<PAGE>   1
                     U.S. SECURITIES AND EXCHANGE COMMISSION

                             WASHINGTON, D.C. 20549

                                   FORM 10-KSB

 (Mark One)

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

           For the Fiscal Year December 31, 1998
                                                       OR

  [   ]    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
           EXCHANGE ACT OF 1934 [No Fee Required]

           For the transition period from ______________to___________________


                        Commission File Number: 000-23109

                       OHIO STATE FINANCIAL SERVICES, INC.
                 ----------------------------------------------
                 (Name of small business issuer in its charter)

              Ohio                                              31-1529204
-------------------------------                           ----------------------
(State or other jurisdiction of                              (I.R.S. Employer
incorporation or organization)                            Identification Number)

                     435 Main Street, Bridgeport, Ohio 43912
              ---------------------------------------------------
              (Address of principal executive offices) (Zip Code)

                    Issuer's telephone number: (740) 635-0764
                                               --------------

      Securities registered pursuant to Section 12(b) of the Exchange Act:
                                      None
                                      ----

      Securities registered pursuant to Section 12(g) of the Exchange Act:
                        Common Shares, without par value
                        --------------------------------
                                (Title of Class)

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

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

State the issuer's revenues for its most recent fiscal year:  $2.6 million.

Based on the average of the bid and asked prices quoted by the OTC Bulletin
Board as of March 26, 1999, the aggregate market value of the voting stock held
by non-affiliates of the Registrant, on that date was $4.9 million.

At March 30, 1999, there were 572,337 of the Registrant's Common Shares issued 
and outstanding.

Part II of Form 10-KSB: Portions of the 1998 Annual Report to Shareholders in
Exhibit 13.

Part III of Form 10-KSB: Portions of the Proxy Statement for the 1999 Annual
Meeting of Shareholders in Exhibit 20.

Transitional Small Business Disclosure Format Yes     No  X
                                                  ---    ---
 


<PAGE>   2

                                     PART I

ITEM 1.  DESCRIPTION OF BUSINESS

GENERAL

         Ohio State Financial Services, Inc. ("OSFS") is a unitary savings and
loan holding company organized under Ohio law in March 1997. On September 26,
1997, OSFS acquired all of the common shares issued by Bridgeport Savings and
Loan Association, a savings and loan association organized under Ohio law (the
"Association"), upon the conversion of the Association from mutual to stock form
(the "Conversion").

         As a savings and loan holding company, OSFS is subject to regulation,
supervision and examination by the Office of Thrift Supervision (the "OTS"). The
activities of OSFS have been limited primarily to holding the common stock of
the Association. Consequently, the following discussion focuses primarily on the
business of the Association.

         As an Ohio savings and loan association, the Association is subject to
supervision and regulation by the OTS, the Ohio Department of Commerce, Division
of Financial Institutions (the "Division") and the Federal Deposit Insurance
Corporation (the "FDIC"). The Association is a member of the Federal Home Loan
Bank (the "FHLB") of Cincinnati, and the deposits of the Association are insured
up to applicable limits by the FDIC in the Savings Association Insurance Fund
(the "SAIF").

         The Association conducts business from its main office located in
Bridgeport, Ohio, and one full-service branch located in Shadyside, Ohio. The
principal business of the Association is the origination of permanent mortgage
loans on one- to four-family residential real estate located in the
Association's primary market area, which consists of Belmont County, Ohio, and
Ohio and Marshall Counties, West Virginia. The Association also originates a
limited number of loans for the construction of one- to four-family residences
and permanent mortgage loans secured by nonresidential real estate in its market
area. In addition to real estate lending the Association originates secured and
unsecured consumer loans. For liquidity and interest rate risk management
purposes, the Association invests in interest-bearing deposits in other
financial institutions, U.S. Government and agency obligations and
mortgage-backed securities. Funds for lending and other investment activities
are obtained primarily from savings deposits, which are insured up to applicable
limits by the FDIC, principal repayments of loans and maturities of investment
securities.

         Interest on loans and investments is the Association's primary source
of income. The Association's principal expense is interest paid on deposit
accounts. Operating results are dependent to a significant degree on the net
interest income of the Association, which is the difference between interest
income earned on loans, mortgage-backed securities and other investments and
interest paid on deposits. Like most thrift institutions, the Association's
interest income and interest expense are significantly affected by general
economic conditions and by the policies of various regulatory authorities.

LENDING ACTIVITIES

         GENERAL. The Association's principal lending activity is the
origination of conventional fixed-rate real estate loans secured by one- to
four-family residences located in the Association's primary market area. Though
the Association currently originates loans for its portfolio and not with the
intention of selling such loans in the secondary market, fixed-rate loans are
generally underwritten according to secondary market guidelines. In addition to
real estate lending, the Association originates consumer loans, including loans
secured by deposit accounts, automobile loans, and unsecured loans.

<PAGE>   3


         LOAN PORTFOLIO COMPOSITION. The following table presents certain
information in respect of the composition of the Association's loan portfolio at
the dates indicated:

<TABLE>
<CAPTION>
                                                                  At December 31,  
                                   -----------------------------------------------------------------------------
                                           1998                         1997                     1996
                                   ------------------------    -----------------------   -----------------------
                                                Percent of                 Percent of                Percent of
                                   Amount       total loans    Amount      total loans   Amount      total loans
                                   ------       -----------    ------      -----------   ------      -----------
                                                               (Dollars in thousands)
<S>                                <C>          <C>           <C>          <C>           <C>         <C>
Real estate loans:
   One- to four-family             $20,238          80.60%    $19,754          80.33%    $20,605         81.97%
   Multifamily                          --             --          --             --          51          0.20
   Nonresidential                      585           2.33         572           2.33         460          1.83
   Land                                  1            .01          18           0.07          86          0.34
   Construction                        708           2.82         124           0.50         124          0.49
Consumer loans:
   Automobiles                       1,315           5.24       1,721           7.00       1,931          7.68
   Savings accounts                    355           1.41         370           1.51         265          1.06
   Other                             1,870           7.45       1,962           7.98       1,511          6.01
Commercial loans                        36            .14          69           0.28         105          0.42
                                   -------         ------     -------         ------     -------        ------

     Total loans                    25,108         100.00%     24,590         100.00%     25,138        100.00%
                                                   ======                     ======                    ======

Less:
   Loans in process                    367                         36                         51
   Deferred loan fees                    5                         36                         52
   Allowance for loan losses           141                        141                        143
                                   -------                    -------                    -------

     Total loans, net              $24,595                    $24,377                    $24,892
                                   =======                    =======                    =======
</TABLE>

         LOAN MATURITY. The following table sets forth certain information as of
December 31, 1998, regarding the dollar amount of loans maturing in the
Association's portfolio based on their contractual terms to maturity. Demand
loans and other loans having no stated schedule of repayments or no stated
maturity are reported as due in one year or less. Mortgage loans originated by
the Association in its portfolio generally include due-on-sale clauses that
provide the Association with the contractual right to deem the loan immediately
due and payable in the event the borrower transfers the ownership of the
property without the Association's consent. The table does not include the
effects of possible prepayments or scheduled repayments.

<TABLE>
<CAPTION>
                           During the year  Due 1-3        Due 3-5         Due 5-10     Due 10-20      Due over
                                ending       years          years           years         years       20 years
                             December 31,    after          after           after         after         after
                                1999        12/31/99       12/31/99       12/31/99       12/31/99      12/31/99        Total
                                ----        --------       --------       --------       --------      --------        -----
                                                                        (In thousands)
<S>                           <C>            <C>           <C>             <C>            <C>            <C>            <C>
Real estate loans:
   One- to four-family         $2,284         $281          $  282         $4,118        $10,190         $3,083        $20,238
   Nonresidential                  --           28             101             52            404             --            585
   Land                            --            1              --             --             --             --              1
   Construction                    --           --              --             --            708             --            708
Consumer loans                    410          614           1,265          1,217             34             --          3,540
Commercial loans                   17           19              --             --             --             --             36
                               ------         ----          ------         ------        -------         ------        -------

    Total                      $2,711         $943          $1,648         $5,387        $11,336         $3,083        $25,108
                               ======         ====          ======         ======        =======         ======        =======
</TABLE>



                                      -2-
<PAGE>   4

         The following table sets forth the dollar amounts of all loans
contractually due after December 31, 1999, and shows the amount of such loans
which have predetermined interest rates and which have floating or adjustable
interest rates:

                                         Fixed           Adjustable
                                         rates             rates        Total
                                         -----             -----        -----
                                                       (In thousands)
         Real estate loans:
             One- to four-family        $17,698             $256       $17,954
             Nonresidential                 585               --           585
             Land                             1               --             1
             Construction                   708               --           708
         Consumer loans                   3,130               --         3,130
         Commercial loans                    19               --            19
                                        -------             ----       -------
               Total                    $22,141             $256       $22,397
                                        =======             ====       =======

         LOANS SECURED BY ONE- TO FOUR-FAMILY REAL ESTATE. The principal lending
activity of the Association is the origination of conventional loans secured by
first mortgages on one- to four-family residences, primarily single-family
residences, located within the Association's primary market area. At December
31, 1998, the Association's one- to four-family residential real estate loans
totaled approximately $20.2 million, or 80.60% of total loans.

         OTS regulations and Ohio law limit the amount which the Association may
lend in relationship to the appraised value of the real estate and improvements
which will secure the loan at the time of loan origination. In accordance with
such regulations, the Association makes loans on one- to four-family residences
of up to 80% of the value of the real estate and improvements thereon (the
"LTV").

         The Association currently offers fixed-rate loans with terms of up to
25 years, though most loans are originated with terms of 15 years. The
Association does offer adjustable-rate mortgage loans ("ARMs") for terms of up
to 25 years, but has originated very few ARMs since 1990. The maximum interest
rate adjustment period on the ARMs is five years, but can be any number of years
less than five. The interest rate adjustments on ARMs presently offered by the
Association are indexed to the quarterly National Average Cost of Funds to
SAIF-Insured Institutions. Rate adjustments are computed by adding a stated
margin, typically 2%, to the index, with a maximum adjustment of 5% over the
term of the loan.

         The Association has purchased interests in loans from other Ohio
financial institutions at times when there was low loan demand in the
Association's primary market area. Such purchases consist of fixed-rate loans
which meet the Association's underwriting standards. The Association's loan
portfolio includes two participation interests in several single-family loans
secured by properties located in Columbus, Ohio. At December 31, 1998, the
outstanding balance of participation loans purchased, which is included in the
one- to four-family loans, was $3.3 million, or 13.2% of the Association's total
loan portfolio.

