U.S. SECURITIES AND EXCHANGE COMMISSION
                              WASHINGTON, DC 20549

                                   FORM 10-KSB

                      Annual report under Section 13 of the
                         Securities Exchange Act of 1934

                   For the fiscal year ended DECEMBER 31, 1998

                          Commission File No.: 0-28162

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

            OHIO                                       31-1445959
(State or other jurisdiction of            (I.R.S. Employer Identification No.)
 incorporation or organization)

                   5255 BEECH STREET, ST. BERNARD, OHIO 45217
                    (Address of principal executive offices)

                    Issuer's telephone number: (513) 242-6900
       Securities registered under Section 12(b) of the Exchange Act: NONE
         Securities registered under Section 12(g) of the Exchange Act:

                           COMMON STOCK, NO 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 registrant was required to file such reports), and
(2) has been subject to such filing requirements for the past 90 days.
Yes     [ X ]      No  [   ].

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

        State issuer's revenues for its most recent fiscal year: $214,000

        State the aggregate market value of the voting and non-voting common
equity held by non-affiliates computed by reference to the price at which the
common equity was sold, or the average bid and asked price of such common
equity, as of a specified date within the past 60 days: 6,330,414 as of March
17, 1999 (346,872 shares at $18.25 per share).

        As of March 26, 1999, the issuer has 404,668 shares outstanding.

                       DOCUMENTS INCORPORATED BY REFERENCE

        PORTIONS OF THE ANNUAL REPORT TO STOCKHOLDERS FOR THE YEAR ENDED
DECEMBER 31, 1998 ARE INCORPORATED BY REFERENCE INTO PART II OF THIS FORM
10-KSB.

        PORTIONS OF THE PROXY STATEMENT FOR THE ANNUAL MEETING OF STOCKHOLDERS
ARE INCORPORATED BY REFERENCE INTO PART III OF THIS FORM 10-KSB.

<PAGE>

                                   INDEX


<TABLE>
<CAPTION>
                                                                             PAGE
                                                                             ----
<S>                                                                        <C>
PART I

Item 1.   Description of Business .......................................      1
          Additional Item.  Executive Officers of Registrant

Item 2.   Description of Property........................................     30

Item 3.   Legal Proceedings..............................................     30

Item 4.   Submission of Matters to a Vote of Security Holders............     30


PART II

Item 5.   Market for Registrant's Common Equity and Related
          Stockholder Matters............................................     31

Item 6.   Management's Discussion and Analysis or Plan
          of Operations..................................................     31

Item 7.   Financial Statements...........................................     31

Item 8.   Changes in and Disagreements with Accountants
          on Accounting and Financial Disclosure.........................     31

PART III

Item 9.   Directors, Executive Officers, Promoters and Control Person;
            Compliance with Section 16(a) of the Exchange Act............     32

Item 10.  Executive Compensation.........................................     32

Item 11.  Security Ownership of Certain Beneficial Owners
          and Management.................................................     32

Item 12.  Certain Relationships and Related Transactions.................     32

PART IV

Item 13.  Exhibits and Reports on Form 8-K...............................     33

SIGNATURES...............................................................     35
</TABLE>

<PAGE>

                                     PART I

ITEM 1.  DESCRIPTION OF BUSINESS.

GENERAL

        Lenox Bancorp, Inc. (the "Company" or the "Registrant") was incorporated
under Ohio law on July 24, 1995. On July 17, 1996, the Registrant acquired Lenox
Savings Bank (the "Bank" or "Lenox") as a part of the Bank's conversion from a
mutual to a stock Ohio chartered savings bank. The Registrant is a savings and
loan holding company and is subject to regulation by the Office of Thrift
Supervision (the "OTS"), the Federal Deposit Insurance Corporation (the "FDIC")
and the Securities and Exchange Commission (the "SEC"). Currently, the
Registrant does not transact any material business other than through the Bank.
At December 31, 1998, the Company had total assets of $55.1 million and
stockholders' equity of $7.1 million (13.0% of total assets).

        The Bank was originally chartered in 1887 as an Ohio building and loan
company for the primary purpose of serving the financial needs of the employees
of Procter & Gamble. The Bank later converted to an Ohio savings and loan
company and in November 1993, converted to an Ohio savings bank under its
current name. The Bank conducts its business from its main office located in St.
Bernard, Ohio and a branch office located at 3521 Erie Avenue, Cincinnati, Ohio
45208.

        The Bank is primarily engaged in attracting deposits from the general
public in its primary market area and investing such deposits and other
available funds in mortgage loans secured by one- to four-family residences. At
December 31, 1998, the Bank had invested $34.7 million, or 90.2%, of its total
loan portfolio in one- to four-family mortgage loans. The Bank also invests in
consumer, multi-family and construction loans. Due to the close ties that have
existed between the Bank and Procter & Gamble, the Bank continues to have a high
concentration of borrowers and depositors who are Procter & Gamble employees.
During the fourth quarter of 1998, the Bank began using third party originators
to develop multi-family lending and to increase its loan production. The Bank
also opened a branch office in Hyde Park in October 1997. The new office has
facilitated the Bank's ability to attract new deposits and loan customers. In
times of low mortgage demand, the Bank has sought to invest available funds in
short-term investment securities including U.S. Government and Agency
securities, and most recently, through the purchase of collaterialized mortgage
obligations ("CMOs").

MARKET AREA AND COMPETITION

        The Bank primarily originates one- to four-family residential mortgage
loans within its primary market area. The Bank's deposit gathering and lending
markets are concentrated in Hamilton County, Ohio, however, the Bank also offers
loans in Warren, Butler and Clermont counties, Ohio and Boone, Campbell and
Kenton counties, Kentucky. The Bank's high concentration of lending to and
deposit gathering from Procter & Gamble employees has resulted in the Bank
directly competing with institutions throughout the Cincinnati area, and in
recent years directly with a Cincinnati commercial bank that has opened branch
offices at Procter & Gamble facilities.

        The Cincinnati area, which includes Hamilton County, has a stable
economic base supported by a variety of industries and employment sectors.
Cincinnati is the second largest metropolitan area in the state of Ohio and has
developed the economic characteristics of most large cities in the midwestern
United States. For example, although Cincinnati's economy was founded on
manufacturing, which remained the dominant


                                        1

<PAGE>



employment sector throughout much of the twentieth century, manufacturing
industries now trail services and wholesale and retail trade in terms of
employment. Following the national trend, service industries were the fastest
growing employment sector and is now the largest employment sector in the
Hamilton County. The second largest employment sector is the wholesale and
retail trade sector. Although less prominent, manufacturing remains a large
employment sector, providing employment in such industries as transportation
equipment, food products, industrial machinery and chemicals. The remaining
employment is provided by government, finance, insurance and real estate,
construction, transportation and public utilities.

        Cincinnati is the chosen headquarters for many Fortune 500 companies,
including Procter & Gamble, E.W. Scripps, Federated Department Stores and
Cincinnati Milacron. Many other companies among the Fortune 500 have also
established operations in Cincinnati, including Ford Motor Corp. and General
Electric. Overall, Cincinnati's popularity among large employers has served to
increase the size and stability of the Cincinnati economy.

        The Cincinnati area's increasingly diverse economic mix provides the
metropolitan area with a strong degree of economic stability. Employment
increases in the service and wholesale/retail trade industries, coupled with
less dependence on manufacturing employment has further insulated the economy
from recessionary trends.

        The Bank faces significant competition both in making loans and in
attracting deposits. The Bank's competitors are the financial institutions
operating in its primary market area, many of which are significantly larger and
have greater financial resources than the Bank. The Bank's competition for loans
comes principally from commercial banks, savings and loan associations, mortgage
banking companies, credit unions and insurance companies. Its most direct
competition for deposits has historically come from savings and loan
associations and commercial banks. The Cincinnati area is the home to many
commercial banks and savings institutions. As of December 31, 1998, the Bank
estimates that it represented less than 1% of the total assets and market share
for loans and deposits, among financial institutions serving the Cincinnati
area. In addition, the Bank faces increasing competition for deposits from
non-bank institutions such as brokerage firms and insurance companies in such
areas as short-term money market funds, corporate and government securities
funds, mutual funds and annuities. Competition may also increase as a result of
the lifting of restrictions on the interstate operations of financial
institutions.

LENDING ACTIVITIES

        LOAN PORTFOLIO COMPOSITION. The Bank's loan portfolio consists primarily
of one- to four-family loans, but also originates consumer, multi-family and
construction loans. At December 31, 1998, the Bank's one- to four-family,
multi-family, construction and consumer loans totalled $34.7 million, $1.9
million, $1.6 million and $800,000, respectively. The types of loans that the
Bank may originate are subject to federal and state law and regulations.
Interest rates charged by the Bank on loans are affected by the demand for such
loans and the supply of money available for lending purposes and the rates
offered by competitors. These factors are, in turn, affected by, among other
things, economic conditions, monetary policies of the federal government,
including the Federal Reserve Board and legislative tax policies.


                                        2

<PAGE>



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

<TABLE>
<CAPTION>
                                                                     AT DECEMBER 31,
                                                                     ---------------
                                                 1998                     1997                      1996
                                          --------------------   -----------------------    ---------------------
                                                      PERCENT                  PERCENT                   PERCENT
                                          AMOUNT     OF TOTAL      AMOUNT      OF TOTAL       AMOUNT     OF TOTAL
                                         ---------   ---------   ----------    ---------     --------    --------
                                                                 (DOLLARS IN THOUSANDS)
<S>                                       <C>           <C>         <C>           <C>         <C>           <C>
REAL ESTATE LOANS:
  One- to four-family(1) ...........      $34,745       90.18%      $35,855       91.93%      $35,124       93.68%
  Multi-family .....................        1,561        4.05           798        2.05            --          --
  Construction(2) ..................          775        2.01           521        1.34           120        0.32
                                          -------      ------       -------      ------       -------      ------
     Total real estate loans .......       37,081       96.24        37,174       95.32        35,244       94.00

OTHER LOANS:
  Consumer loans(3) ................        1,884        4.89         2,092        5.36         2,399        6.39
                                          -------      ------       -------      ------       -------      ------
     Total loans ...................       38,965      101.13        39,266      100.68        37,643      100.39
                                          -------      ------       -------                   -------

LESS:
  Deferred loan fees ...............           18        0.04            53        0.14            42        0.11
  Loans in process .................          353        0.92           145        0.37            48        0.13
  Allowance for loan losses ........           66        0.17            66        0.17            58        0.15
                                          -------      ------       -------      ------       -------      ------
  Total reductions .................          437        1.13           264        0.68           148        0.39
                                          -------      ------       -------      ------       -------      ------
TOTAL LOANS RECEIVABLE, NET ........      $38,528      100.00%      $39,002      100.00%      $37,495      100.00%
                                          =======      ======       =======      ======       =======      ======
</TABLE>





<TABLE>
<CAPTION>
                                                        AT DECEMBER 31,
                                                        ---------------
                                                  1995                   1994
                                         -----------------------  --------------------
                                                     PERCENT                   PERCENT
                                           AMOUNT    OF TOTAL       AMOUNT     OF TOTAL
                                         ---------  -----------   ----------  ----------
                                                    (DOLLARS IN THOUSANDS)
<S>                                       <C>           <C>         <C>           <C>
REAL ESTATE LOANS:
  One- to four-family(1) ...........      $30,633       91.76%      $29,265       92.60%
  Multi-family .....................           --          --            --          --
  Construction(2) ..................           53         .16            --          --
                                          -------      ------       -------      ------
     Total real estate loans .......       30,686       91.92        29,265       92.60

OTHER LOANS:
  Consumer loans(3) ................        2,817        8.44         2,465        7.80
                                          -------      ------       -------      ------
     Total loans ...................       33,503      100.36        31,730      100.40
                                          -------                   -------

LESS:
  Deferred loan fees ...............           43        0.13            59        0.19
  Loans in process .................           16        0.05            --          --
  Allowance for loan losses ........           60        0.18            66        0.21
                                          -------      ------       -------      ------
  Total reductions .................          119        0.36           125        0.40
                                          -------      ------       -------      ------
TOTAL LOANS RECEIVABLE, NET ........      $33,384      100.00%      $31,605      100.00%
                                          =======      ======       =======      ======
</TABLE>

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

(1)  Includes second mortgage loans and home equity lines of credit on
     residential one- to four-family properties.

