<PAGE>

                      SECURITIES AND EXCHANGE COMMISSION
                             Washington, DC 20549

                                   FORM 10-K

                  Annual report pursuant to Section 13 of the
                        Securities Exchange Act of 1934

                  For the fiscal year ended December 31, 1997

                         Commission File No.: 0-25172

                           FIRST BELL BANCORP, INC.
            (exact name of registrant as specified in its charter)

               DELAWARE                               25-1752651
     (State or other jurisdiction of          (I.R.S. Employer I.D. No.)
     incorporation or organization)

         Suite 1704, 300 Delaware Avenue, Wilmington, Delaware  19801
                   (Address of principal executive offices)

      Registrant's telephone number, including area code: (302) 427-7883
       Securities registered pursuant to Section 12(b) of the Act:  None
          Securities registered pursuant to Section 12(g) of the Act:

                    Common Stock, par value $0.01 per share
                               (Title of class)

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

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

     The aggregate market value of the voting stock held by non-affiliates of
the registrant, i.e., persons other than directors and executive officers of the
registrant is $117,867,206 and is based upon the last sales price as quoted on
The Nasdaq Stock Market for March 2, 1998.

     As of March 2, 1998, the Registrant had 6,523,920 shares outstanding
(excluding treasury shares).

                      DOCUMENTS INCORPORATED BY REFERENCE

     Portions of the Annual Report to Stockholders for the year ended December
31, 1997 is incorporated by reference into Part II of this Form 10-K.

     Portions of the Proxy Statement for the 1998 Annual Meeting of Stockholders
is incorporated by reference into Part III of this Form 10-K.
<PAGE>

                                     INDEX

PART I                                                           PAGE
                                                                 ----

Item 1.     Business...........................................     1

Item 2.     Properties.........................................    33

Item 3.     Legal Proceedings..................................    33

Item 4.     Submission of Matters to a Vote of Security Holders    33


PART II

Item 5.     Market for Registrant's Common Equity and Related
            Stockholder Matters................................    34

Item 6.     Selected Financial Data............................    34

Item 7.     Management's Discussion and Analysis of Financial
            Condition and Results of Operations................    34

Item 7A.    Quantitive and Qualitative Disclosure about
            Market Risk........................................    34

Item 8.     Financial Statements and Supplementary Data........    34

Item 9.     Changes in and Disagreements with Accountants
            on Accounting and Financial Disclosure.............    34

PART III

Item 10.    Directors and Executive Officers of the Registrant.    35

Item 11.    Executive Compensation.............................    35

Item 12.    Security Ownership of Certain Beneficial Owners
            and Management.....................................    35

Item 13.    Certain Relationships and Related Transactions.....    35


PART IV

Item 14.    Exhibits, Financial Statement Schedules and Reports
            on Form 8-K........................................    36

SIGNATURES.....................................................    38

<PAGE>

                                    PART I

Item 1.  Business

General

      First Bell Bancorp, Inc. (the "Company") was organized by the Board of
Directors of Bell Federal Savings and Loan Association of Bellevue (the
"Association") for the purpose of acquiring all of the capital stock of the
Association to be issued in connection with the Association's conversion from
mutual to stock form, which was consummated on June 29, 1995, (the
"Conversion").  At December 31, 1997, the Company had consolidated total assets
of $675.7 million and total equity of $73.0 million.  The Company was
incorporated under Delaware law and is a savings and loan holding company
subject to regulation by the Office of Thrift Supervision ("OTS"), the Federal
Deposit Insurance Corporation ("FDIC") and the Securities and Exchange
Commission ("SEC").  Currently, the Company does not transact any material
business other than through its subsidiary, the Association.  All references to
the Company include the Association unless otherwise indicated, except that
references to the Company prior to June 29, 1995 are to the Association.

      Bell Federal Savings and Loan Association of Bellevue was originally
founded in 1891 as the Commercial Building and Loan Association, a state
chartered building and loan association.  In 1941, the Association converted to
a federally chartered mutual savings and loan association and changed its name
to First Federal Savings and Loan Association of Bellevue.  The Association
again changed its name in 1971 to Bell Federal Savings and Loan Association of
Bellevue.  The Association's deposits are insured up to applicable limits by the
Savings Association Insurance Fund ("SAIF").  The Association's business is
primarily conducted through six branch offices located throughout the suburban
Pittsburgh, Pennsylvania area and its principal office in the borough of
Bellevue.  The Company's principal executive office is located at Suite 1704,
300 Delaware Avenue, Wilmington, Delaware 19801 and its executive office
telephone number is (302) 427-7883.

      The principal business of the Company is to operate a traditional customer
oriented savings and loan association.  The Company attracts retail deposits
from the general public and invests those funds primarily in fixed-rate, owner-
occupied, single family conventional mortgage loans and, to a much lesser
extent, residential construction loans, multi-family loans, and consumer loans.
The Company's revenues are derived principally from interest on conventional
mortgage loans, and, to a much lesser extent, interest and dividends on
investment securities and short-term investments, and other fees and service
charges.  The Company's primary source of funds is deposits and borrowings from
the Federal Home Loan Bank ("FHLB").

      The Association is subject to extensive regulation, supervision and
examination by the OTS, its primary regulator, and the FDIC, which insures its
deposits.  The Association is a member of the FHLB.
<PAGE>

Private Securities Litigation Reform Act Safe Harbor Statement

      In addition to historical information, this 10-K includes certain forward
looking statements based on current management expectations.  Examples of this
forward looking information can be found in, but are not limited to, the
allowance for losses discussion and certain sections of the 1997 Annual Report
incorporated herein.  The Company's actual results could differ materially from
those management expectations.  Factors that could cause future results to vary
from current management expectations include, but are not limited to, general
economic conditions, legislative and regulatory changes, monetary and fiscal
policies of the federal government, changes in tax policies, rates and
regulations of federal, state and local tax authorities, changes in interest
rates, deposit flows, the cost of funds, demand for loan products, demand for
financial services, competition, changes in the quality or composition of the
Company's loan and investment portfolios, changes in accounting principles,
policies or guidelines, and other economic, competitive, governmental and
technological factors affecting the Company's operations, markets, products,
services and prices.

Market Area and Competition

      The Association has been, and continues to be, a community-oriented
savings institution offering a variety of financial services to meet the needs
of the communities it serves.  Its primary market area is in the areas
surrounding its offices, while its lending activities extend throughout
Allegheny County and parts of Beaver, Butler, Washington and Westmoreland
Counties, in Pennsylvania.  In addition to its principal office in Bellevue, the
Association operates six other retail offices, all of which are located in
Allegheny County.

      The communities in Allegheny County are composed mostly of stable,
residential neighborhoods of predominantly one-and two-family residences and
middle-to-upper-income families.  Management believes that, to a large degree,
the economic vitality of these communities depends on the economic vitality of
the City of Pittsburgh.

      The Greater Pittsburgh area has been in the process of restructuring over
the past decade.  Once centered on heavy manufacturing, primarily steel, its
economic base is now more diverse, including technology, health and business
services.  Several "Fortune 500" industrial firms are headquartered in the
Greater Pittsburgh area, including USX Corp. and Aluminum Company of America.
The largest employers in Pittsburgh, by the number of local employees, include
University of Pittsburgh Medical Center, USAirways, the University of Pittsburgh
and Mellon Bank Corp.  Seven colleges and universities are located in the
Greater Pittsburgh area.

      The Association serves its market area with a wide selection of
residential loans and other retail financial services.  Management considers the
Association's reputation for customer service as its major competitive advantage
in attracting and retaining customers in its market area.  The Association also
believes it benefits from its community orientation, as well as its established
deposit base and level of core deposits.

                                       2
<PAGE>

Lending Activities

      Loan and Mortgage-Backed Securities Portfolio Composition.  The loan
portfolio consists primarily of conventional mortgage loans secured by one- to
four-family, owner-occupied residences, and, to a much lesser extent,
residential construction loans, multi-family loans and consumer loans.  Mortgage
loans are originated to be held in the portfolio. At December 31, 1997, total
loans receivable were $596.0 million, of which $568.4 million, or 95.4%, were
conventional mortgage loans. Of the conventional mortgage loans outstanding at
that date, 97.0% were fixed-rate loans. At December 31, 1997, the loan portfolio
also included $25.6 million of residential construction loans; $860,000 of
multi-family loans; $268,000 of residential second mortgage loans; and $907,000
of other consumer loans. The Association also offers FHA/VA qualifying one-to
four-family residential mortgage loans.

     The types of loans originated are regulated by federal law and regulations.
Interest rates charged on loans are affected principally by the demand for such
loans and the supply of money available for lending purposes.  These factors
are, in turn, affected by general and economic conditions, monetary policies of
the federal government, legislative and tax policies and governmental budgetary
matters.

                                       3
<PAGE>

     Set forth below is a table showing the loan origination, purchase and sales
activity for the periods indicated.

<TABLE>
<CAPTION>
                                              For the Year Ended December 31,
                                              -------------------------------
                                                 1997      1996      1995
                                              -------------------------------
                                                      (In thousands)
<S>                                            <C>       <C>       <C>
Loans receivable at beginning of period......  $547,210  $432,863  $322,914
                                               --------  --------  --------
 Additions:
  Originations of mortgages(1)(2)............   129,043   168,915   112,264
  Purchase of conventional mortgages.........        --        --    24,361
                                               --------  --------  --------
                                                676,253   601,778   136,625
                                               --------  --------  --------
 Reductions:
  Transfer of mortgage loans to foreclosed
   real estate...............................       104       229       287
  Repayments.................................    50,157    54,339    26,389
  Loan sales.................................    29,989        --        --
                                               --------  --------  --------
  Total reductions...........................    80,250    54,568    26,676
                                               --------  --------  --------
  Total loans receivable at end of period....  $596,003  $547,210  $432,863
                                               ========  ========  ========
Mortgage-backed securities at beginning
 of period...................................  $     --  $     --  $  4,870
  Purchases..................................    92,528        --        --
  Sales......................................    46,676        --     3,990
  Repayments.................................    14,000        --       878
  Premium amortization.......................       197        --         2
  Unrealized gain or loss....................       230        --        --
                                               --------  --------  --------
Mortgage-backed securities at end of period..  $ 31,885  $     --  $     --
                                               ========  ========  ========
</TABLE>
_______________________________
(1)  Includes conventional mortgages and residential construction loans.
(2)  The Association originated no multi-family or second mortgage loans during
     the periods shown.

