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                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549


                                    FORM 10-K

[ X ]    ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
         EXCHANGE ACT OF 1934 [FEE REQUIRED]

                  For the fiscal year ended September 30, 1998

                                       OR



[   ]    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
         SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]

          For the transition period from __________ to _______________

                          Commission File No.: 0-20907

                              Kenwood Bancorp, Inc.
             (Exact name of registrant as specified in its charter)


                Delaware                                         31-1457996
      (State or other jurisdiction                            (I.R.S. Employer
    of incorporation or organization)                     Identification Number)

          7711 Montgomery Road
             Cincinnati, Ohio                                      45236
(Address of principal executive offices)                         (Zip code)


       Registrant's telephone number, including area code: (513) 791-2834

   Securities registered pursuant to Section 12(b) of the Act: Not Applicable

           Securities registered pursuant to Section 12(g) of the Act

                     Common Stock (par value $.01 per share)
                                (Title of Class)
<PAGE>
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the  preceding 12 months (or for such  shorter  period that the  Registrant  was
required  to file  such  reports),  and  (2) has  been  subject  to such  filing
requirements for the past 90 days. Yes [ X ]   No [   ]

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

Based upon the $14.375  closing  price of the  Registrant's  common  stock as of
December  21, 1998,  the  aggregate  market  value of the 225,836  shares of the
Registrant's  common stock deemed to be held by non-affiliates of the Registrant
was approximately $3.2 million. Although directors and executive officers of the
Registrant  and  certain  of its  employee  benefit  plans  were  assumed  to be
"affiliates"   of  the  Registrant  for  purposes  of  this   calculation,   the
classification is not to be interpreted as an admission of such status.

Number of shares of Common Stock outstanding as of December 21, 1998: 295,133

                       DOCUMENTS INCORPORATED BY REFERENCE

                  List  hereunder  the  following   documents   incorporated  by
reference and the Part of the Form 10-K into which the document is incorporated.

(1) Portions of the Annual Report to  Stockholders  for the year ended September
30, 1998 are incorporated into Part II, Items 5 through 8 of this Form 10-K.

(2) Portions of the  definitive  proxy  statement for the 1998 Annual Meeting of
Stockholders  are  incorporated  into Part III,  Items 9 through 13 of this Form
10-K.
<PAGE>
PART I.

Item 1.  Business.

General

                  On June 28, 1996,  Kenwood  Savings  Bank,  an  Ohio-chartered
stock  savings  institution  ("Kenwood"  or the "Savings  Bank")  completed  its
reorganization from the mutual holding company form of organization to the stock
holding  company  form  of  organization.  Pursuant  to the  terms  of a Plan of
Conversion  and  Agreement  and Plan of  Reorganization  adopted by Kenwood  and
Kenwood Federal Mutual Holding  Company,  a federally  chartered  mutual holding
company  (the  "Mutual  Holding  Company"),  (i)  Kenwood  incorporated  Kenwood
Bancorp,  Inc. (the "Company") as a wholly owned subsidiary of Kenwood, (ii) the
Mutual Holding Company converted to an interim federal stock savings institution
and  simultaneously  merged with and into Kenwood,  pursuant to which the Mutual
Holding  Company  ceased to exist and the shares of common stock of Kenwood held
by the Mutual Holding Company were cancelled,  and (iii) an interim  institution
("Interim") formed as a wholly owned subsidiary of the Company,  merged with and
into  Kenwood.  As a result of the  merger  of  Interim  with and into  Kenwood,
Kenwood  became a wholly  owned  subsidiary  of the Company and the  outstanding
shares of common stock of Kenwood  (other than those held by the Mutual  Holding
Company) were  converted  pursuant to a specified  exchange ratio into shares of
common stock of the Company (collectively, the "Conversion and Reorganization").
In connection with the foregoing,  Kenwood amended its articles of incorporation
to change its corporate  title from "Kenwood  Savings and Loan  Association"  to
"Kenwood  Savings Bank" and the Company also offered and sold additional  shares
of its common stock to certain  depositors and employee benefit plans of Kenwood
(the "Offering").

                  As a result of the Conversion and Reorganization,  the Company
became the unitary  holding  company of the Savings Bank.  The only  significant
assets of the Company are the capital stock of the Savings  Bank,  the Company's
loan to the  Company's  Employee  Stock  Ownership  Plan (the  "ESOP"),  and the
portion of the net  proceeds  retained  by the  Company in  connection  with the
Conversion  and  Reorganization.  The  business  and  management  of the Company
consists of the business and  management  of the Savings  Bank. At September 30,
1998,  the Company had $48.9  million of total  assets,  $44.3  million of total
liabilities,  including  $41.4  million of  deposits,  and $4.6 million of total
stockholders' equity.

                  Kenwood is an  Ohio-chartered  stock savings  institution that
conducts business from one full-service  office and one loan origination office,
both of which are located in the Cincinnati, Ohio metropolitan area. The Savings
Bank originally was established in 1892 as an Ohio-chartered, mutual deposit and
loan company known as "The Kenwood  Savings and Loan  Association"  (the "Mutual
Association").  In November 1992, the Mutual  Association  reorganized  into the
mutual holding company form of organization (the "MHC Reorganization").


                                                        -1-
<PAGE>
                  The Savings Bank  primarily is engaged in attracting  deposits
from the general public  through its office and using those and other  available
sources of funds to originate loans secured by single-family  residences located
primarily in southwestern Ohio. Such loans amounted to $34.6 million,  or 88.2%,
of the Savings  Bank's total loan  portfolio at  September  30, 1998.  To a much
lesser  extent,  the Savings Bank  originates  consumer  and other loans,  which
amounted to $1.7 million,  or 4.4%, of the total loan portfolio at September 30,
1998,  as well  as  loans  secured  by  existing  multi-family  residential  and
nonresidential  real  estate,  which  amounted  to $1.3  million,  or 3.3%,  and
$221,000,  or .5%,  respectively,  of the total loan portfolio at such date. The
Savings  Bank also  invests  in  interest-bearing  deposits  in other  financial
institutions  (including  certificates of deposit),  U.S. Government and federal
agency obligations and mortgage-backed securities that are insured or guaranteed
by federal agencies.

                  The Company, as a registered savings and loan holding company,
is subject to  examination  and  regulation by the Ohio  Department of Commerce,
Division of Financial  Institutions (the "Division") and by the Office of Thrift
Supervision  ("OTS") and is subject to various reporting and other  requirements
of the  Securities  and  Exchange  Commission  ("SEC").  Kenwood  is  subject to
examination  and  comprehensive  regulation by the Division,  which is Kenwood's
chartering  authority  and  primary  regulator,  by the OTS,  Kenwood's  primary
federal regulator,  and by the Federal Deposit Insurance  Corporation  ("FDIC"),
which as  administrator  of the  Savings  Association  Insurance  Fund  ("SAIF")
insures Kenwood's deposits up to applicable  limits.  Kenwood also is subject to
certain  reserve  requirements  established  by the  Board of  Governors  of the
Federal  Reserve  System (the  "Federal  Reserve  Board") and is a member of the
Federal Home Loan Bank ("FHLB") of  Cincinnati,  which is one of the 12 regional
banks comprising of FHLB System.