(2)  Construction loans are originated for the construction of residential one-
     to four-family homes. The Bank approves the borrowers for the end loan
     financing on all construction loans it originates.

(3)  Includes loans secured by automobiles, boats, common stock, savings
     accounts and unsecured loans.


                                        3

<PAGE>

        LOAN MATURITY. The following table shows the maturity of the Bank's
loans at December 31, 1998. The table does not include principal repayments.
Principal repayments totaled $17.1 million, $8.2 million and $7.3 million for
the years ended December 31, 1998, 1997 and 1996, respectively. At December 31,
1998, the Bank held $220,000 of loans available for sale recorded at the lower
of cost or market. The table does not include the effect of future loan
prepayment activity. While the Bank cannot project future loan prepayment
activity, the Bank anticipates that in periods of stable interest rates,
prepayment activity would be lower than prepayment activity experienced in
periods of declining interest rates. In general, the Bank originates adjustable
and fixed-rate one- to four-family loans with maturities from 15 to 30 years,
one- to four-family loans with balloon features which mature from 5 to 7 years
and consumer loans with maturities of up to 5 years.


<TABLE>
<CAPTION>
                                                            AT DECEMBER 31, 1998
                                             --------------------------------------------------
                                               ONE- TO
                                                FOUR-       MULTI-                   TOTAL LOANS
                                              FAMILY(1)     FAMILY     CONSUMER(2)   RECEIVABLE
                                             -----------  ----------   -----------   -----------
                                                                  (IN THOUSANDS)
<S>                                           <C>           <C>          <C>         <C>
Amounts due:
  One year or less......................      $    151      $   --       $   619     $     770
  After one year:
    More than one year to three years...         1,140          --           741         1,881
    More than three years to five years.         1,916          --           403         2,319
    More than five years to ten years...         4,762         850            --         5,612
    More than 10 years to twenty years..         7,835         711            --         8,546
    More than twenty years..............        19,716         --            121        19,837
                                                ------     -------        ------        ------
      Total due after December 31, 1999.        35,369       1,561         1,265        38,195
                                                ------      ------         -----        ------
      Total amount due..................       $35,520      $1,561        $1,884       $38,965
                                               =======      ======        ======       =======
  Less:
    Undisbursed loan funds..............                                                   353
    Deferred loan fees, net.............                                                    18
    Allowance for loan losses...........                                                    66
                                                                                       -------
         Total loans, net...............                                               $38,528
                                                                                       =======
</TABLE>

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

(1)  Includes second mortgage loans on residential one- to four-family
     properties and construction loans originated to fund the construction of
     residential one- to four-family mortgage loans.

(2)  Includes loans secured by automobiles, boats, common stock, savings
     accounts and unsecured loans.


                                        4

<PAGE>

        The following table sets forth at December 31, 1998, the dollar amount
of gross loans receivable, contractually due after December 31, 1998, and
whether such loans have fixed interest rates or adjustable interest rates.



<TABLE>
<CAPTION>
                                             DUE AFTER DECEMBER 31, 1998
                                -----------------------------------------------------
                                     FIXED            ADJUSTABLE           TOTAL
                                ----------------   ----------------   ---------------
                                                   (IN THOUSANDS)
<S>                                      <C>                <C>               <C>
One- to four-family...........           $18,717            $16,652           $35,369
Multi-family..................                --              1,561             1,561
Consumer......................               999                266             1,265
                                        --------            -------           -------
   Total loans................           $19,716            $18,479           $38,195
                                         =======            =======           =======
</TABLE>


     LOAN ORIGINATIONS. The following table sets forth the Bank's loan
originations, purchases, sales and principal repayment information for the
periods indicated:

<TABLE>
<CAPTION>
                                           FOR THE YEAR ENDED DECEMBER 31,
                                           -------------------------------
                                            1998        1997         1996
                                         ----------  ----------   ----------
                                                   (IN THOUSANDS)
<S>                                         <C>         <C>          <C>
Gross loans:
Loans receivable, beginning of period.      $39,068     $37,553      $33,444
Loans originated:
   One- to four-family(1).............       20,505       7,524        9,278
   Multi-family.......................          189          --           --
   Consumer(2)........................        1,678       1,360        1,311
Loans purchased.......................        2,468         798          884
   Loan sold..........................       (8,179)         --           --
Principal repayments..................      (17,170)     (8,156)      (7,365)
Other changes, net....................           35         (11)           1
                                          ---------   ----------  ----------
   Increase (decrease) in loans receivable     (474)      1,515        4,109
                                           ---------    -------      -------
Loans receivable, end of period.......      $38,594     $39,068      $37,553
                                            =======     =======      =======
</TABLE>

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

(1)  Includes second mortgage loans and construction loans on residential one-
     to four- family properties.

(2)  Includes loans secured by automobiles, boats, common stock, savings
     accounts and unsecured loans.

                                        5

<PAGE>

        ONE- TO FOUR-FAMILY MORTGAGE LENDING. The Bank offers both fixed-rate
and adjustable-rate mortgage loans secured by one- to four-family residences,
primarily owner-occupied, located in the Bank's primary market area, with
maturities up to thirty years. Substantially all of such loans are secured by
property located in Hamilton County, Ohio.

        At December 31, 1998, the Bank's total loans, net, outstanding were
$38.5 million, of which $34.7 million or 90.2% of the Bank's total loan
portfolio were one- to four-family residential mortgage loans. Of the one- to
four-family residential mortgage loans outstanding at that date, 52.5% were
fixed-rate loans, and 47.5% were adjustable-rate mortgage ("ARM") loans.
Currently, the interest rate for the Bank's ARM loans are tied to the one and
three year Constant Maturity Index ("CMI"). However, in the past, the Bank's
index was based upon the monthly national median cost of funds as reported by
the OTS, which lags behind CMI and the one year U.S. Treasury index and which
results in those loans repricing at interest rates that may be higher or lower
than the prevailing market rates. Approximately $4.1 million of the Bank's ARM
loans, or 25.3% of the Bank's total ARM loans, are based on that index, which
adversely affects the Bank's results of operations in an increasing rate
environment because loans may be repricing at a rate that is slower than the
Bank's cost of funds. The Bank does not intend to offer one- to four-family ARM
loans based on a lagging index in the future and has standardized the margin it
uses, which is currently at least 2.75%. The Bank currently offers a number of
adjustable-rate mortgage loan programs with interest rates which adjust either
annually or every 3-year period. Such interest rate adjustments are limited to a
2% annual adjustment cap and a 5% and 6% life-of-the-loan cap for the Bank's
15-year ARMs and 30-year ARMs, respectively. The Bank also offers mortgage loans
with balloon features. In general, these loans may be refinanced on the balloon
date if the customer completes a new loan application and meets all of the
underwriting criteria required of new customers. The Bank currently has no
mortgage loans that are subject to negative amortization. Finally, the Bank
offers a limited amount of construction loans for the construction of one- to
four-family homes that will serve as the primary residence of the borrower.
These loans are only made, however, when the Bank will provide the end loan
financing.

        The origination of adjustable-rate residential mortgage loans, as
opposed to fixed-rate residential mortgage loans, helps reduce the Bank's
exposure to increases in interest rates. However, adjustable-rate loans
generally pose credit risks not inherent in fixed-rate loans, primarily because
as interest rates rise, the underlying payments of the borrower rise, thereby
increasing the potential for default. At the same time, the marketability of the
underlying property may be adversely affected. Periodic and lifetime caps on
adjustable-rate mortgage loans help to reduce these risks but also limit the
interest rate sensitivity of such loans.

        The Bank's policy is to originate one- to four-family residential
mortgage loans in amounts up to 80% of the lower of the appraised value or the
selling price of the property securing the loan and up to 95% of the appraised
value or selling price if private mortgage insurance is obtained. Mortgage loans
originated by the Bank generally include due-on-sale clauses which provide the
Bank with the contractual right to deem the loan immediately due and payable in
the event the borrower transfers ownership of the property without the Bank's
consent. Due-on-sale clauses are an important means of adjusting the rates on
the Bank's fixed-rate mortgage loan portfolio and the Bank has generally
exercised its rights under these clauses.

        The Bank also offers second mortgage loans based upon the one-year
Constant Maturity Index. The second mortgage loans are originated as fixed rate
loans for the first five years and thereafter adjust on an annual basis. At
December 31, 1998, the Bank had second mortgage loans totalling $692,000.


                                        6

<PAGE>



        CONSUMER LENDING. The Bank's portfolio of consumer loans consists of a
combination of automobile, boat and common stock and savings secured loans. The
Bank also offers unsecured loans up to $5,000 for a maximum three year term. As
of December 31, 1998, consumer loans amounted to $1.9 million or 4.9% of the
Bank's total loan portfolio. Consumer loans are generally originated in the
Bank's primary market area and generally have maturities of one to five years.
The consumer loans secured by common stock are originated with terms up to five
years and the loan amounts are limited to 80% of the value of the common stock
securing the loan. The Bank reviews the loans secured by common stock on a
monthly basis and requires that borrowers pledge additional collateral in the
event fluctuations in the market value of the pledged common stock results in
the value of the collateral dropping below the required loan to value ratio of
80%.

        Consumer loans are shorter term and generally contain higher interest
rates than residential mortgage loans. Management believes the consumer loan
market has been helpful in improving its spread between average loan yield and
costs of funds and at the same time improved the matching of its rate sensitive
assets and liabilities.

        The underwriting standards employed by the Bank for consumer loans
include a determination of the applicant's credit history and an assessment of
the applicant's ability to meet existing obligations and payments on the
proposed loan. The stability of the applicant's monthly income may be determined
by verification of gross monthly income from primary employment, and
additionally from any verifiable secondary income. Creditworthiness of the
applicant is of primary consideration; however, the underwriting process also
includes a comparison of the value of the collateral in relation to the proposed
loan amount.

