EXHIBIT 13


<PAGE>



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


General

      The Company was recently  formed,  therefore  its 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  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.


                                       -4-

<PAGE>



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

<TABLE>
<CAPTION>

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

<S>              <C>                <C>            <C>    
                 +400 bp            10.63%         (357)bp

                 +300 bp            11.72          (249)bp

                 +200 bp            12.72          (148)bp

                 +100 bp            13.59           (62)bp

                    0 bp            14.20             -

                 -100 bp            14.55            35 bp

                 -200 bp            14.78            58 bp

                 -300 bp            15.30           109 bp

                 -400 bp            15.92           172 bp
</TABLE>


---------------
(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.

                                       -5-

<PAGE>
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,
                            ------------------------------------------------------------------------------------- ------------------
                                       1997                         1996                        1995                      1997
                            ---------------------------  --------------------------  ---------------------------- ------------------
                            Average            Average   Average           Average    Average           Average             Average
                            Balance  Interest Yield/Cost 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>       <C>       <C>       <C>  
 Loans receivable(1)........$83,694   $6,769      8.09%  $76,096   $6,153     8.09%   $69,378   $5,449     7.85%   $ 86,436    8.34%
 Investment securities(2)... 11,040      702      6.36%    6,826      388     5.68%     7,257      388     5.35%     14,364    6.50%
 Mortgage-backed securities.    426       39      9.15%      770       69     8.96%       971       90     9.27%        368    8.93%
                            -------   ------    ------   -------   ------   ------    -------   ------   ------    --------  ------
  Total interest-earning 
    assets.................. 95,160    7,510      7.89%   83,692    6,610     7.90%    77,606    5,927     7.64%    101,168    8.08%
                             ------    -----    ------    ------    -----   ------     ------    -----   ------     -------  ------

Non-interest-earning assets.  3,545                        3,042                        2,456                         3,395
                            -------                      -------                      -------                       -------
  Total assets..............$98,705                      $86,734                      $80,062                      $104,563
                             ======                       ======                       ======                       =======

Interest-bearing 
 liabilities:
  Interest-bearing demand 
    deposits................$12,303      390      3.17%  $ 9,975      298     2.99%   $ 9,204      279     3.03%   $ 13,749    3.14%
  Certificates of Deposit... 49,101    2,704      5.51%   50,093    2,787     5.56%    44,695    2,142     4.79%     48,560    5.58%
  Savings deposits.......... 16,308      506      3.10%   16,572      543     3.28%    16,933      558     3.30%     15,944    2.86%
  Short-term borrowings.....  7,329      398      5.43%    3,105      173     5.57%     3,012      165     5.48%      7,747    5.73%
                             ------   ------    ------    ------   ------   ------     ------   ------   ------      ------  ------
  Total interest-bearing 
    liabilities............. 85,041    3,998      4.70%   79,745    3,801     4.77%    73,844    3,144     4.26%     86,000    4.70%
                                       -----    ------              -----   ------               -----   ------              ------

 Noninterest-bearings
    liabilities.............  1,786                          833                          648                         2,438
                             ------                       ------                       ------                       -------        
 Total liabilities.......... 86,827                       80,578                       74,492                        88,438
Retained earnings........... 11,878                        6,156                        5,570                        16,125
                             ------                       ------                       ------                       -------        
 Total liabilities and
   retained earnings........$98,705                      $86,734                      $80,062                      $104,563
                             ======                       ======                       ======                       =======
Net interest income.........          $3,512                       $2,809                       $2,783
                                       =====                        =====                        =====
Interest rate spread(3).....                      3.19%                       3.13%                        3.38%               3.38%
                                                ======                      ======                       ======              ======
Net yield on interest
  earning assets(4).........                      3.69%                       3.36%                        3.59%               3.13%
                                                ======                      ======                       ======              ======
Ratio of average interest-
  earning assets to average 
  interest-bearing 
  liabilities...............                    111.90%                     104.95%                      105.09%             117.64%
                                                ======                      ======                       ======              ======
</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.

                                       -6-
<PAGE>

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);  (ii)  changes in rates
(changes in rate multiplied by old average volume); (iii) changes in rate-volume
(changes in rate multiplied by the change in average volume).

<TABLE>
<CAPTION>
                                                    Year Ended June 30,
                                 ---------------------------------------------------------
                                    1997     vs.     1996         1996     vs.     1995
                                 -----------------------------  --------------------------
                                       Increase (Decrease)           Increase (Decrease)
                                             Due to                        Due to
                                 -----------------------------  --------------------------

                                   Volume     Rate       Net     Volume     Rate       Net
                                   ------     ----       ---     ------     ----       ---
                                                  (Dollars in Thousands)
Interest income:
<S>                                 <C>       <C>       <C>       <C>      <C>        <C> 
 Loans receivable..............     $614      $  2      $616      $528     $ 176      $704
 Mortgage-backed securities....      (31)        1       (30)      (19)       (2)      (21)
 Investment securities.........      240        74       314       (23)       23         -
                                     ---       ---       ---       ---      ----      ----
  Total interest-earning 
   assets......................      823        77       900       486       197       683
                                     ---       ---       ---       ---      ----       ---

Interest expense:
 Interest-bearing demand 
   deposits....................       70        22        92        23        (4)       19
 Certificates of Deposit.......      (55)      (28)      (83)      259       386       645
 Savings deposits..............       (9)      (28)      (37)      (12)       (3)      (15)
 Short-term borrowings.........      235       (10)      225         5         3         8
                                     ---       ---       ---       ---      ----      ----
  Total interest-bearing 
    liabilities................      241       (44)      197       275       382       657
                                     ---       ---       ---       ---      ----       ---

Net change in interest income..     $582      $121      $703      $211     $(185)     $(26)
                                     ===       ===       ===       ===      ====       ===
</TABLE>



                                       -7-

<PAGE>



Comparison of Financial Condition

      On September 3, 1996,  the Board of Directors of the Bank  approved a plan
of conversion to convert from a federally  chartered  mutual bank to a federally
chartered  stock  savings  bank and  simultaneously  reorganized  into a holding
company form of organization (collectively, the "Conversion"). After approval by
the regulatory  authorities and the Bank's members, the Conversion was completed
on  December  31,  1996 and as a result,  the  holding  company  was formed (the
"Company")  and the Bank became a  wholly-owned  subsidiary  of the Company.  In
connection  with the Conversion on December 31, 1996, the Company  completed the
sale of  1,084,450  shares  (the  "Offering")  at $10 per share and  receive net
proceeds of  approximately  $9,449,000.  The Company  transferred  approximately
$4,724,000  of the net  proceeds  to the  Bank  for the  purchase  of all of the
capital stock of the Bank. In addition,  $868,000 was loaned to the ESOP for the
purchase of shares in the Offering.

      The Company's total assets was  $104,563,000 at June 30, 1997, an increase
of  $12,711,000  or 13.8% from  $91,852,000  at June 30,  1996.  The increase in
assets  was  primarily  attributable  to  the  Offering.  Total  cash  and  cash
equivalents  increased  by  $2,776,000  to  $6,792,000  at June  30,  1997  from
$4,016,000 at June 30, 1996.  This increase  includes a portion of the inflow of
cash  associated  with the  subscription  of orders received for the purchase of
Common Stock in the Offering.  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
increased $3,031,000, from $4,868,000 at June 30, 1996 to $7,899,000 at June 30,
1997.  This  increase  consists  predominately  of U.S.  Government  and  Agency
securities  classified as held to maturity,  as all  investment  purchases  made
during this period were  classified as held to maturity.  These  securities have
staggering  maturities  which range from one to five years. Net loans receivable
increased 9.0% or $7,127,000,  from  $78,941,000 at June 30, 1996 to $86,068,000
at June 30, 1997.  The net increase was primarily  attributable  to increases in
non-residential mortgages of $3,155,000,  1-4 family mortgages of $3,146,000 and
$1,595,000 in consumer loans and consumer lines of credit,  and offset  somewhat
by the net sales proceeds of one- to four family  mortgages of $1,375,000.  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 increases in FHLB borrowings of $3,371,000 and the
net sales proceeds of loans of $1,375,000.