Lending Activities

                  General.  At  September  30,  1998,  the  Company's  net  loan
portfolio  (including  loans held for sale) totaled $38.4 million,  representing
approximately 78.6% of the Company's $48.9 million of total assets at that date.
The  principal  lending  activity  of the  Savings  Bank is the  origination  of
one-to-four family residential loans and, to a much lesser extent,  consumer and
other loans, as well as multi-family  residential and nonresidential real estate
loans and construction loans.

                  As an Ohio-chartered savings institution, the Savings Bank has
general authority to originate and purchase loans secured by real estate located
throughout the United States. Notwithstanding this nationwide lending authority,
substantially  all of the mortgage  loans in the Savings  Bank's  portfolio  are
secured by properties  located in the Savings Bank's market area in southwestern
Ohio.

                  Although the Savings Bank  historically  originated loans with
lesser dollar balances than was permitted by federal  regulations,  loans-to-one
borrower  limitations  may  restrict  its  ability to do business  with  certain
customers.  See "Regulation - The Savings Bank - Federal  Regulation." A savings
association generally may not make loans to one borrower and related entities in
an amount  that  exceeds  the greater of  $500,000,  or 15%,  of its  unimpaired
capital and surplus,  although  loans in an amount equal to an additional 10% of
unimpaired capital and surplus may be made to a

                                                        -2-
<PAGE>
borrower if the loans are fully  secured by readily  marketable  securities.  At
September  30,  1998,  the Savings  Bank's  limit on  loans-to-one  borrower was
$500,000  and its  five  largest  loans  or  groups  of  loans-to-one  borrower,
including related entities,  aggregated $605,600,  $590,000, $507,000, $466,300,
and  $370,000.  Each of these loans is secured  primarily  by  residential  real
estate located in Hamilton  County,  Ohio.  Each of these loans is performing in
accordance with its terms at September 30, 1998.

                  Loan Portfolio Composition. The following table sets forth the
composition  of the Savings  Bank's loan  portfolio by type of loan at the dates
indicated.
<TABLE>
<CAPTION>
                                                                                     September 30,
                                                ------------------------------------------------------------------------------------
                                                            1998                         1997                          1996         
                                                ------------------------     ------------------------      -------------------------
                                                     Amount         %           Amount          %           Amount            % 
                                                --------------   -------    --------------    ------      ---------------    -------
                                                                               (Dollars in Thousands)
<S>                                                  <C>         <C>              <C>          <C>              <C>          <C>   
One-to-four family residential(1)                   $34,613       88.2%          $35,290        92.9%           $37,699       94.6%
Multi-family residential                              1,302        3.3               558         1.5               126         0.3
Nonresidential real estate                              221        0.5               336         0.9               142         0.4
Construction                                          1,403        3.6               534         1.4             1,016         2.5
                                                     ------      -----            ------       -----            ------       ----- 
                  Total real estate loans            37,539       95.6            36,718        96.7            38,983        97.8
                                                                               
Consumer and other loans:                                                      
  Home equity lines of credit                         1,275        3.3             1,226         3.2               817         2.1
  Deposit secured                                        90        0.2                24         0.1                41         0.1
  Other(2)                                              352        0.9                 2          --                 2          --
                                                     ------      -----            ------       -----            ------       ----- 
                  Total consumer and other loans      1,717        4.4             1,252         3.3               860         2.2
                                                     ------      -----            ------       -----            ------       ----- 
                  Total loans                        39,256      100.0%           37,970       100.0%           39,843       100.0%
                                                     ------      -----            ------       -----            ------       ----- 
                                                                               
Less (add):                                                                    
  Undisbursed portion of loans-in-                                             
    process                                             838                          212                           502
  Deferred loan origination costs                       (77)                         (82)                          (85)
  Allowance for loan losses                              95                           95                            95
                                                     ------                       ------                        ------             
                                                        856                          225                           512
                                                     ------                       ------                        ------             
                  Net loans                         $38,400                      $37,745                       $39,331
                                                    =======                      =======                       =======
</TABLE>

------------------
(1)      Included  $2.2  million,   $1.5  million  and  $9.3  million  of  loans
         designated  as held for sale at  September  30,  1998,  1997 and  1996,
         respectively.

(2)      Consists of secured commercial business loans.

                                       -3-
<PAGE>
                  Contractual  Principal  Repayments  and  Interest  Rates.  The
following  table sets forth certain  information at September 30, 1998 regarding
the dollar amount of loans  maturing in the Savings Bank's  portfolio,  based on
the  contractual  terms to maturity,  before giving effect to net items.  Demand
loans and loans having no stated  schedule of repayments and no stated  maturity
are reported as due in one year or less.
<TABLE>
<CAPTION>
                                                                                         Due 3-5           Due 5-10   
                                                                                       years after       years after  
                                        1999             2000             2001          09/30/98           09/30/98   
                                   -------------    -------------   -------------    -------------    ----------------
                                                                    (In Thousands)
<S>                                    <C>                <C>              <C>           <C>                 <C>      
One-to-four family residential         $1,612             $633             $641          $3,266              $4,081   
Multi-family residential and
  nonresidential real estate               --               18               --              96                 157   
Construction                              746               --               --              --                  --   
Consumer and other                        440               --               --               2                  --   
                                       ------             ----             ----          ------              ------   
     Total                             $2,798             $651             $641          $3,364              $4,238   
                                       ======             ====             ====          ======              ======   
<CAPTION>
                                       Due 10-20           Due 20
                                      years after        years after
                                        09/30/98          09/30/98           Total
                                   ----------------   --------------    -------------
                                                (In Thousands)
<S>                                       <C>              <C>             <C>    
One-to-four family residential            $5,691           $19,964         $35,888
Multi-family residential and
  nonresidential real estate                 349               903           1,523
Construction                                  --               657           1,403
Consumer and other                            --                --             442
                                          ------           -------         -------
     Total                                $6,040           $21,524         $39,256
                                          ======           =======         =======

</TABLE>

                                       -4-
<PAGE>
         The following  table sets forth the dollar amount of all loans,  before
net items,  due after one year from  September 30, 1998 that have fixed interest
rates or that have floating or adjustable interest rates.
<TABLE>
<CAPTION>
                                                                 Floating
                                           Fixed                    or
                                           Rates             Adjustable Rates             Total
                                   -----------------    -----------------------    -----------------
                                                              (In Thousands)

<S>                                     <C>                        <C>                  <C>    
Single-family residential               $19,012                    $15,264              $34,276
Multi-family residential and
  nonresidential real estate                125                      1,398                1,523
Construction                                 --                        657                  657
Consumer and other                           --                          2                    2
                                        -------                    -------              -------
     Total                              $19,137                    $17,321              $36,458
                                        =======                    =======              =======
</TABLE>

         Scheduled contractual amortization of loans does not reflect the actual
term of the  Savings  Bank's  loan  portfolio.  The  average  life of  loans  is
substantially  less than their  contractual  terms  because of  prepayments  and
due-on-sale  clauses,  which  give the  Savings  Bank the  right  to  declare  a
conventional loan immediately due and payable in the event,  among other things,
that the borrower  sells the real property  subject to the mortgage and the loan
is not repaid. The average life of mortgage loans tends to increase when current
mortgage  loan rates are  substantially  higher than rates on existing  mortgage
loans  and,   conversely,   decrease  when  rates  on  existing   mortgages  are
substantially  lower than current  mortgage loan rates (due to  refinancings  of
adjustable-rate  and  fixed-rate  loans  at  lower  rates).   Under  the  latter
circumstances,  the weighted average yield on loans decreases as higher yielding
loans are repaid or refinanced at lower rates.