         LOANS SECURED BY MULTIFAMILY RESIDENCES. The Association originates a
limited number of loans secured by multifamily properties, which contain more
than four units. Multifamily loans are offered with fixed rates of interest for
terms of up to 25 years and have LTVs of up to 75%.

         Multifamily lending is generally considered to involve a higher degree
of risk than one- to four-family residential lending because the borrower
typically depends upon income generated by the project to cover operating
expenses and debt service. The profitability of a project can be affected by
economic conditions, government policies and other factors beyond the control of
the borrower. The Association attempts to reduce the risk associated with
multifamily lending by evaluating the creditworthiness of the borrower and the
projected income from the project and by obtaining personal guarantees on loans
made to corporations and partnerships. The Association requires borrowers to
agree to submit financial statements annually to enable the Association to
monitor the loan and requires an assignment of rents.

         NONRESIDENTIAL REAL ESTATE. The Association also originates a limited
number of loans for the purchase of nonresidential real estate. The
Association's nonresidential real estate loans have fixed rates, terms of up to
25 years and LTVs of up to 80%. Among the properties securing nonresidential
real estate loans are two churches, a funeral home and a used car lot, which are
located in the Association's primary market area.



                                      -3-
<PAGE>   5

         Nonresidential real estate lending is generally considered to involve a
higher degree of risk than residential lending due to the relatively larger loan
amounts and the effects of general economic conditions on the successful
operation of income-producing properties. The Association has endeavored to
reduce such risk by evaluating the credit history of the borrower, the location
of the real estate, the financial condition of the borrower, the quality and
characteristics of the income stream generated by the property and the
appraisals supporting the property's valuation.

         At December 31, 1998, approximately $585,000, or 2.33% of the
Association's total loans, were secured by mortgages on nonresidential real
estate.

         LAND LOANS. The Association also originates a limited number of loans
secured by single-family land lots. The Association's land loans are generally
three year amortizing loans and require an LTV of 75% or less. At December 31,
1998, approximately $1,000, or less than 1% of the Association's total loans,
were secured by land loans made to individuals intending to construct and occupy
single family residences on the properties.

         CONSTRUCTION LOANS. The Association originates a limited number of
loans for the construction of single-family residential real estate.
Construction loans are structured as permanent loans with fixed rates of
interest and terms of up to 25 years. During the first six months, while the
residence is being constructed, the borrower is required to pay interest only.
Construction loans have LTVs of up to 80%, with the value of the land counting
as part of the owner's equity. At December 31, 1998, the Association had
approximately $708,000, or 2.82% of its total loans, invested in construction
loans.

         CONSUMER LOANS. The Association originates various types of consumer
loans, including home improvement loans, loans secured by savings accounts and
motor vehicles and unsecured loans. Consumer loans are made at fixed rates of
interest. Consumer loans secured by a deposit or savings account are made at an
interest rate that is 2% above the rate paid on the underlying deposit account.
Automobile loans are originated with terms of up to six years for new
automobiles and up to three years for used automobiles. All automobile loans are
originated directly by the Association.

         The Association also makes closed-end home equity loans in an amount
which, when added to the prior indebtedness secured by the real estate, does not
exceed 80% of the estimated value of the real estate. Home equity loans are
secured by real estate. The Association does not offer home equity loans with a
line of credit feature.

         Consumer loans may entail greater credit risk than do residential
mortgage loans. The risk of default on consumer loans increases during periods
of recession, high unemployment, and other adverse economic conditions. Although
the Association has not had significant delinquencies on consumer loans, no
assurance can be provided that delinquencies will not increase.

         At December 31, 1998, the Association had approximately $3.5 million,
or 14.1% of its total loans, invested in consumer loans.

         COMMERCIAL LOANS. The Association has occasionally made commercial
loans to businesses in its primary market area. At December 31, 1998, the
Association had approximately $36,000, or .14% of total loans, invested in five
commercial loans, which were made to local businesses. Four of the loans are
secured by company vehicles and one loan is unsecured. The Association does not
currently originate commercial loans.

         LOAN SOLICITATION AND PROCESSING. Loan originations are generally
obtained from existing customers and members of the local community and from
referrals from real estate brokers, lawyers, accountants, and current and former
customers. The Association also advertises in the local print media and
periodically advertises on radio and television.

         In underwriting real estate loans, the Association typically obtains a
credit report, verification of employment and other documentation concerning the
creditworthiness of the borrower. An appraisal of the fair market value of the
real estate that will be given as security for the loan is prepared by a
certified fee appraiser approved by the Board of Directors. Upon the completion
of the appraisal and the receipt of information on the credit history of the
borrower, the application for a loan is submitted for review in accordance with
the Association's underwriting guidelines which are established annually by the
Board of Directors. The President of the Association has authority to approve
loans of less than $100,000. Loans for amounts greater than $100,000 must be
approved by the full Board of Directors of the Association, which meets twice a
month.


                                      -4-
<PAGE>   6

         Borrowers are required to carry satisfactory fire and casualty
insurance and flood insurance, if applicable, and to name the Association as an
insured mortgagee. The Association obtains an attorney's opinion of title.

         The procedure for approval of construction loans is the same as for
permanent real estate loans, except that an appraiser evaluates the building
plans, construction specifications, and estimates of construction costs. The
Association also evaluates the feasibility of the proposed construction project
and the experience and record of the builder. Once approved, the construction
loan is disbursed in installments based upon periodic inspections of
construction progress.

         Consumer loans are underwritten on the basis of the borrower's credit
history and an analysis of the borrower's income and expenses, ability to repay
the loan, and the value of the collateral, if any. The President of the
Association has authority to approve secured consumer loans of up to $50,000,
and unsecured consumer loans of up to $25,000. The Assistant Vice President and
the Loan Manager of the Association each have the authority to approve
applications for secured consumer loans up to $25,000 and for unsecured loans up
to $10,000 and $2,000, respectively

         LOAN ORIGINATIONS AND PARTICIPATIONS. Currently, the Association is
originating fixed-rate loans for its portfolio and not with the intention of
selling such loans in the secondary market. The Association occasionally
purchases participation interests in fixed-rate loans originated by other
financial institutions which meet the Association's underwriting standards.
Typically the Association purchases a 90% interest in the loan, with the seller
retaining a 10% interest and the servicing of the loan. At December 31, 1998,
the outstanding balance of participation loans purchased, which is included in
the one- to four-family loans, was $3.3 million, or 13.14% of the Association's
total loan portfolio. See "Loans Secured by One- to Four-Family Real Estate."

         The following table presents the Association's total loan origination,
participation and repayment activity for the periods indicated:

                                            Year ended December 31,
                                        ---------------------------------
                                        1998           1997          1996
                                        ----           ----          ----

Total gross loans receivable at
   beginning of period                $24,590        $25,138        $26,510

 Loans originated:
   Real estate:
     One- to four-family                2,342          2,588          1,562
     Multifamily                           --             --             --
     Land                                  --             --             90
     Nonresidential                        10            210            163
     Construction                         734             --             --
   Consumer                             1,369          2,454          2,136
   Commercial                              --             --              8
                                      -------        -------        -------
         Total loans originated         4,455          5,252          3,959

 Loan participations:
   One- to four-family                     --             --            431

Loan principal repayments              (3,824)        (5,786)        (5,762)
Charge-offs                               (42)            --             --
Foreclosures                              (71)           (14)            --
                                      -------        -------        -------
Net loan activity                         518           (548)        (1,372)
                                      -------        -------        -------
Total gross loans receivable at
    end of period                     $25,108        $24,590        $25,138
                                      =======        =======        =======

         The Association issues written commitments to prospective borrowers on
all approved mortgage loans which expire within 30 days of the date of issuance
and charges an application fee. In some instances, commitments may be renewed or
extended. At December 31, 1998, the Association had $1.0 million of outstanding
commitments to originate loans and $367,000 in undisbursed funds related to
construction loans. Management believes that less than 1% of loan commitments
expire without being funded.


                                      -5-
<PAGE>   7

         LOANS TO ONE BORROWER LIMITS. OTS regulations generally limit the
aggregate amount that a savings association may lend to any one borrower to an
amount equal to 15% of the association's unimpaired capital and unimpaired
surplus (the "Lending Limit Capital"). A savings association may lend to one
borrower an additional amount not to exceed 10% of the association's Lending
Limit Capital if the additional amount is fully secured by certain forms of
"readily marketable collateral." Real estate is not considered "readily
marketable collateral." In applying this limit, the regulations require that
loans to certain related or affiliated borrowers be aggregated. An exception to
this limit permits loans of any type to one borrower of up to $500,000.

         Based on such limits, the Association was able to lend approximately
$1.2 million to one borrower at December 31, 1998. The maximum amount that the
Association will lend to one borrower, however, is $500,000. The largest amount
the Association had outstanding to one borrower at December 31, 1998, was
$307,864, which consisted of eight loans, secured by vehicles and real property.
At December 31, 1998, the loans were performing in accordance with their terms.

         LOAN ORIGINATION AND OTHER FEES. The Association realizes loan
origination fees and other fee income from its lending activities. In addition,
the Association realizes income from late payment charges, application fees, and
fees for other miscellaneous services.

         Loan origination fees and other fees are a volatile source of income,
varying with the volume of lending, loan repayments, and general economic
conditions. All nonrefundable loan origination fees and certain direct loan
origination costs are deferred and recognized in accordance with Statement of
Financial Accounting Standards ("SFAS") No. 91 as an adjustment to yield over
the life of the related loan.

         DELINQUENT LOANS, NONPERFORMING ASSETS AND CLASSIFIED ASSETS. The
Association attempts to maintain a high level of asset quality through sound
underwriting policies and efficient collection practices.

         To discourage late payments, the Association charges a late fee of 5%
of the payment amount after 15 days for loans originated since January 1, 1990.
When a loan is 30 days past due, the borrower is sent a delinquency notice. When
a loan is 31 to 60 days delinquent, the Association sends to the borrower
another delinquency notice and a personalized letter and one of the
Association's loan personnel will telephone the borrower. When a loan becomes 60
days delinquent, additional contacts are made and the loan is generally referred
to an attorney for foreclosure, unless a repayment schedule has been
established.

         Loans are reviewed on a monthly basis and are placed on nonaccrual
status when collection in full is considered doubtful by management. Generally,
loans past due more than 90 days as to principal or interest are placed on
nonaccrual status. Interest accrued and unpaid at the time a loan is placed on
nonaccrual status is charged against interest income. Subsequent cash payments
are generally applied to interest income unless, in the opinion of management,
the collection of principal and interest is doubtful. In those cases, subsequent
cash payments would be applied to principal.



