EXHIBIT 13

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                            Advance Financial Bancorp

Corporate Profile

         Advance  Financial  Bancorp (the  "Company") is a Delaware  corporation
organized in September 1996 at the direction of Advance  Financial  Savings Bank
(the  "Bank") to acquire  all of the  capital  stock that the Bank issued in its
conversion  from the mutual to stock form of ownership  (the  "Conversion").  On
December 31, 1996,  the Bank  completed the Conversion and became a wholly owned
subsidiary  of the  Company.  The Company is a unitary  savings and loan holding
company which, under existing laws,  generally is not restricted in the types of
business  activities  in which it may engage  provided  that the Bank  retains a
specified  amount of its  assets in  housing-related  investments.  The  Company
conducts no significant business or operations of its own other than holding all
of the outstanding  stock of the Bank and investing the Company's portion of the
net proceeds obtained in the conversion.

         The Bank chartered in 1935 under the name Advance  Federal  Savings and
Loan of West Virginia, is a federally chartered stock savings bank headquartered
in  Wellsburg,   West  Virginia.   The  Bank  is  subject  to  examination   and
comprehensive  regulation by the Office of Thrift  Supervision  and its deposits
are federally insured by the Savings  Association  Insurance Fund. The Bank is a
member of and owns capital stock in the FHLB of Pittsburgh,  which is one of the
12 regional banks in the FHLB System.

         The Bank  operates a  traditional  savings  bank  business,  attracting
deposit accounts from the general public and using those deposits, together with
other funds, primarily to originate and invest in loans secured by single-family
residential real estate.

Stock Market Information

         The  Company's  common  stock has been  traded on the  Nasdaq  SmallCap
Market under the trading symbol of "AFBC" since it commenced  trading in January
1997.  The following  table reflects high and low bid quotations as published by
NASDAQ.  The quotations  reflect  inter-dealer  prices,  without retail mark-up,
mark-down, or commission, and may not represent actual transactions.

                                                               Dividends
                     Date                 High ($)   Low ($)   Declared ($)
                     ----                 --------   -------   ------------

January 1, 1997 - March 31, 1997            14.50      12.25       .08  
April 1, 1997 to June 30, 1997              15.13      13.50       .08
July 1, 1997 to September 30, 1997          16.75      14.88       .08
October 1, 1997 to December 31, 1997        17.88      16.50       .08
January 1, 1998 to March 31, 1998           20.88      17.38       .08
April 1, 1998 to June 30, 1998              19.50      17.88       .08
                                                               
         The number of  shareholders  of record of common stock as of the record
date of August 31, 1998, was approximately 469. This does not reflect the number
of persons or  entities  who held stock in  nominee  or  "street"  name  through
various  brokerage  firms.  At September 1, 1998,  there were  1,084,450  shares
outstanding. The Company's ability to pay dividends to stockholders is dependent
upon the dividends it receives from the Bank.  The Bank may not declare or pay a
cash  dividend on any of its stock if the effect  thereof would cause the Bank's
regulatory  capital  to be  reduced  below  (1)  the  amount  required  for  the
liquidation  account  established in connection with the Conversion,  or (2) the
regulatory capital requirements imposed by the OTS.

Selected Financial Ratios and Other Data

                                                      For the Years Ended
                                                           June 30,
                                                    -----------------------
                                                     1998 (%)     1997 (%)
                                                     --------     --------

Return on average assets
  (net income divided by average total assets)......    0.78        0.56
Return on average equity
  (net income divided by average equity)............    5.34        4.61
Average equity to average assets ratio
  (average equity divided by average total assets)..   14.61       12.03
Equity to assets at period end......................   13.07       15.42
Net interest rate spread............................    3.30        3.19
Dividends payout ratio..............................   37.65       32.65
Net yield on average interest-earnings assets.......    3.98        3.69
Non-performing loans to total assets................    0.47        0.58
Non-performing loans to total loans................     0.46        0.70
Allowance for loan losses to non-performing assets..   88.19       60.53

12
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                MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
                       CONDITION AND RESULTS OF OPERATIONS


General

         The Company  results  from  operations  consist  primarily  of interest
income from the  investing of funds from the  proceeds  generated by the sale of
common  stock  and  expense  incurred  in  the  maintaining  of  the  investment
portfolio.  The Bank's results of operations are primarily  dependent on its net
interest income,  which is the difference  between the interest income earned on
its assets,  primarily loans and  investments,  and the interest  expense on its
liabilities,  primarily  deposits and  borrowings.  Net  interest  income may be
affected  significantly  by general  economic  and  competitive  conditions  and
policies  of  regulatory  agencies,  particularly  those with  respect to market
interest  rates.  The results of operations are also  influenced by the level of
non-interest expenses,  such as employee salaries and benefits and other income,
such as loan-related fees and fees on deposit-related services.

Asset/Liability Management

         The Bank's net  interest  income is  sensitive  to changes in  interest
rates, as the rates paid on interest-bearing liabilities generally change faster
than the rates  earned on  interest-earning  assets.  As a result,  net interest
income will frequently  decline in periods of rising interest rates and increase
in periods of decreasing interest rates.

         To  mitigate  the impact of  changing  interest  rates on net  interest
income, the Bank manages interest rate sensitivity and asset/liability  products
through  an  asset/liability   management   committee  (the  "Committee").   The
asset/liability  management  committee meets as necessary to determine the rates
of interest for loans and deposits. Rates on deposits are primarily based on the
Bank's  need for  funds  and on a review  of rates  offered  by other  financial
institutions  in the Bank's market areas.  Interest rates on loans are primarily
based on the  interest  rates  offered by other  financial  institutions  in the
Bank's primary market areas as well as the Bank's cost of funds.

         In an effort to reduce  interest rate risk and protect  itself from the
negative  effects of rapid or prolonged  changes in interest rates, the Bank has
instituted   certain  asset  and  liability   management   measures,   including
underwriting  long-term  fixed  rate loans that are  saleable  in the  secondary
market,  offering  longer  term  deposit  products  and  diversifying  the  loan
portfolio into shorter term consumer and commercial business loans. In addition,
since the mid-1980s,  the Bank has primarily originated one year, three year and
five year adjustable-rate mortgage loans.

         The Committee manages the interest rate sensitivity of the Bank through
the  determination  and adjustment of  asset/liability  composition  and pricing
strategies. The Committee then monitors the impact of the interest rate risk and
earnings  consequences  of such  strategies  for  consistency  with  the  Bank's
liquidity needs, growth, and capital adequacy.  The Bank's principal strategy is
to reduce the interest rate  sensitivity of interest  earning assets and attempt
to match the  maturities  of  interest  earning  assets  with  interest  bearing
liabilities,  while  allowing  for a  mismatch  in an attempt  to  increase  net
interest income.

Net Portfolio Value

         The Bank  computes  amounts by which the net present value of cash flow
from assets,  liabilities and off balance sheet items ("net portfolio  value" or
"NPV")  would  change  in the  event of a range of  assumed  changes  in  market
interest  rates.  These  computations  estimate  the effect on the  Bank's  from
instantaneous  and  permanent 1% to 4% (100 to 400 basis  points)  increases and
decreases in market interest rates.  

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Based upon OTS assumptions,  the following table presents the Bank's NPV at June
30, 1997.

           Changes in Rates            NPV Ratio(1)               Change(2)
           ----------------            ------------               ---------

                +400 bp                     9.61%                 (306)bp

                +300 bp                    10.98                  (170)bp

                +200 bp                    11.98                   (69)bp

                +100 bp                    12.57                   (10)bp

                   0 bp                    12.67                     -

                -100 bp                    12.82                    14 bp

                -200 bp                    13.03                    36 bp

                -300 bp                    13.49                    82 bp

                -400 bp                    13.93                   126 bp


-----------------------
(1)  Calculated as the estimated NPV divided by present value of total assets.
(2)  Calculated  as the  excess  (deficiency)  of the  NPV  ratio  assuming  the
     indicated change in interest rates over the estimated NPV ratio assuming no
     change in interest rates.

         These  calculations  indicate that the Bank's net portfolio value could
be  adversely  affected by  increases  in interest  rates but could be favorably
affected by decreases in interest rates.  In addition,  the Bank would be deemed
to have  more  than a normal  level  of  interest  rate  risk  under  applicable
regulatory capital requirements.

         Computations  of  prospective  effects of  hypothetical  interest  rate
changes are based on numerous  assumptions,  including relative levels of market
interest rates,  prepayments and deposit  run-offs and should not be relied upon
as  indicative  of actual  results.  Certain  shortcomings  are inherent in such
computations.  Although certain assets and liabilities may have similar maturity
or periods  of  repricing  they may react at  different  times and in  different
degrees to changes in the market interest  rates.  The interest rates on certain
types of assets and  liabilities  may  fluctuate in advance of changes in market
interest  rates,  while rates on other types of assets and  liabilities  may lag
behind changes in market interest rates. Certain assets, such as adjustable rate
mortgages, generally have features which restrict changes in interest rates on a
short  term  basis and over the life of the  asset.  In the event of a change in
interest  rates,   prepayments  and  early   withdrawal   levels  could  deviate
significantly  from  those  assumed  in making  calculations  set  forth  above.
Additionally,  an  increased  credit  risk may  result  as the  ability  of many
borrowers to service  their debt may  decrease in the event of an interest  rate
increase.

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Average Balance Sheet

         The  following  table sets forth  certain  information  relating to the
Company's  average  balance  sheet and reflects the average  yield on assets and
average cost of  liabilities  for the periods  indicated and the average  yields
earned and rates paid.  Such yields and costs are derived by dividing  income or
expense by the average balance of assets or liabilities,  respectively,  for the
periods  presented.  Average  balances  are  derived  from  month-end  balances.
Management does not believe that the use of month-end  balances instead of daily
average  balances  has  caused  any  material  differences  in  the  information
presented.

<TABLE>
<CAPTION>
                                                                 Year Ended June 30,                                At June 30,
                                           -------------------------------------------------------------------  --------------------
                                                         1998                               1997                        1998
                                           --------------------------------  ---------------------------------  --------------------
                                               Average             Average    Average                 Average              Average
                                               Balance  Interest Yield/Cost   Balance      Interest Yield/Cost   Balance  Yield/Cost
                                               -------  -------- ----------   -------      -------- ----------   -------  ----------
                                                                             (Dollars in Thousands)
Interest-earning assets:
<S>                                           <C>      <C>         <C>      <C>            <C>         <C>     <C>           <C>  
 Loans receivable(1)....................        93,708   $7,737       8.26%   $83,694        $6,769      8.09%   $ 97,523      8.21%
 Investment securities(2)...............         9,376      640       6.83%    11,040           702      6.36%     10,381      5.99%
 Mortgage-backed securities.............           357       33       9.24%       426            39      9.15%        339      9.42%
                                               -------  -------     ------    -------        ------    ------    --------    ------
  Total interest-earning assets.........       103,441    8,410       8.13%    95,160         7,510      7.89%    108,243      8.00%
                                               -------  -------     ------     ------         -----    ------     -------    ------

Non-interest-earning assets.............         5,192                          3,545                               5,942
                                               -------                        -------                             -------
  Total assets..........................      $108,633                        $98,705                            $114,185
                                               =======                         ======                             =======

Interest-bearing liabilities:
  Interest-bearing demand deposits......      $ 15,739      559       3.55%   $12,303           390      3.17%   $ 17,414      3.16%
  Certificates of Deposit...............        48,808    2,814       5.77%    49,101         2,704      5.51%     54,100      5.78%
  Savings deposits......................        14,589      414       2.84%    16,308           506      3.10%     14,878      2.81%
  Short-term borrowings.................         9,716      505       5.20%     7,329           398      5.43%     10,000      5.32%
                                               -------  -------     ------     ------        ------    ------      ------    ------
  Total interest-bearing liabilities...         88,852    4,292       4.83%    85,041         3,998      4.70%     96,392      4.80%
                                               -------  -------     ------     ------         -----    ------      ------    ------

 Noninterest-bearings liabilities.......         3,907                          1,786                               2,865
                                               -------                          -----                             -------
 Total liabilities......................        92,759                         86,827                              99,257
                                               -------                         ------                             -------
Retained earnings.......................        15,874                         11,878                              14,928
                                               -------                         ------                             -------
 Total liabilities and retained earnings      $108,633                        $98,705                            $114,185
                                               =======                         ======                             =======
Net interest income.....................                $ 4,118                              $3,512
                                                         ======                               =====
Interest rate spread(3).................                              3.30%                              3.19%                 3.20%
                                                                    ======                             ======                ======
Net yield on interest-earning assets(4).                              3.98%                              3.69%                 3.73%
                                                                    ======                             ======                ======
Ratio of average interest-earning assets
 to average interest-bearing liabilities                            116.42%                            111.90%               112.29%
                                                                    ======                             ======                ======
</TABLE>

-----------------
(1)  Average balances include non-accrual loans.
(2)  Includes interest-bearing deposits in other financial institutions and FHLB
     stock.
(3)  Interest-rate spread represents the difference between the average yield on
     interest-earning  assets  and  the   average   cost   of   interest-bearing
     liabilities.
(4)  Net yield on  interest-earning  assets  represents net interest income as a
     percentage of average interest-earning assets.