         Origination,  Purchase and Sale of Loans. The lending activities of the
Savings  Bank  are  subject  to the  written,  non-discriminatory,  underwriting
standards and loan  origination  procedures  established  by the Savings  Bank's
Board of Directors and management.  Loan  originations are obtained by a variety
of sources, including referrals from real estate brokers, developers,  builders,
existing  customers,   newspaper,  radio,  periodical  advertising  and  walk-in
customers.  Loan  applications  are  taken by  lending  personnel,  and the loan
department  supervises  the obtainment of credit  reports,  appraisals and other
documentation  involved with a loan. Property valuations generally are performed
by  independent  outside  appraisers  approved  by the Savings  Bank's  Board of
Directors. Title and hazard insurance are required on all security property.

         The  Savings  Bank's  loan  approval  process is intended to assess the
borrower's ability to repay the loan, the viability of the loan and the adequacy
of the value of the property that will secure the loan. A loan application first
is reviewed  by the  Savings  Bank's  loan  officer  and then is  submitted  for
approval to the Loan Committee of the Board of Directors. In addition, Thomas W.
Burns,  Executive Vice President and Chief Executive  Officer,  has been granted
loan approval authority by

                                                        -5-

<PAGE>
the Board of Directors for  single-family  residential  first  mortgage loans of
$75,000 and less and with loan-to-value ratios of 90% and less.

         In March 1995,  the Savings  Bank opened a loan  origination  office in
Cincinnati,  Ohio and the Savings Bank currently  performs its loan origination,
processing and underwriting  out of such office.  The Savings Bank currently has
four loan originators  working out of such office who are compensated in part on
a commission basis and provide  convenient  origination  services during banking
and non-banking hours.

         Historically,  the Savings Bank has originated substantially all of the
loans in its  portfolio  and has held them until  maturity.  Since  fiscal 1991,
however, the Savings Bank has sold fixed-rate single-family residential loans to
the Federal Home Loan Mortgage Corporation  ("FHLMC") and other investors in the
secondary  market  as a  means  of  minimizing  interest  rate  risk  as well as
generating additional funds for lending and other purposes.  Beginning in fiscal
1992, the Savings Bank has designated substantially all fixed-rate single-family
residential  loans with terms to maturity of greater  than ten years as held for
sale and has retained in its portfolio all fixed-rate single-family  residential
loans  with  terms to  maturity  of ten  years  or less and all  adjustable-rate
single-family  residential loans  originated.  At September 30, 1998, there were
$2.2  million  of  loans  designated  as held for  sale.  Sales of loans to date
generally  have been under terms that do not provide any recourse to the Savings
Bank by the purchaser in the event of default on the loan by the borrower.

         With respect to the Savings  Bank's loan sales to investors  other than
the FHLMC,  the Savings Bank generally sells such loans  servicing  released and
recognizes  current income from receipt of servicing  release fees. With respect
to the  Savings  Bank's  loan sales to the FHLMC,  the  Savings  Bank  generally
continues  to collect  payments on such loans as they become due, to inspect the
security  property,  to make  certain  insurance  and tax  advances on behalf of
borrowers  and to  otherwise  service  such loans.  The Savings  Bank  records a
premium or discount,  as adjusted for a normal servicing fee, when it realizes a
gain or loss from the sale of loans,  respectively.  The Savings Bank  amortizes
such  premiums and  discounts  over the  estimated  lives of the loans using the
level yield  method,  and  recognizes  the  servicing  fee when the related loan
payments are  received.  At September  30, 1998,  the Savings Bank was servicing
$12.6 million of loans for others.

         Historically,  the  Savings  Bank has not been an active  purchaser  of
loans.  At September 30, 1998,  loans  purchased and serviced by others  totaled
$166,000.

                                                        -6-
<PAGE>
         The following table shows total loans originated,  purchased,  sold and
repaid during the periods indicated.
<TABLE>
<CAPTION>
                                                                 Year Ended September 30,
                                                ------------------------------------------------------
                                                       1998                1997                 1996
                                                ----------------    ----------------     ----------------
                                                                      (In Thousands)
<S>                                                  <C>                <C>                  <C>    
Loan originations:
  One-to-four family residential
   and construction(1)                               $50,991             $20,491             $24,801
  Multi-family residential                               777                 496                  --
  Nonresidential real estate                              --                 197                  --
  Commercial                                             350                  --                  --
  Consumer and other                                   1,039               1,093                 773
                                                     -------            -------              -------
         Total loans originated                       53,157              22,277              25,574
Purchases                                                  -                 168                  --
                                                     -------            -------              -------
         Total loans originated and
                   purchased                          53,157              22,445              25,574


Sales and loan principal reductions:
  Loans sold                                          41,177              17,681              12,595
  Loan principal reductions                           11,319               6,347               6,445
                                                     -------            -------              -------
         Total loans sold and
           principal reductions                       52,496              24,028              19,040

Increase (decrease) due to other net items               (6)                 (3)                  25
                                                     -------            -------              -------

Net increase (decrease) in loan portfolio            $   655            $(1,586)             $ 6,559
                                                     =======            =======              =======
</TABLE>
-----------------
(1)      Includes loans designated as held for sale during the periods.

         Single-Family  Residential  Loans.  The primary lending activity of the
Savings Bank is the  origination  of loans  secured by first  mortgage  liens on
single-family  residences  (one-to-four  units).  At September  30, 1998,  $34.6
million,  or 88.2%, of the Savings Bank's total loan portfolio  (including loans
held for sale), before net items, consisted of single-family residential loans.

         The Savings  Bank's  single-family  residential  loans  consist only of
conventional  loans  (loans  that are  neither  insured by the  Federal  Housing
Administration nor partially  guaranteed by the Department of Veterans Affairs).
Although a majority of the Savings Bank's loans consist of  conventional  loans,
the Savings Bank has  increased its  origination  of  non-conventional  mortgage
loans. The Savings Bank also has increased its origination of non-owner occupied
single-family residential loans.

         The  loan-to-value  ratio,  maturity and other  provisions of the loans
made by the Savings Bank generally have reflected the policy of making less than
the maximum loan permissible  under applicable  regulations,  in accordance with
sound  lending   practices,   market   conditions  and  underwriting   standards
established by the Savings Bank. The Savings Bank's lending policies on

                                                        -7-
<PAGE>
single-family   residential   mortgage  loans   generally   limits  the  maximum
loan-to-value  ratio to 95% of the  lesser of the  appraised  value or  purchase
price of the property  and  generally  all  single-family  residential  loans in
excess of an 80% loan-to-value ratio require private mortgage insurance.