                                      -6-
<PAGE>   8

         The following table reflects the amount of loans in a delinquent status
as of the dates indicated:

<TABLE>
<CAPTION>
                                                                         At December 31,  
                                --------------------------------------------------------------------------------------------------
                                          1998                              1997                              1996   
                                ----------------------------    --------------------------------   -------------------------------
                                                    Percent                             Percent                           Percent
                                                    of total                            of total                          of total
                                Number    Amount     loans      Number     Amount        loans     Number     Amount       loans
                                ------    ------     -----      ------     ------        -----     ------     ------       -----
                                                                      (Dollars in thousands)  
<S>                             <C>       <C>        <C>        <C>        <C>            <C>       <C>       <C>           <C>
Loans delinquent for:
  30 - 59 days                     5       $54        .22%         21       $331          1.35%       7       $174          0.69%
  60 - 90 days                    --        --         --          12        294          1.20        3         94          0.37
  Over 90 days                    --        --         --           6         98          0.40        2         69          0.27
                                 ---       ---        ---          --       ----          ----       --       ----          ----

   Total delinquent loans          5       $54        .22%         39       $723          2.95%      12       $337          1.34%
                                 ===       ===        ===          ==       ====          ====       ==       ====          ==== 
</TABLE>

         Nonperforming assets include nonaccruing loans, accruing loans which
are delinquent more than 90 days, real estate acquired by foreclosure or by
deed-in-lieu thereof, in-substance foreclosures and repossessed assets.

         The following table sets forth information with respect to the accrual
and nonaccrual status of the Association's loans and other nonperforming assets
at the dates indicated:

<TABLE>
<CAPTION>
                                                                     At December 31,
                                                             ------------------------------
                                                             1998         1997         1996
                                                             ----         ----         ----
                                                                  (Dollars in thousands)
<S>                                                          <C>          <C>          <C>
Loans accounted for on a nonaccrual basis:
   Real estate                                                $ --        $ 64         $ 51
   Consumer                                                     --          34           18
                                                              ----        ----         ----
     Total nonaccrual loans                                     --          98           69

     Total nonperforming loans                                  --          98           69

   Real estate owned                                            --          --           --
                                                              ----        ----         ----

     Total nonperforming assets                               $ --        $ 98         $ 69
                                                              ====        ====         ====

     Allowance for loan losses                                $141        $141         $143
                                                              ====        ====         ====

     Nonperforming assets as a percent of total assets          --        0.26%        0.20%

     Nonperforming loans as a percent of total loans            --        0.40%        0.28%

     Allowance for loan losses as a percent of
       nonperforming loans                                      --      143.86%      207.25%
</TABLE>

         Real estate acquired in settlement of loans is classified separately on
the balance sheet at the lower of the recorded investment in the property or its
fair value minus estimated costs of sale. Prior to foreclosure, the loan is
written down to the value of the underlying collateral by a charge to the
allowance for loan losses, if necessary. Any subsequent write-downs are charged
against operating expenses. Operating expenses of such properties, net of
related income or loss on disposition, are included in other expenses. At
December 31, 1998, the Association had no real estate acquired in settlement of
loans.

         The Association classifies its assets on a regular basis in accordance
with federal regulations. Problem assets are classified as "substandard,"
"doubtful" or "loss." "Substandard" assets have one or more defined weaknesses
and are characterized by the distinct possibility that the Association will
sustain some loss if the deficiencies are not corrected. "Doubtful" assets have
the same weaknesses as "substandard" assets, with the additional characteristics
that (i) the weaknesses 


                                      -7-
<PAGE>   9

make collection or liquidation in full, on the basis of currently existing
facts, conditions and values, questionable and (ii) there is a high possibility
of loss. An asset classified "loss" is considered uncollectible and of such
little value that its continuance as an asset of the Association is not
warranted. In addition, federal regulations also contain a "special mention"
category, consisting of assets which do not currently expose an institution to a
different degree of risk to warrant classification but which possess credit
deficiencies or potential weaknesses deserving management's close attention.

         The aggregate amounts of the Association's classified assets at the
dates indicated were as follows:

                                                     At December 31,  
                                             -------------------------------
                                             1998          1997         1996
                                             ----          ----         ----
                                                     (In thousands)

              Classified assets:
                 Substandard                  $--          $71         $  --
                 Doubtful                      --           --           132
                 Loss                          --           --            --
                                              ---          ---          ----
                  Total classified assets     $--          $71          $132
                                              ===          ===          ====

         The Association establishes a general allowance for loan losses for any
loan classified as substandard or doubtful. If an asset, or portion thereof, is
classified as loss, the Association establishes a specific allowance for loss in
the amount of 100% of the portion of the asset classified loss or charges off
the portion of any real estate loan deemed to be uncollectible. See "Allowance
for Loan Losses."

         The Association analyzes each classified asset on a monthly basis to
determine whether changes in the classifications are appropriate under the
circumstances. Such analysis focuses on a variety of factors, including the
amount of any delinquency and the reasons for the delinquency, if any, the use
of the real estate securing the loan, the status of the borrower, and the
appraised value of the real estate. As such factors change, the classification
of the asset will change accordingly. At December 31, 1998, the Association had
classified $155,000 of assets as special mention.

         ALLOWANCE FOR LOAN LOSSES. Management reviews on a quarterly basis the
allowance for loan losses as it relates to a number of relevant factors,
including, but not limited to, growth and changes in the composition of the loan
portfolio, trends in the level of delinquent and problem loans, current and
anticipated economic conditions in the primary lending area, past loss
experience, and possible losses arising from specific problem assets.

         While management believes that it uses the best information available
to determine the allowance for loan losses, unforeseen market conditions could
result in adjustments and net income could be significantly affected if
circumstances differ substantially from the assumptions used in making the final
determination. In addition, the Association's determination as to the amount of
its allowance for loan losses in subject to review by the OTS, as part of its
examination process, which may result in the establishment of an additional
allowance based upon the judgment of the OTS after a review of the information
available at the time of the OTS examination.



                                      -8-
<PAGE>   10

         The following table sets forth an analysis of the Association's
allowance for loan losses for the periods indicated:

<TABLE>
<CAPTION>
                                                                   Year ended December 31,  
                                                           ---------------------------------------
                                                           1998              1997             1996
                                                           ----              ----             ----
                                                                   (Dollars in thousand)
<S>                                                        <C>              <C>              <C>  
Balance at beginning of year                               $ 141            $ 143            $ 143

Charge-offs                                                  (42)              (2)              --
Recoveries                                                     1               --               --
                                                           -----            -----            -----
Net (charge-offs) recoveries                                 (41)              (2)              --

Provision for losses on loans                                 41               --               --
                                                           -----            -----            -----

Balance at end of year                                     $ 141            $ 141            $ 143
                                                           =====            =====            =====

Ratio of net (charge-offs) recoveries to average
   loans outstanding during the year                       (0.16)%          (0.01)%            N/A

Ratio of allowance for loan losses to total loans           0.56%            0.57%            0.57%
</TABLE>

         The following table sets forth the allocation of the allowance for loan
losses by category. The allocations are based on management's assessment of the
risk characteristics of each of the components of the total loan portfolio and
is subject to changes as and when the risk factors of each such component
changes. The allocation is not indicative of either the specific amounts or the
loan categories in which future charge-offs may be taken, nor should it be taken
as an indicator of future loss trends. The allocation of the allowance to each
category is not necessarily indicative of future loss in any particular category
and does not restrict the use of the allowance to absorb losses in any category.

<TABLE>
<CAPTION>
                                                                      At December 31,
                               -------------------------------------------------------------------------------------------
                                           1998                            1997                          1996
                               -----------------------------  ----------------------------  ------------------------------
                                           Percent of loans               Percent of loans               Percent of loans
                                           in each category               in each category               in each category
                               Amount       to total loans    Amount       to total loans    Amount      to total loans
                               ------       --------------    ------       --------------    ------      --------------
                                                                (Dollars in thousands)
<S>                            <C>          <C>               <C>          <C>               <C>          <C>
Real estate:
   One- to four-family          $117              80.60%       $116              80.33%       $115              81.97%
   Multifamily                    --                 --          --                 --          --               0.20
   Nonresidential                  2               2.33           2               2.33           3               1.83
   Construction                   --               2.82          --               0.50          --               0.49
   Land                           --                 --          --               0.07          --               0.34
Consumer                          22              14.10          23              16.49          25              14.75
Commercial                        --                .15          --               0.28          --               0.42
                                ----             ------        ----             ------        ----             ------

      Total                     $141             100.00%       $141             100.00%       $143             100.00%
                                ====             ======        ====             ======        ====             ====== 
</TABLE>

INVESTMENT ACTIVITIES

         GENERAL. Federal regulation and Ohio law permit the Association to
invest in various types of investment securities, including interest-bearing
deposits in other financial institutions, U.S. Treasury and agency obligations,
mortgage-backed securities, and certain other specified investments. The Board
of Directors of the Association has adopted an investment policy which
authorizes management to make investments in U.S. Treasury obligations, U.S.
Government and agency securities, municipal obligations, mortgage-backed
securities, deposits in the FHLB, certificates of deposit in federally-insured
financial institutions, and federal funds at commercial banks. The Association's
investment policy is designed primarily to provide and maintain liquidity within
regulatory guidelines, to maintain a balance of high quality investments to
minimize risk, and to maximize return without sacrificing liquidity and safety.
See "REGULATION."


                                      -9-
<PAGE>   11

         The Association's securities available for sale and investment
securities held to maturity at December 31, 1998, did not contain securities of
any issuer with an aggregate book value in excess of 10% of the Association's
equity, excluding those issued by the U. S. Government or its agencies. As of
December 31, 1998, the Association's investment portfolio was comprised of FHLB
stock, U.S. Government and agency securities, mortgage-backed securities, and
stock of a service provider, with an aggregate market value of $1.4 million.

         At December 31, 1998, the Association held mortgage-backed securities
in its held to maturity investment portfolio with an amortized cost of $667,000.
The average yield on mortgage-backed securities at December 31, 1998, was 9.51%.
The Association's mortgage-backed securities at December 31, 1998, were all
issued by the Government National Mortgage Association (the "GNMA") or the
Federal Home Loan Mortgage Corporation (the "FHLMC"), representing participation
interests in direct pass-through pools of long-term mortgage loans originated
and serviced by the issuers of the securities. Expected maturities will differ
from contractual maturities due to scheduled repayments and because borrowers
may have the right to call or prepay obligations with or without prepayment
penalties.