      Deposits  decreased  by  $702,000  to  $80,069,000  at June 30,  1997 from
$80,771,000 at June 30, 1996. This decrease primarily represents funds withdrawn
by  depositors  which  were  used to  purchase  stock  in the  Offering  and was
partially offset by the Bank offering a new money market product which generated
$4,600,000 in deposits.  To support business  development,  the Company obtained
additional  funding through advances from the FHLB of $3,371,000 which increased
their  aggregate  borrowings to  $7,747,000.  FHLB  borrowings  have  staggering
maturities which range from one to six years.

      Stockholders'  equity increased $9,925,000 to $16,125,000 at June 30, 1997
compared to $6,200,000 at June 30, 1996. As discussed  previously,  the increase
was primarily  attributed to the Offering and the result of net retained  income
of $548,000 and  recognition  of shares in the  Employee  Stock  Ownership  Plan
amounting to $71,000.  Through June 30, 1997, the Company  initiated the payment
of dividends of $.16 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.


                                       -8-

<PAGE>



Comparison  of the Results of  Operations  for the Years Ended June 30, 1997 and
1996

      Net Income. As a result of the influx of funds related to the Offering and
the corresponding  surge in loan demand,  net income for the year ended June 30,
1997 increased 31.3% to $548,000 from $417,000 for the same period ended 1996.

      Net Interest Income.  The Company's net interest income increased $703,000
or 25.0% to $3,511,000  for the year ended June 30, 1997,  due to an increase of
$900,000 or 13.6% in  interest  income,  which  totaled  $7,510,000  for 1997 as
compared to  $6,610,000  for 1996.  The  increase  in interest  income more than
offset the $197,000 or 5.2% increase in interest expense.

      Interest Income.  The increase in interest income resulted  primarily from
an increase in earnings on loans of $616,000 or 10.0%, interest-bearing deposits
in other  institutions  of  $177,000 or 128.8%,  and  investment  securities  of
$134,000 or 61.9%. These increases, which were due to an increase in the average
principal balances of $7,600,000, $1,586,000 and $2,600,000,  respectively, were
funded by proceeds from the Offering and advances  from FHLB.  In addition,  the
yield on all investments increased from 5.7% for the year ended June 30, 1996 to
6.4% for the same period ended June 30, 1997.  This increase was the result of a
combination of changing the mix of securities by increasing  the  investments in
U.S. Government securities and a slight upturn in rates.

      Interest Expense.  Total interest expense increased $197,000 or 5.2%, from
$3,801,000  for the year ended June 30, 1996 to  $3,998,000  for the same period
ended June 30, 1997.  The increase for fiscal year 1997 was  primarily due to an
increase in the average  volume of  interest-bearing  liabilities of $5,296,000,
from $79,745,000 as of June 30, 1996 to $85,041,000 as of June 30, 1997. Of this
amount,  average FHLB advances  increased from $3,105,000 as of June 30, 1996 to
$7,329,000 as of June 30,1997 to fund an increasing loan environment.

      Provision  for  loan  losses.  The  provision  for loan  losses  decreased
$212,000  or 80.6%,  from  $263,000  as of June 30,  1996 to  $51,000 as of June
30,1997.  In 1996,  management  increased its provision for loan loss due to the
Bank's  significant  increase in automobile loans,  non-residential  real estate
loans, and commercial loans as well as incurring a $145,000  charge-off relating
to one borrower.  It was determined  that the provision for loan loss for fiscal
1997 was adequate due to  management's  continual  evaluation of the adequacy of
the allowance for loan losses which encompasses the overall risk characteristics
of the loan portfolio,  trends in the Bank's delinquent and nonperforming loans,
and the impact of economic  conditions  on  borrowers.  While asset  quality has
slightly  declined during this period,  management  believes that the underlying
collateral  supporting such loans provides  adequate  coverage.  There can be no
assurances,  however,  that future losses will not exceed  estimated  amounts or
that  additional  provisions  for loan  losses  will not be  required  in future
periods.

      Noninterest income. Noninterest income increased by $87,000 or 29.6%, from
$294,000  for the year ended June 30, 1996 to $381,000 for the same period ended
June 30, 1997.  Service charges on deposit accounts  increased $34,000 or 17.6%,
due to the increase in the volume and number of deposit  accounts.  In addition,
during the second half of 1996,  the Bank began a new program to sell fixed rate
mortgage loans which resulted in gains on the sale of loans of $25,000.

      Noninterest expense. Noninterest expense increased $825,000 or 38.5%, from
$2,147,000  for the year ended June 30, 1996 to  $2,972,000  for the same period
ended June 30, 1997.  This increase is largely  attributed to a one time special
assessment  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

                                       -9-

<PAGE>



time charge to  SAIF-insured  institutions  of 65.7 basis points per one hundred
dollars of insurable deposits.

      Pursuant to this legislation, the Bank will pay, in addition to the normal
deposit  insurance  premium as a member of the SAIF,  an annual  amount equal to
approximately   6.4  basis  points  of  outstanding  SAIF  deposits  toward  the
retirement  of the  Financing  Corporation  Bonds ("Fico  Bonds")  issued in the
1980's to assist in the  recovery of the savings and loan  industry.  Members of
the Bank  Insurance  Fund ("BIF"),  by contrast,  will pay, in addition to their
normal deposit insurance premium,  approximately 1.3 basis points.  Beginning no
later than January 1, 2000, the rate paid to retire the Fico Bonds will be equal
for members of the BIF and the SAIF.  The Act also  provides  for the merging of
the BIF and the  SAIF  by  January  1,  1999  provided  there  are no  financial
institutions  still chartered as savings  associations at that time.  Should the
insurance  funds be merged before  January 1, 2000, the rate paid by all members
of this new fund to retire the Fico Bonds would be equal.

      Compensation and benefits  increased  $142,000 or 16.0%, due to the hiring
of new employees to further  diversify the Bank's operations to meet continually
changing customer demands,  as well as increase in employee stock ownership plan
expenses from the  distribution  of additional  shares.  Occupancy and equipment
expense increased $85,000 or 32.0% primarily due to increases in depreciation on
furniture  and  equipment  relating to the new branch  which  opened in December
1995. Other  noninterest  expense  increased by $112,000 or 27.0% due to general
overall increases in all expenses.

      A great  deal of  information  has  been  disseminated  about  the  global
computer crash that may occur in the year 2000. Many computer  programs that can
only distinguish the final two digits of the year entered (a common  programming
practice in earlier years) are expected to read entries for the year 2000 as the
year 1900 and compute payment,  interest or delinquency  based on the wrong date
or are expected to be unable to compute payment, interest or delinquency.  Rapid
and accurate data  processing  is essential to the  operation of the Bank.  Data
processing is also essential to most other financial institutions and many other
companies.  All of the  material  data  processing  of the  Bank  that  could be
affected  by this  problem is  provided by a third  party  service  bureau.  The
service  bureau of the Bank has advised the Bank that it expects to resolve this
potential problem before the year 2000. However, if the service bureau is unable
to resolve this  potential  problem in time,  the Bank would  likely  experience
significant data processing delays, mistakes or failures. These delays, mistakes
or failures could have a significant  adverse impact on the financial  condition
and results of operation of the Bank.

      Income Taxes. Income tax expense increased $45,000 or 16.1%, from $276,000
for the year ended June 30, 1996 to $321,000  for the year ended June 30,  1997,
due to the 25.3%  increase in income before income taxes.  The effective rate on
taxes as of the year ended June 30,  1997 was 36.9%  compared  to 39.8% from the
same period ended June 30, 1996.

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 use its sources
of  funds  to fund  existing  and  future  loan  commitments,  to fund  maturing
certificates  of deposit  and  demand  deposit  withdrawals,  to invest in other
interest-earning assets, to maintain liquidity, and to meet operating expenses.


