resultant  interest rate spreads at the
dates indicated.

                                                              At June 30,
                                                       -------------------------
                                                       1998      1997      1996
                                                       -------------------------
Weighted average yield on:
  Loans receivable ...............................     8.61%     8.55%     8.52%
  Investment securities ..........................     5.94      6.61      6.87
  Other interest-earning assets ..................     5.86      5.96      5.33
Combined weighted average yield on interest- .....     7.93      8.21
 earning assets ..................................     8.05

Weighted average rate paid on:
  Passbook savings accounts ......................     2.36      2.30      2.30
  NOW accounts ...................................     2.32      2.29      2.30
  Money market accounts ..........................     3.87      3.92      4.14
  Certificates of deposit ........................     5.73      5.74      5.67
  Advances from borrowers for taxes & ............     2.30      2.30
   insurance .....................................     2.30
  FHLB advances ..................................     5.54      5.50      5.46
Combined weighted average rate paid on ...........     4.98      5.12
 interest-bearing liabilities ....................     5.09
Spread ...........................................     2.95      3.09      2.96

Rate/Volume Analysis

          The  following  schedule  presents  the  dollar  amount of  changes in
interest income and interest  expense for major  components of  interest-earning
assets and interest-bearing  liabilities.  It distinguishes  between the changes
due to  changes in  outstanding  balances  and those due to changes in  interest
rates.  For  each  category  of  interest-earning  assets  and  interest-bearing
liabilities,  information is provided on changes  attributable to (i) changes in
volume  (i.e.,  changes in volume  multiplied by prior  interest  rate) and (ii)
changes in rate (i.e., changes in rate multiplied by prior volume). For purposes
of this table,  changes  attributable  to both rate and volume,  which cannot be
segregated, have been allocated proportionately to the changes due to the volume
and the changes due to rate.
<TABLE>
                                                                 Year Ended June 30,
                                              ---------------------------------------------------------------
                                                      1998 vs. 1997                  1997 vs. 1996
                                              ------------------------------  -------------------------------
                                              Increase (Decrease)             Increase (Decrease)
                                                    Due To          Total           Due to           Total
                                              -------------------  Increase   -------------------   Increase
                                              Volume       Rate   (Decrease)    Volume    Rate     (Decrease)
                                              ---------------------------------------------------------------
                                                                      (In Thousands)
<S>                                           <C>        <C>        <C>        <C>       <C>        <C>
Interest-earning assets:
  Loans receivable ........................   $ 1,005    $     5    $ 1,010    $   536   $   146    $   682
  Investment securities ...................       129        (86)        43        128        (3)       125
  FHLB stock ..............................        12         (1)        11          3        --          3
  Other interest-earning assets ...........        (7)       (13)       (20)       (55)        28       (27)
                                              -------------------------------------------------------------
Total interest-earning assets .............   $ 1,139    $   (95)   $ 1,044    $   612   $   171    $   783
                                              -------------------------------------------------------------

Interest-bearing liabilities:
 Certificates of Deposit ..................   $   294    $    25    $   319    $     1   $    (6)   $    (5)
 NOW, money market, and passbook savings ..       112        (26)        86         10       (34)       (24)
 Advances from borrowers for taxes and 
  insurance ...............................        --         (1)        (1)        --        (1)        (1)
  FHLB advances ...........................       277         25        302         98       (14)        84
                                              -------------------------------------------------------------
Total interest-bearing
 liabilities ..............................   $   683    $    23    $   706    $   109   $   (55)   $    54
                                              =============================================================
Net interest income .......................                         $   338                         $   729
                                                                    =======                         =======
</TABLE>
<PAGE>


Comparison of Operating Results For The Years Ended June 30, 1998 And 1997

          Performance  Summary.  Net income  for the year  ended  June 30,  1998
increased by $258,000 or 45.7% to $823,000 from $565,000 for the year ended June
30, 1997.  The increase was primarily due to an increase in net interest  income
of $338,000 and an increase in non-interest income of $89,000,  partially offset
by an  increase  in  provision  for loan  losses of  $49,000,  and  increase  in
non-interest  expense  of  $32,000  and an  increase  in income  tax  expense of
$89,000. For the years ended June 30, 1998 and 1997 the return on average assets
was 1.06% and .90%,  respectively,  while the return on average equity was 7.56%
and 5.34%, respectively.

          Net Interest  Income.  For the year ended June 30, 1998,  net interest
income  increased  by $338,000 to $2.7  million  from $2.4  million for the year
ended June 30, 1997.  Interest income increased $1.0 million to $6.0 million for
the year ended June 30, 1998 from $5.0  million for the year ended June 30, 1997
offset by a $706,000  increase in interest  expense to $3.3 million for the year
ended June 30, 1998 from $2.6 million for the year ended June 30, 1997.  The net
increase was primarily due to the increase in net interest-earning assets caused
by the  acquisition  of Rubio as well as a result of strong  loan  demand in the
Company's market area.

          For  the  year   ended   June  30,   1998,   the   average   yield  on
interest-earning  assets was 8.05% compared to 8.14% for the year ended June 30,
1997. The average cost of  interest-bearing  liabilities  was 5.10% for the year
ended June 30,  1998  compared  to 5.05% for the year ended June 30,  1997.  The
average balance of  interest-earning  assets increased by $13.7 million to $75.0
million  for the year ended June 30, 1998 from $61.3 for the year ended June 30,
1997.  During the same time  period,  the  average  balance of  interest-bearing
liabilities  increased by $13.3 million to $63.9 million for the year ended June
30, 1998 from $50.6 million for the year ended June 30, 1997.

          Due to the lower  returns on  interest-earnings  assets and the higher
funding costs on interest-bearing  liabilities, the average interest rate spread
was 2.95% for the year ended June 30, 1998  compared to 3.09% for the year ended
June 30, 1997. The average net interest margin was 3.70% for the year ended June
30, 1998 compared to 3.97% for the year ended June 30, 1997.

          Provision  for Loan  Loss.  For the year  ended  June  30,  1998,  the
provision for loan loss  increased  $49,000 to $89,000 from $40,000 for the year
ended June 30, 1997. The primary reason for the provision was the increased size
of the loan portfolio,  particularly in commercial loans which are considered to
carry a higher risk of default than residential loans, but do earn a higher rate
of return. The Company's loan portfolio remains primarily  residential  mortgage
loans and it has  experienced a minimal  amount of charge-offs in the past three
years. The allowance of loan losses of $388,000 or .59% of loans receivable, net
at June 30, 1998 is an increase, partially due to the acquisition of Rubio, when
compared to  $226,000 or .43% of loans  receivable,  net at June 30,  1997.  The
allowance for loan losses as a percentage of  non-performing  assets was 435.99%
at June 30, 1998 compared to 98.52% at June 30, 1997.

          Management  will continue to monitor its allowance for loan losses and
will make  additions to the  allowance  through the provision for loan losses as
economic  conditions  dictate.  Although the Company maintains its allowance for
loan losses at a level which management  considers to be adequate to provide for
loan  losses,  there can be no  assurance  that  future  losses  will not exceed
estimated  amounts nor that  additional  provisions  for loan losses will not be
required in the future.

          Non-interest  Income.  For the year ended June 30, 1998,  non-interest
income  increased  $89,000 or 38.4% to $320,000 from $231,000 for the year ended
June 30,  1997.  The increase was  primarily  due to a $92,000  increase in bank
service charges and fees, a $5,000 increase in gain on securities, available for
sale, and a $1,000 increase in loan origination and commitment  fees,  partially
offset by a $7,000 decrease in other  non-interest  income and a $2,000 decrease
in insurance commissions.
<PAGE>


          Bank service  charges and fees  increased  $92,000 to $209,000 for the
year ended June 30, 1998 from  $117,000  for the year ended June 30,  1997.  The
increase is primarily  due to a $60,000  increase in overdraft  fees, an $18,000
increase in checking  account  charges,  a $5,000 increase in merchant  discount
income,  a $5,000 increase in late charges  assessed,  a $2,000 increase in safe
deposit rental, $1,000 increase in credit card fee income, and a $1,000 increase
in exchange fees.  These  increases are largely due to the acquisition of Rubio.
Gain on securities,  available for sale increased  $5,000 to $5,000 for the year
ended June 30,  1998 from $0 for the year ended June 30, 1997 due to the Company
taking an opportunity to realize gain on securities  classified as available for
sale. Loan  origination and commitment fee income increased $1,000 to $9,000 for
the year ended June 30, 1998 from $8,000 for the year ended June 30, 1997. Other
non-interest income decreased $7,000 to $21,000 for the year ended June 30, 1998
from  $28,000  for the year  ended June 30,  1997 due to a decrease  in the gain
realized on foreclosed  properties.  Insurance  commissions  decreased $2,000 to
$76,000  for the year ended June 30,  1998 from  $78,000 for the year ended June
30,  1997 due to the  fluctuation  in the  volume  of sales of  credit  life and
disability products.

          Non-interest  Expense. For the year ended June 30, 1998,  non-interest
expense  increased $32,000 or 1.9% from $1.7 million for the year ended June 30,
1997. The increase is primarily due to a $207,000  increase in compensation  and
benefits, a $115,000 increase in other non-interest  expense, a $33,000 increase
in occupancy and equipment,  and a $5,000  increase in data  processing  expense
offset by a $328,000 decrease in deposit insurance premiums.

          Compensation and benefits  increased $207,000 to $929,000 for the year
ended June 30, 1998 from $722,000 for the year ended June 30, 1997. The increase
is primarily due to a $145,000 increase in employee salaries, a $24,000 increase
in employee  insurance  premiums,  a $21,000 increase in retirement and Employee
Stock Option Plan expense,  a $15,000 increase in bonuses accrued and incentives
paid for product  promotion,  a $7,000 increase in director's fees, and a $4,000
increase  in  employee  travel and work  expenses  partially  offset by a $5,000
decrease in the  Recognition and Retention Plan expense and a $4,000 decrease in
credit life and  disability  broker fees.  The  increase is primarily  due to an
increase in full-time  equivalent employees as a result of the Rubio acquisition
and normal salary increases.

          Other non-interest expense increased $115,000 to $503,000 for the year
ended June 30, 1998 from $388,000 for the year ended June 30, 1997. The increase
is  primarily  due to a $43,000  increase in the  amortization  of  goodwill,  a
$13,000 increase in office supplies,  a $12,000 increase in postage and delivery
primarily due to special promotional  mailings,  an $11,000 increase in checking
account expenses due to a new checking  account  program,  a $10,000 increase in
charges assessed by the FHLB of Des Moines, a $9,000 increase in advertising,  a
$9,000  increase in ATM and debit card  processing  fees, an $8,000  increase in
appraisal  and  inspection   fees,  and  an  $8,000   increase  in  professional
organization  dues  partially  offset by an $8,000  decrease in  accounting  and
auditing fees. Most of these changes resulted from the Rubio acquisition.
                             
          Occupancy and equipment  expense increased $33,000 to $183,000 for the
year ended June 30, 1998 from  $150,000  for the year ended June 30,  1997.  The
increase is  primarily  due to a $9,000  increase in small  asset  purchases,  a
$7,000  increase in the  equipment  repairs,  a $5,000  increase in property tax
expense,  a $4,000  increase in utilities,  a $3,000 increase in office building
depreciation,  a $3,000 increase in building  maintenance  expense, and a $2,000
increase in telephone  expenses.  Data processing  expenses  increased $5,000 to
$80,000  for the year ended June 30,  1998 from  $75,000 for the year ended June
30,  1997 due to an  additional  services  provided  in  relation  to Year  2000
preparedness.  It is  important  for  financial  institutions  to  assess  their
computer and communications  systems for their ability to process dates into the
20th Century. Washington Bancorp, Washington Federal and Rubio Savings Bank have
established  technology  teams that have been working on issues  surrounding the
Year 2000 problem.  The teams have completed the evaluation  process,  upgrading
when  necessary the computers and  computer-generated  programs  which  directly
involve the Banks. They have contacted vendors and service providers asking that
they  assess  their  technology  systems  and  advise of their  readiness.  Bank
customers have received  mailings and the Banks have utilized the local media to
increase public awareness of the issues.  Testing the  applications  will be the
major focus of these teams in the upcoming months with a goal of test completion
by March 31, 1999.

          Deposit insurance  premiums decreased $328,000 to $49,000 for the year
ended June 30, 1998 from $377,000 for the year ended June 30, 1997. The decrease
is primarily  due to the $294,000  one-time SAIF  assessment  for the year ended
June 30, 1997, and a $34,000 decrease in deposit insurance premiums.
<PAGE>


          The  deposits  of  Washington  Federal  are  insured  by  the  Savings
Association  Insurance Fund "the "SAIF"),  and the deposits of Rubio are insured
by  the  Bank  Insurance  Fund  (the  "BIF").   The  two  insurance   funds  are
administrated by the Federal Deposit Insurance  Corporation (the "FDIC").  Prior
to  September  1996,  financial  institutions  which are  members of the BIF had
experienced  substantially  lower deposit insurance premiums because the BIF had
achieved its required level of reserves,  while the SAIF proir to September 1996
had not yet achieved its required reserves. A recapitalization plan for the SAIF
was signed by the President on September 30, 1996 as part of the Economic Growth
and  Regulatory  Paperwork  Reduction  Act and  provided  the  one-time  special
assessment  of 0.657% of deposits  imposed on all SAIF insured  institutions  to
enable the SAIF to achieve its required  levels of reserves.  The  assessment of
0.657%  was  assessed  based on  deposits  as of March 31,  1995 and  Washington
Federal's special assessment amounted to approximately  $294,000. As a result of
the special  assessment,  Washington  Federal's  deposit  insurance  premium was
reduced to 0.065% from 0.23% of deposits previously paid by Washington Federal.
Rubio's deposit insurance premium is 0.012% of deposits.