         The Savings Bank offers fixed-rate single-family residential loans with
terms of five to 30 years.  Such  loans are  amortized  on a monthly  basis with
principal  and interest  due each month and  customarily  include  "due-on-sale"
clauses,  which are  provisions  giving the Savings  Bank the right to declare a
loan  immediately  due and payable in the event the borrower  sells or otherwise
disposes  of the  real  property  subject  to the  mortgage  and the loan is not
repaid.  The Savings Bank enforces  due-on-sale  clauses to the extent permitted
under applicable laws.  Currently,  substantially  all fixed-rate  single-family
residential loans with terms to maturity of greater than ten years originated by
the Savings Bank are designated as held for sale and sold to the FHLMC and other
investors in the secondary market as market conditions permit.

         Since 1983, the Savings Bank has been offering adjustable-rate loans in
order to decrease the  vulnerability  of its  operations  to changes in interest
rates.  At September 30, 1998,  $15.9 million,  or 48.2%,  of the  single-family
residential   loans  in  the  Savings   Bank's  loan   portfolio   consisted  of
adjustable-rate loans.

         The Savings Bank's single-family residential  adjustable-rate loans are
fully amortizing loans with contractual  maturities of up to 30 years. The loans
currently  being  originated  by the Savings Bank have  interest  rates that are
scheduled  to adjust  every one or three years in  accordance  with a designated
index (the  weekly  average  yield on U.S.  Treasury  securities  adjusted  to a
constant comparable  maturity,  as made available by the Federal Reserve Board).
There is a 2% cap on the rate adjustment per period and a 6% cap rate adjustment
over the life of the loan. The Savings Bank's  adjustable-rate  loans  currently
being originated are not convertible  into fixed-rate  loans, are not assumable,
do not contain  prepayment  penalties and do not produce negative  amortization.
The Savings Bank generally offers discounts with respect to the interest rate on
its  adjustable-rate  loans  during  the  first  year of the  mortgage  loan for
competitive reasons.

         The demand for  adjustable-rate  loans in the  Savings  Bank's  primary
market  area has been a function  of  several  factors,  including  the level of
interest rates,  the  expectations of changes in the level of interest rates and
the  difference  between the interest rates and loan fees offered for fixed-rate
loans  and  adjustable-rate   loans.  The  relative  amount  of  fixed-rate  and
adjustable-rate  residential  loans  that  can  be  originated  at any  time  is
determined largely by the demand for each in a competitive  environment.  Due to
the generally lower rates of interest prevailing in recent periods,  the Savings
Bank's  originations  of  adjustable-rate   loans  have  decreased  as  consumer
preference for fixed-rate loans has increased.

         Adjustable-rate  loans  decrease the risks  associated  with changes in
interest  rates but involve  other risks,  primarily  because as interest  rates
rise, the payment by the borrower rises to the extent  permitted by the terms of
the loan,  thereby  increasing the potential for default.  At the same time, the
marketability  of the  underlying  property may be adversely  affected by higher
interest rates. The

                                                        -8-
<PAGE>
Savings Bank  believes that these risks,  which have not had a material  adverse
effect on the Savings Bank to date, generally are less than the risks associated
with holding fixed-rate loans in an increasing interest rate environment.

         Consumer and Other Loans.  At  September  30, 1998,  consumer and other
loans  totalled $1.7 million,  or 4.4%, of the total loan  portfolio  (including
loans held for sale),  before net items, and consisted  primarily of home equity
lines of credit,  which amounted to $1.3 million, or 3.3%, of the Savings Bank's
consumer  and other loan  portfolio  (before  net items).  Home equity  lines of
credit are  originated by the Savings Bank for up to 80% of the appraised  value
(90% if the  Savings  Bank  holds the first  mortgage),  less the  amount of any
existing prior liens on the property. Home equity lines of credit have a maximum
term of  five  years  and  interest  rates  that  adjust  in  accordance  with a
designated  prime rate. The Savings Bank will secure the loan with a mortgage on
the property  (generally a second  mortgage) and will originate the loan even if
another institution holds the first mortgage.

         Consumer and other loans also included at September  30, 1998,  $90,000
of loans secured by customer deposits and $352,000 of commercial business loans.
Except for home equity lines of credit,  the Savings Bank does not emphasize the
origination  of consumer or commercial  business loans and does not expect to do
so in the future.

         Multi-Family  Residential,  Nonresidential Real Estate and Construction
Loans.  At September 30, 1998, $1.3 million,  or 3.3%, and $221,000,  or .5%, of
the Savings Bank's total loan portfolio  (including loans held for sale), before
net items,  consisted of loans secured by existing multi-family  residential and
nonresidential  real  estate,  respectively.  The  Savings  Bank's  multi-family
residential (five units or more) and nonresidential  real estate, loan portfolio
includes,  for the most part, six loans secured primarily by apartment buildings
and small office  buildings  located within the Savings  Bank's primary  lending
area.

         Multi-family  residential  and  nonresidential  real estate  loans have
terms that range up to 25 years.  Although some of the multi-family  residential
and nonresidential  real estate loans that were originated in prior periods have
fixed rates,  interest rates on originations in recent years generally adjust at
a  one-year  interval  in  accordance  with  a  designated  index.  The  maximum
adjustment  in any one period is 3% with a 6% cap over the life of the loan.  At
September 30, 1998, $1.4 million, or 91.8%, of the multi-family  residential and
nonresidential real estate loan portfolio consisted of adjustable-rate loans.

         Multi-family residential and nonresidential real estate loans generally
are made in amounts up to 75% of the appraised  value of the security  property.
All appraisals generally are performed by an independent appraiser designated by
the Savings Bank and are reviewed by  management.  In  originating  multi-family
residential and nonresidential real estate loans, the Savings Bank considers the
quality of the property,  the credit of the borrower,  cash flow of the project,
location  of the real  estate and the quality of  management  involved  with the
property.


                                                        -9-
<PAGE>
         The  Savings  Bank  makes  construction  loans to  individuals  for the
construction  of their  residences  and to  borrowers  for the  construction  of
multi-family  residential and nonresidential real estate. At September 30, 1998,
construction  loans amounted to $1.4 million or 3.6% of the Savings Bank's total
loan  portfolio  (including  loans  held for sale),  before  net items.  Of this
amount,  $1.4 million  consisted of loans for the  construction of single-family
residences.  The Savings Bank had no loans for the  construction of multi-family
residential and nonresidential real estate at September 30, 1998.

         Construction lending generally is limited to the Savings Bank's primary
lending  area  together  with  contiguous   counties.   Construction  loans  are
structured  to be converted to  permanent  loans at the end of the  construction
phase,  which  typically is 12 months.  Construction  loans have rates and terms
that  generally  match the  non-construction  loans then  offered by the Savings
Bank, except that during the construction  phase the borrower only pays interest
on the loan.  Construction  loans are underwritten  pursuant to the same general
guidelines used for originating permanent loans.