                                      -10-

<PAGE>



      Net cash provided by operating activities for the year ended June 30, 1997
totalled  $2,109,000  as compared to net cash used for  operating  activities of
$643,000  for the year ended June 30,  1996.  The  increase  of  $2,752,000  was
primarily  attributable to proceeds from the sale of loans of $4,211,000  offset
by loans originated for sale of $2,806,000.

      Net cash used in  investing  activities  for the year ended June 30,  1997
totalled  $11,375,000 an increase of $5,274,000 from June 30, 1996. The increase
was primarily  attributable to net loan originations of $8,578,000 and purchases
of investment  securities held to maturity of $5,294,000 offset by proceeds from
maturities and repayments of these securities of $2,250,000.

      Net cash provided by financing  activities for 1997 totalled  $12,042,000.
This was the  result  of  $9,449,000  million  in net  proceeds  from the  stock
offering,  a net increase of $3,405,000 in FHLB advances offset by a decrease in
deposits of $702,000.

      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.

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.

Recent Accounting Pronouncements

      In June 1996, the Financial  Accounting  Standards  Board ("FASB")  issued
Statement No. 125,  "Accounting for Transfers and Servicing of Financial  Assets
and Extinguishment of Liabilities." The Statement provides consistent  standards
for  distinguishing  transfers of financial assets that are sales from transfers
that are secured borrowings based on a  control-oriented  "financial-components"
approach.  Under this approach,  after a transfer of financial assets, an entity
recognizes the financial and servicing assets it controls and liabilities it has
incurred,  derecognizes  financial  assets when control has been surrendered and
derecognizes liabilities when extinguished.  The provisions of Statement No. 125
are effective for transactions  occurring after December 31, 1996,  except those
provisions  relating to repurchase  agreements,  securities  lending,  and other
similar transactions and pledged collateral, which have been delayed until after
December  31, 1997 by Statement  No. 127,  "Deferral  of the  Effective  Date of
Certain Provisions of FASB Statement No. 125, an amendment of FASB Statement No.
125." The adoption of these statements is not expected to have a material impact
on the Company's consolidated financial position or results of operations.

      In  February,  1997,  the FASB issued  Statement  No. 128,  "Earnings  Per
Share,"  effective  for  financial  statements  issued for periods  ending after
December 15, 1997. The new standard specifies the

                                      -11-

<PAGE>



computation,  presentation,  and disclosure  requirements for earnings per share
for entities with publicly  held common stock.  The Company does not  anticipate
adoption to have a material impact on  presentation  and disclosure for earnings
per share.

      In July 1997, the FASB issued Statement 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  (revenue,  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 purpose is required.



                                      -12-

<PAGE>

SNOGRASS
Certified Public Accountants




                         Report of Independent Auditors

[LOGO]

Board of Directors and Shareholders
Advance Financial Bancorp

We have audited the accompanying consolidated balance sheet of Advance Financial
Bancorp  and  subsidiary  as  of  June  30,  1997  and  1996,  and  the  related
consolidated statements of income, shareholders' equity, and cash flows for each
of 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, 1997 and 1996,  and the results of their
operations  and their cash flows for each of the years then ended in  conformity
with generally accepted accounting principles.

As discussed in the notes to the consolidated  financial  statements,  effective
July 1, 1995, the Company changed its method of accounting for the impairment of
loans and the related allowance for loan losses.



/s/ S.R. Snodgrass, A.C.
Steubenville, Ohio
July 18, 1997



S.R. Snodgrass,  A.C. 
<TABLE>
<CAPTION>
<S>                          <C>                             <C>                  <C>
626  North  Fourth  Street   Steubenville, OH  43952-1982    Phone  614-282-2771  Facsimile: 614-282-1606
</TABLE>





                                      -13-

<PAGE>



                            ADVANCE FINANCIAL BANCORP
                                 AND SUBSIDIARY
                           CONSOLIDATED BALANCE SHEET

<TABLE>
<CAPTION>

                                                                    June 30,
                                                              1997           1996
                                                         -------------   -----------
ASSETS

<S>                                                      <C>             <C>        
Cash and Cash Equivalents:
  Cash and amounts due from banks                        $     903,981   $   948,671
  Interest-bearing deposits with other institutions          5,888,439     3,067,912
                                                         -------------   -----------
       Total cash and cash equivalents                       6,792,420     4,016,583

Investment Securities:
  Securities held to maturity (market value of $7,831,187
   and $4,761,709)                                           7,844,305     4,799,596
  Securities available for sale                                 55,051        68,549
                                                          ------------   -----------
       Total investment securities                           7,899,356     4,868,145

Mortgage-backed securities held to maturity (market value
 of $394,743 and $561,203)                                     367,553       536,808
Loans held for sale                                                  -     1,375,143
Loans receivable (net of allowance for loan losses
 of $367,779 and $324,983)                                  86,067,848    77,565,831
Premises and equipment, net                                  2,055,651     2,099,470
Federal Home Loan Bank stock, at cost                          576,700       559,500
Accrued interest receivable                                    655,667       521,187
Other assets                                                   148,184       309,726
                                                          ------------   -----------

       TOTAL ASSETS                                       $104,563,379   $91,852,393
                                                          ============   ===========

LIABILITIES
Deposit accounts                                          $ 80,069,078   $80,770,646
Advances from Federal Home Loan Bank                         7,747,449     4,376,452
Advance payments by borrowers for taxes and insurance          186,738       182,977
Accrued interest payable and other liabilities                 435,069       322,439
                                                          ------------   -----------
       TOTAL LIABILITIES                                    88,438,334    85,652,514
                                                          ------------   -----------

SHAREHOLDERS' 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, 1997                                              108,445             -
Additional paid in capital                                  10,221,528             -
Retained earnings - substantially restricted                 6,597,836     6,209,329
Net unrealized loss on securities                               (6,569)       (9,450)
Unallocated shares - employee stock ownership plan            (796,195)            -
                                                          ------------   -----------
       TOTAL SHAREHOLDERS' EQUITY                           16,125,045     6,199,879
                                                          ------------   -----------

       TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY         $104,563,379   $91,852,393
                                                          ============   ===========
</TABLE>


The  accompanying  notes  are an  integral  part of the  consolidated  financial
statements.

                                      -14-

<PAGE>

                            ADVANCE FINANCIAL BANCORP
                                 AND SUBSIDIARY
                        CONSOLIDATED STATEMENT OF INCOME
<TABLE>
<CAPTION>

                                                          Year Ended June 30,
                                                            1997        1996
                                                        ----------    ----------
<S>                                                     <C>           <C>       
INTEREST AND DIVIDEND INCOME
  Loans                                                 $6,769,293    $6,152,898
  Investment securities                                    350,885       216,783
  Interest-bearing deposits with other
   institutions                                            315,346       137,850
  Mortgage-backed securities                                38,611        68,875
  Federal Home Loan Bank stock                              35,732        33,883
                                                        ----------    ----------
       Total interest and dividend income                7,509,867     6,610,289
                                                        ----------    ----------

INTEREST EXPENSE
  Deposits                                               3,600,068     3,627,782
  Advances from Federal Home Loan Bank                     398,368       173,624
                                                        ----------    ----------
       Total interest expense                            3,998,436     3,801,406
                                                        ----------    ----------

NET INTEREST INCOME                                      3,511,431     2,808,883

Provision for loan losses                                   51,414       262,942
                                                        ----------    ----------

NET INTEREST INCOME AFTER PROVISION
 FOR LOAN LOSSES                                         3,460,017     2,545,941
                                                        ----------    ----------

NONINTEREST INCOME
  Service charges on deposit accounts                      228,239       194,080
  Gain on sale of loans                                     30,420        20,364
  Gain on sale of real estate                               25,363             -
  Other income                                              96,849        79,490
                                                        ----------    ----------
       Total noninterest income                            380,871       293,934
                                                        ----------    ----------

NONINTEREST EXPENSE
  Compensation and employee benefits                     1,027,355       885,522
  Occupancy and equipment                                  348,597       263,986
  Deposit insurance premiums                               577,226       170,525
  Professional fees                                        126,603        95,177
  Advertising                                               99,404        74,812
  Data processing                                          264,432       240,385
  Other operating expenses                                 528,623       416,126
                                                        ----------    ----------
       Total noninterest expense                         2,972,240     2,146,533
                                                        ----------    ----------

Income before income taxes                                 868,648       693,342
Income taxes                                               320,510       275,976
                                                        ----------    ----------

NET INCOME                                              $  548,138    $  417,366
                                                        ==========    ==========

Per Share Data: (from December 31, 1996,
 conversion date)

  Net earnings per share                               $      .49              -
                                                       ==========     ==========

  Average shares outstanding                              998,392              -
                                                       ==========     ==========
</TABLE>


The  accompanying  notes  are an  integral  part of the  consolidated  financial
statements.