        Consumer loans entail greater risks than one- to four-family residential
mortgage loans, particularly consumer loans that are secured by rapidly
depreciable assets such as automobiles or that are unsecured. In such cases,
repossessed collateral for a defaulted loan may not provide an adequate source
of repayment of the outstanding loan balance, since there is a greater
likelihood of damage, loss or depreciation of the underlying collateral.
Further, consumer loan collections are dependent on the borrower's continuing
financial stability, and therefore are more likely to be adversely affected by
job loss, divorce, illness or personal bankruptcy. Finally, the application of
various federal and state laws, including federal and state bankruptcy and
insolvency laws, may limit the amount which can be recovered on such loans in
the event of a default. At December 31, 1998, the Bank had four consumer loans
totalling $3,900 that were 90 days or more delinquent.

        MULTI-FAMILY AND CONSTRUCTION LENDING. The Bank originates a limited
amount of multi-family loan and construction loans. Construction loans are
originated for the construction of residential one- to four-family homes. The
Bank approves the borrowers for the end loan financing on all construction loans
it originates. The Bank has began originating multi-family loans secured by five
or more unit real estate. Such loans bear greater risk than one- to four- family
loans because the ability of the borrower to pay frequently depends on the cash
flow earned from use of the property. However, such loans generally carry higher
interest rates, which generate greater income for the Bank. At December 31,
1998, the Bank's largest multi-family loan was $850,000. All multi-family loans
were performing in accordance with their respective terms as of that date.

        LOAN APPROVAL PROCEDURES AND AUTHORITY. The Board of Directors
authorizes the lending activity of the Bank, establishes the lending policies of
the Bank and reviews properties offered as security. Consumer loans conforming
to the Bank's loan policy may be approved by the President, the Chief Operating
Officer or the lending operations supervisor. Real estate loans in amounts up to
$240,000 may be approved


                                        7

<PAGE>



by either the President or the Chief Operating Officer. Loans for between
$240,000 and less than $500,000 may be approved by two of the Bank's executive
officers. Loans over $500,000 must be approved by the Board of Directors.

        For all loans originated by the Bank, upon receipt of a completed loan
application from a prospective borrower, a credit report is ordered and certain
other information is verified by an independent credit agency. If necessary,
additional financial information may be required. An appraisal of real estate
intended to secure a proposed loan generally is required to be performed by an
appraiser designated and approved by the Bank. For proposed mortgage loans, the
Board annually approves independent appraisers used by the Bank and approves the
Bank's appraisal policy. The Bank's policy is to obtain title and hazard
insurance on all mortgage loans.

        DELINQUENCIES AND CLASSIFIED ASSETS. Management and the Board of
Directors perform a monthly review of all delinquent loans. The procedures taken
by the Bank with respect to delinquencies vary depending on the nature of the
loan and period of delinquency. The Bank generally requires that delinquent
mortgage loans be reviewed and that a written late charge notice be mailed no
later than the 15th day of delinquency. The Bank's policies provide that
telephone contact will be attempted to ascertain the reasons for delinquency and
the prospects of repayment. When contact is made with the borrower at any time
prior to foreclosure, the Bank will attempt to obtain full payment or work out a
repayment schedule with the borrower to avoid foreclosure. It is the Bank's
policy to place all loans that are delinquent by three or more payments on
non-accrual status, resulting in the Bank no longer accruing interest on such
loans and reversing any interest previously accrued but not collected. A
non-accrual loan may be restored to accrual status when delinquent principal and
interest payments are brought current and future monthly principal and interest
payments are expected to be collected. Property acquired by the Bank as a result
of foreclosure on a mortgage loan is classified as "real estate owned" and is
recorded at the lower of the unpaid principal balance or fair value less costs
to sell at the date of acquisition and thereafter. Upon foreclosure, the Bank
generally would require an appraisal of the property and, thereafter, appraisals
of the property on an annual basis and external inspections on at least a
quarterly basis.

        The Bank's Classification of Assets Policy requires that the Bank
utilize an internal asset classification system as a means of reporting problem
and potential problem assets. The Bank currently classifies problem and
potential problem assets as "Substandard," "Doubtful" or "Loss" assets. An asset
is considered Substandard if it is inadequately protected by the current net
worth and paying capacity of the obligor or of the collateral pledged, if any.
Substandard assets include those characterized by the distinct possibility that
the insured institution will sustain "some loss" if the deficiencies are not
corrected. Assets classified as Doubtful have all of the weaknesses inherent in
those classified Substandard with the added characteristic that the weaknesses
present make collection or liquidation in full, on the basis of currently
existing facts, conditions and values, highly questionable and improbable.
Assets classified as Loss are those considered uncollectible and of such little
value that their continuance as assets without the establishment of a specific
loss reserve is not warranted. Assets which do not currently expose the insured
institution to sufficient risk to warrant classification in one of the
aforementioned categories but possess weaknesses are required to be designated
"Special Mention."

        When an insured institution classifies one or more assets, or portions
thereof, as Substandard or Doubtful, it is required to establish a general
valuation allowance for loan losses in an amount deemed prudent by management.
General valuation allowances, which is a regulatory term, represent loss
allowances which have been established to recognize the inherent risk associated
with lending activities, but which, unlike specific allowances, have not been
allocated to particular problem assets. When an insured


                                        8

<PAGE>



institution classifies one or more assets, or portions thereof, as Loss, it is
required either to establish a specific allowance for losses equal to 100% of
the amount of the asset so classified or to charge off such amount.

        The FDIC, in conjunction with the other federal banking agencies, has
adopted an interagency policy statement on the allowance for loan and lease
losses. The policy statement provides guidance for financial institutions on
both the responsibilities of management for the assessment and establishment of
adequate allowances and guidance for banking agency examiners to use in
determining the adequacy of general valuation guidelines. Generally, the policy
statement recommends that institutions have effective systems and controls to
identify, monitor and address asset quality problems; that management has
analyzed all significant factors that affect the collectibility of the portfolio
in a reasonable manner; and that management has established acceptable allowance
evaluation processes that meet the objectives set forth in the policy statement.
As a result of the declines in local and regional real estate market values and
the significant losses experienced by many financial institutions, there has
been a greater level of scrutiny by regulatory authorities of the loan
portfolios of financial institutions undertaken as part of the examination of
institutions by the FDIC. While the Bank believes that it has established an
adequate allowance for loan losses, there can be no assurance that regulators,
in reviewing the Bank's loan portfolio, will not request the Bank to materially
increase at that time its allowance for loan losses, thereby negatively
affecting the Bank's financial condition and earnings at that time. Although
management believes that adequate specific and general loan loss allowances have
been established, actual losses are dependent upon future events and, as such,
further additions to the level of specific and general loan loss allowances may
become necessary.

        The President of the Bank reviews the Bank's loans on a monthly basis
and classifies loans on a quarterly basis and reports the results of her review
to the Board of Directors. The Bank classifies loans in accordance with the
management guidelines described above. At December 31, 1998, the Bank had no
real estate owned as a result of foreclosure ("REO"). At December 31, 1998, the
Bank had $39,000 of assets classified as Special Mention, $60,000 of assets
classified as Substandard, and $2,000 classified as Doubtful or Loss.




                                        9

<PAGE>



        The following table sets forth delinquencies in the Bank's loan
portfolio as of the dates indicated:


<TABLE>
<CAPTION>
                                                     AT DECEMBER 31, 1998                      AT DECEMBER 31, 1997
                                           ----------------------------------------- ----------------------------------------
                                                60-89 DAYS         90 DAYS OR MORE        60-89 DAYS        90 DAYS OR MORE
                                           --------------------  ------------------- -------------------- -------------------
                                                      PRINCIPAL            PRINCIPAL            RINCIPAL            PRINCIPAL
                                             NUMBER    BALANCE    NUMBER    BALANCE   NUMBER    BALANCE    NUMBER    BALANCE
                                            OF LOANS  OF LOANS   OF LOANS  OF LOANS  OF LOANS  POF LOANS  OF LOANS  OF LOANS
                                           ---------- ---------  --------- --------- --------  ---------- --------  ---------
                                                                         (DOLLARS IN THOUSANDS)
<S>                                             <C>     <C>         <C>     <C>        <C>       <C>        <C>     <C>
One- to four-family......................         1       $13         1       $51        1         $52        4       $152
Consumer.................................         2         1         2         3        6          18        8         22
                                                 --        --        --        --       --        ----      ---     ------
        Total............................         3       $14         3       $54        7         $70       12       $174
                                                 ==       ===        ==       ===       ==         ===       ==       ====

Delinquent loans to total gross loans....                0.03%               0.14%                0.18%               0.44%
                                                         ====                ====
</TABLE>



<TABLE>
<CAPTION>
                                                     AT DECEMBER 31, 1996
                                           -----------------------------------------
                                                60-89 DAYS         90 DAYS OR MORE
                                           --------------------  -------------------
                                                      PRINCIPAL            PRINCIPAL
                                             NUMBER    BALANCE    NUMBER    BALANCE
                                            OF LOANS  OF LOANS   OF LOANS  OF LOANS
                                           ---------- ---------  --------- ---------
                                                    (DOLLARS IN THOUSANDS)
<S>                                           <C>   <C>            <C>   <C>
One- to four-family......................       2     $  90          3     $  95
Consumer.................................       6        25          8        14
                                                -       ---         --       ---
        Total............................       8      $115         11      $109
                                                =      ====         ==      ====

Delinquent loans to total gross loans....              0.31%                0.29%
</TABLE>


                                       10

<PAGE>



        NON-ACCRUAL AND PAST-DUE LOANS. The following table sets forth
information regarding loans contractually past due 90 days or more. At such
date, there were no accruing loans past due 90 days or more. If all non-accrual
loans had been performing in accordance with their original term and had been
outstanding from the earlier of the beginning of the period or origination, the
Bank would have interest income of $2,109, $8,647, $3,303, $3,146 and $7,470 for
the years ended December 31, 1998, 1997, 1996, 1995 and 1994, respectively. The
Bank had no troubled debt restructurings within the meaning of SFAS No. 15 at
any of the dates indicated.


<TABLE>
<CAPTION>
                                                           AT DECEMBER 31,
                                                           ---------------
                                             1998       1997      1996        1995      1994
                                           ---------  --------   --------   --------  ---------
                                                         (DOLLARS IN THOUSANDS)
<S>                                          <C>       <C>       <C>         <C>        <C>
Non-accrual one- to four-family loans
  delinquent 90 days or more..........        $51       $152      $  95       $  66      $  88
Non-accrual consumer loans
  delinquent 90 days or more..........          3         22         14          23          5
                                               --      -----       ----       -----     ------
Total non-performing loans............         54        174        109          89         93
Total investment in REO...............        --          --         --          --         --
                                             ----     ------     ------        ----       ----
    Total non-performing assets.......        $54       $174       $109         $89        $93
                                              ===       ====       ====         ===        ===
Non-performing loans to total loans...       0.14%      0.45%      0.29%       0.27%      0.29%
Non-performing assets to total assets.       0.10%      0.34%      0.23%       0.31%      0.23%
</TABLE>


        ALLOWANCE FOR LOAN LOSSES. The allowance for loan losses is established
through a provision for loan losses based on management's evaluation of the
risks inherent in its loan portfolio and the general economy. The allowance for
loan losses is maintained at an amount management considers adequate to cover
estimated losses in loans receivable which are deemed probable and estimable
based on information available to management at such time. While management
believes the Bank's allowance for loan losses is sufficient to cover losses
inherent in its loan portfolio at this time, no assurances can be given that the
Bank's level of allowance for loan losses will be sufficient to cover future
loan losses incurred by the Bank or that future adjustments to the allowance for
loan losses will not be necessary if economic and other conditions differ
substantially from the economic and other conditions used by management to
determine the current level of the allowance for loan losses. The allowance is
based upon a number of factors, including asset classifications, economic
trends, industry experience and trends, industry and geographic concentrations,
estimated collateral values, management's assessment of the credit risk inherent
in the portfolio, historical loan loss experience, and the Bank's underwriting
policies. As of December 31, 1998, the Bank's allowance for loan losses was
0.17% of total loans as compared to 0.17% as of December 31, 1997. The Bank had
$54,000 of nonperforming loans at December 31, 1998 and $174,000 at December 31,
1997. The Bank will continue to monitor and modify its allowances for loan
losses as conditions dictate. Various regulatory agencies, as an integral part
of their examination process, periodically review the Bank's valuation
allowance. These agencies may require the Bank to establish additional valuation
allowances, based on their judgments of the information available at the time of
the examination.