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Rate/Volume Analysis

         The table below sets forth  certain  information  regarding  changes in
interest income and interest  expense of the Company for the periods  indicated.
For each category of interest-earning  assets and interest-bearing  liabilities,
information  is  provided  on  changes  attributable  to (i)  changes  in volume
(changes in average  volume  multiplied  by old rate) and (ii)  changes in rates
(changes in rate multiplied by old average volume).  Increases and decreases due
to both rate and  volume,  which  cannot  be  segregated,  have  been  allocated
proportionately to the change due to volume and the change due to rate.

<TABLE>
<CAPTION>
                                                Year Ended June 30,
                                          -----------------------------------
                                                1998     vs.     1997
                                          -----------------------------------
                                                  Increase (Decrease)
                                                       Due to
                                          -----------------------------------
                                          Volume         Rate           Net
                                          ------        ------        ------
                                                (Dollars in Thousands)
<S>                                        <C>           <C>           <C> 
Interest income:
 Loans receivable........................  $810          $158          $968
 Mortgage-backed securities..............    (6)            -            (6)
 Investment securities...................  (106)           44           (62)
                                            ---           ---            --
  Total interest-earning assets..........   698           202           900
                                            ---           ---           ---

Interest expense:
 Interest-bearing demand deposits........   109            60           169
 Certificates of Deposit.................   (16)          126           110
 Savings deposits........................   (53)          (39)          (92)
 Short-term borrowings...................   130           (23)          107
                                            ---           ---           ---
  Total interest-bearing liabilities.....   170           124           294
                                            ---          ----           ---

Net change in interest income............  $528          $ 78          $606
                                            ===           ===           ===
</TABLE>


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Comparison of Financial Condition

         The Company  had total  assets of  $114,185,000  at June 30,  1998,  an
increase of $9,622,000 or 9.2% from  $104,563,000 at June 30, 1997. The increase
in assets was primarily attributable to a strong growth in loans, as well as the
expansion of its market with the addition of the new Wintersville,  Ohio branch.
Total cash and cash  equivalents  increased by  $2,292,000 to $9,084,000 at June
30, 1998 from  $6,792,000  at June 30, 1997 as  management  is in the process of
evaluating  investment  opportunities.  Management  maintains  a  level  of cash
equivalents  which is desirable for meeting normal cash flow requirements of its
customers  for the  funding  of loans  and  repayment  of  deposits.  Investment
securities decreased $5,889,000,  from $7,899,000 at June 30, 1997 to $2,010,000
at June 30, 1998. This decrease resulted from the maturity of $7,100,000 of U.S.
Government  and Agency  securities  classified  as the held to  maturity,  while
management  opted to replace only $1,000,000 with similar type  securities.  Net
loans  receivable  increased  10,977,000 or 12.7%,  from $86,068,000 at June 30,
1997  to   $97,045,000  at  June  30,  1998.  The  net  increase  was  primarily
attributable to increases in non-residential mortgages of $4,099,000, commercial
loans of  $3,198,000,  construction  mortgages  of  $2,563,000,  and 1-4  family
mortgages of $1,613,000.  Such increases primarily reflected the economic health
of the  Bank's  market  area and the  competitive  pricing  of the  Bank's  loan
product.  The  funding of the loan  growth was mainly  provided by the runoff of
investment securities, an increase in deposits of $8,482,000, and an increase in
FHLB  borrowings of $2,253,000.  Net office  properties and equipment  increased
$2,027,000  or 98.6% from  $2,056,000 at June 30, 1997 to $4,083,000 at June 30,
1998.  This  increase is directly  related to the purchase of equipment  and the
preparation of facilities for the new Wintersville,  Ohio branch which opened in
June 1998.

         Deposits  increased by $8,483,000 or 10.6%,  to $88,552,000 at June 30,
1998 from  $80,069,000 at June 30, 1997. This increase  represents  increases in
certificates of deposits of $5,540,000 primarily accumulated with the opening of
the new Wintersville  office.  Furthermore,  there was an increase of $2,953,000
due to a new money  market  product for balances  greater than $10,000  which is
being offered at a  preferential  rate.  To support  business  development,  the
Company obtained funding through additional advances from the FHLB of $2,253,000
or 29.1%, to $10,000,000 at June 30, 1998 from $7,747,000 at June 30, 1997. FHLB
borrowings have staggering maturities which range from one to ten years.

         Stockholders'  equity  decreased  $1,197,000 or 7.4%, to $14,928,000 at
June 30, 1998 compared to  $16,125,000  at June 30, 1997.  This decrease was the
result of purchasing  Company stock of $1,001,000  for treasury and $894,000 for
funding the  Restricted  Stock Plan. The treasury stock was acquired with excess
funds and the  future  use of such  shares  is being  evaluated  by  management.
Partially  offsetting  this  decline was an increase of net  retained  income of
$532,000 and recognition of shares in the Restricted Stock Plan and the Employee
Stock  Ownership Plan amounting to $172,000.  Through June 30, 1998, the Company
initiated the payment of dividends of $.32 per share, while maintaining  capital
ratios well in excess of regulatory guidelines. Future dividend policies will be
determined  by the Board of Directors  in light of the  earnings  and  financial
condition of the Company,  including  applicable  governmental  regulations  and
policies.

Comparison  of the Results of  Operations  for the Years Ended June 30, 1998 and
1997

Net Income.  Net income for the year ended June 30, 1998  increased  $300,000 or
54.7%, to $848,000 from $548,000 for the same period ended 1997 primarily due to
an  increase  on net  interest  income of  $607,000  coupled a decrease  in FDIC
insurance  of  $525,000  and  offset  with  increases  in the  compensation  and
benefits,  provision  for  loan  losses  and  taxes  of  $330,000,  $202,000,and
$200,000, respectively.

Net Interest  Income.  The Company's net interest income  increased  $607,000 or
17.3% to  $4,118,000  for the year ended June 30,  1998,  due to an  increase of
$900,000 or 12.0% in  interest  income,  which  totaled  $8,410,000  for 1998 as
compared to $7,5 1 0,000 for 1997.  The  increase  in interest  income more than
offset the $293,000 or 7.3%  increase in interest  expense.  The  interest  rate
spread  increased  from 3.19% for the year ended June 30,  1997 to 3.30% for the
same period ended June 30, 1998.
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Interest  Income.  The increase in interest  income  resulted  primarily from an
increase in  earnings  on loans of $968,000 or 14.3%,  due to an increase in the
average  principal  balances of $10,014,000 or 12.0%,  from  $83,694,000 for the
year ended June 30, 1997 to $93,708,000 for the same period ended June 30, 1998.
This increase was partially  reduced by a decline of $62,000 in interest  income
on  investment  securities  as  the  average  volume  of  investments  decreased
$1,664,000 or 15.1%. As previously discussed, investment maturities were used to
support the growing  loan  volume.  Furthermore,  the yield on  interest-earning
assets  increased 24 basis points from 7.89% for the year ended June 30, 1997 to
8.13% for the same period ended June 30, 1998 primarily due to maturing of lower
yielding investments.

         Total interest  expense  increased  from  $3,998,000 for the year ended
June 30,  1997 to  $4,292,000  for the same  period  ended  June 30,  1998.  The
increased  expense  was  primarily  due to an  increase  in  average  volume  of
interest-bearing  demand  deposits of $3,436,000  and a  corresponding  38 basis
point  increase  on the  cost of  these  deposits.  As  noted  above,  this  was
predicated  upon the  effects of a full year of a new money  market  product for
balances greater than $10,000 being offered at a preferential  rate coupled with
a reduction in the average volume of savings deposits of $1,719,000 as customers
preferred the higher yielding  deposit  instrument.  Also, the average volume of
FHLB advances  increased  from  $7,329,000 as of June 30, 1997 to $9,716,000 for
June 30, 1998 in an effort to meet the demand of an increasing loan environment.
The average cost on interest-bearing  liabilities  increased slightly from 4.70%
for the year ended June 30,  1997 to 4.83% for the same  period  ending June 30,
1998.

Provision for loan losses.  The provision for loan losses increased from $51,000
as of June 30, 1997 to $253,000 as of June 30,1998  primarily in response to the
growth of the loan portfolio over the past year. Specifically, the Bank's market
area  has  generated  significant  growth  in the  commercial  real  estate  and
commercial  loan segments.  The level of funding the for provision has increased
$202,000,  or 393.3%,  and is a reflection of the overall loan demand and is not
an  indication  of any  decline in the quality of the loan  portfolio.  Although
there is no  historical  loan loss  experience  for this  segment,  management's
evaluation of the loan  portfolio  and the  direction of the market's  growth in
this area provided a foundation  for  increasing  its provision for loan losses.
Total loans  charged off during the year ended June 30, 1998  totaled  $158,000,
with  approximately  $118,000 or 74.7% relating to one commercial  relationship.
Management  continually  evaluates the adequacy of the allowance for loan losses
which  encompasses  the overall risk  characteristics  of the various  portfolio
segments,  past  experience  with losses,  the impact of economic  conditions on
borrowers, and other relevant factors. While asset quality has slightly declined
during  this  period,   management  believes  that  the  underlying   collateral
supporting  such loans  provides  adequate  coverage.  The  Company  maintains a
desirable  level in it loan loss provisions  based upon the Company's  review of
the market,  loan  portfolio,  and  overall  assessment  of the  adequacy of the
valuation  allowance.  There  can be no  assurances,  however,  that  additional
provisions will not be required in future periods.

Noninterest  income.  Noninterest  income  increased by $177,000 or 46.5%,  from
$381,000  for the year ended June 30, 1997 to $558,000 for the same period ended
June 30, 1998.  Service charges on deposit accounts  increased $41,000 or 17.8%,
due to the increase in the volume and number of deposit  accounts.  In addition,
there was an increase  in the gain on sale of loans of $146,000 to $176,000  for
the twelve  months  ended June 30, 1998 from  $30,000 for the same period  ended
1997. This was derived from the sale of $6,857,000 of fixed rate mortgage loans.

Noninterest  expense.  Noninterest  expense  increased  $82,000  or  2.7%,  from
$2,972,000  for the year ended June 30, 1997 to  $3,054,000  for the same period
ended June 30, 1998.  Compensation and benefits increased $330,000 or 32.2%, due
to the hiring of new  employees to further  diversify  the Bank's  operations to
meet continually  changing customer demands coupled with an increase of $144,000
and $68,000  attributable  to the Employee  Stock  Ownership Plan and Restricted
Stock Plan,  respectively.  Professional fees increased by $89,000 from $127,000
for the year ended June 30, 1997 to $216,000  for the same period ended 1998 due
to an increase in services  for  compliance  with  regulatory  requirements  and
employee benefit plans.  Data processing  expense increased $3 1,000 due to both
volume of  transactions  and an  increase in third party  costs.  Other  expense
increased  $109,000 or 20.6% as $34,000 was recognized  with the adoption of the
Directors'  Restricted  Stock Plan, and  additional  increases of $18,000 to ATM
expense for replacement of ATM cards to Debit cards and $17,000 to consumer card
expense associated with the implementation of merchant and credit card programs,
respectively.  There were also numerous smaller dollar expenses 

18
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relating to the opening of the new Wintersville,  Ohio branch.  Offsetting these
increases to noninterest  expense is the reduction of deposit insurance premiums
for a one time charge of $470,000 in federal  insurance  premiums.  On September
30,  1996,  the  President  signed  into  law  legislation  which  included  the
recapitalization  of the  Savings  Association  Insurance  Fund  ("SAIF") of the
Federal  Deposit  Insurance  Corporation  by a one time  charge to  SAIF-insured
institutions of 65.7 basis points per one hundred dollars of insurable deposits.

Income Taxes.  Income tax expense increased $200,000 or 62.5%, from $321,000 for
the year ended June 30, 1997 to $521,000 for the year ended June 30,  1998,  due
to the 57.6% increase in income before income taxes. The effective rate on taxes
as of the year ended  June 30,  1998 was 38.0%  compared  to 36.9% from the same
period ended June 30, 1997.

