UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                    FORM 10-K

[X]    ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
       1934

       For the Fiscal Year Ended December 31, 2000

[ ]    TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
       ACT OF 1934

       For the transition period from ________ to ________

                         Commission File Number: 0-27399

                        AMERICAN FINANCIAL HOLDINGS, INC.
             (Exact name of registrant as specified in its charter)

<TABLE>
<S>                                                              <C>
                         DELAWARE                                            06-1555700
(State or other jurisdiction of incorporation or organization)   (I.R.S. Employer Identification No.)

     102 West Main Street, New Britain, Connecticut                             06051
        (Address of principal executive officers)                             (Zip Code)
</TABLE>

       Registrant's telephone number, including area code: (860) 612-3366
        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)

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

      Indicate by check mark if disclosure of delinquent 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 the Form 10-K or any
amendment to this Form 10-K.  X
                             ---

      The aggregate market value of the voting and non-voting common equity held
by non-affiliates was $517,520,678 based upon the closing price of $21.5625 as
quoted on the Nasdaq National Market for March 09, 2001. Solely for purposes of
this calculation, the shares held by the directors and officers of the
registrant are deemed to be held by affiliates.

      The number of shares outstanding of the registrant's Common Stock as of
March 09, 2001 was 25,112,360.

                       DOCUMENTS INCORPORATED BY REFERENCE

      Portions of Proxy Statement for the Annual Meeting of Stockholders ("Proxy
Statement"). (Part III)
<PAGE>

                                TABLE OF CONTENTS

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<S>       <C>                                                                                                  <C>
Part I                                                                                                         Page
------                                                                                                         ----

Item 1.   Description of Business................................................................................3
Item 2.   Description of Properties.............................................................................31
Item 3.   Legal Proceedings.....................................................................................32
Item 4.   Submission of Matters to a Vote of Security Holders...................................................32

Part II
-------

Item 5.   Market for Registrant's Common Stock and Related Stockholder Matters..................................32
Item 6.   Selected Financial Data...............................................................................33
Item 7.   Management's Discussion and Analysis of Financial Condition and Results of
          Operations............................................................................................34
Item 7A.  Quantitative and Qualitative Disclosures About Market Risk............................................43
Item 8.   Financial Statements and Supplementary Data...........................................................44
Item 9.   Changes in and Disagreements with Accountants on Accounting and Financial
          Disclosure............................................................................................44

Part III
--------

Item 10.  Directors and Executive Officers of the Registrant....................................................45
Item 11.  Executive Compensation................................................................................45
Item 12.  Security Ownership of Certain Beneficial Owners and Management........................................45
Item 13.  Certain Relationships and Related Transactions........................................................45

Part IV
-------

Item 14.  Exhibits, Financial Statement Schedules and Reports on Form 8-K.......................................45

SIGNATURES
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<PAGE>

PART I

Item 1.      Description of Business

Forward Looking Statements

References to the Company generally refer to the consolidated operations of
American Financial Holdings, Inc. (the "Parent Company") and American Savings
Bank (the "Bank"). This report contains forward-looking statements that are
based on assumptions and describe future plans, strategies, and expectations of
the Company. These forward-looking statements are generally identified by use of
the words "believe," "expect," "intend," "anticipate," "estimate," "project," or
similar expressions. The Company's ability to predict results accurately or the
actual effect of future plans or strategies is inherently uncertain. Factors
which could have a material adverse effect on the operations of the Company and
its subsidiaries include, but are not limited to, changes in interest rates,
general economic conditions, legislative/regulatory changes, monetary and fiscal
policies of the U.S. Government, including policies of the U.S. Treasury and the
Federal Reserve Board, the quality and composition of the loan or investment
portfolios, demand for loan products, deposit flows, competition, demand for
financial services in the Company's market area and accounting principles. These
risks and uncertainties should be considered in evaluating forward-looking
statements and undue reliance should not be placed on these statements. The
Company does not undertake - and specifically disclaims any obligation - to
publicly release the result of any revisions which may be made to any
forward-looking statements to reflect events or circumstances after the date of
the statements or to reflect the occurrence of anticipated or unanticipated
events.

General

The Parent Company was organized as a Delaware business corporation at the
direction of the Bank in July 1999 to become the holding company for the Bank
upon completion of its conversion from a mutual savings bank to a stock savings
bank. The conversion was completed on November 30, 1999. At December 31, 2000,
the Company had consolidated total assets of $1.87 billion and total
stockholders' equity of $514.0 million. The Company is subject to regulation by
the Office of Thrift Supervision, the Federal Deposit Insurance Corporation, and
the Securities and Exchange Commission.

The Bank was founded in 1862 as a Connecticut-chartered mutual savings bank
under the name "Savings Bank of New Britain." In 1976, the Bank changed its name
to "American Savings Bank." The Bank is regulated by the State of Connecticut
Department of Banking and the Federal Deposit Insurance Corporation. The Bank's
deposits are insured to the maximum allowable amount by the Bank Insurance Fund
of the Federal Deposit Insurance Corporation. The Bank has been a member of the
Federal Home Loan Bank System since 1978.

The Company operates 17 banking offices in Hartford, Middlesex and Tolland
counties, and offers a full range of banking services to individuals and
corporate customers primarily located in Central Connecticut. The Company
specializes in the acceptance of retail deposits from the general public and
using those funds, together with funds generated from operations and borrowings,
to originate residential mortgage loans and consumer loans, primarily home
equity loans and lines of credit. The Company originates loans primarily for
investment. However, the Company also sells loans, primarily fixed-rate mortgage
loans, in the secondary market, while generally retaining the servicing rights.
See "--Lending Activities." The Company also invests in mortgage-backed
securities, debt and equity securities and other permissible investments. The
Company's revenues are derived principally from the generation of interest and
fees on loans originated and, to a lesser extent, interest and dividends on
investment and mortgage-backed securities. The Company's primary sources of
funds are deposits, principal and interest payments on loans and investments and
mortgage-backed securities, advances from the Federal Home Loan Bank of Boston
and borrowings under repurchase agreements.

                                       3
<PAGE>


Market Area

The Company is headquartered in New Britain, Connecticut in Hartford County. The
Company's primary deposit gathering area is concentrated in the communities
surrounding its 17 banking offices located in Hartford, Middlesex and Tolland
counties. The Company's primary lending area is significantly broader than its
deposit gathering area and includes all of the State of Connecticut as well as
parts of Rhode Island and Massachusetts.

Hartford County is located approximately two hours from both Boston and New York
City and contains the City of Hartford. The region serves as the governmental
and financial center of Connecticut. Hartford County has a diversified mix of
industry groups, including insurance and financial services, manufacturing,
service, government and retail. The major employers in the area include several
prominent international and national insurance and manufacturing companies, such
as Aetna, Inc., The Hartford Financial Services, Inc., Travelers Property
Casualty Corp., United Technologies Corp., Stanley Works, as well as many
regional banks and the State of Connecticut.

Connecticut's economy grew at a slower than expected 2.9% annualized rate in the
third quarter of 2000 (the most recent data available on the State's economy).
With national figures showing an economy that is continuing to cool, the State's
economic growth is likely to moderate further, although remaining stronger
relative to the national economy. Connecticut has a higher concentration of
service sector jobs, as opposed to manufacturing jobs, than the national
economy. The recent slow down in the manufacturing sector has been the biggest
drag on the national economy. Meanwhile, Connecticut continues to reflect
personal wealth characteristics above the national averages, while housing
affordability is better than the national average. In Hartford county, the
Company's primary market area, the unemployment rate was 2.3% as of the third
quarter of 2000 compared to 2.9% in 1999, approximately the same as the State as
a whole and far less than the national average. However, the State's and
Hartford County's unemployment rate may have bottomed as more recent economic
news indicates continued deceleration in the national economy that could be
expected to impact Connecticut.

Competition

The Company faces intense competition for the attraction of deposits and
origination of loans in its primary market area. Its most direct competition for
deposits has historically come from the several commercial and savings banks
operating in the Company's primary market area and, to a lesser extent, from
other financial institutions, such as brokerage firms, credit unions and
insurance companies. While those entities still provide a source of competition
for deposits, the Company faces significant competition for deposits from the
mutual fund industry as customers seek alternative sources of investment for
their funds. The Company also faces significant competition for investors' funds
from their direct purchase of short-term money market securities and other
corporate and government securities. While the Company faces competition for
loans from the significant number of financial institutions, primarily savings
banks and commercial banks in its market area, its most significant competition
comes from other financial service providers, such as the mortgage companies and
mortgage brokers operating in its primary market area. The increase of Internet
accessible financial institutions which solicit deposits and originate loans on
a nationwide basis may also increase competition for the Company's customers and
have an adverse impact on its future operations. Additionally, competition is
likely to increase as a result of recent regulatory actions and legislative
changes, most notably the enactment of the Gramm-Leach-Bliley Act of 1999. These
changes have eased and likely will continue to ease restrictions on the
interstate operations of financial institutions due to the increasing trend for
non-depository financial service companies entering the financial services
market, such as insurance companies, securities companies and specialty
financial companies. Competition for deposits and the origination of loans may
limit the Company's growth in the future.

                                       4
<PAGE>


Lending Activities

General. The types of loans that the Company may originate are subject to
federal and state laws and regulations. The Company concentrates primarily upon
its traditional residential mortgage, home equity and other consumer loan
products, in addition to commercial loans that meet the needs of small - to
medium - sized businesses. Interest rates charged by the Company on loans are
affected principally by the Company's current asset/liability strategy, the
demand for such loans, the supply of money available for lending purposes and
the rates offered by competitors. These factors are, in turn, affected by
general and economic conditions, monetary policies of the federal government,
including the Federal Reserve Board, legislative tax policies and governmental
budgetary matters.

The following table shows the composition of the Company's loan portfolio at the
dates indicated.

<TABLE>
<CAPTION>
===========================================================================================================================
Loan Portfolio
===========================================================================================================================
                                                               At December 31,
                 ----------------------------------------------------------------------------------------------------------
                          2000                  1999                    1998                1997                 1996
                   ------------------    -------------------     -----------------   -----------------    -----------------
                              Percent                Percent               Percent             Percent              Percent
                                of                     of                    of                  of                   of
                   Amount      Total     Amount       Total      Amount     Total    Amount     Total     Amount     Total
                   ------      -----     ------       -----      ------     -----    ------     -----     ------     -----
                                                            (Dollars in thousands)
<S>              <C>           <C>     <C>            <C>       <C>         <C>     <C>         <C>      <C>         <C>
Real estate loans:
 One- to four-
  family         $  818,272     70.6 % $  719,089      69.5 %   $624,819     68.4 % $588,050     69.8 %  $542,085     72.0 %
 Residential
  construction       11,963      1.0       19,587       1.9       17,177      1.9     11,755      1.4       8,979      1.2
 Other                  924      0.1        1,106       0.1        1,223      0.1      2,063      0.2       2,692      0.4
                  ---------    -----    ---------     -----      -------    -----    -------    -----     -------    -----
  Total real
   estate loans     831,159     71.7      739,782      71.5      643,219     70.4    601,868     71.4     553,756     73.6
                  ---------    -----    ---------     -----      -------    -----    -------    -----     -------    -----

Consumer loans:
 Home equity
  loans and
  lines of
  credit            307,106     26.6      276,049      26.7      243,102     26.6    216,814     25.7     184,370     24.5
 Automobiles         17,027      1.5       15,539       1.5       20,085      2.2     20,793      2.5      10,945      1.4
 Other                2,833      0.2        3,162       0.3        6,940      0.8      3,557      0.4       3,573      0.5
                  ---------    -----    ---------     -----      -------    -----    -------    -----     -------    -----
  Total
   consumer loans   326,966     28.3      294,750      28.5      270,127     29.6    241,164     28.6     198,888     26.4
                  ---------    -----    ---------     -----      -------    -----    -------    -----     -------    -----
  Total loans     1,158,125    100.0 %  1,034,532     100.0 %    913,346    100.0 %  843,032    100.0 %   752,644    100.0 %
                               =====                  =====                 =====               =====                =====

Net deferred
 loan
 origination
 cost (fees)          3,547                 3,819                  1,534                 928                  484
Allowance for
 loan losses        (10,624)               (8,820)                (7,626)             (6,277)              (5,588)
                  ---------             ---------                -------             -------              -------
  Total loans,
   net           $1,151,048            $1,029,531               $907,254            $837,683             $747,540
                  =========             =========                =======             =======              =======
===========================================================================================================================
</TABLE>

One- to Four-Family Real Estate Loans. The Company's primary lending activity is
the origination of loans secured by one- to four-family residences located in
its primary market area. At December 31, 2000, $818.3 million, or 70.6%, of
total loans consisted of one- to four-family loans.

The Company originates fixed-rate fully amortizing loans with maturities ranging
between 10 and 30 years and rates based on market conditions. The Company offers
mortgage loans that conform to Fannie Mae and Freddie Mac underwriting
guidelines, as well as jumbo loans, which were loans in amounts over $252,000
for 2000, and $275,000 as of January 1, 2001. Fixed-rate conforming loans are
generally originated for portfolio, however, such loans may be sold periodically
in response to changes in prevailing market interest rates. Loans that are sold
are generally sold to Freddie Mac, with the servicing rights retained. The
Company will underwrite one- to four-family

                                       5
<PAGE>

residential mortgage loans up to a loan to value ratio of 95%, provided that a
borrower obtains private mortgage insurance on loans that exceed 80% of the
appraised value or sales price, whichever is less, of the secured property.

The Company also offers adjustable-rate mortgage loans, with an interest rate
based on the one year Constant Maturity Treasury Bill index, which adjust
annually from the outset of the loan or which adjust annually after a three,
five, seven or ten year initial fixed period and with terms up to 30 years.
Interest rate adjustments are limited to no more than 2% during any adjustment
period and 6% over the life of the loan. Additionally, the Company offers an
adjustable-rate loan with a conversion option where the borrower has the option
to convert the loan to a fixed interest rate after a predetermined period of
time, generally within the first 60 months of the loan term. Adjustable-rate
mortgage loans help reduce the Company's exposure to changes in interest rates.
There are, however, unquantifiable credit risks resulting from the potential of
increased costs due to changed rates to be paid by the borrower. During periods
of rising interest rates the risk of default on adjustable-rate mortgage loans
may increase as a result of repricing and the increased payments required by the
borrower. Although adjustable-rate mortgage loans allow the Company to increase
the sensitivity of its asset base to changes in interest rates, the extent of
this interest sensitivity is limited by the annual and lifetime interest rate
adjustment limits, and the degree to which borrowers prepay their loans. Because
of these considerations, the Company has no assurance that yields on
adjustable-rate mortgage loans will be sufficient to offset increases in the
Company's cost of funds during periods of rising interest rates. The Company
believes these risks, which have not had a material adverse effect to date,
generally are less than the risks associated with holding fixed-rate loans in
its portfolio in a rising interest rate environment.

The Company also requires that fire, casualty, title, hazard insurance and, if
appropriate, flood insurance be maintained on all properties securing real
estate loans. An independent licensed appraiser generally appraises all
properties.

Residential Construction Loans. The Company originates construction loans to
individuals for the construction and acquisition of personal residences. At
December 31, 2000, the advanced portion of residential construction loans
amounted to $12.0 million, or 1.0% of total loans. At December 31, 2000, the
unadvanced portion of construction loans totaled $7.3 million.

The Company's construction loans generally provide for the payment of interest
only during the construction phase, which is usually twelve months. At the end
of the construction phase, the loan converts to a permanent mortgage loan. Loans
can be made with a maximum loan to value ratio of 90%, provided that the
borrower obtains private mortgage insurance on the loan if the loan balance
exceeds 80% of the appraised value or sales price of the secured property,
whichever is less. At December 31, 2000, the largest outstanding construction
loan commitment was for $900,000, $723,000 of which was outstanding. This loan
was performing according to its terms at December 31, 2000. Construction loans
to individuals are made on the same terms as the Company's one- to four-family
mortgage loans. Before making a commitment to fund a construction loan, the
Company requires an appraisal of the property by an independent licensed
appraiser. The Company also reviews and inspects each property before
disbursement of funds during the term of the construction loan. Loan proceeds
are disbursed after inspection based on the percentage of completion method.

Construction lending generally involves a higher degree of risk than
single-family permanent mortgage lending because of the greater potential for
disagreements between borrowers and builders and the failure of builders to pay
subcontractors. Additional risk often exists because of the inherent difficulty
in estimating both a property's value and the estimated cost of the property. If
the estimate of construction cost proves to be inaccurate, the Company may be
required to advance funds beyond the amount originally committed to protect the
value of the property. If the estimate of value upon completion proves to be
inaccurate, the Company may be confronted with a property whose value is
insufficient to assure full repayment. The Company has attempted to minimize the
foregoing risks by, among other things, limiting its construction lending to
residential properties, not making loans to builders and by having all
construction loans convert to permanent mortgage loans at the end of the
construction phase.

                                       6
<PAGE>


Home Equity Loans and Lines of Credit. The Company offers home equity lines of
credit and fully amortized home equity loans, both of which are secured by
owner-occupied one- to four-family residences. At December 31, 2000, home equity
loans and lines of credit totaled $307.1 million, or 26.6% of the Company's
total loans and 94.0% of consumer loans. Additionally, at December 31, 2000, the
unadvanced amounts of home equity lines of credit totaled $209.5 million. The
underwriting standards employed by the Company for home equity loans and lines
of credit include a determination of the applicant's credit history, an
assessment of the applicant's ability to meet existing obligations and payments
on the proposed loan and the value of the collateral securing the loan. Home
equity lines of credit have adjustable rates of interest which are indexed to
the prime rate as reported in The Wall Street Journal. Interest rate adjustments
on home equity lines of credit are limited to no more than 6% over the life of
the loan. Generally, the maximum loan-to-value ratio on home equity lines of
credit (combined with any existing first mortgage balance) is 75% for a one- to
four-family residence and 70% for a condominium. A home equity line of credit
may be drawn down by the borrower for a period of ten years from the date of the
loan agreement. During this period, the borrower has the option of paying, on a
monthly basis, either principal and interest or only the interest. The borrower
has to pay back the amount outstanding under the line of credit at the end of
the ten-year period.

The Company also offers fixed- and adjustable-rate home equity loans with terms
up to 15 and 20 years, respectively. The loan-to-value ratios of both fixed-rate
and adjustable-rate home equity loans are generally limited to 80% for loans of
five years or less, 75% for loans over five years and 70% for loans secured by
condominiums.

Automobile and Other Consumer Lending. The Company offers fixed-rate automobile
loans with terms of up to 60 months and loan-to-value ratios of 80% for new
cars. For used cars, the maximum loan-to-value ratio is 80% of the lesser of the
retail value shown in the NADA Used Car Guide or the purchase price, whichever
is lower, and with terms of 48 months for automobiles up to four years old and
36 months for older vehicles. At December 31, 2000, automobile loans totaled
$17.0 million, or 1.5% of the Company's total loans and 5.2% of consumer loans.

Other consumer loans at December 31, 2000 amounted to $2.8 million, or 0.2% of
the Company's total loans and 0.9% of consumer loans. These loans include
unsecured personal loans, collateral loans and education loans. Unsecured
personal loans generally have a fixed-rate, a maximum borrowing limitation of
$5,000 and a maximum term of three years. Collateral loans are generally secured
by a passbook account, a certificate of deposit or marketable securities.

Consumer loans entail greater risk than do residential mortgage loans,
particularly in the case of loans that are unsecured or secured by rapidly
depreciating assets such as automobiles. In these cases, any repossessed
collateral may not provide an adequate source of repayment of the outstanding
loan balance. The remaining deficiency often does not warrant further
substantial collection efforts against the borrower beyond obtaining a
deficiency judgment. In addition, consumer loan collections are dependent on the
borrower's continuing financial stability, and thus are more likely to be
adversely affected by job loss, divorce, illness or personal bankruptcy.

                                       7
<PAGE>


Commercial Business Loans. During the fourth quarter of 2000, the Company began
to originate commercial business loans to small and medium size businesses
located in its primary market area. At December 31, 2000, approximately $132,000
of the Bank's gross loan portfolio consisted of commercial business loans. At
that date, the Bank had outstanding unadvanced commitments on commercial lines
of credit of approximately $143,000. Commercial business loans are generally
secured by business assets other than real estate, such as business equipment,
inventory and accounts receivable, and commercial business loans generally
involve higher credit risks than loans secured by real estate. Unlike mortgage
loans, which generally are made on the basis of the borrower's ability to make
repayment from his or her employment or other income, and which are secured by
real property whose value tends to be more easily ascertainable, commercial
loans are of higher risk and typically are made on the basis of the borrower's
ability to make repayment from the cash flow of the borrower's business. As a
result, the availability of funds for the repayment of commercial loans may be
substantially dependent on the success of the business itself. Further, any
collateral securing such loans may depreciate over time, may be difficult to
appraise and may fluctuate in value based on the success of the business. The
Community Lending Department will originate business Lines of Credit and Term
Loans. Lines of Credit are for short-term business needs of up to fifteen months
and are renewable annually while Term Loans are for business needs of a longer
term and will have a maturity of up to seven years. Rates for business loans
will be established based on the strength of the financial information submitted
to the Bank and will be variable tied to prime, or fixed rate based on customer
needs. Credit and underwriting criteria has been established to insure the
highest credit quality.

Such loans diversify the Bank's portfolio and reduce the Bank's interest rate
risk by originating loans that adjust with changes in the prime rate. These
loans typically will generate fee income and often have compensating deposit
balances.

Loans to One Borrower. The maximum amount that the Company may lend to one
borrower is limited by regulation. At December 31, 2000, the Company's
regulatory limit on loans to one borrower was $54.3 million, which equaled 15%
of the Bank's Tier 1 capital. At that date, the Company's largest amount of
loans to one borrower, including the borrower's related interests, was a line of
credit totaling $2.0 million of which approximately $995,000 was outstanding.
This loan was performing according to the original terms at December 31, 2000.

Maturity of Residential Construction and Commercial Real Estate Loan Portfolio.
At December 31, 2000, the advanced portion of residential construction loans due
in one year or less totaled $9.8 million. The remainder of the portfolio which
totaled $2.2 million was due in two years. All residential construction loans
have adjustable interest rates. At December 31, 2000, commercial real estate
loans due in one year or less were $68,000, there were no amounts due in one
through five years and amounts due after five years were $314,000. All
commercial real estate loans have fixed interest rates. The maturity amounts are
based on the loans' contractual terms to maturity or scheduled amortization and
do not include potential prepayments, undisbursed loan proceeds, net deferred
loan origination costs and allowances for loan losses. At December 31, 2000,
commercial business loans of $132,000 were due in one through five years and the
rates charged were variable.

Loan Approval Procedures and Authority. The Company follows written,
non-discriminatory, underwriting standards and loan origination procedures
established by the Bank's Board of Directors and management.

The Company's policies and loan approval limits are established by the Chief
Executive Officer and the Chief Lending Officer and are approved by the Board of
Directors.

Any two members of the Mortgage Loan Committee, which currently consists of the
Chief Executive Officer, the Chief Lending Officer, two members of senior
management and officers of the Bank, may approve a mortgage loan up to $300,000.
Larger loans must be approved by two members of the Mortgage Loan Committee, one
of whom must be the Senior Vice President of Mortgage Loans for loans up to
$500,000, Chief Lending Officer for loans up to $900,000 and the Chief Executive
Officer for loans up to $1.0 million. All loans over $1.0 million require the
prior approval of the Board of Directors.

                                       8
<PAGE>

Four individuals have been delegated significant approval authority with respect
to consumer loans. The Chief Executive Officer may approve any consumer loan up
to $1.0 million. The Chief Lending Officer may individually approve any consumer
loan up to $250,000. The additional approval of any member of the Consumer Loan
Committee, which currently consists of the Chief Executive Officer, the Chief
Lending Officer and four other members of the Company's senior management and
officers, is required on loans between $250,000 and $700,000. A senior vice
president in the lending department also has authority to individually approve
consumer loans up to $250,000; however, loans between $250,000 and $700,000
require the additional signature of the Chief Executive Officer or the Chief
Lending Officer. Lastly, an officer of the Company has authority to approve
automobile loans up to $35,000 and home equity loans up to $100,000. Loans
greater than those limits require the approval of another member of the Consumer
Loan Committee and home equity loans between $250,000 and $700,000 require the
additional signature of either the Chief Executive Officer or the Chief Lending
Officer. All consumer loans greater than $1.0 million require the prior approval
of the Board of Directors.

Additionally, various Bank personnel have been delegated various levels of
authority to approve new and used automobile loans and unsecured loans. These
individuals' authority ranges from $15,000 to $25,000 for automobile loans and
between $1,500 and $5,000 for unsecured loans.

Any two members of the Commercial Business Loan Committee which consists of the
Chief Executive Officer, Chief Lending Officer, Executive Vice President of
Retail Banking and four members of senior management and officers of the Bank,
may approve a commercial loan up to $75,000. Larger loans must be approved by
two members of the Commercial Business Loan Committee, one of whom must be the
Vice President of Community Lending for loans up to $150,000, the Chief Lending
Officer or the Executive Vice President of Retail Banking for loans up to
$250,000 and the Chief Executive Officer for loans up to $1.0 million. All loans
over $1.0 million require the prior approval of the Board of Directors.

Loan Originations, Purchases and Sales. The Company's lending activities are
conducted by its salaried and commissioned loan personnel and through the use of
13 loan correspondents who solicit and originate adjustable-rate mortgage loans
on behalf of the Company. These loan correspondents accounted for approximately
69.7% of the adjustable-rate mortgage loans originated by the Company in 2000.
Loan correspondents are compensated by a commission that is based upon the
origination fee charged to the borrower less payment of a portion of the
origination fee to the Company, which currently is 50 basis points of the loan
amount. All loans originated by loan correspondents are underwritten to conform
to the Company's loan underwriting policies and procedures. Additionally, the
Company uses a third party to solicit and originate automobile loans on behalf
of the Company. This arrangement accounted for approximately 22.1% of the
automobile loans originated in 2000. All of the loans originated by the third
party are underwritten by the Company according to its underwriting policies and
procedures. The Company is not an active purchaser of loans. At December 31,
2000, the Company serviced $146.1 million of loans for others.

The Company generally originates fixed-rate mortgage loans for portfolio but
from time to time will sell such loans in the secondary market based on
prevailing market interest rate conditions. Sales are generally to Freddie Mac,
with servicing rights retained. Loan sale decisions are made by the Mortgage
Pipeline Committee of the Company. The Company occasionally obtains forward or
standby commitments from the prospective loan purchaser.

                                       9
<PAGE>


The following table presents total loans originated, sold and repaid during the
periods indicated. The Company did not purchase any loans during the periods
indicated.

<TABLE>
<CAPTION>
================================================================================================================
Loans Originated, Sold and Repaid
================================================================================================================
                                                                   For the Year Ended December 31,
                                                   -------------------------------------------------------------
                                                      2000                      1999                     1998
                                                   -----------               -----------               ---------
                                                                       (Dollars in thousands)
<S>                                                <C>                       <C>                       <C>
Loans at beginning of year                         $1,034,532                $  913,346                $843,032
Originations:
         Real estate:
         One to four-family                           159,460                   214,994                 182,982
         Residential constructions                     21,477                    41,922                  27,536
                                                   ----------                ----------                --------
                 Total real estate loans              180,937                   256,916                 210,518
                                                   ----------                ----------                --------
Consumer:
         Home equity loans and lines of credit        121,060                   165,214                 136,761
         All other                                     47,565                    38,427                  46,831
                                                   ----------                ----------                --------
                 Total consumer loans                 168,625                   203,641                 183,592
                                                   ----------                ----------                --------
Commercial:
         Lines of credit                                  275                         -                       -
                                                   ----------                ----------                --------
                 Total loans originated               349,837                   460,557                 394,110
                                                   ----------                ----------                --------
Deduct:
         Principal loan repayments,
              prepayments and other net               224,915                   325,858                 306,392
         Loan sales                                       768                    11,191                  13,475
         Net loan charge-offs                              91                       836                   1,051
         Transfers to REO                                 470                     1,486                   2,878
                                                   ----------                ----------                --------
                 Total deduction                      226,244                   339,371                 323,796
                                                   ----------                ----------                --------
Net loan activity                                     123,593                   121,186                  70,314
                                                   ----------                ----------                --------
Loans at end of year                               $1,158,125                $1,034,532                $913,346
                                                   ==========                ==========                ========
================================================================================================================
</TABLE>

Loan Commitments. The Company issues loan commitments to its prospective
borrowers conditioned on the occurrence of certain events. Commitments are made
in writing on specified terms and conditions and are honored for up to 120 days
from approval. At December 31, 2000, the Company had loan commitments and
unadvanced loans and lines of credit totaling $243.6 million. See Note 12 of the
Notes to Consolidated Financial Statements included in this report.

Loan Fees. In addition to interest earned on loans, the Company receives income
from fees in connection with loan originations, loan modifications, late
payments and for miscellaneous services related to its loans. Income from these
activities varies from period to period depending upon the volume and type of
loans made and competitive conditions. On loans originated by correspondents,
where the borrower pays no points, but pays a higher rate on the loan, the
Company will pay a premium to compensate the correspondent for their origination
costs.

The Company charges loan origination fees for fixed-rate loans which are
calculated as a percentage of the amount borrowed. As required by applicable
accounting principles, loan origination fees, discount points and certain loan

                                       10
<PAGE>

origination costs are deferred and recognized over the contractual remaining
lives of the related loans on a level yield basis. At December 31, 2000, 1999
and 1998, the Company had $3.5 million, $3.8 million and $1.5 million,
respectively, of net deferred loan origination costs. The Company amortized
approximately $751,000, $502,000 and $228,000 of net deferred loan origination
costs during the years ended December 31, 2000, 1999 and 1998, respectively.

Nonperforming Assets and Delinquencies. All loan payments are due on the first
day of each month. When a borrower fails to make a required loan payment, the
Company attempts to cure the deficiency by contacting the borrower to seek
payment. A late notice is mailed on the 16th day of the month. In most cases,
deficiencies are cured promptly. If a delinquency continues beyond the 30th day
of the month, the account is referred to an in-house collector. While the
Company generally prefers to work with borrowers to resolve problems, the
Company will institute foreclosure or other proceedings after the 90th day of a
delinquency, as necessary, to minimize any potential loss.

Management informs the Board of Directors monthly of the amount of loans
delinquent more than 60 days, all loans in foreclosure, and all foreclosed and
repossessed property that the Company owns.

The Company ceases accruing interest on mortgage loans when principal or
interest payments are delinquent 90 days or more. The following table presents
information with respect to the Company's nonperforming assets at the dates
indicated.

<TABLE>
<CAPTION>
==========================================================================================================================
Nonperforming Assets
==========================================================================================================================
                                                                         At December 31,
                                         ---------------------------------------------------------------------------------
                                            2000             1999              1998             1997             1996
                                         ------------     ------------     -------------     ------------     ------------
                                                                     (Dollars in thousands)
<S>                                     <C>              <C>              <C>               <C>              <C>
Non-accruing loans:
One-to four-family real estate          $      2,709     $      2,158     $       3,683     $      6,480     $      6,119
Consumer                                         304              365               303              394              389
                                         -----------      -----------      ------------      -----------      -----------
     Total                                     3,013            2,523             3,986            6,874            6,508
Real estate owned                                211              445               720              739            1,094
                                         -----------      -----------      ------------      -----------      -----------
     Total nonperforming assets         $      3,224     $      2,968     $       4,706     $      7,613     $      7,602
                                         ===========      ===========      ============      ===========      ===========
Total nonperforming loans as a
  percentage of total loans                    0.26%            0.24%             0.44%            0.81%            0.86%

Total nonperforming assets as a
  percentage of total assets                   0.17%            0.16%             0.30%            0.52%            0.55%
==========================================================================================================================
</TABLE>

Interest income that would have been recorded for the year ended December 31,
2000, had nonaccruing loans been current according to their original terms
amounted to approximately $306,000. Income on nonaccruing loans included in
interest income for the year ended December 31, 2000 amounted to approximately
$199,000.