         The following table sets forth the composition of the Association's
interest-bearing deposits and investment securities portfolio, including those
designated as available for sale, at the dates indicated:

<TABLE>
<CAPTION>
                                                                            At December 31,
                                     ------------------------------------------------------------------------------------
                                              1998                          1997                           1996
                                     ----------------------         -----------------------        ----------------------
                                     Carrying         Fair          Carrying          Fair         Carrying         Fair
                                       value          value           value           value           value         value
                                       -----          -----           -----           -----           -----         -----
                                                                    (Dollars in thousands)
<S>                                    <C>           <C>            <C>             <C>              <C>            <C>   
Interest-bearing deposits              $4,792        $4,792         $ 2,654         $ 2,654          $1,985         $1,985
Interest-bearing time deposits          3,100         3,100           4,600           4,600             800            800
Investment securities:
  Held to maturity:
    U.S. Government and federal
      agencies                            300           307           3,299           3,310           3,797          3,811
    Mortgage-backed securities
                                          667           712             847             914             984          1,063
  Available for sale:
    FHLB stock                            374           374             348             348             324            324
    Intrieve Inc. stock                    15            15              15              15              15             15
                                       ------        ------         -------         -------          ------         ------
    Total                              $9,248        $9,300         $11,763         $11,841          $7,905         $7,998
                                       ======        ======         =======         =======          ======         ======
</TABLE>

         The maturities of the Association's interest-bearing deposits and
investment securities (excluding mortgage-backed securities) at December 31,
1998, are indicated in the following table:

<TABLE>
<CAPTION>
                                                          At December 31, 1998
                                     -----------------------------------------------------------------
                                         One year or less                       Total
                                     ------------------------      -----------------------------------
                                     Carrying         Average      Carrying     Weighted        Market
                                       value           yield         value   average yield      value
                                       -----           -----         -----   -------------      -----
                                                          (Dollars in thousands)
<S>                                    <C>             <C>          <C>          <C>            <C>   
Interest-bearing deposits              $4,792          4.69%        $4,792       4.69%          $4,792
Interest-bearing time deposits          3,100          5.92          3,100       5.92            3,100
Investment securities:
   U.S. Government and
       federal agencies                   300          8.60            300       8.60              307
   Intrieve Inc. stock                     15             -             15          -               15
   FHLB stock                             374          6.94            374       6.94              374
                                       ------          ----         ------       ----           ------
     Total                             $8,581          5.36%        $8,581       5.36%          $8,588
                                       ======          ====         ======       ====           ======
</TABLE>


                                      -10-
<PAGE>   12


         At December 31, 1998, $1.2 million of interest-bearing deposits are
pledged under short-term borrowing agreements. 

         The maturities of the Association's mortgage-backed securities
portfolio are indicated in the following tables:

<TABLE>
<CAPTION>
                                               December 31, 1998   
 -------------------------------------------------------------------------------------------------------------------
                        After one             After five
      One year or      through five          through ten             After ten                                 
         less              years                years                  years                       Total
 ------------------  -----------------   ------------------    --------------------    ----------------------------- 
  Carrying  Average  Carrying  Average   Carrying   Average    Carrying     Average    Carrying               Market
  value     yield     value     yield     value     yield        value       yield      value      Yield       value
  -----     -----     -----     -----     -----     -----        -----       -----      -----      -----       -----
                                                (Dollars in thousands)
    <S>       <C>      <C>      <C>        <C>       <C>         <C>          <C>        <C>        <C>        <C> 
    $--       --        $8      9.50%      $82       10.10%      $577         9.43%      $667       9.51%      $712
</TABLE>

DEPOSITS AND BORROWINGS

         GENERAL. Deposits have traditionally been the primary source of the
Association's funds for use in lending and other investment activities. In
addition to deposits, the Association derives funds from interest payments and
principal repayments on loans and income on earning assets. Loan payments are a
relatively stable source of funds, while deposit inflows and outflows fluctuate
in response to general interest rates and money market conditions. The
Association may also borrow funds from the FHLB as a source of funds.

         DEPOSITS. Deposits are attracted principally from within the
Association's market area through the offering of a selection of deposit
instruments, including regular passbook savings accounts, NOW accounts, money
market accounts, and certificates of deposit. Interest rates paid, maturity
terms, service fees, and withdrawal penalties for the various types of accounts
are monitored weekly by the President and reviewed monthly by the Board of
Directors of the Association. The Association does not use brokers to attract
deposits. The amount of deposits from outside the Association's market area is
not significant.

         The following table sets forth the dollar amount of deposits in the
various types of accounts offered by the Association at the dates indicated:

<TABLE>
<CAPTION>
                                                     At December 31,
                                 ----------------------------------------------------------------------
                                        1998                     1997                       1996
                                 -------------------     --------------------       -------------------
                                             Percent                  Percent                  Percent
                                            of total                 of total                  of total
                                 Amount     deposits     Amount      deposits       Amount     deposits
                                 ------     --------     ------      --------       ------     --------
                                                        (Dollars in thousands)
<S>                              <C>         <C>         <C>          <C>           <C>         <C>
Transaction accounts:
   Regular savings
     accounts (1)                $ 9,686       38.06%    $ 9,947        37.77%      $ 9,923     34.50%
   NOW and Super NOW accounts
     (2)                           1,227        4.82         973         3.70           979      3.40
   Money market accounts (3)       2,136        8.39       2,391         9.08         3,290     11.40
                                                         -------       ------       -------    ------
     Total transaction
       accounts                   13,049       51.27      13,311        50.55        14,192     49.30

Certificates of deposit
    3.01 -  5.00%                  5,866       23.05       6,303        23.94         6,837     23.75
    5.01 -  7.00%                  6,535       25.68       6,719        25.51         7,762     26.95
                                 -------      ------     -------       ------       --------   ------

   Total certificates of
      deposit (4)                 12,401       48.73      13,022        49.45        14,599     50.70
                                 -------      ------      ------       ------       -------    ------

   Total deposits                $25,450      100.00%    $26,333       100.00%      $28,791    100.00%
                                 =======      ======     =======       ======       =======    ======
</TABLE>

-----------------------------
(Footnotes on next page).



                                      -11-
<PAGE>   13

(1)  The weighted average rate on passbook savings accounts was 3.0% at December
     31, 1998, 1997 and 1996, respectively.

(2)  The weighted average rate on NOW and Super NOW accounts was 1.75% at
     December 31, 1998, 1997 and 1996, respectively.

(3)  The weighted average rate on money market accounts was 2.75% at December
     31, 1998, 1997 and 1996, respectively.

(4)  The weighted average rate on all certificates of deposit was 5.07%, 5.03%
     and 5.09% at December 31, 1998, 1997 and 1996, respectively.


         The following table shows rate and maturity information for the
Association's certificates of deposit at December 31, 1998:

<TABLE>
<CAPTION>
                                                            Amount Due
                                 ---------------------------------------------------------------
                                                Over          Over
                                   Up to      1 year to     2 years to      Over
     Rate                        one year      2 years       3 years      3 years        Total
     ----                        --------      -------       -------      -------        -----
                                                         (In thousands)
<S>                               <C>          <C>             <C>          <C>          <C>    
3.01% to 5.00%                    $4,818       $  548          $261         $239         $ 5,866
5.01% to 7.00%                     4,491        1,383           449          212           6,535
                                  ------       ------          ----         ----         -------
   Total certificates 
     of deposit                   $9,309       $1,931          $710         $451         $12,401
                                  ======       ======          ====         ====         =======
</TABLE>

         At December 31, 1998, approximately $9.3 million of the Association's
certificates of deposit mature within one year. Based on past experience and the
Association's prevailing pricing strategies, management believes that a
substantial percentage of such certificates will be renewed with the Association
at maturity. If, however, the Association is unable to renew the maturing
certificates for any reason, borrowings of up to $7.5 million are available from
the FHLB of Cincinnati.

         The following table presents the amount of the Association's
certificates of deposit of $100,000 or more by the time remaining until maturity
at December 31, 1998:

                   Maturity                             Amount
                   --------                             ------
                                                    (In thousands)

         Three months or less                            $  762
         Over 3 months to 6 months                          703
         Over 6 months to 12 months                       1,661
         Over 12 months                                     800
                                                         ------
             Total                                       $3,926
                                                         ======

         The majority of the above certificates of deposit are held by 
long-time depositors at the Association and management believes that a
substantial percentage of such certificates will be renewed with the Association
at maturity.


                                      -12-
<PAGE>   14

         The following table sets forth the Association's deposit account
balance activity for the periods indicated:

<TABLE>
<CAPTION>
                                                        Year ended December 31,
                                         --------------------------------------------------
                                         1998                   1997                   1996
                                         ----                   ----                   ----
<S>                                     <C>                    <C>                    <C>    
Beginning balance                       $26,333                $28,791                $29,615
Net increase (decrease) before
   interest credited                     (1,909)                (3,597)                (1,972)
Interest credited                         1,026                  1,139                  1,148
                                        -------                -------                -------
Ending balance                           25,450                 26,333                $28,791
                                        =======                =======                =======

  Net increase (decrease)               $  (833)               $(2,458)               $ ( 824)
                                        =======                =======                =======
</TABLE>

         BORROWINGS. The FHLB system functions as a central reserve bank
providing credit for its member institutions and certain other financial
institutions. See "REGULATION - Federal Home Loan Banks." As a member in good
standing of the FHLB of Cincinnati, the Association is authorized to apply for
advances from the FHLB of Cincinnati, provided certain standards of
creditworthiness have been met. Under current regulations, an association must
meet certain qualifications to be eligible for FHLB advances. The extent to
which an association is eligible for such advances will depend upon whether it
meets the Qualified Thrift Lender (the "QTL") test. See "REGULATION - Office of
Thrift Supervision -- Qualified Thrift Lender Test." If an association meets the
QTL test, the association will be eligible for 100% of the advances it would
otherwise be eligible to receive. If an association does not meet the QTL test,
the association will be eligible for such advances only to the extent it holds
specified QTL test assets. At December 31, 1998, the Association was in
compliance with the QTL test. During the years ending December 31, 1998, 1997
and 1996, the Association did not utilize FHLB advances.

         During the year ended December 31, 1998, the Company had short-term
borrowings with two local financial institutions with average balances of
$121,000. The total balance outstanding at December 31, 1998, was $893,000.