          Income Taxes.  Income taxes increased $89,000 to $440,000 for the year
ended  June 30,  1998  from  $351,000  for the year  ended  June 30,  1997.  The
effective income tax rates for the years ended June 30, 1998 and 1997 were 34.8%
and 38.3%  respectively.  The  fluctuations  in the  effective  income  tax rate
relates  primarily to the treatment of the Recognition and Retention expense for
income tax purposes.

Comparison of Operating Results for the Years Ended June 30, 1997 and 1996

          Performance  Summary.  Net income  for the year  ended  June 30,  1997
increased by $124,000 or 27.9% to $565,000 from $441,000 for the year ended June
30, 1996.  The increase was primarily due to an increase in net interest  income
of $729,000 and an increase in noninterest  income of $34,000,  partially offset
by an increase in noninterest expense of $506,000,  an increase in provision for
loan losses of $25,000 and an  increase in income tax expense of  $108,000.  For
the years ended June 30, 1997 and 1996 the return on average assets was .90% and
 .78%,  respectively,  while  return on  average  equity  was  5.34%  and  6.94%,
respectively.

          Net Interest  Income.  For the year ended June 30, 1997,  net interest
income  increased  by $729,000 as compared to June 30,  1996.  This  reflects an
increase of $783,000 in interest income to $5.0 million from $4.2 million and an
increase in interest  expense of $54,000 to $2.6 million from $2.5 million.  The
net increase was primarily due to the increase in  interest-earning  assets as a
result of a strong loan demand as well as an increase in the net  interest  rate
spread.

          For  the  year   ended   June  30,   1997,   the   average   yield  on
interest-earning  assets was 8.14%  compared to 7.71% for 1996. The average cost
of  interest-bearing  liabilities  was 5.05% for the year ended June 30, 1997, a
decrease  from 5.16% for the year ended June 30,  1996.  The average  balance of
interest-earning  assets increased by $6.7 million to $61.3 million for the year
ended June 30, 1997 from $54.6 million for the year ended June 30, 1996.  During
this same time  period,  the  average  balance of  interest-bearing  liabilities
increased by $2.2 million to $50.6 million for the year ended June 30, 1997 from
$48.4 million for the year ended June 30, 1996.

          Due to the lower funding costs,  the average  interest rate spread was
3.09% for the year ended June 30, 1997 compared to 2.55% for the year ended June
30, 1996. The average net interest  margin was 3.97% for the year ended June 30,
1997 compared to 3.13% for the year ended June 30, 1996.

          Provision  for Loan Loss.  During the year  ended June 30,  1997,  the
provision for loan loss was $40,000  compared to $15,000 for the year ended June
30, 1996.  The primary  reason for the provision  was the increased  size of the
loan portfolio during the last few years. The Company's loan portfolio  consists
primarily of residential mortgage loans, and it has experienced a minimal amount
of  charge-offs  in the past  three  years.  The  allowance  for loan  losses of
$226,000 or .43% of loans receivable,  net at June 30, 1997 compares to $209,000
or .49% of loans receivable, net at June 30, 1996. The allowance for loan losses
as a percentage of non-performing  assets was 98.52% at June 30, 1997,  compared
to 475.00% at June 30, 1996.
<PAGE>


          Non-Interest  Income.  For the year ended June 30, 1997,  non-interest
income  increased  $34,000 or 17.3% compared to the year ended June 30, 1996 due
primarily  to a $32,000  increase in bank  service  charges and fees,  a $23,000
increase in insurance commissions, and an $11,000 increase in other non-interest
income offset by a $32,000 decrease in securities gains.

          Bank service  charges and fees increased  $32,000 from $85,000 for the
year ended June 30, 1996 to $117,000 for the year ended June 30, 1997  primarily
due to a $16,000  increase in  overdraft  fees and a $9,000  increase in ATM and
other electronic funds transfer fees.  Insurance  commissions  increased $23,000
from  $55,000 at June 30, 1996 to $78,000 at June 30, 1997 due to an increase in
sales of  credit  life and  disability  insurance  products  through  Washington
Financial Services.  Other non-interest income increased $11,000 from $17,000 at
June 30, 1996 to $28,000 at June 30, 1997  primarily due to a gain realized as a
result of the disposition of an REO property.

          Non-Interest  Expense. For the year ended June 30, 1997,  non-interest
expense increased $506,000 to $1.7 million compared to $1.2 million for the year
ended  June 30,  1996  primarily  due to a  $260,000  increase  in SAIF  deposit
insurance premium,  a $140,000 increase in compensation and benefits,  a $99,000
increase in other  non-interest  expense and a $12,000 increase in occupancy and
equipment offset by a $5,000 decrease in data processing.

          SAIF  deposit  insurance  premium  expense  increased   $260,000  from
$117,000 at June 30, 1996 to  $377,000  at June 30,  1997  primarily  due to the
one-time  SAIF  assessment.  Compensation  and  benefits  increased  $140,000 to
$722,000 for the year ended June 30, 1998 from  $582,000 for the year ended June
30, 1998  primarily due to $107,000  increase in employee  benefits  through the
ESOP  and RRP  plans  and a  $38,000  increase  in  employee's  salaries.  Other
non-interest  expense  increased  $99,000  from  $289,000  at June  30,  1996 to
$388,000 at June 30, 1997 primarily due to the increase in professional fees and
overhead  costs since the  conversion.  Auditing and  accounting  fees increased
$38,000,  legal fees  increased  $16,000  and  postage  and  delivery  increased
$10,000.  Management  feels that these fees can and are being controlled but not
eliminated  as a result  of the SEC  reporting  requirements  and the  increased
shareholder  correspondence  since the  conversion to a public  company in March
1996.  Occupancy and equipment  expense  increased $12,000 from $138,000 at June
30, 1996 to $150,000 at June 30,  1997  primarily  due to a $10,000  increase in
property tax as a result of the increase in assessed value of the  drive-through
facility. Data processing expense decreased $5,000 from $80,000 at June 30, 1996
to $75,000 at June 30, 1997 primarily due to the timing of bill payments.

          In addition,  legislation  was recently  passed which will require the
recapture of a portion of the Bank's tax bad debt reserve.  The  recapture  will
occur over a six-year  period and began with the Bank's  fiscal year ending June
30, 1997. It is not anticipated that this recapture will have a material adverse
effect on the  Company's  results of  operations  because  the Bank had  already
established  a deferred tax liability of  approximately  $156,000 on its balance
sheet for this purpose.

          Income Taxes. Income taxes increased $108,000 to $351,000 for the year
ended  June 30,  1997  from  $243,000  for the year  ended  June 30,  1996.  The
effective income tax rates for the years ended June 30, 1997 and 1996 were 38.3%
and 35.5%,  respectively.  The  fluctuations  in the  effective  income tax rate
relates  primarily  to changes in the amount of federally  tax-exempt  municipal
interest income.

Asset/Liability Management

          One of the  Company's  principal  financial  objectives  is to achieve
long-term  profitability while reducing its exposure to fluctuations in interest
rates.  The Company has sought to reduce  exposure of its earnings to changes in
market  interest  rates by managing the  mismatch  between  asset and  liability
maturities and interest rates. The principal element in achieving this objective
has been to increase the  interest-rate  sensitivity of the Company's  assets by
originating  loans with interest rates subject to periodic  adjustment to market
conditions.  Accordingly, the Company's primary one- to four-family loan product
has been a three year balloon  loan  accounting  for $23.6  million of its $65.9
million loan portfolio, or 35.7% at June 30, 1998. Adjustable rate loans account
for $21.5  million of its $65.9  million  loan  portfolio,  or 32.6% at June 30,
1998.

          The Company has  historically  relied upon retail deposit  accounts as
its primary source of funds and will continue to do so. Management believes that
retail deposit  accounts and long term borrowings as sources of funds,  compared
to brokered deposits,  reduce the effects of interest rate fluctuations  because
these deposits and borrowings generally represent a more stable source of funds.
<PAGE>


          Net Portfolio  Value.  In order to encourage  savings  associations to
reduce  their  interest  rate  risk,  the Office of Thrift  Supervision  ("OTS")
adopted a rule  incorporating  an interest rate risk ("IRR")  component into the
risk-based  capital  rules.  The IRR  component is a dollar  amount that will be
deducted  from total  capital for the purpose of  calculating  an  institution's
risk-based  capital  requirement  and is measured in terms of the sensitivity of
its net  portfolio  value  ("NPV")  to  changes in  interest  rates.  NPV is the
difference  between  incoming  and outgoing  discounted  cash flows from assets,
liabilities,  and off-balance sheet contracts.  An institution's IRR is measured
as the  change to its NPV as a result of  hypothetical  200 basis  point  ("bp")
changes in market interest  rates. A resulting  change in NPV of more than 2% of
the estimated  market value of its assets will require the institution to deduct
from its capital 50% of that excess change.  The rules provide that the OTS will
calculate the IRR component quarterly for each institution.  The Company,  based
on asset size and  risk-based  capital,  has been informed by the OTS that it is
exempt from this rule.

          Presented on the following  table, as of June 30, 1998, is an analysis
of  Washington  Federal's  interest  rate risk as measured by changes in NPV for
instantaneous  and sustained  parallel  shifts in the yield curve,  in 100 basis
point  increments,  up  and  down  400  basis  points  in  accordance  with  OTS
regulations.  For example,  a 400 basis point  increase in interest  rates would
decrease  Washington  Federal's NPV by $1.1 million or 14% and a 400 basis point
decrease in interest rates would increase  Washington  Federal's NPV by $779,000
or 10%. As previously mentioned, the OTS has informed Washington Federal that it
is not subject to the IRR component  discussed above.  Further,  were Washington
Federal  subject to the IRR  component at June 30, 1998,  it would not have been
considered to have had a greater than normal level of interest rate exposure and
a deduction  from  capital  would not have been  required,  although it is still
subject to interest rate risk and, as can be seen below,  increasing  rates will
reduce Washington Federal's NPV.

                                 At June 30, 1998
--------------------------------------------------------------------------------
                                                                 NPV as % of 
                  Net Portfolio Value                            PV of Assets
-------------------------------------------------------      -------------------
Change in
  Rates           $ Amount       $ Change      % Change      NPV Ratio    Change
--------------------------------------------------------------------------------
                       (Dollars in Thousands)

 +400 bp            6,467         -1,054          -14%         9.56%      -107bp
 +300 bp            6,871           -649           -9%        10.03%       -61bp
 +200 bp            7,199           -321           -4%        10.38%       -25bp
 +100 bp            7,422            -98           -1%        10.59%        -4bp
    0 bp            7,520                                     10.63%
 -100 bp            7,582             61           +1%        10.62%        -1bp
 -200 bp            7,700            180           +2%        10.68%        +5bp
 -300 bp            7,978            458           +6%        10.93%       +30bp
 -400 bp            8,299            779          +10%        11.22%       +59bp

          Management  of interest  sensitivity  of Rubio has  historically  been
accomplished  by  matching  the  maturities  of   interest-earning   assets  and
interest-bearing    liabilities.    The   following   table    illustrates   the
asset/(liability)  funding  gaps for  selected  maturity  periods as of June 30,
1998.
<TABLE>
                                                                            Maturing Within
                                                            ----------------------------------------------
                                                              0-6           6-12        1-2         2-3
                                                             Months        Months      Years       Years      Total
                                                            ---------------------------------------------------------
                                                                               (Dollars in thousands)
<S>                                                         <C>           <C>        <C>         <C>         <C>   
Assets
  Loans receivable ......................................   $  2,996     $  3,002    $  2,127    $  4,221    $ 12,346
  Securities ............................................      2,145        1,858       3,381       1,907       9,291
                                                            ---------------------------------------------------------
     Total interest-earning assets ......................      5,141        4,860       5,508       6,128      21,637
                                                            ---------------------------------------------------------
Liabilities
  Interest-bearing deposits .............................     12,923        4,202       1,183         360      18,668
                                                            ---------------------------------------------------------
Asset/(Liability) funding GAP ...........................     (7,782)         658       4,325       5,768       2,969
                                                            ---------------------------------------------------------
GAP ratio (assets/liabilities) ..........................         40%         116%        466%      1,702%        116%
</TABLE>
<PAGE>


          Certain  shortcomings are inherent in the method of analysis presented
in the  computation of NPV.  Although  certain assets and  liabilities  may have
similar  maturities or periods  within which they will  reprice,  they may react
differently to changes in market interest  rates.  The interest rates on certain
types of assets and  liabilities  may  fluctuate in advance of changes in market
interest  rates,  while  interest rates on other types may lag behind changes in
market rates. Additionally,  the Company's primary loan products, the three-year
balloon and adjustable  rate loans,  may permit the Company to adjust to changes
in  interest  rates on a  short-term  basis and over the life of the asset.  The
proportion of three-year  balloon and adjustable  rate loans could be reduced in
future periods if market  interest rates decrease and remain at lower levels for
a sustained period, due to increased refinance  activity.  Further, in the event
of a change in interest  rates,  prepayment  and early  withdrawal  levels would
likely  deviate  significantly  from those  assumed in the table.  Finally,  the
ability of many  borrowers to service their  three-year  balloon and  adjustable
rate  mortgage  loans may  decrease  in the event of a sustained  interest  rate
increase.