                                       11

<PAGE>



        At December 31, 1998, the Bank had no REO. For a description of how the
Bank would treat REO, see the Financial Statements and Notes thereto appearing
elsewhere in this Form 10-KSB.

        The following table sets forth activity in the Bank's allowance for loan
losses for the periods set forth in the table.




<TABLE>
<CAPTION>
                                                     AT OR FOR THE YEAR ENDED DECEMBER 31,
                                                     -------------------------------------
                                                 1998      1997      1996      1995      1994
                                               --------  --------   --------  --------  --------
                                                          (DOLLARS IN THOUSANDS)
<S>                                               <C>       <C>        <C>       <C>       <C>
Allowance for loan losses:
Balance at beginning of period.............       $66       $58        $60       $66       $66
Provision (credit) for loan losses.........        18        10         --        (2)       --
Charge-offs:
   Consumer................................        21         3          4         5         1
                                                   --       ---         --        --        --
      Total charge-offs....................        21         3          4         5         1
Recoveries:
   Consumer................................         3         1          2         1         1
                                                  ---       ---        ---        --        --
      Total recoveries.....................         3         1          2         1         1
                                                  ---       ---        ---        --       ---
Net charge-offs............................        18         2          2         4        --
                                                  ---       ---        ---        --       ---
Balance at end of period...................       $66       $66        $58       $60       $66
                                                  ===       ===        ===       ===       ===
Ratio of net loan charge-offs
  during the period to average
  loans outstanding during period..........      0.05%     0.01%      0.01%     0.01%      -- %
Ratio of allowance for loan losses
  to gross loans at end of period..........      0.17      0.17       0.15      0.18      0.21
Ratio of allowance for loan losses
  to non-performing loans
  at end of period.........................    122.22     37.93      53.21     66.67     71.17
</TABLE>


                                       12

<PAGE>



        The following tables set forth the Bank's allocation of allowance for
loan losses by loan category, the percent of the allocated allowance to the
total allowance and the percent of each specific loan category to total loans.
The portion of the allowance for loan losses allocated to each loan category
does not represent the total available for future losses which may occur within
the loan category since the total allowance for loan losses is a valuation
reserve applicable to the entire loan portfolio.



<TABLE>
<CAPTION>
                                                                       AT DECEMBER 31,
                       -------------------------------------------------------------------------------------------------------------
                                   1998                                  1997                                1996
                                 PERCENT OF  PERCENT OF              PERCENT OF   PERCENT OF             PERCENT OF   PERCENT OF
                                 ALLOWANCE    LOANS IN               ALLOWANCE     LOANS IN               ALLOWANCE   LOANS IN EACH
                                  TO TOTAL   EACH CATEGORY            TO TOTAL   EACH CATEGORY            TO TOTAL     CATEGORY
                       AMOUNT    ALLOWANCE   TO TOTAL LOANS  AMOUNT  ALLOWANCE   TO TOTAL LOANS  AMOUNT   ALLOWANCE   TO TOTAL LOANS
                       -------  ----------   -------------   ------  ---------   --------------  ------   ---------   --------------
                                        (DOLLARS IN THOUSANDS)
<S>                      <C>      <C>          <C>            <C>     <C>            <C>          <C>      <C>          <C>
One- to four-family      $38      57.58        95.17          $34     51.51%         94.67%       $20      34.48%       93.63%
Consumer...........       28      42.42         4.83           32     48.49%          5.33%        38      65.52%        6.37%
                          --      -----        -----          ---    ------           ----       ----      -----       ------
Total allowance for
      loan losses..      $66     100.00%      100.00%         $66    100.00%        100.00%       $58     100.00%      100.00%
                         ===     ======       ======          ===    ======         ======        ===     ======       ======
</TABLE>




<TABLE>
<CAPTION>
                                                    AT DECEMBER 31,
                      ----------------------------------------------------------------------------
                                      1995                                   1994
                      ------------------------------------   -------------------------------------
                                  PERCENT OF   PERCENT OF                PERCENT OF    PERCENT OF
                                  ALLOWANCE   LOANS IN EAC               ALLOWANCE    LOANS IN EACH
                                   TO TOTAL   CATEGORY TO                 TO TOTAL      CATEGORY
                        AMOUNT    ALLOWANCE   TOTAL LOANS H    AMOUNT    ALLOWANCE    TO TOTAL LOANS
                      ----------  ----------  ------------   ----------  ----------   ------------
                                                 (DOLLARS IN THOUSANDS)
<S>                          <C>       <C>           <C>            <C>       <C>            <C>
One- to four-family          $20       33.33%        91.59%         $20       30.30%         92.23%
Consumer...........           40       66.67%         8.41%          46       69.70           7.77
                             ---      ------          ----          ---      ------           ----
  Total allowance for
    loan losses....          $60      100.00%       100.00%         $66      100.00%        100.00%
                             ===      ======        ======          ===      ======         ======
</TABLE>



                                       13

<PAGE>

INVESTMENT ACTIVITIES

        Federal and state regulations require the Bank to maintain a prudent
amount of liquid assets to protect the safety and soundness of the Bank.
Therefore, the investment policy of the Bank as established by the Board of
Directors attempts to provide and maintain liquidity, generate a favorable
return on investments without incurring undue interest rate and credit risk and
complement the Bank's lending activities. The Bank's policies generally limit
investments to government and federal agency-backed securities and other
non-government guaranteed securities, including corporate debt obligations, that
are investment grade. The Bank's policies provide the authority to invest in
U.S. Treasury and U.S. Government guaranteed securities, securities backed by
federal agencies such as Federal National Mortgage Association ("FNMA"), Federal
Home Loan Mortgage Corporation ("FHLMC") and the Federal Farm Credit Bureau,
mortgage-backed securities which are backed by federal agency securities,
including CMOs, obligations of state and political subdivisions with at least an
"A" rating, certificates of deposit purchased through the FHLB and securities
issued by mutual funds which invest in securities consistent with the Bank's
allocable investments. The Bank's policies provide that the Chief Financial
Officer is authorized to execute all transactions within specified limits which
are reviewed by the Board of Directors on a monthly basis. Such limit is
currently $1.0 million. From time to time the Board of Directors may authorize
the Chief Financial Officer to exceed the policy limitations.

        At December 31, 1998, the Bank had a total of $15.0 million in
certificates of deposit, other interest earning deposits, corporate notes,
federal funds and other investment, mortgage-backed securities and CMOs. At
December 31, 1998, $10.2 million of investment and mortgage-backed securities
were classified as available for sale. Included in this total, at December 31,
1998, the Bank had $3.3 million in U.S. Government and agencies securities,
$805,000 in mortgage-backed securities and $2.2 million in CMOs. The Bank also
has CMOs of $5.9 million which are classified as held to maturity. A CMO is a
special type of pass-through debt in which the stream of principal and interest
payments on the underlying mortgages or mortgage-backed securities is used to
create classes with different maturities, and, in some cases, amortization
schedules, as well as a residual interest, with each class possessing different
characteristics. The Bank has recently increased its investment in CMOs because
these securities generally exhibit a more predictable cash flow than
mortgage-pass-through securities. Investments in mortgage-backed securities
carry a reduced credit risk as compared to whole loans; however, such securities
involve a risk that actual prepayments will exceed prepayments estimated over
the life of the security which may result in a loss of any premium paid for such
instruments thereby reducing the net yield on such securities. In addition, if
interest rates increase, the market value of such securities may be adversely
affected which, in turn, would adversely affect stockholders' equity to the
extent such securities are held for sale. In contrast to mortgage-backed
securities in which cash flow is received (and, hence prepayment risk is shared)
pro rata by all holders, the cash flows from the mortgages or mortgage-backed
securities underlying CMOs are segmented and paid in accordance with a
predetermined priority to investors holding various tranches of such securities
or obligations. A particular tranche may therefore carry prepayment risk that
differs from that of both the underlying collateral or other tranches.


                                       14

<PAGE>



        The following table sets forth certain information regarding the
carrying and market values of the Bank's federal funds sold and other short-term
investments and investment securities at the dates indicated:



<TABLE>
<CAPTION>
                                                    AT DECEMBER 31,
                             --------------------------------------------------------------
                                     1998                 1997                 1996
                             --------------------  -------------------  -------------------
                              AMORTIZED    FAIR    AMORTIZED    FAIR    AMORTIZED    FAIR
                                COST      VALUE      COST      VALUE      COST      VALUE
                             ----------  --------  ---------  --------  ---------  --------
                                                     (IN THOUSANDS)
<S>                             <C>       <C>      <C>        <C>         <C>        <C>
Certificates of deposit(1).     $   183   $   183  $     173  $     173   $   162    $  162
Other interest-earning deposits     433       433        162       162        357       357
Investment securities:
  Federal funds............       1,327     1,327         84        84        364       364
  FHLB stock...............         822       822        625       625        436       436
  U. S. government obligations    3,303     3,301      4,294     4,291      6,193     6,089
  Mutual Funds.............          --        --         26        26         14        14
  Mortgage-backed securities(2)   8,892     8,977      5,792      5,791     1,148     1,148
                                 ------    ------  ---------  ---------   -------   -------
     Total.................     $14,960   $15,043    $11,156   $11,152     $8,674    $8,570
                                =======   =======    =======   =======     ======    ======
</TABLE>

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

(1)  Includes certificates of deposit with original maturities of greater than
     90 days.

(2)  Includes mortgage-backed securities and collateralized mortgage
     obligations.



                                              15

<PAGE>



        The table below sets forth certain information regarding the carrying
value, weighted average yields and contractual maturities of the Bank's
certificates of deposit, other interest-bearing deposits and investment
securities as of December 31, 1998.