Liquidity and Capital Resources

         The  primary  sources  of funds are  deposits,  repayment  of loans and
mortgage-backed  securities,  maturities  of  investments  and  interest-bearing
deposits,  funds  provided  from  operations  and  advances  from  the  FHLB  of
Pittsburgh.  While scheduled repayments of loans and mortgage-backed  securities
and  maturities  of  investment  securities  are  predictable  sources of funds,
deposit flows and loan  prepayments are greatly  influenced by the general level
of interest  rates,  economic  conditions,  and  competition.  The Bank uses its
resources  primarily  to fund  existing  and future loan  commitments,  maturing
certificates  of deposit and demand  deposit  withdrawals,  investments in other
interest-earning  assets,  maintenance  of  necessary  liquidity,  and  to  meet
operating expenses.

         Net cash used for operating activities for the year ended June 30, 1998
was  $139,000 as compared to  $2,109,000  for the same period  ended 1997.  This
decrease was primarily the result of an increase in the net origination of loans
held  for sale of  $2,685,000  and  gain on sale of  loans  of  $145,000.  These
decreases to net cash used for operating  activities were partially offset by an
increases  of $300,000  and  $202,000 in net income and the  provision  for loan
losses, respectively.

         Net cash used for investing activities for the year ended June 30, 1998
declined  $5,322,000 to $6,053,000 from  $11,375,000 for the year ended June 30,
1997.  This  decrease was  primarily  attributable  to a $4,708,000  increase in
proceeds from maturities and repayments of securities coupled with a decrease of
$4,063,000  in purchases of  securities.  A portion of these funds were used for
the and purchase of equipment  and the  preparation  of  facilities  for the new
Wintersville  branch  of  $2,061,000,  as well as the net  funding  of  loans of
$1,125,000.

         Net cash provided from our financing activities for the year ended June
30, 1998 decreased $3,559,000 to $8,483,000 from $12,042,000 for the same period
ended 1997.  This decrease  consisted of a decline of  $9,449,000  from proceeds
from the prior year  stock  offering  and the net  decline  of  $1,118,000  from
advances from the FHLB.  Also  contributing  to this decline was the purchase of
stock  for  treasury  and  for  benefit  plans  of   $1,001,000   and  $894,000,
respectively. Offsetting these net uses of cash was the net increase in deposits
of $9,184,000 due to the new Wintersville branch and the influx of deposits from
a higher yielding money market product.

         Liquidity  may be adversely  affected by unexpected  deposit  outflows,
excessive interest rates paid by competitors,  adverse publicity relating to the
savings and loan  industry  and  similar  matters.  Further,  the  disparity  in
insurance  premiums as described  herein could result in the Savings Bank losing
deposits  to the Bank  Insurance  Fund  ("BIF")  members who have lower costs of
funds and  therefore  are able to pay  higher  rates of  interest  on  deposits.
Management   monitors  projected   liquidity  needs  and  determines  the  level
desirable,   based  in  part  on  the  Bank's  commitments  to  make  loans  and
management's assessment of the Bank's ability to generate funds.

                                                                              19
<PAGE>
--------------------------------------------------------------------------------

Impact of Inflation and Changing Prices

         The  consolidated  financial  statements  and  the  accompanying  notes
presented  elsewhere in this  document,  have been prepared in  accordance  with
generally  accepted  accounting  principles,  which require the  measurement  of
financial  position and operating results in terms of historical dollars without
considering the change in the relative  purchasing  power of money over time and
due to inflation.  The impact of inflation is reflected in the increased cost of
our  operations.  As a  result,  interest  rates  have a  greater  impact on our
performance  than do the effects of general levels of inflation.  Interest rates
do not  necessarily  move in the same  direction  or to the same  extent  as the
prices of goods and services.

Year 2000 Evaluation

         Rapid  and  accurate  data   processing  is  essential  to  the  Bank's
operations.  Many  computer  programs  that can only  distinguish  the final two
digits of the year  entered (a common  programming  practice in prior years) are
expected  to read  entries  for the year  2000 as the  year  1900 or as zero and
incorrectly  attempt to compute payment,  interest,  delinquency and other data.
The Bank has been evaluating both information  technology (computer systems) and
non-information technology systems (e.g., vault timers, electronic door lock and
elevator controls). Based upon such evaluations,  management has determined that
the Bank has year  2000 risk in three  areas:  (1)  Bank's  own  computers,  (2)
Computers of others used by the Bank's  borrowers,  and (3)  Computers of others
who provide the Bank with data processing.

         Bank's own computers.  The Bank expects to spend approximately  $50,000
through June 30, 1999 to upgrade its computer  system.  This upgrade is expected
to eliminate the year 2000 risk. The Bank does not expect to have material costs
to address  this risk area after June 30, 1999.  At June 30,  1998,  none of the
estimated  $50,000  had been  expensed.  The Bank  expects,  though  there is no
assurance, to be year 2000 compliant in this risk area be December 31, 1998.

         Computers of others used by our borrowers.  The Bank has evaluated most
of their borrowers and does not believe that the year 2000 problem should, on an
aggregate  basis,  impact their ability to make  payments to the Bank.  The Bank
believes  that most of their  residential  borrowers  are not dependent on their
home  computers  for income and that none of their  commercial  borrowers are so
large that a year 2000 problem  would  render them unable to collect  revenue or
rent and,  in turn,  continue to make loan  payments to the Bank.  The Bank does
expect any material  costs to address this risk area and believes  they are year
2000 compliant in this risk area.

         Computers of others who provide us with data  processing.  This risk is
primarily focused on one third party service bureau that provides  virtually all
of the Bank's data  processing.  This service  bureau is not year 2000 compliant
but has advised the Bank that it expects to be  compliant  before the year 2000.
If this  problem is not  solved  before  the year  2000,  the Bank would  likely
experience significant delays,  mistakes or failures.  These delays, mistakes or
failures could have a significant impact on our financial  condition and results
of operations.

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

20
<PAGE>
SNODGRASS
Certified Public Accountants and Consultants

[LOGO]




                         Report of Independent Auditors


Board of Directors and Stockholders
Advance Financial Bancorp

We have audited the accompanying consolidated balance sheet of Advance Financial
Bancorp  and  subsidiary  as  of  June  30,  1998  and  1997,  and  the  related
consolidated statements of income,  stockholders' equity, and cash flows for the
years then ended.  These  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  generally   accepted  auditing
standards.  Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement.  An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements.  An audit also includes
assessing the  accounting  principles  used and  significant  estimates  made by
management, as well as, evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

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

/s/S.R. Snodgrass, A.C.

Steubenville, Ohio
July 21, 1998







                                                                              21
<PAGE>

                           ADVANCE FINANCIAL BANCORP
                           CONSOLIDATED BALANCE SHEET

<TABLE>
<CAPTION>
                                                                                              June 30,
                                                                                          1998             1997
                                                                                   -------------    -------------
<S>                                                                                <C>              <C>          
ASSETS
Cash and cash equivalents:
         Cash and amounts due from banks                                           $   1,334,831    $     903,981
         Interest-bearing deposits with other institutions                             7,749,362        5,888,439
                                                                                   -------------    -------------
                           Total cash and cash equivalents                             9,084,193        6,792,420
                                                                                   -------------    -------------
Investment securities:
         Securities held to maturity (market value of $1,753,325
          and $7,831,187)                                                              1,745,667        7,844,305
         Securities available for sale                                                   264,020           55,051
                                                                                   -------------    -------------
                           Total investment securities                                 2,009,687        7,899,356
                                                                                   -------------    -------------
Mortgage-backed securities held to maturity (market value of
         $364,031 and $394,743)                                                          339,362          367,553
Loans held for sale                                                                    1,454,700                -
Loans receivable (net of allowance for loan losses of
 $477,654 and $367,779)                                                               95,590,197       86,067,848
Premises and equipment, net                                                            4,082,857        2,055,651
Federal Home Loan Bank stock, at cost                                                    622,200          576,700
Accrued interest receivable                                                              617,980          655,667
Other assets                                                                             384,237          148,184
                                                                                   -------------    -------------
                           TOTAL ASSETS                                            $ 114,185,413    $ 104,563,379
                                                                                   =============    =============

LIABILITIES
Deposits                                                                           $  88,551,543    $  80,069,078
Advances from Federal Home Loan Bank                                                  10,000,000        7,747,449
Advance payments by borrowers for taxes and insurance                                    193,346          186,738
Accrued interest payable and other liabilities                                           512,402          435,069
                                                                                   -------------    -------------
                           TOTAL LIABILITIES                                          99,257,291       88,438,334
                                                                                   -------------    -------------

COMMITMENTS AND CONTINGENCIES (NOTE 17)

STOCKHOLDERS' EQUITY
Preferred stock, $.10 par value; authorized 500,000 shares; none issued                        -                -
Common stock, $.10 par value, 2,000,000 shares authorized;
 1,084,450 shares issued and outstanding at June 30, 1998                                108,445          108,445
Additional paid in capital                                                            10,288,928       10,221,528
Retained earnings - substantially restricted                                           7,130,056        6,597,836
Unallocated shares held by Employee Stock Ownership Plan (ESOP)                         (715,158)        (796,195)
Unallocated shares held by Restricted Stock Plan (RSP)                                  (869,636)               -
Treasury stock (53,802 shares at cost)                                                (1,000,863)               - 
Net unrealized loss on securities                                                        (13,650)          (6,569)
                                                                                   -------------    -------------
                           TOTAL STOCKHOLDERS' EQUITY                                 14,928,122       16,125,045
                                                                                   -------------    -------------
                           TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY              $ 114,185,413    $ 104,563,379
                                                                                   =============    =============
</TABLE>

See accompanying notes to the consolidated financial statements.

22
<PAGE>
                           ADVANCE FINANCIAL BANCORP
                        CONSOLIDATED STATEMENT OF INCOME
<TABLE>
<CAPTION>
                                                                 Year Ended June 30,
                                                                   1998         1997
                                                                ----------   ----------
<S>                                                             <C>          <C>       
INTEREST AND DIVIDEND INCOME
         Loans                                                  $7,736,893   $6,769,293
         Investment securities                                     303,709      350,885
         Interest-bearing deposits with other institutions         298,513      315,346
         Mortgage-backed securities                                 33,087       38,611
         Federal Home Loan Bank stock                               37,972       35,732
                                                                ----------   ----------
                           Total interest and dividend income    8,410,174    7,509,867
                                                                ----------   ----------

INTEREST EXPENSE
         Deposits                                                3,786,395    3,600,068
         Advances from Federal Home Loan Bank                      505,356      398,368
                                                                ----------   ----------
                           Total interest expense                4,291,751    3,998,436
                                                                ----------   ----------

NET INTEREST INCOME                                              4,118,423    3,511,431

Provision for loan losses                                          253,606       51,414
                                                                ----------   ----------

NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES              3,864,817    3,460,017
                                                                ----------   ----------

NONINTEREST INCOME
         Service charges on deposit accounts                       268,941      228,239
         Gain on sale of loans                                     175,678       30,420
         Gain on sale of real estate                                     -       25,363
         Other income                                              113,398       96,849
                                                                ----------   ----------
                           Total noninterest income                558,017      380,871
                                                                ----------   ----------
NONINTEREST EXPENSE
         Compensation and employee benefits                      1,357,826    1,027,355
         Occupancy and equipment                                   373,455      348,597
         Deposit insurance premiums                                 52,538      577,226
         Professional fees                                         215,805      126,603
         Advertising                                               121,155       99,404
         Data processing                                           295,323      264,432
         Other operating expenses                                  637,725      528,623
                                                                ----------   ----------
                           Total noninterest expense             3,053,827    2,972,240
                                                                ----------   ----------
Income before income taxes                                       1,369,007      868,648
Income taxes                                                       520,797      320,510
                                                                ----------   ----------
NET INCOME                                                      $  848,210   $  548,138
                                                                ==========   ==========

EARNINGS PER SHARE (from December 31, 1996, conversion date):
         Basic                                                  $      .85   $      .49
         Diluted                                                $      .85   $      .49
</TABLE>

See accompanying notes to the consolidated financial statements.