                                       4
<PAGE>

     The following table sets forth the composition of the loan portfolio and
mortgage-backed securities portfolio in dollar amounts and in percentages of the
portfolio at the dates indicated.

<TABLE>
<CAPTION>
                                                                                 At December 31,
                                        ------------------------------------------------------------------------------------------
                                                1997                 1996                   1995                    1994
                                        ---------------------  --------------------- ----------------------  ---------------------
                                                   Percent of             Percent of             Percent of             Percent of
                                         Amount      Total      Amount      Total     Amount       Total      Amount      Total
                                        --------   ----------  --------   ---------- --------    ----------  --------   ----------
                                                                               (Dollars in thousands)
<S>                                     <C>        <C>         <C>        <C>        <C>         <C>         <C>        <C>
Real estate loans:
  Conventional mortgages..............  $568,405    95.37%     $524,867    95.92%    $409,807    94.67%      $304,760    94.38%
  Residential construction loans......    25,563     4.29        19,877     3.63       19,692     4.55         14,090     4.36
  Multi-family loans..................       860     0.14         1,220     0.22        2,075     0.48          2,646     0.82
  Second mortgage loans...............       268     0.05           297     0.06          330     0.08            354     0.11
                                        --------   ------      --------   ------     --------   ------       --------   ------
    Total real estate loans...........   595,096    99.85       546,261    99.83      431,904    99.78        321,850    99.67

Consumer loans:
  Loans on deposit accounts...........       899     0.15           938     0.17          937     0.22          1,018     0.32
  Home improvement loans..............         8      .--            11      .--           22      .--             46     0.01
                                        --------   ------      --------   ------     --------   ------       --------   ------
    Total consumer loans..............       907     0.15           949     0.17          959     0.22          1,064     0.33
                                        --------   ------      --------   ------     --------   ------       --------   ------
Total loans receivable................   596,003   100.00%      547,210   100.00%     432,863   100.00%       322,914   100.00%
                                                   ======                 ======                ======                  ======
Less:
  Undisbursed portion of loans
    in process........................    12,072                 11,120                11,182                   8,834
  Deferred net loan origination fees..     3,822                  4,610                 5,537                   5,510
  Allowance for loan losses...........       715                    665                   575                     575
                                        --------               --------              --------                --------
    Loans receivable, net.............  $579,394               $530,815              $415,569                $307,995
                                        ========               ========              ========                ========

Mortgage-backed securities:
  GNMA................................  $ 26,958    84.55%     $     --      .--%    $     --      .--%      $    702    14.42%
  FHLMC...............................        --      .--            --      .--           --      .--          2,103    43.18
  FNMA................................     4,927    15.45            --      .--           --      .--          2,065    42.40
  Others..............................        --      .--            --      .--           --      .--             --      .--
                                        --------   ------      --------   ------     --------    -----       --------   ------
    Total mortgage-backed securities..  $ 31,885   100.00%     $     --      .--%    $     --      .--%      $  4,870   100.00%
                                        ========   ======      ========  =======     ========    =====       ========   ======

<CAPTION>
                                            At December 31,
                                        ---------------------
                                                1993
                                        ---------------------
                                                   Percent of
                                         Amount      Total
                                        --------   ----------
                                        (Dollars in thousands)
<S>                                     <C>        <C>
Real estate loans:
  Conventional mortgages..............  $242,849    94.59%
  Residential construction loans......     9,052     3.53
  Multi-family loans..................     3,497     1.38
  Second mortgage loans...............       340     0.13
                                        --------   ------
    Total real estate loans...........   255,738    99.63

Consumer loans:
  Loans on deposit accounts...........       869     0.34
  Home improvement loans..............        79     0.03
                                        --------   ------
    Total consumer loans..............       948     0.37
                                        --------   ------
Total loans receivable................   256,686   100.00%
                                                   ======
Less:
  Undisbursed portion of loans
    in process........................     4,251
  Deferred net loan origination fees..     4,393
  Allowance for loan losses...........       598
                                        --------
    Loans receivable, net.............  $247,444
                                        ========

Mortgage-backed securities:
  GNMA................................  $    868    13.14%
  FHLMC...............................     3,070    46.48
  FNMA................................     2,616    39.61
  Others..............................        51     0.77
                                        --------   ------
    Total mortgage-backed securities..  $  6,605   100.00%
                                        ========   ======
</TABLE>

                                       5
<PAGE>

  Loan Maturity Schedule.  The following table sets forth certain information at
December 31, 1997 regarding the dollar amount of loans maturing in the portfolio
based on their original contractual terms to maturity.  The table does not
include the effect of prepayments or scheduled principal amortization.
Prepayments and scheduled principal amortization on loans totalled $50.2
million, $54.3 million and $26.4 million for the years ended December 31, 1997,
1996 and 1995, respectively.

<TABLE>
<CAPTION>
                                                                           At December 31, 1997
                                       ---------------------------------------------------------------------------------------------

                                                  More than   More than   More than   More than    More than
                                        Three      Three      Six Months   One Year  Three Years  Five Years
                                       Months     Months to   to Twelve   to Three     to Five      to Ten     More than
                                       or Less   Six Months     Months      Years       Years       Years     Ten Years   Total
                                       ---------------------------------------------------------------------------------------------

                                                                                 (In Thousands)
<S>                                    <C>       <C>          <C>         <C>        <C>          <C>         <C>         <C>
Interest-earning Assets:
 Real estate loans:
    One-to four-family adjustable-
       rate loans...................   $    --      $ --         $ --      $  --       $    42     $    151    $  17,017   $ 17,210

    One-to four-family fixed-rate          172        --           14         93         1,860       29,743      519,313    551,195
       loans........................
    Residential construction loans..        --        --           --         --            --           --       25,563     25,563
    Multi-family....................        55        --           19         63            95          354          274        860
    Second mortgage loans...........       268        --           --         --            --           --           --        268
                                       -------      ----         ----      -----       -------     --------    ---------   --------
     Total real estate loans........       495        --           33        156         1,997       30,248      562,167    595,096
                                       =======      ====         ====      =====       =======     ========    =========   ========

Consumer loans......................       899        --            2          6            --           --           --        907
                                       -------      ----         ----      -----       -------     --------    ---------   --------

     Total loans....................   $ 1,394      $ --         $ 35      $ 162       $ 1,997     $ 30,248    $ 562,167   $596,003
                                       =======      ====         ====      =====       =======     ========    =========   ========
</TABLE>

                                       6
<PAGE>

     The following table sets forth the dollar amount of all loans at December
31, 1997 which have fixed or adjustable interest rates, and which are due after
December 31, 1998.

<TABLE>
<CAPTION>
                                Due After December 31, 1998
                                Fixed    Adjustable    Total
                              ---------  ----------  ---------
                                       (In thousands)
<S>                           <C>        <C>         <C>

Real estate loans:
  Conventional mortgages....   $551,009     $17,210   $568,219
  Residential construction..     23,628       1,935     25,563
  Multi-family..............        780           6        786
Consumer loans..............          6          --          6
                               --------     -------   --------

     Total loans............   $575,423     $19,151   $594,574
                               ========     =======   ========
</TABLE>

     One-to Four-Family Residential Mortgage Lending.  The residential mortgage
loans are primarily secured by owner-occupied, one-to four-family, residences.
Loan originations are generally obtained from existing or past customers,
members of the local communities served, or referrals from local real estate
agents, attorneys and builders.  The Association primarily originates fixed-rate
loans, but also offers adjustable-rate mortgage ("ARM") loans.  At December 31,
1997, conventional mortgage loans totalled $568.4 million, or 95.4%, of total
loans at such date.  Of the Association's conventional mortgage loans secured by
one-to four-family residences, $551.2 million, or 97.0%, were fixed-rate loans.

     Originated mortgage loans are held in the loan portfolio and are secured by
properties located within the Association's primary market area.  Historically,
the market interest rates of mortgage loans in the Pittsburgh area have been
below national averages.  The mortgage loan portfolio has increased from $255.7
million at December 31, 1993 to $595.1 million at December 31, 1997.

     The Association from time to time purchases one-to four-family mortgage
loans and loan participations.  A number of these loans are secured by
properties located outside the Association's market area, such as other regions
of Pennsylvania, California, Illinois, Maryland, New York, Texas, Virginia,
Utah, North Carolina, Tennessee and Georgia.  The Association did not purchase
any mortgage loans or participations in 1997.  At December 31, 1997, the
Association had $24.0 million in purchased mortgage loans and loan
participations serviced by others, totalling 4.0% of the total loan portfolio at
that date, primarily secured by one-to four-family residences.  The Association
intends to continue purchasing loans to supplement reduced loan demand as
needed.  Loans purchased by the Association generally must meet the same
underwriting criteria as loans originated by the Association.

                                       7
<PAGE>

     During 1997, the Association sold $30.0 million in conventional mortgages.
Most of the loan portfolio is underwritten in conformity with Federal National
Mortgage Association ("FNMA") secondary market requirements.  Although the
Association has been approved by the FNMA to sell loans in the secondary market,
there is no assurance that the Association will be able to originate loans for
sale in the secondary market or, that if originated, such loans will be sold in
the secondary market in the future.  Should the Association decide to sell
mortgage loans in the future, the lower interest rates on such loans,
characteristic of the Pittsburgh market, may tend to diminish the demand for
such loans in the secondary market.