                                      -15-

<PAGE>

                            ADVANCE FINANCIAL BANCORP
                                 AND SUBSIDIARY
            CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY

<TABLE>
<CAPTION>


                                                            Retained         Net
                                              Additional    Earnings      Unrealized     Unallocated       Total
                                    Common     Paid In    Substantially    Loss on        Shares in    Shareholders'
                                     Stock     Capital     Restricted     Securities         ESOP         Equity
                                    -------  -----------  -------------   ----------     -----------   -------------

<S>                                <C>       <C>           <C>             <C>            <C>            <C>      
Balance, June 30, 1995             $      -  $         -   $5,791,963      $ (9,454)      $        -     5,782,509

  Net income                                                  417,366                                       417,366
  Net unrealized gain on
   securities                                                                     4                               4
                                   --------  -----------   ----------      --------       ---------      ----------

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
  Accrued compensation expense -
   ESOP                                           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      $ (6,569)      $(796,195)    $16,125,045
                                   ========  ===========   ==========      ========       =========     ===========

</TABLE>


The  accompanying  notes  are an  integral  part of the  consolidated  financial
statements.

                                      -16-

<PAGE>

                            Advance Financial Bancorp
                                 and Subsidiary
                      CONSOLIDATED STATEMENT OF CASH FLOWS

<TABLE>
<CAPTION>
                                                          Year Ended June 30,
                                                           1997         1996
                                                       -----------   -----------
<S>                                                    <C>           <C>        
OPERATING ACTIVITIES
  Net income                                           $   548,138   $   417,366
  Adjustments to reconcile net income to
   net cash provided by operating activities:
    Depreciation, amortization and accretion,
     net                                                   151,942       127,177
    Provision for loan losses                               51,414       262,942
    Gain on sale of real estate                            (25,363)            -
    Gain on sale of loans                                  (30,420)      (20,364)
    Amortization of ESOP unearned compensation              85,204             -
    Origination of loans held for sale                  (2,805,769)   (1,485,034)
    Proceeds from the sale of loans                      4,211,323       110,088
    Increase in accrued interest receivable
     and other assets                                     (101,701)     (118,905)
    Increase in accrued interest
     payable and other liabilities                          38,360        65,826
    Decrease in federal income tax payable                 (12,193)       (3,836)
    Increase (decrease) in deferred federal
     income taxes                                           (2,162)        2,183
                                                       -----------   -----------

       Net cash provided by (used for)
        operating activities                             2,108,773      (642,557)
                                                       -----------   -----------

INVESTING ACTIVITIES
  Investment securities held to maturity:
    Purchases                                           (5,294,498)   (3,050,000)
    Maturities and repayments                            2,250,000     1,987,130
  Investment securities available for sale:
    Maturities and repayments                               12,280        14,310
  Mortgage-backed securities held to maturity:
    Maturities and repayments                              169,191       369,643
  Purchases of Federal Home Loan Bank Stock                (17,200)      (57,700)
  Proceeds from the sale of student loans                        -     1,378,046
  Net increase in loans                                 (8,578,129)   (6,259,933)
  Purchases of premises and equipment                     (150,747)     (786,000)
  Proceeds from sale of premises and equipment              72,863             -
  Proceeds from sale of other real estate                  161,355       303,446
                                                       -----------   -----------

       Net cash used for investing
        activities                                     (11,374,885)   (6,101,058)
                                                       -----------   -----------
</TABLE>

The  accompanying  notes  are an  integral  part of the  consolidated  financial
statements.


                                      -17-

<PAGE>



                            ADVANCE FINANCIAL BANCORP
                                 AND SUBSIDIARY
                CONSOLIDATED STATEMENT OF CASH FLOWS (CONTINUED)

<TABLE>
<CAPTION>

                                                           Year Ended June 30,
                                                           1997          1996
                                                       ------------  -----------
<S>                                                    <C>           <C>        
FINANCING ACTIVITIES
  Net increase (decrease) in deposits                  $  (701,568)  $ 6,072,502
  Net increase in short term
   advances from Federal Home Loan Bank                    404,813       752,300
  Proceeds from advances from Federal Home
   Loan Bank                                             3,000,000       800,000
  Repayment of advances from Federal Home
   Loan Bank                                               (33,816)      (18,735)
  Net change in advances for taxes and
   insurance                                                 3,761        14,748
  Proceeds from sale of common stock                     9,448,574             -
  Dividends paid                                           (79,815)            -
                                                       -----------   -----------

       Net cash provided by financing
        activities                                      12,041,949     7,620,815
                                                       -----------   -----------

       Increase in cash and cash
        equivalents                                      2,775,837       877,200

CASH AND CASH EQUIVALENTS
 AT BEGINNING OF YEAR                                    4,016,583     3,139,383
                                                       -----------   -----------

CASH AND CASH EQUIVALENTS
 AT END OF YEAR                                        $ 6,792,420   $ 4,016,583
                                                       ===========   ===========

</TABLE>


The  accompanying  notes  are an  integral  part of the  consolidated  financial
statements.


                                      -18-

<PAGE>



                            ADVANCE FINANCIAL BANCORP
                                 AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                  JUNE 30, 1997


1.  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

    Advance Financial  Bancorp (the "Company") was organized in September,  1996
    as a State of Delaware chartered  corporation.  The Company acquired 100% of
    the common stock of Advance Financial Savings Bank, f.s.b. (the "Bank") upon
    the  Bank's  conversion  from  a   federally-chartered   mutual  bank  to  a
    federally-chartered  stock  savings bank in December,  1996.  The  operating
    results of the Company depend  primarily  upon the operating  results of the
    Bank.

    The  Bank  and its  wholly-owned  service  corporation  subsidiary,  Advance
    Financial  Service  Corporation of West Virginia,  are located in Wellsburg,
    West  Virginia,  with branch  facilities  in  Follansbee,  West Virginia and
    future expansion into Wintersville, Ohio. The Company's principal sources of
    revenue  emanate from its portfolio of residential  real estate,  commercial
    and consumer loans, as well as, interest earnings on investment  securities,
    interest-bearing  deposits with other financial institutions,  and a variety
    of deposit  services  provided to its customers  through two locations.  The
    Bank is  subject  to  regulation  and  supervision  by the  Office of Thrift
    Supervision and the Federal Deposit Insurance Corporation.

    The consolidated  financial  statements  include the accounts of the Company
    and its  wholly-owned  subsidiary  Advance  Financial  Savings 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.

    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.




                                      -19-

<PAGE>



1.  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

    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, 1997, there
    were no loans held for sale.  At June 30,  1996,  the cost of loans held for
    sale was equal to market value.

    Loans
    -----

    Loans are stated at unpaid principal  balances,  less loans in process,  net
    deferred loan fees, and the allowance for loan losses.

    Loan origination and commitment fees, as well as, certain direct origination
    costs are deferred and amortized as a yield  adjustment over the contractual
    life of the  related  loans  using  the  interest  method.  Amortization  of
    deferred  loan fees is  discontinued  when a loan is  placed  on  nonaccrual
    status.