                                                                              23
<PAGE>



                           ADVANCE FINANCIAL BANCORP
           CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY

<TABLE>
<CAPTION>

                                                                                                            Net
                                                      Retained                                           Unrealized
                                         Additional   Earnings      Unallocated Unallocated              Gain/(Loss)    Total
                              Common      Paid In   Substantially   Shares Held Shares Held   Treasury        on     Stockholders'
                               Stock      Capital     Restricted      By ESOP     By RSP       Stock     Securities      Equity
                             --------   -----------   ----------     ---------   ---------  -----------    --------   -----------

<S>                       <C>          <C>           <C>          <C>           <C>       <C>             <C>        <C>        
Balance, June 30, 1996     $        -   $         -   $6,209,329   $         -   $      -  $         -     $(9,450)   $ 6,199,879

  Net income                                             548,138                                                          548,138
  Sale of common stock        108,445    10,207,689                   (867,560)                                         9,448,574
  Release of earned 
    ESOP shares                              13,839                     71,365                                             85,204
  Net unrealized 
    gain on securities                                                                                        2,881         2,881
  Cash dividends 
    declared
   ($.16 per share)                                     (159,631)                                                        (159,631)
                             --------   -----------   ----------     ---------   ---------  -----------    --------   -----------
Balance, June 30, 1997        108,445    10,221,528    6,597,836      (796,195)         -            -       (6,569)   16,125,045

  Net income                                             848,210                                                          848,210
  Purchase of 
    treasury stock                                                                          (1,000,863)                (1,000,863)
  Purchase of 
    stock for RSP                                                                (893,587)                               (893,587)
  Accrued compensation
   expense for RSP                                                                 67,583                                  67,583
  RSP forfeited shares                                                            (43,632)                                (43,632)
  Release of earned 
    ESOP shares                              67,400                     81,037                                            148,437
  Net unrealized 
    loss on securities                                                                                       (7,081)       (7,081)
  Cash dividends declared
   ($.32 per share)                                     (315,990)                                                        (315,990)
                             --------   -----------   ----------     ---------   ---------  -----------    --------   -----------
Balance, June 30, 1998       $108,445   $10,288,928   $7,130,056     $(715,158)  $(869,636) $(1,000,863)   $(13,650)  $14,928,122
                             ========   ===========   ==========     =========   =========  ===========    ========   ===========
</TABLE>

See accompanying notes to the consolidated financial statements.

24
<PAGE>



                           ADVANCE FINANCIAL BANCORP
                      CONSOLIDATED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
                                                                                           Year Ended June 30,
                                                                                        1998                    1997
                                                                                  ------------            ------------
<S>                                                                               <C>                     <C>         
OPERATING ACTIVITIES
         Net income                                                               $    848,210            $    548,138
         Adjustments to reconcile net income to net cash provided by
          operating activities:
                  Depreciation, amortization and accretion, net                        111,943                 151,942
                  Provision for loan losses                                            253,606                  51,414
                  Gain on sale of real estate                                                -                 (25,363)
                  Gain on sale of loans                                               (175,678)                (30,420)
                  Origination of loans held for sale                                (8,136,349)             (2,805,769)
                  Proceeds from the sale of loans                                    6,857,327               4,211,323
                  Decrease (increase) in accrued interest receivable                    37,687                (134,480)
                  Increase in accrued interest payable                                  10,029                  10,797
                  Other, net                                                            10,612                 131,191
                                                                                  ------------            ------------
                           Net cash provided by (used for) operating activities       (182,613)              2,108,773
                                                                                  ------------            ------------
INVESTING ACTIVITIES
         Investment securities held to maturity:
                  Purchases                                                         (1,000,000)             (5,294,498)
                  Maturities and repayments                                          7,100,000               2,250,000
         Investment securities available for sale:
                  Purchases                                                           (231,875)                      -
                  Maturities and repayments                                             11,555                  12,280
         Mortgage-backed securities held to maturity:
                  Maturities and repayments                                             28,210                 169,191
         Purchases of Federal Home Loan Bank Stock                                     (45,500)                (17,200)
         Net increase in loans                                                      (9,703,390)             (8,578,129)
         Purchases of premises and equipment                                        (2,211,714)               (150,747)
         Proceeds from sale of premises and equipment                                        -                  72,863
         Proceeds from sale of other real estate                                             -                 161,355
                                                                                  ------------             -----------
                           Net cash used for investing activities                   (6,052,714)            (11,374,885)
                                                                                  ------------             -----------
FINANCING ACTIVITIES
         Net increase (decrease) in deposits                                         8,482,465                (701,568)
         Net increase in short term advances from Federal Home Loan Bank                     -                 404,813
         Proceeds from advances from Federal Home Loan Bank                          7,000,000               3,000,000
         Repayment of advances from Federal Home Loan Bank                          (4,747,449)                (33,816)
         Net change in advances for taxes and insurance                                  6,608                   3,761
         Proceeds from sale of common stock                                                  -               9,448,574  
         Purchase of treasury stock                                                 (1,000,863)                      -
         Purchase of RSP stock                                                        (893,587)                      -
         Cash dividends paid                                                          (320,074)                (79,815)
                                                                                  ------------             -----------
                  Net cash provided by financing activities                          8,527,100              12,041,949
                                                                                  ------------             -----------
                  Increase in cash and cash equivalents                              2,291,773               2,775,837
                                                                                                          
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR                                       6,792,420               4,016,583
                                                                                   -----------             -----------
                                                                                                          
CASH AND CASH EQUIVALENTS AT END OF YEAR                                           $ 9,084,193             $ 6,792,420
                                                                                    ==========              ==========
</TABLE>                                        
See accompanying notes to the consolidated financial statements.                
                                                                              25
<PAGE>

                           ADVANCE FINANCIAL BANCORP
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


1.       SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

A summary  of  significant  accounting  and  reporting  policies  applied in the
presentation of the accompanying financial statements follows:

Nature of Operations and Basis of Presentation
----------------------------------------------

In December 1996,  Advance  Financial Bancorp (the "Company") was formed as part
of a corporate  reorganization  completed in  connection  with the mutual - to -
stock conversion of Advance Financial  Savings Bank,  f.s.b. (the "Bank").  As a
result of this transaction,  the Bank and its wholly-owned  service  corporation
subsidiary,  Advance  Financial  Service  Corporation  of West  Virginia  became
wholly-owned  subsidiaries  of the  Company.  The Company  and its  subsidiaries
derive  substantially  all their income from banking and  bank-related  services
which include  interest  earnings on residential  real estate,  commercial  real
estate, and consumer loan financing,  as well as interest earnings on investment
securities,  interest-bearing  deposits with other financial  institutions,  and
charges for deposit services to its customers. The Bank is a federally chartered
stock  savings  bank  located in  Wellsburg,  WV. The  Company  and the Bank are
subject to regulation and supervision by the Office of Thrift Supervision.

The consolidated  financial  statements  include the accounts of the Company and
its wholly-owned subsidiary, the Bank, and its wholly-owned subsidiary,  Advance
Financial  Service  Corporation  of West  Virginia.  All  material  intercompany
balances and transactions have been eliminated in  consolidation.  The Company's
fiscal year end for financial  reporting is June 30. For  regulatory  and income
tax  reporting  purposes,  the Company  reports on a December  31 calendar  year
basis.

The  consolidated  financial  statements  have been prepared in conformity  with
generally  accepted  accounting   principles.   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  significantly  from those estimates.  The major accounting  policies and
practices are summarized below.

Investment Securities Including Mortgage-Backed Securities
----------------------------------------------------------

Debt securities,  including mortgage-backed  securities acquired with the intent
and ability to hold to maturity are stated at cost and adjusted for amortization
of premium and  accretion  of discount,  which are computed  using a level yield
method and are  recognized  as  adjustments  of interest  income.  Certain other
equity securities have been classified as available for sale. Unrealized holding
gains and losses on  available  for sale  securities  are reported as a separate
component of retained earnings, net of tax, until realized.  Realized securities
gains and losses are computed using the specific identification method. Interest
and dividends on investment securities are recognized as income when earned.

Investment Securities Including Mortgage-Backed Securities (Continued)
----------------------------------------------------------------------

Common stock of the Federal Home Loan Bank (the "FHLB") represents  ownership in
an institution  which is  wholly-owned  by other  financial  institutions.  This
equity  security  is  accounted  for at  cost  and  reported  separately  on the
accompanying balance sheet.

Loans Held for Sale
-------------------

Mortgage loans  originated and held for sale in the secondary market are carried
at the lower of cost or market  value  determined  on an  aggregate  basis.  Net
unrealized  losses are recognized in a valuation  allowance  through  charges to
income. Gains and losses on the sale of loans held for sale are determined using
the specific identification method. At June 30, 1998, the cost of loans held for
sale  approximated  market value. At June 30, 1997, there were no loans held for
sale.

Loans
-----

Loans are  stated at unpaid  principal  balances,  less  loans in  process,  net
deferred  loan fees,  and the  allowance  for loan losses.  Interest on loans is
credited  to  income  as  earned  on an  accrual  basis.  Loan  origination  and
commitment fees and certain direct loan origination costs are being deferred and
the net amount  amortized as an  adjustment  of the related  loan's  yield.  The
Company is  amortizing  these amounts over the  contractual  life of the related
loans using the interest method.

The accrual of interest is generally  discontinued when the contractual  payment
of principal and interest has become 90 days past due or management  has serious
doubts about further  collectibility  of principal or interest,  even though the
loan is currently  performing.  A loan may remain on accrual  status if it is in
the process of collection and is either guaranteed or well secured.  When a loan
is placed on  nonaccrual  status  unpaid  interest  is charged  against  income.
Interest received on nonaccrual loans is either applied to principal or reported
as interest income,  according to management's judgment as to the collectibility
of principal.

Allowance for Loan Losses
-------------------------

The allowance for loan losses  represents the amount which management  estimates
is adequate to provide for potential losses in its loan portfolio. The allowance
method is used in providing  for loan losses.  Accordingly,  all loan losses are
charged to the  allowance and all  recoveries  are credited to it. The allowance
for loan losses is  established  through a provision for loan losses  charged to
operations.  The  provision  for loan losses is based on  management's  periodic
evaluation of individual  loans,  economic  factors,  past loan loss experience,
changes in the  composition  and  volume of the  portfolio,  and other  relevant
factors.  The estimates  used in  determining  the adequacy of the allowance for
loan losses,  including the amounts and timing of future cash flows  expected on
impaired loans, are particularly susceptible to changes in the near term.

A loan is  considered  impaired  when it is probable  that the borrower will not
repay  the  loan  according  to the  original  contractual  terms  of  the  loan
agreement.  Management has  determined  that first mortgage loans on one-to-four
family   properties   and  all  consumer   loans   represent   large  groups  of
smaller-balance,  homogeneous  loans  that  are  to be  collectively  evaluated.
Management  considers an insignificant  delay,  which is defined as less than 90
days by the Company,  will not cause a loan to classified as impaired. A loan is
not  impaired  during a period of delay in  payment  if the  Company  expects to
collect all amounts due including  interest accrued at the contractual  interest
rate during the period of delay.  All loans identified as impaired are evaluated
independently  by management.  The Company  estimates  credit losses on impaired
loans based on the present value of expected cash flows or the fair value of the
underlying collateral if the loan repayment is expected to come from the sale or
operation  of  said  collateral.   Impaired  loans,  or  portions  thereof,  are
charged-off when it is determined that a realized loss has occurred.  Until such
time,  an allowance for loan losses is maintained  for  estimated  losses.  Cash
receipts on impaired  loans are applied  first to accrued  interest  receivable,
unless  otherwise  required by the loan terms,  except when an impaired  loan is
also a nonaccrual  loan,  in which case the portion of the  receipts  related to
interest is recognized as income.

Real Estate Acquired in Settlement of Loans
-------------------------------------------

Real estate  acquired in  settlement  of loans is  classified  separately on the
balance  sheet at the lower of the  recorded  investment  in the property or its
fair value minus estimated costs of sale. Prior to foreclosure, the value of the
underlying  collateral  is written  down by a charge to the  allowance  for loan
losses, if necessary.  Any subsequent  write-downs are charged against operating
expenses.  Operating  expenses  of such  properties,  net of related  income and
losses on their disposition are included in other expenses.

Premises and Equipment
----------------------

Land is carried  at cost;  buildings  and  equipment  are  stated at cost,  less
accumulated  depreciation.  The provision for depreciation is computed primarily
by the straight-line  method based upon the estimated useful lives of the assets
which range from five to forty years.  Expenditures  for maintenance and repairs
are  charged   against  income  as  incurred.   Costs  of  major  additions  and
improvements are capitalized.

26
<PAGE>

Income Taxes
------------

Deferred tax assets and  liabilities  are reflected at currently  enacted income
tax  rates  applicable  to the  period  in which  the  deferred  tax  assets  or
liabilities  are  expected to be realized or settled.  As changes in tax laws or
rates are enacted,  deferred tax assets and liabilities are adjusted through the
provision for income taxes.  Deferred  income tax expenses or benefits are based
on the changes in the deferred tax asset or liability from period to period. The
Company and its subsidiary file a consolidated income tax return.