Liquidity and Capital Resources

          The  Company's  primary  sources  of  funds  are  deposits,  long-term
borrowings from the FHLB,  repayments and prepayments of loans,  the maturity of
investment  securities  and interest  income.  Although  maturity and  scheduled
amortization of loans are relatively predictable sources of funds, deposit flows
and prepayments on loans are influenced significantly by general interest rates,
economic conditions and competition.

          The primary investing activity of the Company is originating  mortgage
loans to be held to maturity. For the fiscal years ended June 30, 1998, 1997 and
1996,  the Company  originated  loans for its  portfolio  in the amount of $32.1
million,  $28.2 million and $16.7 million,  respectively.  These activities were
funded  primarily by FHLB  borrowings  and principal  repayments of loans.  FHLB
borrowings  have been more costly than deposits,  but less than other  financing
sources available.

          For  investment  and  liquidity  purposes,  the  Company  maintains  a
portfolio of investment  securities  including U.S.  Treasury  securities,  U.S.
government  agencies,   state  and  political   subdivisions,   mortgaged-backed
securities and corporation and other securities.

          Washington  Federal is required to maintain  minimum  levels of liquid
assets under the OTS regulations.  Savings institutions are required to maintain
an  average  daily  balance  of liquid  assets  (including  cash,  certain  time
deposits, and specified U.S. Government, state or federal agency obligations) of
not less than 5.0% of its average daily balance of net withdrawal  accounts plus
short-term  borrowings.  It is  Washington  Federal's  policy  to  maintain  its
liquidity portfolio in excess of regulatory  requirements.  Washington Federal's
liquidity  ratios were 13.17%,  8.7% and 14.6%  respectively,  at June 30, 1998,
1997 and 1996.

          Cash was generated by the Company's  operating  activities  during the
years ended June 30,  1998,  1997 and 1996,  primarily as a result of net income
and,  in 1996 the IPO.  The  adjustments  to  reconcile  net  income to net cash
provided by  operations  during the periods  presented  consisted  primarily  of
amortization of premiums and discounts on debt securities, depreciation expense,
amortization  of goodwill,  deferred income taxes and increases and decreases in
other assets and other  liabilities.  The primary  investing  activities  of the
Company are the origination of loans and the purchase of investment  securities;
which are funded with cash provided from operations and financing activities, as
well as  proceeds  from  amortization  and  prepayments  on  existing  loans and
proceeds  from  sales  and  maturities  of  securities.  The  primary  financing
activities    (other   than   the   IPO   in   1996)    consist   of   deposits,
borrowing/repayments with the FHLB of Des Moines.

          The Company's most liquid assets are cash and cash equivalents,  which
include short-term  investments.  At June 30, 1998, 1997 and 1996, cash and cash
equivalents were $3.3 million, $808,000 and $1.9 million, respectively.
<PAGE>


          Liquidity  management for the Company is both an ongoing and long-term
function of the  Company's  asset/liability  management  strategy.  Excess funds
generally  are  invested  in  overnight  deposits  at the FHLB of Des  Moines or
financial  institutions.  Should the Company require funds beyond its ability to
generate them internally, additional sources of funds are available through FHLB
of Des Moines  advances.  The Company  would pledge its FHLB of Des Moines stock
and certain other assets as collateral  for such  advances.  During fiscal 1998,
1997 and 1996, the Company used FHLB advances to meet cash flow requirements and
finance  loan  growth.  The FHLB  advances  are  generally  at a higher  rate of
interest than transaction and savings deposit accounts.

          At June 30, 1998, the Company had outstanding loan commitments of $3.2
million and undisbursed loans in process of $336,000. The Company anticipates it
will have  sufficient  funds  available  to meet its current  loan  commitments,
including  loan  applications  received and in process  prior to the issuance of
firm  commitments.  Certificates of deposit which are scheduled to mature in one
year or less at June 30,  1998 were  $28.1  million.  Based on past  experience,
management believes that a significant portion of such deposits will remain with
the Company.

          Under  federal law,  the Banks are required to meet certain  tangible,
core  and  risk  based  capital  requirements.  For  information  regarding  the
Company's regulatory capital compliance,  see "Selected  Consolidated  Financial
Information."

Recent Accounting Developments

          In February  1997,  the Financial  Accounting  Standards  Board issued
Statement No. 128, "Earnings per Share." Statement 128 is effective for the year
ending  after  December  15,  1997,  for both  interim and annual  periods,  and
replaces the presentation of primary and fully diluted earnings per share with a
presentation  of basic and  diluted  earnings  per share.  The  Company  adopted
Statement 128 and the effect has not had a material impact on earnings per share
reported by the Company.

          In August  1997,  the  Financial  Accounting  Standards  Board  issued
Statement No. 130, "Reporting  Comprehensive Income." Statement 130 is effective
for  financial  statements  for years  beginning  after  December  15,  1997 and
requires  comprehensive income to be reported as part of a full set of financial
statements.  The  adoption of  Statement  130 is not expected to have a material
impact on the financial statements of the Company.

          In August  1997,  the  Financial  Accounting  Standards  Board  issued
Statement No. 131,  "Disclosures  about  Segments of an  Enterprise  and Related
Information."  Statement 131 is effective for years beginning after December 15,
1997 and  broadens  the  definition  of an  operating  segment.  The adoption of
Statement 131 is not expected to have a material impact on the Company.

Impact of Inflation and Changing Prices

          The  Consolidated  Financial  Statements  and Notes thereto  presented
herein have been  prepared in  accordance  with  generally  accepted  accounting
principles,  which generally  requires the measurement of financial position and
operating results in terms of historical dollars without  considering the change
in the relative purchasing power of money over time due to inflation. The impact
of inflation is reflected in the  increased  cost of the  Company's  operations.
Nearly all the assets and liabilities of the Company are financial,  unlike most
industrial  companies.  As a  result,  the  Company's  performance  is  directly
impacted  by changes in  interest  rates,  which are  indirectly  influenced  by
inflationary   expectations.   The  Company's  ability  to  match  the  interest
sensitivity of its financial assets to the interest sensitivity of its financial
liabilities in its asset/liability management may tend to minimize the effect of
change in interest rates on the Company's performance. Changes in interest rates
do not necessarily  move to the same extent as changes in the price of goods and
services.  The liquidity and the maturity  structure of the Company's assets and
liabilities are critical to the maintenance of acceptable performance levels.
<PAGE>




                               WASHINGTON BANCORP

                                 AND SUBSIDIARY


                          CONSOLIDATED FINANCIAL REPORT


                                  JUNE 30, 1998


<PAGE>




                                    CONTENTS


INDEPENDENT AUDITOR'S REPORT


FINANCIAL STATEMENTS

   Consolidated statements of financial condition  
   Consolidated statements of income   
   Consolidated statements of stockholders' equity   
   Consolidated statements of cash flows 
   Notes to financial statements

<PAGE>





                          INDEPENDENT AUDITOR'S REPORT



To the Board of Directors
Washington Bancorp
Washington, Iowa

We have audited the accompanying  consolidated statements of financial condition
of Washington Bancorp and its subsidiaries as of June 30, 1998 and 1997, and the
related consolidated statements of income,  stockholders' equity, and cash flows
for each of the three years in the period ended June 30, 1998.  These  financial
statements   are  the   responsibility   of  the   Company's   management.   Our
responsibility  is to express an opinion on these financial  statements based on
our audits.

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

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



/s/ McGladrey & Pullen, LLP



Cedar Rapids, Iowa
July 30, 1998



<PAGE>


WASHINGTON BANCORP AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
June 30, 1998 and 1997
<TABLE>
ASSETS                                                                 1998           1997
---------------------------------------------------------------------------------------------
<S>                                                                <C>            <C> 
Cash and cash equivalents (Note 2):
   Interest-bearing ............................................   $ 1,858,527    $   574,736
   Noninterest-bearing .........................................     1,447,847        233,069
Investment securities (Notes 2 and 3):
   Held to maturity ............................................     1,131,478
   Available-for-sale securities ...............................    19,122,283      9,849,991
Federal funds sold .............................................       659,497
Loans receivable, net (Notes 4, 8 and 15) ......................    65,884,941     52,530,153
Accrued interest receivable (Note 5) ...........................       959,663        568,228
Federal Home Loan Bank stock ...................................       812,400        465,600
Premises and equipment, net (Note 6) ...........................       799,806        550,231
Goodwill .......................................................     1,375,087
Other assets ...................................................       275,416        103,026
                                                                   --------------------------
              Total assets .....................................   $94,326,945    $64,875,034
                                                                   ==========================

LIABILITIES AND STOCKHOLDERS' EQUITY
---------------------------------------------------------------------------------------------
Liabilities
   Deposits (Note 7) ...........................................   $66,595,476    $44,754,328
   Borrowed funds (Notes 3 and 8) ..............................    15,724,071      8,651,765
   Advances from borrowers for taxes and insurance .............       221,911        204,677
   Accrued expenses and other liabilities ......................       660,492        519,441
                                                                   --------------------------
              Total liabilities ................................    83,201,950     54,130,211
                                                                   --------------------------
Commitments and Contingencies (Note 13)
Redeemable Common Stock Held by Employee Stock
   Ownership Plan (ESOP) (Note 9) ..............................       153,788         69,392
                                                                   --------------------------
Stockholders' Equity (Note 12)
   Preferred stock, $.01 par value, authorized 1,000,000 shares;
      none issued and outstanding
   Common stock, $.01 par value, authorized 4,000,000 shares;
      issued 1998 651,133 shares; 1997 657,519 shares ..........         6,511          6,575
   Additional paid-in capital ..................................     6,122,664      6,150,032
    Retained earnings ..........................................     5,825,363      5,292,419
   Unrealized (losses) on investment securities available
      for sale, net of income taxes (Note 3) ...................          (507)        (3,307)
                                                                   --------------------------
                                                                    11,954,031     11,445,719
   Less:
      Cost of common shares acquired for the treasury
        1998 16,127 shares; 1997 6,386 shares ..................      (300,944)       (85,827)
      Deferred compensation (Note 9) ...........................      (104,962)      (151,739)
      Maximum cash obligation related to ESOP shares (Note 9) ..      (153,788)       (69,392)
      Unearned ESOP shares (Note 9) ............................      (423,130)      (463,330)
                                                                   --------------------------
              Total stockholders' equity .......................    10,971,207     10,675,431
                                                                   --------------------------
              Total liabilities and stockholders' equity .......   $94,326,945    $64,875,034
                                                                   ==========================
</TABLE>
See Notes to Financial Statements.
<PAGE>


WASHINGTON BANCORP AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME
Years Ended June 30, 1998, 1997 and 1996
<TABLE>

                                               1998        1997        1996
------------------------------------------------------------------------------
<S>                                        <C>         <C>         <C>    
Interest income:
   Loans receivable:
      First mortgage loans ............... $ 3,738,973 $ 3,430,290 $ 2,987,869
      Consumer and other loans ...........   1,398,734     697,384     458,102
   Investment securities:
      Taxable ............................     847,215     840,485     713,988
      Nontaxable .........................      49,330      21,516      46,702
                                            ----------------------------------
              Total interest income ......   6,034,252   4,989,675   4,206,661
                                            ----------------------------------
Interest expense:
   Deposits (Note 7) .....................   2,619,618   2,215,768   2,246,017
   Borrowed funds ........................     639,162     337,405     252,657
                                            ----------------------------------
              Total interest expense .....   3,258,780   2,553,173   2,498,674
                                            ----------------------------------
              Net interest income ........   2,775,472   2,436,502   1,707,987
Provision for loan losses (Note 4) .......      89,000      40,085      15,000
                                            ----------------------------------
              Net interest income after
                 provision for loan losses   2,686,472   2,396,417   1,692,987
                                            ----------------------------------
Noninterest income:
   Securities gains, net (Note 3) ........       5,383         388      32,534
   Loan origination and commitment fees ..       8,744       7,724       8,316
   Service charges and fees ..............     209,127     117,241      84,512
   Insurance commissions .................      76,295      77,922      54,615
   Other .................................      20,404      27,893      17,026
                                            ----------------------------------
              Total noninterest income ...     319,953     231,168     197,003
                                            ----------------------------------
Noninterest expense:
   Compensation and benefits (Note 9) ....     929,224     722,087     581,896
   Occupancy and equipment ...............     183,009     149,738     138,032
   SAIF deposit insurance premium ........      48,365     376,862     116,690
   Data processing .......................      79,507      75,196      80,076
   Other .................................     503,804     388,258     289,496
                                            ----------------------------------
              Total noninterest expense ..   1,743,909   1,712,141   1,206,190
                                            ----------------------------------
              Income before income taxes .   1,262,516     915,444     683,800
Income tax expense (Note 10) .............     439,680     350,767     242,378
                                            ----------------------------------
              Net income .................  $  822,836 $   564,677 $   441,422
                                            ==================================
Earnings per common share (Note 11):
   Basic .................................  $     1.36 $      0.92 $      0.25
                                            ==================================
   Diluted ...............................  $     1.33 $      0.91 $      0.25
                                            ==================================
Weighted average common shares for:
   Basic earnings per share ..............     603,589     611,539     606,002
                                            ==================================