    Loans are generally  placed on nonaccrual  status when principal or interest
    is  delinquent  for 90  days  or more  except  for  those  loans  which,  in
    management's  judgment,  are adequately  secured and for which collection is
    probable.  Any unpaid interest previously accrued on those loans is reversed
    from income,  and  thereafter,  interest is recognized only to the extent of
    payments received.

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

    Effective  January 1, 1995,  the  Company  adopted  Statement  of  Financial
    Accounting  Standards No. 114,  "Accounting by Creditors for Impairment of a
    Loan," as amended by Statement  No. 118.  Under this  Standard,  the Company
    estimates  credit  losses on impaired  loans  based on the present  value of
    expected cash flows or fair value of the  underlying  collateral if the loan
    repayment is expected to come from the sale or operation of such collateral.
    Prior to 1995, the credit losses related to these loans were estimated based
    on undiscounted  cash flows or the fair value of the underlying  collateral.
    Statement  118 amends  Statement  114 to permit a creditor  to use  existing
    methods for recognizing  interest  income on impaired loans  eliminating the
    income  recognition  provisions  of  Statement  114.  The  adoption of these
    statements  did  not  have a  material  effect  on the  Company's  financial
    position or results of operations.

    Impaired loans are commercial and commercial  real estate loans for which it
    is  probable  that the  Company  will not be able to collect all amounts due
    according  to the  contractual  terms of the  loan  agreement.  The  Company
    individually  evaluates  such loans for  impairment  and does not  aggregate
    loans by major risk  classifications.  The definition of "impaired loans" is
    not the same as the  definition  of  "nonaccrual  loans,"  although  the two
    categories  overlap.  The Company  may choose to place a loan on  nonaccrual
    status due to payment  delinquency  or uncertain  collectibility,  while not
    classifying  the  loan  as  impaired  if the  loan  is not a  commercial  or
    commercial real estate loan. Factors considered by management in determining
    impairment  include  payment  status  and  collateral  value.  The amount of
    impairment for these types of impaired loans is determined by the difference
    between the present  value of the expected  cash flows  related to the loan,
    using the original interest rate, and its recorded value, or, as a practical
    expedient in the case of  collateralized  loans, the difference  between the
    fair value of the  collateral  and the  recorded  amount of the loans.  When
    foreclosure  is probable,  impairment is measured based on the fair value of
    the collateral.


                                      -20-

<PAGE>



1.  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

    Allowance for Loan Losses (Continued)
    -------------------------------------

    Mortgage loans on one-to-four  family  properties and all consumer loans are
    large  groups  of  smaller  balance   homogeneous  loans  and  are  measured
    collectively.  Loans that experience insignificant payment delays, which are
    defined  as 90 days or  less,  generally  are not  classified  as  impaired.
    Management  determines the  significance of payment delays on a case-by-case
    basis,  taking into  consideration all of the circumstances  surrounding the
    loan and the  borrower,  including the length of the delay,  the  borrower's
    prior  payment  record,  and the  amount of  shortfall  in  relation  to the
    principal and interest owed.

    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 credit 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
    change in the near term.

    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.

    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.

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

    On December 31, 1996, the Company issued  1,084,450  shares of common stock.
    Earnings  per share data has been  determined  by dividing  net income since
    December  31,  1996 of  $492,662 by the  weighted  average  number of shares
    issued and  outstanding  since the original issue date. As discussed in Note
    14, the  Company  accounts  for the 86,756  shares  acquired  by the ESOP in
    accordance  with Statement of Position 93-6;  shares  controlled by the ESOP
    are not  considered in the weighted  average  shares  outstanding  until the
    shares are committed for allocation to employee  accounts.  The proforma net
    income per share for 1997 is $.55,  assuming the shares had been outstanding
    for the entire year.

                                      -21-

<PAGE>



1.  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

    Reclassification
    ----------------

    Certain amounts in prior years' consolidated  financial statements have been
    reclassified   to  conform  to  the   current   year   presentation.   These
    reclassification had no effect on 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, 1997 and 1996
    were $3,987,639 and $3,801,247, respectively. Cash payments for income taxes
    for the  fiscal  years  ended  June  30,  1997 and 1996  were  $316,279  and
    $241,884, respectively.

    Non  cash  investing  activity  included  mortgages  originated  and  office
    properties  created from sales and  transfers of real estate owned  totaling
    $172,110 and real estate acquired in settlement of loans of $130,543 for the
    fiscal year ended June 30, 1996.  There were no non cash  activities for the
    fiscal year ended June 30, 1997.

    Pending Accounting Pronouncement
    --------------------------------

    In June 1996,  the Financial  Accounting  Standards  Board  ("FASB")  issued
    Statement  No. 125,  "Accounting  for  Transfers  and Servicing of Financial
    Assets and Extinguishment of Liabilities." The Statement provides consistent
    standards for  distinguishing  transfers of financial  assets that are sales
    from  transfers  that are  secured  borrowings  based on a  control-oriented
    "financial-components"  approach.  Under this approach,  after a transfer of
    financial assets, an entity recognizes the financial and servicing assets it
    controls and liabilities it has incurred, derecognizes financial assets when
    control has been surrendered and derecognizes liabilities when extinguished.
    The provisions of Statement No. 125 are effective for transactions occurring
    after  December 31, 1996,  except those  provisions  relating to  repurchase
    agreements,  securities lending,  and other similar transactions and pledged
    collateral,  which  have been  delayed  until  after  December  31,  1997 by
    Statement No. 127,  "Deferral of the Effective Date of Certain Provisions of
    FASB  Statement  No. 125,  an  amendment  of FASB  Statement  No.  125." The
    adoption of these  statements  is not expected to have a material  impact on
    the Company's consolidated financial position or results of operations.

    In February,  1997, the FASB issued Statement No. 128, "Earnings Per Share,"
    effective for financial  statements issued for periods ending after December
    15, 1997.  The new standard  specifies the  computation,  presentation,  and
    disclosure  requirements  for earnings per share for entities  with publicly
    held  common  stock.  The  Company  does not  anticipate  adoption to have a
    material impact on presentation and disclosure for earnings per share.

    In July 1997, the FASB issued  Statement 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 (revenue,  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  purpose  is
    required.

                                      -22-

<PAGE>
2.  INVESTMENT SECURITIES

    The amortized cost and estimated market value of investments are as follows:

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

<TABLE>
<CAPTION>
                                                                1996
                                             ---------------------------------------------
                                                           Gross       Gross     Estimated
                                             Amortized  Unrealized  Unrealized    Market
                                               Cost        Gains      Losses      Value
                                               ----        -----      ------      -----
<S>                                         <C>         <C>         <C>         <C>       
       U.S. Government and Agency
        Obligations                         $4,799,596  $    6,020  $  (43,907) $4,761,709
                                            ==========  ==========  ==========  ==========
</TABLE>

<TABLE>
<CAPTION>
    Available-for-sale
                                                                1997
                                             ---------------------------------------------
                                                           Gross       Gross     Estimated
                                             Amortized  Unrealized  Unrealized    Market
                                               Cost        Gains      Losses      Value

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

<TABLE>
<CAPTION>
                                                                1996
                                             ---------------------------------------------
                                                           Gross       Gross     Estimated
                                             Amortized  Unrealized  Unrealized    Market
                                               Cost        Gains      Losses      Value

<S>                                         <C>         <C>         <C>         <C>       
        Money Fund Securities               $   77,999  $        -  $   (9,450) $   68,549
                                            ==========  ==========  ==========  ==========
</TABLE>
    The amortized  cost and estimated  market value of investment  securities at
    June 30, 1997, 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.