Real Estate Owned. Real estate acquired by the Company as a result of
foreclosure or by deed-in-lieu of foreclosure is classified as real estate owned
until sold. When property is acquired it is recorded at fair market value at the
date of foreclosure, establishing a new cost basis. Holding costs and declines
in fair market value are expensed. At December 31, 2000, the Company had
$211,000 of real estate owned, consisting primarily of one- to four-family
residences.

                                       11
<PAGE>

Asset Classification. Regulators have adopted various regulations and practices
regarding problem assets of savings institutions. These regulations give federal
and state examiners the authority to identify problem assets during examinations
and, if appropriate, require them to be classified.

There are three classifications for problem assets: substandard, doubtful and
loss. Substandard assets have one or more defined weaknesses and are
characterized by the distinct possibility that the insured institution will
sustain some loss if the deficiencies are not corrected. Doubtful assets have
the weaknesses of substandard assets with the additional characteristic that the
weaknesses make collection or liquidation in full on the basis of currently
existing facts, conditions and values questionable, and there is a high
possibility of loss. An asset classified as loss is considered uncollectible and
of such little value that continuance as an asset of the institution is not
warranted. If an asset or portion thereof is classified as loss, the institution
establishes specific allowances for loan losses for the full amount of the
portion of the asset classified as loss. All or a portion of general loan loss
allowances established to cover probable losses related to assets classified
substandard or doubtful can be included in determining an institution's
regulatory capital, while specific valuation allowances for loan losses
generally do not qualify as regulatory capital. Assets that do not currently
expose the institution to sufficient risk to warrant classification in one of
the aforementioned categories, but possess weaknesses, are designated "special
mention." Because substantially all of the Company's lending activities involve
loans secured by residential real estate, the Company only performs an internal
analysis of its loan portfolio and assets to classify such loans and assets
similar to the manner in which such loans and assets are classified by the
federal banking regulators on its commercial portfolio. The Company does, also,
regularly analyze the losses inherent in its non-commercial loan portfolio and
its non-performing loans in determining the appropriate level of the allowance
for loan losses.

Allowance for Loan Losses. In originating loans, the Company recognizes that
losses will be experienced on loans and that the risk of loss will vary with,
among other things, the type of loan being made, the creditworthiness of the
borrower over the term of the loan, general economic conditions and, in the case
of a secured loan, the quality of the security for the loan. The Company
maintains an allowance for loan losses to absorb losses inherent in the loan
portfolio. The allowance for loan losses represents management's estimate of
probable losses based on information available as of the date of the financial
statements. The allowance for loan losses is based on management's evaluation of
the collectibility of the loan portfolio, including past loan loss experience,
known and inherent risks in the nature and volume of the portfolio, information
about specific borrower situations, estimated collateral values, and economic
conditions.

The loan portfolio and other credit exposures are regularly reviewed by
management to evaluate the adequacy of the allowance for loan losses. The
methodology for assessing the appropriateness of the allowance includes
comparison to actual losses, peer group comparisons, industry data and economic
conditions. In addition, the regulatory agencies, as an integral part of their
examination process, periodically review the Company's allowance for loan losses
and may require the Company to make additional provisions for estimated losses.

In assessing the allowance for loan losses, loss factors are applied to various
pools of outstanding loans and certain unused commitments. The Company
segregates the loan portfolio according to risk characteristics (i.e., mortgage
loans, home equity, consumer). Loss factors are derived using the Company's
historical loss experience and may be adjusted for significant factors that, in
management's judgment, affect the collectibility of the portfolio as of the
evaluation date.

In addition, management assesses the allowance for loan losses using factors
that cannot be associated with specific credit or loan categories. These factors
include management's subjective evaluation of local and national economic and
business conditions, portfolio concentration and changes in the character and
size of the loan portfolio. The allowance methodology reflects management's
objective that the overall allowance appropriately reflects a margin for the
imprecision necessarily inherent in estimates of probable credit losses.

Although management believes that it uses the best information available to
establish the allowance for loan losses, future adjustments to the allowance for
loan losses may be necessary and results of operations could be adversely
affected if circumstances differ substantially from the assumptions used in
making the determinations. Furthermore, while the Company believes it has
established its existing allowance for loan losses in conformity

                                       12
<PAGE>

with generally accepted accounting principles, there can be no assurance that
regulators, in reviewing the Company's loan portfolio, will not request the
Company to increase its allowance for loan losses. In addition, because future
events affecting borrowers and collateral cannot be predicted with certainty,
there can be no assurance that the existing allowance for loan losses is
adequate or that increases will not be necessary should the quality of any loans
deteriorate as a result of the factors discussed above. Any material increase in
the allowance for loan losses may adversely affect the Company's financial
condition and results of operations.

The following table presents an analysis of the Company's allowance for loan
losses.

<TABLE>
<CAPTION>
=======================================================================================================
Allowance for Loan Losses
=======================================================================================================
                                                     At or For the Years Ended December 31,
                                         --------------------------------------------------------------
                                            2000         1999         1998         1997         1996
                                         ----------    --------    ---------    ---------    ----------
                                                             (Dollars in thousands)
<S>                                      <C>           <C>         <C>          <C>          <C>
Allowance for loan losses,
    beginning of year                    $    8,820    $  7,626    $   6,277    $   5,588    $    4,484
Charged-off loans:
    One-to four-family real estate              225         900        1,145        1,481         1,117
    Other real estate                             -           -            -           39            37
    Consumer                                     27          42            9           20            16
                                         ----------    --------    ---------    ---------    ----------
       Total charged-off loans                  252         942        1,154        1,540         1,170
                                         ----------    --------    ---------    ---------    ----------
Recoveries on loans previously
    charged off                                 161         106          103           75            24
                                         ----------    --------    ---------    ---------    ----------

Net loans charged-off                            91         836        1,051        1,465         1,146
                                         ----------    --------    ---------    ---------    ----------

Provision for loan losses                     1,895       2,030        2,400        2,154         2,250
Allowance for loan losses,
                                         ----------    --------    ---------    ---------    ----------
   end of year                           $   10,624    $  8,820    $   7,626    $   6,277    $    5,588
                                         ==========    ========    =========    =========    ==========
Ratios:
Net loans charged-off to
   average loans                             0.01%       0.09%        0.12%        0.18%         0.16%
Allowance for loan losses to
   total loans                               0.92%       0.85%        0.83%        0.74%         0.74%
Allowance for loan losses to
   nonperforming loans                     352.58%     349.58%      191.32%       91.32%        85.86%
Net loans charged-off to
   allowance for loan losses                 0.86%       9.48%       13.78%       23.34%        20.51%

Recoveries to charge-offs                    63.9%      11.25%        8.93%        4.87%         2.05%
=======================================================================================================
</TABLE>

                                       13
<PAGE>

The following table presents the approximate allocation of the allowance for
loan losses by loan category at the dates indicated. Management believes that
the allowance can be allocated by category only on an approximate basis. The
allocation of the allowance to each category is not indicative of future losses
and does not restrict the use of any of the allowance to absorb losses in any
category.


<TABLE>
<CAPTION>
==============================================================================================================================
Allowance for Loan Losses by Loan Category
==============================================================================================================================

                                                                       At December 31,
                               -----------------------------------------------------------------------------------------------
                                                   2000                                             1999
                               ----------------------------------------------   ----------------------------------------------
                                                   % of                                             % of
                                               Allowance in      Percent of                     Allowance in      Percent of
                                               each Category    Loans in Each                   each Category    Loans in Each
                                                  to Total       Category to                       to Total       Category to
                                   Amount        Allowance       Total Loans        Amount        Allowance       Total Loans
                               --------------  -------------    -------------   --------------  -------------    -------------
                                                                    (Dollars in thousands)
<S>                           <C>                   <C>              <C>        <C>                  <C>              <C>
 Real estate loans            $         9,006        84.80 %          71.90 %   $        7,749        87.90 %          71.50 %
 Consumer loans                         1,618        15.20 %          28.10 %            1,071        12.10 %          28.50 %
                               --------------  -------------     ------------    -------------   ------------    -------------
       Total Allowance
       for loan losses        $        10,624       100.00 %         100.00 %   $        8,820       100.00 %         100.00 %
                               ==============  =============     ============    =============   ============    =============

<CAPTION>
                                                                       At December 31,
                               -----------------------------------------------------------------------------------------------
                                                   1998                                             1997
                               ----------------------------------------------   ----------------------------------------------
                                                   % of                                             % of
                                               Allowance in      Percent of                     Allowance in      Percent of
                                               each Category    Loans in Each                   each Category    Loans in Each
                                                  to Total       Category to                       to Total       Category to
                                   Amount        Allowance       Total Loans        Amount        Allowance       Total Loans
                               --------------  -------------    -------------   --------------  -------------    -------------
                                                                    (Dollars in thousands)
<S>                           <C>                   <C>              <C>        <C>                  <C>              <C>
 Real estate loans            $         6,874        90.10 %          70.40 %   $        6,101        97.20 %          71.40 %
 Consumer loans                           752         9.90 %          29.60 %              176         2.80 %          28.60 %
                               --------------  -------------     ------------    -------------   ------------    -------------
       Total Allowance
       for loan losses        $         7,626       100.00 %         100.00 %   $        6,277       100.00 %         100.00 %
                               ==============  =============     ============    =============   ============    =============

<CAPTION>
                                              At December 31,
                               ----------------------------------------------
                                                   1996
                               ----------------------------------------------
                                                   % of
                                               Allowance in      Percent of
                                               each Category    Loans in Each
                                                  to Total       Category to
                                   Amount        Allowance       Total Loans
                               --------------  -------------    -------------
                                           (Dollars in thousands)
<S>                           <C>                   <C>              <C>
 Real estate loans            $         5,450        97.50 %          73.50 %
 Consumer loans                           138         2.50 %          26.50 %
                               --------------  -------------     ------------
       Total Allowance
       for loan losses        $         5,588       100.00 %         100.00 %
                               ==============  =============     ============
==============================================================================================================================
</TABLE>

                                       14
<PAGE>


Investment Activities

General. Under Connecticut law, the Bank has authority to purchase a wide range
of investment securities. As a result of recent changes in federal banking laws,
however, financial institutions such as the Bank may not engage as principals in
any activities that are not permissible for a national bank, unless the Federal
Deposit Insurance Corporation has determined that the investments would not pose
a significant risk to the Bank Insurance Fund and the Bank is in compliance with
applicable capital standards. In 1993, the Regional Director of the Federal
Deposit Insurance Corporation approved a request by the Bank to invest in
certain listed stocks and/or registered stocks subject to certain conditions.

The Investment Subcommittee of the Asset/Liability Committee is responsible for
developing and reviewing the Company's investment policy, which is designed to
diversify the Company's assets, improve liquidity, and provide interest,
dividend and capital gain income while optimizing the Company's tax position.
The Investment Subcommittee meets weekly to evaluate potential investments.
Investment decisions are made in accordance with the Company's investment policy
and are based upon the quality of a particular investment, its inherent risks,
the composition of the balance sheet, market expectations, the Company's
liquidity, income and collateral needs and how the investment fits within the
Company's interest rate risk management strategy. In the current year, the
Company primarily used the proceeds of securities that were sold, prepaid as to
principal or matured to fund the purchase of its common stock, fund loan growth
and purchase a $60.0 million single premium bank owned life insurance contract
(BOLI), $45.0 million of which was executed in late December 2000, with the
remaining balance of $15.0 million in early January 2001. Income earned from the
BOLI is not taxable, reducing the Company's federal and state taxable income.

Currently, the Company's investment policy does permit limited investment in
derivative products, such as investment grade tranches of collateralized
mortgage obligations. At December 31, 2000, the Company was not invested in any
hedging programs or other activities involving the use of off-balance sheet
derivative financial instruments, but may do so in the future in accordance with
policy. Off-balance sheet derivatives may not be used for speculative purposes
as expressly prohibited by the Board of Directors.

The Company's investment policy divides investments into two categories, fixed
income and equity portfolios. The fixed income portfolio is limited to debt
issues, including mortgage-backed securities. The Company generally invests in
securities which have an investment grade rating from one or more of the rating
agencies (e.g., Moody's and Standard & Poor's). All of the Company's
mortgage-backed securities are issued or guaranteed by agencies of the U.S.
Government. Accordingly, they carry lower credit risk than mortgage-backed
securities of a private issuer. The Company may make limited investments in
private issue mortgage-backed securities in the future in an effort to enhance
the average return of the mortgage-backed securities portfolio.

The objective of the marketable equity securities portfolio is to produce
capital gains through price appreciation and to lower taxable income through
deductions permitted for a portion of dividends received. The total market value
of the marketable equity securities portfolio, excluding Federal Home Loan Bank
stock and auction market preferred stock, is limited by the investment policy to
the lesser of 50% of total capital or 100% of Tier 1 capital. At December 31,
2000, the marketable equity securities portfolio totaled $90.1 million or 35.1%
of its authorized limit. At December 31, 2000, the gross unrealized gains
associated with the marketable equity securities portfolio were $70.6 million.
The marketable equity securities portfolio is heavily weighted toward the
financial sector. In order to diversify its risk, the Company intends to
periodically sell a portion of this portfolio, realize the gains, and reinvest
the proceeds of the sales primarily into loans and fixed income securities.

In addition to marketable equity securities, the Company, from time to time,
invests in short-term auction market preferred stocks that pay income treated as
a dividend for tax purposes, reducing the Company's federal and state taxable
income through the allowable deductions for such income. Although the Company
had none of these investments at December 31, 2000, the Company's investment
policy allows for investments in auction market preferred stock of up to 50% of
its Tier 1 capital. In 1997, the Federal Deposit Insurance Corporation approved
the request of the Bank to invest up to 50% of Tier 1 capital in auction market
preferred stock, which exceeds the regulatory limit of 15% of Tier 1 capital.
Also, the Company periodically invests in trust preferred securities that

                                       15
<PAGE>

have maturities of up to thirty years and are callable in ten years at a
premium. The Company may invest up to 15% of its Tier 1 capital in trust
preferred securities in accordance with the limits established by the FDIC.

The Company does not currently use or maintain a trading account. Debt and
equity securities not classified as either "held to maturity" or "trading
securities" are classified as "available for sale." These securities are
reported at fair value, and unrealized gains and losses on the securities are
excluded from earnings and reported, net of deferred taxes, as a separate
component of stockholders' equity (accumulated other comprehensive income).
Currently all of the Company's debt and equity securities are classified as
available for sale as opposed to held to maturity. Securities that are held to
maturity are carried at their amortized cost.

All of the Company's debt and mortgage-backed securities carry market risk
insofar as increases in market rates of interest may cause a decrease in their
market value. They also carry prepayment risk insofar as they may be called or
repaid before maturity in times of low market interest rates, resulting in lower
yields on the reinvested proceeds. The marketable equity securities portfolio
also carries equity price risk in that, if equity prices decline due to
unfavorable market conditions or other factors, the Company's capital would
decrease. In addition to increases in market rates, deteriorating credit quality
can affect the value of the Company's corporate bond portfolio.

                                       16
<PAGE>


At December 31, 2000, all of the Company's investment securities and
mortgage-backed securities were classified as "available for sale." The
following table presents the amortized cost and fair value of the Company's
securities, by type of security, at the dates indicated.

<TABLE>
<CAPTION>
==========================================================================================================================
Securities by Type
==========================================================================================================================
                                                                           At December 31,
                                          --------------------------------------------------------------------------------
                                                   2000                         1999                        1998
                                          -----------------------     ------------------------     -----------------------
                                          Amortized        Fair       Amortized         Fair       Amortized        Fair
                                             Cost         Value          Cost          Value          Cost         Value
                                          ---------     ---------     ---------      ---------     ---------     ---------
                                                                       (Dollars in thousands)
<S>                                       <C>           <C>           <C>            <C>           <C>           <C>
Investment securities:
 U.S. Treasury notes and U.S.
   Government agencies                    $  29,771     $  30,811     $  50,539      $  50,288     $ 105,073     $ 105,834
 Corporate bonds                            187,800       190,232       267,341        264,161       143,702       144,164
 Other notes                                      -             -             -              -        49,189        49,207
 Municipal bonds                             38,002        40,037        22,738         22,260         1,000         1,037
 Marketable equity securities                20,104        90,131        13,145         74,123        12,027        77,431
 Auction preferred stock                          -             -        25,000         25,000        40,000        40,000
                                          ---------     ---------     ---------      ---------     ---------     ---------

     Total investment securities            275,677       351,211       378,763        435,832       350,991       417,673
                                          ---------     ---------     ---------      ---------     ---------     ---------

Mortgage-backed securities:
 U.S. Government and agency                 139,377       140,868       224,916        219,861       170,390       172,855
 U.S. Agency issued collateralized
   mortgage obligations                     111,530       114,402       123,365        121,560             -             -
                                          ---------     ---------     ---------      ---------     ---------     ---------

     Total mortgage-backed securities       250,907       255,270       348,281        341,421       170,390       172,855
                                          ---------     ---------     ---------      ---------     ---------     ---------

     Total securities                     $ 526,584     $ 606,481     $ 727,044      $ 777,253     $ 521,381     $ 590,528
                                          =========     =========     =========      =========     =========     =========
==========================================================================================================================
</TABLE>

At December 31, 2000, the Company did not own any investment or mortgage-backed
securities of a single issuer, other than U.S. government and agency securities,
which had an aggregate book value in excess of 10% of the Company's equity at
that date.

                                      17
<PAGE>

The following table presents certain information regarding the carrying value,
weighted average yields and maturities or periods to repricing, of the Company's
debt securities at December 31, 2000, all of which are classified as "available
for sale".

<TABLE>
<CAPTION>
=================================================================================================================
Debt Securities: Carrying Value, Weighted Average Yields, and Maturities
=================================================================================================================
                                                               At December 31, 2000
                                 --------------------------------------------------------------------------------
                                                              More than One Year to       More than Five Years to
                                    One Year or Less                Five Years                    Ten Years
                                 -----------------------     -----------------------      -----------------------
                                                Weighted                    Weighted                     Weighted
                                   Fair          Average        Fair         Average         Fair         Average
                                  Value           Yield        Value          Yield         Value          Yield
                                 --------       --------     ---------      --------       --------      --------
                                                              (Dollars in thousands)
<S>                              <C>                <C>      <C>                <C>        <C>               <C>
Investment securities:
U.S. Treasury notes
 and U.S. Government
 agencies                        $  4,988           5.37%    $  20,739          6.80%      $  5,084          6.54%
Corporate bonds and
 notes                             34,233           6.33       152,575          6.78          3,424          9.55

Municipal bonds                         -              -           500          6.53         11,014          6.81

Mortgage-backed
securities:
U.S. Government and
 agency issued
 mortgage-backed
 securities                         3,360           7.10        11,086          6.80            715          7.53
U.S.Agency issued
 collateralized mortgage
 obligations                            -              -             -             -              -             -
                                 --------       --------     ---------      --------       --------      --------

         Total securities        $ 42,581           6.28%    $ 184,900          6.78%      $ 20,237          7.25%
                                 ========       ========     =========      ========       ========      ========

<CAPTION>
                                               At December 31, 2000
                               ----------------------------------------------------
                                  More than Ten Years                 Total
                               -------------------------    -----------------------
                                                Weighted                   Weighted
                                  Fair           Average       Fair         Average
                                 Value            Yield       Value          Yield
                               ---------        --------    ---------      --------
                                              (Dollars in thousands)
<S>                            <C>                  <C>     <C>                <C>
Investment securities:
U.S. Treasury notes
 and U.S. Government
 agencies                      $       -               -%   $  30,811          6.52%
Corporate bonds and
 notes                                 -               -      190,232          6.74

Municipal bonds                   28,523            7.98       40,037          7.63

Mortgage-backed
securities:
U.S. Government and
 agency issued
 mortgage-backed
 securities                      125,707            6.61      140,868          6.64
U.S.Agency issued
 collateralized mortgage
 obligations                     114,402            6.34      114,402          6.34
                               ---------        --------    ---------      --------

         Total securities      $ 268,632            6.64%   $ 516,350          6.68%
                               =========        ========    =========      ========

=================================================================================================================
</TABLE>

                                       18
<PAGE>


Deposit Activities and Other Sources of Funds

General. Deposits are the major external source of funds for the Company's
lending and investment activities. In addition, the Company generates funds
internally from loan principal repayments and prepayments and maturing
investment securities. Scheduled loan repayments are a relatively stable source
of funds, while deposit inflows and outflows and loan prepayments are influenced
significantly by general interest rates and money market conditions. The Company
supplements its funding needs with borrowings from the Federal Home Loan Bank of
Boston and through repurchase agreements with broker-dealers. At December 31,
2000, the Company had borrowings from the Federal Home Loan Bank of Boston
totaling $167.9 million. There were $10.0 million in repurchase agreements
outstanding at December 31, 2000.

Deposit Accounts. Nearly all of the Company's depositors reside in Connecticut.
The Company offers a wide variety of deposit accounts with a range of interest
rates and terms. The Company's deposit accounts consist of interest-bearing
checking, non-interest-bearing checking, regular savings, money market savings,
certificates of deposit and commercial business products. The maturities of the
Company's certificate of deposit accounts range from one month to five years. In
addition, the Company offers retirement accounts, including Traditional IRAs,
Roth IRAs, Simple IRAs, Money Purchase and Profit Sharing Plans and Simplified
Employee Pension Plan Accounts. Deposit account terms vary with the principal
differences being the minimum balance deposit, early withdrawal penalties,
limits on the number of transactions and the interest rate. The Company reviews
its deposit mix and pricing weekly.

The Company believes it is competitive in the interest rates it offers on its
deposit products. The Company determines the rates paid based on a number of
factors, including rates paid by competitors, the Company's need for funds and
cost of funds, borrowing costs and movements of market interest rates. The
Company does not utilize brokers to obtain deposits and at December 31, 2000 had
no brokered deposits.

The following table indicates the amount of the Company's jumbo certificates of
deposit at December 31, 2000 by time remaining until maturity. Jumbo
certificates of deposit have principal balances of $100,000 or more.

<TABLE>
<CAPTION>
==============================================================
Jumbo Certificates of Deposit by Maturity Period
==============================================================
                                                      Weighted
                                                       Average
Maturity Period                       Amount            Rate
----------------------------         --------         --------
                                      (Dollars in thousands)
<S>                                 <C>                  <C>
Three months or less                $  21,682            5.50%
Over 3 through 6 months                18,732            5.88
Over 6 through 12 months               20,695            6.12
Over 12 months                         22,868            6.21
                                     --------         --------
      Total                         $  83,977            5.93%
                                     ========         ========
==============================================================
</TABLE>

                                       19
<PAGE>


Borrowings. The Federal Home Loan Bank of Boston functions as a central reserve
bank providing credit for savings banks and certain other member financial
institutions. As a member of the Federal Home Loan Bank of Boston, the Bank is
required to own capital stock in the Federal Home Loan Bank of Boston and is
authorized to apply for advances on the security of the capital stock and
certain of its mortgage loans and other assets, principally securities that are
obligations of, or guaranteed by, the U.S. Government or its agencies, provided
certain creditworthiness standards have been met. Advances are made under
several different credit programs. Each credit program has its own interest rate
and range of maturities. Depending on the program, limitations on the amount of
advances are based on the financial condition of the member institution and the
adequacy of collateral pledged to secure the advance. At December 31, 2000, the
Company had the ability to borrow a total of approximately $854.6 million from
the Federal Home Loan Bank of Boston. At that date, the Company had outstanding
advances of $167.9 million. In addition to the borrowing facility with Federal
Home Loan Bank of Boston, the Company has repurchase agreement lines with major
broker-dealers. There were $10.0 million in outstanding repurchase agreements at
December 31, 2000. The repurchase agreements at December 31, 2000 are callable
on various dates during 2003. These borrowings have weighted average remaining
terms to the initial call dates and contractual maturity dates of approximately
2.37 years and 6.87 years, respectively.

Trust Services

In 1996, the Bank established American Savings Trust Services as a department
within the Bank that provides trust and investment services to individuals,
partnerships, corporations and institutions. Consistent with the Company's
operating strategy, the Company will continue to emphasize the growth of its
trust service operations to grow assets and increase fee-based income. The
Company has implemented several policies governing the practices and procedures
of the trust department, including policies relating to maintaining
confidentiality of trust records, investment of trust property, handling
conflicts of interest, and maintaining impartiality. At December 31, 2000, the
Trust department managed 100 accounts with aggregate assets of $165.0 million,
of which two accounts belonging to one relationship totaled $46.0 million or
27.86% of the Trust department's total assets at December 31, 2000.

Subsidiary Activities

The following are descriptions of the Bank's wholly owned subsidiaries, which
are indirectly owned by the Company.

American Investment Services, Inc. American Investment Services, Inc., through
an arrangement with a third party registered broker-dealer, offers to the
customers of the Bank a complete range of investment products, including mutual
funds, debt, equity and government securities and fixed and variable annuities.
American Investment Services receives from the broker-dealer a substantial
portion of the commissions generated from the sale of the products. American
Investment Services is also licensed as an insurance producer by the State of
Connecticut. In this capacity, American Investment Services engages directly in
certain insurance sales activities, offering a wide variety of insurance
products as well as the sale of fixed annuities. For 2000 and 1999, American
Investment Services generated net income before taxes of approximately $214,000
and $440,000, respectively. This reduction in net income is a result of the
Company's strategy to transition from one-time commissions to recurring
investment advisory fees. An increase in expenses was incurred which was
directly related to the hiring of a Registered Investment Advisor and
establishment of the necessary infrastructure to support this line of business.

ASB Mortgage Servicing Company. ASB Mortgage Servicing Company was established
in February 1999 to service and hold loans secured by real property. ASB
Mortgage was established to qualify as a "passive investment company" for
Connecticut income tax purposes. Income earned by a qualifying passive
investment company is exempt from Connecticut income tax. See Item 1 -
Description of Business "Connecticut Taxation".

                                       20
<PAGE>


Charitable Foundations

In connection with the Conversion in 1999, the Company established American
Savings Charitable Foundation, which will make grants and donations to
non-profit and community groups within the communities where the Company
operates. The Company believes that this newly formed foundation will enable the
Company and the Bank to assist in areas beyond community development and lending
within the communities in which they operate and will enhance its current
activities under the Community Reinvestment Act. The American Savings Charitable
Foundation was funded with 2,138,600 shares of common stock of the Company.
There were no contributions made by the Company to the Foundation in 2000.

In 1995, the Bank established a private charitable foundation, American Savings
Bank Foundation, Inc. Since its inception, this Foundation provided grants to
charitable organizations that focus primarily on children and education
scholarships to qualified students in the communities in which the Company
operates. American Savings Bank Foundation, Inc. was funded initially by a
$500,000 donation from the Bank. In 1999 and 1998, the Bank contributed to
American Savings Bank Foundation, Inc. marketable equity securities with a fair
value of approximately $212,000 and $3.6 million, respectively. There were no
contributions made by the Company to the Foundation in 2000.

On December 31, 2000, the two Foundations merged to form the American Savings
Foundation. At December 31, 2000, the American Savings Foundation had assets
with a fair value of approximately $55.6 million, including Company common stock
of $44.1 million. The Foundation's current Board of Directors consists of
retired and current directors and current officers of the Company.

Regulation and Supervision

As a savings bank chartered by the State of Connecticut, the Bank is extensively
regulated under state law by the Connecticut Banking Commissioner with respect
to many aspects of its banking activities. In addition, as a bank whose deposits
are insured by the Federal Deposit Insurance Corporation under the Bank
Insurance Fund, the Bank must pay deposit insurance assessments and is examined
and supervised by the Federal Deposit Insurance Corporation. These laws and
regulations have been established primarily for the protection of depositors,
customers and borrowers of the Bank, not its shareholders.

The Company is required to file reports with, and otherwise comply with the
rules and regulations of, the Office of Thrift Supervision, the Connecticut
Banking Commissioner and the Securities and Exchange Commission under the
federal securities laws. The following discussion of the laws and regulations
material to the operations of the Company and the Bank is a summary and is
qualified in its entirety by reference to such laws and regulations.

The Bank and the Company are extensively regulated and supervised. Regulations,
which affect the Company on a daily basis, may be changed at any time, and the
interpretation of the relevant law and regulations may also change because of
new interpretations by the authorities who interpret those laws and regulations.
Any change in the regulatory structure or the applicable statutes or
regulations, whether by the Connecticut Banking Commissioner, the State of
Connecticut, the Office of Thrift Supervision, the Federal Deposit Insurance
Corporation or the Congress, could have a material impact on the Company.

                                       21
<PAGE>


Connecticut Banking Laws and Supervision

The Connecticut Banking Commissioner regulates the Bank's internal organization
as well as its deposit, lending and investment activities. The approval of the
Connecticut Banking Commissioner is required, among other things, for the
establishment of branch offices and business combination transactions. The
Connecticut Banking Commissioner conducts periodic examinations of the Bank. The
Federal Deposit Insurance Corporation also regulates many of the areas regulated
by the Connecticut Banking Commissioner and federal law may limit some of the
authority provided to the Bank by Connecticut law.

Lending Activities. Connecticut banking laws grant banks broad lending
authority. Subject to certain limited exceptions, however, total secured and
unsecured loans made to any one obligor pursuant to this statutory authority may
not exceed 25% of the Bank's equity and reserves for loan and lease losses.

Dividend Restrictions. A savings bank may pay cash dividends out of its net
profits. For purposes of this restriction, "net profits" means the remainder of
all earnings from current operations. Further, the total of all dividends
declared by a savings bank in any calendar year may not exceed the sum of the
Bank's net profits for the year in question combined with its retained net
profits from the preceding two calendar years. Additionally, earnings
appropriated to reserves for loan losses and deducted for federal income tax
purposes are not available for cash dividends without the payment of taxes at
the then current income tax rates on the amount used. Federal law also prevents
an institution from paying dividends or making other capital distributions if
doing so would cause it to become "undercapitalized." The Federal Deposit
Insurance Corporation may limit a savings bank's ability to pay dividends. No
dividends may be paid to the Bank's stockholder if such dividends would reduce
stockholder's equity below the amount of the liquidation account required by the
Connecticut conversion regulations.

Branching Activities. Any Connecticut-chartered bank meeting certain statutory
requirements may, with the Connecticut Banking Commissioner's approval,
establish and operate branches in any town or towns within the state. In 1996,
legislation was enacted which permits banks to establish mobile branches with
the Connecticut Banking Commissioner's approval.

Investment Activities. In 1996, legislation was enacted which requires the board
of directors of each Connecticut bank to adopt annually and to periodically
review an investment policy governing investments by such bank, which policy
must establish standards for the making of prudent investments. In addition,
Connecticut law now permits Connecticut banks to sell fixed and variable rate
annuities if licensed to do so by the Connecticut Insurance Commissioner.