   Diluted earnings per share ............     620,266     617,602     606,002
                                            ==================================
</TABLE>
See Notes to Financial Statements.
<PAGE>


WASHINGTON BANCORP AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS'
EQUITY (NOTES 9, 12 AND 17)
Years Ended June 30, 1998, 1997 and 1996
<TABLE>
                                                                 Unrealized
                                                                (Losses) On
                                                                 Investment   Cost Of                            Unearned
                                                                 Securities    Common                Maximum      Shares,
                                                                  Available    Shares                 Cash       Employee    Total
                                           Additional             For Sale,    Acquired  Deferred    Obligation     Stock    Stock-
                        Preferred  Common   Paid-In    Retained    Net of     For the   Compen-     Related To   Ownership  holders'
                          Stock    Stock    Capital    Earnings  Income Taxes Treasury   sation     ESOP Shares    Plan     Equity
-----------------------------------------------------------------------------------------------------------------------------------
<S>                        <C>    <C>     <C>         <C>         <C>       <C>        <C>        <C>        <C>        <C>         
Balance, June 30, 1995 ..  $- -   $  - -  $      - -  $4,500,027  $(99,871) $     - -  $     - -  $     - -  $     - -   $4,400,156
   Net income ...........   - -      - -         - -     441,422       - -        - -        - -        - -        - -      441,422
   Issuance of 604,917 
     shares of common 
     stock ..............   - -    6,049   6,043,121         - -       - -        - -        - -        - -        - -    6,049,170
   Expenses incurred 
     relating to conver-
     sion to stock form .   - -      - -    (396,477)        - -       - -        - -        - -        - -        - -     (396,477)
  
   Issuance of 52,602 
     shares of common 
     stock to ESOP 
     (Note 9) ...........   - -      526    525,494          - -       - -        - -        - -        - -   (526,020)         - -
   Allocation of ESOP 
     shares .............   - -      - -        542          - -       - -        - -        - -        - -     21,690       22,232
   Net change in unreal-
     ized (losses) on 
     investment securities 
     available for sale, 
     net of income taxes .  - -      - -        - -          - -    31,662        - -        - -        - -        - -       31,662
                                  -------------------------------------------------------------------------------------------------
Balance, June 30, 1996 ...  - -    6,575  6,172,680    4,941,449  (68,209)       - -        - -        - -   (504,330)  10,548,165
   Net income ............  - -      - -        - -      564,677      - -        - -        - -        - -        - -      564,677
   Dividends ($0.36 per 
     share) ..............  - -      - -        - -     (213,707)     - -        - -        - -        - -        - -     (213,707)
   Acquisition of 26,300 
     shares of common 
     stock for the 
     treasury ...........   - -      - -        - -          - -      - -   (348,563)       - -        - -        - -     (348,563)
   Issuance of 19,914 
     shares under stock 
     awards program .....   - -      - -    (38,703)         - -      - -    262,736   (224,033)       - -        - -          - -
   Amortization of 
     compensation under 
     stock awards program   - -      - -        - -          - -      - -        - -     72,294        - -        - -       72,294
   Allocation of ESOP 
     shares .............   - -      - -     16,055          - -      - -        - -        - -        - -     41,000       57,055
   Net change in unreal-
     ized (losses) on 
     investment securities 
     available for sale, 
     net of income taxes..  - -      - -        - -          - -   64,902        - -        - -        - -        - -       64,902
   Change related to ESOP 
     shares ..............  - -      - -        - -          - -      - -        - -        - -    (69,392)       - -      (69,392)
                                       -------------------------------------------------------------------------------------------
<PAGE>
                                                                 Unrealized
                                                                (Losses) On
                                                                 Investment   Cost Of                            Unearned
                                                                 Securities    Common                Maximum      Shares,
                                                                  Available    Shares                 Cash       Employee    Total
                                           Additional             For Sale,    Acquired  Deferred    Obligation     Stock    Stock-
                        Preferred  Common   Paid-In    Retained    Net of     For the   Compen-     Related To   Ownership  holders'
                          Stock    Stock    Capital    Earnings  Income Taxes Treasury   sation     ESOP Shares    Plan     Equity
-----------------------------------------------------------------------------------------------------------------------------------

Balance, June 30, 1997 ...  - -    6,575  6,150,032    5,292,419   (3,307)   (85,827)  (151,739)   (69,392)  (463,330)  10,675,431
   Net income ............  - -      - -        - -      822,836      - -        - -        - -        - -        - -      822,836
   Dividends ($0.44 per 
     share) ..............  - -      - -        - -     (267,925)     - -        - -        - -        - -        - -     (267,925)
   Acquisition of 16,500 
     shares of common 
     stock stock for the 
     treasury ............  - -      - -        - -          - -      - -   (307,938)       - -        - -        - -     (307,938)
   Forfeiture of 1,754 
     shares under stock 
     awards program ......  - -      - -      3,507          - -     - -    (23,240)    19,733        - -        - -          - -
   Issuance of 2,127 shares
     under stock awards
     program .............  - -      - -     10,051          - -     - -     30,234    (40,285)       - -        - -          - -
   Retire 6,386 shares of 
     common stock from the 
     treasury ............  - -      (64)   (63,796)     (21,967)    - -     85,827        - -        - -        - -          - -
   Stock options exercised
     for 1,096 shares ....  - -       11     12,319          - -     - -        - -        - -        - -        - -       12,330
   Amortization of compen-
     sation under stock 
     award program .......  - -      - -        - -          - -     - -        - -     67,329        - -        - -       67,329
   Allocation of ESOP 
     shares ..............  - -      - -     31,501          - -     - -        - -        - -        - -     40,200       71,701
   Acquisition of 1,096 
     shares of common 
     stock for retirement   - -      (11)   (20,950)         - -     - -        - -        - -        - -        - -      (20,961)
   Net change in unreal-
     ized (losses) on 
     investment securities 
     available for sale, 
     net of income taxes..  - -      - -        - -          - -   2,800        - -        - -        - -        - -        2,800
   Change related to ESOP 
     shares ..............  - -      - -        - -          - -     - -        - -        - -    (84,396)       - -      (84,396)
                           ------------------------------------------------------------------------------------------------------
Balance, June 30, 1998 ... $- -   $6,511  $6,122,664  $5,825,363 $  (507) $(300,944) $(104,962) $(153,788) $(423,130) $10,971,207
                           ======================================================================================================
</TABLE>
See Notes to Financial Statements.
<PAGE>

WASHINGTON BANCORP AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED JUNE 30, 1998, 1997  AND 1996
<TABLE>
                                                                                         1997           1996            1998
-------------------------------------------------------------------------------------------------------------------------------
<S>                                                                                 <C>             <C>             <C>    
Cash Flows from Operating Activities
   Net income ..................................................................    $   822,836     $   564,677     $   441,422
   Adjustments to reconcile net income to net cash
      provided by operating activities:
      Amortization of premiums and discounts on
        debt securities ........................................................         48,049          37,771          80,890
      Amortization of goodwill .................................................         43,341             - -             - -
      Provision for loan losses ................................................         89,000          40,085          15,000
      (Gain) on sale of investment securities ..................................         (5,383)           (388)        (32,534)
      (Gain) on sale of foreclosed real estate .................................        (10,573)        (36,911)            - -
      Depreciation .............................................................         70,548          56,620          68,847
      Compensation under stock awards ..........................................         67,329          72,294             - -
      ESOP contribution expense ................................................         71,701          57,055          22,232
      Deferred income taxes ....................................................        (31,383)        (16,798)         28,360
      (Increase) in accrued interest receivable ................................        (87,398)       (102,439)        (44,527)
      (Increase) decrease in other assets ......................................       (171,664)        (27,718)         59,192
      Increase (decrease) in accrued expenses and
        other liabilities ......................................................       (140,901)         54,215          75,415
                                                                                    -------------------------------------------
               Net cash provided by operating activities .......................        765,502         698,463         714,297
                                                                                    -------------------------------------------
Cash Flows from Investing Activities
   Held-to-maturity securities:
      Maturities and calls .....................................................        153,250             - -         166,988
      Purchases ................................................................        (65,000)            - -             - -
   Available-for-sale securities:
      Sales ....................................................................      1,416,719             911       3,807,939
      Maturities ...............................................................     12,054,554      11,238,648       2,556,485
      Purchases ................................................................    (12,250,000)     (6,395,000)     (9,647,200)
   Federal funds sold, net .....................................................        527,272             - -             - -
   Purchase of Federal Home Loan Bank stock ....................................       (346,800)        (96,500)            - - 
   Loans made to customers, net ................................................     (5,584,292)     (9,627,628)     (2,485,965)
   Purchase of premises and equipment ..........................................        (93,489)        (63,245)        (39,776)
   Purchase of stock of Rubio Savings Bank of Brighton,
      net of cash and cash equivalent received (Note 16) .......................     (2,466,021)            - -             - -
                                                                                    -------------------------------------------
              Net cash (used in) investing activities ..........................     (6,653,807)     (4,942,814)     (5,641,529)
                                                                                    -------------------------------------------
                                                                                                                                
Cash Flows from Financing Activities
   Net increase in deposits ....................................................    $ 1,881,828     $   577,880     $ 1,226,649
   Proceeds from Federal Home Loan Bank advances ...............................     50,450,000      98,650,000      16,820,000
   Principal payments on Federal Home Loan Bank
      advances .................................................................    (43,377,694)    (95,502,977)    (18,545,473)
   Net increase in advances from borrowers for taxes
      and insurance ............................................................         17,234         (13,829)         18,672
   Proceeds from issuance of common stock ......................................         12,330             - -       6,049,170
   Acquisition of common stock .................................................       (328,899)       (348,563)            - -
   Dividends paid ..............................................................       (267,925)       (213,707)            - -
   Payments for expenses incurred relating to
      conversion to stock form .................................................            - -             - -        (396,477)
                                                                                    -------------------------------------------
               Net cash provided by financing activities .......................      8,386,874       3,148,804       5,172,541
                                                                                    -------------------------------------------

              Net increase (decrease) in cash and
                    cash equivalents ...........................................      2,498,569      (1,095,547)        245,309

Cash and cash equivalents:
   Beginning ...................................................................        807,805       1,903,352       1,658,043
                                                                                    -------------------------------------------
   Ending ......................................................................    $ 3,306,374     $   807,805     $ 1,903,352
                                                                                    ===========================================
<PAGE>
                                                                                         1997           1996            1998
-------------------------------------------------------------------------------------------------------------------------------

Supplemental Disclosures of Cash Flow Information
   Cash payments for:
      Interest paid to depositors ..............................................    $ 2,562,216     $ 2,225,796     $ 2,241,023
      Interest paid on other obligations .......................................        639,162         337,405         252,657
      Income taxes, net of refunds .............................................        684,779         288,713          99,356

Supplemental Schedule of Noncash Investing and
   Financing Activities
   Transfers from loans to foreclosed real estate ..............................    $   110,427     $   106,289
   Contract sales of foreclosed real estate ....................................        121,000         143,200
   Stock issued under stock awards program .....................................         40,285         262,736

   Acquisition of assets and  liabilities  from Rubio  Savings  Bank of Brighton
      (Note 16):
      Assets acquired:
        Cash and cash equivalents ..............................................   $  2,331,668
        Federal funds sold .....................................................      1,186,769
        Investment securities, held to maturity ................................      1,221,156
        Investment securities, available for sale ..............................     10,530,323
        Loans ..................................................................      7,848,923
        Premesis and equipment .................................................        226,634
        Goodwill ...............................................................      1,418,428
        Other assets ...........................................................        304,762
                                                                                   ------------
                                                                                     25,068,663
      Liabilities assumed:
        Deposits ...............................................................    (19,959,320)
        Other liabilities ......................................................       (311,654)
                                                                                   ------------
      Cash purchase price ......................................................   $  4,797,689
                                                                                   ============

   Investment securities transferred from held to maturity
      portfolio to available for sale, at fair value ...........................    $ 2,872,058

</TABLE>
See Notes to Financial Statements.
<PAGE>


WASHINGTON BANCORP AND SUBSIDIARIES

NOTES TO FINANCIAL STATEMENTS

--------------------------------------------------------------------------------

Note 1.  Significant Accounting Policies

Organization:  On March 11, 1996,  Washington  Bancorp  issued 604,917 shares of
common stock at $10 per share and simultaneously invested $3,089,356 for all the
outstanding  common shares of Washington  Federal  Savings Bank in a transaction
accounted for like a pooling of interests.

Prior to March 11,  1996,  the  Savings  Bank was a federally  chartered  mutual
savings bank. After a reorganization, effective March 11, 1996, the Savings Bank
is now a federally  chartered  stock savings bank and 100% of the Savings Bank's
common stock is owned by Washington  Bancorp.  See Note 17 for a description  of
the reorganization.

Principles of consolidation:  The accompanying consolidated financial statements
include the accounts of Washington  Bancorp (the "Company"),  Washington Federal
Savings Bank  ("Washington")  and Rubio  Savings Bank of Brighton  ("Rubio") and
collectively  known as (the  "banks"),  and  Washington  Federal  Savings Bank's
wholly-owned  subsidiary,  Washington  Financial  Services,  Inc.,  which  is  a
discount brokerage firm. The activity of Washington  Financial Services Inc., is
not material.  All significant  intercompany accounts and transactions have been
eliminated in consolidation.