         Multi-family   residential  and  nonresidential   real  estate  lending
generally is considered  to involve a higher  degree of risk than  single-family
residential  lending.  Such  lending  typically  involves  large  loan  balances
concentrated in a single borrower or groups of related  borrowers.  In addition,
the payment experience on loans secured by income-producing properties typically
depends on the successful  operation of the related real estate project and thus
may be subject  to a greater  extent to adverse  conditions  in the real  estate
market or in the economy  generally.  The  Savings  Bank  generally  attempts to
mitigate the risks associated with multi-family  residential and  nonresidential
real estate lending by, among other things, lending primarily in its market area
and using low loan-to-value ratios in the underwriting process.

         Loan  Origination  and Other Fees.  In  addition to interest  earned on
loans,  the Savings Bank often  receives loan  origination  fees or "points" for
originating  loans.  Loan points are a percentage of the principal amount of the
mortgage loan and are charged to the borrower in connection with the origination
of the loan.

         In accordance with Statement of Financial Accounting Standards ("SFAS")
No. 91 issued by the Financial Accounting Standards Board ("FASB"),  which deals
with  the  accounting  for   non-refundable   fees  and  costs  associated  with
originating or acquiring  loans,  the Savings Bank's loan  origination  fees and
certain related direct loan origination costs are offset,  and the resulting net
amount is deferred and amortized as interest income over the contractual life of
the related loans as an adjustment to the yield of such loans.  At September 30,
1998,  the Savings Bank had $77,000 of loan costs that had been  deferred and is
being  recognized  into income over the  contractual  maturities  of the related
loans.

Asset Quality

         Delinquent Loans. The following table sets forth information concerning
delinquent  loans at September 30, 1998, in dollar amount and as a percentage of
the Savings Bank's total loan

                                                       -10-
<PAGE>
portfolio  (including loans held for sale). The amounts presented  represent the
total  outstanding  principal  balances  of the related  loans,  rather than the
actual payment amounts that are past due.
<TABLE>
<CAPTION>
                                                                     Total
                                                  ---------------------------------------
                                                       Amount              Percentage
                                                  -------------    ----------------------
                                                            (Dollars in Thousands)
<S>                                                  <C>                     <C> 
Loans delinquent for:
  30 - 59 days                                       $1,079                  2.7%
  60 - 89 days                                          306                    .8
  90 days and over                                       --                    --
                                                     ------                  --- 
Total delinquent loans(1)                            $1,385                  3.5%
                                                     ======                  === 
</TABLE>
---------------
(1)      Consisted entirely of single-family residential loans.


         Non-Performing Assets. When a borrower fails to make a required payment
on a loan,  the Savings Bank attempts to cure the  deficiency by contacting  the
borrower  and  seeking  payment.  Contacts  generally  are  made  following  the
fifteenth  day after a payment is due.  In most  cases,  deficiencies  are cured
promptly.  If a delinquency extends beyond 15 days, the loan and payment history
is reviewed and efforts are made to collect the loan.  Although the Savings Bank
generally  prefers to work with  borrowers  to resolve  such  problems,  when an
account becomes 90 days delinquent,  the Savings Bank does institute foreclosure
or other proceedings, as necessary, in order to minimize any potential loss.

         All  loans  are  reviewed  on a  regular  basis  and  are  placed  on a
non-accrual  status  when,  in the  opinion of  management,  the  collection  of
additional  interest is deemed  insufficient  to warrant further  accrual.  As a
matter of policy,  the Savings  Bank does not accrue  interest on loans that are
past due 90 days or more except when the estimated  value of the  collateral and
collection  efforts  are deemed  sufficient  to ensure full  recovery.  Interest
accrued and unpaid at the time a loan is placed on non-accrual status is charged
against  interest  income.   Subsequent  payments  either  are  applied  to  the
outstanding  principal balance or recorded as interest income,  depending on the
assessment of the ultimate collectibility of the loan.

         Real  estate  acquired  by  the  Savings  Bank  by  foreclosure  or  by
deed-in-lieu  of  foreclosure is classified as real estate owned until such time
as it is sold.  Real  estate  owned is carried at the lower of fair value  minus
estimated costs to sell the property, or cost (generally the balance of the loan
on the property at the date of acquisition).  After the date of acquisition, all
costs incurred in  maintaining  the property are expensed and costs incurred for
the improvement or development of such property are capitalized up to the extent
of fair value.

                                                       -11-
<PAGE>
         The  following  table  sets forth the  amounts  and  categories  of the
Savings Bank's  non-performing  assets at the dates indicated.  The Savings Bank
did not have any troubled debt restructurings at any of the dates presented.
<TABLE>
<CAPTION>
                                                                          September 30,
                                                  ----------------------------------------------------------
                                                         1998                 1997                 1996
                                                  ----------------    ------------------    ----------------
                                                                     (Dollars in Thousands)
<S>                                                    <C>                    <C>                <C>  
Non-accruing loans(1)                                  $  --                  $187               $  --
Accruing loans greater than
 90 days delinquent(1)                                    --                    --                  --
Real estate owned                                         --                    --                  --
                                                       ------                 ----               ------
  Total non-performing assets                          $  --                  $187               $  --
                                                       ======                 ====               ======
  Total non-performing loans as
   a percentage of total loans                           --%                  .50%                 --%
                                                       ======                 ====               ======
  Total non-performing assets as
     a percentage of total assets                        --%                  .40%                 --%
                                                       ======                 ====               ======
</TABLE>
--------------
(1)      Consisted solely of single-family residential loans.


         The  interest  income  that would have been  recorded  during the years
ended  September 30, 1998,  1997 and 1996 if the Savings  Bank's  non-performing
loans at the end of such periods had been current in accordance with their terms
during such periods was $0, $7,000 and $0, respectively.

         Classified  Assets.  Federal  regulations  require  that  each  insured
savings  association  classify its assets on a regular  basis.  In addition,  in
connection with  examinations of insured  institutions,  federal  examiners have
authority to identify "problem" assets and, if appropriate, classify them. There
are three  classifications  for problem  assets:  "substandard,"  "doubtful" and
"loss."  Substandard  assets  have  one  or  more  defined  weaknesses  and  are
characterized  by the distinct  possibility  that the insured  institution  will
sustain some loss if the  deficiencies  are not corrected.  Doubtful assets have
the weaknesses of substandard assets with the additional characteristic that the
weaknesses  make  collection  or  liquidation  in full on the basis of currently
existing  facts,  conditions  and  values  questionable,  and  there  is a  high
possibility of loss. An asset  classified as a loss is considered  uncollectible
and of such little value that its  continuance as an asset of the institution is
not  warranted.  Another  category  designated  "special  mention"  also must be
established  and maintained  for assets that do not currently  expose an insured
institution  to a  sufficient  degree  of  risk  to  warrant  classification  as
substandard,  doubtful or loss.  Assets  classified as  substandard  or doubtful
require the institution to establish  general  allowances for loan losses. If an
asset or portion thereof is classified as a loss, the insured  institution  must
either  establish  specific  allowances for loan losses in the amount of 100% of
the portion of the asset classified loss, or charge-off such amount. General

                                                       -12-

<PAGE>
loss  allowances   established  to  cover  possible  losses  related  to  assets
classified  as  substandard  or  doubtful  may be  included  in  determining  an
institution's  regulatory capital,  while specific valuation allowances for loan
losses do not qualify as regulatory capital. Federal examiners may disagree with
an insured institution's  classifications and amounts reserved.  For information
concerning  an OTS  proposal  that  would  revise  the  amount of  general  loss
allowances  required  with  respect  to  classified  and  other  assets,  see "-
Allowance  for Loan  Losses." At  September  30,  1998,  the Savings Bank had no
classified assets.