Further, legislation was enacted in 1996 which expands the ability of
Connecticut banks to invest in debt securities and debt mutual funds. Prior to
the legislation, Connecticut banks could invest in debt securities and debt
mutual funds without regard to any other liability to the Connecticut bank of
the maker or issuer of the debt securities and debt mutual funds, if the debt
securities and debt mutual funds were rated in the three highest rating
categories or otherwise deemed to be a prudent investment, and so long as the
total amount of debt securities and debt mutual funds of any one issuer did not
exceed 15% of the Bank's total equity capital and reserves for loan and lease
losses and the total amount of all its investments in debt securities and debt
mutual funds did not exceed 15% of its assets. In 1996, these percentages each
were increased to 25%. In addition, prior to 1996, the percentage limitation
described above also applied to certain government and agency obligations. As a
result of the 1996 legislation, this limitation was deleted for such
obligations.

                                       22
<PAGE>


The 1996 legislation also expanded the ability of Connecticut banks to invest in
equity securities and equity mutual funds. Connecticut banks now may invest in
equity securities and equity mutual funds without regard to any other liability
to the Connecticut bank of the issuer of equity securities and equity mutual
funds, so long as the total amount of equity securities and equity mutual funds
of any one issuer does not exceed 25% of the bank's total equity capital and
reserves for loan and lease losses and the total amount of the bank's investment
in all equity securities and equity mutual funds does not exceed 25% of its
assets. Prior to the enactment of this legislation, Connecticut banks could
invest up to 15% of their assets in equity securities and equity mutual funds of
corporations incorporated and doing a major portion of their business in the
U.S.

Recent Legislation. Connecticut legislation enacted in 1999 authorizes a new
form of Connecticut bank to be known as an uninsured bank. An uninsured bank
does not accept retail deposits and is not required to insure deposits with the
Federal Deposit Insurance Corporation. The 1999 legislation also authorizes
Connecticut banks with the prior approval of the Connecticut Banking
Commissioner to engage in a broad range of activities related to the business of
banking, or that are financial in nature or that are permitted under the Federal
Bank Holding Company Act or the Home Owners' Loan Act or the regulations
promulgated thereunder. The legislation also authorizes a Connecticut bank to
engage in any activity permitted for a national bank or a federal savings
association upon filing notice with the Connecticut Banking Commissioner unless
the Connecticut Banking Commissioner disapproves the activity.

Enforcement. Under Connecticut law, the Connecticut Banking Commissioner has
extensive enforcement authority over Connecticut banks and, under certain
circumstances, affiliated parties, insiders, and agents. The Connecticut Banking
Commissioner's enforcement authority includes: cease and desist orders,
receivership, conservatorship, removal of officers and directors, emergency
closures, dissolution, and liquidation. Fines for violations range up to $7,500.

Federal Regulations

Capital Requirements. Under Federal Deposit Insurance Corporation regulations,
federally insured state-chartered banks that are not members of the Federal
Reserve System ("state non-member banks"), such as the Bank, are required to
comply with minimum leverage capital requirements. For an institution determined
by the Federal Deposit Insurance Corporation to not be anticipating or
experiencing significant growth and to be in general a strong banking
organization, rated composite 1 under the Uniform Financial Institutions Ranking
System (the rating system) established by the Federal Financial Institutions
Examination Council, the minimum capital leverage requirement is a ratio of Tier
1 capital to total assets of 3%. For all other institutions, the minimum
leverage capital ratio is not less than 4%. Tier 1 capital is the sum of common
stockholders' equity, noncumulative perpetual preferred stock (including any
related surplus) and minority investments in certain subsidiaries, less
intangible assets (except for certain servicing rights and credit card
relationships).

The Federal Deposit Insurance Corporation has also adopted risk-based capital
guidelines to which the Bank is subject. The Federal Deposit Insurance
Corporation guidelines require state non-member banks to maintain certain levels
of regulatory capital in relation to regulatory risk-weighted assets. The ratio
of regulatory capital to regulatory risk-weighted assets is referred to as the
Bank's "risk-based capital ratio." Risk-based capital ratios are determined by
allocating assets and specified off-balance sheet items to four risk-weighted
categories ranging from 0% to 100%, with higher levels of capital being required
for the categories perceived as representing greater risk. For example, under
the Federal Deposit Insurance Corporation's risk-weighting system, cash and
securities backed by the full faith and credit of the U.S. Government are given
a 0% risk weight, loans secured by one- to four-family residential properties
generally have a 50% risk weight and commercial loans have a risk weight of
100%.

                                       23
<PAGE>


State non-member banks must maintain a minimum ratio of total capital to
risk-weighted assets of at least 8%, of which at least one-half must be Tier 1
capital. Total capital consists of Tier 1 capital plus Tier 2 or supplementary
capital items, which include allowances for loan losses in an amount of up to
1.25% of risk-weighted assets, cumulative preferred stock, a portion of the net
unrealized gain on equity securities and other capital instruments. The
includable amount of Tier 2 capital cannot exceed the amount of the
institution's Tier 1 capital.

The Federal Deposit Insurance Corporation Improvement Act required each federal
banking agency to revise its risk-based capital standards for insured
institutions to ensure that those standards take adequate account of
interest-rate risk, concentration of credit risk, and the risk of nontraditional
activities, as well as to reflect the actual performance and expected risk of
loss on multi-family residential loans. The Federal Deposit Insurance
Corporation, along with the other federal banking agencies, has adopted a
regulation providing that the agencies will take into account the exposure of a
bank's capital and economic value to changes in interest rate risk in assessing
a bank's capital adequacy.

As a savings and loan holding company regulated by the Office of Thrift
Supervision, the Parent Company is not subject to any separate regulatory
capital requirements.

Standards for Safety and Soundness. As required by statute, the federal banking
agencies adopted final regulations and Interagency Guidelines Establishing
Standards for Safety and Soundness to implement safety and soundness standards.
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 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, and 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.

Investment Activities

Since the enactment of the Federal Deposit Insurance Corporation Improvement
Act, all state-chartered Federal Deposit Insurance Corporation insured banks,
including savings banks, have generally been limited to activities as principal
and equity investments of the type and in the amount authorized for national
banks, notwithstanding state law. Federal Deposit Insurance Corporation
Improvement Act and the Federal Deposit Insurance Corporation regulations
thereunder permit exceptions to these limitations. For example, state chartered
banks, such as the Bank, may, with Federal Deposit Insurance Corporation
approval, continue to exercise state authority to invest in common or preferred
stocks listed on a national securities exchange or the Nasdaq National Market
and in the shares of an investment company registered under the Investment
Company Act of 1940, as amended. In addition, the Federal Deposit Insurance
Corporation is authorized to permit such institutions to engage in state
authorized activities or investments that do not meet this standard (other than
non-subsidiary equity investments) for institutions that meet all applicable
capital requirements if it is determined that such activities or investments do
not pose a significant risk to the Bank Insurance Fund. The Federal Deposit
Insurance Corporation has recently adopted revisions to its regulations
governing the procedures for institutions seeking approval to engage in such
activities or investments. These revisions, among other things, streamline the
application procedures for healthy banks and impose quantitative and qualitative
restrictions on a bank's dealings with its subsidiaries engaged in activities
not permitted for national bank subsidiaries. All non-subsidiary equity
investments, unless otherwise authorized or approved by the Federal Deposit
Insurance Corporation, must have been divested by December 19, 1996, under a
Federal Deposit Insurance Corporation-approved divestiture plan, unless such
investments were grandfathered by the Federal Deposit Insurance Corporation. The
Bank received grandfathering authority from the Federal Deposit Insurance
Corporation in March 1993 to invest in listed stocks and/or registered shares.
However, the maximum permissible investment is 100% of Tier 1 capital, as
specified by the Federal Deposit Insurance Corporation's regulations, or the
maximum amount permitted by Connecticut law, whichever is less. Such
grandfathering authority may be terminated upon the Federal Deposit Insurance
Corporation's determination that such investments pose a safety and soundness
risk to the Bank or if the Bank converts its charter, other than a mutual to
stock

                                       24
<PAGE>

conversion, or undergoes a change in control. As of December 31, 2000, the
Company had $90.1 million of securities which were held under such
grandfathering authority.

Interstate Branching

Until recently, branching across state lines was not generally available to a
state bank. Out-of-state branches of banking institutions are authorized under
the Connecticut Banking Law, but similar authority does not exist generally
under the laws of most other states. The Interstate Banking Act permitted,
beginning June 1, 1997, the responsible federal banking agencies to approve
merger transactions between banks located in different states, regardless of
whether the merger would be prohibited under the law of the two states. The
Interstate Banking Act also permitted a state to "opt in" to the provisions of
the Interstate Banking Act before June 1, 1997, and permitted a state to "opt
out" of the provisions of the Interstate Banking Act by adopting appropriate
legislation before that date. In 1995, Connecticut affirmatively "opted-in" to
the provisions of the Interstate Banking Act. Accordingly, the Interstate
Banking Act, beginning June 1, 1997, permitted a bank to acquire branches in a
state other than Connecticut unless the other state had opted out of the
Interstate Banking Act. The Interstate Banking Act also authorizes de novo
branching into another state if the host state enacts a law expressly permitting
out of state banks to establish such branches within its borders.

Prompt Corrective Regulatory Action

Federal law requires, among other things, that federal bank regulatory
authorities take "prompt corrective action" with respect to banks that do not
meet minimum capital requirements. For these purposes, the law establishes five
capital categories: well capitalized, adequately capitalized, undercapitalized,
significantly undercapitalized, and critically undercapitalized.

The Federal Deposit Insurance Corporation has adopted regulations to implement
the prompt corrective action legislation. An institution is deemed to be "well
capitalized" if it has a total risk-based capital ratio of 10% or greater, a
Tier 1 risk-based capital ratio of 6% or greater and a leverage ratio of 5% or
greater. An institution is "adequately capitalized" if it has a total risk-based
capital ratio of 8% or greater, a Tier 1 risk-based capital ratio of 4% or
greater, and generally a leverage ratio of 4% or greater. An institution is
"undercapitalized" if it has a total risk-based capital ratio of less than 8%, a
Tier 1 risk-based capital ratio of less than 4%, or generally a leverage ratio
of less than 4%. An institution is deemed to be "significantly undercapitalized"
if it has a total risk-based capital ratio of less than 6%, a Tier 1 risk-based
capital ratio of less than 3%, or a leverage ratio of less than 3%. An
institution is considered to be "critically undercapitalized" if it has a ratio
of tangible equity (as defined in the regulations) to total assets that are
equal to or less than 2%. As of December 31, 2000, the Bank was a "well
capitalized" institution.

"Undercapitalized" banks must adhere to growth, capital distribution (including
dividend) and other limitations and are required to submit a capital restoration
plan. A bank's compliance with such plan is required to be guaranteed by any
company that controls the undercapitalized institution in an amount equal to the
lesser of 5% of the institution's total assets when deemed undercapitalized or
the amount necessary to achieve the status of adequately capitalized. If an
"undercapitalized" bank fails to submit an acceptable plan, it is treated as if
it is "significantly undercapitalized." "Significantly undercapitalized" banks
must comply with one or more of a number of additional restrictions, including
but not limited to an order by the Federal Deposit Insurance Corporation to sell
sufficient voting stock to become adequately capitalized, requirements to reduce
total assets and cease receipt of deposits from correspondent banks or dismiss
directors or officers, and restrictions on interest rates paid on deposits,
compensation of executive officers and capital distributions by the parent
holding company. "Critically undercapitalized" institutions must comply with
additional sanctions including, subject to a narrow exception, the appointment
of a receiver or conservator within 270 days after it obtains such status.

                                       25
<PAGE>


Transactions with Affiliates

Under current federal law, transactions between depository institutions and
their affiliates are governed by Sections 23A and 23B of the Federal Reserve
Act. In a holding company context, at a minimum, the parent holding company of a
savings institution and any companies, which are controlled, by such parent
holding company are affiliates of the savings institution. Generally, Section
23A limits the extent to which the savings institution or its subsidiaries may
engage in "covered transactions" with any one affiliate to 10% of such savings
institution's capital stock and surplus, and contains an aggregate limit on all
such transactions with all affiliates to 20% of capital stock and surplus. The
term "covered transaction" includes, among other things, the making of loans or
other extensions of credit to an affiliate and the purchase of assets from an
affiliate. Section 23A also establishes specific collateral requirements for
loans or extensions of credit to, or guarantees, acceptances on letters of
credit issued on behalf of an affiliate. Section 23B requires that covered
transactions and a broad list of other specified transactions be on terms
substantially the same, or no less favorable, to the savings institution or its
subsidiary as similar transactions with nonaffiliates.

Further, Section 22(h) of the Federal Reserve Act restricts an institution with
respect to loans to directors, executive officers, and principal stockholders
("insiders"). Under Section 22(h), loans to insiders and their related interests
may not exceed, together with all other outstanding loans to such persons and
affiliated entities, the institution's total capital and surplus. Loans to
insiders above specified amounts must receive the prior approval of the board of
directors. Further, under Section 22(h), loans to directors, executive officers
and principal shareholders must be made on terms substantially the same as
offered in comparable transactions to other persons, except that such insiders
may receive preferential loans made under a benefit or compensation program that
is widely available to American Savings' employees and does not give preference
to the insider over the employees. Section 22(g) of the Federal Reserve Act
places additional limitations on loans to executive officers.

Enforcement

The Federal Deposit Insurance Corporation has extensive enforcement authority
over insured savings banks, including the Bank. This enforcement authority
includes, among other things, the ability to assess civil money penalties, to
issue cease and desist orders and to remove directors and officers. In general,
these enforcement actions may be initiated in response to violations of laws and
regulations and unsafe or unsound practices.

The Federal Deposit Insurance Corporation has authority under Federal law to
appoint a conservator or receiver for an insured bank under limited
circumstances. The Federal Deposit Insurance Corporation is required, with
certain exceptions, to appoint a receiver or conservator for an insured state
non-member bank if that bank was "critically undercapitalized" on average during
the calendar quarter beginning 270 days after the date on which the institution
became "critically undercapitalized." See "--Prompt Corrective Regulatory
Action." The Federal Deposit Insurance Corporation may also appoint itself as
conservator or receiver for an insured state non-member institution under
specific circumstances on the basis of the institution's financial condition or
upon the occurrence of other events, including: (1) insolvency; (2) substantial
dissipation of assets or earnings through violations of law or unsafe or unsound
practices; (3) existence of an unsafe or unsound condition to transact business;
and (4) insufficient capital, or the incurring of losses that will deplete
substantially all of the institution's capital with no reasonable prospect of
replenishment without federal assistance.

                                       26
<PAGE>


Insurance of Deposit Accounts

The Federal Deposit Insurance Corporation has adopted a risk-based insurance
assessment system. The Federal Deposit Insurance Corporation assigns an
institution to one of three capital categories based on the institution's
financial information consisting of (1) well capitalized, (2) adequately
capitalized or (3) undercapitalized, and one of three supervisory subcategories
within each capital group. The supervisory subgroup to which an institution is
assigned is based on a supervisory evaluation provided to the Federal Deposit
Insurance Corporation by the institution's primary federal regulator and
information which the Federal Deposit Insurance Corporation determines to be
relevant to the institution's financial condition and the risk posed to the
deposit insurance funds. An institution's assessment rate depends on the capital
category and supervisory category to which it is assigned. Assessment rates for
insurance fund deposits currently range from 0 basis points for the strongest
institution to 27 basis points for the weakest. Bank Insurance Fund members are
also required to assist in the repayment of bonds issued by the Financing
Corporation in the late 1980's to recapitalize the Federal Savings and Loan
Insurance Corporation. Bank Insurance Fund members paid approximately 2.07 basis
points towards the Financing Corporation assessment in 2000. The Federal Deposit
Insurance Corporation is authorized to raise the assessment rates. The Federal
Deposit Insurance Corporation has exercised this authority several times in the
past and may raise insurance premiums in the future. If such action is taken by
the Federal Deposit Insurance Corporation, it could have an adverse effect on
the earnings of American Savings.

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

Federal Reserve System

The Federal Reserve Board regulations require depository institutions to
maintain non-interest-earning reserves against their transaction accounts
(primarily NOW and regular checking accounts). The Federal Reserve Board
regulations generally require that reserves be maintained against aggregate
transaction accounts as follows: for that portion of transaction accounts
aggregating $42.8 million or less (which may be adjusted by the Federal Reserve
Board) the reserve requirement is 3%; and for transaction accounts aggregating
greater than $42.8 million, the reserve requirement is $1.1 million plus 10%
(which may be adjusted by the Federal Reserve Board between 8% and 14%) against
that portion of total transaction accounts in excess of $42.8 million. The first
$5.5 million of otherwise reservable balances (which may be adjusted by the
Federal Reserve Board) are exempted from the reserve requirements. The Bank is
in compliance with the foregoing requirements.

                                       27
<PAGE>


Community Reinvestment Act

Under the Community Reinvestment Act, as implemented by Federal Deposit
Insurance Corporation regulations, a state non-member bank has a continuing and
affirmative obligation consistent with its safe and sound operation to help meet
the credit needs of its entire community, including low and moderate income
neighborhoods. The Community Reinvestment Act does not establish specific
lending requirements or programs for financial institutions nor does it limit an
institution's discretion to develop the types of products and services that it
believes are best suited to its particular community, consistent with the
Community Reinvestment Act. The Community Reinvestment Act requires the Federal
Deposit Insurance Corporation, in connection with its examination of an
institution, to assess the institution's record of meeting the credit needs of
its community and to take such record into account in its evaluation of
applications by such institution. The Community Reinvestment Act requires public
disclosure of an institution's Community Reinvestment Act rating. The Bank's
latest Community Reinvestment Act rating, received from the Federal Deposit
Insurance Corporation, was "Outstanding."

Federal Home Loan Bank System

The Bank is a member of the Federal Home Loan Bank System, which consists of 12
regional Federal Home Loan Banks. The Federal Home Loan Bank provides a central
credit facility primarily for member institutions. The Bank, as a member of the
Federal Home Loan Bank of Boston, is required to acquire and hold shares of
capital stock in the Federal Home Loan Bank of Boston in an amount at least
equal to 1% of the aggregate principal amount of its unpaid residential mortgage
loans and similar obligations at the beginning of each year, or 1/20 of its
advances (borrowings) from the Federal Home Loan Bank of Boston, whichever is
greater. The Bank was in compliance with this requirement with an investment in
Federal Home Loan Bank of Boston stock at December 31, 2000 of $12.2 million. At
December 31, 2000, the Bank had $167.9 million in Federal Home Loan Bank of
Boston advances.

The Federal Home Loan Banks are required to provide funds for the resolution of
insolvent thrifts and to contribute funds for affordable housing programs. These
requirements could reduce the amount of dividends that the Federal Home Loan
Banks pay to their members and result in the Federal Home Loan Banks imposing a
higher rate of interest on advances to their members. For the years ended
December 31, 2000, 1999 and 1998, cash dividends from the Federal Home Loan Bank
of Boston to the Bank amounted to approximately $999,000, $762,000 and $578,000,
respectively. Further, there can be no assurance that the impact of recent or
future legislation on the Federal Home Loan Banks will not also cause a decrease
in the value of the Federal Home Loan Bank stock held by the Bank.

Holding Company Regulation

The Parent Company is regulated as a non-diversified unitary savings and loan
holding company within the meaning of the Home Owners' Loan Act. As such, the
Parent Company is required to register with the Office of Thrift Supervision and
to adhere to the Office of Thrift Supervision's regulations and reporting
requirements. In addition, the Office of Thrift Supervision may examine and
supervise the Parent Company and the Office of Thrift Supervision has
enforcement authority over the Parent Company and its non-savings institution
subsidiaries. Among other things, this authority permits the Office of Thrift
Supervision to restrict or prohibit activities that are determined to be a
serious risk to the subsidiary savings institution. Additionally, the Bank is
required to notify the Office of Thrift Supervision at least 30 days before
declaring any dividend to the Parent Company.

                                       28
<PAGE>


Under current law, as a unitary savings and loan holding company, the Parent
Company generally would not be restricted under existing laws as to the types of
business activities in which it may engage. The Gramm-Leach-Bliley Act of 1999
provides that no company may acquire control of a savings association after May
4, 1999 unless it engages only in the financial activities permitted for
financial holding companies under the law or for multiple savings and loan
holding companies as described below. Further, the Gramm-Leach-Bliley Act
specifies that existing savings and loan holding companies may only engage in
such activities. The Gramm-Leach Bliley Act, however, grandfathered the
unrestricted authority for activities with respect to unitary savings and loan
holding companies existing prior to May 4, 1999, such as the Company, so long as
the Bank continues to comply with the qualified thrift lender test, described
below. Upon any non-supervisory acquisition by the Parent Company of another
savings association as a separate subsidiary, the Parent Company would become a
multiple savings and loan holding company and would have extensive limitations
on the types of business activities in which it could engage. The Home Owners'
Loan Act 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, provided the prior approval of the Office of Thrift Supervision is
obtained, and to other activities authorized by Office of Thrift Supervision
regulation. Multiple savings and loan holding companies are generally prohibited
from acquiring or retaining more than 5% of a non-subsidiary company engaged in
activities other than those permitted by the Home Owners' Loan Act.

The Home Owners' Loan Act prohibits a savings and loan holding company from,
directly or indirectly, acquiring more than 5% of the voting stock of another
savings association or savings and loan holding company or from acquiring such
an institution or company by merger, consolidation or purchase of its assets,
without prior written approval of the Office of Thrift Supervision. In
evaluating applications by holding companies to acquire savings associations,
the Office of Thrift Supervision considers the financial and managerial
resources and future prospects of the Company and the 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 Office of Thrift Supervision is prohibited from approving any acquisition
that would result in a multiple savings and loan holding company controlling
savings institutions in more than one state, except: (1) interstate supervisory
acquisitions by savings and loan holding companies; and (2) the acquisition of a
savings institution in another state if the laws of the state of the target
savings institution specifically permit such acquisitions.

To be regulated as a savings and loan holding company by the Office of Thrift
Supervision (rather than as a bank holding company by the Federal Reserve
Board), the Bank must qualify as a Qualified Thrift Lender. To qualify as a
Qualified Thrift Lender, the Bank must maintain compliance with the test for a
"domestic building and loan association," as defined in the Internal Revenue
Code, or with a Qualified Thrift Lender Test. Under the Qualified Thrift Lender
Test, a savings institution is required to maintain at least 65% of its
"portfolio assets" (total assets less: (1) specified liquid assets up to 20% of
total assets; (2) intangibles, including goodwill; and (3) the value of property
used to conduct business) in certain "qualified thrift investments" (primarily
residential mortgages and related investments, including certain mortgage-backed
and related securities) in at least 9 months out of each 12 month period. As of
December 31, 2000, the Bank maintained in excess of 65% of its portfolio assets
in qualified thrift investments.

Connecticut Holding Company Regulations. Under Connecticut banking law, no
person may acquire beneficial ownership of more than 10% of any class of voting
securities of a Connecticut-chartered bank, or any bank holding company of such
a bank, without prior notification of, and lack of disapproval by, the
Connecticut Banking Commissioner. The Connecticut Banking Commissioner will
disapprove the acquisition if the bank or holding company to be acquired has
been in existence for less than five years, unless the Connecticut Banking
Commissioner waives this requirement, or if the acquisition would result in the
acquirer controlling 30% or more of the total amount of deposits in insured
depository institutions in Connecticut. Similar restrictions apply to any person
who holds in excess of 10% of any such class and desires to increase its
holdings to 25% or more of such class.

                                       29
<PAGE>


Federal Income Taxation

General. The Company and the Bank report their income on a calendar year basis
using the accrual method of accounting. The federal income tax laws apply to the
Company and the Bank in the same manner as to other corporations with some
exceptions, including particularly the Banks' reserve for bad debts discussed
below. The following discussion of tax matters is intended only as a summary and
does not purport to be a comprehensive description of the tax rules applicable
to the Bank or the Company. The Bank's federal income tax returns have been
either audited or closed under the statute of limitations through tax year 1996.

Bad Debt Reserves. For fiscal years beginning before December 31, 1995, thrift
institutions which qualified under certain definitional tests and other
conditions of the Internal Revenue Code of 1986, as amended, 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 the percentage
of taxable income method or the experience method. The reserve for nonqualifying
loans was computed using the experience method.

Federal legislation enacted in 1996 repealed the reserve method of accounting
for bad debts and the percentage of taxable income method for tax years
beginning after 1995 and require savings institutions to recapture or take into
income certain portions of their accumulated bad debt reserves. Approximately
$24.6 million of the Bank's accumulated bad debt reserves would not be
recaptured into taxable income unless certain events were to occur, such as a
"non-dividend distribution" by the bank to the Parent Company.

Connecticut Taxation

The Company is subject to the Connecticut Corporate Business tax. The Company
files a combined Connecticut income tax return.

Connecticut income tax is based on the federal taxable income before net
operating loss and special deductions with certain modifications made to federal
taxable income to arrive at Connecticut taxable income. Connecticut taxable
income is multiplied by the state tax rate (8.5% for 1999 and 7.5% for 2000 and
thereafter) to arrive at Connecticut income tax.

In May 1998 the State of Connecticut enacted legislation permitting the
formation of passive investment company subsidiaries by financial institutions.
This legislation exempts qualifying passive investment companies from the
Connecticut Corporate Business tax and excludes dividends paid from a passive
investment company from the taxable income of the parent financial institution.
The Company has established a passive investment company under the statue.

                                       30
<PAGE>


Item 2.       Description of Properties

The Company currently conducts its business through its main office located in
New Britain, Connecticut, and 16 other full-service banking offices. The Company
believes that its facilities are adequate to meet its present and immediately
foreseeable needs.

<TABLE>
<CAPTION>
==========================================================================================================================
       Properties
==========================================================================================================================
                                                                                                      Net Book Value of
                                               Leased          Original Year            Date        Property or Leasehold
                                                 or                Leased             of Lease           Improvements
                 Location                       Owned           or Acquired          Expiration      at December 31, 2000
------------------------------------------  ------------  -----------------------  --------------  -----------------------
Administrative Offices:                                                                                 (In thousands)
-----------------------
102 West Main Street
<S>                                            <C>                  <C>                 <C>                    <C>
New Britain, Connecticut 06051                  Owned               1995                 --                    $2,421

238 Bloomfield Avenue
Windsor, Connecticut 06095                     Leased               2000                2001(5)                    28

Banking Offices:
----------------
178 Main Street
New Britain, Connecticut 06053                  Owned               1901                 --                     3,269

655 West Main Street
New Britain, Connecticut 06053                  Owned               1961                 --                       222

1133 Main Street
Newington, Connecticut 06111                    Owned               1965                 --                       569

123 East Main Street
Plainville, Connecticut 06062                   Owned               1966                 --                       143

Route 195
Mansfield, Connecticut 06250                   Leased               1975                2005                       43

25 New London Turnpike
Glastonbury, Connecticut  06033                 Owned               1976                 --                       160

184 Route 81
Killingworth, Connecticut 06419                Leased               1977                2002(1)                    28

143 South Main Street
West Hartford, Connecticut 06107               Leased               1980                2005(1)                    61

587 Hartford Road
New Britain, Connecticut 06053                 Leased               1980                2005(1)                    75

25 Wells Road
Wethersfield, Connecticut 06109                Leased               1986                2006                       68

252 Allen Street
New Britain, Connecticut 06053                 Leased               1988                2003(1)                    57

714 Hopmeadow Street
Simsbury, Connecticut 06070                    Leased               1988                2008(3)                    55

29 South Main Street
Hartford, Connecticut 06107                    Leased               1996                2001(2)                    15

315 West Main Street
Avon, Connecticut 06001                        Leased               1997                2005                      237

1127 Farmington Avenue
Berlin, Connecticut 06037                      Leased               1998                2018(4)                   468

747 Farmington Avenue
New Britain, Connecticut 06053                 Leased               1998                2003(3)                   141

632 Cromwell Avenue
Rocky Hill, Connecticut 06067                  Leased               1998                2003(2)                   297
                                                                                                               ------
        Total                                                                                                  $8,357
                                                                                                               ======

(1)  The Company has an option to renew this lease for an additional five-year period.
(2)  The Company has an option to renew this lease for two additional five-year periods.
(3)  The Company has an option to renew this lease for three additional five-year periods.
(4)  The Company has an option to renew this lease for four additional five-year periods.
(5)  The Company has an option to renew this lease for three additional three-year periods.
==========================================================================================================================
</TABLE>

                                       31
<PAGE>

Item 3.     Legal Proceedings

Periodically there have been various claims and lawsuits involving the Company,
such as claims to enforce liens, condemnation proceedings on properties in which
the Company holds security interests, claims involving the making and servicing
of real property loans and other issues incident to the Company's business. Such
routine legal proceedings, in the aggregate, are believed by management to be
immaterial to the financial condition and results of operations of the Company.

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

None

                                     PART II

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

The Company's common stock is quoted on the Nasdaq National Stock Market under
the symbol "AMFH." As of December 31, 2000, there were 26,777,545 shares of
common stock outstanding.

As of March 09, 2001 the Company had 5,784 shareholders of record.

The Parent Company is subject to the laws of the state of Delaware which
generally limit dividends to an amount equal to the excess of the net assets of
the Company (the amount by which total assets exceed total liabilities) over its
statutory capital, or if there is no such excess, to its net profits for the
current and /or the immediately preceding fiscal year.

The payment of dividends by the Parent Company could be dependent, in a large
part, upon the receipt of dividends from the Bank. The Bank is subject to
certain restrictions which may limit its ability to pay dividends to the Parent
Company. See Note 8 of Notes to the Consolidated Financial Statements in Item 8,
"Financial Statements and Supplementary Data" for an explanation of the
liquidation account and regulatory capital requirements on the Bank's ability to
pay dividends.

The table below provides the reported high and low bid information of the common
stock and the dividends paid for each of the quarters of 2000, and for the
thirty two-day period in 1999 that the Company was publicly traded.

<TABLE>
<CAPTION>
             ================================================================================
             Common Stock Prices and Dividends
             ================================================================================
                                                     High           Low       Dividends Paid
                                                  ----------    ----------   ----------------
             <S>                                  <C>           <C>             <C>
             Fourth quarter 1999                  $    12.938   $   11.188      $      -
             First quarter 2000                        12.688       10.813             -
             Second quarter                            16.688       11.625          0.15
             Third quarter                             19.688       15.750          0.15
             Fourth quarter                            22.125       17.375          0.15
             ================================================================================
</TABLE>

                                       32
<PAGE>


Item 6.      Selected Financial Data

Set forth below are selected consolidated financial and other data of the
Company. This financial data is derived in part from, and should be read in
conjunction with, the Company's audited consolidated financial statements and
related notes.