COMPETITION

         The Association faces competition for deposits and loans from branches
of two large independent commercial banks located in Bridgeport and branches of
two larger independent commercial banks and one branch of a super-regional
commercial bank in Shadyside. In addition, competing financial institutions
exist in surrounding communities located in the Association's market area. The
primary factors in competition for deposits are customer service and convenience
of office location. The Association competes for loan originations primarily
through the interest rates and loan fees it charges and through the efficiency
and quality of services it provides to borrowers. Competition is intense and is
affected by, among other things, the general availability of lendable funds,
general and local economic conditions, current interest rate levels and other
factors which are not readily predictable. The Association does not offer all of
the products and services offered by some of its competitors, particularly
commercial banks.

EMPLOYEES

         At December 31, 1998, the Association had 13 full-time employees and no
part-time employees. The Association believes that relations with its employees
are excellent. The Association offers health, life and disability benefits to
all employees and has a defined benefit pension plan and a 401(k) plan for its
eligible full-time employees. None of the employees of the Association is
represented by a collective bargaining unit.



                                      -13-
<PAGE>   15

YEAR 2000

         GENERAL. As with most providers of financial services, the
Association's operations are heavily dependent on information technology systems
and rapid and accurate data processing is essential to the Association's
operations. Many computer programs that can only distinguish the final two
digits of the year entered (a common programming practice in earlier years) are
expected to read entries for the Year 2000 as the year 1900 or as zero and
incorrectly attempt to compute payment, interest, delinquency, and other data.
The Association has been evaluating both information technology (computer
systems) and non-information technology systems (e.g., vault timers and
electronic door lock). Based upon such evaluations, management has determined
that the Association has Year 2000 risk in three areas: (1) the Association's
own computers (2) the computers used by the Association's borrowers, and (3) the
computers of others who provide the Association with data processing. Management
has not established a Year 2000 budget but believes that its expense related to
upgrading its computers represents the Association's main Year 2000 expense.
There is no guarantee, however, that additional expenses will not occur in the
future.

         THE ASSOCIATION'S OWN COMPUTERS. The Association has upgraded its
computer system to eliminate the Year 2000 risk. The Association does not expect
to have material additional costs to address this risk. The upgrade costs were
approximately $3,000 and did not have a material impact on the consolidated
financial position or results of operations of OSFS.

         COMPUTERS OF OTHERS USED BY THE ASSOCIATION'S BORROWERS. The
Association has evaluated most of its borrowers and does not believe the Year
2000 problem should, on an aggregate basis, impact their ability to make
payments to the Association. The Association believes that most of its
residential borrowers are not dependent on their home computers for income and
that none of its commercial borrowers are so large that a Year 2000 problem
would render them unable to collect revenue or rent and, in turn, continue to
make loan payments to the Association. The Association does not anticipate any
material costs to address this risk area and believes it is Year 2000 compliant
in this risk area.

         COMPUTERS OF OTHERS WHO PROVIDE THE ASSOCIATION WITH DATA PROCESSING.
This risk is primarily focused on one third-party service bureau that provides
virtually all of the Association's data processing. This service bureau has
advised the Association that it has completed the upgrades necessary for Year
2000 readiness. The service bureau is in the process of testing these upgrades
which it believes will be finished by June 1999. Testing to date has experienced
no substantial problems.

         CONTINGENCY PLAN. The Association is monitoring its service bureau to
evaluate whether its data processing system will fail and is being provided with
periodic updates on the status of testing and upgrades being made by the service
bureau. If the Association's service bureau fails, the Association will attempt
to locate an alternative service bureau that is Year 2000 compliant. If the
Association is unsuccessful, the Association will manually enter deposit
balances and interest with its existing computer system. If this labor intensive
approach is necessary, management and employees will become much less efficient.
However, the Association believes that it would be able to operate in this
manner indefinitely, until its existing service bureau, or its replacement, is
able to again provide data processing services. If very few financial
institution service bureaus were operating in the Year 2000, the Association's
replacement costs, assuming the Association could negotiate an agreement, could
be material.


                                   REGULATION

GENERAL

         OSFS is a savings and loan holding company within the meaning of the
Home Owners Loan Act, as amended (the "HOLA"). Consequently, OSFS is subject to
regulation, examination and oversight by the OTS and must submit periodic
reports to the OTS concerning its activities and financial condition. In
addition, as a corporation organized under Ohio law, OSFS is subject to
provisions of the Ohio Revised Code applicable to corporations generally, 
including laws which restrict takeover bids, tender offers and control share 
acquisitions involving public companies which have significant ties to Ohio.

         As a savings and loan association chartered under the laws of Ohio, the
Association is subject to regulation, examination and oversight by the
Superintendent of the Division (the "Ohio Superintendent"). Because the
Association's deposits are insured by the FDIC, the Association also is subject
to regulatory oversight by the FDIC. The Association must file periodic reports
with the OTS concerning its activities and financial condition. Examinations are
conducted periodically by federal and state regulators to determine whether the
Association is in compliance with various regulatory requirements and is
operating in a safe and sound manner. The Association is a member of the FHLB.



                                      -14-
<PAGE>   16

         Congress is considering legislation to eliminate the federal savings
and loan charter and the separate federal regulation of savings and loan
associations. Pursuant to such legislation, Congress may eliminate the OTS and
the Association may be regulated under federal law as a bank or be required to
change its charter. Such change in regulation or charter would likely change the
range of activities in which the Association may engage and would probably
subject the Association to more regulation by the FDIC. In addition, OSFS might
become subject to a different set of holding company regulations limiting the
activities in which OSFS may engage and subjecting OSFS to additional regulatory
requirements, including separate capital requirements. At this time, OSFS cannot
predict when or whether Congress may actually pass legislation regarding OSFS's
and the Association's regulatory requirements or charter. Although such
legislation, if enacted, may change the activities in which OSFS or the
Association are authorized to engage, it is not anticipated that the current
activities of either OSFS or the Association will be materially affected by
those activity limits.




                                      -15-
<PAGE>   17


OHIO SAVINGS AND LOAN REGULATION

         The Ohio Superintendent is responsible for the regulation and
supervision of Ohio savings and loan associations in accordance with the laws of
the State of Ohio and imposes assessments on Ohio associations based on their
asset size to cover the costs of supervision and examination. Ohio law
prescribes the permissible investments and activities of Ohio savings and loan
associations, including the types of lending that such associations may engage
in and the investments in real estate, subsidiaries and corporate or government
securities that such associations may make. The ability of Ohio associations to
engage in these state-authorized investments and activities is subject to
oversight and approval by the FDIC, if such investments or activities are not
permissible for a federally-chartered savings association. The Ohio
Superintendent also has approval authority over any mergers involving, or
acquisitions of control of, Ohio savings and loan associations. The Ohio
Superintendent may initiate certain supervisory measures or formal enforcement
actions against Ohio associations. Ultimately, if the grounds provided by law
exist, the Superintendent may place an Ohio association in conservatorship or
receivership.

         In addition to being governed by the laws of Ohio specifically
governing savings and loan associations, the Association is also governed by
Ohio corporate law, to the extent such law does not conflict with the laws
specifically governing savings and loan associations.

OFFICE OF THRIFT SUPERVISION

         GENERAL. The OTS is an office of the Department of the Treasury and is
responsible for the regulation and supervision of all federally-chartered
savings associations and all other savings associations the deposits of which
are insured by the FDIC in the SAIF. The OTS issues regulations governing the
operation of savings associations, regularly examines such associations and
imposes assessments on savings associations based on their asset size to cover
the costs of general supervision and examination. The OTS also may initiate
enforcement actions against savings associations and certain persons affiliated
with them for violations of laws or regulations or for engaging in unsafe or
unsound practices. If the grounds provided by law exist, the OTS may appoint a
conservator or receiver for a savings association.

         Savings associations are subject to regulatory oversight under various
consumer protection and fair lending laws. These laws govern, among other
things, truth-in-lending disclosures, equal credit opportunity, fair credit
reporting and community reinvestment. Failure to abide by federal laws and
regulations governing community reinvestment could limit the ability of an
association to open a new branch or engage in a merger. Community reinvestment
regulations evaluate how well and to what extent an institution lends and
invests in its designated service area, with particular emphasis on low- to
moderate-income communities and borrowers in that area.

         REGULATORY CAPITAL REQUIREMENTS. The Association is required by OTS
regulations to meet certain minimum capital requirements. The tangible capital
requirement requires savings associations to maintain "tangible capital" of not
less than 1.5% of their adjusted total assets. Tangible capital is defined in
OTS regulations as core capital minus any intangible assets.

         "Core capital" is comprised of common stockholders' equity (including
retained earnings), noncumulative preferred stock and related surplus, minority
interests in consolidated subsidiaries, certain nonwithdrawable accounts and
pledged deposits of mutual associations. OTS regulations require savings
associations to maintain core capital of at least 3% of their total assets. The
OTS has proposed to amend the core capital requirement so that those
associations that do not have the highest examination rating and exceed an
acceptable level of risk will be required to maintain core capital of from 4% to
5%, depending on the association's examination rating and overall risk. The
Association does not anticipate that it will be adversely affected if the core
capital requirement regulation is amended as proposed.

         OTS regulations require that savings associations maintain "risk-based
capital" in an amount not less than 8% of their risk-weighted assets. Risk-based
capital is defined as core capital plus certain additional items of capital,
which in the case of the Association includes allowances for loan and lease
losses of $131,000 at December 31, 1998.

         The OTS has adopted an interest rate risk component to the risk-based
capital requirement, though the implementation of that component has been
delayed. Pursuant to the interest rate risk component, a savings association
will have to measure the effect of an immediate 200 basis point change in
interest rates on the value of its portfolio as determined under the methodology
of the OTS. If the measured interest rate risk is above the level deemed normal
under the regulation, 


                                      -16-
<PAGE>   18

the association will be required to deduct one-half of such excess exposure from
its total capital when determining its risk-based capital. In general, an
association with less than $300 million in assets and a risk-based capital ratio
in excess of 12% will not be subject to the interest rate risk component.
Pending implementation of the interest rate risk component, the OTS has the
authority to impose a higher individualized capital requirement on any savings
association it deems to have excess interest rate risk. The OTS also may adjust
the risk-based capital requirement on an individualized basis to take into
account risks due to concentrations of credit and non-traditional activities.