<TABLE>
<CAPTION>
                                                               AT DECEMBER 31, 1998
                                     -------------------------------------------------------------------------
                                                                   MORE THAN ONE           MORE THAN FIVE
                                       ONE YEAR OR LESS         YEAR TO FIVE YEARS       YEARS TO TEN YEARS
                                    ----------------------    ---------------------     -----------------------
                                                  WEIGHTED                 WEIGHTED                    WEIGHTED
                                    CARRYING      AVERAGE     CARRYING      AVERAGE     CARRYING        AVERAGE
                                      VALUE        YIELD       VALUE         YIELD        VALUE          YIELD
                                    --------     --------     --------     --------      --------      --------
                                                 (DOLLARS IN THOUSANDS)
<S>                                 <C>           <C>         <C>           <C>            <C>          <C>
Certificates of Deposit(1).......   $    95         5.87%     $    88          6.10%       $     --        -- %
Other interest-bearing deposits..       433         4.60           --            --              --        --
Investment securities:
    U.S. government obligations..        --           --          703          6.02           1,600       6.47
    Federal funds................     1,327         4.60           --            --              --         --
    FHLB stock...................        --           --           --            --              --         --
    Mortgage-backed securities(2)       --           --           --            --            1,651       6.68
                                     ------       ------       ------        ------           -----      -----
      Total......................    $1,855         4.66%       $ 791          6.03%         $3,251       6.58%
                                     ======         ====        =====          ====          ======       ====
</TABLE>

<TABLE>
<CAPTION>
                                                      AT DECEMBER 31, 1998
                                          ----------------------------------------------
                                          MORE THAN TEN YEARS              TOTAL
                                         ----------------------    ---------------------
                                                       WEIGHTED                 WEIGHTED
                                         CARRYING      AVERAGE     CARRYING      AVERAGE
                                           VALUE        YIELD       VALUE         YIELD
                                         --------     --------     --------     --------
                                                    (DOLLARS IN THOUSANDS)
<S>                                       <C>         <C>          <C>          <C>
Certificates of Deposit(1).......         $  --         -- %        $ 183        5.98%
Other interest-bearing deposits..            --         --            433        4.60
Investment securities:
    U.S. government obligations..         1,000        6.52         3,303        6.39
    Federal funds................            --          --         1,327        4.60
    FHLB stock...................           822        7.00           822        7.00
    Mortgage-backed securities(2)         7,241        6.12         8,892        6.22
                                         ------        ----        ------        ----
      Total......................        $9,063        6.24%      $14,960        6.11%
                                         ======        ====       =======        ====
</TABLE>

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

(1)  Includes certificates of deposit with original maturities of greater than
     90 days.

(2)  Includes mortgage-backed securities and collaterialized mortgage
     obligations.


                                       16

<PAGE>



SOURCE OF FUNDS

        GENERAL. Deposits, loan repayments and prepayments, and cash flows
generated from operations are the primary source of the Bank's funds for use in
lending, investing and for other general purposes. The Bank also relies upon
advances from the FHLB.

        DEPOSITS. The Bank offers a variety of deposit accounts with a range of
interest rates and terms. For the year ended December 31, 1998, certificates of
deposit constituted 68.8% of total average deposits.

        The Bank's current deposit products include savings, NOW accounts, money
market and certificate of deposit accounts ranging in term from thirty days to
five years. Included in the Bank's certificate of deposit accounts are
certificates of deposit with balances in excess of $100,000 (jumbo
certificates), and Individual Retirement Accounts ("IRAs").

        Deposits are obtained primarily from residents of Hamilton County, Ohio.
The Bank seeks to attract deposit accounts by offering a variety of products,
competitive rates, and service hours. Although a substantial amount of the
Bank's depositors are past and present Procter & Gamble employees, the Bank has
sought to attract new depositors through traditional methods of advertising,
including print media advertising. The Bank does not generally advertise outside
of its market area or utilize the services of deposit brokers. Management
believes that an insignificant number of deposit accounts are held by
non-residents of the Bank's primary market area.

        The Bank sets interest rates on its deposits on a weekly basis, based
upon a number of factors, including: the previous week's deposit flow; a current
survey of a selected group of competitors' rates for similar products; external
data which may influence interest rates; investment opportunities and loan
demand; and scheduled maturities.

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

<TABLE>
<CAPTION>
                                       1998         1997          1996
                                    -----------  -----------   -----------
                                               (IN THOUSANDS)
<S>                                    <C>          <C>           <C>
Balance beginning of period.....       $31,867      $32,551       $33,669
   Net increase (decrease)
      before interest credited..          (356)      (2,171)       (2,772)
   Interest credited............         1,556        1,487         1,604
                                      --------    ---------     ---------
       Balance end of period....       $33,067      $31,867       $32,551
                                       =======      =======       =======
</TABLE>

                                       17

<PAGE>

        At December 31 , 1998, the Bank had $4.2 million in certificate accounts
in amounts of $100,000 or more maturing as follows:

<TABLE>
<CAPTION>
                                                                       WEIGHTED
             MATURITY PERIOD                          AMOUNT        AVERAGE RATE
             ---------------                          ------        ------------
                                                       (DOLLARS IN THOUSANDS)
<S>                                                  <C>                  <C>
Three months or less........................         $   420              5.69%
Over three through six months...............           1,056              6.36
Over six through 12 months..................             890              5.92
Over 12 months..............................           1,858              6.17
                                                       -----              ----
        Total...............................          $4,224              6.12%
                                                      ======              ====
</TABLE>


        The following table sets forth the distribution of the Bank's average
deposit accounts for the periods indicated and the weighted average interest
rates on each category of deposits presented.



<TABLE>
<CAPTION>
                                                   FOR THE YEAR ENDED DECEMBER 31,
                       ------------------------------------------------------------------------------------------
                                 1998                             1997                            1996
                       ---------------------------     ---------------------------    ---------------------------
                                 PERCENT                           PERCENT                       PERCENT
                                 OF TOTAL  WEIGHTED               OF TOTAL WEIGHTED             OF TOTAL  WEIGHTED
                       AVERAGE   AVERAGE    AVERAGE    AVERAGE     AVERAGE  AVERAGE    AVERAGE   AVERAGE   AVERAGE
                       BALANCE   DEPOSITS      RATE    BALANCE    DEPOSITS     RATE    BALANCE  DEPOSITS      RATE
                       --------  --------    -------   -------    -------   -------    -------  --------   -------
                                                         (DOLLARS IN THOUSANDS)
<S>                    <C>         <C>        <C>      <C>         <C>        <C>      <C>         <C>       <C>
Statement savings
  accounts ......      $ 4,742     14.60%     2.59%    $ 5,113     16.42%     2.60%    $ 6,047     17.67%    2.58%
NOW and Money
   Market
  accounts ......        5,396     16.62      2.58       5,131     16.48      2.75       5,281     15.43     2.46
Total certificate
   accounts .....       22,333     68.78      5.79      20,890      67.1      5.81      22,896     66.90     5.75
                        ------     -----                ------      ----                ------     -----
Total average
deposits ........      $32,471    100.00%     4.79%    $31,134    100.00%     4.78%    $34,224    100.00%    4.68%
                       =======    ======               =======    ======               =======    ======
</TABLE>


                                       18

<PAGE>



        The following table presents, by various rate categories, the amount of
certificate accounts outstanding at the dates indicated and the periods to
maturity of the certificate accounts outstanding at December 31, 1998, 1997 and
1996.



<TABLE>
<CAPTION>
                                           PERIOD TO MATURITY FROM DECEMBER 31, 1998                        AT DECEMBER 31,
                                 --------------------------------------------------------------    -------------------------------
                                  LESS THAN       ONE TO       TWO TO     THREE TO    FOUR TO
                                   ONE YEAR     TWO YEARS   THREE YEARS  FOUR YEARS  FIVE YEARS     1998         1997        1996
                                 ------------  -----------  ----------- ------------ -----------  ---------   ----------  ----------
                                        (IN THOUSANDS)
<S>                               <C>          <C>          <C>             <C>      <C>           <C>         <C>        <C>
Certificate accounts(1):
3.00 to 4.00%..................   $      54    $     --     $     --        $  --    $     --      $    54     $    --    $     --
4.01 to 5.00%..................       1,673         246            2           --          --        1,921         217         412
5.01 to 6.00%..................      10,294       3,977        1,437          881       1,275       17,864      15,537      16,122
6.01 to 7.00%..................       1,517       1,089          121           --           2        2,729       5,309       5,187
7.01 to 8.00%..................         401         172          --           --          --           573         558         149
                                    -------      ------       ------        -----      ------      -------     -------     -------

   Total.......................     $13,939      $5,484       $1,560         $881      $1,277      $23,141     $21,621     $21,870
                                    =======      ======       ======         ====      ======      =======     =======     =======
</TABLE>

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

(1)  Certificates of deposit include IRA accounts of $7,287, $8,768 and $9,430
     as of December 31, 1998, 1997 and 1996, respectively.

                                       19

<PAGE>

BORROWINGS

        At December 31, 1998, the Bank had $14.4 million in outstanding advances
from the FHLB and had no other borrowings. The FHLB advances are used by the
Bank to fund assets, including loan originations. The majority of FHLB advances
bear fixed rates and have terms of one year or less. The maximum amount that the
FHLB will advance to member institutions, including the Bank, fluctuates from
time to time in accordance with current regulations. The Bank may obtain
additional advances from the FHLB as part of its operating strategy.

        The following table sets forth certain information regarding the Bank's
borrowed funds at or for the periods ended on the dates indicated:



<TABLE>
<CAPTION>
                                                              AT OR FOR THE YEAR
                                                              ENDED DECEMBER 31,
                                                   ----------------------------------------
                                                       1998          1997          1996
                                                   -------------  -----------   -----------
                                                            (DOLLARS IN THOUSANDS)
<S>                                                    <C>         <C>             <C>
FHLB advances:
  Average balance outstanding........................  $14,401     $  9,499        $5,924
  Maximum amount outstanding at any
      month-end during the period....................   15,334       12,287         7,007
  Balance outstanding at end of period...............   14,440       12,287         7,007
  Weighted average interest rate during the period...     5.64%        5.70%         5.77%
  Weighted average interest rate at end of period....     5.67%        5.78%         5.73%
</TABLE>


PERSONNEL

        As of December 31, 1998, the Bank had 12 full-time employees and four
part-time employees. The employees are not represented by a collective
bargaining unit, and the Bank considers its relationship with its employees to
be good.


                                       20

<PAGE>


                           REGULATION AND SUPERVISION

GENERAL

        The Bank is an Ohio chartered savings bank, a member of the FHLB system,
and its deposit accounts are insured up to applicable limits by the FDIC through
the SAIF. The Bank is subject to extensive regulation, examination and
supervision by the FDIC and the Superintendent of the Ohio Division of Commerce,
Division of Financial Institutions (the "Superintendent"). The Bank must file
reports with the Superintendent and the FDIC concerning its activities and
financial condition, in addition to obtaining regulatory approvals prior to
entering into certain transactions such as mergers with, or acquisitions of,
other financial institutions. There are periodic examinations by the
Superintendent and the FDIC to test the Bank's compliance with various
regulatory requirements. This regulation and supervision establishes a
comprehensive framework of activities in which an institution can engage and is
intended primarily for the protection of the insurance fund and depositors. The
regulatory structure also gives the regulatory authorities extensive discretion
in connection with their supervisory and enforcement activities and examination
policies, including policies with respect to the classification of assets and
the establishment of adequate loan loss reserves for regulatory purposes. Any
change in such policies, whether by the Superintendent, the FDIC or the
Congress, could have a material adverse impact on the Company, the Bank and
their operations. The Company, as a savings and loan holding company, is also
required to file certain reports with, and otherwise comply with the rules and
regulations of the OTS and of the Securities and Exchange Commission (the "SEC")
under the federal securities laws. Certain of the regulatory requirements
applicable to the Bank and to the Company are referred to below or elsewhere
herein.