         Allowance for Loan Losses.  The Savings Bank maintains an allowance for
estimated losses on loans based upon an assessment of prior loss experience, the
volume and type of lending  conducted by the Savings Bank,  industry  standards,
past due loans,  general  economic  conditions and other factors  related to the
collectibility of the loan portfolio.  Although management believes that it uses
the best information  available to make such determinations,  future adjustments
to the  allowance  may be  necessary,  and net  income  could  be  significantly
affected,  if circumstances  differ  substantially  from the assumptions used in
making the initial determinations.

         At September  30, 1998,  the Savings  Bank's  allowance for loan losses
amounted  to $95,000,  all of which was  classified  as general  pursuant to OTS
regulations  and,  as a result,  was  includable  as a component  of  regulatory
risk-based capital.

                                                       -13-

<PAGE>
         The  following  table  sets forth an  analysis  of the  Savings  Bank's
allowance for loan losses during the periods indicated.
<TABLE>
<CAPTION>
                                                                 Year Ended September 30,
                                              -------------------------------------------------------------
                                                      1998                  1997                 1996
                                              ------------------    ------------------    -----------------
                                                                  (Dollars in Thousands)
<S>                                                 <C>                   <C>                  <C>    
Total net loans outstanding(1)                      $38,400               $37,745              $39,331
                                                    =======               =======              =======
Average loans outstanding, net                      $38,840               $35,205              $35,234
                                                    =======               =======              =======
Balance at beginning of period                      $    95               $    95              $    81
Charge-offs                                              --                    --                   --
Recoveries                                               --                    --                   --
                                                    -------               -------              -------
Net charge-offs                                          --                    --                   --
Provision for losses on loans                            --                    --                   14
                                                    -------               -------              -------
Balance at end of period                            $    95               $    95              $    95
                                                    =======               =======              =======
Allowance for loan losses as a
 percent of total loans
 outstanding                                           .25%                  .25%                 .24%
                                                    =======               =======              =======
Ratio of net charge-offs to average
 loans outstanding                                      --%                   --%                  --%
                                                    =======               =======              =======

</TABLE>
------------
(1)      Includes loans held for sale.


         Effective December 21, 1993, the OTS, in conjunction with the Office of
the Comptroller of the Currency,  the FDIC and the Federal Reserve Board, issued
an  Interagency  Policy  Statement  on the  Allowance  for Loan and Lease Losses
("Policy  Statement").  The Policy Statement,  which effectively  supersedes the
proposed  guidance  issued on  September 1, 1992,  includes  guidance (i) on the
responsibilities  of  management  for the  assessment  and  establishment  of an
adequate allowance and (ii) for the agencies' examiners to use in evaluating the
adequacy  of  such  allowance  and  the  policies  utilized  to  determine  such
allowance.  The Policy Statement also sets forth  quantitative  measures for the
allowance with respect to assets  classified  substandard  and doubtful and with
respect  to  the  remaining   portion  of  an   institution's   loan  portfolio.
Specifically,  the  Policy  Statement  sets  forth  the  following  quantitative
measures that examiners may use to determine the reasonableness of an allowance:
(i) 50% of the portfolio that is classified doubtful;  (ii) 15% of the portfolio
that is classified substandard; and (iii) for the portions of the portfolio that
have not been classified (including loans designated special mention), estimated
credit losses over the upcoming  twelve months based on facts and  circumstances
available on the evaluation date.  Although the Policy Statement sets forth this
quantitative measure, such guidance is not intended to set either a "floor" or a
"ceiling."

                                                       -14-

<PAGE>
         The following table sets forth information concerning the allocation of
the Savings  Bank's  allowance  for loan losses by loan  categories at the dates
indicated.
<TABLE>
<CAPTION>
                                                                      September 30,
                               ------------------------------------------------------------------------------------------
                                             1998                            1997                          1996
                               -----------------------------     -------------------------     --------------------------
                                                   Percent of                    Percent of                    Percent of
                                                   Total Loans                   Total Loans                  Total Loans
                                     Amount        by Category      Amount       by Category      Amount      by Category
                               ---------------    -----------    -----------    -----------    -----------   ------------
                                                                  (Dollars in Thousands)
<S>                                  <C>             <C>               <C>         <C>               <C>        <C>    
One-to-four family
  residential                        $84               88.2%           $89           92.9%           $91           95.8%
Multi-family residential               3                3.3              1            1.5             --            0.3
Nonresidential real estate            --                 .5              1            0.9             --            0.4
Construction                           3                3.6              1            1.4              2            1.3
Consumer and other loans               5                4.4              3            3.3              2            2.2
                                     ---              -----            ---          -----            ---         ------ 
     Total                           $95              100.0%           $95          100.0%           $95         100.00%
                                     ===              =====            ===          =====            ===         ====== 
</TABLE>

         Management  of the Savings Bank  believes that the reserves that it has
established  are adequate to cover any  potential  losses in the Savings  Bank's
loan portfolio. Future adjustments to these reserves may be necessary,  however,
and the Savings  Bank's  results of  operations  could be adversely  affected if
circumstances  differ  substantially  from the assumptions used by management in
making its determinations in this regard.

Investment Activities

         General. The Savings Bank's  mortgage-backed and investment  securities
portfolio is managed in accordance with a written  investment  policy adopted by
the Board of Directors. All transactions must be approved by and reported to the
Board of Directors.

         Prior  to  October  1,  1994,  portfolio   investment   securities  and
mortgage-backed  securities were carried at cost,  adjusted for  amortization of
premiums  and  accretion  of  discounts.  The  investments  and  mortgage-backed
securities were carried at cost, as it was management's  intent, and the Savings
Bank  had  the  ability  to  hold  the  securities  until  maturity.  Investment
securities and  mortgage-backed  securities held for indefinite periods of time,
or utilized by management as part of its asset/liability management strategy, or
that would be sold in response to changes in interest rates,  prepayment risk or
the perceived need to increase  regulatory  capital were  classified as held for
sale at the point of purchase  and carried at the lower of cost or market,  with
any resulting decline in market value below cost charged to operations. Gains or
losses  on  securities  held  for  sale,  including  lower  of  cost  or  market
adjustments, were recognized using the specific identification method.