         The OTS has adopted regulations governing prompt corrective action to
resolve the problems of capital deficient and otherwise troubled savings
associations. At each successively lower defined capital category, an
association is subject to more restrictive and more numerous mandatory or
discretionary regulatory actions or limits, and the OTS has less flexibility in
determining how to resolve the problems of the institution. In addition, the OTS
generally can downgrade an association's capital category, notwithstanding its
capital level, if, after notice and opportunity for hearing, the association is
deemed to be engaging in an unsafe or unsound practice because it has not
corrected deficiencies that resulted in it receiving a less than satisfactory
examination rating on matters other than capital or it is deemed to be in an
unsafe or unsound condition. All undercapitalized associations must submit a
capital restoration plan to the OTS within 45 days after becoming
undercapitalized. Such associations will be subject to increased monitoring and
asset growth restrictions and will be required to obtain prior approval for
acquisitions, branching and engaging in new lines of business. Furthermore,
critically undercapitalized institutions must be placed in conservatorship or
receivership within 90 days of reaching that capitalization level, except under
limited circumstances. The Association's capital at December 31, 1998, met the
standards for the highest category, a "well-capitalized" institution.

         Federal law prohibits a savings association from making a capital
distribution to anyone or paying management fees to any person having control of
the association if, after such distribution or payment, the association would be
undercapitalized. In addition, each company controlling an undercapitalized
association must guarantee that the association will comply with its capital
plan until the association has been adequately capitalized on an average during
each of four preceding calendar quarters and must provide adequate assurances of
performance. The aggregate liability pursuant to such guarantee is limited to
the lesser of (a) an amount equal to 5% of the association's total assets at the
time the institution became undercapitalized and (b) the amount that is
necessary to bring the association into compliance with all capital standards
applicable to such association at the time the association fails to comply with
its capital restoration plan.

         LIQUIDITY. OTS regulations require that a savings association maintain
an average daily balance of liquid assets (cash, certain time deposits, bankers'
acceptances and specified United States government, state or federal agency
obligations). During 1998, certain maturity requirements were removed, which in
the Association's case, resulted in a greater eligible liquidity amount and
percentage at December 31, 1998, than at prior year ends. At December 31, 1998,
such minimum requirement was an amount equal to a monthly average of not less
than 4% of its net withdrawable savings deposits plus borrowings payable in one
year or less. Monetary penalties may be imposed upon associations failing to
meet these liquidity requirements. The eligible liquidity of the Association at
December 31, 1998, was approximately $7.9 million, or 31.57%, and exceeded the
applicable 4.0% liquidity requirement by approximately $6.9 million.

         QUALIFIED THRIFT LENDER TEST. Savings associations are required to
maintain a specified level of investments in assets that are designated as
qualifying thrift investments ("QTI"), which are generally related to domestic
residential real estate and manufactured housing and include credit card,
student and small business loans and stock issued by any FHLB, the FHLMC or the
FNMA. Under such test, 65% of an institution's "portfolio assets" (total assets
less goodwill and other intangibles, property used to conduct business and 20%
of liquid assets) must consist of QTI on a monthly average basis in nine out of
every 12 months. Effective September 30, 1996, a savings association may also
qualify as a QTL by meeting the definition of "domestic building and loan
association" under the Internal Revenue Code of 1986, as amended (the "Code").
In order for an institution to meet the definition of a "domestic building and
loan association" under the Code, at least 60% of such institution's assets must
consist of specified types of property, including cash loans secured by
residential real estate or deposits, educational loans and certain governmental
obligations. The OTS may grant exceptions to the QTL test under certain
circumstances. If a savings association fails to meet the QTL test, the
association and its holding company become subject to certain operating and
regulatory restrictions. A savings association that fails to meet the QTL test
will not be eligible for new FHLB advances. At December 31, 1998, the
Association met the QTL test.

         LENDING LIMIT. OTS regulations generally limit the aggregate amount
that a savings association can lend to one borrower to an amount equal to 15% of
the association's Lending Limit Capital. A savings association may lend to one
borrower an additional amount not to exceed 10% of the association's Lending
Limit Capital, if the additional amount is fully secured by certain forms of
"readily marketable collateral." Real estate is not considered "readily
marketable collateral." 


                                      -17-
<PAGE>   19

Certain types of loans are not subject to the lending limit. A general exception
to the 15% limit provides that an association may lend to one borrower up to
$500,000, for any purpose. In applying the limit on loans to one borrower, the
regulations require that loans to certain related borrowers be aggregated. At
December 31, 1998, the Association was in compliance with this lending limit.

         TRANSACTIONS WITH INSIDERS AND AFFILIATES. Loans to executive officers,
directors and principal shareholders and their related interests must conform to
the lending limit on loans to one borrower, and the total of such loans to
executive officers, directors, principal shareholders and their related
interests cannot exceed the association's Lending Limit Capital (or 200% of
Lending Limit Capital for qualifying institutions with less than $100 million in
deposits). Most loans to directors, executive officers and principal
shareholders must be approved in advance by a majority of the "disinterested"
members of the board of directors of the association, with any "interested"
director not participating. All loans to directors, executive officers and
principal shareholders must be made on terms substantially the same as offered
in comparable transactions with the general public or as offered to all
employees in a company-wide benefit program. Loans to executive officers are
subject to additional limitations. The Association was in compliance with such
restrictions at December 31, 1998.

         All transactions between savings associations and their affiliates must
comply with Sections 23A and 23B of the Federal Reserve Act (the "FRA"). An
affiliate of a savings association is any company or entity that controls, is
controlled by or is under common control with the savings association. OSFS is
an affiliate of the Association. Generally, Sections 23A and 23B of the FRA (i)
limit the extent to which a savings association or its subsidiaries may engage
in "covered transactions" with any one affiliate to an amount equal to 10% of
such institution's capital stock and surplus, (ii) limit the aggregate of all
such transactions with all affiliates to an amount equal to 20% of such capital
stock and surplus, and (iii) require that all such transactions be on terms
substantially the same, or at least as favorable to the association, as those
provided in transactions with a non-affiliate. The term "covered transaction"
includes the making of loans, purchasing of assets, issuance of a guarantee and
other similar types of transactions. In addition to the limits in Sections 23A
and 23B, a savings association may not make any loan or other extension of
credit to an affiliate unless the affiliate is engaged only in activities
permissible for a bank holding company and may not purchase or invest in
securities of any affiliate except shares of a subsidiary. The Association was
in compliance with these requirements and restrictions at December 31, 1998.

         LIMITATIONS ON CAPITAL DISTRIBUTIONS. The OTS imposes various
restrictions or requirements on the ability of associations to make capital
distributions, including dividend payments. An association which has converted
from mutual to stock form is prohibited from declaring or paying any dividends
or from repurchasing any of its stock if, as a result, the net worth of the
association would be reduced below the amount required to be maintained for the
liquidation account established in connection with its mutual to stock
conversion. OTS regulations also establish a three-tier system limiting capital
distributions according to ratings of associations based on their capital level
and supervisory condition.

         Tier 1 consists of associations that, before and after the proposed
distribution, meet their fully phased-in capital requirements. Associations in
this category may make capital distributions during any calendar year up to the
greater of (i) 100% of net income, current year-to-date, plus 50% of the amount
by which the lesser of the association's tangible, core or risk-based capital
exceeds its fully phased-in capital requirement for such capital component, as
measured at the beginning of the calendar year, and (ii) the amount authorized
for a Tier 2 association. A Tier 1 association deemed to be in need of more than
normal supervision by the OTS may be downgraded to a Tier 2 or Tier 3
association. The Association meets the requirements for a Tier 1 association and
has not been notified of any need for more than normal supervision.

         Tier 2 consists of associations that, before and after the proposed
distribution, meet their current minimum, but not fully phased-in, capital
requirements. Associations in this category may make capital distributions of up
to 75% of net income over the most recent four quarters. Tier 3 associations do
not meet current minimum capital requirements and must obtain OTS approval of
any capital distribution. Tier 2 associations that propose to make a capital
distribution in excess of the noted safe harbor level must also obtain OTS
approval. Tier 2 associations proposing to make a capital distribution within
the safe harbor provisions and Tier 1 associations proposing to make any capital
distribution need only submit written notice to the OTS 30 days prior to such
distribution.

         As a subsidiary of OSFS, the Association is required to give the OTS 30
days' notice prior to declaring any dividend on its stock. The OTS may object to
the distribution during such 30-day period based on safety and soundness
concerns. The Association did not pay any dividends to OSFS during 1998.



                                      -18-
<PAGE>   20

         HOLDING COMPANY REGULATION. OSFS is a savings and loan holding company
within the meaning of the HOLA. As such, OSFS has registered with the OTS and is
subject to OTS regulations, examination, supervision and reporting requirements.

         The HOLA generally prohibits a savings and loan holding company from
controlling any other savings association or savings and loan holding company,
without prior approval of the OTS, or from acquiring or retaining more than 5%
of the voting shares of a savings association or holding company thereof, which
is not a subsidiary. Under certain circumstances, a savings and loan holding
company is permitted to acquire, with the approval of the OTS, up to 15% of the
previously unissued voting shares of an undercapitalized savings association for
cash without such savings association being deemed to be controlled by OSFS.
Except with the prior approval of the OTS, no director or officer of a savings
and loan holding company or person owning or controlling by proxy or otherwise
more than 25% of such holding company's stock may also acquire control of any
savings institution, other than a subsidiary institution, or any other savings
and loan holding company.

         As a unitary savings and loan holding company, OSFS generally has no
restrictions on its activities. Such companies are the only financial
institution holding companies which may engage in any commercial, securities and
insurance activities without restriction. Congress is considering legislation
which may limit OSFS's ability to engage in these activities. It cannot be
predicted whether and in what form these proposals might become law. However,
such limits would not impact OSFS's current activities, which consist solely of
holding stock of the Association. The broad latitude to engage in activities
under current law can be restricted. If the OTS determines that there is
reasonable cause to believe that the continuation by a savings and loan holding
company of an activity constitutes a serious risk to the financial safety,
soundness or stability of its subsidiary savings association, the OTS may impose
such restrictions as deemed necessary to address such risk, including limiting
(i) payment of dividends by the savings association, (ii) transactions between
the savings association and its affiliates, and (iii) any activities of the
savings association that might create a serious risk that the liabilities of
OSFS and its affiliates may be imposed on the savings association.
Notwithstanding the foregoing rules as to permissible business activities of a
unitary savings and loan holding company, if the savings association subsidiary
of a holding company fails to meet the QTL test, then such unitary holding
company would become subject to the activities restrictions applicable to
multiple holding companies. At December 31, 1998, the Association met both those
tests.