<TABLE>
<CAPTION>
====================================================================================================================
Selected Financial Data
====================================================================================================================
                                                                            At December 31,
                                                   -----------------------------------------------------------------
                                                       2000         1999         1998         1997          1996
                                                   -----------  -----------   -----------   -----------  -----------
                                                                           (Dollars in thousands)
<S>                                                <C>          <C>           <C>           <C>          <C>
Selected Financial Data:
      Total assets                                 $ 1,873,458  $ 1,886,153   $ 1,590,451   $ 1,475,262  $ 1,385,844
      Loans, net                                     1,151,048    1,029,531       907,254       837,683      747,540
      Securities available for sale
        Mortgage-backed securities                     255,270      341,421       172,855       132,817      103,677
        Investment securities                          351,211      435,832       417,673       432,032      441,401
      Deposits                                       1,126,336    1,100,502     1,130,711     1,089,593    1,064,244
      FHLB advances and other borrowings               177,944      214,444       120,244        80,244       50,244
      Total stockholders' equity                       513,967      531,452       280,984       258,141      230,164
      Real estate owned                                    211          445           720           739        1,094
      Nonperforming loans                                3,013        2,523         3,986         6,874        6,508

Selected Operating Data:
      Total interest and dividend income           $   127,623  $   106,033   $    98,989   $    95,255  $    88,488
      Total interest expense                            59,931       56,444        54,067        52,507       49,051
                                                   -----------  -----------   -----------   -----------  -----------
        Net interest income                             67,692       49,589        44,922        42,748       39,437
      Provision for loan losses                          1,895        2,030         2,400         2,154        2,250
                                                   -----------  -----------   -----------   -----------  -----------
        Net interest income after                       65,797       47,559        42,522        40,594       37,187
          provision for loan losses
      Non-interest income:
        Service charges and fees                         3,977        3,351         3,149         2,346        2,223
        Investment commission and
          advisory fees                                  1,545        1,399         1,052           152          172
        Net gain on sales/contribution
          of securities                                  6,068        2,850         6,696         4,655        3,950
        Other                                              504          363           367           552          321
      Total non-interest expenses                       31,046       50,928        26,705        21,946       19,496
                                                   -----------  -----------   -----------   -----------  -----------
      Income before income taxes                        46,845        4,594        27,081        26,353       24,357
      Income taxes                                      15,719        1,811         9,066         8,093        8,627
                                                   -----------  -----------   -----------   -----------  -----------

        Net income                                 $    31,126  $     2,783   $    18,015   $    18,260  $    15,730
                                                   ===========  ===========   ===========   ===========  ===========

      Net income per common share
        Basic                                      $      1.19        nm            n/a           n/a          n/a
        Diluted                                           1.18        nm            n/a           n/a          n/a
      Cash dividends declared per share                   0.45        -             n/a           n/a          n/a
====================================================================================================================
</TABLE>

The decline in net income in 1999 primarily resulted from a $21.4 million common
stock contribution to the newly formed American Savings Charitable Foundation at
the time of the Conversion.

                                       33
<PAGE>

<TABLE>
<CAPTION>
===========================================================================================================================
Selected Financial Data
===========================================================================================================================
                                                                             At or for the Year Ended December 31,
                                                                    -------------------------------------------------------
                                                                     2000        1999         1998        1997        1996
                                                                    -------     -------      ------      ------      ------
<S>                                                                 <C>         <C>          <C>         <C>         <C>
Selected Operating Ratios and Other Data
Performance Ratios:
  Interest rate spread                                                 2.57%       2.36%       2.45%       2.47%       2.43%
  Net interest margin                                                  3.81        3.16        3.20        3.20        3.15
  Net interest income after provision for loan
    losses to non-interest expense                                   211.94       93.38      159.23      184.70      190.28
  Non-interest expense as a percent of
    average assets (excluding Foundation contribution)                 1.65        1.70        1.78        1.55        1.48
  Efficiency ratio (excluding Foundation contribution)*               42.11       54.05       46.62       42.89       41.10
  Return on average assets                                             1.66        0.17        1.20        1.29        1.19
  Return on average equity                                             5.91        0.91        6.76        7.56        7.28
  Ratio of average equity to average assets                           28.03       18.36       17.78       17.01       16.41
  Dividend payout ratio                                               37.82       -           -           -           -
  Book value per share                                              $ 19.19     $ 18.41       -           -           -

Bank Regulatory Capital Ratios
  Leverage capital ratio                                              19.25%      23.00%      16.35%      15.95%      15.33%
  Risk-based capital ratio                                            35.60       38.10       29.19       30.30       29.79

Asset Quality Ratios
  Nonperforming assets as a percent of total assets                    0.17%       0.16%       0.30%       0.52%       0.55%
  Allowance for loan losses as a percent
    of total loans                                                     0.92        0.85        0.83        0.74        0.74
  Allowance for loan losses as a percent of
    nonperforming loans                                              352.58      349.58      191.32       91.32       85.86
---------------------------------------------------------------------------------------------------------------------------
* Efficiency ratio is net interest income plus non-interest income exclusive of
  securities gains, divided into non-interest expense exclusive of Foundation
  contributions.
===========================================================================================================================
</TABLE>

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

General

The Company's results of operations depend primarily on net interest income,
which is the difference between interest income earned on the Company's
interest-earning assets, primarily loans and securities, and the interest
expense on the Company's interest-bearing liabilities, consisting of deposits
and borrowings. The Company also generates non-interest income from service
charges and other fees earned on fee-based activities such as trust operations,
insurance sales, and investment services provided by the Bank's wholly owned
subsidiary, American Investment Services, Inc. The Company's non-interest
expenses consist of employee compensation and benefits, occupancy expense,
furniture and fixture expense, advertising, outside services and other operating
expenses. Results of operations are also affected by general economic and
competitive conditions, notably changes in market interest rates, and government
policies and regulations.

                                       34
<PAGE>


Operating Strategy

The Company is the parent company to an independent, community-oriented savings
bank that delivers quality customer service and offers a wide range of deposit,
loan and investment products to its customers. In recent years, the Company's
strategy has been to enhance profitability by increasing sources of non-interest
income and by improving operating efficiencies while managing its capital
position and limiting its credit and interest rate risk exposure. To accomplish
these objectives, the Company has sought to:

o  Provide superior customer service by expanding and upgrading the branch
   network, maintaining a customer call center, introducing internet banking and
   broadening its market by offering community based commercial deposit and loan
   products.

o  Increase fee income by broadening non-depository product offerings and
   services, including expansion of its trust services; changing American
   Investment Services, Inc. broker/dealer affiliation to enhance future
   revenue; transitioning from transaction-based brokerage business to fee-based
   investment advisory business; and providing property, casualty and
   comprehensive business insurance coverage.

o  Increase loan production through an expanded out-of-state correspondent
   network.

o  Control credit risk by focusing on the origination of single-family,
   owner-occupied residential mortgage loans and consumer loans, consisting
   primarily of home equity loans and lines of credit.

o  Engage in capital management strategy to repurchase Company stock and pay
   dividends to enhance shareholder value.

o  Continue to invest in technological enhancements to increase productivity and
   efficiency.

Comparison of Financial Condition at December 31, 2000 and 1999

Total assets decreased $12.7 million, or 0.7%, to $1.87 billion at December 31,
2000 from $1.89 billion at December 31, 1999. The decrease was primarily due to
decreases of $84.6 million in investment securities and in mortgage-backed
securities of $86.2 million. These decreases were primarily offset by an
increase of net loans of $121.5 million or 11.8% to $1.15 billion at December
31, 2000 from $1.03 billion at December 31, 1999, and by the $45 million
purchase of a $60 million bank owned life insurance (BOLI) policy. The increase
in loans was primarily in one- to four-family mortgages, home improvement loans
and equity lines of credit secured by second mortgages due to expansion of the
Company's loan markets into Massachusetts, and increased penetration into
Fairfield County, Connecticut. Cash surrender value of life insurance or BOLI
reflects management's strategy to invest in a single premium contract providing
a return in excess of other earning assets with comparable risk due to the
favorable tax treatment. The loan originations and BOLI purchase were funded in
part with maturities and sales of investment and mortgage-backed securities.
Cash and due from banks, which were at a relatively high level at the end of
1999 to provide for possible cash needs for year 2000 concerns, decreased $11.0
million or 38.8% to $17.3 million. The decrease was partially offset by an
increase of $9.4 million in federal funds sold. The flat to inverted yield curve
during most of 2000, in which short term rates were higher than long term rates,
coupled with the cash needs of the stock repurchase program as described below
resulted in the decision by management to redeploy the short term assets into
federal funds.

Nonperforming assets, consisting of nonperforming loans and real estate owned,
totaled $3.2 million at December 31, 2000 compared to $3.0 million at December
31, 1999. The increase was primarily due to a $500,000 increase in nonperforming
loans to $3.0 million at December 31, 2000, compared to $2.5 million at December
31, 1999. The modest level in nonperforming loans was primarily attributable to
the improved financial condition of borrowers, which management attributes to a
strong economy. Real estate owned declined $234,000 to a balance of $211,000 at
December 31, 2000 due to a greater amount of dispositions of foreclosed
properties than the amount of foreclosed properties transferred to real estate
owned.

                                       35
<PAGE>

Deposits increased $25.8 million or 2.3%, from $1.10 billion at December 31,
1999 to $1.13 billion in 2000. The increase in deposits resulted primarily from
increases of $26.6 million in savings, NOW, money market and demand deposits,
partially offset by a decrease of $863,000 in certificates of deposits and
retirement accounts. The net increase in savings, NOW, money market and demand
deposits was due primarily to a campaign to take advantage of in-market
consolidations and deposit acquisition promotions. The net decrease in
certificates of deposit and retirement accounts was due to a decrease in
retirement accounts of $12.5 million offset by an $11.6 million increase in
certificates of deposit. The decrease in retirement accounts was due in part to
defined distributions and to opportunities available through other bank and
non-bank alternatives. Certificates of deposit increased through a promotional
rate campaign to attract new deposits. The net deferred income tax liability
increased $12.4 million to $24.3 million at December 31, 2000 compared to $11.8
million at December 31, 1999. The increase was due principally to the increase
in the net deferred tax liability for the unrealized gain on total securities
available for sale. Federal Home Loan Bank advances and other borrowings
decreased by $36.5 million or 17.0% from $214.4 million at December 31, 1999 to
$177.9 million at December 31, 2000. Management was able to reduce borrowings
due in part to the growth in deposits and the reduction in the securities
portfolio.

During the second quarter of 2000, the Company announced a stock repurchase
program. The program authorized the Company to repurchase up to 5% of its issued
and outstanding common stock at prevailing market prices in open market
purchases. The Company completed this program on November 30, 2000 and announced
a second repurchase program of 5% of its issued and outstanding common stock.
Due to these programs, the Company purchased 2.1 million shares of its common
stock at a cost of $38.7 million during 2000. The Company completed the second
repurchase program on February 7, 2001 by purchasing the remaining 721,377
shares at a cost of $14.6 million and announced a third repurchase program of up
to 5% of its issued and outstanding common stock. As of March 9, 2001, the
Company purchased 997,808 shares under the third repurchase program at a cost of
$20.6 million.

Total equity decreased by $17.5 million or 3.3% from $531.5 million at December
31, 1999 to $514.0 million at December 31, 2000. The decrease was due to the
above mentioned stock repurchase programs, as well as the purchase of an
additional 1.1 million shares at a cost of $18.0 million used to fund restricted
stock awards which were granted in June 2000 under the Company's stock-based
incentive program, and the payment of $11.7 million in dividends. This decrease
was partially offset by net income after tax of $31.1 million and an increase of
$17.9 million in accumulated other comprehensive income resulting from an
increase in the after-tax net unrealized gain on total securities. In addition,
the Bank has an Employee Stock Ownership Plan. This plan purchased 2.3 million
shares of the Company's common stock at the time it converted to a stock based
company, which is held in a trust account until the shares are allocated to the
participants. The shares held in the trust account were initially reflected as a
$25.7 million reduction to equity. As shares are allocated to participants over
the remaining 18 years of the original 20-year plan, this reduction to equity
will decline. The decline in the reduction to equity for the year 2000 was $1.3
million due to the current year release of 118,526 shares to participants in the
plan.

Comparison of Operating Results for the Years Ended December 31, 2000 and 1999

Net Income. Net income increased by $28.3 million to $31.1 million for 2000,
compared to $2.8 million for 1999. The increase in 2000 was attributable to an
increase in net interest income of $18.1 million, an increase in non-interest
income of $4.1 million and a decrease in non-interest expense of $19.9 million
partially offset by an increase in income taxes of $13.9 million.

Net Interest Income. Net interest income increased $18.1 million or 36.5% to
$67.7 million in 2000 compared to $49.6 million in 1999. Total interest and
dividend income increased $21.6 million to $127.6 million in 2000, as compared
to $106.0 million in 1999. The increase in interest income was primarily due to
a $204.0 million increase in the average daily interest earning assets to $1.78
billion in 2000 from $1.57 billion in 1999 and an increase of 44 basis points in
the weighted average yield on earning assets in 2000. The increase in the
average daily balances was due to the reinvestment of additional capital from
the conversion to a public company, less the capital used to fund purchases of
treasury stock and stock to fund the granting of stock awards. The increase in
yields on interest earning assets was due: (1) in part to management's
investment strategy of moving to higher

                                       36
<PAGE>

yielding investments at the end of 1999, primarily by purchasing a combination
of corporate bonds and mortgage-backed securities with a modest extension in
duration in the portfolio and selling lower yielding investments and
mortgage-backed securities and (2) to an increase in overall rates within the
economy. Interest income on loans increased $11.4 million, or 16.3%, to $81.1
million in 2000 compared to $69.7 million in 1999. This increase was due to a
$120.9 million increase in the average daily balance of loans outstanding, and a
24 basis point increase in the average yield. Interest income on investments and
mortgage-backed securities increased $10.8 million, or 31.0%, over 1999 to $45.6
million. The increase was due to an increase of $96.8 million in the average
balance and a 73 basis point increase in the weighted average yield. The
increase in interest income on loans, investments and mortgage-backed securities
was partially offset by a decrease in income of $565,000 on federal funds sold
to $987,000 compared to $1.6 million in 1999.

Total interest expense for 2000 amounted to $59.9 million, an increase of $3.5
million, or 6.2%, compared to $56.4 million in 1999. Interest on certificates of
deposits and retirement accounts increased by $2.2 million primarily due to an
increase of 39 basis points on the weighted average rate paid on these deposits,
partially offset by a decrease in the average daily balance $15.9 million. The
decrease in average daily balance was primarily in retirement accounts whose
average daily balance decreased by $12.1 million. Interest on deposits, other
than certificates of deposit and retirement accounts, increased $109,000,
primarily due to increases in the average daily balances in 2000 as compared to
1999 offset by a slight decrease in the weighted average rate paid on these
deposits. Interest expense on FHLB advances and other borrowings increased $1.2
million or 11.0% to $11.9 million in 2000 compared to $10.7 million in 1999
primarily due to a $17.0 million increase in the average daily borrowings in
2000 and an 8 basis point increase in the weighted average rate paid.

Provision for Loan Losses. The provision for loan losses was $1.9 million for
2000, a $135,000 decrease from $2.0 million in 1999. This decrease reflects
management's assessment of the losses inherent in the loan portfolio, as well as
current economic conditions. At December 31, 2000, the allowance for loan losses
was $10.6 million which represented 352.6% of nonperforming loans and 0.92% of
total loans. This compared to the allowance for loan losses of $8.8 million at
December 31, 1999 representing 349.6% of nonperforming loans and 0.85% of total
loans. See Item 1 - "Description of Business - Lending Activities - Allowance
for Loan Losses" for a discussion of the Company's loan loss allowance.

Non-interest Income. Non-interest income increased $4.1 million or 51.9% to
$12.1 million for 2000 compared to $8.0 million for 1999. The primary reason for
the increase was a $3.4 million increase on net gains on the sale of securities
to $6.1 million in 2000 compared to $2.6 million in 1999. The sale of securities
was to provide a portion of funds required for the acquisition of treasury stock
and stock in connection with granting of restricted stock, the purchase of BOLI
and to fund loan originations. The net gain on sale of equity securities and
equity mutual funds was $10.1 million in 2000 as compared to $5.7 million in
1999. The increase was offset by net losses of $4.0 million on sale of
mortgage-backed securities and corporate and U. S. Agency bonds. Service charges
and fees increased $626,000 or 18.7% to $4.0 million in 2000 compared to $3.4
million in 1999. The increase was primarily due to increased customer activity
for NOW account services, increased fees resulting from debit card usage,
increased trust fees and increased sale of insurance protection plans covering
certain consumer loans. Investment commissions and advisory fees from the Bank's
financial services subsidiary, American Investment Services, Inc (AIS) increased
by $146,000 or 10.4%, to $1.5 million for 2000 compared to $1.4 million in 1999.
During 2000 AIS began a transition to investment advisory services which will
enable it to grow through recurring investment advisory revenue as opposed to
one-time commissions. It is expected that during the transition, net income from
this activity will be reduced over the next several quarters, but is expected to
generate an ongoing enhanced stream of advisory fee revenue after this period.

Non-interest Expense. Non-interest expense decreased $19.9 million, or 39.0%, to
$31.0 million in 2000 compared to $50.9 million in 1999. The decrease in
non-interest expense was primarily attributable to a decrease of $21.4 million
in charitable contributions. The decrease in charitable contributions is due to
the $21.4 million contribution of Company common stock to the then newly formed
American Savings Charitable Foundation (Charitable Foundation) on November 30,
1999 upon the conversion from a mutual savings bank to a stock savings bank.
There were no contributions made to the American Savings Charitable Foundation
in 2000. Excluding this contribution, non-interest expense increased $2.0
million, or 6.9% from $29.0 million for 1999 to $31.0 million for

                                       37
<PAGE>

2000. This increase was due to an increase of $856,000 in salaries and employee
benefits, $214,000 in outside services and $644,000 in other expenses. Salaries
and employee benefits expense increased to $18.4 million in 2000 from $17.6
million in 1999 due primarily to $2.3 million expenses related to stock awards
granted in June 2000, a full year of expense for the Employee Stock Ownership
Plan of $1.8 million and, to a lesser extent, general salary increases. The
increase in salaries and employee benefits were offset by a decrease in the
charges related to the 1999 restructuring of the Company's compensation plans to
align them with other publicly traded financial institutions and holding
companies. Other expenses increased primarily due to expenses related to being a
public company and an increase in insurance premiums paid to the FDIC. Outside
services increased primarily due to additional legal and accounting fees related
to the additional responsibilities of being a public company.

Income Tax Expense. Income taxes were $15.7 million for the year ended December
31, 2000 compared to $1.8 million for the year ended December 31, 1999. The
effective tax rate decreased to 33.6% in 2000, from 39.4% in 1999 primarily
because total expenses in 1999 included a relatively high percentage of
non-deductible expenses.

Comparison of Operating Results for the Years Ended December 31, 1999 and 1998

Net Income. Net income decreased by $15.2 million, or 84.6%, to $2.8 million for
1999, compared to $18.0 million for 1998. The decrease in 1999 was primarily
attributable to an increase in non-interest expense of $24.2 million (including
a $21.4 million charitable contribution, discussed below) and a decrease in
non-interest income of $3.3 million, partially offset by an increase of $4.7
million in net interest income and a decrease in income taxes of $7.3 million.

Net Interest Income. Net interest income increased $4.7 million, or 10.4%, to
$49.6 million for 1999. Total interest and dividend income increased $7.0
million to $106.0 million in 1999, as compared to $99.0 million in 1998. The
increase in interest income was due primarily to a $169.6 million increase in
average daily interest earning assets to $1.57 billion in 1999 from $1.40
billion in 1998, partially offset by a decrease of 31 basis points in the
weighted average yield on earning assets in 1999. The decline in the average
yield on earning assets was primarily due to declining general market interest
rates in 1998, resulting in lower yields on earning assets originated throughout
1998 and through the first half of 1999. Interest income on loans increased $2.9
million, or 4.4%, to $69.7 million in 1999 compared to $66.8 million in 1998.
This increase was due to a $91.4 million increase in the average daily balance
of loans outstanding, offset by a 41 basis point decrease in the average yield.
In addition, interest income on mortgage-backed securities increased $5.5
million, or 60.3%, in 1999 compared to the prior year, due to a $97.2 million
increase in the average balance, partially offset by a decrease of 47 basis
points in the average yield. The increase in interest income on loans and
mortgage-backed securities was partially offset by a decrease in interest and
dividend income on investment securities of $1.3 million, to $19.3 million in
1999 compared to $20.6 million in 1998. The decrease in interest and dividend
income on investment securities was primarily due to a decrease in the average
balance of $19.2 million, or 5.5%.

Total interest expense for 1999 amounted to $56.4 million, an increase of $2.38
million or 4.4%, compared to $54.1 million in 1998. Interest expense on
borrowings increased $5.3 million or 101.2%, to $10.5 million in 1999 compared
to $5.2 million in 1998, primarily due to an increase in the average daily
borrowings during 1999. Average daily borrowings increased $90.4 million, or
108.5%, to $173.7 million in 1999 as compared to $83.3 million in 1998. The
effect of this volume increase was partially offset by a 22 basis point decrease
in the average rate paid on borrowings, from 6.29% in 1998 to 6.07% in 1999. The
increase in borrowings was used to fund the growth in loans and mortgage-backed
securities. The increase in interest expense resulting from increased borrowings
was partially offset by a decrease in interest expense on certificates of
deposit. Interest on certificates of deposit and retirement accounts declined
$3.4 million, or 8.1%, to $39.0 million in 1999 compared to $42.4 million in
1998, primarily due to a decline in the average rate paid. The average rate paid
on certificates of deposit and retirement accounts declined from 5.45% in 1998
to 5.05% in 1999. In addition the average daily balance declined $6.6 million,
to $771.5 million in 1999 from $778.1 million in 1998. Interest on deposits,
other than certificates of deposit, increased $517,000, primarily due to
increases in the average daily balances in 1999 as compared to 1998.

                                       38
<PAGE>

Provision for Loan Losses. The provision for loan losses amounted to $2.0
million in 1999, a $370,000 decrease from the $2.4 million in 1998. This
decrease reflects management's assessment of the losses inherent in the loan
portfolio, as well as current economic conditions. In determining the provision
for 1999, management also considered the decline in nonperforming loans which
totaled $2.5 million and $4.0 million at December 31, 1999 and 1998,
respectively. At December 31, 1999, the allowance for loan losses was $8.8
million, representing 350% of nonperforming loans and 0.85% of total loans. This
compared to the allowance for loan losses of $7.6 million at December 31, 1998,
representing 191% of nonperforming loans and 0.83% of total loans.

Non-interest Income. Non-interest income decreased $3.3 million, or 29.3%, to
$8.0 million for the year ended December 31, 1999. This decrease was primarily
due to a decrease of $3.8 million in gains on the sales and contributions of
investments. In 1998, the Company made a contribution to the American Savings
Bank Foundation in the form of appreciated investment securities. This
contribution resulted in the Company recognizing a $3.5 million gain, which was
not subject to income tax. In 1999, the remainder of the appreciated securities
pledged to the Foundation were sold resulting in a gain of $209,000. The Company
does not plan to make any further contributions to this foundation due to the
establishment of a new foundation, The American Savings Charitable Foundation.
The gain on the sale of investment securities decreased $508,000 to $2.6 million
in 1999. In 1999, the Company recorded $5.7 million in gains on the sale of
equity securities and equity mutual funds, partially offset by a $3.1 million
loss on the sale of corporate, mortgage-backed and U.S. Agency notes. Nearly all
of the loss resulted from a restructuring of the Company's investment portfolio
in December of 1999. Service charges and fees increased $500,000 in 1999 over
1998. This increase was due to the implementation of a new service charge
structure, as well as increased transaction accounts and increased fees
following the commencement of operations of AIS, the Company's financial
services subsidiary in January 1998.

Non-interest Expense. Non-interest expense increased $24.2 million to $50.9
million in 1999 as compared to $26.7 million in 1998, primarily due to a
contribution of $21.4 million of Company common stock to the newly formed
American Savings Charitable Foundation. The Charitable Foundation, which was
established in connection with the Conversion, makes grants and donations to
non-profit organizations and community groups within the communities where the
Company operates. The Company made the contribution of common stock to continue
its long standing commitment to the local communities and with the belief that
it will allow the community to share in the growth and success of the Company.
Salaries and employee benefits increased $5.3 million to $17.6 million in 1999
compared to $12.3 million in 1998 as a result of charges associated with the
restructuring of the Company's compensation plans to align them with other
publicly-traded financial institutions and holding companies, and to a lesser
extent, due to general salary increases and additional staffing associated with
the opening of three new branches. Outside services increased $705,000 to $2.6
million in 1999, compared to $1.9 million in 1998, primarily due to the
restructuring of the directors fees and deferred compensation plan.

Income Tax Expense. Income taxes were $1.8 million for the year ended December
31, 1999 compared to $9.1 million for the year ended December 31, 1998. The
effective tax rate increased to 39.4% in 1999 from 33.5% in 1998, primarily
because of non-deductible expenses in 1999 which were a greater percentage of
taxable income than prior years.

                                       39
<PAGE>


Average Balances, Interest and Average Yields/Cost

The following table presents certain information for the periods indicated
regarding average balances of assets and liabilities, as well as the total
dollar amount of interest income on a tax-equivalent basis from average
interest-earning assets and interest expense interest-bearing liabilities and
the resulting average yields and costs. The yields and costs for the periods
indicated are derived by dividing income or expense by the average balances of
assets or liabilities, respectively, for the periods presented. Average balances
were derived from daily balances.

<TABLE>
=====================================================================================
Average Balance Sheet and Yield/Rate Analysis
======================================================================================
                                               For the Fiscal Years ended December 31,
                                                               2000
                                               ---------------------------------------
                                                 Average                   Average
                                                 Balance      Interest    Yield/Rate
                                               ---------------------------------------
                                                       (Dollars in thousands)
<S>                                            <C>           <C>              <C>
Interest-earning assets:
   Loans (1)(2)                                $ 1,086,721   $  81,075        7.46 %
   Federal funds sold                               15,348         987        6.43
   Investment securities-taxable (3)               312,463      21,628        6.92
   Investment securities- tax exempt (4)(3)         22,440       1,289        5.74
   Mortgage-backed securities (3)                  324,600      21,625        6.66
   FHLB stock                                       13,183         999        7.58
   Interest-earning deposits                         1,345          63        4.68
                                               ------------  ----------  ----------
         Total interest-earning assets           1,776,100   $ 127,666        7.19 %
Non-interest-earning assets                        103,102
                                               ------------
         Total assets                          $ 1,879,202
                                               ============
Interest-bearing liabilities:
   Deposits

      Money market accounts                    $    62,295   $   1,709        2.74 %
      NOW accounts                                  79,624       1,082        1.36
      Savings and IRA passbook accounts            202,725       4,101        2.02
      Certificates of deposit                      755,668      41,132        5.44
                                               ------------  ----------  ----------
         Total interest-bearing deposits         1,100,312      48,024        4.36
   FHLB advances and other borrowings (5)          196,141      11,907        6.07
                                               ------------  ----------  ----------
         Total interest-bearing liabilities      1,296,453   $  59,931        4.62 %
   Non-interest bearing demand deposits             25,181
   Non-interest-bearing liabilities                 30,839
                                               ------------
         Total liabilities                       1,352,473
Stockholders' equity                               526,729
                                               ------------
         Total liabilities and equity          $ 1,879,202
                                               ============
   Net interest-earning assets                 $   479,647
                                               ============
   Net interest income                                       $  67,735
                                                             ==========
   Interest rate spread                                                       2.57 %
   Net interest margin (net interest income
     as a percentage of interest-earning assets)                              3.81 %
   Ratio of interest-earning assets to
    interest-bearing liabilities                                            137.00 %
-------------------------------------------------------------------------------------

<CAPTION>
                                                                For the Fiscal Years ended December 31,
                                                                  1999                                    1998
                                                 --------------------------------------  -----------------------------------
                                                   Average                   Average        Average                 Average
                                                   Balance      Interest    Yield/Rate      Balance     Interest  Yield/Rate
                                                 --------------------------------------  -----------------------------------
                                                                         (Dollars in thousands)
<S>                                              <C>            <C>              <C>     <C>            <C>            <C>
Interest-earning assets:
   Loans (1)(2)                                  $   965,808    $  69,694        7.22 %  $    874,373   $ 66,754       7.63 %
   Federal funds sold                                 30,680        1,552        5.06          29,683      1,600       5.39
   Investment securities-taxable (3)                 326,822       19,138        5.86         348,089     20,585       5.91
   Investment securities- tax exempt (4)(3)            2,028          187        9.22               -          -          -
   Mortgage-backed securities (3)                    231,411       14,533        6.28         134,201      9,064       6.75
   FHLB stock                                         11,471          762        6.64           9,169        580       6.33
   Interest-earning deposits                           3,835          232        6.05           6,943        406       5.85
                                                 ------------   ----------  ----------   -------------  ---------  ---------
         Total interest-earning assets             1,572,055    $ 106,098        6.75 %     1,402,458   $ 98,989       7.06 %
Non-interest-earning assets                          100,326                                   97,056
                                                 ------------                            -------------
         Total assets                            $ 1,672,381                             $  1,499,514
                                                 ============                            =============
Interest-bearing liabilities:
   Deposits

      Money market accounts                      $    63,240    $   1,766        2.79 %  $     61,190   $  1,678       2.74 %
      NOW accounts                                    69,846          946        1.35          58,551        785       1.34
      Savings and IRA passbook accounts              201,973        4,071        2.02         187,249      3,961       2.12
      Certificates of deposit                        771,547       38,935        5.05         778,142     42,399       5.45
                                                 ------------   ----------  ----------   -------------  ---------  ---------
         Total interest-bearing deposits           1,106,606       45,718        4.13       1,085,132     48,823       4.50
   FHLB advances and other borrowings (5)            179,134       10,726        5.99          88,330      5,244       5.94
                                                 ------------   ----------  ----------   -------------  ---------  ---------
         Total interest-bearing liabilities      $ 1,285,740    $  56,444        4.39 %  $  1,173,462   $ 54,067       4.61 %
   Non-interest bearing demand deposits               26,768                                   23,678
   Non-interest-bearing liabilities                   52,612                                   35,754
                                                 ------------                            -------------
         Total liabilities                         1,365,120                                1,232,894
Stockholders' equity                                 307,261                                  266,620
                                                 ------------                            -------------
         Total liabilities and equity            $ 1,672,381                             $  1,499,514
                                                 ============                            =============
   Net interest-earning assets                   $   286,315                                $ 228,996
                                                 ============                            =============
   Net interest income                                          $  49,654                               $ 44,922
                                                                ==========                              =========
   Interest rate spread                                                          2.36 %                                2.45 %
   Net interest margin (net interest income
     as a percentage of interest-earning assets)                                 3.16 %                                3.20 %
   Ratio of interest-earning assets to
    interest-bearing liabilities                                               122.27 %                              119.51 %
----------------------------------------------------------------------------------------------------------------------------
</TABLE>

(1)  Average balances include nonaccrual loans.
(2)  Interest on Loan includes amortization of net deferred cost of $751,000,
     $502,000 and $288,000 in 2000, 1999 and 1998, respectively.
(3)  Average balances and yields are based on amortized costs.
(4)  Tax-exempt interest is calculated on a tax equivalent basis.
(5)  Includes mortgagors escrow accounts.
================================================================================

                                       40
<PAGE>


Rate/Volume Analysis

The following table presents the effects of changing rates and volumes on the
interest income and interest expense of the Company. The rate column shows the
effects attributable to changes in rate (changes in rate multiplied by prior
volume). The volume column shows the effects attributable to changes in volume
(changes in volume multiplied by prior rate). The net column represents the sum
of the prior columns. For purposes of this table, changes attributable to
changes in both rate and volume have been allocated proportionately based on the
absolute value of the change due to rate and the change due to volume.