         In May 1993,  the FASB  issued SFAS No.  115,  "Accounting  for Certain
Investments  in Debt and Equity  Securities"  (the  "Statement").  The Statement
requires  that  investments  be  categorized  as  held-to-maturity,  trading  or
available  for sale.  Securities  classified  as held to maturity are carried at
cost only if the Savings Bank has the positive  intent and ability to hold these
securities to maturity.

                                                       -15-

<PAGE>
Trading  securities and securities  available for sale are carried at fair value
with resulting unrealized gains or losses charged to operations or stockholders'
equity,  respectively.  The Savings Bank adopted the  Statement as of October 1,
1994. In accordance with the terms of an FASB implementation  guide, on December
31,  1995,  the Savings  Bank  transferred  mortgage-backed  securities  with an
amortized  cost of $7.2 million from held to maturity to available  for sale. At
September 30, 1998,  the Company had $502,000 of investment  securities and $4.0
million of mortgage-backed  securities  classified as available for sale and the
Company's stockholders' equity reflected a net unrealized gain of $19,000.

         Mortgage-Backed  Securities.  Mortgage-backed  securities  represent  a
participation  interest  in a pool of  single-family  or  multi-family  mortgage
loans, the principle and interest payments on which, in general, are passed from
the mortgage  originators,  through  intermediaries  that pool and repackage the
participation  interests in the form of  securities,  to  investors  such as the
Savings Bank. Such  intermediaries may be private issuers, or agencies including
the FHLMC, the Federal National Mortgage Association ("FNMA") and the Government
National Mortgage  Association  ("GNMA") that insure or guarantee the payment of
principal and interest to investors.

         Mortgage-backed  securities  typically are issued with stated principal
amounts,  and the  securities  are backed by pools of mortgages  that have loans
with  interest  rates that are within a range and have varying  maturities.  The
underlying pool of mortgages can be composed of either fixed- or adjustable-rate
mortgage loans. Mortgage-backed securities are generally referred to as mortgage
participation  certificates  or  pass-through  certificates.  As a  result,  the
interest rate risk  characteristics  of the underlying pool of mortgages  (e.g.,
fixed-rate or  adjustable-rate)  as well as prepayment,  default and other risks
associated  with the  underlying  mortgages  are  passed  on to the  certificate
holder. The life of a mortgage-backed pass-through security is equal to the life
of the underlying mortgages.

         The  Savings  Bank  has  invested  in a  portfolio  of  mortgage-backed
securities that are insured or guaranteed by federal  agencies.  Mortgage-backed
securities  increase the quality of the Savings  Bank's  assets by virtue of the
guarantees  that back them, are more liquid than  individual  mortgage loans and
may be used to  collateralize  borrowings  or other  obligations  of the Savings
Bank.


                                                       -16-
<PAGE>
         The following  table sets forth  information  relating to the amortized
cost and  market  value of the  Savings  Bank's  mortgage-backed  securities  at
September 30, 1998, 1997 and 1996 (including  those  designated as available for
sale).
<TABLE>
<CAPTION>
                                                                   September 30,
                                   ---------------------------------------------------------------------------
                                            1998                       1997                       1996
                                   --------------------     -----------------------     ----------------------
                                    Amortized     Market      Amortized      Market      Amortized      Market
                                       Cost       Value         Cost         Value          Cost        Value
                                   ----------   -------     -----------   ----------    ----------   ----------
                                                                   (In Thousands)
<S>                                   <C>        <C>            <C>          <C>           <C>         <C>    
FHLMC participation certificates      $  426     $  426         $1,283       $1,276        $  348      $   339
GNMA participation certificates        3,481      3,512          2,014        2,071         3,835        3,867
FNMA participation certificates          221        225            413          424           560          573
                                      ------     ------         ------       ------        ------       ------
Total mortgage-backed
  securities                          $4,128     $4,163         $3,710       $3,771        $4,743       $4,779
                                      ======     ======         ======       ======        ======       ======
</TABLE>


<PAGE>

         The  following  table sets forth the  activity  in the  Savings  Bank's
mortgage-backed  securities  portfolio during the periods  indicated  (including
those designated as available for sale).
<TABLE>
<CAPTION>
                                                                          At or For the Year
                                                                          Ended September 30,
                                                   --------------------------------------------------------------
                                                           1998                  1997                 1996
                                                   --------------------  -------------------    -----------------
                                                                        (Dollars in Thousands)
<S>                                                      <C>                   <C>                   <C>   
Mortgage-backed securities
  at beginning of period                                 $3,760                $4,774                $7,311
Purchases                                                 2,110                 3,293                   513
Repayments                                                (970)                 (879)               (1,332)
Sales                                                     (719)               (3,450)               (1,745)
Change in unrealized gain on available
  for sale securities                                      (25)                    20                    30
Premium amortization                                        (3)                     2                   (3)
                                                         ------                ------                ------
Mortgage-backed securities at end
  of period(1)                                           $4,153                $3,760                $4,774
                                                         ======                ======                ======
Weighted average yield at end of
  period                                                  6.49%                 6.87%                 6.63%
                                                         ======                ======                ======
</TABLE>
---------------
(1)      At September 30, 1998,  $4.0 million of such securities were classified
         as available for sale.

                                                       -17-
<PAGE>
         At September 30, 1998, of the $4.1 million portfolio,  $0 was scheduled
to mature in between one and five years and $4.1 million was scheduled to mature
after  ten  years.  Due  to  repayments  of the  underlying  loans,  the  actual
maturities of mortgage-backed  securities  generally are substantially less than
the scheduled maturities.

         Of the $4.1 million of mortgage-backed  securities,  $181,000 consisted
of fixed-rate and $4.0 million consisted of adjustable-rate securities.

         Investment  Securities.  The  following  table sets  forth  information
relating to the amortized cost and market value of the Savings Bank's investment
securities at the dates indicated.
<TABLE>
<CAPTION>
                                                                     September 30,
                                -------------------------------------------------------------------------------------
                                           1998                          1997                          1996
                                -----------------------      -------------------------     --------------------------
                                   Amortized       Market       Amortized        Market       Amortized        Market
                                      Cost         Value          Cost           Value           Cost          Value
                                -------------    -------     -------------    ----------   -------------    ----------
                                                                 (Dollars in Thousands)
<S>                                 <C>           <C>           <C>              <C>           <C>             <C>   
U.S. Government agency
  obligations(1)                    $1,999        $2,004        $2,493           $2,486        $2,493          $2,445
                                    ======        ======        ======           ======        ======          ======
Weighted average yield
  at end of period                    5.65%                       5.82%                          5.82%
                                    ======                      ======                         ======
</TABLE>
------------
(1)      At  September  30,  1998,   $500,000  of  investment   securities  were
         classified as available for sale.