DIVISION REGULATION

        The Superintendent is responsible for the regulation and supervision of
Ohio savings banks in accordance with the laws of the State of Ohio. Ohio law
prescribes the permissible investments and activities of Ohio savings banks,
including the types of lending that such banks may engage in and the investments
in real estate, subsidiaries and corporate or government securities that such
banks may make. The ability of Ohio savings banks to engage in these
state-authorized investments generally is subject to various limitations under
FDIC regulations and oversight by the FDIC.

        Any mergers involving, or acquisitions of control of, Ohio savings banks
are subject to the prior approval of the Superintendent. The Superintendent may
initiate certain supervisory measures or formal enforcement actions against Ohio
savings banks. Ultimately, if the grounds provided by law exist, the
Superintendent may place an Ohio savings bank in conservatorship or
receivership.

        The Superintendent conducts regular examinations of the Bank
approximately once a year. The Superintendent imposes assessments on Ohio
savings banks based on the savings bank's asset size to cover the cost of
supervision and examination.

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

        All FDIC-insured state-chartered savings banks and their subsidiaries
have generally been limited to activities and equity investments of the type and
in the amount authorized for national banks, notwithstanding state law. The FDIC
is authorized to permit such institutions to engage in state authorized


                                       21

<PAGE>



activities or investments that do not meet this standard (other than
non-subsidiary equity investments) for institutions that meet all applicable
capital requirements if it is determined that such activities or investments do
not pose a significant risk to the SAIF. All non-subsidiary equity investments
were required to be divested by December 19, 1996, pursuant to an FDIC-approved
divestiture plan. The FDIC restrictions on state-chartered institutions have not
affected the operations of the Bank.

FEDERAL REGULATIONS

        CAPITAL REQUIREMENTS. The FDIC has adopted risk-based capital guidelines
to which the Bank is subject. The guidelines establish a systematic analytical
framework that makes regulatory capital requirements more sensitive to
differences in risk profiles among banking organizations. The Bank is required
to maintain certain levels of regulatory capital in relation to regulatory
risk-weighted assets. The ratio of such regulatory capital to regulatory
risk-weighted assets is referred to as the Bank's "risk-based capital ratio."
Risk-based capital ratios are determined by allocating assets and specified
off-balance sheet items to four risk-weighted categories ranging from 0% to
100%, with higher levels of capital being required for the categories perceived
as representing greater risk.

        These guidelines divide a savings bank's capital into two tiers. The
first tier ("Tier I") includes common equity, retained earnings, certain
non-cumulative perpetual preferred stock (excluding auction rate issues) and
minority interests in equity accounts of consolidated subsidiaries, less
goodwill and other intangible assets (except mortgage servicing rights and
purchased credit card relationships subject to certain limitations).
Supplementary ("Tier II") capital includes, among other items, cumulative
perpetual and long-term limited-life preferred stock, mandatory convertible
securities, certain hybrid capital instruments, term subordinated debt and the
allowance for loan and lease losses limited to a maximum of 1.25% of risk
weighted assets, subject to certain limitations, less required deductions.
Savings banks are required to maintain a total risk-based capital ratio of 8%,
of which at least 4% must be Tier I capital.

        In addition, the FDIC has established regulations prescribing a minimum
Tier I leverage ratio (Tier I capital to adjusted total assets as specified in
the regulations). These regulations provide for a minimum Tier I leverage ratio
of 3% for banks that meet certain specified criteria, including that they have
the highest examination rating and are not experiencing or anticipating
significant growth. All other banks are required to maintain a Tier I leverage
ratio of 3% plus an additional cushion of at least 100 to 200 basis points. The
FDIC may, however, set higher capital requirements on individual institutions
when particular circumstances warrant. Savings banks experiencing or
anticipating significant growth are expected to maintain capital ratios,
including tangible capital positions, well above the minimum levels.

        The following is a summary of the Bank's regulatory capital at December
31, 1998:

           GAAP Capital to Total Assets......................          13.0%
           Total Capital to Risk-Weighted Assets.............          24.2%
           Tier I Leverage Ratio.............................          11.5%

        The FDIC, along with the other federal banking agencies, have adopted a
regulation providing that the agencies will take account of the exposure of a
bank's capital and economic value to changes in interest rate risk in assessing
a bank's capital adequacy.


                                       22

<PAGE>



        DIVIDEND LIMITATIONS. The FDIC has authority to use its enforcement
powers to prohibit a savings bank from paying dividends if, in its opinion, the
payment of dividends would constitute an unsafe or unsound practice. Under Ohio
law, the Company and the Bank are prohibited from paying a dividend which would
result in insolvency. Ohio law requires the Bank to obtain Division approval
before payment of dividends in excess of net profits for the current and two
prior fiscal years, with certain adjustments. Federal law prohibits the payment
of dividends by a bank that will result in the bank failing to meet applicable
capital requirements on a pro forma basis. Additionally, the Bank, as a
subsidiary of a savings and loan holding company, is required to provide the OTS
with 30 days prior written notice before declaring any dividend. The Bank's Plan
of Conversion also restricts the Bank's payment of dividends in the event the
dividend would impair the liquidation account established in connection with the
Conversion.

        STANDARDS FOR SAFETY AND SOUNDNESS. The federal banking agencies have
adopted final regulations and Interagency Guidelines Prescribing Standards for
Safety and Soundness (the "Guidelines") to implement safety and soundness
standards used to identify and address problems at insured depository
institutions before capital becomes impaired. If the appropriate federal banking
agency determines that an institution fails to meet any standard prescribed by
the Guidelines, the agency may require the institution to submit to the agency
an acceptable plan to achieve compliance with the standard, as required by the
Federal Deposit Insurance Act, as amended (the "FDI Act").

        PROMPT CORRECTIVE REGULATORY ACTION. Federal law requires, among other
things, that federal bank regulatory authorities take "prompt corrective action"
with respect to banks that do not meet minimum capital requirements. The
severity of such action depends on the degree of under capitalization.

        An institution is deemed to be "undercapitalized" if it has a total
risk-based capital ratio of less than 8%, a Tier I risk-based capital ratio of
less than 4%, or generally a leverage ratio of less than 4%. An institution is
deemed to be "significantly undercapitalized" if it has a total risk-based
capital ratio of less than 6%, a Tier I risk-based capital ratio of less than
3%, or a leverage ratio of less than 3%. An institution is deemed to be
"critically undercapitalized" if it has a ratio of tangible equity (as defined
in the regulations) to total assets that is equal to or less than 2%.

        Subject to a narrow exception, the banking regulator is required to
appoint a receiver or conservator for an institution that is "critically
undercapitalized." The regulation also provides that a capital restoration plan
must be filed with the FDIC within 45 days of the date a savings institution
receives notice that it is "undercapitalized," "significantly undercapitalized"
or "critically undercapitalized." Compliance with the plan must be guaranteed by
any parent holding company. In addition, numerous mandatory supervisory actions
become immediately applicable to an undercapitalized institution, including, but
not limited to, increased monitoring by regulators and restrictions on growth,
capital distributions and expansion. The FDIC could also take any one of a
number of discretionary supervisory actions, including the issuance of a capital
directive and the replacement of senior executive officers and directors.

        INSURANCE OF DEPOSIT ACCOUNTS. Deposits of the Bank are presently
insured by the SAIF. The FDIC maintains a risk-based assessment system by which
institutions are assigned to one of three categories based on their
capitalization and one of three subcategories based on examination ratings and
other supervisory information. An institution's assessment rate depends upon the
categories to which it is assigned. Assessment rates for SAIF member
institutions are determined semiannually by the FDIC and currently range from
zero basis points for the healthiest institutions to 27 basis points for the
riskiest.


                                       23

<PAGE>

        In addition to the assessment for deposit insurance, institutions are
required to make payments on bonds issued in the late 1980s by the Financing
Corporation ("FICO") to recapitalize the predecessor to the SAIF. During 1998,
FICO payments for SAIF members approximated 6.10 basis points, while Bank
Insurance Fund ("BIF") members paid 1.22 basis points. By law, there will be
equal sharing of FICO payments between SAIF and BIF members on the earlier of
January 1, 2000 or the date the SAIF and BIF are merged.

        The Bank's assessment rate for fiscal 1998 was 0 basis points and the
premium paid for this period was $0. Payments toward the FICO bonds amounted to
$19,000. The FDIC has authority to increase insurance assessments. A significant
increase in SAIF insurance premiums would likely have an adverse effect on the
operating expenses and results of operations of the Bank. Management cannot
predict what insurance assessment rates will be in the future.

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

        THRIFT RECHARTERING LEGISLATION. Legislation enacted in 1996 provided
that the BIF and SAIF were to have merged on January 1, 1999 if there were no
more savings associations as of that date. Various proposals to eliminate the
federal savings association charter, create a uniform financial institutions
charter, abolish the OTS and restrict savings and loan holding company
activities have been introduced in Congress. The Bank is unable to predict
whether such legislation will be enacted or the extent to which the legislation
would restrict or disrupt its operations.

        TRANSACTIONS WITH RELATED PARTIES. The Bank's authority to engage in
transactions with"affiliates" (E.G., any company that controls or is under
common control with an institution, including the Company and its non-savings
institution subsidiaries) is limited by federal law. The aggregate amount of
covered transactions with any individual affiliate is limited to 10% of the
capital and surplus of the savings institution. The aggregate amount of covered
transactions with all affiliates is limited to 20% of the savings institution's
capital and surplus. Certain transactions with affiliates are required to be
secured by collateral in an amount and of a type described in federal law and
the purchase of low quality assets from affiliates is generally prohibited.
Transactions with affiliates, including loans and asset purchases, must be on
terms and under circumstances, including credit standards, that are
substantially the same or at least as favorable to the institution as those
prevailing at the time for comparable transactions with non-affiliated
companies. In addition, institutions are prohibited from lending to any
affiliate that is engaged in activities that are not permissible for bank
holding companies and no institution may purchase the securities of any
affiliate other than a subsidiary.

        The Bank's authority to extend credit to executive officers, directors
and 10% shareholders ("insiders"), as well as entities such persons control, is
governed by federal law. Among other things, such loans are required to be made
on terms substantially the same as those offered to unaffiliated individuals and
to not involve more than the normal risk of repayment. There is an exception for
loans made pursuant to a benefit or compensation program that is widely
available to all employees of the institution and does not give preference to
insiders over other employees. Federal law places individual and aggregate
limits on the amount of loans the Bank may make to insiders based, in part, on
the Bank's capital position and requires certain board approval procedures to be
followed.


                                       24

<PAGE>

        ENFORCEMENT. The FDIC has primary enforcement responsibility over the
Bank and has the authority to bring actions against the institution and all
institution-affiliated parties, including stockholders, and any attorneys,
appraisers and accountants who knowingly or recklessly participate in wrongful
action likely to have an adverse effect on an insured institution. Formal
enforcement action may range from the issuance of a capital directive or cease
and desist order to removal of officers and/or directors to institution of
receivership, conservatorship or termination of deposit insurance. Civil
penalties cover a wide range of violations and can amount to $25,000 per day, or
even $1 million per day in especially egregious cases.
Federal law also establishes criminal penalties for certain violations.