     With the exception of Community Reinvestment Act ("CRA") loans, the
Association's maximum loan-to-value ratio on conventional mortgage loans is 80%.
As a result, a majority of borrowers are previous homeowners, whom the
Association believes to be relatively stable borrowers.  The Association also
offers FHA/VA qualifying one-to four-family residential mortgage loans.  One-to
four-family residential mortgage loans do not provide for negative amortization.
Mortgage loans in the portfolio generally include due-on-sale clauses, which
provide the Association with the contractual right to demand the loan
immediately due and payable in the event that the borrower transfers ownership
of the property that is subject to the mortgage.  It is the Association's policy
to enforce due-on-sale clauses.  The residential mortgage loans originated are
generally for terms to maturity from 15 to 30 years.  At December 31, 1997, the
maximum one-to four-family loan amount is $500,000, unless otherwise approved by
the Board of Directors.

     Presently, four (4) ARM loans are offered; a one-year, three-year, five-
year and 7/1 ARM loan.  The one-year ARM loan has an interest rate that adjusts
annually based on a spread of 2.50 percentage points above the rate on one-year
United States Treasury securities.  The one-year ARM loan is subject to a
limitation on interest rate increases and decreases of 2.0% per year, a lifetime
ceiling on interest rate increases of 6.0% above the origination rate, and a
floor rate equal to the origination interest rate.  This mortgage can convert to
a fixed-rate loan at specified times during the first five years.  The three-
year ARM loan has an interest rate that adjusts every three years based on a
spread of 2.75 percentage points above the rate on the three year United States
Treasury securities.  The three-year ARM is subject to a limitation on interest
rate increases and decreases of 2% per change, a lifetime ceiling on the
interest rate of 6.0% above the origination rate and a floor rate equal to the
origination interest rate.  The five-year ARM loan has an interest rate that
adjusts every five years based on a spread of 2.75 percentage points above the
rate on five-year United States Treasury securities.  The five-year ARM loan is
subject to a limitation on interest rate increases and decreases of 3.0% per
change, a lifetime ceiling on the interest rate of 6.0% above the origination
rate, and a floor rate equal to the origination interest rate.  The 7/1 ARM loan
has an interest rate that remains constant for the first seven years and then
the interest rate adjusts annually based on a spread of 2.50 percentage points
above the rate on one-year United States Treasury securities.  After the initial
seven years, this ARM loan is subject to a limitation on interest rate increases
and decreases of 2.0% per year, a lifetime ceiling on interest rate increases of
6.0% above the origination rate, and a floor equal to the origination interest
rate.  The mortgage can convert to a fixed-rate loan at the first change date.

                                       8
<PAGE>

     The volume and types of ARM loans originated are affected by such market
factors as the level of interest rates, competition, consumer preferences and
the availability of funds.  In recent years, demand for ARM loans has been weak
due to the low interest rate environment and consumer preference for fixed rate
loans.  In addition, management's strategy has been to emphasize fixed-rate
loans.  In 1997, only $7.4 million of the $129.0 million, or 5.7%, of loans
originated were adjustable mortgages.  Although ARM loans will continue to be
offered, there can be no assurance that in the future ARM loans will be
originated in sufficient volume to constitute a significant portion of the loan
portfolio.

     In an effort to provide financing for low and moderate income home buyers,
additional single family residential mortgage loans are offered to moderate
income borrowers and residents of the CRA neighborhoods, with terms of up to 30
years.  Such loans must be secured by a single family, owner-occupied unit.
These loans are originated using modified underwriting guidelines with reduced
down payments and expenses.  Private mortgage insurance is normally required.
Because the Association typically charges a lower rate of interest, lower
mortgage origination fees and a discount on closing costs on its CRA loans, a
lower rate of return is expected on such loans, as compared to other residential
mortgage loans.  For the years ended December 31, 1997, 1996 and 1995, the
Association originated 24, 24 and 71 loans under the CRA loan program,
respectively, totalling $1.2 million, $1.1 million and $2.9 million,
respectively.

     Residential Construction Loans.  The Association originates loans for the
construction of one-to four-family residential properties.  Such loans are made
on contract directly to the home buyer.  Residential construction loans are
subject to the same maximum loan amounts as conventional mortgage loans.
Residential construction loans are made for terms of up to one year, at which
time the loans convert to permanent conventional mortgage financing.
Residential construction loans are generally offered at the Association's
prevailing interest rate.  An additional fee may be charged for construction
servicing. Advances are made to builders as phases of construction of the
property are completed.  As of December 31, 1997, the Association's residential
construction loans totalled $25.6 million, or 4.3% of the total loan portfolio.
Of these construction loans, $12.1 million had been committed, but were
undisbursed as of that date.

     Construction lending involves greater risks than other loans due the fact
that loan funds are advanced upon the security of the project under
construction, predicated on the future value of the property upon completion of
construction.  Moreover, because of the uncertainties inherent in estimating
construction costs, delays resulting from labor problems, material shortages or
weather conditions and other unpredictable contingencies, it is relatively
difficult to evaluate accurately the total funds required to complete a project
and to establish the related loan-to-value ratio.  Because of these factors, the
analysis of prospective construction loan projects requires an expertise that is
different in significant respects from that which is required for residential
mortgage lending.

                                       9
<PAGE>

     Multi-Family Loans.  In prior years, the Association also originated multi-
family loans.  As of December 31, 1997, the Association's total loan portfolio
contained 21 multi-family loans, totalling $860,000, or 0.1%, of total loans.
Since 1991, the Association has not originated any multi-family mortgage loans.
In the future, the Association may originate a limited number of multi-family
loans on a case-by-case basis.

     The multi-family loans in the Association's portfolio consist of both
fixed-rate and adjustable-rate loans which were originated at prevailing market
rates.  The Association's policy has been to originate multi-family loans only
in its market area.  In making multi-family loans, the Association considers
primarily the ability of net operating income generated by the real estate to
support the debt service, the financial resources and income level and
managerial expertise of the borrower, the marketability of the property, and the
Association's lending experience with the borrower.

     Second Mortgage Loans.  The Association has in the past originated second
mortgage loans on owner-occupied, one-to four-family residences where the
Association holds the first mortgage.  These loans generally are originated as
adjustable-rate loans with terms of up to 10 years.  The Association offers
second mortgage loans with maximum combined loan-to-value ratios of up to 80%.
At December 31, 1997, the Association had $268,000, or 0.1% of total loans, in
second mortgage loans.

     Consumer Loans.  The Association also offers secured consumer loans.  At
December 31, 1997, the Association's consumer loans totalled $907,000, or 0.2%
of the Association's total loan portfolio.  Of that amount, loans secured by
deposit accounts totalled $899,000, or 99.1%, and home improvement loans
totalled $8,000, or 0.9%, of total consumer loans.

     Loan Servicing and Loan Fees.  Servicing on all of the loans that have been
sold has been retained.  Fees are received for these servicing activities, which
include collecting and remitting loan payments, inspecting the properties and
making certain insurance and tax payments on behalf of the borrowers.  At
December 31, 1997, the Association was servicing $31.4 million of loans for
others.  Loan servicing income was $37,000, $14,000 and $17,000 for the years
ended December 31, 1997, 1996 and 1995, respectively.  The Association receives
income in the form of service charges and other fees on loans.  For the years
ended December 31, 1997, 1996 and 1995, the Association earned $214,000,
$192,000 and $154,000, respectively, in service charges and other fees.

     Mortgage-backed Securities.  In 1997, the Association purchased $92.5
million adjustable mortgage-backed securities.  These securities were classified
as available-for-sale.  Subsequently, the Association sold $46.7 million of the
securities.  At December 31, 1997, mortgage-backed securities totaled $31.9
million.  The Association had no mortgage-backed securities during 1996.  During
1995, the Association reclassified all of its mortgage-backed securities as
available-for-sale and subsequently sold them at a gain of $68,000.  The sale
was the result of the Financial Accounting Standard Board giving a one time
exclusion to companies under the

                                       10
<PAGE>

Statement of Financial Accounting Standards ("SFAS") No. 115, "Accounting for
Certain Debt and Equity Securities."  This exclusion allowed companies to
reclassify their portfolio into the three different categories:  trading,
available-for-sale, or held-to-maturity without affecting the remaining
portfolio.  The Association may invest in mortgage-backed securities in the
future to offset any significant decrease in demand for one- to four-family
loans.

     Loan Approval Procedures and Authority.  Loan approval authority has been
granted by the Board of Directors to the Association's Loan Committee.  All
mortgage loans must be approved by the Loan Committee.  As of December 31, 1997,
any loan application over $500,000 must be approved by the Board of Directors.

     Upon receipt of a completed loan application from a prospective borrower,
the Association generally orders a credit report, verifies employment, income
and other information, and, if necessary, obtains additional financial or credit
related information.  An appraisal of the real estate used for collateral is
also obtained.  All appraisals are performed by licensed or certified third
party appraisers.  The Board of Directors annually approves the independent
appraisers used by the Association and reviews the Association's appraisal
policy.  When the information is obtained and an appraisal is completed, loans
are presented for approval to the Association's Loan Committee.  The Loan
Committee must approve all one-to four-family mortgage loans originated by the
Association.

     The Association's policy is to require either title insurance or an
attorney's opinion of title, and hazard insurance on all real estate loans.
Borrowers are required to advance funds together with each payment of principal
and interest to a mortgage escrow account from which the Association makes
disbursements for items such as real estate taxes, hazard insurance premiums and
private mortgage insurance premiums, if required.

Asset Quality

     Loan Collection.  When a borrower fails to make a required payment on a
loan, the Association takes a number of steps to induce the borrower to cure the
delinquency and restore the loan to a current status.  The borrower is sent a
written notice of non-payment when the loan is 15 days past due.  In the event
payment is not then received, additional letters and phone calls generally are
made.  If the loan is still not brought current and it becomes necessary to take
legal action, which typically occurs after a loan is delinquent 120 days or
more, the Association may commence foreclosure proceedings against the real
property that secures the loan.  Decisions as to when to commence foreclosure
actions are made on a case by case basis.  If a foreclosure action is instituted
and the loan is not brought current, paid in full, or refinanced within 30 days
of delivery of the notice of default and intent to foreclose, the real property
securing the loan is generally sold at foreclosure or by the Association as soon
thereafter as practicable.