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

Cash equivalents: Cash equivalents consist of FHLB-daily time, cash on hand, and
funds due from  banks.  For  purposes  of  reporting  cash  flows,  the  Company
considers all highly liquid debt instruments  purchased with a maturity of three
months  or less to be  equivalents.  Cash  flows  from  loans and  deposits  are
reported net.

Acquisition of a business: On January 15, 1998, Washington Bancorp purchased all
of the outstanding stock of Rubio in a transaction accounted for as a purchase.

Investment in debt  securities:  The Company has investments in debt securities,
which  consist  primarily of  obligations  of the U. S.  Government  and related
agencies and corporations, state governments and domestic corporations.

FASB Statement No. 115,  "Accounting for Certain  Investments in Debt and Equity
Securities,"  requires that management determine the appropriate  classification
of securities at the date  individual  investment  securities are acquired,  and
reassesses  the  appropriateness  of such  classification  at each balance sheet
date. The classifications are as follows:

   Securities  available for sale:  Securities  classified as available for sale
   are those debt  securities that the Company intends to hold for an indefinite
   period of time,  but not  necessarily  to  maturity.  Any  decision to sell a
   security  classified as available for sale would be based on various factors,
   including  significant  movements in interest rates,  changes in the maturity
   mix of the Company's  assets and  liabilities,  liquidity  needs,  regulatory
   capital considerations,  and other similar factors.  Securities available for
   sale are carried at fair value.  Unrealized  gains or losses,  net of related
   deferred tax effect,  are reported as increases or decreases in the Company's
   equity.  Realized  gains or  losses,  determined  on the basis of the cost of
   specific securities sold, are included in earnings.

   Securities  held to maturity:  Securities  classified as held to maturity are
   those debt  securities the Company has both the intent and ability to hold to
   maturity  regardless  of changes  in market  conditions,  liquidity  needs or
   changes in general economic conditions.  These securities are carried at cost
   adjusted for  amortization of premium and accretion of discount,  computed by
   the interest method over their contractual lives. The cost of such securities
   sold is determined using the specific identification method.
<PAGE>


Premiums and discounts on  investments  in debt  securities  are amortized  over
their  contractual  lives.  The  method of  amortization  results  in a constant
effective  yield on those  securities  (the interest  method).  Interest on debt
securities  is  recognized  in  income as  earned.  Realized  gains and  losses,
including  losses from  declines in value of specific  securities  determined by
management to be  other-than-temporary,  are included in income.  Realized gains
and losses are determined on the basis of the specific securities sold.

Pursuant to a FASB Special Report,  "A Guide to  Implementation of Statement No.
115 on  Accounting  for  Certain  Investments  in Debt and  Equity  Securities,"
Washington transferred,  at fair value, $2,872,058 of investment securities from
held to maturity to available for sale in December 1995.

Loans receivable:  Loans receivable are stated at unpaid principal balances less
the allowance for loan losses.

Interest  on loans is  accrued  daily on the  outstanding  balances.  Accrual of
interest is discontinued on a loan when management  believes,  after considering
collection efforts and other factors, that the borrower's financial condition is
such that collection of interest is doubtful.

The allowance  for loan losses is increased by provisions  charged to income and
reduced by charge-offs,  net of recoveries.  Management's periodic evaluation of
the adequacy of the allowance is based on the Banks' past loan loss  experience,
known and inherent risks in the portfolio,  adverse  situations  that may affect
the borrower's ability to repay,  estimated value of any underlying  collateral,
and current economic conditions.

Loans are considered impaired when, based on all current information and events,
it is  probable  the Banks  will not be able to collect  all  amounts  due.  The
portion of the allowance for loan losses  applicable to impaired  loans has been
computed  based on the  present  value of the  estimated  future  cash  flows of
interest and principal  discounted at the loan's  effective  interest rate or on
the fair value of the  collateral  for collateral  dependent  loans.  The entire
change in present value of expected cash flows on impaired  loans is reported as
bad debt expense in the same manner in which impairment initially was recognized
or as a reduction  in the amount of bad debt  expense  that  otherwise  would be
reported. Interest income on impaired loans is recognized on the cash basis.

Foreclosed real estate: Real estate properties acquired through loan foreclosure
are initially recorded at the lower of cost or fair value less estimated selling
expenses  at  the  date  of  foreclosure.  Costs  relating  to  development  and
improvement  of property  are  capitalized,  whereas  costs  relating to holding
property are expensed.

Valuations are periodically performed by management.  If the carrying value of a
property  exceeds its  estimated  fair value less  estimated  selling  expenses,
either an allowance for losses is established,  or the property's carrying value
is reduced, by a charge to income.

Premises and  equipment:  Premises  and  equipment  are carried at cost,  net of
accumulated  depreciation.  Depreciation  is computed by the  straight-line  and
declining-balance methods over the estimated useful lives of the assets.

Goodwill:  Goodwill  resulting from the Company's  acquisition of Rubio is being
amortized by the  straight-line  method over 15 years.  Goodwill is periodically
reviewed for impairment based upon an assessment of future  operations to ensure
that it is appropriately valued.

Income taxes: Deferred taxes are provided on a liability method whereby deferred
tax assets are  recognized for deductible  temporary  differences  and operating
loss and tax credit  carryforwards  and deferred tax  liabilities are recognized
for taxable  temporary  differences.  Temporary  differences are the differences
between  the  reported  amounts of assets and  liabilities  and their tax bases.
Deferred tax assets are reduced by a valuation allowance when, in the opinion of
management,  it is more likely than not that some portion or all of the deferred
tax  assets  will not be  realized.  Deferred  tax assets  and  liabilities  are
adjusted  for the  effects  of  changes  in tax  laws  and  rates on the date of
enactment.
<PAGE>

Earnings per common share:  In 1997, the Financial  Accounting  Standards  Board
issued Statement No. 128,  "Earnings Per Share."  Statement No. 128 replaced the
calculation  of  primary  and fully  diluted  earnings  per share with basic and
diluted earnings per share. Basic per-share amounts are computed by dividing net
income  (the  numerator)  by  the  weighted-average   number  of  common  shares
outstanding (the denominator).  Diluted per-share amounts assume the conversion,
exercise or  issuance  of all  potential  common  stock  unless the effect is to
reduce  the loss or  increase  the  income  per  common  share  from  continuing
operations. Shares owned by the ESOP that have not been committed to be released
are not considered to be outstanding  for the purpose of computing  earnings per
share. The Company  initially  applied Statement No. 128 for the year ended June
30,  1998 and has  restated  all per share  information  for the prior  years to
conform to Statement No. 128.

Unearned ESOP shares and expense:  The unearned ESOP shares have been treated as
a reduction of equity.  This amount is reduced as the ESOP shares are allocated.
Compensation  expense  for the ESOP is  based  upon  the  fair  value of  shares
allocated to participants.

Stock  awards:  Expense  for  common  stock to be  issued  under  the  Company's
recognition and retention plan is based upon the fair value of the shares at the
date of grant, allocated over the period of vesting.

Redeemable  common stock held by ESOP:  The  Company's  maximum cash  obligation
related to these shares is classified outside  stockholders'  equity because the
shares are not readily traded and could be put to the Company for cash.

Stock options issued to employees:  In fiscal year 1996, the Company adopted the
provisions of SFAS No. 123,  "Accounting  for Stock-Based  Compensation,"  which
establishes  a fair  value  based  method  for the  financial  reporting  of its
stock-based  employee  compensation  plans.  However,  as  allowed  by  the  new
standard,  the Company has elected to continue to measure compensation using the
intrinsic  value based  method as  prescribed  by  Accounting  Principles  Board
Opinion No. 25,  "Accounting for Stock Issued to Employees."  Under this method,
compensation is measured as the difference between the market value of the stock
on the grant  date,  less the  amount  required  to be paid for the  stock.  The
difference, if any, is charged to expense over the periods of service.

Fair value of financial instruments:  FASB Statement No. 107, "Disclosures About
Fair  Value  of  Financial  Instruments,"  requires  disclosure  of  fair  value
information  about  financial  instruments,  whether  or not  recognized  in the
balance  sheet,  for which it is  practicable  to estimate that value.  In cases
where quoted market prices are not available, fair values are based on estimates
using  present  value  or  their  valuation  techniques.  Those  techniques  are
significantly  affected by the assumptions used, including the discount rate and
estimates of future cash flows. In that regard, the derived fair value estimates
cannot be substantiated by comparison to independent markets and, in many cases,
could not be realized in immediate  settlement of the instrument.  Statement No.
107 excludes certain financial instruments and all nonfinancial instruments from
its  disclosure  requirements.  Accordingly,  the  aggregate  fair value amounts
presented do not represent the underlying value of the Company.

The  following  methods and  assumptions  were used by the Company in estimating
fair value of its financial instruments:

   Cash and cash equivalents: The carrying amounts reported in the balance sheet
   for cash and cash equivalents approximate their fair values.

   Investment securities (including mortgage-backed securities): Fair values for
   investment securities are based on quoted market prices, where available.  If
   quoted  market  prices  are not  available,  fair  values are based on quoted
   market prices of comparable instruments.

   Federal funds sold:  The carrying  amounts  reported in the balance sheet for
   federal funds sold approximate their values.

   Loans receivable: For variable-rate loans that reprice frequently and have no
   significant  change in credit  risk,  the fair  values are based on  carrying
   values.  The fair values of other loans are determined using estimated future
   cash flows,  discounted  at the interest  rates  currently  being offered for
   loans with  similar  terms to  borrowers  with similar  credit  quality.  The
   carrying amount of accrued interest receivable approximates its fair value.
<PAGE>


   Deposits:  The fair values of demand  deposits equal their  carrying  amounts
   which represents the amount payable on demand. The carrying amounts for money
   market and passbook  savings  accounts  approximate  their fair values at the
   reporting  date.  Fair  values for  fixed-rate  certificates  of deposit  are
   estimated  using a discounted  cash flow  calculation  that applies  interest
   rates  currently  being offered on  certificates  to a schedule of aggregated
   expected monthly maturities on time deposits.

   Borrowed  funds:  Fair  values  for  borrowed  funds  are  estimated  using a
   discounted cash flow  calculation that applies interest rates currently being
   charged for borrowed funds of similar maturities.

   Off-balance  sheet  instruments:  Fair values for the  Company's  off-balance
   sheet  instruments  are  valued  based upon the  current  fee  structure  for
   outstanding letters of credit. Unfunded loan commitments are not valued since
   the loans are generally priced at market at the time of funding.

Recently issued  accounting  standards:  In June 1997, the Financial  Accounting
Standards Board (FASB) issued SFAS No. 130,  "Reporting  Comprehensive  Income,"
and SFAS No.  131,  "Disclosure  about  Segments  of an  Enterprise  and Related
Information,"  both of  which  are  required  to be  adopted  for  fiscal  years
beginning  after  December  15,  1997.  SFAS No. 130 will require the Company to
report in its financial  statements all nonowner  related  changes in equity for
the periods  being  reported.  SFAS No. 131 will require the Company to disclose
revenues,  earnings,  and other financial information pertaining to the business
segments  by which the Company is managed,  as well as what  factors  management
used to  determine  these  segments.  The Company is  currently  evaluating  the
requirements  of SFAS No. 130 and 131 to  determine  how to present the required
information in its financial statements and related disclosures.

Note 2.  Restrictions on Cash Due from Banks and Investments

Washington is required to maintain  reserve  balances in cash or on deposit with
Federal  Reserve Banks.  The total of those reserve  balances was  approximately
$25,000 at June 30,  1998.  In  addition,  Washington  is required to maintain a
minimum   balance  of  unpledged   cash  and  investment   securities   totaling
approximately $1,831,000 as of June 30, 1998 to provide liquidity for deposits.