<TABLE>
<CAPTION>
                                                  Held-to-Maturity     Available-for-Sale
                                                ---------------------  -------------------
                                                            Estimated            Estimated
                                                Amortized    Market    Amortized  Market
                                                  Cost       Value       Cost     Value
                                                  ----       -----       ----     -----

<S>                                            <C>         <C>          <C>       <C>     
       One year or less                        $1,750,285  $1,749,187   $ 43,643  $ 36,619
       After one through five years             5,594,020   5,592,688          -         -
       After five through ten years                     -           -     21,361    18,432
       After ten years                            500,000     489,312          -         -
                                               ----------  ----------   --------  --------
            Total                              $7,844,305  $7,831,187   $ 65,004  $ 55,051
                                               ==========  ==========   ========  ========
</TABLE>
   There were no securities sold during the two year period ended June 30, 1997.

                                      -23-
<PAGE>



3.  MORTGAGE-BACKED SECURITIES

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

    Held to Maturity
<TABLE>
<CAPTION>
                                                                1997
                                             ---------------------------------------------
                                                           Gross       Gross     Estimated
                                             Amortized  Unrealized  Unrealized    Market
                                               Cost        Gains      Losses      Value

<S>                                         <C>         <C>         <C>         <C>       
       GNMA certificates                    $  200,028  $   11,642  $        -  $  211,670
       Federal Home Loan Mortgage
        Corporation certificates               167,525      15,548           -     183,073
                                            ----------  ----------  ----------  ----------
            Total                           $  367,553  $   27,190  $        -  $  394,743
                                            ==========  ==========  ==========  ==========
</TABLE>

<TABLE>
<CAPTION>


                                                                1996
                                             ---------------------------------------------
                                                           Gross       Gross     Estimated
                                             Amortized  Unrealized  Unrealized    Market
                                               Cost        Gains      Losses      Value
                                               ----        -----      ------      -----
<S>                                         <C>         <C>         <C>         <C>       
       GNMA certificates                    $  258,991  $   11,347  $        -  $  270,338
       Federal Home Loan Mortgage
        Corporation certificates               277,817      13,048           -     290,865
                                            ----------  ----------  ----------  ----------
            Total                           $  536,808  $   24,395  $        -  $  561,203
                                            ==========  ==========  ==========  ==========
</TABLE>



    Mortgage-backed securities provide for periodic,  generally monthly payments
    of principal and interest and have contractual  maturities  ranging from one
    to  twenty-five  years.  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.

    There were no  mortgage  backed  securities  sold during the two year period
    ended June 30, 1997.






















                                      -24-

<PAGE>



4.  LOANS RECEIVABLE

    Loans receivable are comprised of the following:
<TABLE>
<CAPTION>

                                                                      1997         1996
                                                                  -----------  -----------
<S>       <C>                                                     <C>          <C>        
       Mortgage loans:
          1 - 4 family                                            $57,746,390  $54,599,854
          Multi-family                                              1,594,720    1,697,235
          Non-residential                                          11,482,213    8,327,445
          Construction                                              2,454,581    1,900,718
                                                                  ------------------------
                                                                   73,277,904   66,525,252
                                                                  ------------------------
       Consumer loans:
          Home improvement                                            905,589    1,118,956
          Automobile                                                7,419,412    6,178,615
          Share loans                                               1,269,491    1,124,674
          Education                                                    89,177      128,045
          Other                                                     1,973,221    1,511,864
                                                                  -----------  -----------
                                                                   11,656,890   10,062,154
                                                                  -----------  -----------
       Commercial loans                                             3,478,025    3,099,876
                                                                  -----------  -----------

       Less:
          Loans in process                                          1,760,797    1,548,953
          Net deferred loan fees                                      216,395      247,515
          Allowance for loan losses                                   367,779      324,983
                                                                  -----------  -----------
                                                                    2,344,971    2,121,451
                                                                  -----------  -----------
               Total                                              $86,067,848  $77,565,831
                                                                  ===========  ===========
</TABLE>

    In the normal  course of  business,  loans are  extended  to  directors  and
    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, 1997 is as follows:

                      Balance                   Amount        Balance
                       1996       Addition     Collected       1997
                       ----       --------     ---------       ----

                     $613,545     $484,100      $316,760     $780,885

    The Company's loan portfolio is predominantly  made up of one to four family
    unit  first  mortgage  loans in the  Brooke  and  Hancock  counties  of West
    Virginia and Jefferson  County,  Ohio. These loans are typically  secured by
    first lien  positions  on the  respective  real  estate  properties  and are
    subject  to the  Company's  loan  underwriting  policies.  In  general,  the
    Company's  loan  portfolio  performance is dependent upon the local economic
    conditions.












                                      -25-

<PAGE>



5.  ALLOWANCE FOR LOAN LOSSES

    Activity in the  allowance for loan losses for the years ended June 30, 1997
    and 1996 is summarized as follows:
<TABLE>
<CAPTION>

                                                                          1997      1996
                                                                          ----      ----

<S>                                                                     <C>       <C>     
    Balance, beginning of period                                        $324,983  $197,833
    Add:
       Provisions charged to operations                                   51,414   262,942
       Loan recoveries                                                    11,738     8,896
                                                                        --------  --------
          Total                                                          388,135   469,671
    Less loans charged off                                                20,356   144,688
                                                                        --------  --------

    Balance, end of period                                              $367,779  $324,983
                                                                        ========  ========
</TABLE>


6.  PREMISES AND EQUIPMENT, NET

    Premises and equipment are summarized by major classification as follows:
<TABLE>
<CAPTION>

                                                                       1997        1996
                                                                       ----        ----

<S>                                                                 <C>         <C>       
       Land                                                         $  303,857  $  311,877
       Office buildings and improvements                             1,718,664   1,749,040
       Furniture, fixtures, and equipment                            1,134,132   1,117,455
                                                                    ----------  ----------
          Total                                                      3,156,653   3,178,372
       Less: accumulated depreciation                                1,101,002   1,078,902
                                                                    ----------  ----------

          Premises and equipment, net                               $2,055,651  $2,099,470
                                                                    ==========  ==========
</TABLE>

    Depreciation charged to operations amounted to $151,365 and $124,805 for the
    years ended June 30, 1997 and 1996, respectively.

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:
<TABLE>
<CAPTION>

                                                                        1997        1996
                                                                        ----        ----

<S>                                                                   <C>         <C>     
       Investment securities                                          $144,419    $ 65,540
       Mortgage-backed and related securities                            6,667       7,769
       Loans receivable                                                504,581     447,878
                                                                      --------    --------
               Total                                                  $655,667    $521,187
                                                                      ========    ========
</TABLE>
                                      -26-

<PAGE>



9.  DEPOSIT ACCOUNTS

    Deposit accounts are summarized as follows:
<TABLE>
<CAPTION>
                                                   1997                     1996
                                          -----------------------  ------------------------
                                                       Percent of               Percent of
                                             Amount     Portfolio     Amount     Portfolio
                                             ------     ---------     ------     ---------

<S>                                       <C>            <C>       <C>            <C> 
    Non-interest-bearing                  $ 1,816,038      2.3%    $ 1,607,362      2.0%

    Savings accounts                       15,943,723     19.9      17,378,294     21.4
    NOW accounts                            7,423,520      9.3       8,036,844     10.0
    Money market accounts                   6,325,727      7.9       2,893,026      3.6
                                          -----------    -----     -----------    -----
                                           31,509,008     39.4      29,915,526     37.0
                                          -----------    -----     -----------    -----

    Savings certificates:
       2.00 -  4.00%                        2,265,733      2.8       3,053,637      3.8
       4.01 -  6.00%                       35,780,250     44.7      37,258,267     46.1
       6.01 -  8.00%                       10,514,087     13.1      10,513,216     13.0
       8.01 - 10.00%                                -      -.           30,000       .1
                                          -----------    -----     -----------    -----
                                           48,560,070     60.6      50,855,120     63.0
                                          -----------    -----     -----------    -----

          Total                           $80,069,078    100.0%    $80,770,646    100.0%
                                          ===========    =====     ===========    =====
</TABLE>

    The  scheduled  maturities of savings  certificates  at June 30, 1997 are as
follows:
<TABLE>
<CAPTION>

                                                                                  Amount
                                                                                  ------

<S>                                                                            <C>        
    Within one year                                                            $35,011,274
    Beyond one year but within two years                                         7,050,728
    Beyond two years but within three years                                      2,758,467
    Beyond three years                                                           3,739,601
                                                                               -----------

          Total                                                                $48,560,070
                                                                               ===========
</TABLE>

    The  Company had  deposits  with a minimum  denomination  of $100,000 in the
    amount of approximately  $7,724,255 and $7,760,079 at June 30, 1997 and 1996
    respectively.  Deposits in excess of $100,000 are not Federally insured. The
    Company does not have any brokered deposits.