                                       11
<PAGE>

     On purchased mortgage loans or loan participations, monthly reports are
received from loan servicers in order to monitor the loan portfolio.  Based upon
servicing agreements with the servicers of the loans, the Association relies
upon the servicer to contact delinquent borrowers, collect delinquent amounts
and to initiate foreclosure proceedings, when necessary, all in accordance with
applicable laws, regulations and the terms of the servicing agreements between
the Association and its servicing agents.

                                       12
<PAGE>

     Delinquent Loans.  At December 31, 1997, 1996 and 1995, delinquencies in
the loan portfolio were as follows:

<TABLE>
<CAPTION>
                                              At December 31, 1997                            At December 31, 1996
                               -------------------------------------------------------------------------------------------------
                                    60 - 89 Days            90 Days or More          60 - 89 Days            90 Days or More
                               ----------------------  -----------------------   -----------------------------------------------
                                           Principal      Number     Principal               Principal                 Principal
                               Number of  Balance of        of      Balance of    Number     Balance of   Number of   Balance of
                                 Loans       Loans        Loans        Loans     of Loans      Loans        Loans        Loans
                               ---------  -----------  -----------  ----------   ---------  -----------  ----------  -----------
                                            (Dollars in thousands)                           (Dollars in thousands)
<S>                            <C>        <C>           <C>          <C>         <C>        <C>          <C>         <C>
Conventional mortgage loans..          8        $ 436            13      $ 634           4        $ 258            8       $ 400
Multi-family loans...........         --           --            --         --          --           --           --          --
Consumer loans...............         --           --            --         --          --           --           --          --
                               ---------        -----     ---------      -----   ---------  -----------   ----------  ----------
     Total loans.............          8        $ 436            13      $ 634           4        $ 258            8       $ 400
                               =========        =====     =========      =====   =========  ===========   ==========  ==========

Delinquent to total loans....                    0.07%                    0.11%                    0.05%                    0.08%
                                                =====                    =====              ===========               ==========
</TABLE>

<TABLE>
<CAPTION>
                                                                 At December 31, 1995
                                        --------------------------------------------------------------------
                                                 60 - 89 Days                           90 Days or More
                                        ----------------------------            ----------------------------
                                                         Principal                               Principal
                                           Number of    Balance of              Number of       Balance of
                                             Loans         Loans                  Loans            Loans
                                          -----------   -----------            -----------      -----------
                                                                (Dollars in thousands)
<S>                                       <C>           <C>                     <C>              <C>
Conventional mortgage loans..                   2        $    54                       7            $ 333
Multi-family loans...........                  --             --                      --               --
Consumer loans...............                  --             --                      --               --
                                            -----        -------                    ----           ------
     Total loans.............                   2        $    54                       7            $ 333
                                            =====        =======                    ====           ======

Delinquent loans to total loans                             0.01%                                    0.08%
                                                         =======                                   ======
</TABLE>

                                       13
<PAGE>

     Non-Performing Loans and Real Estate Owned.  The following table sets forth
information regarding non-accrual mortgage and other loans and real estate owned
("REO").  Interest is not accrued on loans past due 90 days or more.  The
Association had no investments in real estate or in substance foreclosure at
December 31, 1997.  During the years ended December 31, 1997, 1996 and 1995, the
amounts of interest income that would have been recorded on non-accrual loans,
had they been current, totalled $29,000, $24,000 and $25,000, respectively.
Interest income recorded on non-accrual loans was $36,000, $22,000 and $16,000
for each of the years ended December 31, 1997, 1996 and 1995, respectively.

<TABLE>
<CAPTION>
                                                          At December 31,
                                             ---------------------------------------
                                                1997    1996    1995    1994    1993
                                             ---------------------------------------
                                                       (Dollars in Thousands)
<S>                                            <C>     <C>     <C>     <C>     <C>
Non-accrual delinquent mortgage loans........  $ 634   $ 400   $ 333   $ 726   $ 621
Non-accrual delinquent other loans...........     --      --      --      15      63
                                               -----   -----   -----   -----   -----
  Total non-performing loans.................    634     400     333     741     684
Real estate owned............................     --     229     178      30      --
                                               -----   -----   -----   -----   -----
   Total non-performing assets...............  $ 634   $ 629   $ 511   $ 771   $ 684
                                               =====   =====   =====   =====   =====
Total non-performing loans to total loans....   0.11%   0.08%   0.08%   0.23%   0.27%
Total non-performing assets to total assets..   0.09%   0.10%   0.10%   0.19%   0.18%
</TABLE>


     Classified Assets.  Federal regulations and the Association's policy
require the classification of loans and other assets, such as debt and equity
securities considered to be of lesser quality, 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 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.

     At December 31, 1997, classified assets totalled $634,000, or 0.09% of
total assets, and consisted of thirteen conventional mortgage loans classified
as "Substandard".


                                       14
<PAGE>

     Allowance for Loan Losses, Investments in Real Estate and Real Estate
Owned.  The allowance for loan losses is established and maintained through a
provision for loan losses based on management's evaluation of the risk inherent
in the loan portfolio and the condition of the local economy in the Company's
market area.  Such evaluation, which includes a review of all loans on which
full collectibility is not reasonably assured, considers among other matters,
the estimated fair value of the underlying collateral, economic and regulatory
conditions, and other factors that warrant recognition of an adequate loan loss
allowance.  Management believes that the allowance for loan losses is adequate
to cover losses inherent in the portfolio as of December 31, 1997. Although
management believes it uses the best information available to make
determinations with respect to the allowance for loan losses, future adjustments
may be necessary if economic and other conditions differ substantially from the
economic and other conditions in the assumptions used in making the initial
determinations, such as a material increase in the balance of the loan
portfolio.

     In addition, the OTS and FDIC, as an integral part of their examination
process, periodically review the allowance for loan losses and real estate owned
and investments in real estate valuations.  Such agencies may require the
recognition of  additions to the allowance or additional write-downs based on
their judgments about information available to them at the time of their
examination.  The OTS, in conjunction with the other federal banking agencies,
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 analyze
all significant factors that affect the collectibility of the portfolio in a
reasonable manner; and that management establish 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 OTS and the FDIC.  While management believes that it has established an
adequate allowance for loan losses, there can be no assurance that regulators,
in reviewing the loan portfolio, will not request a material increase at that
time in the allowance for loan losses, thereby negatively affecting the
financial condition and earnings at such time.

                                       15
<PAGE>

The following table sets forth the allowance for loan losses at the dates
indicated.

<TABLE>
<CAPTION>

                                               For the Years Ended December 31,
                                         -----------------------------------------
                                            1997    1996    1995    1994     1993
                                         -----------------------------------------
<S>                                        <C>     <C>     <C>     <C>      <C>
                                                   (Dollars in thousands)
Allowance for loan losses:
Balance at beginning of period...........  $ 665   $ 575   $ 575   $  598   $  602
Charge-offs:
    Conventional mortgages...............     --      --      --      (23)     (53)
    Residential construction.............     --      --      --       --       --
    Multi-family.........................     --      --      --       --      (44)
    Consumer.............................     --      --      --       --       --
                                           -----   -----   -----   ------   ------
      Total charge-offs..................     --      --      --      (23)     (97)
Total recoveries.........................      5      --      --        4       --
Provision for (recovery of) loan
    losses...............................     45      90      --       (4)      93
                                           -----   -----   -----   ------   ------
Balance at end of period(1)..............  $ 715   $ 665   $ 575   $  575   $  598
                                           =====   =====   =====   ======   ======
Ratio of net charge-offs during the
    period to average loans
    outstanding during the period........     --%     --%    .--%    0.01%    0.04%
Ratio of allowance for loan
    losses to total loans at the end of
    the period...........................   0.12%   0.12%   0.13%    0.18%    0.23%
Ratio of allowance for loan
    losses to non-performing assets
    at the end of the period.............  1.13x   1.06x   1.13x    74.58%   87.43%
</TABLE>

_______________
(1)  The total amount of the allowance for loan losses for each of the periods
     shown was allocated to mortgage loans.  At the end of each reported period,
     mortgage loans represented in excess of 99.5% of total loans.


Investment Activities

     As a member of the FHLB System, the Association is required to maintain
liquid assets at minimum levels which vary from time to time.  The Association
increases or decreases its liquid investments depending on the availability of
funds, the comparative yields on liquid investments in relation to the return on
loans and in response to its interest rate risk management.  To meet liquidity
obligations, federally chartered savings institutions have authority to invest
in various types of assets, including U.S. Treasury obligations, securities of
various federal agencies, mortgage-backed and mortgage-related securities,
certain certificates of deposit of insured banks and savings institutions,
certain bankers acceptances, repurchase agreements, loans of federal funds and,
subject to certain limits, corporate securities,

                                       16
<PAGE>

commercial paper and mutual funds.  The Association's liquid investments
primarily consist of federal funds sold, U.S. Government securities, federal
agency securities and interest-bearing deposits.  Historically, the Association
has maintained its liquid assets at levels well above the minimum regulatory
requirements.  At December 31, 1997, $61.4 million, or 9.1%, of the
Association's total assets were invested in liquid assets.

     The Company's Investment Committee, which is appointed by the Chief
Executive Officer, formulates the investment policy of the Company.  The
Company's Investment Committee reports all purchases and sales of investments to
the Board of Directors.  The policy of the Association is to invest funds among
various categories of investments and maturities to meet the day-to-day,
cyclical and long-term changes in assets and liabilities.  In establishing its
investment strategies, the Company considers its cash position, the condition of
its loans, the stability of deposits, its capital position, its interest rate
risk and other factors.