         If OSFS acquired control of another savings institution, other than
through a merger or other business combination with the Association, OSFS would
become a multiple savings and loan holding company. Unless the acquisition was
an emergency thrift acquisition and each subsidiary savings association met the
QTL test, the activities of OSFS and any of its subsidiaries (other than the
Association other subsidiary savings associations) would thereafter be subject
to activity restrictions.

         The OTS may approve acquisitions resulting in the formation of a
multiple savings and loan holding company that controls savings associations in
more than one state only if the multiple savings and loan holding company
involved controls a savings association that operated a home or branch office in
the state of the association to be acquired as of March 5, 1987, or if the laws
of the state in which the institution to be acquired is located specifically
permit institutions to be acquired by state-chartered institutions or savings
and loan holding companies located in the state where the acquiring entity is
located (or by a holding company that controls such state-chartered savings
institutions). As under prior law, the OTS may approve an acquisition resulting
in a multiple savings and loan holding company controlling savings associations
in more than one state in the case of certain emergency thrift acquisitions.
Bank holding companies have had more expansive authority to make interstate
acquisitions than savings and loan holding companies since August 1995.

         FEDERAL REGULATION OF ACQUISITIONS OF CONTROL OF OSFS AND THE
ASSOCIATION. In addition to the Ohio law limitations on the merger and
acquisition of the Association and OSFS, federal limitations generally require
regulatory approval of acquisitions at specified levels. Under pertinent federal
law and regulations, no person, directly or indirectly, or acting in concert
with others, may acquire control of the Association or OSFS without 60 days'
prior notice to the OTS. "Control" is generally defined as having more than 25%
ownership or voting power; however, ownership or voting power of more than 10%
may be deemed "control" if certain factors are in place. If the acquisition of
control is by a company, the acquiror must obtain approval, rather than give
notice, of the acquisition as a savings and loan holding company.

         In addition, any merger of the Association must be approved by the OTS
as well as the Superintendent. Further, any merger of OSFS in which OSFS is not
the resulting company must also be approved by both the OTS and the
Superintendent.


                                      -19-
<PAGE>   21

FEDERAL DEPOSIT INSURANCE CORPORATION

         DEPOSIT INSURANCE AND ASSESSMENTS. The FDIC is an independent federal
agency that insures the deposits, up to prescribed statutory limits, of
federally insured banks and savings and loan associations and safeguards the
safety and soundness of the banking and savings and loan industries. The FDIC
administers two separate insurance funds, the Bank Insurance Fund ("BIF") for
commercial banks and state savings banks and the SAIF for savings associations.
The Association is a member of the SAIF and its deposit accounts are insured by
the FDIC up to the prescribed limits. The FDIC has examination authority over
all insured depository institutions, including the Association, and has
authority to initiate enforcement actions against federally-insured savings
associations if the FDIC does not believe the OTS has taken appropriate action
to safeguard safety and soundness and the deposit insurance fund.

         The FDIC is required to maintain designated levels of reserves in the
SAIF and in the BIF. The FDIC may increase assessment rates for either fund if
necessary to restore the fund's ratio of reserves to insured deposits to its
target level within a reasonable time and may decrease such rates if such target
level has been met. The FDIC has established a risk-based assessment system for
both SAIF and BIF members. Under this system, assessments vary based on the risk
the institution poses to its deposit insurance fund. The risk level is
determined based on the institution's capital level and the FDIC's level of
supervisory concern about the institution.

         Prior to September 1996, the SAIF's ratio of reserves to insured
deposits was significantly below the level required by law, while the BIF's
ratio was above the required level. As a result, institutions with SAIF-insured
deposits were paying higher deposit insurance assessments than institutions with
BIF-insured deposits. Federal legislation providing for the recapitalization of
the SAIF became effective in September 1996 and included a special assessment of
$.657 per $100 of SAIF-insured deposits held at March 31, 1995. The Association
had approximately $29.1 million in deposits at March 31, 1995, and paid a
special assessment of $190,000.

         STATE-CHARTERED ASSOCIATION ACTIVITIES. The ability of state-chartered
associations to engage in any state-authorized activities or make any
state-authorized investments is limited if such activity is conducted or
investment is made in a manner different than that permitted for, or subject to
different terms and conditions than those imposed on, federally chartered
savings associations. Engaging as a principal in any such activity or investment
not permissible for a federal association is subject to approval by the FDIC.
Such approval will not be granted unless certain capital requirements are met
and there is not a significant risk to the FDIC insurance fund. All of the
Association's activities and investments at December 31, 1997, were permissible
for a federal association.

FEDERAL RESERVE REQUIREMENTS

         FRB regulations require savings associations to maintain reserves of 3%
of net transaction accounts (primarily NOW accounts) up to $46.5 million
(subject to an exemption of up to $4.9 million), and of 10% of net transaction
accounts in excess of $46.5 million. At December 31, 1998, the Association was
in compliance with the new reserve requirements.

FEDERAL HOME LOAN BANKS

         The FHLBs provide credit to their members in the form of advances. The
Association is a member of the FHLB of Cincinnati and must maintain an
investment in the capital stock of the FHLB of Cincinnati in an amount equal to
the greater of 1.0% of the aggregate outstanding principal amount of the
Association's residential mortgage loans, home purchase contracts and similar
obligations at the beginning of each year, or 5% of its advances from the FHLB
of Cincinnati. The Association was in compliance with this requirement with an
investment in stock of the FHLB of Cincinnati of $374,000 at December 31, 1998.

         FHLB advances to member institutions who meet the QTL test are
generally limited to the lower of (i) 25% of the member's assets or (ii) 20
times the member's investment in FHLB stock. At December 31, 1998, the
Association's maximum limit on advances was approximately $7.5 million. The
granting of advances is also subject to the FHLB's collateral and credit
underwriting guidelines.

         Upon the origination or renewal of a loan or advance, the FHLB is
required by law to obtain and maintain a security interest in collateral in one
or more of the following categories: fully-disbursed, whole first mortgage loans
on improved residential property or securities representing a whole interest in
such loans; securities issued, insured or guaranteed by the United States
Government or an agency thereof; deposits in any FHLB; or other real estate
related collateral (up to 30% of the member association's capital) acceptable to
the FHLB, if such collateral has a readily ascertainable value and the FHLB can
perfect its security interest in the collateral.



                                      -20-
<PAGE>   22

         The FHLB is required to establish standards of community investment or
service that its members must maintain for continued access to long-term
advances. The standards take into account a member's performance under the
Community Reinvestment Act and its record of lending to first-time home buyers.
All long-term advances by the FHLB must be made only to provide funds for
residential housing finance.


                                    TAXATION

FEDERAL TAXATION

         OSFS and the Association are each subject to the federal tax laws and
regulations which apply to corporations generally. In addition to the regular
income tax, OSFS and the Association may be subject to the alternative minimum
tax which is imposed at a minimum tax rate of 20% on "alternative minimum
taxable income" (which is the sum of a corporation's regular taxable income,
with certain adjustments, and tax preference items), less any available
exemption. Such tax preference items include interest on certain tax-exempt
bonds issued after August 7, 1986. In addition, 75% of the amount by which a
corporation's "adjusted current earnings" exceeds its alternative minimum
taxable income computed without regard to this preference item and prior to
reduction by net operating losses, is included in alternative minimum taxable
income. Net operating losses can offset no more than 90% of alternative minimum
taxable income. The alternative minimum tax is imposed to the extent it exceeds
the corporation's regular income tax. Payments of alternative minimum tax may be
used as credits against regular tax liabilities in future years. However, the
Taxpayer Relief Act of 1997 repealed the alternative minimum tax for certain
"small corporations" for tax years beginning after December 31, 1997. A
corporation initially qualifies as a small corporation if it had average gross
receipts of $5,000,000 or less for the three tax years ending with its first tax
year beginning after December 31, 1996. Once a corporation is recognized as a
small corporation, it will continue to be exempt from the alternative minimum
tax for as long as its average gross receipts for the prior three-year period
does not exceed $7,500,000. In determining if a corporation meets this
requirement, the first year that it achieved small corporation status is not
taken into consideration.

         The Association's average gross receipts for the three tax years ending
on December 31, 1998, is $2.5 million and as a result, the Association does
qualify as a small corporation exempt from the alternative minimum tax.

         Prior to the enactment of the Small Business Jobs Protection Act (the
"Act"), which was signed into law on August 21, 1996, certain thrift
institutions, such as the Association, were allowed deductions for bad debts
under methods more favorable than those granted to other taxpayers. Qualified
thrift institutions could compute deductions for bad debts using either the
specific charge-off method of Section 166 of the Code or one of two reserve
methods of Section 593 of the Code. The reserve methods under Section 593 of the
Code permitted a thrift institution annually to elect to deduct bad debts under
either (i) the "percentage of taxable income" method applicable only to thrift
institutions, or (ii) the "experience" method that also was available to small
banks. Under the "percentage of taxable income" method, a thrift institution
generally was allowed a deduction for an addition to its bad debt reserve equal
to 8% of its taxable income (determined without regard to this deduction and
with additional adjustments). Under the "experience" method, a thrift
institution was generally allowed a deduction for an addition to its bad debt
reserve equal to the greater of (i) an amount based on its actual average
experience for losses in the current and five preceding taxable years, or (ii)
an amount necessary to restore the reserve to its balance as of the close of the
base year. A thrift institution could elect annually to compute its allowable
addition to bad debt reserves for qualifying loans either under the experience
method or the percentage of taxable income method. For tax years 1995, 1994, and
1993, the Association used the percentage of taxable income method.

         The Act eliminated the percentage of taxable income method of
accounting for bad debts by thrift institutions, effective for taxable years
beginning after 1995. Thrift institutions that are treated as small banks are
allowed to utilize the experience method applicable to such institutions, while
thrift institutions that are treated as large banks are required to use only the
specific charge off method.

         A thrift institution required to change its method of computing
reserves for bad debt will treat such change as a change in the method of
accounting, initiated by the taxpayer and having been made with the consent of
the Secretary of the Treasury. Section 481(a) of the Code requires certain
amounts to be recaptured with respect to such change. Generally, the amounts to
be recaptured will be determined solely with respect to the "applicable excess
reserves" of the taxpayer. The 


                                      -21-
<PAGE>   23

amount of the applicable excess reserves will be taken into account ratably over
a six-taxable year period, beginning with the first taxable year beginning after
1995, subject to the residential loan requirement described below. In the case
of a thrift institution that is treated as a large bank, the amount of the
institution's applicable excess reserves generally is the excess of (i) the
balances of its reserve for losses on qualifying real property loans (generally
loans secured by improved real estate) and its reserve for losses on
nonqualifying loans (all other types of loans) as of the close of its last
taxable year beginning before January 1, 1996, over (ii) the balances of such
reserves as of the close of its last taxable year beginning before January 1,
1988 (i.e., the "pre-1988 reserves"). In the case of a thrift institution that
is treated as a small bank, like the Association, the amount of the
institution's applicable excess reserves generally is the excess of (i) the
balances of its reserve for losses on qualifying real property loans and its
reserve for losses on nonqualifying loans as of the close of its last taxable
year beginning before January 1, 1996, over (ii) the greater of the balance of
(a) its pre-1988 reserves or (b) what the thrift's reserves would have been at
the close of its last year beginning before January 1, 1996, had the thrift
always used the experience method.