<TABLE>
<CAPTION>
==================================================================================================================
Rate/Volume Analysis
==================================================================================================================
                                                Year ended December 31, 2000        Year ended December 31, 1999
                                                   compared to year ended              compared to year ended
                                                     December 31, 1999                   December 31, 1998
                                              --------------------------------    --------------------------------
                                               Increase (Decrease)                 Increase (Decrease)
                                                     Due to                              Due to
                                              --------------------                --------------------
                                                Rate       Volume        Net        Rate       Volume        Net
                                              --------    --------    --------    --------    --------    --------
                                                                      (Dollars in thousands)
<S>                                           <C>         <C>         <C>         <C>         <C>         <C>
Interest-earning assets:
   Loans                                      $  2,423    $  8,958    $ 11,381    $ (3,790)   $  6,730    $  2,940
   Federal funds sold                               74        (639)       (565)       (100)         52         (48)
   Investment securities-taxable                 3,361        (871)      2,490        (200)     (1,247)     (1,447)
   Investment securities-tax exempt (1)            (96)      1,198       1,102           -         187         187
   Mortgage-backed securities                      930       6,162       7,092        (676)      6,145       5,469
   FHLB stock                                      115         122         237          30         152         182
   Interest-earning deposits                       (44)       (125)       (169)         12        (186)       (174)
                                              --------    --------    --------    --------    --------    --------
         Total interest-earning assets           6,763      14,805      21,568      (4,724)     11,833       7,109
                                              --------    --------    --------    --------    --------    --------


Interest-bearing liabilities:
   Money market accounts                           (30)        (27)        (57)          -          88          88
   NOW accounts                                      3         133         136           8         153         161
   Savings and IRA
      passbook accounts                             15          15          30         (42)        310         268
   Certificates of deposit                       3,011        (814)      2,197      (3,089)       (356)     (3,445)
   FHLB advances and other
     borrowings                                    150       1,031       1,181        (191)      5,496       5,305
                                              --------    --------    --------    --------    --------    --------
         Total interest-bearing liabilities      3,149         338       3,487      (3,314)      5,691       2,377
                                              --------    --------    --------    --------    --------    --------
Increase (decrease) in net interest
     income                                   $  3,614    $ 14,467    $ 18,081    $ (1,410)   $  6,142    $  4,732
                                              ========    ========    ========    ========    ========    ========

------------------------------------------------------------------------------------------------------------------
(1)- Tax exempt interest is calculated on a tax equivalent basis.
==================================================================================================================
</TABLE>

                                       41
<PAGE>


Liquidity and Capital Resources

Liquidity is the ability to meet current and future short-term financial
obligations. The Company further defines liquidity as the ability to respond to
the needs of depositors and borrowers as well as maintaining the flexibility to
take advantage of investment opportunities. Primary sources of funds consist of
deposit inflows, loan repayments, maturities, paydowns, and sales of investment
and mortgage-backed securities, borrowings from the Federal Home Loan Bank, and
repurchase agreements. While maturities and scheduled amortization of loans and
securities are predictable sources of funds, deposit outflows and mortgage
prepayments are greatly influenced by general interest rates, economic
conditions and competition.

The primary investing activities of the Company are (1) the origination of
residential one-to four-family mortgage loans and, to a lesser extent,
multi-family loans, single-family construction loans, home equity loans and
lines of credit and consumer loans and (2) the investment in mortgage-backed
securities, U.S. Government and agency obligations and corporate equity
securities and debt obligations. These activities are funded primarily by
principal and interest payments on loans, maturities and sales of securities,
deposit growth and Federal Home Loan Bank advances. At December 31, 2000 and
1999, the Company's loans totaled $1.15 billion, and $1.02 billion,
respectively. At December 31, 2000 and 1999, the Company's investments in
mortgage-backed securities, U.S. Government and agency obligations and corporate
equity securities and debt obligations totaled $606.5 million and $777.3
million, respectively. In 2000, the Company experienced a net increase in total
deposits of $25.8 million. The Company experienced a net decrease in total
deposits of $30.2 million, for the year ended December 31, 1999. Deposit flows
are affected by the overall level of interest rates, the interest rates and
products offered by the Company and its local competitors and other factors. The
Company closely monitors its liquidity position on a daily basis. If the Company
should require funds beyond its ability to generate them internally, additional
sources of funds are available through Federal Home Loan Bank advances and
through repurchase agreement borrowing facilities with broker/dealers.

Outstanding commitments for all loans and unadvanced construction loans and
lines of credit totaled $243.6 million at December 31, 2000. Management of the
Company anticipates that it will have sufficient funds available to meet its
current loan commitments. Certificates of deposit that are scheduled to mature
in one year or less from December 31, 2000 totaled $568.0 million. The Company
relies primarily on competitive rates, customer service, and long-standing
relationships with customers to retain deposits. From time to time, the Company
will also offer special competitive promotions to its customers to increase
retention and promote deposit growth. Based upon the Company's historical
experience with deposit retention, management believes that, although it is not
possible to predict future terms and conditions upon renewal, a significant
portion of such deposits will remain with the Company.

The Bank is subject to various regulatory capital requirements administered by
the federal banking agencies including a risk-based capital measure. The
risk-based capital guidelines include both a definition of capital and a
framework for calculating risk-weighted assets by assigning balance sheet assets
and off-balance sheet items to broad risk categories. At December 31, 2000, the
Bank exceeded all of its regulatory capital requirements with (1) a leverage
capital level of $361.7 million, or 19.3% of average assets, which is above the
required level of $75.1 million, or 4.0%, and (2) total risk-based capital of
$403.7 million, or 35.6% of risk weighted assets, which is above the required
level of $90.7 million, or 8.0%. The Bank is considered "well capitalized" under
regulatory guidelines. On a consolidated basis at December 31, 2000, the Company
had total stockholders' equity of $513.9 million, or 27.4% of total assets.

Impact of Inflation and Changing Prices

The consolidated financial statements and related data presented in this filing
have been prepared in conformity with generally accepted accounting principles,
which require the measurement of financial position and operating results in
terms of historical dollars, without considering changes in the relative
purchasing power of money over time due to inflation. Unlike many industrial
companies, substantially all of the assets and liabilities of the Company are
monetary in nature. As a result, interest rates have a more significant impact
on the Company's performance than the general level of inflation. Over short
periods of time, interest rates may not necessarily move in the same direction
or in the same magnitude as inflation.

                                       42
<PAGE>

Impact of New Accounting Standards

Statement of Financial Accounting Standards No. 133, "Accounting for Derivative
Instruments and Hedging Activities," addresses the accounting for derivative
instruments, including certain derivative instruments embedded in other
contracts and hedging activities. As amended, the statement is effective for all
fiscal quarters of all fiscal years beginning after June 15, 2000. On that date,
hedging relationships shall be designed in accordance with the statement.
Earlier application is encouraged. Earlier application of selected provisions of
the statement is not permitted. The statement shall not be applied retroactively
to financial statements of prior periods. The statement is not expected to
affect the Company because it does not currently purchase derivative instruments
or enter into hedging activities.

In September 2000, the FASB issued SFAS No. 140, "Accounting for Transfers and
Servicing of Financial Assets and Extinguishments of Liabilities", a replacement
of SFAS No. 125. SFAS 140 addresses implementation issues that were identified
in applying SFAS No. 125. This statement revises the standards for accounting
for securitizations and other transfers of financial assets and collateral and
requires certain disclosures, but it carries over most of SFAS No. 125
provisions without reconsideration. SFAS No. 140 is effective for transfers and
servicing of financial assets and extinguishments of liabilities occurring after
March 31, 2001. SFAS No. 140 is effective for recognition and reclassification
of collateral and for disclosures relating to securitization transactions and
collateral for fiscal years ending after December 15, 2000. This statement is to
be applied prospectively with certain exceptions. Other than those exceptions,
early or retroactive application is not permitted. Management does not expect
the adoption of SFAS No. 140 to have a material effect on the Company's
financial position or results of operations.

Item 7A.    Quantitative and Qualitative Disclosures about Market Risk

Management of Interest Rate Risk and Market Risk Analysis

Qualitative Aspects of Market Risk. The Company's most significant form of
market risk is interest rate risk. The principal objectives of the Company's
interest rate risk management are to evaluate the interest rate risk inherent in
certain balance sheet accounts, determine the level of risk appropriate given
the Company's business strategy, operating environment, capital and liquidity
requirements and performance objectives, and manage the risk consistent with the
Board of Director's approved guidelines. The Company has an Asset/Liability
Committee, responsible for reviewing its asset/liability policies and interest
rate risk position, which meets monthly and reports trends and interest rate
risk position to the Finance Committee of the Board of Directors quarterly and
the whole Board of Directors annually. The extent of the movement of interest
rates is an uncertainty that could have a negative impact on the earnings of the
Company.

In recent years, the Company has used the following strategies to manage
interest rate risk: (1) emphasizing the origination of adjustable-rate loans and
generally selling longer term fixed-rate loans as market interest rate
conditions dictate; (2) emphasizing shorter term consumer loans; (3) maintaining
a high quality securities portfolio that provides adequate liquidity and
flexibility to take advantage of opportunities that may arise from fluctuations
in market interest rates, the overall maturity of which is monitored in relation
to the repricing of its loan portfolio; and (4) using Federal Home Loan Bank
advances and repurchase agreement borrowings to better structure maturities of
its interest rate sensitive liabilities. The Company currently does not
participate in hedging programs, interest rate swaps or other activities
involving the use of off-balance sheet derivative financial instruments.

The Company's market risk also includes equity price risk. The Company's
marketable equity securities portfolio had gross unrealized gains of $70.0
million at December 31, 2000 which is included, net of taxes, in accumulated
other comprehensive income, a separate component of the Company's stockholders'
equity. If equity security prices decline due to unfavorable market conditions
or other factors, the Company's stockholders' equity would decrease.

Quantitative Aspects of Market Risk. The Company uses a simulation model to
measure the potential change in net interest income, incorporating various
assumptions regarding the shape of the yield curve, the pricing

                                       43
<PAGE>

characteristics of loans, deposits and borrowings, prepayments on loans and
securities and changes in balance sheet mix. The assumptions that have the
greatest impact on the estimated changes in annual net interest income are
prepayment assumptions on mortgage loans and securities. The table below sets
forth, as of December 31, 2000 and December 31, 1999, estimated changes in the
Company's net interest income for the next twelve month period which may result
given instantaneous changes in market interest rates of 200 basis points up and
down.

If interest rates were to instantaneously rise by 200 basis points, the average
constant prepayment rate (the "CPR") assumptions on mortgage loans and
securities were 15.9% and 12.5% on December 31, 2000 and December 31, 1999,
respectively. If interest rates were to instantaneously fall by 200 basis
points, the CPR assumptions on mortgage loans and securities were 29.6% and
25.5% on December 31, 2000 and December 31, 1999, respectively. On both December
31, 2000 and December 31, 1999, the rates paid on non-maturity deposits
(savings, money management and NOW accounts) were assumed not to change under
either interest rate environment.

<TABLE>
<CAPTION>
       ================================================================================
       Estimated Increase/(Decrease) in Annual Net Interest Income
       ================================================================================
            Increase/             Estimated Changes in Annual Net Interest Income
            (decrease)       ----------------------------------------------------------
            in market          December 31, 2000                   December 31, 1999
          interest rates     ----------------------            ------------------------
         in basis points        $              %                   $               %
           (rate shock)       Change         Change              Change          Change
            ----------       -------         ------              ------          ------
                                               (Dollars in thousands)
              <S>            <C>            <C>                  <C>             <C>
               200              178          0.27                  (279)         (0.43)
              (200)          (1,507)        (2.27)               (1,907)         (2.92)
       ================================================================================
</TABLE>

Comparing the changes in net interest income on December 31, 2000 and December
31, 1999, the estimated change in net interest income improved by $400,000 from
a loss of $1.9 million to a loss of $1.5 million if interest rates were to
instantaneously fall by 200 basis points. Correspondingly, if interest rates
were to instantaneously rise by 200 basis points, the estimated change in net
interest income improved by $457,000 from a loss of $279,000 to $178,000. This
represents an improving but modest change in the basic interest rate risk
profile of the Company.

Item 8.      Financial Statements and Supplementary Data

For the Company's Consolidated Financial Statements, see index on page 48.

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

None.

                                       44
<PAGE>


                                    PART III

Item 10.   Directors and Executive Officers of the Registrant

The information contained under the heading "Proposal 1 - Election of Directors"
in American Financial Holdings, Inc.'s Proxy Statement dated March 26, 2001,
with respect to directors and executive officers of the Company, is incorporated
herein by reference in response to this item.

Item 11.   Executive Compensation

The information contained under the heading "Executive Compensation" in American
Financial Holdings, Inc.'s Proxy Statement dated March 26, 2001, with respect to
executive compensation, is incorporated herein by reference in response to this
item.

Item 12.   Security Ownership of Certain Beneficial Owners and Management

The information contained under the heading "Stock Ownership" in American
Financial Holdings, Inc.'s Proxy Statement dated March 26, 2001, with respect to
security ownership of certain beneficial owners and management is incorporated
herein by reference in response to this item.

Item 13.   Certain Relationships and Related Transactions

The information contained under the heading "Transactions with Management" in
American Financial Holdings, Inc.'s Proxy Statement dated March 26, 2001, with
respect certain relationships and related transactions is incorporated herein by
reference in response to this item.

                                     PART IV

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

(a)   (1) Financial Statements

      The following consolidated financial statements of the Bank and its
      subsidiaries are filed as part of this document under Item 8:

      - Independent Auditors' Report

      - Consolidated Balance Sheets at December 31, 2000 and 1999

      - Consolidated Statements of Income for the Years Ended December 31, 2000,
        1999 and 1998

      - Consolidated Statements of Stockholders' Equity for the Years Ended
        December 31, 2000, 1999 and 1998

      - Consolidated Statements of Cash Flows for Years Ended December 31, 2000,
        1999 and 1998

      - Notes to Consolidated Financial Statements

                                       45
<PAGE>


(2)      Financial Statement Schedules

         Financial Statement Schedules have been omitted because they are not
         applicable or the required information is shown in the Consolidated
         Financial Statements or notes thereto.

(b)      Reports on Form 8-K filed during the last quarter of 2000

         None.

(c)      Exhibits Required by Securities and Exchange Commission Regulation S-K

         Exhibit
         Number
         ------

         3.1   Certificate of Incorporation of American Financial Holdings, Inc.
               (1)
         3.2   Bylaws of American Financial Holdings, Inc. (1)
         4.0   Draft Stock Certificate of American Financial Holdings, Inc. (1)
         10.1  Employment Agreement between American Savings Bank and Robert T.
               Kenney
         10.2  Employment Agreement between American Savings Bank and Charles J.
               Boulier III
         10.3  Employment Agreement between American Savings Bank and Peter N.
               Perugini
         10.4  Employment Agreement between American Savings Bank and Sheri C.
               Pasqualoni
         10.5  Employment Agreement between American Savings Bank and Richard J.
               Moore
         10.6  Employment Agreement between American Financial Holdings, Inc.
               and Robert T. Kenney
         10.7  Employment Agreement between American Financial Holdings, Inc.
               and Charles J. Boulier III
         10.8  Employment Agreement between American Financial Holdings, Inc.
               and Peter N. Perugini
         10.9  Employment Agreement between American Financial Holdings, Inc.
               and Sheri C. Pasqualoni
         10.10 Employment Agreement between American Financial Holdings, Inc.
               and Richard J. Moore
         10.11 Form of American Savings Bank Employee Severance Compensation
               Plan (1)
         10.12 Form of American Savings Bank Supplemental Executive Retirement
               Plan (1)
         10.13 Form of American Savings Bank Directors' Retirement Plan (1)
         10.14 Form of Deferred Compensation Plans (1)
         10.15 American Savings Bank 401(k) Plan (1)
         10.16 Form of American Savings Bank Supplemental Retirement Plan for
               Chief Executive Officer (1)
         10.17 American Financial Holdings, Inc. 2000 Stock-Based Incentive Plan
               (3)
         11.0  Statement Re: Computation of Per Share Earnings
               Incorporated-Herein By Deference to Footnote 11 of the
               Consolidated Financial Statements
         21.0  Subsidiaries Information Incorporated-Herein By Reference to Part
               I - Subsidiaries
         23.1  Consent of KPMG LLP
--------------------------

         (1)  Incorporated by reference into this document from the Exhibits
              filed with the Registration Statement on Form S-1, and any
              amendments thereto, Registration No. 333-84463.
         (2)  Incorporated by reference into this document from the Exhibits
              filed with the 10-K on March 29, 2000 (Commission File No.
              0-27399).
         (3)  Incorporated by reference into this document from Appendix A to
              the Proxy Statement filed on April 24, 2000 (Commission File No.
              0-27399).

                                       46
<PAGE>


SIGNATURES

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

American Financial Holdings, Inc.
---------------------------------

    /s/ Robert T. Kenney                                  Date: March 19, 2001
    --------------------
     Robert T. Kenney
     Chairman, President and Chief Executive Officer

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

    /s/ Robert T. Kenney                                  Date: March 19, 2001
    --------------------
     Robert T. Kenney
     Chairman, President and Chief Executive Officer
     (principal executive officer)

    /s/ Charles J. Boulier III                            Date: March 19, 2001
    --------------------------
     Charles J. Boulier III
     Executive Vice President, Treasurer
     and Chief Financial Officer
     (principal accounting officer)

    /s/ Marie S. Gustin                                   Date: March 19, 2001
    -------------------
     Marie S. Gustin
     Director

    /s/ Fred M. Hollfelder                                Date: March 19, 2001
    ----------------------
     Fred M. Hollfelder
     Director

    /s/ Gregory B. Howey                                  Date: March 19, 2001
    --------------------
     Gregory B. Howey
     Director

    /s/ Mark E. Karp                                      Date: March 19, 2001
    ----------------
     Mark E. Karp
     Director

    /s/ Steven T. Martin                                  Date: March 19, 2001
    --------------------
     Steven T. Martin
     Director

    /s/ Harry N. Mazadoorian                              Date: March 19, 2001
    ------------------------
     Harry N. Mazadoorian
     Director

    /s/ Laurence A. Tanner                                Date: March 19, 2001
    ----------------------
     Laurence A. Tanner
     Director

    /s/ Jeffrey T. Witherwax                              Date: March 19, 2001
    ------------------------
     Jeffrey T. Witherwax
     Director

                                       47
<PAGE>


                      CONSOLIDATED FINANCIAL STATEMENTS OF
                        AMERICAN FINANCIAL HOLDINGS, INC.

                                      INDEX

<TABLE>
<CAPTION>
                                                                                         Page
<S>                                                                                       <C>
     Independent Auditors' Report                                                         49
     Consolidated Balance Sheets as of December 31, 2000 and 1999                         50
     Consolidated Statements of Income for the Years Ended December 31, 2000,
         1999 and 1998                                                                    51
     Consolidated Statements of Stockholders' Equity for the Years Ended
         December 31, 2000, 1999 and 1998                                                 52
     Consolidated Statements of Cash Flows for the Years Ended December 31, 2000,
         1999, and 1998                                                                   53
     Notes to Consolidated Financial Statements                                           54
</TABLE>


                                       48
<PAGE>


  [logo] KPMG
             One Financial Plaza                        Telephone 860 522 3200
             Hartford, CT 06103-2608                    Fax 860 297 5555


                          Independent Auditors' Report

The Board of Directors
American Financial Holdings, Inc.:


We have audited the accompanying consolidated balance sheets of American
Financial Holdings, Inc. and Subsidiaries as of December 31, 2000 and 1999, and
the related consolidated statements of income, equity and cash flows for each of
the years in the three-year period ended December 31, 2000. These consolidated
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.

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

In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of American Financial
Holdings, Inc. and Subsidiaries as of December 31, 2000 and 1999, and the
results of their operations and their cash flows for each of the years in the
three-year period ended December 31, 2000, in conformity with accounting
principles generally accepted in the United States of America.

/s/KPMG
Hartford, Connecticut
January 29, 2001

                                       49
<PAGE>

                        AMERICAN FINANCIAL HOLDINGS, INC.
                           Consolidated Balance Sheets
                           December 31, 2000 and 1999


<TABLE>
<CAPTION>
Assets                                                                            2000           1999
                                                                             -------------  -------------
                                                                        (In thousands, except per share data)
<S>                                                                           <C>            <C>
Cash and due from banks (note 2):
    Non-interest bearing                                                      $    17,293    $    23,294
    Interest bearing                                                                   21          5,014
                                                                             -------------  -------------
                                                                                   17,314         28,308
Federal funds sold                                                                 11,740          2,300
                                                                             -------------  -------------
    Cash and cash equivalents                                                      29,054         30,608
Investment securities available for sale, at fair value (note 3)                  351,211        435,832
Mortgage-backed securities available for sale, at fair value (note 3)             255,270        341,421
Loans receivable, net (note 4)                                                  1,151,048      1,029,531
Accrued interest receivable                                                        13,012         14,465
Federal Home Loan Bank stock (note 7)                                              12,194         16,402
Bank premises and equipment, net (note 5)                                          13,348         13,373
Real estate owned                                                                     211            445
Cash surrender value of life insurance                                             45,022              -
Other assets                                                                        3,088          4,076
                                                                             -------------  -------------
      Total Assets                                                            $ 1,873,458    $ 1,886,153
                                                                             =============  =============

Liabilities and Stockholders' Equity

Deposits (note 6)                                                             $ 1,126,336    $ 1,100,502
Mortgagors' escrow and other deposits                                              19,554         18,751
Federal Home Loan Bank advances and other borrowings (note 7)                     177,944        214,444
Deferred income tax liability (note 10)                                            24,280         11,835
Accrued interest payable on deposits and borrowings                                 1,622          1,556
Other liabilities                                                                   9,755          7,613
                                                                             -------------  -------------
      Total Liabilities                                                         1,359,491      1,354,701
                                                                             -------------  -------------

Commitments and contingencies (notes 5 and 12)

Stockholders' Equity (note 8):
    Preferred stock, $.01 par value; authorized 10,000,000 shares,
      none issued                                                                       -              -
    Common stock, $.01 par value; authorized 120,000,000 shares;
      issued 28,871,100 shares at December 31, 2000 and 28,871,100 shares
      at December 31, 1999                                                            289            289
    Additional paid-in capital                                                    282,676        282,148
    Unallocated common stock held by ESOP (2,133,484 shares at
      December 31, 2000 and 2,252,010 shares at December 31, 1999) (note 9)       (23,703)       (25,020)
    Stock-based compensation (note 9)                                                 (78)          (160)
    Treasury stock, at cost including issues acquired and awarded as
      restricted stock                                                            (56,707)             -
      at cost (3,198,395 shares at December 31, 2000)
    Retained earnings                                                             263,452        244,007
    Accumulated other comprehensive income                                         48,038         30,188
                                                                             -------------  -------------
      Total Stockholders' Equity                                                  513,967        531,452
                                                                             -------------  -------------
      Total Liabilities and Stockholders' Equity                              $ 1,873,458    $ 1,886,153
                                                                             =============  =============
</TABLE>


See accompanying notes to consolidated financial statements.

                                       50
<PAGE>

                        AMERICAN FINANCIAL HOLDINGS, INC.
                        Consolidated Statements of Income
                  Years ended December 31, 2000, 1999 and 1998


<TABLE>
<CAPTION>
                                                               2000       1999       1998
                                                            ---------  ---------   --------
                                                         (In thousands, except per share data)
<S>                                                        <C>        <C>        <C>
Interest and dividend income:
   Real estate mortgage loans                              $  55,371  $  48,366  $  46,898
   Consumer loans                                             25,704     21,328     19,856
   Mortgage-backed securities                                 21,625     14,533      9,064
   Federal funds sold                                            987      1,552      1,600
   Investment securities:
     Interest-taxable                                         19,404     17,770     19,434
     Interest-tax exempt                                       1,246        122          -
     Dividends                                                 3,286      2,362      2,137
                                                            ---------  ---------   --------
        Total interest and dividend income                   127,623    106,033     98,989
                                                            ---------  ---------   --------

Interest expense:
   Deposits (note 6)                                          48,024     45,718     48,654
   Federal Home Loan Bank advances                            11,189     10,215      5,244
   Other borrowings                                              718        511        169
                                                            ---------  ---------   --------
     Total interest expense                                   59,931     56,444     54,067
                                                            ---------  ---------   --------

     Net interest income before provision for loan losses     67,692     49,589     44,922
   Provision for loan losses (note 4)                          1,895      2,030      2,400
                                                            ---------  ---------   --------
     Net interest income after provision for loan losses      65,797     47,559     42,522
                                                            ---------  ---------   --------

Non-interest income:
   Service charges and fees                                    3,977      3,351      3,149
   Investment commissions and advisory fees                    1,545      1,399      1,052
   Net gain on sale of securities (note 3)                     6,068      2,641      3,149
   Gain on contribution of investment securities (note 3)          -        209      3,547
   Other                                                         504        363        367
                                                            ---------  ---------   --------
     Total non-interest income                                12,094      7,963     11,264
                                                            ---------  ---------   --------

Non-interest expense:
   Salaries and employee benefits (note 9)                    18,441     17,585     12,281
   Occupancy expense                                           2,380      2,475      2,047
   Furniture and fixture expense                               1,706      1,814      1,460
   Charitable contributions (note 14)                             46     21,458      3,964
   Advertising                                                 1,371      1,352      1,450
   Outside services                                            2,816      2,602      1,897
   Other                                                       4,286      3,642      3,606
                                                            ---------  ---------   --------
     Total non-interest expense                               31,046     50,928     26,705
                                                            ---------  ---------   --------

   Income before income taxes                                 46,845      4,594     27,081

   Income taxes (note 10)                                     15,719      1,811      9,066
                                                            ---------  ---------   --------

     Net income                                            $  31,126  $   2,783  $  18,015
                                                            =========  =========  =========

Net income per common share (note 11)
   Basic                                                   $    1.19          -          -
   Diluted                                                      1.18          -          -
</TABLE>

See accompanying notes to consolidated financial statements.

                                       51
<PAGE>

                        AMERICAN FINANCIAL HOLDINGS, INC.
                 Consolidated Statements of Stockholders' Equity
                  Years ended December 31, 2000, 1999 and 1998


<TABLE>
<CAPTION>
                                                                          Unallocated
                                                             Additional      Common
                                                 Common        Paid-in     Stock Held     Stock-Based     Treasury       Retained
                                                  Stock        Capital       by ESOP     Compensation      Stock         Earnings
                                                ---------     ---------     ---------      ---------      ---------      ---------
                                                                                (In thousands)
<S>                                            <C>           <C>           <C>            <C>            <C>            <C>
Balance, December 31, 1997                     $      --     $      --     $      --      $      --      $      --      $ 223,209

Comprehensive income:
  Net income                                          --            --            --             --             --         18,015
  Other comprehensive income, net of tax:
     Net unrealized gain on available
     for sale securities net of
     reclassification adjustment (note 13)            --            --            --             --             --             --


  Total comprehensive income
                                                ---------     ---------     ---------      ---------      ---------      ---------

Balance, December 31, 1998                            --            --            --             --             --        241,224
                                                ---------     ---------     ---------      ---------      ---------      ---------

Issuance of common stock pursuant to initial
  stock offering (note 1)                            268       260,718            --             --             --             --
Issuance of common stock  to Charitable
  Foundation (note 14)                                21        21,365            --             --             --             --
Unallocated ESOP shares (note 9)                      --            --       (25,661)            --             --             --
Allocation of ESOP shares (note 9)                    --            65           641             --             --             --
Shares acquired for stock-based compensation
  plans (note 9)                                      --            --            --         (1,755)            --             --
Stock-based deferred compensation obligation
  (note 9)                                            --            --            --          1,595             --             --
Comprehensive income (loss):
  Net income                                          --            --            --             --             --          2,783
  Other comprehensive income (loss),
  net of tax:
     Net unrealized loss on available for
     sale securities net of reclassification
     adjustment (note 13)                             --            --            --             --             --             --


  Total comprehensive income (loss)
                                                ---------     ---------     ---------      ---------      ---------      ---------

Balance, December 31, 1999                           289       282,148       (25,020)          (160)            --        244,007
                                                ---------     ---------     ---------      ---------      ---------      ---------
Treasury shares acquired (note 8)                     --            --            --             --        (38,675)            --
Treasury shares acquired under stock
  repurchase programs and awarded as
  restricted stock (note 9)                           --            --            --             --        (18,032)            --
Dividends declared ($0.45 per share)                  --            --            --             --             --        (11,681)
Allocation of ESOP shares (note 9)                    --           528         1,317             --             --
Stock-based deferred compensation obligation
  (note 9)                                            --            --            --             82             --             --
Comprehensive income:
  Net income                                          --            --            --             --             --         31,126
  Other comprehensive income, net of tax:
     Net unrealized gain on available for
     sale securities net of reclassification
     adjustment (note 13)                             --            --            --             --             --             --


  Total comprehensive income
                                                ---------     ---------     ---------      ---------      ---------      ---------

Balance, December 31, 2000                     $     289     $ 282,676     $ (23,703)     $     (78)     $ (56,707)     $ 263,452
                                                =========     =========     =========      =========      =========      =========



<CAPTION>
                                               Accumulated
                                                  Other           Total
                                              Comprehensive   Stockholders'
                                                 Income          Equity
                                                ---------        ---------
                                                     (In thousands)
<S>                                            <C>              <C>
Balance, December 31, 1997                     $  34,932        $ 258,141
Comprehensive income:
  Net income                                          --           18,015
  Other comprehensive income, net of tax:
     Net unrealized gain on available
     for sale securities net of
     reclassification adjustment (note 13)         4,828            4,828
                                                                 ---------

  Total comprehensive income                                       22,843
                                                ---------        ---------

Balance, December 31, 1998                        39,760          280,984
                                                ---------        ---------

Issuance of common stock pursuant to initial
  stock offering (note 1)                             --          260,986
Issuance of common stock  to Charitable
  Foundation (note 14)                                --           21,386
Unallocated ESOP shares (note 9)                      --          (25,661)
Allocation of ESOP shares (note 9)                    --              706
Shares acquired for stock-based compensation
  plans (note 9)                                      --           (1,755)
Stock-based deferred compensation obligation
  (note 9)                                            --            1,595
Comprehensive income (loss):
  Net income                                          --            2,783
  Other comprehensive income (loss),
  net of tax:
     Net unrealized loss on available for
     sale securities net of reclassification
     adjustment (note 13)                         (9,572)          (9,572)
                                                                 ---------

  Total comprehensive income (loss)                                (6,789)
                                                ---------        ---------

Balance, December 31, 1999                        30,188          531,452
                                                ---------        ---------
Treasury shares acquired (note 8)                     --          (38,675)
Treasury shares acquired under stock
  repurchase programs and awarded as
  restricted stock (note 9)                           --          (18,032)
Dividends declared ($0.45 per share)                  --          (11,681)
Allocation of ESOP shares (note 9)                    --            1,845
Stock-based deferred compensation obligation
  (note 9)                                            --               82
Comprehensive income:
  Net income                                          --           31,126
  Other comprehensive income, net of tax:
     Net unrealized gain on available for
     sale securities net of reclassification
     adjustment (note 13)                         17,850           17,850
                                                                 ---------

  Total comprehensive income                                       48,976
                                                ---------        ---------

Balance, December 31, 2000                     $  48,038        $ 513,967
                                                =========        =========
</TABLE>

See accompanying notes to consolidated financial statements.