     Investment Securities.  OTS guidelines regarding investment portfolio
policy and accounting require insured institutions to categorize securities and
certain other assets as held for "investment," "sale," or "trading."  The
Association's investment policy provides for "held for investment" and
"available for sale" portfolios.  Although the Association's investment policy
allows that some investments and loans will qualify to be held-to-maturity, the
policy enables for the sale of investments in certain specific instances, such
as when the quality of an asset deteriorates, or when regulatory changes require
that an asset be disposed.  At December 31, 1997, the Association had total
investments of $31.0 million, of which $15.9 million was classified as
available-for-sale and $15.0 million was classified as held to maturity.  The
$15.9 million investment classified as available-for-sale consisted of
collateralized mortgage obligations ("CMO's").  The $15.0 million investment
classified as held to maturity consisted of $10.0 million in U.S. government
securities, which have maximum terms to maturity of up to seven years, and $5.0
million in FHLB stock.

                                       17
<PAGE>

     The following table sets forth certain information regarding the carrying
and market values of the portfolio of investment securities at the dates
indicated:

<TABLE>
<CAPTION>
                                                                 At December 31,
                                          -------------------------------------------------------------
                                                1997                1996                   1995
                                          -----------------   -------------------  --------------------
                                          Carrying  Market    Carrying     Market    Carrying    Market
                                           Value     Value     Value        Value     Value       Value
                                          --------  -------   --------     -------    -------    -------
                                                                  (In thousands)
<S>                                       <C>       <C>       <C>          <C>        <C>       <C>
Investment securities:
   U.S. Treasury securities.............   $ 9,969  $10,485    $14,960     $15,384    $19,949    $20,927
   Collateralized mortgage obligations..    15,902   15,902         --          --         --         --
   Other investments....................         4       68          4          45          4         41
   FHLB Stock...........................     5,148    5,148      3,999       3,999      3,009      3,009
                                           -------  -------    -------     -------    -------    -------
     Total investments..................   $31,023  $31,603    $18,963     $19,428    $22,962    $23,977
                                           =======  =======    =======     =======    =======    =======
</TABLE>


     The following table sets forth the carrying values, market values and
average yields for the Association's investment portfolio by maturity, call
date or repricing date, whichever is first, at December 31, 1997.

<TABLE>
<CAPTION>
                              One Year or Less    One to Five Years  Five to Ten Years       Total Securities
                             ------------------  ------------------  ------------------  --------------------------
                                       Weighted            Weighted            Weighted                    Weighted
                             Carrying  Average   Carrying  Average   Carrying  Average   Carrying  Market   Average
                              Value     Yield     Value     Yield     Value      Yield    Value     Value    Yield
                             --------  --------  --------  --------  --------  --------  --------  ------  --------
                                                               (Dollars in thousands)
<S>                          <C>       <C>       <C>       <C>       <C>       <C>       <C>       <C>     <C>
Investment Securities:
U.S. Treasury securities...  $    --       --%   $4,993     6.97%    $4,976     7.35%    $9,969   $10,485   7.16%
</TABLE>

                                       18
<PAGE>

Sources of Funds

     General.  The lending and investment activities are predominantly funded by
savings deposits, borrowings, interest and principal payments on loans and other
investments and loan origination fees.

     Deposits.  Deposits serve as the predominant source of funds.  The
Association offers interest rates on deposits that are usually among the highest
rates offered in the Greater Pittsburgh market area to maintain a strong
depositor base.  Deposits consist of savings and club accounts, interest-bearing
and non-interest-bearing demand deposit accounts, money market deposit accounts
and certificates of deposit.  The Association relies on its competitive pricing
policies and customer service to maintain deposit growth.  In addition, the
Association has sought to increase its deposit base by emphasizing certificates
of deposit with terms ranging from three months to 10 years.   The Association's
policy of offering aggressively priced deposit products has produced an overall
increase in total deposits of 41.8%, from $349.0 million at December 31, 1993 to
$495.1 million at December 31, 1997.  The flow of deposits is influenced
significantly by general economic conditions, changes in money market and
prevailing interest rates and competition.

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

<TABLE>
<CAPTION>
                                                  For the Years Ended December 31,
                                                  --------------------------------
                                                      1997       1996       1995
                                                  ----------   --------   --------
                                                           (In thousands)
<S>                                                 <C>        <C>       <C>
Deposits..........................................  $720,943   $805,469   $730,809
Withdrawals.......................................   725,033    725,862    714,030
                                                    --------   --------   --------
Net increase (decrease) before interest credited..    (4,090)    79,607     16,779
Interest credited.................................    15,204     12,923     10,951
                                                    --------   --------   --------
Net increase in deposits..........................  $ 11,114   $ 92,530   $ 27,730
                                                    ========   ========   ========
</TABLE>


     The following table indicates the amount of the certificates of deposit of
$100,000 or more by the time remaining until maturity as of December 31, 1997.

<TABLE>
<CAPTION>
                                          Amount
                                      ---------------
                                       (In thousands)
<S>                                 <C>
Maturity Period:
   Three months or less...........        $ 9,348
   Over three through six months..          5,391
   Over six through 12 months.....         11,971
   Over 12 months.................         11,118
                                          -------
      Total.......................        $37,828
                                          =======
</TABLE>

                                       19
<PAGE>

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

<TABLE>
<CAPTION>
                                                                 Year Ended December 31,
                              ----------------------------------------------------------------------------------------------------
                                          1997                             1996                              1995
                              ------------------------------  --------------------------------   ---------------------------------
                                                    Weighted                           Weighted                          Weighted
                                                    Average                            Average                            Average
                              Average                Nominal  Average                  Nominal   Average                  Nominal
                              Balance   Interest      Rate    Balance   Interest        Rate     Balance     Interest      Rate
                              --------  --------    --------  --------  --------      --------   --------    --------     --------
                                                                 (Dollars in Thousands)
<S>                           <C>       <C>         <C>      <C>        <C>           <C>        <C>         <C>        <C>
Money market and NOW
  deposits..................  $ 46,798   $ 1,092      2.33%  $ 42,088   $ 1,040         2.47%     $ 40,388   $ 1,069      2.65%

Savings deposits............    78,400     2,288      2.92     81,715     2,314         2.83        85,020     2,371      2.79

Certificates of deposit.....   388,660    23,306      6.00    323,199   $18,504         5.73       256,350    14,992      5.85

Borrowings..................   103,250     5,643      5.47      5,833       191         3.27            --        --        --
                              --------   -------             --------   -------                   --------   -------
    Total interest-bearing
      liabilities...........
                              $617,108   $32,329      5.24%  $452,825   $22,409         4.87%     $381,758   $18,432      4.83%
                              ========   =======             ========   =======                   ========   =======
</TABLE>

                                       20
<PAGE>

  The following table presents the amount of certificate accounts outstanding
based upon original contractual periods to maturity, at December 31, 1997, and
based upon contracted rates, at December 31, 1996 and 1995.

<TABLE>
<CAPTION>
                                      Period to Maturity from December 31, 1997                At December 31,
                       -----------------------------------------------------------------------------------------
                                                        Three     Four
                           Less      One to   Two to      to       to     Five to    Total
                           Than One   Two     Three     Four      Five      Ten    December
                           Year      Years    Years     Years     Years    Years   31, 1997     1996      1995
                       -----------------------------------------------------------------------------------------
                                                        (In thousands)
<S>                      <C>        <C>       <C>      <C>       <C>      <C>      <C>        <C>       <C>
Certificate Accounts:
  3.00% to 5.50%.......    $41,292  $ 22,091  $ 3,853   $ 3,674     $  2  $ 4,020   $ 74,932  $113,357  $118,737
  5.501% to 6.00%......     29,919    85,835    9,673    22,649      253    8,556    156,885   121,968    60,213
  6.001% to 6.50%......         --    51,708   16,178    26,234      213   21,158    115,491    98,368    60,420
  6.501% to 7.50%......         --        --       --    11,429      148   14,623     26,200    30,860    30,460
  7.501% to 8.50%......         --        --       --        --       --    2,855      2,855     3,630     5,259
  8.501% to 9.50%......         --        --       --        --       --    3,559      3,559     4,345     4,579
  9.501% to 10.50%.....         --        --       --        --       --      282        282       266       573
                           -------  --------  -------   -------     ----  -------   --------  --------  --------
                           $71,211  $159,634  $29,704   $63,986     $616  $55,053   $380,204  $372,794  $280,241
                           =======  ========  =======   =======     ====  =======   ========  ========  ========
</TABLE>


Borrowings

     Borrowings are used in conjunction with deposits in funding the operating
and investment activity of the Association.  At December 31, 1997, the
Association had borrowings of $90.0 million.  Of these borrowings, $70.0 million
had a contractual maturity of five years at a rate of 5.46%.  The remaining
$20.0 million in borrowings had an overnight rate of 6.50%.  The borrowings are
secured by the assets of the Association.


Subsidiary Activities

     The Association does not maintain any subsidiaries.


                           REGULATION AND SUPERVISION

General

     The Company, as a savings and loan holding company, is required to file
certain reports with, and otherwise comply with the rules and regulations of the
OTS under the Home Owners' Loan Act, as amended (the "HOLA").  In addition, the
activities of savings institutions, such as the Association, are governed by the
HOLA and the Federal Deposit Insurance Act ("FDI Act").

                                       21
<PAGE>

     The Association is subject to extensive regulation, examination and
supervision by the OTS, as its primary federal regulator, and the FDIC, as the
deposit insurer.  The Association is a member of the FHLB System and its deposit
accounts are insured up to applicable limits by the SAIF managed by the FDIC.
The Association must file reports with the OTS 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 savings institutions.  The OTS and/or the FDIC conduct
periodic examinations to test the Association's safety and soundness and
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 regulatory
requirements and policies, whether by the OTS, the FDIC or the United States
Congress, could have a material adverse impact on the Company, the Association
and their operations.  Certain of the regulatory requirements applicable to the
Association and to the Company are referred to below or elsewhere herein.  The
description of statutory provisions and regulations applicable to savings
institutions and their holding companies set forth in this Form 10-K does not
purport to be a complete description of such statutes and regulations and their
effects on the Association and the Company.