Earnings Per Share
------------------

In 1997, the Financial  Accounting Standards Board issued Statement of Financial
Accounting  Standards No. 128,  "Earnings Per Share." Statement No. 128 replaced
the previously  reported primary and fully diluted earnings per share with basic
and  diluted  earnings  per share.  Unlike  primary  earnings  per share,  basic
earnings  per share  excludes  any dilutive  effects of options,  warrants,  and
convertible  securities.  Diluted  earnings  per  share is very  similar  to the
previously  reported  fully diluted  earnings per share.  All earnings per share
amounts for all periods have been presented,  and where  necessary,  restated to
conform to the Statement 128 requirements.

There  were no  convertible  securities  which  would  effect the  numerator  in
calculating  basic and  diluted  earnings  per share;  therefore,  net income as
presented on the Consolidated  Statement of Income for 1998 and net income since
inception,  December  31,  1996,  of  $492,662  for  1997  will  be  used as the
numerator. The following table sets forth a reconciliation of the denominator of
the basic and diluted earnings per share computation.

                                             1998         1997
                                           ---------   ---------
Denominator:
  Denominator for basic 
  earnings per share 
  weighted-average shares                  1,001,108     998,392
                                           
Effect of dilutive securities:             
  Employee stock options                         423           -
                                           ---------   ---------
Dilutive potential common shares                 423           -
                                           ---------   ---------
Denominator for diluted                    
    earnings per share - adjusted          
    weighted-average average               
    assumed conversion                     1,001,531     998,392
                                           =========   =========
                                          

Reclassification of Comparative Amounts
---------------------------------------

Certain comparative account balances for prior periods have been reclassified to
conform to the current period  classifications.  Such  reclassifications did not
effect net income.

Cash Flow Information
---------------------

The Company has defined cash and cash  equivalents as cash on hand,  amounts due
from depository institutions,  and overnight deposits with the Federal Home Loan
Bank.

Cash  payments  for  interest  for the fiscal years ended June 30, 1998 and 1997
were $4,281,722 and $3,987,639 respectively.  Cash payments for income taxes for
the  fiscal  years  ended  June 30,  1998 and 1997 were  $533,795  and  $316,279
respectively.

Recent Accounting Pronouncements
--------------------------------

In July 1997,  the  Financial  Accounting  Standards  Board issued  Statement of
Financial  Accounting  Standards  No.  130,  "Reporting  Comprehensive  Income."
Statement No. 130 is effective  for fiscal years  beginning  after  December 15,
1997.  This statement  establishes  standards for reporting and  presentation of
comprehensive income and its components (revenues,  expenses,  gains and losses)
in a full set of general  purpose  financial  statements.  It requires  that all
items  that  are  required  to  be  recognized  under  accounting  standards  as
components of comprehensive  income be reported in a financial statement that is
presented with the same prominence as other financial statements.  Statement No.
130 requires that companies (i) classify items of other comprehensive  income by
their nature in a financial  statement and (ii) display the accumulated  balance
of other  comprehensive  income separately from retained earnings and additional
paid-in  capital in the equity section of the statement of financial  condition.
Reclassification  of  financial  statements  for earlier  periods  provided  for
comprehensive purposes is required.

In June 1997, the Financial Accounting Standards Board issued Statement No. 131,
"Disclosures  about  Segments of an Enterprise  and Related  Information."  This
statement  establishes standards for the way public companies report information
about operating segments in annual financial  statements and requires that those
enterprises  report  selected  information  about segments in interim  financial
reports  issued to  stockholders.  It also  establishes  standards  for  related
disclosures about products and services,  geographic areas, and major customers.
The statement  defines an operating segment as a component of an enterprise that
generate revenue and incurs expense, whose operating results are reviewed by the
chief operating  decision maker in the determination of resource  allocation and
performance,  and for which discrete  financial  information is available.  This
statement  is  effective  for fiscal years  beginning  after  December 15, 1997,
however,  it does not require  disclosure  in interim  reporting  in the year of
initial application.

In January 1998, Statement of Financial Accounting Standards No.132, "Employers'
Disclosure About Pensions and Other Post-Retirement  Benefits," was issued. This
standard will require certain footnote disclosure requirements related primarily
to defined benefit pension and other retiree  benefits.  Implementation  of this
standard is required for fiscal years beginning after December 15, 1997.

In June 1998,  the  Financial  Accounting  Standards  Board issued  Statement of
Financial Accounting  Standards No. 133, "Accounting for Derivative  Instruments
and  Hedging  Activities."  The  statement  provides  accounting  and  reporting
standards for derivative  instruments,  including certain derivative instruments
embedded in other  contracts,  by requiring  the  recognition  of those items as
assets or liabilities in the statement of financial  position,  recorded at fair
value.  Statement  No. 133,  precludes a  held-to-maturity  security  from being
designated as a hedged item, however, at the date of initial application of this
statement, an entity is permitted to transfer any held-to-maturity security into
the  available-for-sale  or trading  categories.  The unrealized holding gain or
loss on such  transferred  securities  shall  be  reported  consistent  with the
requirements of Statement No. 115,  "Accounting for Certain  Investments in Debt
and  Equity  Securities."  Such  transfers  do not raise an issue  regarding  an
entity's  intent to hold other debt  securities to maturity in the future.  This
statement  applies  prospectively for all fiscal quarters of all years beginning
after June 15, 1999.  Earlier  adoption is permitted for any fiscal quarter that
begins after the issue date of this statement.

2.       INVESTMENT SECURITIES

         The amortized  cost and estimated  market value of  investments  are as
follows:
<TABLE>
<CAPTION>
Held-to-maturity
                                                                               1998
                                                  ------------------------------------------------------------
                                                        Gross       Gross Estimated
                                                      Amortized       Unrealized      Unrealized      Market
                                                        Cost             Gains          Losses        Value
                                                  ----------------   --------------   ----------    ----------   
<S>      <C>                                      <C>                <C>              <C>           <C>       
         U.S. Government and Agency Obligations   $      1,745,667   $        8,344   $     (686)   $1,753,325
                                                  ----------------   --------------   ----------    ----------

                                                                               1997
                                                  ------------------------------------------------------------
                                                        Gross       Gross Estimated
                                                      Amortized       Unrealized      Unrealized      Market
                                                        Cost             Gains          Losses        Value
                                                  ----------------   --------------   ----------    ----------   
         U.S. Government and Agency Obligations   $      7,844,305   $        7,058   $  (20,176)   $7,831,187
                                                  ================   ==============   ==========    ==========
</TABLE>

                                                                              27
<PAGE>

<TABLE>
<CAPTION>
Available-for-sale
                                                                               1998
                                                  ------------------------------------------------------------
                                                        Gross       Gross Estimated
                                                      Amortized       Unrealized      Unrealized      Market
                                                        Cost             Gains          Losses        Value
                                                  ----------------   --------------   ----------    ----------  

<S>     <C>                                      <C>                <C>              <C>           <C>       
         Common stocks                            $        231,875   $         --     $  (11,250)   $  220,625
         Money Fund Securities                              52,827             --         (9,432)       43,395
                                                  ----------------   --------------   ----------    ----------   
                                                  $        284,702   $         --     $  (20,682)   $  264,020
                                                  ================   ==============   ==========    ==========

                                                                               1997
                                                  ------------------------------------------------------------
                                                        Gross       Gross Estimated
                                                      Amortized       Unrealized      Unrealized      Market
                                                        Cost             Gains          Losses        Value
                                                  ----------------   --------------   ----------    ----------  

         Money Fund Securities                    $         65,004   $         --     $   (9,953)   $   55,051
                                                  ================   ==============   ==========    ==========
</TABLE>

The  amortized  cost and estimated  market value of debt  securities at June 30,
1998, by contractual maturity,  are shown below. Expected maturities will differ
from  contractual  maturities  because  borrowers  may have the right to call or
repay obligations with or without call or repayment penalties.

                                               Held-to-Maturity
                                       -------------------------------
                                                            Estimated
                                        Amortized             Market
                                           Cost               Value
                                       ----------           ----------
One year or less                       $  249,684           $  250,742   
After one through five years              995,983            1,003,269
After five through ten years              500,000              499,314
After ten years                                 -                    -
                                       ----------           ----------
         Total                         $1,745,667           $1,753,325
                                       ==========           ==========


3.       MORTGAGE-BACKED SECURITIES

         The  amortized  cost and  estimated  market  value  of  mortgage-backed
securities are as follows:

<TABLE>
<CAPTION>
                                                              1998
                                           ----------------------------------------------  
                                                       Gross      Gross         Estimated
                                           Amortized Unrealized  Unrealized       Market
                                             Cost      Gains      Losses           Value
                                           --------   --------   -----------     --------
<S>                                        <C>        <C>        <C>             <C>     
Government National Mortgage Association   $174,659   $ 10,875   $        --     $185,534
Federal Home Loan Mortgage Corporation      164,703     13,794            --      178,497
                                           --------   --------   -----------     --------
         Total                             $339,362   $ 24,669   $        --     $364,031
                                           ========   ========   ===========     ========

                                                              1997
                                          -----------------------------------------------
                                                       Gross        Gross       Estimated
                                          Amortized  Unrealized   Unrealized      Market
                                             Cost      Gains        Losses        Value
                                           --------   --------   -----------     --------
Government National Mortgage Association   $200,028   $ 11,642   $        --     $211,670
Federal Home Loan Mortgage Corporation      167,525     15,548            --      183,073
                                           --------   --------   -----------     --------
         Total                             $367,553   $ 27,190   $        --     $394,743
                                           ========   ========   ===========     ========
</TABLE>

Mortgage-backed  securities provide for periodic,  generally monthly payments of
principal and interest and have contractual  maturities ranging from eighteen to
twenty-two  years at June 30, 1998.  However,  due to expected  repayment  terms
being  significantly  less than the  underlying  mortgage loan pool  contractual
maturities,  the  estimated  lives of these  securities  could be  significantly
shorter.

4.       LOANS RECEIVABLE

         Loans receivable are comprised of the following at June 30:

                                         1998          1997
                                      -----------   -----------
Mortgage loans:
         1 - 4 family                 $57,904,667   $57,746,390
         Multi-family                   1,786,427     1,594,720
         Non-residential               15,581,130    11,482,213
         Construction                   5,017,202     2,454,581
                                      -----------   -----------
                                       80,289,426    73,277,904
                                      -----------   -----------
Consumer loans:
         Home improvement               1,000,801       905,589
         Automobile                     7,659,017     7,419,412
         Share loans                    1,296,684     1,269,491
         Other                          2,389,041     2,062,398
                                      -----------   -----------
                                       12,345,543    11,656,890
                                      -----------   -----------
Commercial loans                        6,675,780     3,478,025
                                      -----------   -----------

Less:
         Loans in process               3,061,801     1,760,797
         Net deferred loan fees           181,097       216,395
         Allowance for loan losses        477,654       367,779
                                      -----------   -----------
                                        3,720,552     2,344,971
                                      -----------   -----------
                  Total               $95,590,197   $86,067,848
                                      ===========   ===========

Real estate  loans  serviced  for  Freddie  Mac,  which are not  included in the
consolidated  balance sheet, totaled $10,972,452 and $4,290,803 at June 30, 1998
and 1997, respectively.

In the normal  course of business,  loans are extended to  directors,  executive
officers and their associates.  In management's  opinion, all of these loans are
on substantially the same terms and conditions as loans to other individuals and
businesses of comparable creditworthiness.  A summary of loan activity for those
directors, executive officers, and their associates with loan balances in excess
of $60,000 for the year ended June 30, 1998 is as follows:

          Balance                        Amount         Balance
           1997          Addition       Collected        1998
           ----          --------       ---------     ---------

         $780,885        $546,972       $358,398       $969,459

The Company's  primary  business  activity is with customers  located within its
local trade area.  Residential,  consumer, and commercial loans are granted. The
Company  also  selectively  funds  loans  originated  outside  of its trade area
provided such loans meet its credit policy guidelines.  Although the Company has
a diversified loan portfolio,  at June 30, 1998 and 1997,  loans  outstanding to
individuals  and businesses are dependent upon the local economic  conditions in
its immediate trade area.

Nonaccural  loans  totaled  $282,971  and  $156,796  at June 30,  1998 and 1997,
respectively,  which in  management's  opinion  did not meet the  definition  of
impaired.  Interest  income on loans  would have been  increased  by $15,259 and
$6,788  respectively,  if these loans had  performed  in  accordance  with their
original terms.