FEDERAL RESERVE SYSTEM

        The Federal Reserve Board regulations require savings institutions to
maintain non-interest earning reserves against their transaction accounts
(primarily NOW and regular checking accounts). The regulations generally provide
that reserves be maintained against aggregate transaction accounts as follows:
for accounts aggregating $46.5 million or less (subject to adjustment by the
Federal Reserve Board) the reserve requirement is 3%; and for accounts
aggregating greater than $46.5 million, the reserve requirement is $1.4 million
plus 10% (subject to adjustment by the Federal Reserve Board between 8% and 14%)
against that portion of total transaction accounts in excess of $46.5 million.
The first $4.9 million of otherwise reservable balances (subject to adjustments
by the Federal Reserve Board) are exempted from the reserve requirements. The
Bank complies with the foregoing requirements.

HOLDING COMPANY REGULATION

        The Company is a nondiversified unitary savings and loan holding company
within the meaning of the federal law. As a unitary savings and loan holding
company, the Company is not restricted by federal law as to the types of
business activities in which it may engage, provided that the Bank continues to
be a qualified thrift lender. Upon any non-supervisory acquisition by the
Company of another savings association as a separate subsidiary, the Company
would become a multiple savings and loan holding company and would be subject to
extensive limitations on the types of business activities in which it could
engage. Federal law limits the activities of a multiple savings and loan holding
company and its non-insured institution subsidiaries primarily to activities
permissible for bank holding companies under Section 4(c)(8) of the Bank Holding
Company Act ("BHC Act"), subject to the prior approval of the OTS, and to other
activities authorized by OTS regulation. Multiple savings and loan holding
companies are generally prohibited from acquiring or retaining, more than 5% of
a non-subsidiary holding company, or a non-subsidiary company engaged in
activities other than those permitted by federal law.

        A savings and loan holding company is prohibited from, directly or
indirectly, acquiring more than 5% of the voting stock of another savings
institution or holding company thereof, or from acquiring such an institution or
company by merger, consolidation or purchase of its assets, without prior
written approval of the OTS or acquiring or retaining control of a depository
institution that is not insured by the FDIC. In evaluating applications by
holding companies to acquire savings institutions, the OTS must consider the
financial and managerial resources and future prospects of the company and
institution involved, the effect of the acquisition on the risk to the insurance
funds, the convenience and needs of the community and competitive factors.

        The OTS is prohibited from approving any acquisition that would result
in a multiple savings and loan holding company controlling savings institutions
in more than one state, except: (i) interstate supervisory acquisitions by
savings and loan holding companies and (ii) the acquisition of a savings


                                       25

<PAGE>

institution in another state if the laws of the state of the target savings
institution specifically permit such acquisitions. The states vary in the extent
to which they permit interstate savings and loan holding company acquisitions.

        In order to elect and continue to be regulated as a savings and loan
holding company by the OTS (rather than as a bank holding company by the Federal
Reserve Board), the Bank must continue to qualify as a qualified thrift lender.
To be a qualified thrift lender, a savings institution is required to maintain
at least 65% of its "portfolio assets" (total assets less: (i) specified liquid
assets up to 20% of total assets; (ii) intangibles, including goodwill; and
(iii) the value of property used to conduct business) in certain "qualified
thrift investments" (primarily residential mortgages and related investments,
including certain mortgage-backed and related securities) in at least 9 months
out of each 12 month period. A holding company of a savings institution that
fails the test must either convert to a bank holding company and thereby become
subject to the regulation and supervision of the Federal Reserve Board, or
operate under certain restrictions. As of December 31, 1998, the Bank maintained
in excess of 85% of its portfolio assets in qualified thrift investments and was
a qualified thrift lender. Recent legislative amendments have broadened the
scope of "qualified thrift investments" that go toward meeting the qualified
thrift lender test to fully include credit card loans, student loans and small
business loans. A savings association may also satisfy the test by qualifying as
a "domestic building and loan association" as defined in the Internal Revenue
Code of 1986 (the "Code").

                           FEDERAL AND STATE TAXATION

FEDERAL TAXATION

        GENERAL. The Company and the Bank report their income on a consolidated
basis using the accrual method of accounting, and are subject to federal income
taxation in the same manner as other corporations with some exceptions,
including particularly the Bank's reserve for bad debts discussed below. The
following discussion of tax matters is intended only as a summary and does not
purport to be a comprehensive description of the tax rules applicable to the
Bank or the Company. The Bank has not been audited by the IRS during the past
five years. For its 1998 taxable year, the Bank is subject to a maximum federal
income tax rate of 34%.

        BAD DEBT RESERVES. For fiscal years beginning prior to December 31,
1995, thrift institutions which qualified under certain definitional tests and
other conditions of the Internal Revenue Code of 1986 (the "Code") were
permitted to use certain favorable provisions to calculate their deductions from
taxable income for annual additions to their bad debt reserve. A reserve could
be established for bad debts on qualifying real property loans (generally
secured by interests in real property improved or to be improved) under (i) the
Percentage of Taxable Income Method (the "PTI Method") or (ii) the Experience
Method. The reserve for nonqualifying loans was computed using the Experience
Method.

        The Small Business Job Protection Act of 1996 (the "1996 Act"), which
was enacted on August 20, 1996, repeals the reserve method of accounting for bad
debts effective for tax years beginning after 1995, and requires savings
institutions to recapture (I.E., take into income) certain portions of their
accumulated bad debt reserves. Thrift institutions eligible to be treated as
"small banks" (assets of $500 million or less) are allowed to use the Experience
Method applicable to such institutions, while thrift institutions that are
treated as large banks (assets exceeding $500 million) are required to use only
the specific charge-off method. The PTI Method of accounting for bad debts is no
longer available for any financial institution.



                                       26

<PAGE>

        A thrift institution required to change its method of computing reserves
for bad debts will treat such change as a change in method of accounting,
initiated by the taxpayer, and having been made with the consent of the IRS. Any
Section 481(a) adjustment required to be taken into income with respect to such
change generally will be taken into income ratably over a six-taxable year
period, beginning with the first taxable year beginning after 1995, subject to a
two-year suspension if the "residential loan requirement" is satisfied.

        Under the residential loan requirement provision, the recapture required
by the 1996 Act will be suspended for each of two successive taxable years,
beginning with the Bank's 1996 taxable year, in which the Bank originates a
minimum of certain residential loans based upon the average of the principal
amounts of such loans made by the Bank during its six taxable years preceding
its current taxable year.

        The Bank is required to pay over a six year period the excess of the
balance of its tax bad debt reserves as of December 31, 1995 over the balance of
such reserves as of December 31, 1987. As a result of such recapture, the Bank
will incur additional tax payments of approximately $21,000 which is generally
expected to be taken into income beginning in 1999 over a six year period.

        DISTRIBUTIONS. Under the 1996 Act, if the Bank makes "non-dividend
distributions" to the Company, such distributions will be considered to have
been made from the Bank's unrecaptured tax bad debt reserves (including the
balance of its reserves as of December 31, 1987) to the extent thereof, and then
from the Bank's supplemental reserve for losses on loans, to the extent thereof,
and an amount based on the amount distributed (but not in excess of the amount
of such reserves) will be included in the Bank's income. Non-dividend
distributions include distributions in excess of the Bank's current and
accumulated earnings and profits, as calculated for federal income tax purposes,
distributions in redemption of stock, and distributions in partial or complete
liquidation. Dividends paid out of the Bank's current or accumulated earnings
and profits will not be so included in the Bank's income.

        The amount of additional taxable income triggered by a non-dividend
distribution is an amount that, when reduced by the tax attributable to the
income, is equal to the amount of the distribution. Thus, if the Bank makes a
non-dividend distribution to the Company, approximately one and one-half times
the amount of such distribution (but not in excess of the amount of such
reserves) would be includable in income for federal income tax purposes,
assuming a 35% federal corporate income tax rate. The Bank does not intend to
pay dividends that would result in a recapture of any portion of its bad debt
reserves.

        DIVIDENDS RECEIVED DEDUCTION AND OTHER MATTERS. The Company may exclude
from its income 100% of dividends received from the Bank as a member of the same
affiliated group of corporations. The corporate dividends received deduction is
generally 70% in the case of dividends received from unaffiliated corporations
with which the Company and the Bank will not file a consolidated tax return,
except that if the Company or the Bank own more than 20% of the stock of a
corporation distributing a dividend then 80% of any dividends received may be
deducted.

        SAIF RECAPITALIZATION ASSESSMENT. The Funds Act levied a 65.7-cent fee
on every $100 of thrift deposits held on March 31, 1995. For financial statement
purposes, this assessment was reported as an expense for the quarter ended
September 30, 1996. The Funds Act includes a provision which states that the
amount of any special assessment paid to capitalize the SAIF under this
legislation is deductible under Section 162 of the Code in the year of payment.


                                       27

<PAGE>


OHIO TAXATION

        The Company is subject to the Ohio corporation franchise tax, which, as
applied to the Company, 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.

        In computing its tax under the net worth method, the Company may exclude
100% of its investment in the capital stock of the Bank after the Conversion, as
reflected on the balance sheet of the Company, in computing its taxable net
worth as long as it owns at least 25% of the issued and outstanding capital
stock of the Bank. The calculation of the exclusion from net worth is based on
the ratio of the excludable investment (net of any appreciation or goodwill
included in such investment) to total assets multiplied by the net value of the
stock. As a holding company, the Company may be entitled to various other
deductions in computing taxable net worth that are not generally available to
operating companies.

        A special litter tax is also applicable to all corporations, including
the Company, 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 0.11% of the first $50,000 of computed Ohio taxable income and
0.22% 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 0.014% times taxable
net worth.

        The Bank 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 Bank's book
net worth determined in accordance with GAAP. As a "financial institution," the
Bank is not subject to any tax based upon net income or net profits imposed by
the State of Ohio.

IMPACT OF NEW ACCOUNTING STANDARDS

        The following does not constitute a comprehensive summary of all
material changes or developments affecting the manner in which the Company keeps
its books and records and performs its financial accounting responsibilities. It
is intended only as a summary of some of the recent pronouncements made by the
FASB which are of particular interest to financial institutions.

        The FASB issued SFAS No. 130, "Reporting Comprehensive Income" ("SFAS
No. 130"). SFAS No. 130 establishes standards for reporting and display of
comprehensive income and its components (revenues, expenses, gains, and losses)
in a full set of general purpose financial statements. SFAS No. 130 requires
that all items that are required to be recognized under accounting standards as
components of comprehensive income be reported in a financial statement that is
displayed with the same prominence as other financial statements. SFAS No. 130
requires that an enterprise (a) classify items of other comprehensive income by
their nature in a financial statement, and (b) display the accumulated balance
of other comprehensive income separately from net worth and additional paid-in
capital in the equity section of a statement of financial position. SFAS No. 130
is effective for fiscal years beginning after December 15, 1997. The Company
adopted SFAS No. 130 during 1998 and provided the required disclosures.