Holding Company Regulation

     The Company is a non-diversified unitary savings and loan holding company
within the meaning of the HOLA.  As a unitary savings and loan holding company,
the Company generally is not restricted under existing laws as to the types of
business activities in which it may engage, provided that the Association
continues to be a qualified thrift lender ("QTL").  See "Federal Savings
Institution Regulation - QTL Test."  Upon any non-supervisory acquisition by the
Company of another savings institution or savings bank that meets the QTL test
and is deemed to be a savings institution by the OTS, the Company would become a
multiple savings and loan holding company (if the acquired institution is held
as a separate subsidiary) and would be subject to extensive limitations on the
types of business activities in which it could engage.  The HOLA 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 certain activities authorized by
OTS regulation.  No multiple savings and loan holding company may acquire more
than 5% of the voting stock of a company engaged in impermissible activities.

     The HOLA prohibits a savings and loan holding company, directly or
indirectly, or through one or more subsidiaries, from acquiring more than 5% of
the voting stock of another savings institution or holding company thereof,
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

                                       22
<PAGE>

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, subject to two exceptions:  (i) the approval of interstate
supervisory acquisitions by savings and loan holding companies and (ii) the
acquisition of a savings 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.

     Although savings and loan holding companies are not subject to specific
capital requirements or specific restrictions on the payment of dividends or
other capital distributions, HOLA does prescribe such restrictions on subsidiary
savings institutions as described below. The Association must notify the OTS 30
days before declaring any dividend to the Company.  In addition, the financial
impact of a holding company on its subsidiary institution is a matter that is
evaluated by the OTS and the agency has authority to order cessation of
activities or divestiture of subsidiaries deemed to pose a threat to the safety
and soundness of the institution.

Federal Savings Institution Regulation

     Capital Requirements.  The OTS capital regulations require savings
institutions to meet three minimum capital standards:  a 1.5% tangible capital
ratio, a 3% Tier I capital (to total assets) ratio and an 8% total capital (to
risk-weighted assets) ratio.  In addition, the prompt corrective action
standards discussed below also establish, in effect, a minimum 2% tangible
capital standard, a 4% leverage Tier I capital ratio (3% for institutions
receiving the highest rating on the CAMELS financial institution rating system),
and, together with the total capital standard itself, a 4% Tier I risk-based
capital standard.  Core capital is defined as common stockholders' equity
(including retained earnings), certain noncumulative perpetual preferred stock
and related surplus, and minority interests in equity accounts of consolidated
subsidiaries less intangibles other than certain purchased mortgage servicing
rights and credit card relationships.  The OTS regulations also require that, in
meeting the tangible, leverage (core) and total risk-based capital standards,
institutions must generally deduct investments in and loans to subsidiaries
engaged in activities not permissible for a national bank.

     The risk-based capital standard for savings institutions requires the
maintenance of Tier I (core) and total capital (which is defined as core capital
and supplementary capital) to risk-weighted assets of 4% and 8%, respectively.
In determining the amount of risk-weighted assets, all assets, including certain
off-balance sheet assets, are multiplied by a risk-weight factor of 0% to 100%,
as assigned by the OTS capital regulation based on the risks OTS believes are
inherent in the type of asset. The components of Tier I (core) capital are
equivalent to those discussed earlier. The components of supplementary capital
currently include cumulative preferred stock, long-term perpetual preferred
stock, mandatory convertible securities, subordinated debt and intermediate
preferred stock and the allowance for loan and lease losses limited to a maximum
of 1.25% of risk-weighted assets. Overall, the amount of supplementary capital
included as part of total capital cannot exceed 100% of core capital.

                                       23
<PAGE>

     The OTS regulatory capital requirements also incorporate an interest rate
risk component.  Savings institutions with "above normal" interest rate risk
exposure are subject to a deduction from total capital for purposes of
calculating their risk-based capital requirements.  A savings institution's
interest rate risk is measured by the decline in the net portfolio value of its
assets (i.e., the difference between incoming and outgoing discounted cash flows
from assets, liabilities and off-balance sheet contracts) that would result from
a hypothetical 200 basis point increase or decrease in market interest rates
divided by the estimated economic value of the institution's assets.  In
calculating its total capital under the risk-based capital rule, a savings
institution whose measured interest rate risk exposure exceeds 2% must deduct an
amount equal to one-half of the difference between the institution's measured
interest rate risk and 2%, multiplied by the estimated economic value of the
institution's assets.  The Director of the OTS may waive or defer a savings
institution's interest rate risk component on a case-by-case basis.  A savings
institution with assets of less than $300 million and risk-based capital ratios
in excess of 12% is not subject to the interest rate risk component, unless the
OTS determines otherwise.  For the present time, the OTS has deferred
implementation of the interest rate risk component.  At December 31, 1997, the
Association met each of its capital requirements and it is anticipated that the
Association will not be subject to the interest rate risk component.

     The following table presents the Association's capital position at December
31, 1997 relative to fully phased-in regulatory requirements.

<TABLE>
<CAPTION>
                                                                                      To Be Well
                                                                                  Capitalized Under
                                                                   For Capital         Prompt
                                                                    Adequacy      Correction Action
                                                    Actual          Purposes         Provisions
                                                ----------------------------------------------------
                                                Amount   Ratio   Amount   Ratio    Amount     Ratio
                                                -------  ------  -------  ------  ---------  -------
<S>                                             <C>      <C>     <C>      <C>     <C>        <C>
As of December 31, 1997
    Total Capital (to risk-weighted assets)...  $72,523  23.39%  $24,810   8.00%    $31,012   10.00%
    Tier I Capital (to risk-weighted assets)..   71,808  23.15%      N/A    N/A      18,607    6.00%
    Tier I Capital (to total assets)..........   71,808  10.59%   20,341   3.00%     33,902    5.00%
    Tangible Capital..........................   71,808  10.59%   10,171   1.50%        N/A     N/A
 </TABLE>

Liquidation Account

     In accordance with OTS conversion regulations, a liquidation account was
established in an amount equal to the retained earnings of the Association as of
June 30, 1995, which approximated $37.4 million.  In the unlikely event of
liquidation of the Association, eligible account holders would be entitled to
receive distributions of any assets remaining after payment of all creditors'
claims, but before any distributions are made to the Association's stockholders,
equal to their proportionate interests at that time in the liquidation account.

     Prompt Corrective Regulatory Action.  Under the OTS prompt corrective
action regulations, the OTS is required to take certain supervisory actions
against undercapitalized institutions, the severity of which depends upon the
institution's degree of undercapitalization.  Generally, a savings institution
is considered "well capitalized" if its ratio of total capital to risk-weighted
assets is at least 10%, its ratio of Tier I capital to risk-weighted assets is
at least 6%,

                                       24
<PAGE>

its ratio of Tier I to total assets is at least 5%, and it is not subject to any
order or directive by the OTS to meet a specific capital level.  A savings
institution generally is considered "adequately capitalized" if its ratio of
total capital to risk-weighted assets is at least 8%, its ratio of Tier I (core)
capital to risk-weighted assets is at least 4%, and its ratio of Tier 1 capital
to total assets is at least 4% (3% if the institution receives the highest
CAMELS rating).  A savings institution that has a ratio of total capital to
risk-weighted assets of less than 8%, a ratio of Tier I capital to risk-weighted
assets of less than 4% or a ratio of Tier 1 capital to total assets of less than
4% (3% or less for institutions with the highest examination rating) is
considered to be "undercapitalized."  A savings institution that has a total
capital ratio less than 6%, a Tier 1 capital ratio of less than 3% or a leverage
ratio that is less than 3% is considered to be "significantly undercapitalized"
and a savings institution that has a tangible capital to assets ratio less than
2% is deemed to be "critically undercapitalized."  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
OTS 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 OTS 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 Association are presently
insured by the SAIF.  On September 30, 1996, the President signed into law the
Deposit Insurance Funds Act of 1996 (the "Funds Act") which, among other things,
imposed a special one-time assessment on SAIF member institutions, including the
Association, to recapitalize the SAIF.  The SAIF was undercapitalized due
primarily to a statutory requirement that SAIF members make payments on bonds
issued in the last 1980's by the Financing Corporation ("FICO") to recapitalize
the predecessor to the SAIF.  As required by the Funds Act, the FDIC imposed a
special assessment of 65.7 basis points on SAIF assessable deposits held as of
March 31, 1995, payable November 27, 1996 (the "SAIF Special Assessment").  The
SAIF Special Assessment was recognized by the Association as an expense in the
quarter ended September 30, 1996 and was generally tax deductible.  The SAIF
Special Assessment recorded by the Association amounted to $2.5 million on a
pre-tax basis and $1.5 million on an after-tax basis.

     The Funds Act also spread the obligations for payment of the FICO bonds
across all SAIF and Bank Insurance Fund ("BIF") members.  The BIF is the fund
which primarily insures commercial bank deposits.  Beginning on January 1, 1997,
BIF deposits were assessed for a FICO payment of approximately 1.3 basis points,
while SAIF deposits pay approximately 6.4 basis points.  Full pro rate sharing
of the FICO payments between BIF and SAIF members will occur on the earlier of
January 1, 2000 or the date the BIF and SAIF are merged.  The Funds Act
specifies that the BIF and SAIF will be merged on January 1, 1999, provided no
savings associations remain as of that time.

                                       25
<PAGE>

     As a result of the Funds Act, the FDIC voted to effectively lower SAIF
assessments to 0 to 27 basis points as of January 1, 1997, a range comparable to
that of BIF members.  SAIF members will also continue to make the FICO payments
described above.  Management cannot predict the level of FDIC insurance
assessments on an on-going basis, whether the savings association charter will
be eliminated or whether the BIF and SAIF will eventually be merged.