5.       ALLOWANCE FOR LOAN LOSSES

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

                                                   1998            1997     
                                                 --------        --------
   Balance, beginning of period                  $367,779        $324,983
   Add:                                                         
            Provisions charged to operations      253,606          51,414
            Loan recoveries                        14,280          11,738
                                                 --------        --------
                     Total                        635,665         388,135
   Less loans charged off                         158,011          20,356
                                                 --------        --------
                                                                
   Balance, end of period                        $477,654        $367,779
                                                 ========        ========
                                                     
6.       PREMISES AND EQUIPMENT, NET

         Premises  and  equipment  are  summarized  by major  classification  as
follows:

                                                1998            1997
                                             ----------      ----------
                                                          
   Land                                      $  303,857      $  303,857
   Buildings and improvements                 3,376,313       1,756,592  
   Furniture, fixtures, and equipment         1,622,477       1,096,204
                                             ----------      ----------
            Total                             5,302,647       3,156,653
   Less accumulated depreciation              1,219,790       1,101,002
                                             ----------      ----------
                                                          
            Premises and equipment, net      $4,082,857      $2,055,651
                                             ==========      ==========
                                                           
Depreciation  charged to  operations  a mounted to $184,508 and $151,365 for the
years ended June 30, 1998 and 1997 resp ectively.

28
<PAGE>
                                                           
7.       FEDERAL HOME LOAN BANK STOCK                   

The Bank is a member of the Federal Home Loan Bank System. As a member, the Bank
maintains an  investment  in the capital  stock of the Federal Home Loan Bank of
Pittsburgh,  at cost,  in an  amount  not less  than  the  greater  of 1% of its
outstanding  home loans or 5% of its outstanding  borrowings to the Federal Home
Loan Bank of Pittsburgh as calculated at December 31 of each year.

8.       ACCRUED INTEREST RECEIVABLE

         Accrued interest receivable consists of the following:

                                                  1998           1997     
                                                 --------      --------
    Investment securities                       $ 33,741       $144,419
    Mortgage-backed securities                     6,436          6,667
    Loans receivable                             577,803        504,581
                                                 --------      --------
             Total                               $617,980      $655,667
                                                 ========      ========
    
9.       DEPOSITS

         Deposit accounts are summarized as follows:
<TABLE>
<CAPTION>
                                           1998                     1997
                                ------------------------  --------------------------
                                              Percent of                  Percent of
                                   Amount      Portfolio     Amount       Portfolio
                                   ------      ---------     ------       ---------

<S>                             <C>             <C>      <C>                 <C> 
Non-interest-bearing            $ 2,159,434       2.4%    $ 1,816,038           2.3%
                                -----------     -----     -----------         ----- 
                                                         
Savings accounts                 14,877,841      16.8      15,943,723          19.9
NOW accounts                      8,135,315       9.2       7,423,520           9.3
Money market accounts             9,278,592      10.5       6,325,727           7.9
                                -----------     -----     -----------         ----- 
                                 32,291,748      36.5      29,692,970          37.1
                                -----------     -----     -----------         ----- 
                                                         
Time certificates of deposit:                             
         2.00 - 4.00%             1,675,183       1.9       2,265,733           2.8
         4.01 - 6.00%            32,688,606      36.9      35,780,250          44.7
         6.01 - 8.00%            19,736,572      22.3      10,514,087          13.1
                                -----------     -----     -----------         ----- 
                                 54,100,361      61.1      48,560,070          60.6
                                -----------     -----     -----------         ----- 
                                                         
                  Total         $88,551,543     100.0%    $80,069,078         100.0%
                                ===========     =====     ===========         ===== 
</TABLE>
                                                       
         The scheduled  maturities of time  certificates  of deposit at June 30,
1998 are as follows:

                                                   Amount
                                                   ------

   Within one year                               $34,553,470
   Beyond  one year but within  two years         12,012,931
   Beyond two years but within three years         4,051,823
   Beyond three years but within five years        2,202,207
   Beyond five years                               1,279,930
                                                 -----------
            Total                                $54,100,361
                                                 ===========

The Company had time certificates with a minimum denomination of $100,000 in the
amount of  approximately  $9,762,016  and  $7,724,255  at June 30, 1998 and 1997
respectively.  Deposits in excess of $100,000  are not  Federally  insured.  The
Company does not have any brokered deposits.

         Interest  expense by deposit category for the years ended June 30 is as
follows:

                                                1998         1997    
                                             ----------   ----------
     Passbooks                               $  414,293   $  506,312
     NOW and Money Market Deposit accounts      558,786      389,745
     Savings certificates                     2,813,316    2,704,011
                                             ----------   ----------
                                             $3,786,395   $3,600,068
                                             ==========   ==========

10.      ADVANCES FROM FEDERAL HOME LOAN BANK

         Advances from the Federal Home Loan Bank consists of the following:
<TABLE>
<CAPTION>
                                    Principal       Interest     Interest
                                       Due            Due          Rate           1998             1997
                                    ---------       --------     --------      ----------      -----------
                                                                
              <S>                 <C>              <C>          <C>           <C>             <C>        
              Open-Repo Plus       10-22-1997       Monthly      Variable      $        -      $ 1,000,000
              Advance              12-01-1997       Monthly      5.67%                  -        2,000,000
              Advance              05-21-1998       Monthly      5.43%                  -        1,000,000
              Advance              03-25-2002       Monthly      5.51%          3,000,000        3,000,000
              Advance              11-13-2002       Monthly      6.51%                  -          747,449
              Advance              11-04-2002       Monthly      5.37%          5,000,000                -
              Advance              01-23-2008       Monthly      4.88%          1,000,000                -
              Advance              01-23-2008       Monthly      4.94%          1,000,000                -
                                                                              -----------       ----------
                                                                              $10,000,000       $7,747,449
                                                                              ===========       ==========
</TABLE>
These  borrowings  are  subject  to the terms and  conditions  of the  Advances,
Collateral  Pledge and Security  Agreement between the Federal Home Loan Bank of
Pittsburgh and the Bank.

In addition, the Bank entered into a "RepoPlus" Advance credit arrangement which
is renewable annually and incurs no service charges. During 1998, the Bank had a
borrowing limit of  approximately  $10 million with a variable rate of interest,
based upon the FHLB's cost of funds. All borrowings from the FHLB are secured by
a blanket  lien on  qualified  collateral,  defined  principally  as  investment
securities  and mortgage loans which are owned by the Bank free and clear of any
liens or encumbrances.

11.      INCOME TAXES

         The  components  of income tax  expense for the years ended June 30 are
summarized as follows:

                                                        1998      1997          
                                                      --------  --------
Currently payable:
         Federal                                      $435,077  $286,711  
         State                                          66,422    35,961
                                                      --------  --------
                                                       501,499   322,672
         Deferred                                       19,298    (2,162)
                                                      --------  --------
                                               
            Total                                     $520,797  $320,510
                                                      ========  ========
                        
         The following temporary differences gave rise to deferred tax asset and
liabilities:

                                                        1998      1997
                                                      --------  --------
Deferred tax assets
         Allowance for loan losses                    $162,402  $125,045
         Loan origination fees, net                     32,820    45,278
         Net unrealized loss on securities               7,032     3,384
         Other, net                                     11,110    18,025
                                                      --------  --------
                  Deferred tax assets                  213,364   191,732
                                                      --------  --------

Deferred tax liabilities
         Premise and equipment depreciation            211,607   199,522
         Tax reserve for loan losses                   110,162   110,162
         Other, net                                     25,197         -
                                                      --------  --------
                  Deferred tax liabilities             346,966   309,684
                                                      --------  --------
                  Net deferred tax liabilities        $133,602  $117,952
                                                      ========  ========

On August 20, 1996, the Small Business Job Protection Act (the "Act") was signed
into law. The Act eliminated the percentage of taxable income bad debt deduction
for thrift institutions for tax years beginning after December 31, 1995. The Act
provides  that bad  debt  reserves  accumulated  prior  to 1988 be  exempt  from
recapture.  Bad debt reserves  accumulated  after 1987 are subject to recapture.
The recapture tax will be paid in six equal installments beginning with the 1998
tax year.  At December 31, 1995,  the Bank had $324,005 in bad debt  reserves in
excess of the base year.  Subject to prevailing  corporate  tax rates,  the Bank
owes  $110,162 in federal  income  taxes which is  reflected  as a deferred  tax
liability.
                                                                              29
<PAGE>

The reconciliation  between the actual provision for income taxes and the amount
of income taxes which would have been provided at statutory  rates for the years
ended June 30 is as follows:

<TABLE>
<CAPTION>
                                                                    1998                1997
                                                            -------------------  -------------------
                                                              Amount    Percent   Amount     Percent
                                                            --------    -------  --------    -------
<S>                                                         <C>          <C>     <C>          <C>  
Provision at statutory rate                                 $465,331     34.0%   $295,340     34.0%
State income tax expense, net of federal
 tax benefit                                                  43,839      3.2      23,734      2.7
Tax exempt interest                                           (6,294)     (.5)     (8,007)     (.9)
Other, net                                                    17,921      1.3       9,443      1.1
                                                            --------     ----    --------     ---- 
         Actual expense and effective rate                  $520,797     38.0%   $320,510     36.9%
                                                            ========     ====    ========     ==== 
</TABLE>

12.      RETIREMENT PLAN

The Company has a profit-sharing  plan with a 401(k) feature.  The 401(k) allows
employees  to  make  contributions  to  the  plan  up to  12%  of  their  annual
compensation.   The  Company  will  match  50%  of  the   employees'   voluntary
contributions  up to 3% of  the  employee's  compensation.  Additional  employer
contributions  are made at the  discretion of the Board of  Directors.  The plan
covers  substantially  all  employees  with more than one  year's  service.  The
Company's contributions for the benefit of covered employees amounted to $37,019
and $20,111 for the years ended June 30, 1998 and 1997 respectively.

13.      RESTRICTED STOCK PLAN (RSP)

In 1998, the Board of Directors adopted a RSP for certain officers and employees
which was  approved by  stockholders  at a special  meeting  held on January 20,
1998. The objective of this Plan is to enable the Company and the Bank to retain
its corporate officers, key employees, and directors who have the experience and
ability  necessary  to  manage  these  entities.  Directors,  officers,  and key
employees  who are  selected  by  members  of a Board  appointed  committee  are
eligible to receive  benefits under the RSP. The  non-employee  directors of the
Company and the Bank serve as trustees for the RSP, which has the responsibility
to invest all funds contributed by the Bank to the Trust created for the RSP.

On February 23, 1998, the Trust  purchased  with funds  contributed by the Bank,
43,378  shares of the common stock of the Company,  of which 15,180  shares were
issued to  directors,  23,844  shares were issued to officers,  and 4,354 shares
remained unissued as of June 30, 1998.  Directors,  officers,  and key employees
who terminate their  association with the Company shall forfeit the right to any
shares which were awarded but not earned.

The  Company  granted a total of 26,024  and  13,000  shares of common  stock on
January  20,  1998 and  March 3,  1998,  respectively  of which  5,205 and 2,600
shares,  respectively,  became  immediately  vested  under  the  plan  with  the
remaining shares vesting over a four year period beginning  January 20, 1998 and
March 3, 1998, respectively.  A total of 7,805 shares were vested as of June 30,
1998. The RSP shares  purchased  initially  will be excluded from  stockholder's
equity. The Company recognizes  compensation expense in the amount of fair value
of the common stock at the grant date,  pro rata over the years during which the
shares are payable and recorded as an addition to the stockholders'  equity. Net
compensation  expense attributable to the RSP's amounted to $67,583 for the year
ended June 30, 1998.

14.      EMPLOYEE STOCK OWNERSHIP PLAN (ESOP)

During the year ended June 30, 1997, the Bank adopted an ESOP for the benefit of
officers and employees who have met certain eligibility  requirements related to
age and length of service. An ESOP trust was created, and acquired 86,756 shares
of common stock in the Company's  initial public  offering,  using proceeds of a
loan obtained from the Company,  which bears interest at the Wall Street Journal
prime  rate,  adjusted  quarterly.  The loan,  which is secured by the shares of
stock purchased,  calls for quarterly interest over a ten year period and annual
principal payments of $86,756.

The Bank makes quarterly  contributions  to the trust to allow the trust to make
the required loan payments to the Company.  Shares are released from  collateral
based upon the  proportion  of annual  principle  payments made on the loan each
year  and  allocated  to  qualified  employees.  As  shares  are  released  from
collateral,  the Bank  reports  compensation  expense  based  upon  the  amounts
contributed  or  committed  to be  contributed  each year and the shares  become
outstanding  for earnings per share  computations.  Dividends  paid on allocated
ESOP shares are recorded as a reduction in retained earnings.  Dividends paid on
unallocated   shares  are  added  to   participant   accounts  and  reported  as
compensation. Compensation expense for the ESOP was $148,437 and $85,204 for the
years ended June 30, 1998 and 1997, respectively.