Note 3.  Investment Securities

The amortized cost and fair value of investment securities available for sale as
of June 30, 1998 and 1997 are as follows:
<TABLE>

                                                         Cost Or        Gross        Gross
                                                        Amortized    Unrealized    Unrealized        Fair
                                                          Cost          Gains       (Losses)         Value
                                                       ------------------------------------------------------
                                                                               1998
                                                       ------------------------------------------------------
<S>                                                    <C>           <C>           <C>            <C>    
U. S. Treasury securities ...........................  $ 6,329,349   $     9,417   $    (1,857)   $ 6,336,909
U. S. Government agencies ...........................    6,774,264         2,778        (6,582)     6,770,460
Corporations and other ..............................    5,621,549         1,379        (6,776)     5,616,152
State and political subdivisions ....................      347,500           735           - -        348,235
Mortgage-backed securities,
   FHLMC certificates ...............................       50,432            95           - -         50,527
                                                       ------------------------------------------------------
                                                       $19,123,094   $    14,404   $   (15,215)   $19,122,283
                                                       ======================================================

                                                                                1997
                                                       ------------------------------------------------------

U. S. Treasury securities ...........................  $   400,237   $     2,386   $      (263)   $   402,360
U. S. Government agencies ...........................    6,994,454         9,180        (4,904)     6,998,730
Corporations and other ..............................    1,958,104         1,475        (4,499)     1,955,080
State and political subdivisions ....................      353,750           - -           - -        353,750
Mortgage-backed securities,
   FHLMC certificates ...............................      148,737           - -        (8,666)       140,071
                                                       ------------------------------------------------------
                                                       $ 9,855,282   $    13,041   $   (18,332)   $ 9,849,991
                                                       ======================================================
</TABLE>
<PAGE>


The amortized cost and fair value of investment  securities held to maturity are
as follows:
<TABLE>
                                                                   1998
                                              ------------------------------------------------
                                               Cost Or       Gross       Gross
                                              Amortized    Unrealized  Unrealized      Fair
                                                Cost         Gains      (Losses)       Value
                                             -------------------------------------------------
<S>                                          <C>          <C>          <C>          <C>   
State and political subdivisions ........    $1,131,478   $      - -   $      - -   $1,131,478
                                             =================================================
</TABLE>

The  amortized  cost and fair value of debt  securities  as of June 30,  1998 by
contractual  maturity are shown below.  Maturities  may differ from  contractual
maturities in mortgage-backed  securities  because the mortgages  underlying the
securities  may be called or repaid  without  any  penalties.  Therefore,  these
securities are not included in the maturity categories in the following maturity
summary.
<TABLE>
                                                                                       Amortized      Fair
                                                                                          Cost        Value
                                                                                      ------------------------
<S>                                                                                   <C>          <C>    
Available for sale:
   Due in one year or less .........................................................  $ 7,701,172  $ 7,704,078
   Due after one year through five years ...........................................    8,286,106    8,289,775
   Due after five years through ten years ..........................................    3,085,384    3,077,903
   Mortgage-backed securities, FHLMC certificates ..................................       50,432       50,527
                                                                                      ------------------------
                                                                                       19,123,094   19,122,283
                                                                                      ------------------------
Held to maturity:
   Due in one year or less .........................................................      322,677      322,677
   Due after one year through five years ...........................................      648,801      648,801
   Due after five years through ten years ..........................................      160,000      160,000
                                                                                      ------------------------
                                                                                        1,131,478    1,131,478
                                                                                      ------------------------
                                                                                      $20,254,572  $20,253,761
                                                                                      ========================
</TABLE>

Investment  securities  with a carrying  amount of $3,302,984  and $3,306,610 at
June 30,  1998 and 1997,  respectively,  were  pledged as  collateral  on public
deposits. Investment securities with a carrying amount of none and $4,801,396 at
June 30,  1998 and  1997,  respectively,  were  pledged  as  collateral  on FHLB
advances.

Securities  gains (losses) for the years ended June 30, 1998,  1997 and 1996 are
as follows:

                                    1998       1997        1996
                                 --------------------------------

Realized gains ...............   $  5,383    $   388     $ 91,644
Realized (losses) ............        - -        - -      (59,110)
                                 --------------------------------
                                 $  5,383    $   388     $ 32,534
                                 ================================

The Company  transferred  securities with an amortized cost of $2,907,058 and an
unrealized   loss   of   $35,000   from   held-to-maturity   portfolio   to  the
available-for-sale   portfolio  on  December  1,  1995,  based  on  management's
reassessment of their previous  descriptions of securities giving  consideration
to liquidity needs, management of interest rate risk and other factors.
<PAGE>


Note 4.  Loans Receivable

Loans receivable are summarized as follows:
                                                               June 30,
                                                       -------------------------
                                                           1998         1997
                                                       -------------------------
First mortgage loans (principally conventional):
   Secured by one-to-four family residences .......    $45,302,569   $40,695,861
   Home equity and second mortgage ................      1,164,377     1,232,736
   Multifamily and commercial real estate .........      7,411,209     4,775,465
   Construction loans .............................        152,143       693,766
   Other ..........................................            - -        98,653
                                                       -------------------------
              Total mortgage loans ................     54,030,298    47,496,481
Commercial loans ..................................      8,163,641     2,715,020
Consumer and other loans:
   Automobile .....................................      3,064,531     1,899,763
   Other ..........................................      1,014,505       644,539
                                                       -------------------------
              Total loans .........................     66,272,975    52,755,803
   Less allowance for loan losses .................        388,034       225,650
                                                       -------------------------
                                                       $65,884,941   $52,530,153
                                                       =========================

Loans receivable are net of loans in process of $335,835 and $500,182 as of June
30, 1998 and 1997, respectively.

Activity in the allowance for loan losses is summarized as follows for the years
ended June 30:
                                                     1998      1997      1996
                                                   ----------------------------

Balance, beginning .............................   $225,650  $209,394  $203,074
   Balance of the allowance for loan losses of 
     Rubio at date of acquisition ..............    105,174       - -       - -
   Provision charged to expense ................     89,000    40,085    15,000
   Charge-offs .................................    (46,428)  (33,841)  (13,574)
   Recoveries ..................................     14,638    10,012     4,894
                                                   ----------------------------
Balance, ending ................................   $388,034  $225,650  $209,394
                                                   ============================

The Banks have no loans  receivable at June 30, 1998 and 1997 that they consider
to be impaired that are not part of a homogeneous  group of loans.  Accordingly,
no separate allowance has been provided for these loans.

Note 5.  Accrued Interest Receivable

Accrued interest receivable at June 30 is summarized as follows:

                                                       1998       1997
                                                     -------------------

Investment securities ............................   $206,974   $ 94,470
Loans receivable .................................    752,689    473,758
                                                     -------------------
                                                     $959,663   $568,228
                                                     ===================


Note 6.  Premises and Equipment

Premises and equipment consisted of the following at June 30:

                                                              1998       1997
                                                          ----------------------

Land ................................................     $   83,080  $   83,080
Building ............................................        724,357     504,357
Furniture, fixtures and equipment ...................        682,322     603,503
                                                          ----------------------
                                                           1,489,759   1,190,940
Less accumulated depreciation .......................        689,953     640,709
                                                          ----------------------
                                                          $  799,806  $  550,231
                                                          ======================
<PAGE>


Note 7.  Deposits

Deposits at June 30 are as follows:
<TABLE>
                                         
                                         Weighted
                                         Average 
                                         Rate At              1998                         1997
                                         June 30,   ------------------------    --------------------------
                                           1998       Amount         Percent        Amount        Percent
                                        ------------------------------------------------------------------
<S>                                     <C>         <C>              <C>        <C>               <C>   
Demand and NOW accounts,
   including noninterest-bearing
   deposits 1998 $2,768,561;
   1997 $1,401,119                         1.25%    $ 8,246,486        12.4%    $ 3,094,048          6.9%    
Money market                               3.92      10,472,641        15.7       9,044,368         20.2
Passbook savings                           3.50       5,537,316         8.3       2,181,904          4.9
                                                    --------------------------------------------------------
                                                     24,256,443        36.4      14,320,320         32.0
                                                    --------------------------------------------------------
Certificates of deposit:
   2.01% to 3%                             2.43         155,246         0.2             - -          - -
   3.00% to 4%                              - -             - -         - -          12,525          - -
   4.01% to 5%                             4.73       2,550,322         3.8       2,205,090          4.9
   5.01% to 6%                             5.74      32,583,131        48.9      23,247,461         51.9
   6.01% to 7%                             6.18       7,050,334        10.7       4,968,932         11.2
                                                    -----------------------------------------------------
                                                     42,339,033        63.6      30,434,008         68.0
                                                    -----------------------------------------------------
                                           4.71     $66,595,476       100.0%    $44,754,328        100.0%  
                                                    =====================================================
</TABLE>

The aggregate amount of short-term jumbo  certificates of deposit with a minimum
denomination of $100,000 was approximately $6,329,000 and $1,248,000 at June 30,
1998 and 1997,  respectively.  Deposits in excess of $100,000 are not insured by
the FDIC.

At June 30,  1998,  scheduled  maturities  of  certificates  of  deposit  are as
follows:
<TABLE>
                                                        Year Ending June 30,
                       ------------------------------------------------------------------------------------
                             1999           2000          2001          2002          2003          Total
                       ------------------------------------------------------------------------------------
<S>                    <C>            <C>           <C>           <C>           <C>           <C>
2% to 3%               $      155,246 $             $             $             $             $     155,246
4.01% to 5%                 2,534,198        16,124                                               2,550,322
5.01% to 6%                24,447,499     5,957,285     1,487,447       391,409       299,491    32,583,131
6.01% to 7%                   977,181       841,335     5,200,897        30,921                   7,050,334
                       ------------------------------------------------------------------------------------
                       $   28,114,124 $   6,814,744 $   6,688,344 $     422,330 $     299,491 $  42,339,033
                       ====================================================================================
</TABLE>

Interest  expense  on  deposits  for the years  ended June 30 is  summarized  as
follows:

                                         1998        1997         1996
                                     ------------------------------------

Money market ...................     $  360,080   $  384,112   $  399,720
Passbook savings ...............        116,880       53,293       63,349
NOW ............................         82,454       36,907       36,856
Certificates of deposit ........      2,060,204    1,741,456    1,746,092
                                     ------------------------------------
                                     $2,619,618   $2,215,768   $2,246,017
                                     ====================================
<PAGE>


Note 8.  Borrowed Funds

Borrowed funds at June 30 are as follows:
<TABLE>
                                                                 1998         1997
                                                             -------------------------
<S>                                                          <C>           <C>   
Short-term advances from the Federal Home Loan Bank ......   $ 9,596,975   $ 1,750,000
Long-term advances from the Federal Home Loan Bank .......     6,127,096     6,901,765
                                                             -------------------------
                                                             $15,724,071   $ 8,651,765
                                                             =========================
</TABLE>

Pursuant to collateral  agreements with the Federal Home Loan Bank (FHLB), these
advances  are  collateralized  by all the  Institution's  stock  in the FHLB and
qualifying  first mortgage loans. Of this total,  $8,000,000 of the advances are
callable  every  three  months  thereafter  with a three  calendar  day  notice.
Therefore,  these advances are  categorized as maturing  within one year per the
schedule below.

Advances at June 30, 1998 have maturity dates as follows:

  Year Ending                                                         June 30
    June 30           Interest Rate                                    1998
--------------------------------------------------------------------------------

   1999              4.79% to 6.33%                                  $ 9,773,971
   2000              5.74% to 6.33%                                      937,921
   2001              5.31% to 6.33%                                    1,199,521
   2002              5.74% to 6.33%                                      211,838
   2003              5.41% to 6.33%                                      724,916
   Thereafter        5.74% to 6.33%                                    2,875,904
                                                                     -----------
                                                                     $15,724,071
                                                                     ===========

Note 9.  Employee Benefit Plans

Employee Stock  Ownership  Plan:  The Company has  established an Employee Stock
Ownership  Plan (ESOP) for  eligible  employees.  The Company has  financed  the
ESOP's purchase of the Company's stock and, therefore, the ESOP is considered to
be internally leveraged. Employees are eligible to participate after they attain
age 21 and  complete  one year of service  during which they work at least 1,000
hours.  The Company issued 52,602 shares of common stock to the ESOP on the date
of the conversion and reorganization.

The  Company  makes  annual  contributions  to the ESOP equal to the ESOP's debt
service less dividends  received by the ESOP. All dividends received by the ESOP
are used to pay debt service. Contributions to the ESOP and shares released from
the suspense account in an amount proportional to the repayment of the ESOP loan
are allocated  among ESOP  participants on the basis of compensation in the year
of  allocation.  Benefits  generally  become  100%  vested  after seven years of
credited service.  Forfeitures will be reallocated among remaining participating
employees,  in the same proportion as contributions.  Benefits may be payable in
the form of stock or cash upon termination of employment.

As shares are released,  the Company reports  compensation  expense equal to the
current  fair  value  of the  shares,  and the  shares  become  outstanding  for
earnings-per-share computations. Dividends on allocated ESOP shares are recorded
as a reduction of retained  earnings;  dividends on unallocated  ESOP shares are
recorded as a reduction of debt and accrued interest.  ESOP compensation expense
totaled  $68,865  and  $56,620  for the  years  ended  June 30,  1998 and  1997,
respectively.
<PAGE>


Shares  of  common  stock  held by the  ESOP at June  30,  1998  and 1997 are as
follows:

                                                     1998       1997
                                                  -------------------

Allocated shares ..............................      8,202      4,337
Shares released for allocation ................      2,087      1,932
Unreleased (unearned) shares ..................     42,313     46,333
                                                  -------------------
                                                    52,602     52,602
                                                  ===================

Fair value of unreleased (unearned) shares ....   $785,329   $741,328
                                                  ===================

The ESOP plan may allow, at the discretion of the Advisory Committee,  employees
to elect to defer up to fifteen  percent of compensation  annually.  The Company
may, at the discretion of the Advisory Committee, make matching contributions on
an annual  basis.  For the years ended June 30, 1998 and 1997,  $2,503 and none,
respectively, was charged to expense.

Defined contribution plan:

Rubio has a defined contribution  retirement plan covering  substantially all of
its  employees.   Contributions,  which  are  10%  of  each  covered  employee's
compensation, totaled $5,961 for the year ended June 30, 1998.