        In February 1998, the FASB issued SFAS No. 132, "Employers' Disclosures
about Pension and other Postretirement Standards." This statement is effective
for fiscal years beginning after December 15, 1997. Restatement of comparative
period disclosures is required unless the information is not readily available,
in which case the notes to the financial statements shall include all available
information and a description


                                       28

<PAGE>



of the information not available. This statement standardizes the disclosure
requirements of SFAS No. 87 and No. 106 to the extent practicable and recommends
a parallel format for presenting information about pensions and other
postretirement benefits. Statement 132 does not change any of the measurement or
recognition provisions provided for in SFAS No. 87, No. 88 or No. 106. The
adoption of this standard did not have an effect on the Company's consolidated
financial condition or results of operations.

        In June 1998, the FASB issued SFAS No. 133 "Accounting for Derivative
Instruments and Hedging Activities." This statement establishes accounting and
reporting standards for derivative instruments embedded in other contracts, and
for hedging activities. It requires that an entity recognize all derivatives as
either assets or liabilities in the statement of financial position and measure
those instruments at fair value. This statement amends SFAS No. 52 and 107 and
supercedes SFAS No. 80, 105 and 107. This statement is effective for fiscal
quarters beginning after June 15, 1999. The adoption of this standard should not
have an effect on the Company's consolidated financial condition or results of
operation.

ADDITIONAL ITEM.  EXECUTIVE OFFICERS OF THE REGISTRANT.

        The following table sets forth certain information regarding the
executive officers of the Company and the Bank who are not also directors.

<TABLE>
<CAPTION>
                      Age at        Position with the Company and Bank
Name                  12/31/98       and Past Five Years Experience
----                  --------       ------------------------------
<S>                     <C>        <C>
Michael P. Cooper       41         Chief Financial Officer and Treasurer of the Company and the
                                   Bank.  Prior to joining the Company in 1997, Mr. Cooper was
                                   Comptroller of a property management/personnel service and
                                   dental insurer.  From 1987-1994, Mr. Cooper was Chief Financial
                                   Officer of Guardian Savings Bank.

Diane P. Hunt           43         Vice President, Chief Operating Officer and Secretary of the
                                   Company and the Bank.
</TABLE>



                                       29

<PAGE>


ITEM 2.  DESCRIPTION OF PROPERTY.

        The Company and the Bank are located and conduct their business at the
Bank's main office located at 5255 Beech Street, St. Bernard, Ohio, and at a
branch on Erie Avenue in Cincinnati. The Company believes that the Bank's
current facilities are adequate to meet the present and immediately foreseeable
needs of the Bank and the Company. In prior years, the Bank has not been
required to pay rent for the office from which it operated. However, in 1995,
the lessor negotiated for lease payments through December 31, 1999 totalling
$105,000. The lease payments will be lower in the first years and increase in
later years to cover the total amount of the lease. There are no renewal
options, and the Bank may need to renegotiate at the end of the term. The
Company's continued use of the main office facilities beyond the lease term is
dependent upon decisions of the lessor who is presently evaluating the
situation. There is a reasonable possibility that the Company, in the near term,
may be required to obtain an alternate site for its main office. The effect this
could have on business operations is not known. The net book value of leasehold
improvements at December 31, 1998 was approximately $172,000. The following
table sets forth certain information relating to the Bank's office.


<TABLE>
<CAPTION>
                                               ORIGINAL                     NET BOOK VALUE
                                                 DATE                       OF PROPERTY OR
                                     LEASED     LEASED       DATE OF          LEASEHOLD
                                       OR         OR          LEASE        IMPROVEMENTS AT
            LOCATION                 OWNED     ACQUIRED     EXPIRATION    DECEMBER 31, 1998
---------------------------------   --------  ----------   ------------  --------------------
<S>                                   <C>        <C>          <C>             <C>
5255 Beech Street
St. Bernard, Ohio  45217.........     Leased      1995         2000            $219,000
3521 Erie Avenue
Cincinnati, Ohio  45208..........      Owned      1997           --            $345,000
</TABLE>


        There can be no assurance that Procter & Gamble will renew the Bank's
lease in 2000. Consequently, it may be necessary for the Bank to relocate its
main office in 2000. At December 31, 1998, the Bank had a total of three ATMs.

        For further information related to the Bank's properties, see Note 4 to
the Notes to the Financial Statements included in the Company's 1998 Annual
Report to Stockholders.

ITEM 3.  LEGAL PROCEEDINGS.

        Neither the Company nor its subsidiaries are involved in any pending
legal proceedings, other than routine legal matters occurring in the ordinary
course of business, which in the aggregate involve amounts which are believed by
management to be immaterial to the consolidated financial condition or results
of operations of the Company.

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

        None.



                                       30

<PAGE>

                                     PART II

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

        Information relating to the market for Registrant's common equity and
related stockholder matters appears in the Registrant's 1998 Annual Report to
Stockholders on the back inside cover. On December 31, 1998, the Company had 222
registered shareholders. The Company began paying quarterly dividends in fiscal
1997 of $.05 per share per quarter and most recently declared a dividend of $.05
per share payable on January 2, 1999 to all holders of record on December 15,
1998. See also Note 10 to the Notes to the Company's financial statements. The
Company repurchased a total of 3,529 shares of its common stock in fiscal 1998.

ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.

        The above-captioned information appears under "Management's Discussion
and Analysis of Financial Condition and Results of Operations" in the
Registrant's 1998 Annual Report to Stockholders on pages 4 through 13 and is
incorporated herein by reference.

ITEM 7.  FINANCIAL STATEMENTS.

        The Consolidated Financial Statements of Lenox Bancorp, Inc. and its
subsidiary, together with the report thereon by Clark, Schaefer, Hackett & Co.
appear in the Registrant's 1998 Annual Report to Stockholders on pages 14
through 51 and are incorporated herein by reference.

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

        None.


                                       31

<PAGE>


                                    PART III

ITEM 9.  DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.

        The information relating to Directors and Executive Officers of the
Registrant is incorporated herein by reference to the Registrant's Proxy
Statement for the Annual Meeting of Stockholders to be held on April 30, 1999,
on pages 5 through 7. Information concerning Executive Officers who are not
directors is contained in Part I of this report pursuant to paragraph (b) of
Item 401 of Regulation S-K in reliance on Instruction G.

ITEM 10.  EXECUTIVE COMPENSATION.

        The information relating to director and executive compensation is
incorporated herein by reference to the Registrant's Proxy Statement for the
Annual Meeting of Stockholders to be held on April 30, 1999, on pages 10 through
13.

ITEM 11.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.

        The information relating to security ownership of certain beneficial
owners and management is incorporated herein by reference to the Registrant's
Proxy Statement for the Annual Meeting of Stockholders to be held on April 30,
1999, on pages 3 and 5 through 7.

ITEM 12.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.

        The information relating to certain relationships and related
transactions is incorporated herein by reference to the Registrant's Proxy
Statement for the Annual Meeting of Stockholders to be held on April 30, 1999,
on page 13.



                                       32

<PAGE>

                                     PART IV

ITEM 13.  EXHIBITS.

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

(1)     Consolidated Financial Statements of the Company are incorporated by
        reference to the following indicated pages of the 1998 Annual Report to
        Stockholders.

                                                                         PAGE
                                                                         ----
        Independent Auditors' Report................................       14

        Consolidated Balance Sheet
        as of December 31, 1998 and 1997............................       15  

        Consolidated Statement of Income
        for the Three Years Ended December 31, 1998.................       17

        Consolidated Statements of Comprehensive Income
        for Three Years Ended December 31, 1998.....................       18

        Consolidated Statement of Changes in
        Stockholders' Equity for the Three Years Ended
        December 31, 1998...........................................       19

        Consolidated Statement of Cash Flows for
        the Three Years Ended December 31, 1998.....................       22


        Notes to Consolidated Financial Statements..................       25




                                       33

<PAGE>



The remaining information appearing in the 1998 Annual Report to Stockholders is
not deemed to be filed as part of this report, except as expressly provided
herein.

(2)     Exhibits

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

<TABLE>
          <S>     <C>
           3.1    Amended Articles of Incorporation of Lenox Bancorp, Inc.*
           3.2    Amended and Restated Code of Regulations of Lenox Bancorp, Inc.*
           4.0    Stock Certificate of Lenox Bancorp, Inc.**
          10.1    Employment Agreement between the Company and the President dated
                  September 3, 1996
          10.2    Employment Agreement between the Bank and the President dated September
                  3, 1996
          10.3    Change in Control Agreement between the Company and the
                  Chief Operating Officer dated September 3, 1996
          10.4    Change in Control Agreement between the Bank and the
                  Chief Operating Officer dated September 3, 1996
          10.5    Change in Control Agreement between the Company and the
                  Chief Financial Officer dated May 19, 1997.
          10.6    Change in Control Agreement between the Bank and the
                  Chief Operating Financial dated May 19, 1997.
          10.7    Amended Lenox Bancorp, Inc. 1997 Incentive Plan
          11.0    Statement re: Computation of Per Share Earnings***
          13.0    1998 Annual Report to Stockholders
          21.0    Subsidiary information is incorporated herein by reference to "Item 1 - General"
          23.0    Consent of Clark, Schaefer, Hackett & Co.
          27.0    Financial Data Schedule (filed in electronic format only)
</TABLE>

        (b)    Reports on Form 8-K
               None


*    Incorporated herein by reference to the Exhibits to Form 10-KSB, Annual
     Report, filed on March 25, 1998.

**   Incorporated herein by reference to the Exhibits to Form S-1, Registration
     Statement, and Pre-Effective Amendment No. 1, filed on August 25, 1996 and
     March 8, 1997, respectively, Registration No. 333-96248.

***  Incorporated herein by reference to Note 17 to the Notes to the Financial
     Statements included in the Company's 1998 Annual Report to Stockholders.


                                       34

<PAGE>

                                   SIGNATURES

        Pursuant to the requirements of Section 13 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.

                                LENOX BANCORP, INC.

                                By: /s/ Virginia M. Deisch
                                   -----------------------------------
                                Virginia M. Deisch
Dated:  March 29, 1999          President, Chief Executive Officer and Director


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

<TABLE>
<CAPTION>
        Name                           Title                                        Date
        ----                           -----                                        ----
<S>                                <C>                                          <C>
/s/ Virginia M. Deisch             President, Chief Executive Officer           March 29, 1999
-----------------------            and Director
Virginia M. Deisch                 (Principal Executive Officer)

/s/ Michael P. Cooper              Chief Financial Officer and Treasurer        March 29, 1999
-----------------------            (Principal Financial and Accounting Officer)
Michael P. Cooper

/s/ Gail R. Behymer                Director                                     March 29, 1999
-----------------------
Gail R. Behymer

/s/ Richard C. Harmeyer            Chairman of the Board                        March 29, 1999
------------------------
Richard C. Harmeyer

/s/ Robert R. Keller               Director                                     March 29, 1999
-----------------------
Robert R. Keller

/s/ Henry E. Brown                 Director                                     March 29, 1999
-----------------------
Henry E. Brown

/s/ Curtis L. Jackson              Director                                     March 29, 1999
-----------------------
Curtis L. Jackson

/s/ Reba St. Clair                 Director                                     March 29, 1999
-----------------------
Reba St. Clair

/s/ John C. Lame                   Director                                     March 29, 1999
-----------------------
John C. Lame
</TABLE>