         The following table represents the components of the ESOP shares:

                                                         1998        1997
                                                         ----        ----

                  Allocated shares                      11,549       2,226

                  Shares released for allocation         4,338       4,910

                  Shares distributed                    (1,015)          -

                  Unreleased shares                     70,869      79,620
                                                        ------      ------
                  Total ESOP share                      85,741      86,756
                                                        ======      ======

                  Fair value of unreleased shares   $1,293,350  $1,174,395
                                                    ==========  ==========

15.      STOCK OPTION PLAN

In December  1997,  the Board of  Directors  adopted a Stock Option Plan for the
directors,  officers,  and  employees  which was approved by  stockholders  at a
special  meeting  held on January 20, 1998.  An  aggregate of 108,445  shares of
authorized  but unissued  common  stock of the Company were  reserved for future
issuance under the plan. The stock options  typically have  expiration  terms of
ten years subject to certain  extensions and early  terminations.  The per share
exercise price of a stock option shall be, at a minimum, equal to the fair value
of a share of common stock on the date the option is granted.  Proceeds from the
exercise of the stock options are credited to common stock for the aggregate par
value and the excess is credited to additional paid-in capital.

On January 20, 1998,  qualified  stock  options were granted for the purchase of
65,061 shares  exercisable  at the market price of $18.75 per share at a rate of
one fourth per year  beginning  January 20, 1998.  All options  expire ten years
from the date of grant.  At June 30, 1998,  the initial  stock  options  granted
remain outstanding with none being exercised. 

Effective July 1, 1996, the Company  adopted  Statement of Financial  Accounting
Standards  Statement No. 123,  "Accounting for Stock-Based  Compensation."  This
statement encourages, but does not require the Company to recognize compensation
expense for all awards of equity instruments issued. The statement establishes a
fair value based method of accounting for stock-based  compensation  plans.  The
standard  applies  to all  transactions  in which an  entity  acquires  goods or
services by issuing equity  instruments  or by incurring  liabilities in amounts
based on the price of the entity's  common  stock or other  equity  instruments.
Statement No. 123 permits companies to continue to account for such transactions
under  Accounting  Principles  Board No.  25,  "Accounting  for Stock  Issued to
Employees,"  but requires  disclosure in a note to the financial  statements pro
forma net income and  earnings  per share as if the  Company had applied the new
method of accounting.

30
<PAGE>

Under Accounting  Principles Board Opinion 25, no compensation  expense has been
recognized with respect to the options granted under the stock option plans. Had
compensation  expense  been  determined  on the basis of fair value  pursuant to
Statement  No. 123, net income and earnings per share would have been reduced as
follows:

                                                             1998    
                                                          ----------
                  Net Income:                            
                           As reported                    $  848,210
                                                          ==========
                                                         
                           Pro forma                      $  601,588
                                                          ==========
                                                         
                  Basic Earnings Per Share:              
                           As reported                    $      .85
                                                          ==========
                                                         
                           Pro forma                      $      .60
                                                          ==========
                                                         
                  Diluted Earnings Per Share:            
                           As reported                    $      .85
                                                          ==========
                                                      
                           Pro forma                      $      .60
                                                          ==========

         The  following  table  presents  share data related to the stock option
plans:

                                                               1998
                                                              ------

                  Outstanding, beginning                           -
                           Granted                            65,061
                           Exercised                               -
                           Forfeited                               -
                                                              ------
                  Outstanding, ending (at $18.75 per share)   65,061
                                                              ======

Dividend Equivalent Rights may be granted  concurrently with any option granted.
These rights  provide  that upon the payment of a dividend on the Common  Stock,
the holder of such Options shall receive  payment of  compensation  in an amount
equivalent  to the dividend  payable as if such Options had been  exercised  and
such Common Stock held as of the dividend date.  Dividend Equivalent Rights were
granted concurrently with respect to the stock options granted in 1998.

Compensation  expense  resulting from Dividend  Equivalent Rights was $5,205 for
the year ended June 30, 1998.

16.       PREFERRED SHARE PURCHASE RIGHTS PLAN

In July 1997, the Board of Directors  adopted a Preferred  Share Purchase Rights
Plan and  correspondingly  issued one Preferred Share Purchase Right ("a Right")
for  each  share of  common  stock  of the  Company.  Each  Right  entitles  the
registered  holder to purchase from the Company one  one-hundredth of a share of
the  Company's  Junior  Participating  Preferred  Stock,  Series  A  ("Preferred
Shares"),  at a price of $37.00 per one  one-hundredth of a Preferred Share. The
Rights will not be  exercisable  or separable  from the common  shares until ten
business  days after a person or group acquire 15% or more or tenders for 50% or
more of the Company's  outstanding common shares. The Plan also provides that if
any person or group becomes an "Acquiring Person," each Right, other than Rights
beneficially owned by the Acquiring Person (which will thereafter be void), will
entitle its holder to receive upon  exercise that number of common shares having
a market  value of two times the exercise  price of the Right.  In the event the
Company is acquired in a merger or other business combination transaction,  each
Right will  entitle its holder to receive  upon  exercise  of the Right,  at the
Right's then current  exercise  price,  that number of the  acquiring  company's
common  shares  having a market  value of two  times the  exercise  price of the
Right.  The  Company is entitled to redeem the Rights at a price of one cent per
Right at any time prior to them becoming  exercisable,  and the Rights expire on
July 17,  2007.  The Plan is designed to protect the  interest of the  Company's
shareholders  against certain  coercive tactics  sometimes  employed in takeover
attempts.

17.       COMMITMENTS AND CONTINGENT LIABILITIES

Loan Commitments
----------------

The Company is a party to financial instruments with  off-balance-sheet  risk in
the normal  course of business  to meet the  financing  needs of its  customers.
These  financial   instruments  include  commitments  to  extend  credit.  These
instruments  involve,  to varying degrees,  elements of credit risk in excess of
the amount  recognized  in the  statement of financial  condition.  The contract
amounts of these  instruments  reflect the extent of involvement the Company has
in particular classes of financial instruments.

The  Company's  exposure  to credit loss in the event of  nonperformance  by the
other party to the  financial  instrument  for  commitments  to extend credit is
represented by the contractual 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.  No losses are anticipated by management
as a result of these commitments.

The following represents financial  instruments whose contract amounts represent
credit risk at June 30:

                                                        1998           1997
                                                     -----------    ----------
                  Commitments to originate loans
                           Fixed rate                $1,875,700     $  347,670
                           Variable rate             $1,639,200     $  517,892
                  Loans in process                   $3,061,801     $1,760,797
                  Unused lines of credit             $5,951,178     $4,788,369
                  Letters of credit                  $   48,214     $        -

The range of interest rates on fixed rate loan  commitments was 7.125% to 9.625%
at June 30, 1998.

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  expire  within  30 days or have  other  termination  clauses  and may
require  payment of a fee. Since many of the  commitments are expected to expire
without  being  drawn  upon,  the total  commitment  amounts do not  necessarily
represent  future cash  requirements.  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 counter party.  Collateral held consists
primarily  of   single-family   residences   and   income-producing   commercial
properties.


Lease Commitments
-----------------

         The future lease commitments as of June 30, 1998 for all noncancellable
         equipment and land leases follows:

                           Fiscal Year
                         Ending June 30,            Amount
                         ---------------          -----------
                                 1999             $    83,956
                                 2000                  66,000
                                 2001                  67,800
                                 2002                  70,600
                                 2003                  72,600
                        2004 and thereafter         1,900,300
                                                   ----------
                                                   $2,261,256
                                                   ==========
Litigation
----------

The Company is involved in litigation  arising in the normal course of business.
Management  believes that  liabilities,  if any, arising from these  proceedings
will not have a material adverse effect on the consolidated  financial position,
operating results, or liquidity. 

                                                                              31
<PAGE>

18.      CONVERSION AND REORGANIZATION

In  September  1996,  the Board of  Directors  of the Bank  adopted  the Plan of
Conversion  pursuant  to which the Bank  proposed  to convert  from a  federally
chartered  mutual savings bank to a federally  chartered  stock savings bank and
concurrently formed a Bank Holding Company.

As part of the conversion  process,  the Company was organized in September 1996
at the  direction  of the  Board of  Directors  of the Bank for the  purpose  of
acquiring all of the capital  stock to be issued by the Bank in the  Conversion.
The Company became a bank holding company with its only significant assets being
all of the outstanding capital stock of the Bank, which was acquired on December
31,  1996 by  exchanging  $4,724,287  of the  proceeds  received  in the  public
offering  for all of the  common  stock of the  Bank,  and a  percentage  of the
conversion  proceeds  permitted  to  be  retained.  From  the  proceeds  of  the
Conversion,  $108,445 was allocated to common stock, and  $10,207,689,  which is
net of $528,366 conversion costs, was allocated to additional paid-in capital.

In  accordance  with  regulations,  at the time that the Bank  converted  from a
mutual savings bank to a stock savings bank, a portion of retained  earnings was
restricted by establishing a liquidation  account.  The liquidation account will
be  maintained  for the benefit of  eligible  account  holders  who  continue to
maintain their accounts at the Bank after  Conversion.  The liquidation  account
will be reduced  annually  to the extent  that  eligible  account  holders  have
reduced their  qualifying  deposits.  Subsequent  increases  will not restore an
eligible account holder's interest in the liquidation account. In the event of a
complete liquidation of the Bank each account holder will be entitled to receive
a distribution  from the liquidation  account in an amount  proportionate to the
current adjusted qualifying balances for accounts then held.

19.      SAVINGS ASSOCIATION INSURANCE FUND RECAPITALIZATION

On September 30, 1996, the President signed into law legislation which included,
among other things,  recapitalization of the Savings Association  Insurance Fund
("SAIF") of the Federal  Deposit  Insurance  Corporation  ("FDIC") by a one time
charge to SAIF-insured institutions of 65.7 basis points per one hundred dollars
of insurable deposits. The gross effect to the Bank amounted to $469,908,  which
is  reflected  in the  consolidated  financial  statement of income for the year
ended June 30, 1997.

20.      FAIR VALUE DISCLOSURE OF FINANCIAL INSTRUMENTS

         The estimated carrying amounts and fair values are as follows:
<TABLE>
<CAPTION>
                                                    1998                        1997
                                        ----------------------------   ---------------------------
                                                         Estimated                     Estimated
                                           Carrying        Fair          Carrying        Fair
                                            Amount         Value          Amount         Value
                                         ------------   ------------   ------------   ------------
<S>                                     <C>             <C>            <C>            <C>         
Financial assets:
         Cash and cash equivalents       $  9,084,193   $  9,084,193   $  6,792,420   $  6,792,420
         Securities held to maturity        1,745,667      1,753,325      7,844,305      7,831,187
         Securities available-for-sale        264,020        264,020         55,051         55,051
         Mortgage-backed securities
          held to maturity                    339,362        364,031        367,553        394,743
         Loans receivable                  95,590,197     96,816,000     86,067,848     86,726,000
         Federal Home Loan Bank Stock         622,200        622,200        576,700        576,700
         Accrued interest receivable          617,980        617,980        655,667        655,667
         Loans held for sale                1,454,700      1,454,700              -              -
                                         ------------   ------------   ------------   ------------
                  Total                  $109,718,319   $110,976,449   $102,359,544   $103,031,768
                                         ============   ============   ============   ============

Financial liabilities:
         Deposits                        $ 88,551,543   $ 88,954,000   $ 80,069,078   $ 80,091,000
         Advances from Federal
          Home Loan Bank                   10,000,000      9,992,000      7,747,449      7,699,000
         Advance payment by borrowers
          for taxes and insurance             193,346        193,346        186,738        186,738
         Accrued interest payable              46,713         46,713         36,684         36,684
                                         ------------   ------------   ------------   ------------
                  Total                  $ 98,791,602   $ 99,186,059   $ 88,039,949   $ 88,013,422
                                         ============   ============   ============   ============

</TABLE>

Financial  instruments are defined as cash, evidence of ownership interest in an
entity, or a contract which creates an obligation or right to receive or deliver
cash or another  financial  instrument  from/to a second  entity on  potentially
favorable or unfavorable terms.

Fair value is defined as the  amount at which a  financial  instrument  could be
exchanged  in a current  transaction  between  willing  parties  other than in a
forced  or  liquidation  sale.  If a  quoted  market  price is  available  for a
financial  instrument,  the estimated fair value would be calculated  based upon
the market price per trading unit of the instrument.