Stock-based   compensation  plans:  At  June  30,  1998,  the  Company  has  two
stock-based  compensation  plans which are described  below.  As permitted under
generally accepted accounting principles, grants under those plans are accounted
for following APB Opinion No. 25 and related  interpretations.  Had compensation
cost for the two stock-based  compensation  plans been  determined  based on the
grant date fair values of the awards (the method  prescribed  in SFAS No.  123),
reported net income and earnings per common share would have been reduced to the
pro forma amounts shown below:

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

Pro forma net income .................      $781,465   $534,323      N/A
Pro forma earnings per share:
   Basic .............................          1.29       0.87      N/A
   Diluted ...........................          1.26       0.87      N/A

The pro forma  effects of  applying  SFAS No. 123 are not  indicative  of future
amounts.

The fair value of each grant and award is  estimated at the grant date using the
Black-Scholes   option-pricing   model  with  the   following   weighted-average
assumptions for grants in 1998 and 1997:  dividend rates of 1.9% and 3.2%; price
volatility of 8.25% and 14.42%;  risk-free  interest rates of 6.0%; and expected
life of 5 years.

Stock options:  During the year ended June 30, 1997, the Company adopted a stock
option plan for certain officers and directors  whereby up to 65,751 shares were
reserved for grants.  The Board has granted  options at prices equal to the fair
value of the stock on the dates of the grants. All options are for a term of ten
years  after  vesting  and 20%  become  exercisable  each year for the next five
years.
<PAGE>


A summary of the status of the Company's stock option plan is as follows:

                                                                      Weighted-
                                                                      Average
                                                                      Exercise
                                                          Shares        Price
                                                         ---------------------

Outstanding at June 30, 1996 ..................              - -      $    - -
   Granted ....................................           52,600         11.25
   Exercised
   Forfeited ..................................           (2,818)        11.25
                                                         -------
Outstanding at June 30, 1997 ..................           49,782         11.25
     Granted ..................................            2,818         18.94
     Exercised ................................           (1,096)        11.25
     Forfeited ................................           (4,383)        11.25
                                                         -------
Outstanding at June 30, 1998 ..................           47,121         11.71
                                                         =======

                                                          1998     1997     1996
                                                        ------------------------
Weighted-average fair value per option of
     options granted during the year .............      $   3.27   1.82      N/A
                                                        ========================

Other pertinent  information related to the options outstanding at June 30, 1998
is as follows:

                               Remaining
     Number        Exercise   Contractual      Number
  Outstanding       Price        Life        Exercisable
--------------------------------------------------------

     44,303        $11.25      11 Years         8,863
      2,818         18.94      12 Years           - -
------------------------------               --------
     47,121        $11.71                       8,863
==============================               ========

Stock awards:  The Company  adopted a recognition  and retention plan in October
1996 whereby  26,300  shares of common stock have been  reserved for issuance to
certain executive officers and directors.  Shares awarded under the plan vest in
five equal  annual  installments,  beginning on the  anniversary  of the grants.
During the year ended June 30,  1998 and 1997,  awards  were  granted  for 2,127
shares and 19,914 shares with a fair value of $18.94 and $11.25 per share at the
date of the grant, respectively.

The  expense  under the plan is based  upon the fair  value of the shares on the
date of the grant, allocated over the five-year term of vesting. The expense for
the  years  ended  June  30,  1998  and  1997   totaled   $67,329  and  $72,294,
respectively. Shares of common stock are issued upon vesting.
<PAGE>


Note 10.  Income Taxes

Net deferred  income tax liabilities  consist of the following  components as of
June 30, 1998 and 1997:

                                                         1998      1997
                                                       -------------------
Deferred tax assets:
   Unrealized loss on investment securities
      available for sale ...........................   $    304    $   1,984
   Accrued compensation ............................     24,301       26,966
   Allowance for loan losses .......................    122,762       84,167
                                                       ---------------------
                                                        147,367      113,117
                                                       ---------------------
Deferred tax liabilities:
   Recapture of allowance for loan losses ..........    136,541      156,048
   FHLB stock dividends ............................     44,067       44,067
   Premises and equipment ..........................     77,420        7,908
   Accrued expenses ................................     48,408          - -
   Other ...........................................     39,780       10,893
                                                       ---------------------
                                                        346,216      218,916
                                                       ---------------------
              Net deferred tax liability included in
                   other liabilities ...............   $(198,849)  $(105,799)
                                                       =====================

The net  change in the  deferred  income  taxes is  reflected  in the  financial
statements for the years ended June 30, 1998, 1997 and 1996 as follows:
<TABLE>

                                                                      1998        1997        1996
                                                                   ---------------------------------
<S>                                                                <C>         <C>         <C>   
Statement of income .............................................  $  31,383   $  16,798   $ (28,360)
Statement of stockholders' equity* ..............................     (1,680)    (38,942)    (18,996)
Deferred taxes related to acquisition of Rubio ..................   (122,753)
                                                                   ---------------------------------
                                                                   $ (93,050)  $ (22,144)  $ (47,356)
                                                                   =================================
</TABLE>
* Change  in  deferred  tax  asset  related  to  unrealized  loss on  investment
  securities available for sale.

The provision  for income taxes  charged to operations  for the years ended June
30, 1998, 1997 and 1996 consisted of the following:

                                                1998       1997        1996
                                              -------------------------------

Current ...................................   $471,063   $367,565    $214,018
Deferred ..................................    (31,383)   (16,798)     28,360
                                              -------------------------------
                                              $439,680   $350,767    $242,378
                                              ===============================
<PAGE>

The income tax  provision  differs from the amount of income tax  determined  by
applying the U. S. Federal  income tax rate to pretax income for the years ended
June 30, 1998, 1997 and 1996 due to the following:
<TABLE>
                                                      Years Ended June 30,
                               ----------------------------------------------------------------
                                      1998                   1997                  1996
                               ----------------------------------------------------------------
                                            % Of                   % Of                   % Of
                                            Pretax                Pretax                 Pretax
                                Amount      Income    Amount      Income     Amount      Income
                               ----------------------------------------------------------------
<S>                            <C>          <C>      <C>          <C>       <C>          <C>
Computed "expected" tax
   expense                     $441,881      35.0%   $320,405      35.0%    $239,330       35.0%
Tax-exempt interest             (26,760)     (2.1)     (9,833)     (1.1)     (16,346)      (2.4)
State income taxes, net of
   federal benefit               37,811       3.0      32,271       3.5       20,287        2.9
Other, net                      (13,252)     (1.1)      7,924       0.9         (893)      (0.1)
                               -----------------------------------------------------------------
                               $439,680      34.8%   $350,767      38.3%    $242,378       35.4%
                               =================================================================
</TABLE>
Note 11.  Earnings Per Share

In compliance  with  Financial  Accounting  Standards  Board  Statement No. 128,
"Earnings  Per  Share,"  issued in  February  1997,  the Company has changed its
method of  computing  earnings  per share  effective  with the third  quarter of
fiscal 1998.  All prior periods  presented  have been restated to conform to the
new  requirements  which exclude  contingently  issuable shares and the dilutive
effect of stock options from the number of weighted  average  shares used in the
computation  of basic  earnings per share.  The effect of  Statement  No. 128 on
diluted earnings per share is immaterial compared to previously  disclosed fully
diluted earnings per share.  Basic and diluted earnings per share are calculated
as follows:
<TABLE>
                                                                   Year Ended June 30,
                                                              -----------------------------
                                                               1998       1997       1996
                                                             ------------------------------
<S>                                                          <C>        <C>        <C>  
Basic earnings per share:
   Net income available to common stockholders, basic .....  $822,836   $564,677   $150,832*
                                                             ==============================

   Weighted average shares outstanding, basic .............   603,589    611,539    606,002
                                                             ==============================

   Basic earnings per share ...............................  $   1.36   $   0.92   $   0.25
                                                             ==============================

Diluted earnings per share:
   Net income available to common shareholders, diluted
      (Note 1) ............................................  $822,836   $564,677   $150,832
                                                             ==============================

   Weighted average shares outstanding, basic .............   603,589    611,539    606,002
      Effect of dilutive securities, employee stock options    16,677      6,063        - -
                                                             ------------------------------
   Weighted average shares outstanding, diluted ...........   620,266    617,602    606,002
                                                             ==============================

   Diluted earnings per share .............................  $   1.33   $   0.91   $   0.25
                                                             ==============================
<PAGE>

<FN>
*    Earnings  per  share  information  for the  year  ended  June  30,  1996 is
     calculated  by  dividing  net  income,  subsequent  to the  mutual to stock
     conversion,  by the  weighted  average  number of shares  outstanding.  Net
     income  subsequent to the conversion was $150,832 for the period ended June
     30, 1996.
</FN>
</TABLE>


Note 12.  Regulatory Capital Requirements

The ability of the Company to pay  dividends  to its  shareholders  is dependent
upon dividends paid by its subsidiary banks.

Federal regulatory agencies have adopted various capital standards for financial
institutions,   including  risk-based  capital  standards.   Risk-based  capital
standards  have  requirements  for a  minimum  Tier 1 capital  to  assets  ratio
(leverage  ratio).  In addition,  regulatory  agencies  consider  the  published
capital  levels as minimum  levels and may  require a financial  institution  to
maintain capital at higher levels.

A  comparison  of the  Banks'  capital  as of June 30,  1998  with  the  minimum
requirements is presented below:

                                                    Actual          
                                                  ----------     Minimum
                                                  Washington    Requirements
                                                  --------------------------

Tangible capital ...........................         9.65%         1.5%
Risk-based capital .........................        13.99          8.0
Core capital ...............................         9.65          4.0

According to the Office of Thrift Supervision ("OTS"),  Washington is considered
to be "well capitalized."

                                                           Actual      
                                                           ------      Minimum
                                                           Rubio    Requirements
                                                           ---------------------

Tier 1 risk-based capital ......................           23.30%        4.0%
Total risk-based capital .......................           24.15         8.0
Leverage ratio .................................           10.76         3.0

According  to  FDIC  capital  guidelines,   Rubio  is  considered  to  be  "well
capitalized."

Banking  laws and  regulations  limit the amount of  dividends  that may be paid
without  prior   approval  of  the  Bank's   regulatory   agency.   Under  these
restrictions,  the Company's  subsidiary  banks may not pay dividends that would
result in its capital levels being reduced below the minimum  requirements shown
above.

Note 13.  Commitments and Contingencies

Financial  instruments  with  off-balance  sheet risk:  The Banks are a party to
financial  instruments  with  off-balance-sheet  risk in the  normal  course  of
business  to  meet  the  financing  needs  of  its  customers.  These  financial
instruments include commitments to extend credit.  Those instruments involve, to
varying  degrees,  elements  of credit and  interest  rate risk in excess of the
amount recognized in the statement of financial position.

The Banks' exposure to credit loss in the event of  nonperformance  by the other
party  to  the  financial   instrument  for  commitments  to  extend  credit  is
represented by the contractual  notional amount of those instruments.  The Banks
use the same credit policies in making  commitments and conditional  obligations
as they do for on-statement of financial condition instruments.
<PAGE>


Unless  noted  otherwise,  the Banks  require  collateral  or other  security to
support financial instruments with credit risk.

                                                                       Contract
                                                                          Or
                                                                       Notional
                                                                        Amount
                                                                      ----------
Financial instruments whose contract amounts represent
   credit risk,  commitments to extend credit:
   First mortgage loans ...........................................   $2,153,777
   Consumer and other loans .......................................    1,054,642
                                                                      ----------
                                                                      $3,208,419
                                                                      ==========

The above commitments are to make fixed rate loans with a June 30, 1998 weighted
average interest rate of 8.55%.

Commitments  to extend  credit are  agreements  to lend to a customer as long as
there is not violation of any condition established in the contract. Commitments
generally  have fixed  expiration  dates or other  termination  clauses  and may
require payment of a fee. The Banks evaluate each customer's creditworthiness on
a case-by-case basis. The amount of collateral obtained,  if deemed necessary by
the Banks,  upon extension of credit is based on management's  credit evaluation
of the party.  Collateral  held  varies  but may  include  accounts  receivable,
inventory, property and equipment, and income-producing commercial properties.

Concentrations  of credit  risk:  Most of the Banks'  lending  activity  is with
customers located within the state. The Banks generally originate  single-family
residential  loans within its primary  lending area of  southeastern  Iowa.  The
Banks' underwriting policies require such loans to be an 85% loan to value based
upon appraised values. These loans are secured by the underlying properties. The
Banks are also active in  originating  secured  consumer loans to its customers,
primarily  automobile and home equity loans. As of June 30, 1998, the Banks have
approximately $7,512,000 of agriculturally dependent loans.

Year  2000  plans:   Information  technology  experts  believe  that  many  data
processing  application  systems could fail or improperly perform as a result of
erroneous  calculation or data integrity  problems if they are unable to process
date  information  beyond  December 31, 1999,  an issue known as Year 2000.  The
Company is heavily  dependent  upon computer  processing  and has addressed this
issue by the near  completion of an assessment of its information  systems.  The
Company's plan is to complete the testing and validation and  certification  for
the more critical functions. The Company anticipates it will incur approximately
$85,000 of capital  expenditures  over the next two years to replace and upgrade
hardware and software and will verify that the acquisitions  are compliant.  For
other  applications,  it will complete its assessment,  testing,  and validation
processes with internal resources.