     The Association's assessment rate for fiscal 1997 was 6.5 basis points and
the premium paid for this period was $261,000.  A significant increase in SAIF
insurance premiums would likely have an adverse effect on the operating expenses
and results of operations of the Association.

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

     Thrift Rechartering Legislation.  The Funds Act provides that the BIF and
SAIF will merge on January 1, 1999 if there are no more savings associations as
of that date.  Various proposals to eliminate the federal thrift charter, create
a uniform financial institutions charter and abolish the OTS were introduced in
Congress.  Some bills would require federal savings institutions to convert to a
national bank or some type of state charter by a specified date, or they would
automatically become national banks.  Under some proposals, converted federal
thrifts would generally be required to conform their activities to those
permitted for the charter selected and divestiture of nonconforming assets would
be required over a two year period, subject to two possible one year extensions.
State chartered thrifts would become subject to the same federal regulation as
applies to state commercial banks.  A more recent bill passed by the House
Banking Committee would allow federal savings institutions to continue to
exercise activities being conducted when they convert to a bank regardless of
whether a national bank could engage in the activity.  Holding companies for
savings institutions would become subject to the same regulation as holding
companies that control commercial banks, with some limited grandfathering,
including savings and loan holding company activities.  The grandfathering would
be lost under certain circumstances such as a change in control of the Company.
The Company is unable to predict whether such legislation would be enacted or
the extent to which the legislation would restrict or disrupt its operations.

     Loans to One Borrower.  Under the HOLA, savings institutions are generally
subject to the limits on loans to one borrower applicable to national banks.
Generally, savings institutions may not make a loan or extend credit to a single
or related group of borrowers in excess of 15% of its unimpaired capital and
surplus.  An additional amount may be lent, equal to 10% of unimpaired capital
and surplus, if such loan is secured by readily-marketable collateral, which is
defined to include certain financial instruments and bullion.  At December 31,
1997, the Association's limit on loans to one borrower was $5.8 million.  At
December 31, 1997, the Association's largest aggregate outstanding balance of
loans to one borrower was $439,000.

                                       26
<PAGE>

     QTL Test.  The HOLA requires savings institutions to meet a QTL test.
Under the QTL test, a savings and loan association 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 securities) in at least 9 months out of each
12 month period.

     A savings institution that fails the QTL test is subject to certain
operating restrictions and may be required to convert to a bank charter.  As of
December 31, 1997, the Association maintained 99.9% of its portfolio assets in
qualified thrift investments and, therefore, met the QTL test.

     Limitation on Capital Distributions.  OTS regulations impose limitations
upon all capital distributions by savings institutions, such as cash dividends,
payments to repurchase or otherwise acquire its shares, payments to shareholders
of another institution in a cash-out merger and other distributions charged
against capital.  The rule establishes three tiers of institutions, which are
based primarily on an institution's capital level.  An institution that exceeds
all fully phased-in capital requirements before and after a proposed capital
distribution ("Tier 1 Association") and has not been advised by the OTS that it
is in need of more than normal supervision, could, after prior notice but
without obtaining approval of the OTS, make capital distributions during a
calendar year equal to the greater of (i) 100% of its net earnings to date
during the calendar year plus the amount that would reduce by one-half its
"surplus capital ratio" (the excess capital over its fully phased-in capital
requirements) at the beginning of the calendar year or (ii) 75% of its net
income for the previous four quarters.  Any additional capital distributions
would require prior regulatory approval.  In the event the Association's capital
fell below its regulatory requirements or the OTS notified it that it was in
need of more than normal supervision, the Association's ability to make capital
distributions could be restricted.  In addition, the OTS could prohibit a
proposed capital distribution by any institution, which would otherwise be
permitted by the regulation, if the OTS determines that such distribution would
constitute an unsafe or unsound practice.  In December 1994, the OTS proposed
amendments to its capital distribution regulation that would generally authorize
the payment of capital distributions without OTS approval provided that the
payment does not cause the institution to be undercapitalized within the meaning
of the prompt corrective action regulation.  However, institutions in a holding
company structure would still have a prior notice requirement.  At December 31,
1997, the Association was a Tier 1 Association.

     Liquidity.  The Association is required to maintain an average daily
balance of specified liquid assets equal to a monthly average of not less than a
specified percentage of its net withdrawable deposit accounts plus short-term
borrowings.  This liquidity requirement was 5% for fiscal 1997, but is subject
to change from time to time by the OTS to any amount within the range of 4% to
10% depending upon economic conditions and the savings flows of member
institutions.  During 1997, OTS regulations also required each savings
institution to maintain an average daily balance of short-term liquid assets of
at least 1% of the total of its net withdrawable deposit accounts and borrowings
payable in one year or less.  Monetary penalties may be imposed for failure to
meet these liquidity requirements.  The OTS has recently lowered

                                       27
<PAGE>

the liquidity requirement from 5% to 4% and eliminated the 1% short term liquid
asset requirement.  The Association's liquidity ratio for December 31, 1997 was
19.1%, which exceeded the applicable requirements.  The Association has never
been subject to monetary penalties for failure to meet its liquidity
requirements.

     Assessments.  Savings institutions are required to pay assessments to the
OTS to fund the agency's operations.  The general assessments, paid on a semi-
annual basis, are computed upon the savings institution's total assets,
including consolidated subsidiaries, as reported in the Association's latest
quarterly thrift financial report.  The assessments paid by the Association for
the fiscal year ended December 31, 1997 totalled $139,000.

     Branching.   OTS regulations permit nationwide branching by federally
chartered savings institutions to the extent allowed by federal statute.  This
permits federal savings institutions to establish interstate networks and to
geographically diversify their loan portfolios and lines of business.  The OTS
authority preempts any state law purporting to regulate branching by federal
savings institutions.

     Transactions with Related Parties.  The Association's authority to engage
in transactions with related parties or "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 Sections 23A and 23B
of the Federal Reserve Act ("FRA").  Section 23A limits the aggregate amount of
covered transactions with any individual affiliate 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 Section 23A and
the purchase of low quality assets from affiliates is generally prohibited.
Section 23B generally provides that certain transactions with affiliates,
including loans and asset purchases, must be on terms and under circumstances,
including credit standards, that are substantially the same or at least as
favorable to the institution as those prevailing at the time for comparable
transactions with non-affiliated companies.  In addition, savings institutions
are prohibited from lending to any affiliate that is engaged in activities that
are not permissible for savings & loan holding companies and no savings
institution may purchase the securities of any affiliate other than a
subsidiary.

     The Association's authority to extend credit to executive officers,
directors and 10% shareholders ("insiders"), as well as entities such persons
control, is governed by Sections 22(g) and 22(h) of the FRA and Regulation O
thereunder.  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.  Recent legislation created 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.  Regulation O also places
individual and aggregate limits on the amount of loans the Association may make
to insiders based, in part, on the Association's capital position and requires
certain board approval procedures to be followed.

                                       28
<PAGE>

     Enforcement.  Under the FDI Act, the OTS has primary enforcement
responsibility over savings institutions 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.  Under the FDI Act, the FDIC has the authority to recommend to the
Director of the OTS enforcement action to be taken with respect to a particular
savings institution.  If action is not taken by the Director, the FDIC has
authority to take such action under certain circumstances.  Federal law also
establishes criminal penalties for certain violations.

     Standards for Safety and Soundness.  The federal banking agencies have
adopted Interagency Guidelines Prescribing Standards for Safety and Soundness
("Guidelines") and a final rule to implement safety and soundness standards
required under the FDI Act.  The Guidelines set forth the safety and soundness
standards that the federal banking agencies use to identify and address problems
at insured depository institutions before capital becomes impaired.  The
standards set forth in the Guidelines address internal controls and information
systems; internal audit system; credit underwriting; loan documentation;
interest rate risk exposure; asset growth; asset quality, earnings and
compensation, fees and benefits.  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 FDI
Act.  The final rule establishes deadlines for the submission and review of such
safety and soundness compliance plans when such plans are required.

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 Federal Reserve Board
regulations generally required for most of 1997 that reserves be maintained
against aggregate transaction accounts as follows: for accounts aggregating
$49.3 million or less (subject to adjustment by the Federal Reserve Board) the
reserve requirement was $1.48 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 $49.3 million.   The first $4.4 million of
otherwise reservable balances (subject to adjustments by the

                                       29
<PAGE>

Federal Reserve Board) were exempted from the reserve requirements.  The
Association maintained compliance with the foregoing requirements.  For 1998,
the Federal Reserve Board has decreased from $49.3 million to $47.8 million the
amount of transaction accounts subject to the 3% reserve requirement and to
increase the amount of exempt reservable balances from $4.4 million to $4.7
million. The balances maintained to meet the reserve requirements imposed by the
Federal Reserve Board may be used to satisfy liquidity requirements imposed by
the OTS.

                                       30
<PAGE>


                           FEDERAL AND STATE TAXATION

Federal Taxation

     General.  The Company and the Association report their income on a
consolidated basis and 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 Association'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 Association or the Company.  The Association has not been
audited by the IRS during the last five years.  For its 1997 taxable year, the
Company is subject to a maximum federal income tax rate of 35%.

     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 non-qualifying 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, requires savings institutions to recapture (i.e.,
take into income) certain portions of their accumulated bad debt reserves.  The
1996 Act repeals the reserve method of accounting for bad debts effective for
tax years beginning after 1995.  Thrift institutions that would be treated as
small banks are allowed to utilize the Experience Method applicable to such
institutions, while thrift institutions that are treated as large banks (those
generally exceeding $500 million in assets) are required to use only the
specific charge-off method.  Thus, the PTI method of accounting for bad debts is
no longer available for any financial institution.

     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
period beginning after 1995, subject to the residential loan requirement.