    Interest expense by deposit category is as follows:
<TABLE>
<CAPTION>
                                                                     Year Ended June 30,
                                                                       1997        1996
                                                                       ----        ----

<S>                                                                 <C>         <C>       
    Passbooks                                                       $  506,312  $  543,002
    NOW and Money Market Deposit accounts                              389,745     297,880
    Savings certificates                                             2,704,011   2,786,900
                                                                     ---------   ---------
                                                                    $3,600,068  $3,627,782
                                                                    ==========  ==========
</TABLE>
                                      -27-

<PAGE>



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       1997        1996
                                     ---------- --------  --------  ----------  -------

<S>                                  <C>         <C>     <C>        <C>         <C>       
    Flexline Advance                     -       Monthly  Variable  $        -  $1,000,000
    Advance                          10-29-1996  Monthly   4.23%             -     595,187
    Advance                          11-29-1996  Monthly   5.67%             -   1,000,000
    Open-Repo Plus                   10-22-1997  Monthly  Variable   1,000,000           -
    Advance                          12-01-1997  Monthly   5.67%     2,000,000           -
    Advance                           5-21-1998  Monthly   5.43%     1,000,000   1,000,000
    Advance                           3-25-2002  Monthly   5.51%     3,000,000           -
    Advance                          11-13-2002  Monthly   6.51%       747,449     781,265
                                                                    ----------  ----------
                                                                    $7,747,449  $4,376,452
                                                                    ==========  ==========
</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.

    The variable interest rate on the Open Repo Plus at June 30, 1997 was 6.26%.

    The  advance  due  November  13,  2002 has a monthly  scheduled  payment  of
    principal  and interest of $6,973 with a balloon  payment due at maturity of
    $524,863 and is subject to prepayment penalties.

    As of June 30,  1997 the Bank had an Open Repo  Plus  line of  credit  and a
    Flexline Line of Credit with the Federal Home Loan Bank as follows:
<TABLE>
<CAPTION>
                                                                Flexline    Open Repo Plus
                                                                --------    --------------

<S>                                                            <C>            <C>        
       Total line of credit                                    $4,757,000     $10,000,000
       Outstanding balance                                              -       1,000,000
                                                               ----------     -----------

          Available line of credit                             $4,757,000     $ 9,000,000
                                                               ==========     ===========
</TABLE>


    Interest  paid on  borrowings  for the year  ending  June 30,  1997 and 1996
    amounted to $398,368 and $173,624.


11. INCOME TAXES

    The provision for income taxes consists of:
<TABLE>
<CAPTION>
                                                                   1997             1996
                                                                 --------         ------
<S>                                                              <C>                     <C>     
    Currently payable:
       Federal                                                   $286,711                $238,049
       State                                                       35,961                  35,744
                                                                 --------                --------
                                                                  322,672                273,793
       Deferred                                                    (2,162)                  2,183
                                                                 --------                --------

               Total                                             $320,510                $275,976
                                                                 ========                ========
</TABLE>

                                      -28-

<PAGE>



11. INCOME TAXES (Continued)

    The  following  temporary  differences  gave rise to deferred  tax asset and
    liabilities at June 30:
<TABLE>
<CAPTION>
                                                                   1997            1996
                                                                 --------        ------
<S>                                                              <C>             <C>     
    Deferred tax assets
       Allowance for loan losses                                 $125,045        $110,494
       Loan origination fees, net                                  45,278          57,466
       Other, net                                                  21,409           8,050
                                                                 --------        --------
          Deferred tax assets                                     191,732         176,010
                                                                 --------        --------

    Deferred tax liabilities
       Premise and equipment depreciation                         199,522         181,629
       Tax reserve for loan losses                                110,162         117,879
                                                                 --------        --------
          Deferred tax liabilities                                309,684         299,508
                                                                 --------        --------

          Net deferred tax liabilities                           $117,952        $123,498
                                                                 ========        ========
</TABLE>

    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.

    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>
                                                            1997               1996
                                                     -----------------  -----------
                                                      Amount   Percent   Amount   Percent
                                                      ------   -------   ------   -------

<S>                                                   <C>        <C>     <C>        <C>  
    Provision at statutory rate                       $295,340   34.0%   $235,736   34.0%
    State income tax expense, net
     of federal tax benefit                             23,734    2.7      23,591    3.4
    Tax exempt interest                                 (8,007)   (.9)     (9,349)  (1.3)
    Other, net                                           9,443    1.1      25,998    3.7
                                                      --------   ----    --------   ----

          Total                                       $320,510   36.9%   $275,976   39.8%
                                                      ========   ====    ========   ====
</TABLE>

12. REGULATORY CAPITAL

    The Bank is subject to various regulatory capital requirements  administered
    by the federal banking agencies. The Office of Thrift Supervision sets forth
    the capital  standards  applicable  to all thrifts.  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 Bank's financial statements.  Capital adequacy
    guidelines involve quantitative  measures of the Bank's assets,  liabilities
    and  certain   off-balance   sheet  items  as  calculated  under  regulatory
    accounting practices. The Bank's capital amounts and classification are also
    subject to qualitative  judgments by the regulators about  components,  risk
    weightings and other factors.


                                      -29-

<PAGE>



12. REGULATORY CAPITAL (Continued)

    Quantitative  measures  established by regulation to ensure capital adequacy
    require 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 30,1997 that the Bank meets all
    capital adequacy requirement to which they are subject.

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

    The following table reconciles capital under generally  accepted  accounting
    principles to regulatory capital:
<TABLE>
<CAPTION>

                                                                            June 30,
                                                                      1997         1996
                                                                      ----         ----

<S>                                                               <C>           <C>       
       Total equity                                               $11,930,958   $6,199,879
       Unrealized loss on securities                                    9,953        9,450
                                                                  -----------   ----------

       Tier I, core, and tangible capital                          11,940,911    6,209,329

       Allowance for loan losses                                      367,779      324,983
                                                                  -----------   ----------

       Risk-based capital                                         $12,308,690   $6,534,312
                                                                  ===========   ==========
</TABLE>


    At June 30, actual  capital levels of the Bank and minimum  required  levels
are as follows:
<TABLE>
<CAPTION>
                                                                 June 30,
                                                                 --------
                                                         1997                   1996
                                                 ---------------------  ------------------
                                                   Amount      Ratio      Amount     Ratio
                                                   ------      -----      ------     -----
<S>                                              <C>            <C>     <C>         <C>   
    Total Capital to Risk-Weighted Assets
    -------------------------------------
       Actual                                    $12,308,690    19.22%  $6,534,312  11.72%
       For Capital Adequacy Purposes               5,122,800     8.00    4,461,440   8.00
       To be "Well Capitalized"                    6,403,500    10.00    5,576,800  10.00

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

       Actual                                    $11,940,911    18.65%  $6,209,329  11.13%
       For Capital Adequacy Purposes               2,561,400     4.00    2,230,720   4.00
       To be "Well Capitalized"                    3,842,100     6.00    3,346,080   6.00


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

       Actual                                    $11,940,911    11.40%  $6,209,329   6.76%
       For Capital Adequacy Purposes               3,141,960     3.00    2,755,440   3.00
       To be "Well Capitalized"                    5,236,600     5.00    4,592,400   5.00

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

       Actual                                    $11,940,911    11.40%  $6,209,329   6.76%
       For Capital Adequacy Purposes               1,570,980     1.50    1,377,720   1.50
       To be "Well Capitalized"                       N/A        N/A        N/A      N/A
</TABLE>

                                      -30-

<PAGE>



12. REGULATORY CAPITAL (Continued)

    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, 1996, 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.