Note 14.  Fair Value of Financial Instruments

The  fair  value  of  financial  instruments  at June  30,  1998 and 1997 are as
follows:
                                         1998                     1997
                              --------------------------------------------------
                                Carrying      Fair       Carrying       Fair
                                 Amount       Value       Amount        Value
                              --------------------------------------------------
Financial assets:
   Cash and cash equivalents  $ 3,306,374  $ 3,306,374  $  807,805  $    807,805
   Investment securities:
      Held to maturity .....    1,131,478    1,131,478
      Available-for-sale ...   19,122,283   19,122,283    9,849,991    9,849,991
   Federal funds sold ......      659,497      659,497
   Loans ...................   65,884,941   65,763,645   52,530,153   52,593,286
Financial liabilities:
   Deposits ................   66,595,476   67,042,333   44,754,328   45,985,031
   Borrowed funds ..........   15,724,071   15,662,707    8,651,765    8,580,789

                                      Face                  Face       
                                     Amount                Amount
                                   ---------------------------------------------

Off-balance sheet instruments ...  $3,208,419  $    - -  $2,050,182  $      - -

<PAGE>


Note 15.  Transactions with Related Parties

The  Banks  have  had,  and  may be  expected  to have  in the  future,  banking
transactions  in the  ordinary  course of  business  with  directors,  principal
officers,  their immediate  families and affiliated  companies in which they are
principal  stockholders  (commonly referred to as related parties), all of which
have, in the opinion of management,  on the same terms, including interest rates
and collateral, as those prevailing at the time for comparable transactions with
others.

Aggregate loan transactions with related parties were as follows:

                                                      Year Ended June 30,
                                                    -----------------------
                                                       1998         1997
                                                    -----------------------

Balance, beginning ..............................   $  602,041   $  899,503
   Loans to directors and officers of Rubio 
     at date of acquisition .....................      259,097          - -
   New loans ....................................      387,281      377,840
   Repayments ...................................     (456,593)    (675,302)
                                                    -----------------------
Balance, ending .................................   $  791,826   $  602,041
                                                    =======================

Maximum balance during the year .................   $1,219,418   $1,153,058
                                                    =======================

Note 16.  Acquisition of a Business

Effective January 15, 1998, the Company acquired for cash all of the outstanding
shares of Rubio. The total  acquisition  cost was $4,797,689.  The excess of the
acquisition  cost over the fair value of the net assets  acquired was $1,418,428
and is being  amortized  over fifteen  years by the  straight-line  method.  The
acquisition was accounted for as a purchase and the results of operations  since
the date of the acquisition are included in the Company's statement of income.

Unaudited proforma net income and earnings per share for 1998, 1997 and 1996, as
though  Rubio  had  been  acquired  as of July 1,  1995,  are not  significantly
different than the reported amounts of the Company.

Note 17.  Reorganization and Conversion to Stock Ownership

On September 7, 1995,  the Board of  Directors of  Washington  adopted a plan of
conversion  to convert  from a  federally  chartered  mutual  savings  bank to a
federally  chartered  stock  savings  bank with the  concurrent  formation  of a
holding  company.  The conversion was  accomplished  through an amendment of the
Washington  Federal  charter and the  issuance of the holding  company's  common
stock through a public stock offering.

The  reorganization  and stock  offering was completed on March 11, 1996 and the
holding company received stock offering proceeds of $5,652,693,  net of costs of
$396,477.  Washington  concurrently  issued  one  share of  common  stock to the
holding company  representing  100% of the common stock of Washington at a price
of $3,089,356.

Persons who had liquidation rights with respect to the mutual savings bank as of
the  date  of  reorganization  shall,  as  long as  they  remain  depositors  of
Washington,  continue  to have such  rights  solely  with  respect to the mutual
savings bank after the reorganization.
<PAGE>


Note 18.  Parent Company Only Financial Information

Following is condensed  financial  information  of the Company  (Parent  Company
only):

                                WASHINGTON BANCORP

                   CONDENSED STATEMENTS OF FINANCIAL CONDITION
                           As Of June 30, 1998 and 1997
<TABLE>

ASSETS                                                                                    1998             1997
-----------------------------------------------------------------------------------------------------------------
<S>                                                                                    <C>            <C>    
Cash ...............................................................................   $   458,809    $ 1,886,565
Investment in subsidiary bank, at cost plus equity in
   undistributed earnings ..........................................................    10,616,841      8,762,017
Other assets .......................................................................        67,288        109,846
                                                                                       --------------------------
                                                                                       $11,142,938    $10,758,428
                                                                                       ==========================

LIABILITIES AND STOCKHOLDERS' EQUITY
-----------------------------------------------------------------------------------------------------------------

Liabilities, accrued expenses and other liabilities ................................   $    17,943    $    13,605
                                                                                       --------------------------
Redeemable common stock held by Employee Stock
   Ownership Plan (ESOP) ...........................................................       153,788         69,392
                                                                                       --------------------------
Stockholders' equity:
   Preferred stock
   Common stock ....................................................................         6,511          6,575
   Additional paid-in capital ......................................................     6,122,664      6,150,032
   Retained earnings ...............................................................     5,825,363      5,292,419
   Unrealized (losses) on investment securities available
      for sale of bank subsidiaries, net ...........................................          (507)        (3,307)
                                                                                       --------------------------
                                                                                        11,954,031     11,445,719
   Less:
      Cost of common shares acquired for the treasury
        1998 16,127 shares; 1997 6,386 shares ......................................      (300,944)       (85,827)
      Deferred compensation ........................................................      (104,962)      (151,739)
      Maximum cash obligation related to ESOP shares ...............................      (153,788)       (69,392)
      Unearned shares, Employee Stock Ownership Plan ...............................      (423,130)      (463,330)
                                                                                       --------------------------
                                                                                        10,971,207     10,675,431
                                                                                       --------------------------
                                                                                       $11,142,938    $10,758,428
                                                                                       ==========================
</TABLE>

                       WASHINGTON BANCORP

                      STATEMENTS OF INCOME
            Years Ended June 30, 1998, 1997 and 1996
<TABLE>

                                                               1998          1997          1996
--------------------------------------------------------------------------------------------------
<S>                                                         <C>           <C>            <C>  
Dividends from subsidiaries .............................   $2,800,000    $      - -     $     - -
Interest income .........................................        5,666         5,693        35,027
Miscellaneous income ....................................           25           - -           - -
Miscellaneous expense ...................................      (60,593)      (65,600)          (30)
                                                            --------------------------------------
              Income (loss) before equity in
                  subsidiaries' undistributed
                  income and taxes on income ............    2,745,098       (59,907)       34,997
Equity in undistributed net income (loss) of subsidiaries   (1,945,071)      604,285       420,075
                                                            --------------------------------------
              Income before taxes on income .............      800,027       544,378       455,072
Federal and state income taxes (credits) ................      (22,809)      (20,299)       13,650
                                                            --------------------------------------
              Net income ................................   $  822,836    $  564,677    $  441,422
                                                            ======================================
</TABLE>
<PAGE>


                           WASHINGTON BANCORP

                        STATEMENTS OF CASH FLOWS
                Years Ended June 30, 1998, 1997 and 1996
<TABLE>

                                                                       1998          1997          1996
----------------------------------------------------------------------------------------------------------
<S>                                                                 <C>           <C>           <C>    
Cash Flows from Operating Activities
   Net income ...................................................   $  822,836    $  564,677    $  441,422
   Adjustments to reconcile net income to net cash
      provided by operations:
      Equity in net income of subsidiaries ......................     (854,929)     (604,285)     (420,075)
      (Increase) in other assets ................................      114,853       (74,818)      (35,028)
      Increase in accrued expenses and other liabilities ........        4,338       (47,858)       61,463
                                                                    --------------------------------------
              Net cash provided by (used in) operating activities       87,098      (162,284)       47,782
                                                                    --------------------------------------

Cash Flows from Investing Activities
   Dividends received from subsidiaries .........................    2,800,000           - -           - -
   Return of equity from subsidiaries ...........................    1,000,000           - -           - -
   Purchase of available-for-sale securities ....................     (500,000)          - -           - - 
   Acquisition of stock in subsidiary ...........................   (3,089,356)          - -           - -
   Maturity of available-for-sale securities ....................      500,000           - -           - -
   Purchase of stock of Rubio ...................................   (4,797,689)          - -           - -
                                                                    --------------------------------------
              Net cash provided by (used in) investing activities     (997,689)      500,000    (3,589,356)
                                                                    --------------------------------------

Cash Flows from Financing Activities
   Proceeds from issuance of shares of common stock .............       12,330           - -     6,049,170
   Payments of expenses incurred related to conversion
      of stock form .............................................          - -           - -      (396,477)
   Payments received from subsidiary for compensation
      under stock awards ........................................       67,329           - -           - -
   Acquisition of common stock ..................................     (328,899)     (348,563)          - -
   Dividends paid ...............................................     (267,925)     (213,707)          - -
                                                                    --------------------------------------
              Net cash provided by (used in) financing activities     (517,165)     (562,270)    5,652,693
                                                                    --------------------------------------

              Increase (decrease) in cash .......................   (1,427,756)     (224,554)    2,111,119

Cash balance:
   Beginning ....................................................    1,886,565     2,111,119           - -
                                                                    --------------------------------------
   Ending .......................................................   $  458,809    $1,886,565    $2,111,119
                                                                    ======================================

Supplemental Disclosures
   Cash payments for income taxes, net of  payments
      payments from subsidiary ..................................   $  148,806    $  129,458    $      - -
</TABLE>
<PAGE>






                               WASHINGTON BANCORP


                        DIRECTORS AND EXECUTIVE OFFICERS



Directors

Stan Carlson                               Rick R. Hofer
President and Chief Executive              Chairman of the Board, Washington
 Officer, Washington and Washington          and Washington Federal
 Federal                                   Employee, Sitler Electric Supply

James D. Gorham                            Mary Levy
Sales Agent, Northwestern Mutual           Treasurer and co-owner, Mose Levy
 Life Insurance Co.                          Steel Company

Myron L. Graber                            Richard L. Weeks
Co-owner, Graber Home                        Owner, Sitler Electric Supply, Inc.
 Improvement, Inc.

J. Richard Wiley                           Dean Edwards
Owner, Wiley Computers                       President and Chief Executive 
                                               Officer,
                                             Rubio Savings Bank

Executive Officers

Stan Carlson                               Leisha Linge
President and Chief Executive Officer      Treasurer and Principal Financial 
                                           Officer

Jeff Johnson
Vice President






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                             STOCKHOLDER INFORMATION

Corporate Profile

         The  Company  is an Iowa  corporation  which was  organized  in 1995 by
Washington  Federal  for the purpose of  becoming a thrift  institution  holding
company.  Washington  Federal was  organized in 1934 and  converted to a federal
savings bank in 1994. In March 1996,  Washington  Federal converted to the stock
form of organization  and  concurrently  became the  wholly-owned  subsidiary of
Washington  through the sale and issuance of common stock. Rubio was acquired in
January 1998. The principal  assets of the Company are the outstanding  stock of
the Banks, its wholly owned subsidiaries.  The Company presently has no separate
operations  and its business  consists  only of the  business of the Banks.  The
Banks' primary business consists of attracting  deposits from the general public
and using these deposits to provide  financing for the purchase and construction
of residential and, to a lesser extent, other properties.


Washington Federal Savings Bank            Washington Federal Savings Bank
Main Office                                Drive-thru Office

102 East Main Street                       220 East Washington Street
Washington, Iowa                           Washington, Iowa

Rubio Savings Bank
Main Office

122 East Washington Street
Brighton, Iowa

Independent Auditors                       Local Counsel

McGladrey & Pullen, LLP                    Tindal, Erdahl, Goddard & Nestor, PLC
Town Centre, Suite 300                     Attorneys at Law
221 Third Avenue, SE                       305 West Main Street - Suite A
Cedar Rapids, Iowa 52401                   Washington, Iowa 52353

Transfer Agent                             Special Counsel

Registrar & Transfer Co.                   Silver, Freedman & Taff, L.L.P.
10 Commerce Drive                          1100 New York Avenue, N.W.
Cranford, New Jersey                       Washington, D.C.  20005

Form 10-KSB Report

         A copy of the  Company's  Annual  Report on Form  10-KSB for the fiscal
year ended June 30, 1998 including financial statements,  as filed with the SEC,
will be furnished  without  charge to  stockholders  of the Company upon written
request to the Secretary,  Washington Bancorp, 102 East Main Street, Washington,
Iowa 52353.

Stock Listing

         The Company's  common stock is reported on the National Daily Quotation
Service by the National  Quotation Bureau under the symbol "WBIO".  As of August
31, 1998,  the Company had 415  stockholders  of record and 603,006  outstanding
shares of common stock.
<PAGE>


Price Range of Common Stock

         The table  below  shows the range of high and low  interdealer  prices.
These prices do not include retail markups, markdowns or commissions and may not
represent actual transactions.  The table below also shows dividends paid by the
Company.

                                           High             Low         Dividend
--------------------------------------------------------------------------------

1996
Third quarter ................        $      11.50     $      10.50     $   --
Fourth quarter ...............        $      11.38     $      10.50     $   --

1997
First quarter ................        $      11.38     $      10.63     $   .08
Second quarter ...............        $      12.63     $      10.88     $   .08
Third quarter ................        $      15.00     $      12.88     $   .10
Fourth quarter ...............        $      15.35     $      13.75     $   .10

1998
First quarter ................        $      17.00     $      15.50     $   .10
Second quarter ...............        $      17.75     $      17.00     $   .10
Third quarter ................        $      18.50     $      18.00     $   .12
Fourth quarter ...............        $      18.675    $      18.125    $   .12