         For taxable years that begin after December 31, 1995, and before
January 1, 1998, if a thrift meets the residential loan requirement for a tax
year, the recapture of the applicable excess reserves otherwise required to be
taken into account as a Code Section 481(a) adjustment for the year will be
suspended. A thrift meets the residential loan requirement if, for the tax year,
the principal amount of residential loans made by the thrift during the year is
not less than its base amount. The "base amount" generally is the average of the
principal amounts of the residential loans made by the thrift during the six
most recent tax years beginning before January 1, 1996. A residential loan is a
loan as described in Section 7701(a)(19)(C)(v) (generally a loan secured by
residential or church property and certain mobile homes), but only to the extent
that the loan is made to the owner of the property.

         The balance of the pre-1988 reserves is subject to the provisions of
Section 593(e), as modified by the Act, which require recapture in the case of
certain excessive distributions to shareholders. The pre-1988 reserves may not
be utilized for payment of cash dividends or other distributions to a
shareholder (including distributions in dissolution or liquidation) or for any
other purpose (except to absorb bad debt losses). Distribution of a cash
dividend by a thrift institution to a shareholder is treated as made: first, out
of the institution's post-1951 accumulated earnings and profits; second, out of
the pre-1988 reserves; and third, out of such other accounts as may be proper.
To the extent a distribution by the Association to OSFS is deemed paid out of
its pre-1988 reserves under these rules, the pre-1988 reserves would be reduced
and the gross income of the Association for tax purposes would be increased by
the amount which, when reduced by the income tax, if any, attributable to the
inclusion of such amount in its gross income, equals the amount deemed paid out
of the pre-1988 reserves. As of December 31, 1998, the pre-1988 reserves of the
Association for tax purposes totaled approximately $830,000. The Association
believes it had approximately $4.5 million of accumulated earnings and profits
for tax purposes as of December 31, 1998, which would be available for dividend
distributions, provided regulatory restrictions applicable to the payment of
dividends are met. See Notes 7 and 18 to the financial statements. No
representation can be made as to whether the Association will have current or
accumulated earnings and profits in subsequent years.

         The tax returns of the Association have been audited or closed without
audit through fiscal year 1992. In the opinion of management, any examination of
open returns would not result in a deficiency which could have a material
adverse effect on the financial condition of the Association.

OHIO TAXATION

         OSFS is subject to the Ohio corporation franchise tax, which, as
applied to OSFS, is a tax measured by both net earnings and net worth. The rate
of tax is the greater of (i) 5.1% on the first $50,000 of computed Ohio taxable
income and 8.9% of computed Ohio taxable income in excess of $50,000 or (ii)
0.582% times taxable net worth. For tax years beginning after December 31, 1998,
the rate of tax is the greater of (i) 5.1% on the first $50,000 of computed Ohio
taxable income and 8.5% of computed Ohio taxable income in excess of $50,000 or
(ii) .400% times taxable net worth.

         A special litter tax is also applicable to all corporations, including
OSFS, subject to the Ohio corporation franchise tax other than "financial
institutions." If the franchise tax is paid on the net income basis, the litter
tax is equal to .11% of the first $50,000 of computed Ohio taxable income and
 .22% of computed Ohio taxable income in excess of $50,000. If the franchise tax
is paid on the net worth basis, the litter tax is equal to .014% times taxable
net worth.

         The Association is a "financial institution" for State of Ohio tax
purposes. As such, it is subject to the Ohio corporate franchise tax on
"financial institutions," which is imposed annually at a rate of 1.5% of the
book net worth of the Association determined in accordance with generally
accepted accounting principles. For tax year 1999, however, the franchise tax on



                                      -22-
<PAGE>   24

financial institutions will be 1.4% of the book net worth and for tax year 2000
and years thereafter the tax will be 1.3% of the book net worth. As a "financial
institution," the Association is not subject to any tax based upon net income or
net profits imposed by the State of Ohio.

ITEM 2.  DESCRIPTION OF PROPERTY

         The following table sets forth certain information at December 31,
1998, regarding the properties on which the main office and the branch office of
the Association are located:

<TABLE>
<CAPTION>
                                  Owned or             Date          Square        Net book
Location                           leased            acquired        footage         value          Deposits
--------                           ------            --------        -------         -----          --------
                                                                                                 (In thousands)
<S>                                <C>                 <C>             <C>          <C>                <C>    
435 Main Street                    Owned               1964            4,744        $131,234           $18,286
Bridgeport, Ohio 43912

4000 Central Avenue                Owned               1979            2,197        $279,816           $ 7,166
Shadyside, Ohio 43943
</TABLE>

         The Association owns all of its electronic data processing equipment.
Such equipment includes several personal computers with a net book value of
approximately $10,000.

ITEM 3. LEGAL PROCEEDINGS

        Neither OSFS nor the Association is presently involved in any legal
proceedings of a material nature. From time to time, the Association is a party
to legal proceedings incidental to its business to enforce its security interest
in collateral pledged to secure loans made by the Association.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

        There were no matters submitted to a vote of the shareholders of OSFS
during the last quarter of the fiscal year ended December 31, 1998.


                                     PART II

ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

        The information contained in those portions of the Annual Report to
Shareholders for the fiscal year ended December 31, 1998 (the "Annual Report"),
which are included in Exhibit 13 hereto under the caption "MARKET PRICE OF
COMMON SHARES AND RELATED SECURITY HOLDER MATTERS" is incorporated herein by
reference.

ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION

        The information contained in those portions of the Annual Report
included in Exhibit 13 hereto under the caption "MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS" is incorporated
herein by reference.

ITEM 7. CONSOLIDATED FINANCIAL STATEMENTS

        The Consolidated Financial Statements contained in those portions of the
Annual Report included in Exhibit 13 hereto are incorporated herein by
reference.

ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND 
        FINANCIAL DISCLOSURE

        Not applicable.



                                      -23-
<PAGE>   25

                                    PART III

ITEM 9.  DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS; 
         COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT

         The information contained in the definitive Proxy Statement for the
1999 Annual Meeting of Shareholders of OSFS (the "Proxy Statement"), which is
included in Exhibit 20 hereto, under the captions "BOARD OF DIRECTORS,"
"EXECUTIVE OFFICERS" and "VOTING SECURITIES AND OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT" is incorporated herein by reference.

ITEM 10. EXECUTIVE COMPENSATION

         The information contained in the Proxy Statement, which is included in
Exhibit 20 hereto, under the caption "COMPENSATION OF EXECUTIVE OFFICERS AND
DIRECTORS" is incorporated herein by reference.

ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

         The information contained in the Proxy Statement, which is included in
Exhibit 20 hereto, under the caption "VOTING SECURITIES AND OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT" is incorporated herein by reference.

ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

         Not applicable

ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K

         (a)     Exhibits

                 Item 3       Amended Articles of Incorporation and Code of 
                              Regulations

                 Item 10      Material Contracts

                 Item 13      Portions of the 1998 Annual Report to Shareholders

                 Item 20      Proxy Statement for 1999 Meeting of Shareholders

                 Item 21      Subsidiaries of the Registrant

                 Item 27      Financial Data Schedule


         (b)     No current report on Form 8-K was filed by OSFS during the 
                 last quarter of the fiscal year covered by this Report.



                                      -24-
<PAGE>   26

                                   SIGNATURES


        Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized on March 23, 1999.


                                            OHIO STATE FINANCIAL SERVICES, INC.



                                            By:  /s/ JON W. LETZKUS
                                                 --------------------------
                                                 Jon W. Letzkus
                                                 President, Chief Executive
                                                 Officer and a Director


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



By: /s/ MICHAEL P. EDDY                           By: /s/ JOHN O. COSTINE
    --------------------------------------            -------------------------
    Michael P. Eddy                                   John O. Costine
    Treasurer and Chief Financial Officer             Director


Date: March 23, 1999                              Date: March 23, 1999


By: /s/ ANTON M. GODEZ                            By: /s/ WILLIAM E. RELINE
    --------------------------------------            -------------------------
    Anton M. Godez                                    William E. Reline
    Director                                          Director


Date: March 23, 1999                              Date: March 23, 1999


By: /s/ MANUEL C. THOMAS
    --------------------------------------
    Manuel C. Thomas
    Director


Date: March 23, 1999



<PAGE>   27

<TABLE>
<CAPTION>
                                                    INDEX TO EXHIBITS


 EXHIBIT
 NUMBER         DESCRIPTION                                                 PAGE NUMBER
 ------         -----------                                                 -----------
 <S>            <C>                                                          <C>
   3.1          Articles of Incorporation, as amended through July 1,        Incorporated by reference to Pre-Effective
                1997, of OSFS                                                Amendment No. 1 to the Form S-1 dated
                                                                             August 1,1997 (the "S-1 Amendment") and
                                                                             filed by OSFS with the Securities and
                                                                             Exchange Commission (the "SEC"), Exhibits
                                                                             3.1 and 3.3

   3.2          Regulations of the Ohio State Financial Services, Inc.       Incorporated by reference to the
                                                                             Registration Statement on Form S-1 dated
                                                                             June 20, 1997 (the "Form S-1"), and filed
                                                                             by OSFS with the SEC, Exhibit 3.2


   10.1        Employment Agreement between the Association and Jon W.
               Letzkus

   10.2        Bridgeport Savings and Loan Association Recognition and
               Retention Plan

               Ohio State Financial Services, Inc. Stock Option and
               Incentive Plan

   13          Ohio State Financial Services, Inc. 1998 Annual Report to
               Shareholders

   20          Proxy Statement for the 1999 Annual Meeting of Shareholders
               of Ohio State Financial Services, Inc.

   21          Subsidiaries of the Registrant                                Incorporated by reference to the Form
                                                                             10-KSB for the year ended December 31,
                                                                             1997, filed with the SEC on March 30,
                                                                             1998, Exhibit 21

   27          Financial Data Schedule
</TABLE>