                                       52
<PAGE>

                        AMERICAN FINANCIAL HOLDINGS, INC.
                      Consolidated Statements of Cash Flows
                  Years ended December 31, 2000, 1999 and 1998


<TABLE>
<CAPTION>
                                                                                   2000          1999         1998
                                                                                 ---------     ---------    ---------
                                                                                            (In thousands)
<S>                                                                             <C>           <C>          <C>
Operating activities:
   Net income                                                                   $  31,126     $   2,783    $  18,015
   Adjustments to reconcile net income to net cash provided by
     operating activities:
       Provision for loan losses                                                    1,895         2,030        2,400
       ESOP expense                                                                 1,845           706           --
       Depreciation and amortization of bank premises and equipment                 1,957         2,073        1,481
       Accretion of discounts                                                      (1,370)         (622)      (2,126)
       Decrease (increase) in accrued interest and dividends receivable             1,453        (3,270)         563
       Gain on sale/contribution of investment securities                          (6,040)       (2,850)      (6,696)
       Decrease (increase) deferred income taxes                                      607        (5,630)      (1,924)
       Increase in cash surrender value of life insurance                             (22)           --           --
       Decrease (increase) in other assets                                            988        (1,429)         (12)
       Increase in other liabilities                                                2,208         1,198        3,580
       Decrease (increase) in net deferred loan origination costs                     272        (2,282)        (606)
       Net (gain) loss on sale of loans                                                (5)          (59)          16
       Issuance of common stock to Charitable Foundation                               --        21,365           --
       Net gain on sale of real estate owned                                         (234)         (384)        (550)
                                                                                 ---------     ---------    ---------
         Net cash provided by operating activities                                 34,680        13,629       14,141
                                                                                 ---------     ---------    ---------

Investing activities:
   Investment securities available for sale:
     Purchases                                                                    (92,205)     (357,884)    (323,038)
     Proceeds from sales                                                           83,379        64,695        6,862
     Proceeds from maturities                                                     120,600       270,500      346,388
   Mortgage-backed securities available for sale:
     Purchases                                                                    (14,527)     (276,383)     (81,008)
     Proceeds from sales                                                           76,267        46,231           --
     Principal paydowns                                                            34,356        50,649       42,335
   Redemptions (purchases) of Federal Home Loan Bank stock                          4,208        (7,005)      (1,026)
   Proceeds from sales of loans                                                       773        11,250       13,458
   Net increase in loans (originations less repayments)                          (124,922)     (134,699)     (87,718)
   Net purchases of bank premises and equipment                                    (1,932)       (2,562)      (5,211)
   Proceeds from the sales of real estate owned                                       938         2,145        3,447
   Purchase of life insurance                                                     (45,000)           --           --
                                                                                 ---------     ---------    ---------
       Net cash provided (used) by investing activities                            41,935      (333,063)     (85,511)
                                                                                 ---------     ---------    ---------

Financing activities:
   Net increase (decrease) in deposits                                             25,834       (24,873)      47,356
   Increase (decrease) in mortgagors' escrow and other deposits                       803       (10,297)        (234)
   Advances from the Federal Home Loan Bank                                       228,000        99,500       40,000
   Repayments of advances from the Federal Home Loan Bank                        (274,500)       (5,300)          --
   Borrowings under repurchase agreements                                          36,666        52,451           --
   Repayments of repurchase agreements                                            (26,666)      (52,451)          --
   Net proceeds from common stock offering                                             --       260,986           --
   Proceeds from issuance of common stock to Charitable Foundation                     --            21           --
   Acquisition of common stock by ESOP                                                 --       (25,661)          --
   Release (acquisition) of common stock for stock-based compensation plans            82        (1,755)          --
   Obligation to stock-based deferred compensation plans                               --         1,595           --
   Purchases of treasury stock                                                    (56,707)           --           --
   Cash dividends paid                                                            (11,681)           --           --
                                                                                 ---------     ---------    ---------
       Net cash (used) provided by financing activities                           (78,169)      294,216       87,122
                                                                                 ---------     ---------    ---------
(Decrease) increase in cash and cash equivalents                                   (1,554)      (25,218)      15,752

Cash and cash equivalents at beginning of year                                     30,608        55,826       40,074
                                                                                 ---------     ---------    ---------

Cash and cash equivalents at end of year                                        $  29,054     $  30,608    $  55,826
                                                                                 =========     =========    =========



Supplemental information:
   Cash paid during the year:
     Interest on deposits and borrowings                                        $  59,865     $  55,549    $  53,898
     Income taxes                                                                  13,885         9,670        9,890
   Transfers of loans to real estate owned                                            470         1,486        2,878
   Contribution of investment securities to charitable foundation                      --           212        3,632
</TABLE>

See accompanying notes to consolidated financial statements.

                                       53
<PAGE>

                        AMERICAN FINANCIAL HOLDINGS, INC.

                   Notes to Consolidated Financial Statements

                        December 31, 2000, 1999 and 1998


(1)    Summary of Significant Accounting Policies

       The accounting and reporting policies of American Financial Holdings,
       Inc. (the "Parent Company") and its subsidiary (referred together as the
       "Company") conform to generally accepted accounting principles and
       reporting practices followed by the banking industry. Significant
       policies are described below.

       (a)    Business and Stock Offering

              The Company is a savings and loan holding company. The Parent
              Company's subsidiary, American Savings Bank (the "Bank"), provides
              a wide range of banking, financing, fiduciary and other financial
              services to individuals and businesses located primarily in
              Connecticut. The Company is subject to the regulation of certain
              state and federal agencies and undergoes periodic examination by
              those regulatory authorities.

              The Bank completed its conversion from a mutual savings bank to a
              stock savings bank (the "Conversion") on November 30, 1999.
              Concurrent with the Bank's conversion, the Parent Company was
              formed, acquired all of the Bank's common stock and issued its
              common stock in a subscription and direct community offering to
              the public. Prior to the subscription and direct community
              offering, the Parent Company had no results of operations;
              therefore, financial information prior to November 30, 1999
              reflects the operations of the Bank.

              As provided for in the Conversion, the Bank issued all of its
              1,000 outstanding shares of common stock to the Company for 50% of
              the net proceeds from the Company's sale of common stock in the
              subscription and direct community offering. As a result of the
              subscription and direct community offering, the Company sold
              25,395,875 shares of its common stock at a price of $10 per share
              to persons having subscription rights, and 1,336,625 shares to the
              Bank's Employee Stock Ownership Plan (the "ESOP"). The Company
              also contributed 2,138,600 shares to American Savings Charitable
              Foundation. The Conversion resulted in net proceeds of $261.0
              million after offering costs of $6.3 million.

       (b)    Basis of Financial Statement Presentation

              The consolidated financial statements have been prepared in
              conformity with accounting principles generally accepted in the
              United States of America, and include the accounts of the Parent
              Company, the Bank and the Bank's wholly-owned subsidiaries,
              American Investment Services, Inc. and American Savings Bank
              Mortgage Servicing Company. All significant intercompany
              transactions have been eliminated in consolidation.

                                       54                       (Continued)
<PAGE>

                        AMERICAN FINANCIAL HOLDINGS, INC.

                   Notes to Consolidated Financial Statements

                        December 31, 2000, 1999 and 1998


              In preparing the consolidated financial statements, management is
              required to make estimates and assumptions that affect the
              reported amounts of assets and liabilities as of the date of the
              balance sheet and revenues and expenses for the period. Actual
              results could differ from those estimates. Material estimates that
              are particularly susceptible to changes in the near-term relate to
              the determination of the allowance for loan losses and the
              valuation allowance for the deferred tax assets, which are
              discussed below.

       (c)    Investment and Mortgage-Backed Securities

              The Company classifies its debt securities in one of three
              categories: trading, available for sale, or held to maturity.
              Marketable equity securities are classified as either trading or
              available for sale securities. Management determines the
              appropriate classifications of securities at the time of purchase.
              Trading securities are bought and held principally for the purpose
              of selling them in the near term. Held to maturity securities are
              debt securities for which the Company has the ability and intent
              to hold until maturity. All other securities not included in
              trading or held to maturity are classified as available for sale.
              At December 31, 2000 and 1999, all of the Company's debt and
              equity securities were classified as available for sale.

              Held to maturity securities are recorded at amortized cost,
              adjusted for the amortization or accretion of premiums or
              discounts. Trading and available for sale securities are recorded
              at fair value. Unrealized gains and losses on trading securities
              are included in earnings. Unrealized gains and losses, net of the
              related tax effect, on available for sale securities are excluded
              from earnings and are reported in accumulated other comprehensive
              income (loss), a separate component of stockholders' equity, until
              realized.

              Premiums and discounts on debt securities are amortized or
              accreted into interest income over the term of the securities in a
              manner that approximates the level yield method. A decline in
              market value of a security below amortized cost that is deemed
              other than temporary is charged to earnings, resulting in the
              establishment of a new cost basis for the security. Gains and
              losses on sales of securities are recognized at the time of sale
              on a specific identification basis.

       (d)    Loans Receivable, Net

              Loans are reported at the principal amount outstanding, net of
              deferred loan fees and costs and the allowance for loan losses. A
              significant portion of the Company's mortgage loan receivables and
              commitments are secured by residential real estate located in the
              Greater Hartford area and surrounding communities in Connecticut.
              Accordingly, a substantial portion of the Company's loan portfolio
              is susceptible to changes in economic and market conditions in
              Connecticut. The Company's policy for collateral requires that the
              amount of the loan generally may not exceed 80% of the appraised
              value of the property at the time that the loan is granted. In
              cases where the loan exceeds this percentage, the Company's policy
              is to require private mortgage insurance of between 20% to 30% of
              the appraised value based on the actual loan to value ratio.

                                       55                       (Continued)
<PAGE>

                        AMERICAN FINANCIAL HOLDINGS, INC.

                   Notes to Consolidated Financial Statements

                        December 31, 2000, 1999 and 1998


              Interest on loans is credited to income as earned based on the
              rate applied to principal amounts outstanding. Interest on loans
              is not accrued when, in the judgment of management, the
              collectability of the principal or interest becomes doubtful. The
              Company's policy is to discontinue the accrual of interest when
              principal or interest payments are delinquent 90 days or more. If
              ultimately collected, such interest is credited to income when
              received. Loans are removed from nonaccrual status when they
              become 90 days past due and when concern no longer exists as to
              the collectibility of principal and interest.

              Certain direct loan origination fees and costs, and premiums and
              discounts on loans purchased, are deferred and recognized in
              interest income over the life of the related loan as an adjustment
              of yield.

              The adequacy of the allowance for loan losses is regularly
              evaluated by management. Factors considered in evaluating the
              adequacy of the allowance include previous loss experience,
              current economic conditions and their effect on borrowers, the
              performance of individual loans in relation to contract terms, and
              other pertinent factors. The provision for loan losses charged to
              expense is based upon management's judgment of the amount
              necessary to maintain the allowance at a level adequate to absorb
              probable losses inherent in the loan portfolio. Loan losses are
              charged against the allowance when management believes the
              collectibility of the principal balance outstanding is unlikely.

              In determining the adequacy of the allowance for loan losses,
              management obtains independent appraisals on assets securing
              significant relationships. While management uses the best
              available information to recognize losses on loans, future
              additions to the allowance for loan losses may be necessary based
              on changes in economic conditions. In addition, various regulatory
              agencies, as an integral part of their examination process,
              periodically review the Company's allowance for loan losses. Such
              agencies may require the Company to recognize additions to the
              allowance based on their judgments about information available to
              them at the time of their examinations.

              Impaired loans are those for which it is probable that the Company
              will be unable to collect all amounts due according to the
              original contractual terms of the loan agreement. Impairment is
              measured based on the present value of expected future cash flows
              discounted at the loan's effective interest rate or, as a
              practical expedient, at the loan's observable market price or the
              fair value of the collateral if the loan is collateral dependent.
              The Company considers loans impaired if payments are greater than
              90 days past due and the value of the collateral securing the loan
              is less than the principal amount outstanding. The Company follows
              the same policy for recognition of income on impaired loans as it
              does for all other loans.

       (e)    Mortgage Servicing Rights

              When the Company sells mortgage loans with servicing rights
              retained, it allocates the total cost of the loans to the mortgage
              servicing rights and to the loans (without the servicing rights)
              based on their relative fair values. Capitalized mortgage
              servicing rights are amortized as a reduction of

                                       56                       (Continued)
<PAGE>

                        AMERICAN FINANCIAL HOLDINGS, INC.

                   Notes to Consolidated Financial Statements

                        December 31, 2000, 1999 and 1998


              servicing fee income in proportion to, and over the period of,
              estimated net servicing income by use of a method that
              approximates the level-yield method. Capitalized mortgage
              servicing rights are periodically evaluated and, if impairment is
              identified, the amount is charged to earnings with the
              establishment of a valuation allowance against the capitalized
              mortgage servicing rights.

       (f)    Real Estate Owned

              Real estate owned primarily consists of properties acquired
              through foreclosure or deeded to the Company in lieu of
              foreclosure. Each real estate owned property is carried at the
              lower of cost or fair value, less estimated selling costs. Holding
              costs are charged to current period earnings. Gains and losses on
              sales of properties are reflected in the consolidated statements
              of income when realized.

       (g)    Federal Home Loan Bank Stock

              As a member of the Federal Home Loan Bank of Boston ("FHLB"), the
              Bank is required to hold a certain amount of FHLB stock. This
              stock is considered to be a non-marketable equity security and,
              accordingly, is carried at cost.

       (h)    Bank Premises and Equipment

              Premises and equipment are carried at cost less accumulated
              depreciation and amortization. Depreciation and amortization are
              computed on the straight-line method using the estimated lives of
              the assets. Estimated lives are 15 to 40 years for buildings and
              improvements and 3 to 20 years for furniture, fixtures and
              equipment. Amortization of leasehold improvements is calculated on
              a straight-line basis over the terms of the related leases,
              including renewal periods, or the life of the asset, whichever is
              shorter. The cost of maintenance and repairs is charged to expense
              as incurred, whereas significant renovations are capitalized.

       (i)    Income Taxes

              The Company files consolidated federal and state tax returns. In
              accordance with Statement of Financial Accounting Standards No.
              109, "Accounting for Income Taxes," the Company uses the asset and
              liability method of accounting for income taxes. Under this
              method, deferred tax assets and liabilities are established for
              the temporary differences between the financial reporting basis
              and the tax basis of the Company's assets and liabilities.
              Deferred tax assets are also recognized for available tax
              carryforwards, such as for charitable contributions. Deferred tax
              assets and liabilities are measured using enacted tax rates
              expected to be in effect when temporary differences and
              carryforwards are realized or settled.

              The deferred tax asset is subject to reduction by a valuation
              allowance in certain circumstances. This valuation allowance is
              recognized if, based on an analysis of available evidence,
              management determines that it is more likely than not that some
              portion or all of the deferred tax asset will not

                                       57                       (Continued)
<PAGE>

                        AMERICAN FINANCIAL HOLDINGS, INC.

                   Notes to Consolidated Financial Statements

                        December 31, 2000, 1999 and 1998




              be realized. The valuation allowance is subject to ongoing
              adjustment based on changes in circumstances that affect
              management's judgment about the realization of the deferred tax
              asset. Adjustments to increase or decrease the valuation allowance
              are charged or credited, respectively, to income tax expense.

              Income tax expense includes the amount of taxes payable for the
              current year, and the deferred tax benefit or expense for the
              period. The effect on deferred tax assets and liabilities of a
              change in tax rates is recognized in income tax expense in the
              period that includes the enactment date.

       (j)    Pension and Other Post-Retirement Benefit Plans

              The Bank has a noncontributory pension plan covering substantially
              all employees. Pension costs are accrued in accordance with
              generally accepted accounting principles and are funded in
              accordance with requirements of the Employee Retirement Income
              Security Act. The Bank also accrues costs related to
              post-retirement health care and life insurance benefits.

       (k)    Employee Stock Ownership Plan

              Compensation expense is recognized for the Employee Stock
              Ownership Plan ("ESOP") equal to the average fair value of shares
              committed to be released for allocation to participant accounts.
              Any difference between the average fair value of shares committed
              to be released for allocation and the ESOP's original acquisition
              cost is charged or credited to stockholders' equity (additional
              paid-in capital). The cost of unallocated ESOP shares (shares not
              yet released for allocation) is reflected as a reduction of
              stockholders' equity.

       (l)    Fair Values of Financial Instruments

              Fair values of financial instruments are disclosed in accordance
              with SFAS No. 107, "Disclosure about Fair Value of Financial
              Instruments," which requires entities to disclose the fair value
              of financial instruments, including both assets and liabilities
              recognized on the balance sheet as well as off-balance sheet
              instruments, for which it is practicable to estimate fair value.

              Financial instruments include cash and cash equivalents,
              investment securities, mortgage-backed securities, loans,
              deposits, borrowings and certain off-balance-sheet items. Fair
              value estimates are made at a specific point in time based on
              market information, where available, or other more subjective
              information if an active market for the financial instrument does
              not exist. These estimates incorporate assumptions and other
              matters of judgment and may not reflect the true financial impact
              that could result from selling the entire portfolio of a financial
              instrument on one date, including any income tax consequences.

              Fair value estimates are based on existing on-and
              off-balance-sheet financial instruments without attempting to
              estimate the value of anticipated future business and the value of
              assets and liabilities that are not considered financial
              instruments. Other assets that are not considered financial

                                       58                       (Continued)
<PAGE>

                        AMERICAN FINANCIAL HOLDINGS, INC.

                   Notes to Consolidated Financial Statements

                        December 31, 2000, 1999 and 1998


              instruments and are excluded from fair value disclosures include
              real estate owned and premises and equipment.

       (m)    Cash Equivalents

              For purposes of the consolidated statements of cash flows, the
              Company defines cash equivalents to include federal funds sold.

       (n)    Trust Assets

              Approximately $165.0 million and $136.9 million of assets were
              held by the Company at December 31, 2000 and 1999, respectively,
              in a fiduciary or agency capacity for customers. These assets are
              not included in the accompanying consolidated financial
              statements, since the Company does not own them.

       (o)    Comprehensive Income

              The purpose of reporting comprehensive income is to report a
              measure of all changes in equity of an enterprise that result from
              recognized transactions and other economic events of the period
              other than transactions with owners in their capacity as owners.
              Comprehensive income includes net income and certain changes in
              equity that are not recognized in the statement of income (such as
              changes in net unrealized gains and losses on securities available
              for sale). The Company has reported comprehensive income and its
              components for 2000, 1999 and 1998 in the consolidated statements
              of stockholders' equity.

        (p)   Segment Information

              SFAS No. 131, "Disclosures about Segments of an Enterprise and
              Related Information", requires public companies to report certain
              financial information about significant revenue-producing segments
              of the business for which such information is available and
              utilized by the chief operating decision-maker. Specific
              information to be reported for individual operating segments
              includes a measure of profit and loss, certain revenue and expense
              items and total assets. As a community-oriented financial
              institution, substantially all of the Company's operations involve
              the delivery of loan and deposit products to customers. Management
              makes operating decisions and assesses performance based on an
              ongoing review of the community-banking operation, which
              constitutes the Company's only operating segment for financial
              reporting purposes under SFAS No. 131.

       (q)    Earnings Per Share

              Basic earnings per share is calculated by dividing net income
              available to common stockholders by the weighted-average number of
              shares of common stock outstanding during the period. Diluted
              earnings per share is computed in a manner similar to that of
              basic earnings per share except that


                                       59                         (Continued)
<PAGE>

                        AMERICAN FINANCIAL HOLDINGS, INC.

                   Notes to Consolidated Financial Statements

                        December 31, 2000, 1999 and 1998


              the weighted-average number of common shares outstanding is
              increased to include the number of incremental common shares
              (computed using the treasury stock method) that would have been
              outstanding if all potentially dilutive common shares (such as
              stock options and unvested restricted stock) were issued during
              the period. Unallocated common shares held by the ESOP and
              unvested restricted stock are not included in the weighted-average
              number of common shares outstanding for either basic or diluted
              earnings per share calculations.

       (r)    Stock-Based Compensation

              Compensation expense is recognized for the Company's ESOP equal to
              the fair value of shares that have been allocated or committed to
              be released for allocation to participants. Any difference between
              the fair value of the shares at that time and the ESOP's original
              acquisition cost is charged or credited to stockholders' equity
              (additional paid-in capital). The cost of ESOP shares that have
              not yet been allocated or committed to be released is deducted
              from stockholders' equity.

              The Company accounts for its option under the Stock-Based
              Incentive Plan in accordance with Accounting Principles Board
              ("APB") Option No. 25, "Accounting for Stock Issued to Employees".
              Accordingly, compensation expense is recognized only if the
              exercise price of an option is less than the fair value of the
              underlying stock at the grant date. SFAS No. 123, "Accounting for
              Stock-Based Compensation", encourages entities to recognize the
              fair value of all stock-based awards (measured on the grant date)
              as compensation expense over the vesting period. Alternatively,
              SFAS No. 123 allows entities to apply the provisions of APB
              Opinion No. 25 and provide pro forma disclosures of net income and
              earnings per share as if the fair-value-based method defined in
              SFAS No. 123 had been applied. The Company has elected to apply
              the provisions of APB Opinion No. 25 and provide these pro forma
              disclosures.

              The restricted stock awards under the Stock-Based Incentive Plan
              is also accounted for in accordance with APB Opinion No. 25. The
              fair value of the shares awarded, measured at the grant date, is
              recognized as a deduction from stockholders' equity and amortized
              to compensation expense as the shares vest.

       (s)    Cash Surrender Value of Life Insurance

              The investment in life insurance represents the cash surrender
              value of life insurance policies purchased by the Bank with
              respect to certain officers and employees of the Bank. Increases
              in the cash surrender value are recorded as other non-interest
              income.

       (t)    Securities Repurchase Agreements

              In securities repurchase agreements, the Company transfers
              securities to a counterparty under an agreement to repurchase the
              identical securities at a fixed price on a future date. These
              agreements are accounted for as secured financing transactions
              since the Company maintains effective control over the transferred
              securities and the transfer meets other specified criteria.
              Accordingly, the

                                       60                       (Continued)
<PAGE>

                        AMERICAN FINANCIAL HOLDINGS, INC.

                   Notes to Consolidated Financial Statements

                        December 31, 2000, 1999 and 1998


              transaction proceeds are recorded as borrowings and the underlying
              securities continue to be carried in the Company's securities
              portfolio.

       (u)    Reclassifications

              Certain financial statement amounts as previously reported have
              been reclassified to conform to the current year presentation.

(2)    Cash and Due from Banks

       The Bank is required to maintain reserves with respect to its transaction
       accounts and non-personal time deposits. As of December 31, 2000, the
       Bank maintained cash and liquid assets of approximately $950,000 in
       satisfaction of these regulatory requirements.

                                       61                       (Continued)
<PAGE>

                        AMERICAN FINANCIAL HOLDINGS, INC.

                   Notes to Consolidated Financial Statements

                        December 31, 2000, 1999 and 1998


(3)    Investment and Mortgage-Backed Securities

       The Company classified all investment and mortgage-backed securities as
       available for sale as of December 31, 2000 and 1999. The amortized cost,
       gross unrealized gains, gross unrealized losses, and estimated fair
       values of investment and mortgage-backed securities at December 31, 2000
       and 1999 are as follows:

<TABLE>
<CAPTION>
                                                                                   December 31, 2000
                                                            ----------------------------------------------------------------
                                                                                 Gross             Gross
                                                              Amortized        Unrealized       Unrealized          Fair
                                                                Cost             Gains            Losses           Value
                                                            --------------    -------------    --------------    -----------
                                                                                    (In thousands)
<S>                                                        <C>               <C>              <C>               <C>
      Investment securities:
           U.S. Treasury notes                             $      5,029      $        318     $          -      $    5,347
           U.S. Government agencies                              24,742               734              (12)         25,464
           Corporate bonds                                      187,800             2,500              (68)        190,232
           Municipal bonds                                       38,002             2,036               (1)         40,037
           Marketable equity securities                          20,104            70,560             (533)         90,131
                                                            --------------    -------------    --------------    -----------
                Total investment securities                     275,677            76,148             (614)        351,211
                                                            --------------    -------------    --------------    -----------
      Mortgage-backed securities:
           U.S. Government and agency                           139,377             1,581              (90)        140,868
           U.S. Agency issued collateralized
             mortgage obligations                               111,530             2,872                -         114,402
                                                            --------------    -------------    --------------    -----------
                 Total mortgage-backed securities               250,907             4,453              (90)        255,270
                                                            --------------    -------------    --------------    -----------

              Total available for sale                     $    526,584      $     80,601     $       (704)     $  606,481
                                                            ==============    =============    ==============    ===========
</TABLE>

       At December 31, 2000, the net unrealized gain on securities available for
       sale of $79.9 million, net of income taxes of $31.9 million, is shown as
       accumulated other comprehensive income of $48.0 million in stockholder's
       equity.

                                       62                       (Continued)
<PAGE>

                        AMERICAN FINANCIAL HOLDINGS, INC.

                   Notes to Consolidated Financial Statements

                        December 31, 2000, 1999 and 1998


<TABLE>
<CAPTION>
                                                                                  December 31, 1999
                                                            ---------------------------------------------------------------
                                                                                Gross             Gross
                                                             Amortized        unrealized        unrealized         Fair
                                                                cost            gains             losses          value
                                                            -------------    -------------     -------------    -----------
                                                                                    (In thousands)
<S>                                                        <C>              <C>               <C>              <C>
      Investment securities:
           U.S. Treasury notes                             $      5,037     $        131      $         --     $    5,168
           U.S. Government agencies                              45,502               --              (382)        45,120
           Corporate bonds                                      267,341               --            (3,180)       264,161
           Municipal bonds                                       22,738               --              (478)        22,260
           Marketable equity securities                          13,145           61,291              (313)        74,123
           Auction preferred stocks                              25,000               --                --         25,000
                                                            -------------    -------------     -------------    -----------
                Total investment securities                     378,763           61,422            (4,353)       435,832
                                                            -------------    -------------     -------------    -----------
      Mortgage-backed securities:
           U.S. Government and agency                           224,916              102            (5,157)       219,861
           U.S. Agency issued collateralized
             mortgage obligations                               123,365               --             1,805        121,560
                                                            -------------    -------------     -------------    -----------
                Total mortgage-backed securities                348,281              102            (6,962)       341,421
                                                            -------------    -------------     -------------    -----------

              Total available for sale                     $    727,044     $     61,524      $    (11,315)    $  777,253
                                                            =============    =============     =============    ===========
</TABLE>

       At December 31, 1999, the net unrealized gain on securities available for
       sale of $50.2 million, net of income taxes of $20.0 million, is shown as
       accumulated other comprehensive income of $30.2 million in stockholders'
       equity.

                                       63                       (Continued)
<PAGE>

                        AMERICAN FINANCIAL HOLDINGS, INC.

                   Notes to Consolidated Financial Statements

                        December 31, 2000, 1999 and 1998


       The amortized cost and fair value of debt securities at December 31, 2000
       by contractual maturity, excluding mortgage-backed securities, are shown
       below. Expected maturities will differ from contractual maturities
       because issuers may have the right to call or prepay obligations with or
       without call or prepayment penalties.

<TABLE>
<CAPTION>
                                                                   December 31, 2000
                                                            ---------------------------------
                                                               Amortized            Fair
                                                                 cost              value
                                                            ----------------    -------------
                                                                     (In thousands)
<S>                                                        <C>                 <C>
        Due in one year or less                            $       39,229      $      39,221
        Due after one year through five years                     170,731            173,814
        Due after five years through ten years                     18,719             19,522
        Due after ten years                                        26,894             28,523
                                                            ----------------    -------------
                                                                  255,573            261,080

        Mortgage-backed securities                                250,907            255,270
                                                            ----------------    -------------

                                                           $      506,480      $     516,350
                                                            ================    =============
</TABLE>

       A security with an amortized cost of $1.9 million and a fair value of
       $2.0 million at December 31, 2000 was pledged to secure public deposits.

       The following is a summary of realized gains and losses on sales of
       securities available for sale during the years ended December 31:

<TABLE>
<CAPTION>
                                   2000                                 1999                             1998
                      -------------------------------       -----------------------------      -------------------------
                      Gains       Losses          Net       Gains      Losses         Net      Gains    Losses       Net
                      -----       ------          ---       -----      ------         ---      -----    ------       ---
                                                                   (In thousands)
<S>                 <C>          <C>          <C>          <C>        <C>          <C>        <C>         <C>     <C>
Available for sale:
Mortgage-backed
 securities             $30      ($2,037)     ($2,007)      $   -     ($1,785)    ($1,785)      $  -      $  -     $   -

Investment
 securities          10,364       (2,289)       8,075       5,694       1,268       4.426      3,149         -     3,149
                     ------       -------       -----       -----       -----       -----      -----      ----     -----

    Total           $10,394      ($4,326)     $ 6,068      $5,694     ($3,053)     $2,641     $3,149      $  -    $3,149
                    =======      ========     =======      ======     ========     ======     ======      ====    ======
</TABLE>

       During the year ended December 31, 1999, investment securities with an
       amortized cost of $3,000 and a fair value of $212,000 were contributed to
       the American Savings Bank Foundation, resulting in recognition of a gain
       of $209,000.

                                       64                       (Continued)
<PAGE>

                        AMERICAN FINANCIAL HOLDINGS, INC.

                   Notes to Consolidated Financial Statements

                        December 31, 2000, 1999 and 1998


       During the year ended December 31, 1998, investment securities with an
       amortized cost of $85,000 and a fair value of $3.6 million were
       contributed to the American Savings Bank Foundation, resulting in
       recognition of a gain of $3.5 million.

(4)    Loans Receivable, Net

       The composition of the Company's loan portfolio was as follows:

<TABLE>
<CAPTION>
                                                                                                December 31,
                                                                                       -------------------------------
                                                                                            2000             1999
                                                                                       ---------------   -------------
                                                                                               (In thousands)
<S>                                                                                   <C>               <C>
       Real estate mortgage loans:
           One - to four-family                                                       $      818,272    $    719,089
           Residential construction                                                           11,963          19,587
           Other                                                                                 924           1,106
                                                                                       ---------------   -------------
                    Total real estate mortgage loans                                         831,159         739,782
                                                                                       ---------------   -------------

       Consumer loans:
           Home equity loans and lines of credit                                             307,106         276,049
           Automobile                                                                         17,027          15,539
           Other                                                                               2,833           3,162
                                                                                       ---------------   -------------
                    Total consumer loans                                                     326,966         294,750
                                                                                       ---------------   -------------

                    Total loans                                                            1,158,125       1,034,532

       Premiums on loans purchased, deferred loan fees and costs, net                          3,547           3,819
       Allowance for loan losses                                                             (10,624)         (8,820)
                                                                                       ---------------   -------------

       Loans receivable, net                                                          $    1,151,048      $  1,029,531
                                                                                       ===============   =============
</TABLE>

                                       65                       (Continued)
<PAGE>

                        AMERICAN FINANCIAL HOLDINGS, INC.