     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 Association's current taxable year, in which the Association
originates a minimum of certain residential loans based upon the average of the
principal amounts of such loans made by the Association during its six taxable
years preceding its current taxable year.

                                       31
<PAGE>

     Under the 1996 Act, for its current and future taxable years, the
Association is not permitted to make additions to its tax bad debt reserves.  In
addition, the Association is required to recapture (i.e., take into income) 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 Association will incur an additional tax
liability of approximately $1.2 million.

     Distributions.  Under the 1996 Act, if the Association makes "non-dividend
distributions" to the Company, such distributions will be considered to have
been made from the Association'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 Association'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 Association's income.
Non-dividend distributions include distributions in excess of the Association'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 Association's current or
accumulated earnings and profits will not be so included in the Association's
income.

     The amount of additional taxable income triggered by a non-dividend is an
amount that, when reduced by the tax attributable to the income, is equal to the
amount of the distribution.  Thus, if the Association 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 Association does not intend to pay dividends that
would result in a recapture of any portion of its bad debt reserves.

     Corporate Alternative Minimum Tax.  The Internal Revenue Code (the "Code")
imposes a tax on alternative minimum taxable income ("AMTI") at a rate of 20%.
The excess of the tax bad debt reserve deduction using the percentage of taxable
income method over the deduction that would have been allowable under the
Experience Method is treated as a preference item for purposes of computing the
AMTI.  Only 90% of AMTI can be offset by net operating loss carryovers.  AMTI is
increased by an amount equal to 75% of the amount by which the Association's
adjusted current earnings exceeds its AMTI (determined without regard to this
preference and prior to reduction for net operating losses).

     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 SAIF under this legislation
is deductible under section 162 of the Code in the year of payment.

                                       32
<PAGE>

     Dividends Received Deduction and Other Matters.  The Company may exclude
from its income 100% of dividends received from the Association 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 Association will not file a
consolidated tax return, except that if the Company owns more than 20% of the
stock of a corporation distributing a dividend, 80% of any dividends received
may be deducted.

State and Local Taxation

     The Association is subject to the Mutual Thrift Institutions Tax of the
Commonwealth of Pennsylvania based on the Association's financial net income
determined in accordance with generally accepted accounting principles with
certain adjustments.  The tax rate under the Mutual Thrift Institutions Tax is
11.5%.  Interest on state and federal obligations is excluded from net income.
An allocable portion of net interest expense incurred to carry the obligations
is disallowed as a deduction.  Three year carryforwards of losses are allowed.
The Company is subject to the Capital Stock Tax of the Commonwealth of
Pennsylvania and the Franchise Tax of the state of Delaware.

Personnel

     As of December 31, 1997, the Association had 52 full-time employees and 7
part-time employees.  The employees are not represented by a collective
bargaining unit, and the Association considers its relationship with its
employees to be good.

Item 2.  Properties

     The Company conducts its business by maintaining an office at 300 Delaware
Avenue, Suite 1704, Wilmington, Delaware 19801.  The Association conducts its
business through its main office located at 532 Lincoln Avenue, Pittsburgh,
Pennsylvania 15202 and six full-service branch offices, all of which are located
in Allegheny County.  Four of the Association's branch offices are leased.  Loan
originations are processed at the administrative office.  The Association
believes that its current facilities are adequate to meet the present and
immediately foreseeable needs of the Association and the Company.

Item 3.  Legal Proceedings

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

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

     See the proxy for submission of matters to a vote of security holders.

                                       33
<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 under "Shareholder Information" on page 50
in the Registrant's 1997 Annual Report to Stockholders and is incorporated
herein by reference.  Information relating to the dividend restrictions for
Registrant's common stock appears under Note 12 to the "Notes to Consolidated
Financial Statements Years Ended December 31, 1997, 1996 and 1995" on page 35 in
the Registrant's 1997 Annual Report to stockholders and is incorporated herein
by reference.

Item 6.  Selected Financial Data

     The above-captioned information appears under "Selected Financial and Other
Data of the Company" in the Registrant's 1997 Annual Report to Stockholders on
pages 2 and 3 is incorporated herein by reference.

Item 7.  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
1997 Annual Report to Stockholders on pages 8 through 20 and is incorporated
herein by reference.

Item 7.a.    Quantitative and Qualitative Disclosure About Market Risks.

       The above-captioned information appears under the headings "Interest Rate
Sensitivity Analysis" and "Net Portfolio Value" in the registrant's 1997 Annual
Report to Stockholders on pages 10 through 12 and is incorporated herein by
reference.

Item 8.  Financial Statements and Supplementary Data

     The Consolidated Financial Statements of First Bell Bancorp, Inc. and its
subsidiary, together with the report thereon by Deloitte & Touche LLP appears in
the Registrant's 1997 Annual Report to Stockholders on pages 21 through 47 and
are incorporated herein by reference.

Item 9.  Change in and Disagreements with Accountants on Accounting and
       Financial Disclosure

     None.

                                       34
<PAGE>

                                    PART III

Item 10.  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 27, 1998,
at pages 5 and 6.

Item 11.  Executive Compensation

     The information relating to directors' compensation and executives'
compensation is incorporated herein by reference to the Registrant's Proxy
Statement for the Annual Meeting of Stockholders to be held on April 27, 1998,
at pages 8 through 16 (excluding the Compensation Committee Report and Stock
Performance Graph).

Item 12.  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 27, 1998,
at pages 3, 5 and 6.

Item 13.  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 27, 1998, at page 16.

                                       35
<PAGE>

                                    PART IV

Item 14.  Exhibits, Financial Statement Schedules, and Reports on Form 8-K

(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 1997 Annual Report to
    Stockholders.


                                                                 PAGE

   Independent Auditors Report.................................     21

   Consolidated Balance Sheets for the
     December 31, 1997 and 1996................................     24

   Consolidated Statements of Income for the
     Years Ended December 31, 1997, 1996 and 1995..............     25

   Consolidated Statements of Changes in Stockholders' Equity
     for the Years Ended December 31, 1997, 1996 and 1995......     26

   Consolidated Statements of Cash Flows for the
     Years Ended December 31, 1997, 1996 and 1995..............     27

   Notes to Consolidated Financial Statements for the
     Years Ended December 31, 1997, 1996 and 1995..............  28-47

   The remaining information appearing in the 1997 Annual Report to Stockholders
is not deemed to be filed as part of this report, except as expressly provided
herein.

(2)  All schedules are omitted because they are not required or applicable, or
     the required information is shown in the consolidated financial statements
     or the notes thereto.

(3)  Exhibits

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

         3.1  Certificate of Incorporation of First Bell Bancorp, Inc.*
         3.2  Bylaws of First Bell Bancorp, Inc.*
         4.0  Stock Certificate of First Bell Bancorp, Inc.*
         10.1 First Bell Bancorp, Inc. 1995 Master Stock Option Plan**
         10.2 Bell Federal Savings and Loan Association of Bellevue Master Stock
              Compensation Plan**
         10.5 Form of Bell Federal Savings and Loan Association of Bellevue
              Supplemental Executive Retirement Plan*

                                       36
<PAGE>

         10.6 Employment Agreement between First Bell Bancorp, Inc. and certain
              executive officers, including Messrs. Eckert and Hinds*
         10.7 Employment Agreement between Bell Federal Savings and Loan
              Association of Bellevue and certain executive officers, including
              Messrs. Eckert and Hinds*
         11.0 Computation of earnings per share (filed herewith)
         13.0 Portions of the 1997 Annual Report to Stockholders (filed
              herewith)
         23.0 Consent of Independent Accountant (filed herewith)
         27.0 Financial Data Schedule (filed herewith)
         99.0 Proxy Statement for 1998 Annual Meeting of Stockholders to be held
              on April 27, 1988 and previously filed on March 20, 1998 is herein
              incorporated by reference.

     (b) Reports on Form 8-K

         None.

         __________________________________
         *  Incorporated herein by reference into this document from the
            Exhibits to the Form S-1, Registration Statement, originally filed
            on November 9, 1994, as amended and declared effective on May 9,
            1995, Registration No. 33-86160.

         ** Incorporated herein by reference into this document from the
            Exhibits (Appendices) to the Proxy Statement for the Annual Meeting
            of Stockholders held on April 29, 1996, filed on March 22, 1996.

                                       37
<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.

Date:       March 17, 1997        By:  /s/ Albert H. Eckert II
       ------------------------        -------------------------------------
                                  Albert H. Eckert II,
                                  President, Chief Executive Officer
                                  and Director

Date:        March 17, 1997       By: /s/ Jeffrey M. Hinds
       ------------------------       --------------------------------------
                                  Jeffrey M. Hinds
                                  Executive Vice President, Chief Financial
                                  Officer and Director


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

/s/ Albert H. Eckert, II      President, Chief Executive          March 17, 1997
----------------------------  Officer and Director                --------
Albert H. Eckert, II


/s/ Jeffrey M. Hinds           Executive Vice President,          March 17, 1997
-----------------------------  Chief Financial Officer and        --------
Jeffrey M. Hinds               Director


/s/ David F. Figgins                                              March 17, 1997
-----------------------------  Vice President and                 --------
David F. Figgins               Director


/s/ Thomas J. Jackson, Jr.     Director                           March 17, 1997
----------------------------                                      --------
Thomas J. Jackson, Jr.


/s/ Robert C. Baierl           Secretary and Director             March 17, 1997
-----------------------------                                     --------
Robert C. Baierl


/s/ William S. McMinn          Vice President and                 March 17, 1997
--------------------------     Director                           --------
William S. McMinn


                                      38

<PAGE>

/s/ Peter E. Reinert           Director                           March 17, 1997
-----------------------------                                     --------
Peter E. Reinert


/s/ Jack W. Schweiger          Director                           March 17, 1997
---------------------------                                       --------
Jack W. Schweiger


/s/ Theodore R. Dixon          Director                           March 17, 1997
---------------------------                                       --------
Theodore R. Dixon









                                      39