13. RETIREMENT PLAN

    The Bank 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  Bank  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
    Bank's  contributions  for the  benefit of  covered  employees  amounted  to
    $20,111   and   $56,190  for  the  years  ended  June  30,  1997  and  1996,
    respectively.


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 principle  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
    $85,204 for the year ended June 30, 1997.

    The following table represents the components of the ESOP shares at June 30,
1997:

                         Allocated shares                   2,226
                         Shares released for allocation     4,910
                         Shares distributed                     -
                         Unallocated shares                79,620
                                                       ----------
                            Total ESOP shares              86,756
                                                       ==========
                         Fair value of ESOP shares     $1,174,395
                                                       ==========

                                      -31-

<PAGE>



15. 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, 1997 and 1996:
<TABLE>
<CAPTION>

                                                                       1997        1996
                                                                       ----        ----
<S>                                                                 <C>         <C>       
    Commitments to originate loans
       Fixed rate                                                   $  347,670  $1,176,000
       Variable rate                                                $  517,892  $  855,000
    Loans in process                                                $1,760,797  $1,548,953
    Unused lines of credit                                          $4,788,369  $2,046,746
</TABLE>

    The  range of  interest  rates  on  fixed  rate  residential  mortgage  loan
    commitments was 8.0% to 9.25% at June 30, 1997.

    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,  1997 for all  noncancellable
    equipment and land leases follows:

                                Fiscal Year
                              Ending June 30,       Amount
                              ---------------       ------

                                    1998          $   84,015
                                    1999              83,956
                                    2000              66,000
                                    2001              67,800
                                    2002              72,600
                            2003 and thereafter    1,970,900
                                                 ----------
                                                  $2,345,271
                                                  ==========
 
                                      -32-

<PAGE>



15. COMMITMENTS AND CONTINGENT LIABILITIES (Continued)

    Lease Commitments (Continued)
    -----------------------------

    The  Company  entered  into a forty  year land  lease  for their  Follansbee
    branch, commencing January 1, 1996 and a 10 year land lease for their future
    Wintersville,  Ohio branch,  commencing  March 1, 1997.  The Company has two
    five year renewal option periods under both of these leases.

    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.

16. 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 the  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.

17. 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.

                                      -33-

<PAGE>



18. FAIR VALUE DISCLOSURE OF FINANCIAL INSTRUMENTS

    The estimated carrying amounts and fair values at June 30 are as follows:
<TABLE>
<CAPTION>
                                                  1997                      1996
                                        ------------------------  ------------------------
                                                      Estimated                 Estimated
                                          Carrying      Fair        Carrying      Fair
                                           Amount       Value        Amount       Value
<S>                                     <C>          <C>          <C>          <C>        
    Financial assets:
       Cash and cash equivalents        $ 6,792,420  $ 6,792,420  $ 4,016,583  $ 4,016,583
       Securities held to maturity        7,844,305    7,831,187    4,799,596    4,761,709
       Securities available-for-sale         55,051       55,051       68,549       68,549
       Mortgage-backed securities
        held to maturity                    367,553      394,743      536,808      561,203
       Loans receivable                  86,067,848   86,726,000   77,565,831   77,828,000
       Federal Home Loan Bank Stock         576,700      576,700      559,500      559,500
       Accrued interest receivable          655,667      655,667      521,187      521,187
       Loans held for sale                        -            -    1,375,143    1,375,143
                                       ------------ ------------  -----------  -----------
          Total                        $102,359,544 $103,031,768  $89,443,197  $89,691,874
                                       ============ ============  ===========  ===========

    Financial liabilities:
       Deposits                         $80,069,078  $80,091,000  $80,770,646  $80,741,000
       Advances from Federal Home Loan
        Bank                              7,747,449    7,699,000    4,376,452    4,314,000
       Advance payment by borrowers for
        taxes and insurance                 186,738      186,738      182,977      182,977
       Accrued interest payable              36,684       36,684       25,887       25,887
                                       ------------ ------------  -----------  -----------
          Total                        $ 88,039,949 $ 88,013,422  $85,355,962  $85,263,864
                                       ============ ============  ===========  ===========
</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.

                                      -34-

<PAGE>



18. FAIR VALUE DISCLOSURE OF FINANCIAL INSTRUMENTS (Continued)

    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 Due from Banks, Interest-bearing Deposits with Other Institutions,
    ----------------------------------------------------------------------------
    Federal  Home  Loan Bank Stock,  Accrued  Interest  Receivable,  and Accrued
    ----------------------------------------------------------------------------
    Interest Payable
    ----------------

    The fair value is equal to the current carrying value.

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

    The fair value of  securities  held to  maturity  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.

    The fair  value of  securities  available  for sale is equal to the  current
    carrying value.

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

    The fair value of loans,  certificates of deposit, and advances from Federal
    Home Loan Bank is  estimated  by  discounting  the future cash flows using a
    simulation model which estimates  future cash flows and constructs  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 the year end.

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

    The  financial  instruments  are generally not subject to sale and estimated
    fair values are not readily available.  The contractual  amounts of unfunded
    commitments and letters of credit are presented previously in this report.

19. 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, 1997
<TABLE>
<CAPTION>

<S>                                                                            <C>        
    ASSETS
    Deposits with subsidiary bank                                              $ 4,247,712
    Investment in subsidiary bank                                               11,127,999
    Loan receivable from ESOP                                                      796,195
    Other assets                                                                    35,838
                                                                               -----------
       TOTAL ASSETS                                                            $16,207,744
                                                                               ===========

    LIABILITIES AND SHAREHOLDERS' EQUITY
    Other liabilities                                                          $    82,699
    Shareholders' equity                                                        16,125,045
                                                                               -----------
       TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY                              $16,207,744
                                                                                ===========
</TABLE>

                                      -35-

<PAGE>



19. PARENT COMPANY (Continued)

                               CONDENSED STATEMENT OF INCOME
                     FOR THE PERIOD DECEMBER 31, 1996 TO JUNE 30, 1997

<TABLE>
<CAPTION>

    INCOME
    ------

<S>                                                                              <C>     
       Interest income - loans                                                   $ 35,133
                                                                                 --------

    OPERATING EXPENSES                                                             67,686
    ------------------                                                           --------

       Loss before equity in undistributed earnings of subsidiary                 (32,553)
       Equity in undistributed earnings of subsidiary                             511,217
                                                                                --------
       Income before income taxes                                                 478,664
       Income tax benefit                                                          13,998
                                                                                 --------
          NET INCOME                                                             $492,662
                                                                                 ========

</TABLE>


                             CONDENSED STATEMENT OF CASH FLOWS
                     FOR THE PERIOD DECEMBER 31, 1996 TO JUNE 30, 1997
<TABLE>
<CAPTION>

<S>                                                                            <C>       
    OPERATING ACTIVITIES
    --------------------
       Net income                                                              $  492,662
       Adjustments to reconcile net income to net cash
        provided by operating activities
          Undistributed net income of subsidiary                                  (511,217)
          Increase in other assets                                                 (32,452)
          Increase in other liabilities                                             16,724
                                                                                ----------
               Net cash provided by operating activities                           (34,283)
                                                                                ----------

    INVESTING ACTIVITIES
       ESOP loan repayments                                                        71,365
               Net cash used in investing activities                               71,365

    FINANCING ACTIVITIES
       Net proceeds from sales of common stock                                  4,290,445
       Dividends paid                                                             (79,815)
                                                                                --------
          Net cash provided by financing activities                             4,210,630
                                                                               ----------

          Increase in cash and cash equivalents                                 4,247,712

    CASH AND CASH EQUIVALENTS - BEGINNING OF PERIOD                                     -
                                                                               ----------

    CASH AND CASH EQUIVALENTS - END OF PERIOD                                  $4,247,712
                                                                               ==========
</TABLE>

                                      -36-