                   Notes to Consolidated Financial Statements

                        December 31, 2000, 1999 and 1998


       Loans on nonaccrual status amounted to $3.0 million and $2.5 million as
       of December 31, 2000 and 1999, respectively. If interest on nonaccrual
       loans had been recognized in accordance with their original terms, such
       income would have approximated $306,000, $200,000 and $330,000 for the
       years ended December 31, 2000, 1999 and 1998, respectively. Interest
       income recognized on nonaccrual loans for the years ended December 31,
       2000, 1999 and 1998 was approximately $199,000, $112,000 and $153,000,
       respectively.

       The Company's investment in impaired loans was $130,000 and $310,000 at
       December 31, 2000 and 1999, respectively. The allowance for loan losses
       on these impaired loans was approximately $45,000 and $158,000 at
       December 31, 2000 and 1999, respectively. There were no impaired loans
       without a related allowance for losses. The average balance of impaired
       loans was $220,000, $805,000 and $1.7 million for the years ended
       December 31, 2000, 1999 and 1998. The interest income recognized on
       impaired loans was not significant.

       Changes in the allowance for loan losses are summarized as follows:

<TABLE>
<CAPTION>
                                                                                             Years ended December 31,
                                                                                     -------------------------------------
                                                                                        2000         1999         1998
                                                                                     -----------   ----------   ----------
                                                                                                 (In thousands)
<S>                                                                               <C>           <C>          <C>
        Balance at beginning of year                                              $     8,820   $     7,626  $    6,277
        Provision for loan losses charged to income                                     1,895         2,030       2,400
        Loans charged-off                                                                (252)         (942)     (1,154)
        Recoveries                                                                        161           106         103
                                                                                     -----------   ----------   ----------

        Balance at end of year                                                    $    10,624   $     8,820  $    7,626
                                                                                     ===========   ==========   ==========
</TABLE>

       The Company serviced loans for others totaling approximately $146.1
       million, $157.1 million and $166.5 million at December 31, 2000, 1999 and
       1998, respectively. Income from servicing loans for others was $431,000,
       $455,000 and $479,000 for the years ended December 31, 2000, 1999 and
       1998, respectively.

                                       66                       (Continued)
<PAGE>

                        AMERICAN FINANCIAL HOLDINGS, INC.

                   Notes to Consolidated Financial Statements

                        December 31, 2000, 1999 and 1998


(5)    Bank Premises and Equipment, Net

       Bank premises and equipment consisted of the following:

<TABLE>
<CAPTION>
                                                                                                          December 31,
                                                                                                 --------------------------
                                                                                                     2000          1999
                                                                                                 ------------   -----------
                                                                                                         (In thousands)
<S>                                                                                             <C>            <C>
            Premises                                                                            $   10,672     $   10,560
            Construction in progress                                                                   276             94
            Furniture, equipment and software                                                        9,575          8,047
            Leasehold improvements                                                                   2,845          2,777
                                                                                                 ------------   -----------
                 Total                                                                              23,368         21,478

            Less accumulated depreciation and amortization
                                                                                                   (10,020)        (8,105)
                                                                                                 ------------   -----------

                 Premises and equipment, net                                                    $   13,348     $   13,373
                                                                                                 ============   ===========
</TABLE>

       Total depreciation and amortization expense amounted to $2.0 million,
       $2.1 million and $1.5 million for the years ended December 31, 2000, 1999
       and 1998, respectively.

       At December 31, 2000, the Company was obligated under various
       non-cancelable operating leases for properties used as branch facilities.
       The leases contain renewal options for periods ranging from 5 to 20 years
       and escalation clauses as defined which provide for increased rental
       expense over a base year. Rental expense under leases was $487,000,
       $557,000 and $396,000 for the years ended December 31, 2000, 1999 and
       1998, respectively.

                                       67                       (Continued)
<PAGE>

                        AMERICAN FINANCIAL HOLDINGS, INC.

                   Notes to Consolidated Financial Statements

                        December 31, 2000, 1999 and 1998


       Future minimum payments, by year and in the aggregate, under
       non-cancelable operating leases for branch office premises with initial
       or remaining terms of one year or more consisted of the following at
       December 31, 2000 (in thousands):

<TABLE>
                        <S>                                                    <C>
                        2001                                                   $   516
                        2002                                                       434
                        2003                                                       405
                        2004                                                       381
                        2005                                                       316
                        Thereafter                                               1,090
                                                                                -------

                        Total                                                  $ 3,142
                                                                                =======
</TABLE>


(6)    Deposits

       A summary of deposit balances, by type, is as follows:

<TABLE>
<CAPTION>
                                                                             December 31,
                                                                     -------------------------------
                                                                         2000              1999
                                                                     -------------    --------------
                                                                            (In thousands)
<S>                                                                 <C>                <C>
       Regular savings                                              $     202,564      $    196,061
       NOW accounts                                                        90,118            73,336
       Money market accounts                                               65,130            64,794
       Demand deposit accounts                                             16,378            13,302
       Time deposits                                                      752,146           753,009
                                                                     -------------      ------------
                 Total                                              $   1,126,336      $  1,100,502
                                                                     =============      ============
</TABLE>

                                       68                       (Continued)
<PAGE>

                        AMERICAN FINANCIAL HOLDINGS, INC.

                   Notes to Consolidated Financial Statements

                        December 31, 2000, 1999 and 1998


       Interest expense on deposits, by account type, is summarized as follows:

<TABLE>
<CAPTION>
                                                                            Years ended December 31,
                                                                  ---------------------------------------------
                                                                      2000            1999            1998
                                                                  -------------    ------------   -------------
                                                                                (In thousands)
<S>                                                              <C>              <C>            <C>
       Regular and other savings                                 $      4,116     $      4,086   $      3,800
       NOW accounts                                                     1,082              946            785
       Money market accounts                                            1,709            1,766          1,678
       Time deposits                                                   41,117           38,920         42,390
                                                                  -------------    ------------   -------------

       Total                                                     $     48,024     $     45,718   $     48,653
                                                                  =============    ============   =============
</TABLE>

       A summary of time deposits by remaining period to maturity is as follows:

<TABLE>
<CAPTION>
                                                                                            December 31,
                                                                                   --------------------------------
                                                                                       2000              1999
                                                                                   --------------   ---------------
                                                                                           (In thousands)
<S>                                                                               <C>              <C>
       1 - 12 months                                                              $    568,012     $    575,391
       13 - 24 months                                                                  143,274          148,947
       25 - 36 months                                                                   24,168           12,082
       37 - 48 months                                                                    1,524           14,125
       48 months and thereafter                                                         15,168            2,464
                                                                                   --------------   ---------------

                 Total                                                            $    752,146     $    753,009
                                                                                   ==============   ===============
</TABLE>

       Time deposits of $100,000 or more amounted to $84.0 million at December
       31, 2000. Interest paid on time of deposits of $100,000 or more amounted
       to approximately $4.1 million for the year ended December 31, 2000.

                                       69                       (Continued)
<PAGE>

                        AMERICAN FINANCIAL HOLDINGS, INC.

                   Notes to Consolidated Financial Statements

                        December 31, 2000, 1999 and 1998


(7)    Borrowings

       Advances payable to the Federal Home Loan Bank of Boston are as follows:

<TABLE>
<CAPTION>
    Maturity              Interest
      Dates                 Rates                  December 31,
-----------------------------------------------------------------------
                                               2000            1999
                                            ------------    -----------
                                                  (In thousands)
<S>                     <C>              <C>             <C>
2000                    4.96 - 5.79%     $          -    $      86,500
2001                    5.10 - 6.28%            55,000          55,000
2002                    5.14 - 6.70%            59,500          32,000
2003                    6.07 - 6.91%            35,000          25,000
2004                    5.81 - 6.51%            11,000          11,000
2005                    6.54 - 7.27%             7,200           4,700
After 2005                  4.00%                  244             244
                                            ------------    -----------

Total                                    $     167,944   $     214,444
                                            ============    ===========
</TABLE>


       At December 31, 2000 and 1999, the Bank was in compliance with FHLB
       collateral requirements. At December 31, 2000, the Bank had a borrowing
       capacity of $854.6 million from the FHLB, including a line of credit of
       approximately $14.8 million. Advances are secured by the Bank's
       investment in FHLB stock and a blanket security agreement. This agreement
       requires the Bank to maintain as collateral certain qualifying assets,
       principally mortgage loans and securities.

       During the years ended December 31, 2000 and 1999, the Company also
       borrowed under securities repurchase agreements. Certain information as
       to the Bank's repurchase agreements is summarized as follows:

<TABLE>
<CAPTION>
                                                                                    Years Ended December 31,
                                                                                    ------------------------
                                                                                2000          1999          1998
                                                                                ----          ----          ----
                                                                                         (In thousands)
<S>                                                                          <C>          <C>                  <C>
                 Average amount outstanding during the period                $   7,300    $    6,100           -
                 Maximum amount outstanding during the period                   15,300        25,800           -
                 Amount outstanding at end of period                            10,000             -           -
                 Weighted average interest rate during the period                6.92%             -           -
                 Weighted average interest rate at end of period                 6.89%         5.47%           -
</TABLE>

       Securities underlying the repurchase agreements held as collateral are
       U.S. Government agency securities with a fair value of $11.9 million at
       December 31, 2000. The securities underlying the agreements were under
       the Company's control. The repurchase agreements at December 31, 2000 are

                                       70                       (Continued)
<PAGE>

                        AMERICAN FINANCIAL HOLDINGS, INC.

                   Notes to Consolidated Financial Statements

                        December 31, 2000, 1999 and 1998


       callable on various dates during 2003. These borrowings have weighted
       average remaining terms to the initial call dates and contractual
       maturity dates of approximately 2.37 years and 6.87 years, respectively.

(8)    Stockholders' Equity

       The Bank is subject to various regulatory capital requirements
       administered by the federal banking agencies. Failure to meet minimum
       capital requirements can initiate certain mandatory and possibly
       additional discretionary actions by regulators that, if undertaken, could
       have a direct material effect on the Company's consolidated financial
       statements. Under capital adequacy guidelines and the regulatory
       framework for prompt corrective action, the Bank must meet specific
       capital guidelines that involve quantitative measures of the Bank's
       assets, liabilities and certain off-balance-sheet items as calculated
       under regulatory accounting practices. The Bank's capital amounts and
       classification are also subject to qualitative judgments by the
       regulators about components, risk weightings, and other factors.

       Quantitative measures established by regulation to ensure capital
       adequacy require the Bank to maintain minimum amounts and ratios (set
       forth in the table below) of Total Capital and Tier 1 Capital to
       risk-weighted assets, and of Tier 1 Capital to average assets. Management
       believes that, as of December 31, 2000 and 1999, the Bank met all capital
       adequacy requirements to which it was subject.

       As of December 31, 2000, the most recent notification from the FDIC
       categorized the Bank as well capitalized under the regulatory framework
       for prompt corrective action. To be categorized as well capitalized, the
       Bank must maintain minimum Total risk-based, Tier 1 risk-based and Tier 1
       leverage ratios as set forth in the following table. There have been no
       conditions or events since that notification that management believes
       have changed the Bank's capital category.

                                       71                       (Continued)
<PAGE>

                        AMERICAN FINANCIAL HOLDINGS, INC.

                   Notes to Consolidated Financial Statements

                        December 31, 2000, 1999 and 1998


       The following is a summary of the Bank's actual capital amounts and
       ratios as of December 31, 2000 and 1999, compared to the required amounts
       and ratios for minimum capital adequacy and for classification as a
       well-capitalized institution:

<TABLE>
<CAPTION>
                                                                                                         To be Well
                                                                                                      Capitalized Under
                                                                              For Capital             Prompt Corrective
                                                     Actual                Adequacy Purposes          Action Provisions
                                            --------------------------  ------------------------  --------------------------
                                              Amount         Ratio         Amount       Ratio        Amount         Ratio
                                            ------------   -----------  -------------  ---------  --------------   ---------
                                                                        (Dollars in thousands)
<S>                                      <C>                  <C>     <C>                <C>    <C>                 <C>
       As of December 31, 2000:
           Total Capital (to Risk
             Weighted Assets)            $    403,738         35.6%   $    90,721        8.0%   $   113,401         10.0%
           Tier 1 Capital (to Risk
             Weighted Assets)                 361,713         31.9         45,360        4.0         68,041          6.0
           Tier 1 Capital (to
             Average Assets)                  361,713         19.3         75,083        4.0         93,854          5.0

       As of December 31, 1999:
           Total Capital (to Risk
             Weighted Assets)            $    425,337         38.0%   $    89,624        8.0%   $   112,030         10.0%
           Tier 1 Capital (to Risk
             Weighted Assets)                 389,078         34.7         44,812        4.0         67,218          6.0
           Tier 1 Capital (to
             Average Assets)                  389,078         23.0         68,025        4.0         85,031          5.0
</TABLE>

       The Parent Company and the Bank are subject to dividend restrictions
       imposed by various regulators. Connecticut banking laws limit the amount
       of annual dividends that the Bank may pay to the Parent Company, to an
       amount that approximates the Bank's net income retained for the current
       year plus the Bank's net income retained for the two previous years. In
       addition, the Bank may not declare or pay dividends on, and the Parent
       Company may not repurchase, any of its shares of common stock if the
       effect thereof would cause stockholders' equity to be reduced below
       applicable regulatory capital maintenance requirements or if such
       declaration, payment or repurchase would otherwise violate regulatory
       requirements.

       As part of the Conversion, the Bank established a liquidation account for
       the benefit of account holders in an amount equal to the Bank's capital
       of $286.0 million as of May 31,1999. The liquidation account will be
       maintained for a period of ten years after the Conversion for the benefit
       of those deposit account holders who qualified as eligible account
       holders at the time of the Conversion and who have continued to maintain
       their eligible deposit balances with the Bank following the Conversion.
       The liquidation account, which totaled $143.7 million and $191.2 million
       at December 31, 2000 and 1999, respectively,

                                       72                       (Continued)
<PAGE>

                        AMERICAN FINANCIAL HOLDINGS, INC.

                   Notes to Consolidated Financial Statements

                        December 31, 2000, 1999 and 1998


       is reduced annually by an amount proportionate to the decreases in
       eligible deposit balances, not withstanding any subsequent increases in
       the account. In the event of the complete liquidation of the Bank, each
       eligible deposit account holder will be entitled to receive his/her
       proportionate interest in the liquidation account, after the payment of
       all creditors' claims, but before any distributions to the Parent Company
       as the sole stockholder of the Bank. The Bank may not declare or pay a
       dividend on its capital stock if its effect would be to reduce the
       regulatory capital of the Bank below the amount required for the
       liquidation account.

       In June 2000, the Board of Directors authorized a stock repurchase
       program of up to five percent, or 1.4 million shares, of the Company's
       outstanding common stock for the treasury. The repurchase program was
       completed in December 2000 at a total cost of $25.8 million. In December
       2000, the Board of Directors authorized a second stock repurchase program
       of up to five percent, or 1.4 million shares of the Company's outstanding
       common stock for the treasury. During December, 650,000 shares were
       acquired under this second program at a cost of $12.9 million.

(9)    Benefit Plans

       (a)    Pension Plan

              The Company has a non-contributory defined benefit plan (the
              "Plan") covering substantially all employees who have attained age
              21 and completed 1,000 hours of service in a consecutive twelve
              month period. Participants in the Plan become vested in their
              accrued benefit upon completing five years of service.
              Participants also become vested in their accrued benefit upon
              attainment of their "normal retirement age" (as described in the
              Plan) or upon incurring a disability. The Plan provides a monthly
              benefit upon retirement based on years of service and compensation
              during the highest paid consecutive three years of employment. The
              Company's funding policy is to contribute annually the maximum
              amount that can be deducted for federal income tax purposes.

                                       73                       (Continued)
<PAGE>

                        AMERICAN FINANCIAL HOLDINGS, INC.

                   Notes to Consolidated Financial Statements

                        December 31, 2000, 1999 and 1998


              The following table sets forth changes in the benefit obligation,
              changes in Plan assets and the funded status of the Plan for the
              periods indicated. The table also provides a reconciliation of the
              Plan's funded status and the amounts recognized in the Company's
              consolidated balance sheets:

<TABLE>
<CAPTION>
                                                                                                      December 31,
                                                                                                --------------------------
                                                                                                   2000           1999
                                                                                                ------------   -----------
                                                                                                     (In thousands)
<S>                                                                                            <C>              <C>
              Change in benefit obligation:
                  Projected benefit obligation at beginning of year                            $   10,461       $   10,685
                  Service cost                                                                        425              471
                  Interest cost                                                                       766              697
                  Plan amendments                                                                       -              243
                  Actuarial loss (gain)                                                                95           (1,043)
                  Benefits paid                                                                      (700)            (592)
                                                                                                ------------     -----------

                  Projected benefit obligation at end of year                                      11,047           10,461
                                                                                                ------------     -----------

              Change in plan assets:
                  Fair value of plan assets at beginning of year                                    9,994           10,086
                  Actual return on plan assets                                                          1              190
                  Employer contributions                                                               12              310
                  Benefits paid                                                                      (700)            (592)
                                                                                                ------------     -----------

                  Fair value of plan assets at end of year                                          9,307            9,994
                                                                                                ------------     -----------

              Funded status at end of year                                                         (1,740)            (467)
              Unrecognized transition obligation                                                     (123)            (247)
              Unrecognized prior service cost                                                         824              914
              Unrecognized net actuarial loss                                                       1,647              685
                                                                                                ------------     -----------

                        Net amount recognized                                                  $      608       $      885
                                                                                                ============     ===========

              Amounts recognized in other assets/liabilities in the
                  consolidated balance sheets:
                  Prepaid benefit cost                                                         $    1,183       $    1,314
                  Accrued benefit liability                                                          (720)            (633)
                  Intangible asset                                                                    145              204
                                                                                                ------------     -----------

                        Net amount recognized                                                  $      608       $      885
                                                                                                ============     ===========
</TABLE>

                                       74                       (Continued)
<PAGE>

                        AMERICAN FINANCIAL HOLDINGS, INC.

                   Notes to Consolidated Financial Statements

                        December 31, 2000, 1999 and 1998


              The components of net periodic pension cost for the periods
              indicated were as follows:

<TABLE>
<CAPTION>
                                                                                        Years ended December 31,
                                                                                  --------------------------------------
                                                                                    2000         1999           1998
                                                                                  ----------   ----------    -----------
                                                                                             (In thousands)
<S>                                                                              <C>          <C>           <C>
              Service cost - benefits earned during the period                   $     425    $     471     $    436
              Interest cost on projected benefit obligation                            766          697          663
              Expected return on plan assets                                          (869)        (878)        (903)
              Amortization and deferral                                                (33)         (22)         (54)
                                                                                  ----------   ----------    -----------

              Net periodic pension cost                                          $     289    $     268     $    142
                                                                                  ==========   ==========    ===========
</TABLE>

              Significant actuarial assumptions used in determining the
              actuarial present value of the projected benefit obligation and
              the net periodic pension cost were as follows:

<TABLE>
<CAPTION>
                                                                                                      December 31,
                                                                                               ---------------------------
                                                                                                  2000           1999
                                                                                               ------------  -------------
<S>                                                                                                 <C>           <C>
              Discount rate                                                                         7.5%          7.5%
              Rate of increase in compensation levels                                               4.5           4.5
              Long-term rate of return on assets                                                    9.0           9.0
</TABLE>

              The Plan also includes a supplemental benefit equalization plan
              (the "Supplemental Plan"), that provides benefits to key
              executives with pension benefits that cannot be provided directly
              through the Company's tax-qualified employee pension plan as a
              result of Internal Revenue Code limitations on the benefits
              available through a tax-qualified plan. Benefits under the
              Supplemental Plan are based on the same formula as the employee
              pension plan, but are determined without regard to the limitations
              on the amount of salary that may be taken into account for
              benefits purposes under the pension plan or the level of
              contributions permitted under the pension plan. The benefits under
              the Supplemental Plan are reduced by the benefits actually payable
              under the pension plan. Currently three officers and one retired
              officer of the Bank participate in the Supplemental Plan. The
              Supplemental Plan's projected benefit obligation at December 31,
              2000 and 1999 was $901,000 and $699,000, respectively. Total
              expense attributable to the Supplemented Plan was $157,000,
              $137,000 and $134,000 for the years ended December 31, 2000, 1999
              and 1998, respectively.

                                       75                       (Continued)
<PAGE>

                        AMERICAN FINANCIAL HOLDINGS, INC.

                   Notes to Consolidated Financial Statements

                        December 31, 2000, 1999 and 1998


       (b)    Savings and Profit Sharing Plan

              The American Savings Bank Employees' Savings and Profit Sharing
              Plan (the "Savings Plan") is a tax-qualified profit sharing plan
              with a qualified cash or deferred arrangement under Section 401(k)
              of the Internal Revenue Code. The Savings Plan currently provides
              participants with savings and retirement benefits based on
              employee deferrals of compensation, as well as matching and other
              discretionary contributions made by the Company. In 1999 and prior
              years, the Company made a regular contribution of up to 3% of a
              participant's compensation, matching 50% of the first 6% of
              compensation deferred. In addition, in 1998, the Company made a
              special profit-sharing contribution to the 401(k) of 5% of base
              salary. A participant is always 100% vested in his or her elective
              deferrals of compensation under the Savings Plan. Participants
              vest in the regular matching contributions on the first of the
              month following two years of participation in the plan.

              Contributions made by the Company to the Savings Plan amounted to
              $197,000 and $529,000 for the years ended December 31, 1999 and
              1998, respectively. Due to the establishment of the ESOP plan in
              late 1999, the Company did not make any contributions to the
              savings plan in the year 2000.

       (c)    Other Postretirement Benefit Plans

              The Company sponsors a health care plan and a life insurance plan
              that provides postretirement benefits to full-time employees who
              meet minimum age and service requirements. The cost of providing
              retiree health care and other postretirement benefits is
              recognized over the period the employee renders service to the
              Company.

                                       76                       (Continued)
<PAGE>

                        AMERICAN FINANCIAL HOLDINGS, INC.

                   Notes to Consolidated Financial Statements

                        December 31, 2000, 1999 and 1998


              The following table presents changes in the benefit obligation,
              changes in plan assets and the funded status of this plan for the
              periods indicated. The table also provides a reconciliation of the
              plan's funded status and the amount recognized in the Company's
              consolidated balance sheets:

<TABLE>
<CAPTION>
                                                                                                    December 31,
                                                                                              --------------------------
                                                                                                 2000           1999
                                                                                              ------------   -----------
                                                                                                   (In thousands)
<S>                                                                                          <C>           <C>
              Change in benefit obligation:
                  Accumulated benefit obligation at beginning of year                        $    1,016    $     1,088
                  Service cost                                                                       20             34
                  Interest cost                                                                      77             70
                  Actuarial loss (gain)                                                              42           (117)
                  Benefits paid                                                                     (67)           (59)
                                                                                              ------------   -----------

                  Accumulated benefit obligation at end of year                                   1,088          1,016
                                                                                              ------------   -----------

              Change in plan assets:
                  Fair value of plan assets at beginning of year                                     --             --
                  Employer contributions                                                             67             59
                  Benefits paid                                                                     (67)           (59)
                                                                                              ------------   -----------

                  Fair value of plan assets at end of year                                           --             --
                                                                                              ------------   -----------

              Funded status at end of year                                                       (1,088)        (1,016)
              Unrecognized net actuarial loss                                                       121             81
              Unrecognized prior service cost                                                        42             52
                                                                                              ------------   -----------

               Accumulated post-retirement liability                                         $     (925)   $      (883)
                                                                                              ============   ===========
</TABLE>

                                       77                       (Continued)
<PAGE>

                        AMERICAN FINANCIAL HOLDINGS, INC.

                   Notes to Consolidated Financial Statements

                        December 31, 2000, 1999 and 1998


              Periodic postretirement benefit cost includes the following
              components for the periods indicated:

<TABLE>
                                                                                          Years ended December 31,
                                                                                      ----------------------------------
                                                                                       2000         1999        1998
                                                                                      --------    ---------   ----------
                                                                                                (In thousands)
<S>                                                                                  <C>         <C>         <C>
              Service cost                                                           $    20     $    34     $    31
              Interest cost                                                               77          70          67
              Amortization                                                                10          10           9
              Recognized net actuarial  loss                                               1           -           -
                                                                                      --------    ---------   ----------

              Postretirement benefit cost                                            $   108     $   114     $   107
                                                                                      ========    =========   ==========
</TABLE>

              For measurement purposes, the assumed annual rate of increase in
              the per capita cost of covered benefits (i.e., health care cost
              trend rate) was 8.7% and 9.2% for December 31, 2000 and 1999,
              respectively. The rate was assumed to decrease gradually to 5% by
              the year 2009 and remain at that level thereafter. An increase of
              1% in the assumed health care cost trend rate would increase the
              postretirement benefit obligation by $32,000 at December 31, 2000
              and increase the periodic postretirement benefit cost by $3,000
              for the year ended December 31, 2000. A decrease of 1% in the
              assumed health care cost trend rate would decrease the
              postretirement benefit obligation by $26,000 at December 31, 2000
              and decrease the postretirement benefit cost by $3,000 for the
              year ended December 31, 2000.

              The weighted-average discount rate used in determining the
              accumulated postretirement benefit obligation was 7.5% for
              December 31, 2000 and December 31, 1999.

       (d)    Employee Stock Ownership Plan

              The Bank established the ESOP to provide substantially all
              employees of the Company the opportunity to also become
              stockholders. The ESOP borrowed $25.7 million from the Company and
              used the funds to purchase 1,336,625 shares of common stock in the
              initial subscription offering, and an additional 973,063 shares of
              the common stock of the Company in the open market subsequent to
              the offering. The loan will be repaid principally from the Bank's
              discretionary contributions to the ESOP over a remaining period of
              approximately 18 years from December 31, 2000. The unallocated
              ESOP shares are pledged as collateral for the loan. Dividends paid
              on unallocated shares are not considered dividends for financial
              reporting purposes and are used to pay principal and interest on
              the ESOP loan. Dividends on allocated shares are charged to
              retained earnings. At December 31, 2000, the loan had an
              outstanding balance of $24.0 million and an interest rate of 8.5%.
              Both the loan and the related interest are not recorded in the
              Company's consolidated financial statements. The amount of loan
              repayments made by the ESOP are used to reduce the unallocated
              common stock held by the ESOP. The Company recorded

                                       78                       (Continued)
<PAGE>

                        AMERICAN FINANCIAL HOLDINGS, INC.

                   Notes to Consolidated Financial Statements

                        December 31, 2000, 1999 and 1998


              approximately $1.8 million and $706,000 of ESOP compensation
              expense for the years ended December 31, 2000 and 1999,
              respectively.

              The ESOP shares are summarized as follows:

<TABLE>
<CAPTION>
                                                                                         2000          1999
                                                                                         ----          ----
<S>                                                                                 <C>          <C>
              Number of shares released for allocation during the year                 118,526       57,678
              Number of  unallocated shares at end of year                           2,133,484    2,252,010
              Market value of unallocated shares at end of year
                    (in thousands)                                                  $   44,003   $   28,291
</TABLE>

       (e)    Performance Appreciation Unit Plans

              From 1996 through October 1999, the Bank sponsored the Performance
              Appreciation Unit Plans ("PAU") for senior officers and
              nonemployee directors. Benefits under these plans were determined
              by reference to the performance of the Bank as reflected in
              year-to-year changes in the Bank's equity. The PAU, which was
              intended to provide participants with benefits and incentives that
              were comparable to those provided by a stock-based compensation
              program such as a stock option or stock appreciation rights plan,
              was terminated in 1999 due to the Conversion. Under the PAU,
              participants were awarded units corresponding to an interest in
              the appreciation over the term of the award of a "hypothetical
              share" of the Bank's equity. However, the recipient had no right
              to, or interest in, the Bank's equity. The initial awards were
              based on the Bank's equity at December 31, 1994 when each unit was
              valued at $18.33. At December 31, 1998, each unit was valued at
              $24.06. To compensate award participants for the potential
              reduction in benefits attributable to the early termination of the
              program, the Bank credited an additional value to outstanding
              awards. At the date of the Conversion (November 30, 1999), awards
              representing 246,750 units were outstanding. Expense under this
              plan in 1999 was $1.6 million. The 1999 expense included an
              additional charge of $620,000 for the additional value credited in
              connection with the termination of this plan. At termination,
              participants were given the option of receiving a cash payment
              equal to the value of their awards, or of deferring such payments.
              If the participant elected to defer receipt of the award, the
              amounts deferred could be transferred to a trust which acquired
              shares of the Company stock during the subscription period.
              Alternatively, the amount deferred could be held by the Company in
              its cash deferred compensation plan.

       (f)    Stock-Based Deferred Compensation Plan

              In November 1999, the Company established the Stock-Based Deferred
              Compensation Plan for the benefit of its directors and key
              employees. Under this plan, participants are allowed to defer
              compensation up to a selected date and then receive either a lump
              sum payment, or payments over periods of one to ten years.
              Compensation deferred is invested in the stock of the Company and
              placed in a grantor trust. The deferred compensation obligation
              was recorded in equity at an

                                       79                       (Continued)
<PAGE>

                        AMERICAN FINANCIAL HOLDINGS, INC.

                   Notes to Consolidated Financial Statements

                        December 31, 2000, 1999 and 1998


              amount equal to the original amount of the compensation deferred.
              Distributions from the trust to participants in this plan are made
              solely in the form of whole shares of common stock. If a
              participant dies prior to the distribution of all amounts he or
              she is entitled to, amounts will be distributable to his or her
              beneficiary in accordance with the distribution election. In
              addition to future deferral of compensation, each participant was
              allowed to transfer previously accrued benefits to this plan. As
              of December 31, 2000, the trust held 160,579 shares of Company
              common stock.

       (g)    Cash Deferred Compensation Plan

              In November 1999, the Company established the Cash Deferred
              Compensation Plan for the benefit of its directors and key
              employees. The Plan allows participants to defer compensation
              until termination of service or another distribution date selected
              by the participant. The deferred compensation obligation is
              classified as a liability and adjusted with a corresponding charge
              to expense to reflect the changes in the amount owed to the
              participant. Amounts owed participants are credited with interest
              based on an annually adjusted rate. The obligation at December 31,
              2000 and December 31, 1999 was $1.4 million and $1.2 million,
              respectively. The expense for this plan in 2000 and 1999 was
              approximately $78,000 and $34,000, respectively.

       (h)    Supplemental Executive Retirement Plan

              In 1999, the Company entered into a special supplemental
              retirement plan with the President and CEO as an incentive for his
              continued employment. This plan provides benefits based on a
              percentage of his final average compensation less benefits
              available to him under other plans, including the Supplemental
              Plan. The projected benefit obligation under this plan as of
              December 31, 2000 and 1999 was $2.3 million and $2.2 million,
              respectively. The expense for this plan in 2000 and 1999 was
              $121,000 and $2.2 million, respectively, including recognition in
              1999 of benefits earned due to prior service.

       (i)    The ESOP Supplemental Executive Retirement Plan

              In 1999, the Company also implemented a new plan to provide for
              similar supplemental executive benefits with respect to the ESOP.
              Specifically, the supplemental plan provides benefits to eligible
              individuals that cannot be provided under the ESOP as a result of
              the compensation limitations imposed by the Internal Revenue Code,
              but that would have been provided under the ESOP had there not
              been such limitations.