If no readily  available  market exists,  the fair value estimates for financial
instruments  should  be  based  upon  management's  judgment  regarding  current
economic  conditions,  interest rate risk, expected cash flows, future estimated
losses,  and other factors as determined through various option pricing formulas
or simulation modeling.  As many of these assumptions result from judgments made
by management based upon estimates which are inherently uncertain, the resulting
estimated fair values may not be indicative of the amount realizable in the sale
of a particular  financial  instrument.  In addition,  changes in assumptions on
which the estimated  fair values are based may have a significant  impact on the
resulting estimated fair values.

As certain assets such as deferred tax assets and premises and equipment are not
considered  financial  instruments,   the  estimated  fair  value  of  financial
instruments would not represent the full value of the Company.

The Company employed simulation modeling in determining the estimated fair value
of financial instruments for which quoted market prices were not available based
upon the following assumptions:

Cash and Cash  Equivalents,  Federal  Home Loan  Bank  Stock,  Accrued  Interest
--------------------------------------------------------------------------------
Receivable, Accrued Interest Payable, and Advance Payment by Borrowers for Taxes
--------------------------------------------------------------------------------
and Insurance
-------------

The fair value is equal to the current carrying value.

Investment Securities, Mortgage-backed Securities, and Loans Held for Sale
--------------------------------------------------------------------------

The fair value of investment  securities,  mortgage-backed  securities and loans
held for sale is equal to the available quoted market price. If no quoted market
price is  available,  fair value is estimated  using the quoted market price for
similar securities.

Loans, Deposits, and Advances from Federal Home Loan Bank
---------------------------------------------------------

The fair value of loans is estimated by discounting  the future cash flows using
a simulation  model which estimates future cash flows and employs discount rates
that  consider  reinvestment  opportunities,  operating  expenses,  non-interest
income,  credit quality, and prepayment risk. Demand,  savings, and money market
deposit accounts are valued at the amount payable on demand as of year end. Fair
values for time  deposits and advances from Federal Home Loan Bank are estimated
using a discounted cash flow calculation and applies contractual costs currently
being  offered in the existing  portfolio to current  market rates being offered
for deposits and notes of similar remaining maturities.

Commitments to Extend Credit
----------------------------

These financial instruments are generally not subject to sale and estimated fair
values are not readily  available.  The carrying  value,  represented by the net
deferred  fee  arising  from the  unrecognized  commitment,  and the fair value,
determined by  discounting  the remaining  contractual  fee over the term of the
commitment  using fees currently  charged to enter into similar  agreements with
similar credit risk, are not considered material for disclosure. The contractual
amounts of unfunded commitments are presented in Note 17.

32
<PAGE>

21.      CAPITAL REQUIREMENTS

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

Quantitative  measures  established by the regulation to ensure capital adequacy
require the Company and the Bank to maintain minimum amounts and ratios of Total
and Tier I capital (as defined in the regulations) to risk-weighted  assets, and
of tangible and core capital (as defined in the  regulations) to adjusted assets
(as defined).  Management  believes as of June 30, 1998 that the Company and the
Bank meet all capital adequacy requirements to which they are subject.

As of June 30, 1998, the most recent  notification from the Company's and Bank's
primary  regulatory  authorities have categorized the entity as well capitalized
under the regulatory  framework for prompt corrective  action. To be categorized
as well  capitalized,  the Company must maintain  minimum  tangible,  core,  and
risk-based  ratios.   There  have  been  no  conditions  or  events  since  that
notification  that management  believes have changed the Company's or the Bank's
category.

The following table  reconciles the Company's and Bank's capital under generally
accepted accounting principles to regulatory capital:

<TABLE>
<CAPTION>
                                                 Company                         Bank
                                     -----------------------------   ----------------------------
                                                 June 30,                       June 30,
                                          1998            1997            1998            1997
                                     ------------    ------------    ------------    ------------
<S>                                  <C>             <C>             <C>             <C>         
Total equity                         $ 14,928,122    $ 16,125,045    $ 12,804,649    $ 11,924,194
Unrealized loss on securities              (7,032)         (3,384)         (3,207)         (3,384)
                                     ------------    ------------    ------------    ------------
Tier I, core, and tangible capital     14,921,090      16,121,661      12,801,442      11,920,810

Allowance for loan losses                 477,654         367,779         477,654         367,779
                                     ------------    ------------    ------------    ------------
Risk-based capital                   $ 15,398,744    $ 16,489,440    $ 13,279,096    $ 12,288,589
                                     ============    ============    ============    ============
</TABLE>

The Company's actual capital amounts and ratios were as follows:
<TABLE>
<CAPTION>

                                                                          June 30,
                                                        --------------------------------------------------
                                                                   1998                     1997
                                                        ------------------------ -------------------------
                                                           Amount        Ratio      Amount         Ratio
                                                        -----------     -------   -----------      -------
<S>                                                     <C>             <C>       <C>              <C>   
         Total Capital to Risk-Weighted Assets
         -------------------------------------

                  Actual                                $15,398,744      19.25%   $16,489,440       25.75%
                  For Capital Adequacy Purposes           6,398,080       8.00      5,123,547        8.00
                  To be "Well Capitalized"                7,967,600      10.00      6,404,434       10.00

         Tier I Capital to Risk-Weighted Assets
         --------------------------------------

                  Actual                                $14,921,090      18.66%   $16,121,661       25.17%
                  For Capital Adequacy Purposes           3,199,040       4.00      2,561,774        4.00
                  To be "Well Capitalized"                4,798,560       6.00      3,842,660        6.00

         Core Capital to Adjusted Assets
         -------------------------------

                  Actual                                $14,921,090      12.94%   $16,121,661       15.39%
                  For Capital Adequacy Purposes           4,612,000       4.00      4,189,636        4.00
                  To be "Well Capitalized"                5,765,000       5.00      5,237,045        5.00






         Tangible Capital to Adjusted Assets
         -----------------------------------

                  Actual                                $14,921,090      12.94%   $16,121,661       15.39%
                  For Capital Adequacy Purposes           1,729,500       1.50      1,571,113        1.50
                  To be "Well Capitalized"                    N/A          N/A          N/A           N/A
</TABLE>

Prior to the  enactment of The Small  Business Job  Protection  Act discussed in
Note 11, the Bank accumulated  approximately  $1,004,932 of retained earnings at
December 31, 1997,  which amount  represents  allocations  of income to bad debt
deductions for tax purposes only.  Since this amount  represents the accumulated
bad debt reserves  prior to 1988,  no provision for federal  income tax has been
made for such amount. If any portion of this amount is used other than to absorb
loan losses  (which is not  anticipated),  the amount will be subject to federal
income tax at the current corporate rate.

The Bank's actual capital amounts and ratios were as follows:
<TABLE>
<CAPTION>

                                                                          June 30,
                                                        --------------------------------------------------
                                                                   1998                     1997
                                                        ------------------------ -------------------------
                                                           Amount        Ratio      Amount         Ratio
                                                        -----------     -------   -----------      -------
<S>                                                     <C>             <C>       <C>              <C>   
         Total Capital to Risk-Weighted Assets
         -------------------------------------

                  Actual                                $13,279,096       17.30%  $12,288,589       19.19%
                  For Capital Adequacy Purposes           6,139,760        8.00     5,122,800        8.00
                  To be "Well Capitalized"                7,674,700       10.00     6,403,500       10.00

         Tier I Capital to Risk-Weighted Assets
         --------------------------------------

                  Actual                                $12,801,442       16.68%  $11,920,810       18.62%
                  For Capital Adequacy Purposes           3,069,880        4.00     2,561,400        4.00
                  To be "Well Capitalized"                4,604,820        6.00     3,842,100        6.00

         Core Capital to Adjusted Assets
         -------------------------------

                  Actual                                $12,801,442       11.12%  $11,920,810       11.38%
                  For Capital Adequacy Purposes           4,602,840        4.00     4,189,280        4.00
                  To be "Well Capitalized"                5,753,550        5.00     5,236,600        5.00

         Tangible Capital to Adjusted Assets
         -----------------------------------

                  Actual                                $12,801,442       11.12%  $11,920,810       11.38%
                  For Capital Adequacy Purposes           1,726,065        1.50     1,570,980        1.50
                  To be "Well Capitalized"                    N/A           N/A        N/A            N/A

</TABLE>

                                                                              33
<PAGE>

22.       PARENT COMPANY

Effective  December 31, 1996 active operations of Advance Financial Bancorp were
initiated   with  the  approval  of  the  stock   conversion  of  the  Bank  and
correspondent  purchase of all the stock of the wholly-owned  subsidiary savings
bank by the Company  which  coincided  with the initial  public  offering of the
Company stock. The condensed  financial  statements of Advance Financial Bancorp
are as follows:

                            CONDENSED BALANCE SHEET

                                                              June 30,
                                                        1998             1997
                                                    -----------      -----------
ASSETS
Cash                                                $       300      $         -
Deposits with subsidiary bank                         2,819,809        4,247,712
Investment in subsidiary bank                        12,089,491       11,127,999
Securities available for sale                           220,625                -
Loan receivable from ESOP                               715,158          796,195
Other assets                                             43,136           35,838
                                                    -----------      -----------
    TOTAL ASSETS                                    $15,888,519      $16,207,744
                                                    ===========      ===========


LIABILITIES AND STOCKHOLDERS' EQUITY
Restricted stock plan payable                       $   869,634      $         -
Other liabilities                                        90,763           82,699
Stockholders' equity                                 14,928,122       16,125,045
                                                    -----------      -----------
    TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY      $15,888,519      $16,207,744
                                                    ===========      ===========


                         CONDENSED STATEMENT OF INCOME

<TABLE>
<CAPTION>
                                                                                     Period Ended
                                                                                    December 31,1996  
                                                                   Year Ended             To
                                                                  June 30, 1998     June 30, 1997
                                                                  -------------     -------------
<S>                                                                   <C>               <C>     
INCOME                                                                              
------                                                                              
         Interest income - loans                                      $ 64,468          $ 35,133
         Interest income - investments                                  16,550                 -
                                                                      --------          --------
                           Total interest income                        81,018            35,133
                                                                      --------          --------
                                                                                    
OPERATING EXPENSES                                                     131,706            67,686
------------------                                                    --------          --------
                                                                                    
         Loss before equity in undistributed earnings of subsidiary    (50,688)          (32,553)
         Equity in undistributed earnings of subsidiary                877,871           511,217
                                                                      --------          --------
                                                                                    
         Income before income taxes                                    827,183           478,664
         Income tax benefit                                             21,027            13,998
                                                                      --------          --------
                           NET INCOME                                 $848,210          $492,662
                                                                      ========          ========
</TABLE>
                                                                                

<PAGE>

                       CONDENSED STATEMENT OF CASH FLOWS

<TABLE>
<CAPTION>
                                                                                                                     Period Ended
                                                                                                                   December 31, 1996
                                                                                                      Year Ended         To
                                                                                                     June 30, 1998  June 30, 1997
                                                                                                     -------------  -------------
<S>                                                                                                   <C>            <C>        
OPERATING ACTIVITIES
         Net income                                                                                   $   848,210    $   492,662
         Adjustments to reconcile net income to net cash
          provided by operating activities
                  Undistributed net income of subsidiary                                                 (877,871)      (511,217)
                  Other, net                                                                               73,833        (15,728)
                                                                                                      -----------    -----------
                                    Net cash provided by (used for) operating activities                   44,172        (34,283)
                                                                                                      -----------    -----------

INVESTING ACTIVITIES
         Purchase securities available for sale                                                          (231,875)             -
         ESOP loan repayments                                                                              81,037         71,365
                                                                                                      -----------    -----------
                                    Net cash provided by (used for) investing activities                 (150,838)        71,365
                                                                                                      -----------    -----------

FINANCING ACTIVITIES
         Net proceeds from sales of common stock                                                                -      4,290,445
         Purchase of Treasury Stock                                                                    (1,000,863)             -
         Cash dividends paid                                                                             (320,074)       (79,815)
                                                                                                      -----------    -----------
                                    Net cash provided by (used for) financing activities               (1,320,937)     4,210,630
                                                                                                      -----------    -----------

                                    Increase (decrease) in cash and cash equivalents                   (1,427,603)     4,247,712

CASH AND CASH EQUIVALENTS - BEGINNING OF PERIOD                                                         4,247,712              -
                                                                                                      -----------    -----------
CASH AND CASH EQUIVALENTS - END OF PERIOD                                                             $ 2,820,109    $ 4,247,712
                                                                                                      ===========    ===========
</TABLE>
34