              The plan also provides supplemental benefits to designated
              individuals who retire, who terminate employment in connection
              with a change in control, or whose participation in the ESOP ends
              due to termination of the ESOP prior to the scheduled repayment of
              the ESOP loan. Generally, the plan provides the eligible
              individual with a benefit equal to what the individual would have
              received under the ESOP had he or she remained employed throughout
              the term of the ESOP or had the ESOP not been terminated prior to
              the scheduled repayment of the ESOP loan, less the benefits

                                       80                       (Continued)
<PAGE>

                        AMERICAN FINANCIAL HOLDINGS, INC.

                   Notes to Consolidated Financial Statements

                        December 31, 2000, 1999 and 1998


              actually provided under the ESOP on behalf of such individual. An
              individual's benefits under this plan will generally become
              payable upon the participant's retirement at age 65 or upon the
              change in control of the Company or the Bank. In 2000 and 1999,
              the Company recognized expense of $277,000 and $189,000,
              respectively, for this plan. The obligation under this plan is
              invested in the Company's common stock and placed in a grantor
              trust. The trust held 12,874 shares of Company common stock as of
              December 31, 2000. These shares are recorded as a reduction of
              stockholders' equity at their original cost of $199,000 and
              $189,000 as of December 31, 2000 and 1999, respectively.

       (j)    Directors' Retirement Plan

              In December 1998, the Company adopted a retirement plan for
              incumbent nonemployee directors to provide a retirement income
              supplement for directors with long service. The projected benefit
              obligation under this plan at December 31, 2000 and 1999 was
              $715,000 and $589,000, respectively. The Company recorded
              approximately $173,000, $66,000 and $102,000 of expense in
              connection with this plan for the years ended December 31, 2000,
              1999 and 1998 respectively.

       (k)    Stock-Based Incentive Plan

              In June 2000, the Company adopted a Stock-Based Incentive Plan
              ("Plan"). The Plan provides for grants of options to purchase
              common stock and awards of restricted stock ("Stock Awards") to
              eligible officers, employees and directors of the Company.

              The Plan allows the granting of Stock Awards at no cost to the
              recipients in an amount equal up to 4% of the shares issued in the
              Conversion, or 1,154,844 shares. During 2000, the Company granted
              Stock Awards equal to 3.8% of the shares issued in the Conversion
              or 1,104,840 shares using treasury shares acquired for this
              purpose at a cost of $18.0 million. Compensation cost is being
              recognized for these awards over the five-year period from the
              grant date. The compensation cost charged to employee benefits
              expense for the Stock Awards during 2000 was $2.3 million,
              including a charge of $422,000 to reflect the cost of immediately
              vesting shares upon the death of one of the Company's directors.

              The Plan also allows the granting of stock options (either
              incentive stock options or nonqualified options) up to 10% of the
              shares issued in the Conversion or 2,887,110 shares. During 2000
              the Company granted stock options equal to 8.7% of the shares
              issued in the Conversion, or 2,506,200 shares. Under the terms of
              the Plan, the exercise price of each option granted equals the
              market price of the Company's stock on the date of grant. Each
              option has a maximum contractual life of ten years and shares vest
              over five years from the grant date.

                                       81                       (Continued)
<PAGE>

                        AMERICAN FINANCIAL HOLDINGS, INC.

                   Notes to Consolidated Financial Statements

                        December 31, 2000, 1999 and 1998


              The following is a summary of the Company's stock options at
              December 31, 2000 and changes during the year:

<TABLE>
<CAPTION>
                                                                                                                Weighted-
                                                                                                                 Average
                                                                                                                 Exercise
                                                                                                   Shares         Price
                                                                                                ------------   -------------
              (Shares in thousands)
<S>                                                                                                 <C>       <C>
              Options outstanding at beginning of year                                                  -     $        -
              Granted                                                                               2,506             16.06
              Forfeited / cancelled                                                                   (21)            16.00
                                                                                                ------------   -------------

              Options outstanding at end of year (none are exercisable)                             2,485     $       16.06
                                                                                                ============   =============
</TABLE>

       In accordance with the provisions of APB Opinion No. 25 related to fixed
       stock options, compensation expense is not recognized with respect to the
       Company's options since the exercise price equals the fair value of the
       common stock at the grant date. Under the alternative fair-value-based
       method defined in SFAS No. 123, the grant-date fair value of fixed stock
       options in recognized as expense over the vesting period. The estimated
       per share fair value of options granted in 2000 was $6.04, estimated
       using the Black-Scholes option-pricing model with assumptions as follows:
       dividend yield of 3%; expected volatility rate of 21.3%; risk-free
       interest rate of 4.7%; and expected option life of six years. Had the
       fair-value-based method of SFAS No. 123 been applied to the options
       granted, net income would have been approximately $29.9 million and basic
       and diluted earnings per share would have been $1.14 and $1.13,
       respectively, for the year ended December 31, 2000.

                                       82                       (Continued)
<PAGE>

                        AMERICAN FINANCIAL HOLDINGS, INC.

                   Notes to Consolidated Financial Statements

                        December 31, 2000, 1999 and 1998


       The following table summarizes information about the Company's stock
       options at December 31, 2000:

<TABLE>
<CAPTION>
                                                                                       Options Outstanding
                                                                        ---------------------------------------------------
                                                                                            Weighted -
                                                                                             Average          Weighted -
                                                                            Options         Remaining          Average
                                                                              Out-         Contractual        Exercise
                                                                           standing            Life             Price
                                                                        ---------------------------------------------------
        (Shares in thousands)
<S>                                                                          <C>               <C>             <C>
        Range of exercise prices:
        $16.00 - $18.06 per share                                            2,485             9.46            $ 16.06
</TABLE>

(10)   Income Taxes

       The components of income tax expense are summarized as follows:

<TABLE>
<CAPTION>
                                                                                     Years ended December 31,
                                                                            --------------------------------------------
                                                                               2000             1999           1998
                                                                            ------------    -------------   ------------
                                                                                          (In thousands)
<S>                                                                        <C>             <C>             <C>
       Current tax expense (benefit):
           Federal                                                         $   15,112      $    7,539      $      8,510
           State                                                                    -             (98)            2,480
                                                                            ------------    -------------   ------------

              Total current                                                    15,112           7,441            10,990
                                                                            ------------    -------------   ------------

       Deferred tax expense (benefit):
           Federal                                                                607          (5,728)           (1,846)
           State (including effect of valuation allowance)                          -              98               (78)
                                                                            ------------   --------------   ------------

              Total deferred                                                      607          (5,630)           (1,924)
                                                                            ------------    -------------   ------------

              Total income tax expense                                     $   15,719      $    1,811      $      9,066
                                                                            ============    =============   ============
</TABLE>

                                       83                       (Continued)
<PAGE>

                        AMERICAN FINANCIAL HOLDINGS, INC.

                   Notes to Consolidated Financial Statements

                        December 31, 2000, 1999 and 1998


       Income tax expense of $15.7 million, $1.8 million and $9.1 million for
       the years ended December 31, 2000, 1999 and 1998, respectively, differed
       from the amounts computed by applying the Federal income tax rate of 35%
       to pre-tax income as a result of the following:

<TABLE>
<CAPTION>
                                                             Years ended December 31,
                                         -----------------------------------------------------------------
                                              2000                     1999                     1998
                                         ---------------          ---------------           --------------
                                                                  (In thousands)
<S>                                     <C>                      <C>                       <C>
Statutory federal income tax            $        16,396          $         1,608           $        9,478

Increase (decrease) in tax
rates resulting from:

State income taxes, net of
federal income tax benefit                           --                       --                    1,561

Nondeductible expense                                --                      589                       --

Dividend received deduction                        (366)                    (327)                    (332)
Appreciated value of donated
securities                                           --                       --                   (1,290)

Other, net                                         (311)                     (59)                    (351)
                                         ---------------          ---------------           --------------
Income tax expense                      $        15,719          $         1,811           $        9,066
                                         ===============          ===============           ==============
</TABLE>

                                       84                       (Continued)
<PAGE>

                        AMERICAN FINANCIAL HOLDINGS, INC.

                   Notes to Consolidated Financial Statements

                        December 31, 2000, 1999 and 1998


       The tax effects of temporary differences and tax carryforwards that give
       rise to deferred tax assets and liabilities are presented below:

<TABLE>
<CAPTION>
                                                                                                  December 31,
                                                                                         -----------------------------
                                                                                              2000            1999
                                                                                         --------------   ------------
                                                                                                 (In thousands)
<S>                                                                                     <C>              <C>
       Deferred tax assets:
           Allowance for loan losses                                                    $       3,836    $     3,291
           Postretirement benefits other than pensions                                            380            354
           Charitable contribution carryforward for tax purposes                                8,663          7,165
           Other                                                                                2,297          2,345
                                                                                         ---------------  ------------
                 Total gross deferred tax assets                                               15,176         13,155

       Less valuation allowance                                                                (4,024)        (1,198)
                                                                                         ---------------  ------------

                 Deferred tax asset after valuation allowance                                  11,152         11,957
                                                                                         ---------------  ------------

       Deferred tax liabilities:
           Net unrealized gains on securities available for sale                              (31,859)       (20,021)
           Net deferral of loan origination costs                                              (1,758)        (2,005)
           Bank premises and equipment, principally due to
              differences in depreciation                                                        (835)          (673)
           Excess of tax bad debt reserve over base year                                         (471)          (628)
            Pension plan                                                                         (382)          (360)
           Other                                                                                 (127)          (105)
                                                                                         ---------------  ------------

                 Total gross deferred tax liabilities                                         (35,432)       (23,792)
                                                                                         ---------------  ------------

                 Net deferred tax liability                                             $     (24,280)   $   (11,835)
                                                                                         ===============  ============
</TABLE>

       At December 31, 2000, the Company has charitable contribution
       carryforwards of $21.7 million which expire in 2004. The utilization of
       charitable contributions for any tax year is limited to 10% of taxable
       income without regard to charitable contributions, net operating losses,
       and dividends received deductions. A corporation is permitted to carry
       over to the five succeeding tax years contributions that exceeded the 10%
       limitation, but deductions in those years are also subject to the maximum
       limitation. The Company also has state net operating loss carryforwards
       at December 31, 2000 of $17.4 million which principally expire in 2020.

                                       85                       (Continued)
<PAGE>

                        AMERICAN FINANCIAL HOLDINGS, INC.

                   Notes to Consolidated Financial Statements

                        December 31, 2000, 1999 and 1998


       Management believes it is more likely than not that the reversal of
       deferred tax liabilities and results of future operations will generate
       sufficient taxable income to realize the deferred tax assets, net of the
       valuation allowance. As of December 31, 2000 and 1999, the Company had a
       valuation allowance of $1.5 million and $1.2 million, respectively,
       against its state deferred tax asset in connection with the creation of a
       Connecticut passive investment company pursuant to legislation enacted in
       1998. Under this legislation, Connecticut passive investment companies
       are not subject to the Connecticut Corporate Business Tax and dividends
       paid by the passive investment company to the Company are exempt from the
       Connecticut Corporate Business Tax. During 2000, the Company increased
       its valuation allowance by $300,000 to offset an increase in the state
       deferred tax asset attributable to net deductible temporary differences
       and net operating loss carryforwards arising during the year.
       Additionally, during 2000 the Company established a valuation allowance
       of $2.5 million against increased charitable contributions that are
       expected to expire in 2004 unused. This increase in the charitable
       contributions and resulting valuation allowance do not have an impact on
       earnings.

       For income tax purposes, a bad debt reserve is maintained equal to the
       excess of tax bad debt deductions over actual losses charged against the
       reserve. The Company's base-year tax bad debt reserve was $24.6 million
       and the related unrecognized deferred tax liability was approximately
       $9.8 million at December 31, 2000. A deferred tax liability has not been
       recognized for the base-year tax bad debt reserve, since the Company does
       not expect that the reserve will become taxable in the foreseeable
       future. Events that would result in the recapture of the pre-1988 bad
       debt reserves include stock and cash distributions to the Parent Company
       from the Bank in excess of the Bank's earnings and profits.

                                       86                       (Continued)
<PAGE>

                        AMERICAN FINANCIAL HOLDINGS, INC.

                   Notes to Consolidated Financial Statements

                        December 31, 2000, 1999 and 1998


(11)   Earnings Per Share

       Net income per common share for the year ended December 31, 2000 was
       computed as follows:

<TABLE>
<CAPTION>
                 (In thousands, except per share data)
<S>                                                                <C>
                 Net income                                        $31,126

                 Weighted average common shares                     26,211
                 Plus common stock equivalents                         151
                                                                    -------
                 Diluted weighted-average common shares            $26,362
                                                                    =======

                 Net income per common share:
                        Basic                                      $  1.19
                        Diluted                                       1.18
                                                                    =======
</TABLE>

       There were 18,500 anti-dilutive stock options not included in the
       computation of common stock equivalents because the options' exercise
       prices exceeded the average market price of the Company's common stock
       for the period.

       Earnings per share data for the period of November 30, 1999 (the date of
       the Conversion) to December 31, 1999 is not meaningful due to the
       shortness of the period and, accordingly, has not been presented.
       Earnings per share data does not apply to periods prior to the
       Conversion, since the Bank was a mutual savings bank with no outstanding
       stock.

(12)   Financial Instruments with Off-Balance-Sheet Risk

       The Company is party to financial instruments with off-balance-sheet risk
       in the normal course of business to meet the financial needs of its
       customers. These financial instruments expose the Company to credit risk
       in excess of the amount recognized in the balance sheet.

       The Company's exposure to credit loss in the event of nonperformance by
       the other party to commitments to extend credits if such commitments are
       fulfilled, is represented by the contractual amount of those instruments.
       The Company uses the same credit policies in making commitments and
       conditional obligations as it does for on-balance-sheet instruments.

                                       87                       (Continued)
<PAGE>

                        AMERICAN FINANCIAL HOLDINGS, INC.

                   Notes to Consolidated Financial Statements

                        December 31, 2000, 1999 and 1998


       The contract amounts of financial instruments with off-balance-sheet risk
       are as follows:

<TABLE>
<CAPTION>
                                                                                                   December 31,
                                                                                          ------------------------------
                                                                                               2000             1999
                                                                                          --------------   -------------
                                                                                                   (In thousands)
<S>                                                                                   <C>               <C>
        Approved real estate loan commitments:
            Fixed rate                                                                $         5,477   $        2,050
            Variable rate                                                                      17,036           20,371
        Approved consumer loan commitments                                                      3,193            5,069
        Approved commercial loan commitments                                                      143                -
        Unused portion of home equity lines of credit                                         209,474          190,361
        Unused portion of construction loans                                                    7,251           16,003
        Unused checking overdraft lines of credit                                               1,060              902
</TABLE>

       Commitments to extend credit are agreements to lend to a customer as long
       as there is no violation of any condition established in the contract.
       Commitments generally have fixed expiration dates or other termination
       clauses and may require payment of a fee. The Company evaluates each
       customer's creditworthiness on a case-by-case basis. The amount of
       collateral obtained, if deemed necessary, by the Company upon extension
       of credit is based on management's credit evaluation of the counterparty.
       Collateral obtained is primarily residential property located in
       Connecticut.

                                       88                       (Continued)
<PAGE>

                        AMERICAN FINANCIAL HOLDINGS, INC.

                   Notes to Consolidated Financial Statements

                        December 31, 2000, 1999 and 1998


(13)   Other Comprehensive Income

       The following tables summarize components of other comprehensive income
       and the related tax effects for the years ended December 31, 2000, 1999
       and 1998:

<TABLE>
<CAPTION>
                                                                                 Year ended December 31, 2000
                                                                       --------------------------------------------------
                                                                          Before
                                                                           tax            Income tax        Net-of-tax
                                                                          amount            effect            amount
                                                                       -------------    ---------------   ---------------
                                                                                        (In thousands)
<S>                                                                   <C>             <C>                <C>
       Unrealized gain on available for sale securities:
          Unrealized holding gains arising during
              the period                                              $      35,756   $      (14,257)    $      21,499
          Reclassification adjustment for gains
             realized during the period                                      (6,068)           2,419            (3,649)
                                                                       -------------   ---------------    ---------------

                    Other comprehensive income                        $      29,688   $      (11,838)    $      17,850
                                                                       =============   ===============    ===============

<CAPTION>
                                                                                 Year ended December 31, 1999
                                                                       --------------------------------------------------
                                                                          Before
                                                                           tax            Income tax        Net-of-tax
                                                                          amount            effect            amount
                                                                       -------------    ---------------   ---------------
                                                                                        (In thousands)
<S>                                                                   <C>             <C>                <C>
       Unrealized loss on available for sale securities:
           Unrealized holding losses arising during
              the period                                              $     (16,088)  $        7,956     $      (8,132)
           Reclassification adjustment for gains
              realized during the period                                     (2,850)           1,410            (1,440)
                                                                       --------------  ----------------   ---------------

              Other comprehensive loss                                $     (18,938)  $        9,366     $      (9,572)
                                                                       ==============  ================   ===============
</TABLE>

                                       89                       (Continued)
<PAGE>

                        AMERICAN FINANCIAL HOLDINGS, INC.

                   Notes to Consolidated Financial Statements

                        December 31, 2000, 1999 and 1998


<TABLE>
<CAPTION>
                                                                                 Year ended December 31, 1998
                                                                       --------------------------------------------------
                                                                          Before
                                                                           tax            Income tax        Net-of-tax
                                                                          amount            effect            Amount
                                                                       -------------    ---------------   ---------------
                                                                                        (In thousands)
<S>                                                                   <C>              <C>               <C>
       Unrealized gain on available for sale securities:
           Unrealized holding gains arising during
              the period                                              $      15,093    $       (6,631)   $       8,462
           Reclassification adjustment for gains
              realized during the period                                     (6,696)            3,062           (3,634)
                                                                       -------------    ---------------   ---------------

              Other comprehensive income                              $       8,397    $       (3,569)   $       4,828
                                                                       =============    ===============   ===============
</TABLE>

(14)   Foundations

       In connection with the Conversion in 1999, the Company established
       American Savings Charitable Foundation (the "Charitable Foundation"). The
       Charitable Foundation was funded with 2,138,600 shares of the Company's
       common stock. The Charitable Foundation paid $21,000 and the Company
       contributed the remainder of the value for a total of $21.4 million. The
       Charitable Foundation makes grants and donations to non-profit and
       community groups in the community served by the Company. The Charitable
       Foundation is exempt by statute from federal income taxes under
       applicable provisions of the Internal Revenue Code and Connecticut tax
       law. The Company did not make any contributions to the Charitable
       Foundation in 2000.

       In 1995, the Bank established the American Savings Bank Foundation, Inc.
       (the "Foundation"). The Foundation was organized for charitable purposes
       and is exempt by statute from federal income taxes under applicable
       provisions of the Internal Revenue Code and Connecticut tax law. The Bank
       has made annual contributions to the Foundation subject to the
       determination of its Board of Directors. In 1999, the Bank funded a 1998
       contribution amounting to $212,000. In 1998, the Bank contributed $3.6
       million to the Foundation, of which $2.3 million was for the 1998
       contribution and $1.3 million represented a Board designated contribution
       for 1999. The contributions to the Foundation in 1999 and 1998 were made
       primarily in the form of investment securities. The Company did not make
       any contributions to the Foundation in 2000.

       On November 28, 2000 the Boards of Directors of the Charitable Foundation
       and the Foundation voted to approve a merger of the two organizations
       effective December 31, 2000. The resulting organization was re-named the
       American Savings Foundation.

                                       90                       (Continued)
<PAGE>

                        AMERICAN FINANCIAL HOLDINGS, INC.

                   Notes to Consolidated Financial Statements

                        December 31, 2000, 1999 and 1998


       In order to maintain Internal Revenue Code compliance, assets of the
       American Savings Foundation cannot be returned to the Company or directed
       for use of, or for the benefit of, the Company.

(15)   Fair Value of Financial Instruments

       The methods and assumptions used to estimate fair values for the
       Company's financial instruments are set forth below.

       Fair values of cash and due from banks, federal funds sold, accrued
       interest receivable and accrued interest payable are based on the
       carrying amounts as reported in the consolidated balance sheet.

       Fair values of investment and mortgage-backed securities are based on
       quoted market prices or dealer quotes for similar instruments. The fair
       value of the Federal Home Loan Bank stock is estimated to equal the
       carrying amount, due to the historical experience that this stock is
       redeemed at par.

       Fair values for fixed-rate loans are estimated using discounted cash flow
       analyses using yields currently expected for pools of loans with similar
       terms and credit quality. Variable-rate loans are valued at carrying
       amount due to the repricing characteristics of the portfolio.

       The fair values of deposits with no stated maturity, such as demand
       deposits, regular savings, money management accounts, escrow and other
       deposits are assumed to equal the amount payable on demand. Fair values
       of time deposits are estimated using a discounted cash flow calculation
       that applies interest rates currently being offered to a schedule of
       aggregate expected monthly maturities.

       Fair values of advances from the FHLB and borrowings under securities
       repurchase agreements are estimated using a discounted cash flow
       technique that applies interest rates currently being offered to
       schedules of aggregated monthly maturities of borrowings.

                                       91                       (Continued)
<PAGE>

                        AMERICAN FINANCIAL HOLDINGS, INC.

                   Notes to Consolidated Financial Statements

                        December 31, 2000, 1999 and 1998


       The fair values of the Company's commitments to extend credit approximate
       their carrying amounts, which are insignificant at December 31, 2000 and
       1999.

       The following are the carrying amounts and estimated fair values of the
       Company's financial assets and liabilities, none of which were held for
       trading purposes:

<TABLE>
<CAPTION>
                                                                                December 31,
                                                    ----------------------------------------------------------------------
                                                                  2000                                 1999
                                                    ---------------------------------    ---------------------------------
                                                      Carrying          Estimated          Carrying          Estimated
                                                       Amounts         Fair values          Amounts         fair values
                                                    --------------    ---------------    --------------    ---------------
                                                                               (In thousands)
<S>                                              <C>               <C>                <C>               <C>
       Financial Assets
       Cash and due from banks                   $       17,314    $       17,314     $       28,308    $       28,308
       Federal funds sold                                11,740            11,740              2,300             2,300
       Investment securities available
           for sale                                     351,211           351,211            435,832           435,832
       Mortgage-backed securities
           available for sale                           255,270           255,270            341,421           341,421
       Federal Home Loan Bank stock                      12,194            12,194             16,402            16,402
       Loans, net                                     1,151,048         1,158,166          1,029,531         1,020,876
       Accrued interest receivable                       13,012            13,012             14,465            14,465

       Financial Liabilities
       Regular savings                                  202,564           202,564            196,061           196,061
       NOW, money market,
           and demand deposits                          171,626           171,626            151,432           151,432
       Time deposits                                    752,146           755,343            753,009           754,060
       Mortgagors' escrow and other
            deposits                                     19,554            19,554             18,751            18,751
       Federal Home Loan Bank
            advances                                    167,944           168,283            214,444           211,029
       Securities repurchase
            agreements                                   10,000            10,783                  -                 -
       Accrued interest payable on
           deposits and borrowings                        1,622             1,622              1,556             1,556
</TABLE>

                                       92                       (Continued)
<PAGE>

                        AMERICAN FINANCIAL HOLDINGS, INC.

                   Notes to Consolidated Financial Statements

                        December 31, 2000, 1999 and 1998


(16)   Parent Company Only Financial Information

       The Parent Company began operations on November 30, 1999 in conjunction
       with the Bank's mutual-to-stock conversion and the Parent Company's
       subscription and direct community offering of its common stock. The
       following represents the Parent Company's balance sheets as of December
       31, 2000 and 1999, and the statements of income and cash flows for the
       year ended December 31, 2000 and the period from November 30, 1999
       through December 31, 1999.

<TABLE>
<CAPTION>
                                                                                     December 31,            December 31,
       Balance Sheets                                                                    2000                    1999
                                                                                 --------------------    ------------------
                                                                                              (In thousands)
<S>                                                                             <C>                     <C>
       Assets

       Cash and cash equivalents                                                $        100,361        $        104,914
       Investment in American Savings Bank                                               409,787                 419,287
       Investment securities available for sale (at fair value)                            2,697                       -
       Deferred tax asset                                                                 13,668                  13,767
       Other assets                                                                          248                       3
                                                                                 --------------------    ------------------

             Total assets                                                       $        526,761        $        537,971
                                                                                 ====================    ==================

       Liabilities and Stockholders' Equity

       Total liabilities                                                        $         12,794        $          6,519
       Stockholders' equity                                                              513,967                 531,452
                                                                                 --------------------    ------------------

             Total liabilities and stockholders' equity                         $        526,761        $        537,971
                                                                                 ====================    ==================
</TABLE>

                                       93                       (Continued)
<PAGE>

                        AMERICAN FINANCIAL HOLDINGS, INC.

                   Notes to Consolidated Financial Statements

                        December 31, 2000, 1999 and 1998


<TABLE>
<CAPTION>
                                                                                                    For the period
                                                                                                  November 30, 1999
                                                                              Year ended                through
Statements of Income                                                      December 31, 2000       December 31, 1999
                                                                         --------------------    -------------------
                                                                                        (In thousands)
<S>                                                                     <C>                     <C>
Interest income                                                         $           2,841       $             92
Dividend income                                                                       113                     --
Contribution of common stock to the Charitable Foundation                              --                (21,365)
Salaries and employee benefits                                                     (4,242)                  (779)
Other expenses                                                                       (535)                    --
                                                                         --------------------    -------------------

Loss before income taxes and undistributed income /(loss) of
     American Savings Bank                                                         (1,823)               (22,052)

Income tax (expense)/benefit                                                         (122)                 7,478
                                                                         --------------------    -------------------

Loss before undistributed income /(loss) of
     American Savings Bank                                                         (1,945)               (14,574)

Undistributed income/(loss) of American Savings Bank                               33,071                 (1,942)
                                                                         --------------------    -------------------

Net income/(loss)                                                       $          31,126       $        (16,516)
                                                                         ====================    ===================
</TABLE>

                                       94                       (Continued)
<PAGE>

                        AMERICAN FINANCIAL HOLDINGS, INC.

                   Notes to Consolidated Financial Statements

                        December 31, 2000, 1999 and 1998


<TABLE>
<CAPTION>
                                                                                                        For the period
                                                                                                      November 30, 1999
                                                                                      Year ended            through
Statements of Cash Flows                                                          December 31, 2000   December 31, 1999
                                                                                 ------------------- -------------------
                                                                                              (In thousands)
<S>                                                                                  <C>                <C>
Operating activities:
     Net income (loss):                                                              $     31,126       $    (16,516)
       Adjustments to reconcile net income (loss) to cash provided by
          operating activities:
             Contribution of common stock to the Charitable
               Foundation                                                                      --             21,365
             Undistributed (income)/loss of American Savings Bank                         (33,071)             1,942
             Increase in other liabilities                                                  6,275              6,519
             Increase in other assets                                                        (246)                (3)
             Increase in deferred tax asset                                                    --            (13,767)
             ESOP expense                                                                   1,845                706
                                                                                      -----------------  ---------------
                  Net cash provided by operating activities                                 5,929                246
                                                                                      -----------------  ---------------

Investing activities:
      Distribution from (investment in) bank subsidiary                                    60,274           (130,518)
      Purchase of investment securities available for sale                                 (2,450)                --
                                                                                      -----------------  ---------------
                          Net cash provided (used) by investing activities                 57,824           (130,518)
                                                                                      -----------------  ---------------

Financing activities:
     Net proceeds from stock offering                                                          --            260,986
     Net proceeds from issuance of common stock to Charitable
       Foundation                                                                              --                 21
     Acquisition of common stock by ESOP                                                       --            (25,661)
     Acquisition of common stock for stock-based compensation plans                            --             (1,755)
     Obligation to stock-based deferred compensation plans                                     82              1,595
     Purchase of treasury stock                                                           (56,707)                --
     Cash dividends paid                                                                  (11,681)                --
                                                                                      -----------------  ---------------
                           Net cash provided (used) by financing activities               (68,306)           235,186
                                                                                      -----------------  ---------------

Net (decrease) increase in cash and cash equivalents                                       (4,553)           104,914

Cash and cash equivalents at beginning of period                                          104,914                 --
                                                                                      -----------------  ---------------

Cash and cash equivalents at end of period                                           $    100,361       $    104,914
                                                                                      =================  ===============
</TABLE>

                                       95                       (Continued)
<PAGE>

                        AMERICAN FINANCIAL HOLDINGS, INC.

                   Notes to Consolidated Financial Statements

                        December 31, 2000, 1999 and 1998


(17)   Selected Quarterly Consolidated Financial Information (unaudited)

       The following table presents quarterly financial information of the
       Company for 2000 and 1999:

<TABLE>
<CAPTION>
                                                                 First        Second       Third         Fourth
                                                                Quarter      Quarter      Quarter       Quarter
                                                              ------------  -----------  -----------  -------------
                                                                               (In thousands)
<S>                                                          <C>           <C>          <C>          <C>
       2000

       Interest and dividend income                          $  31,092     $   31,730   $   32,343   $   32,458
       Interest expense                                         14,408         14,478       15,465       15,580
                                                              ------------  -----------  -----------  -------------

       Net interest income before provision for loan losses     16,684         17,252       16,878       16,878
       Provision for loan losses                                   550            570          400          375
                                                              ------------  -----------  -----------  -------------

       Net interest income after provision for loan losses      16,134         16,682       16,478       16,503
       Non-interest income                                       2,847          3,046        3,257        2,944
       Non-interest expense                                      7,259          7,101        8,272        8,414
                                                              ------------  -----------  -----------  -------------

       Income before income taxes                               11,722         12,627       11,463       11,033
       Income taxes                                              4,147          4,240        3,833        3,499
                                                              ------------  -----------  -----------  -------------

       Net income                                            $   7,575     $    8,387   $    7,630   $    7,534
                                                              ============  ===========  ===========  =============

       Net income per common share:

       Basic                                                 $    0.28     $    0.31    $    0.30    $    0.30
       Diluted                                               $    0.28     $    0.31    $    0.29    $    0.30
                                                              ============  ===========  ===========  =============

       1999

       Interest and dividend income                          $  24,680     $   25,069   $   26,229   $   30,055
       Interest expense                                         13,398         13,428       13,972       15,646
                                                              ------------  -----------  -----------  -------------

       Net interest income before provision for loan losses     11,282         11,641       12,257       14,409
       Provision for loan losses                                   600            340          540          550
                                                              ------------  -----------  -----------  -------------

       Net interest income after provision for loan losses      10,682         11,301       11,717       13,859
       Non-interest income                                       4,043          3,697        1,548       (1,325)
       Non-interest expense                                      7,091          5,543        6,617       31,677
                                                              ------------  -----------  -----------  -------------

       Income (loss) before income taxes                         7,634          9,455        6,648      (19,143)
       Income tax expense (benefit)                              2,521          3,110        2,642       (6,462)
                                                              ------------  -----------  -----------  -------------

       Net income (loss)                                     $   5,113     $    6,345   $    4,006   $  (12,681)
                                                              ============  ===========  ===========  =============
</TABLE>

       The decline in net income for the fourth quarter of 1999 primarily
       resulted from a $21.4 million contribution of common stock to the newly
       formed American Savings Charitable Foundation at the time of the
       Conversion, and from charges of $3.4 million associated with the
       restructuring of the Company's compensation plans. In addition, the
       Company recognized a $3.1 million loss on the sale of securities
       resulting from a restructuring of the investment portfolio in the fourth
       quarter of 1999.

                                       96