         The following  table sets forth the amortized  cost and market value of
investment securities by contractual terms to maturity at September 30, 1998.
<TABLE>
<CAPTION>
                                                        Amortized            Market
                                                           Cost              Value
                                                    ---------------    ---------------
                                                               (In Thousands)
<S>                                                       <C>                <C>   
One year                                                  $   --             $   --
One to five years                                          1,999              2,004
Five to ten years                                             --                 --
More than ten years                                           --                 --
                                                          ------             ------
    Total                                                 $1,999             $2,004
                                                          ======             ======
</TABLE>

                                                       -18-
<PAGE>
Sources of Funds

         General.  Deposits are the primary  source of the Savings  Bank's funds
for lending and other investment purposes. In addition to deposits,  the Savings
Bank  derives  funds  from loan  principal  repayments.  Loan  repayments  are a
relatively  stable  source of funds,  while  deposit  inflows and  outflows  are
significantly  influenced by general interest rates and money market conditions.
Borrowings may be used on a short-term basis to compensate for reductions in the
availability of funds from other sources. They also may be used on a longer term
basis for general business purposes.

         Deposits.  The Savings Bank's deposits are attracted  principally  from
within the Savings  Bank's  primary  market area through the offering of a broad
selection of deposit instruments, including NOW accounts, money market accounts,
regular savings accounts,  and term certificate  accounts.  Included among these
deposit products are individual retirement account certificates of approximately
$6.2  million at  September  30,  1998.  Deposit  account  terms vary,  with the
principal  differences being the minimum balance required,  the time period that
the funds must remain on deposit and the interest rate.

         Interest  rates  paid,  maturity  terms,  service  fees and  withdrawal
penalties are established by the Savings Bank on a periodic basis. Determination
of  rates  and  terms  are  predicated  on  funds   acquisition   and  liquidity
requirements,  rates paid by  competitors,  growth goals and applicable laws and
regulations.

         The Savings Bank utilizes traditional  marketing methods to attract new
customers and savings deposits,  including print media advertising.  The Savings
Bank  maintains a drive-up  facility at its  office.  The Savings  Bank does not
advertise for deposits  outside its local market area or utilize the services of
deposit brokers.


                                                       -19-

<PAGE>
         The  following  table sets forth the dollar  amount of  deposits in the
various  types of deposit  programs  offered by the Savings Bank for the periods
indicated.
<TABLE>
<CAPTION>
                                                                  September 30,
                            ----------------------------------------------------------------------------------------
                                        1998                          1997                          1996
                            ----------------------------   --------------------------    ---------------------------
                                Amount        Percentage      Amount       Percentage        Amount       Percentage
                            -------------    -----------   ------------    ----------    -------------    ----------
                                                             (Dollars in Thousands)
<S>                                 <C>             <C>           <C>             <C>            <C>            <C>   
Certificate accounts:
 4.01  -  6.00%                     $20,802          50.3%        $19,860          48.5%         $18,807         45.2%
 6.01  -  8.00%                      11,521          27.8          13,216          32.2           14,997         36.0
 8.01  - 10.00%                          --            --              --            --               --           --
10.01  - 12.00%                          --            --              --            --               --           --
                                    -------         -----         -------         -----          -------        ----- 
Total certificate accounts          $32,323          78.1          33,076          80.7           33,804         81.2
                                    -------         -----         -------         -----          -------        ----- 
Transactions accounts:
  Passbook accounts                   1,521           3.7           1,446           3.5            1,396          3.3
  Statement savings                   3,377           8.2           2,578           6.3            2,535          6.1
  Money market accounts               2,042           5.1           2,378           5.8            2,616          6.3
  NOW accounts                        2,120           4.9           1,518           3.7            1,285          3.1
                                    -------         -----         -------         -----          -------        ----- 
Total transaction accounts            9,060          21.9           7,920          19.3            7,832         18.8
                                    -------         -----         -------         -----          -------        ----- 
Total deposits                      $41,383         100.0%        $40,996         100.0%         $41,636        100.0%
                                    =======         =====         =======         =====          =======        ===== 
</TABLE>

         The  following  table sets forth the savings  activities of the Savings
Bank during the periods indicated.
<TABLE>
<CAPTION>
                                                            Year Ended September 30,
                                         -------------------------------------------------------------
                                                 1998                  1997                 1996
                                         ------------------    ------------------   ------------------
                                                                 (In Thousands)
<S>                                          <C>                  <C>                   <C>     
Deposits                                     $33,212              $ 34,147              $30,928
Withdrawals                                  (34,743)              (36,700)             (35,751)
                                             -------              --------              ------- 
  Net increase (decrease)
    before interest credited                  (1,531)               (2,553)              (4,823)
Interest credited                              1,918                 1,913                2,031
                                             -------              --------              ------- 
  Net increase (decrease)
   in deposits                               $   387              $   (640)             $(2,792)
                                             =======              ========              ======= 
</TABLE>

                                                       -20-
<PAGE>
         The following  table shows the interest  rate and maturity  information
for the Savings Bank's certificates of deposit at September 30, 1998.
<TABLE>
<CAPTION>
                                                      Maturity Date
                 -------------------------------------------------------------------------------------
                     One Year           Over             Over               Over
Interest Rate        or Less         1-2 Years         2-3 Years          3 Years             Total
-------------    -------------    -------------    --------------    ---------------     -------------
                                                 (Dollars in Thousands)
<S>                       <C>               <C>               <C>                <C>             <C>    
4.01 - 6.00%              $14,816           $2,226            $3,242             $  518          $20,802

6.01 - 8.00%                4,105            4,605               130              2,681           11,521

     Total                $18,921           $6,831            $3,372             $3,199          $32,323
</TABLE>

         The following  table sets forth the  maturities  of the Savings  Bank's
certificates  of  deposit  having  principal  amounts  of  $100,000  or  more at
September 30, 1998.
<TABLE>
<CAPTION>
Certificates of deposit
maturing in quarter ending:
-----------------------------------------
                                                  (In Thousands)
<S>                                                    <C>
December 31, 1998                                      $1,076

March 31, 1999                                            589

June 30, 1999                                             224

September 30, 1999                                        208

After September 30, 1999                                2,234
                                                       ------
Total certificates of deposit
  with balances of $100,000
  or more                                              $4,331
                                                       ======
</TABLE>

                                                       -21-
<PAGE>
         Borrowings.  The Savings Bank's other sources of funds include advances
from the FHLB of Cincinnati. As a member of the FHLB of Cincinnati,  the Savings
Bank  is  required  to own  capital  stock  in the  FHLB  of  Cincinnati  and is
authorized to apply for advances from the FHLB of  Cincinnati.  Each FHLB credit
program has its own interest rate,  which may be fixed or variable,  and a range
of  maturities.  The FHLB of Cincinnati  may prescribe the  acceptable  uses for
these advances, as well as limitations on the size of the advances and repayment
provisions.  At September  30,  1998,  the Savings Bank had a $8 million line of
credit with the FHLB of  Cincinnati.  As of such date the Savings  Bank had $2.4
million of advances from the FHLB of Cincinnati.

         The  following  table  sets forth the  maximum  month-end  balance  and
average  balance  of  the  Savings  Bank's  FHLB  advances  during  the  periods
indicated.
<TABLE>
<CAPTION>
                                                            Year Ended September 30,
                                       -----------------------------------------------------------------
                                                1998                   1997                   1996
                                       -------------------     -------------------    ------------------
                                                             (Dollars in Thousands)
<S>                                           <C>                    <C>                   <C>   
Maximum balance                               $3,484                 $3,763                $3,658
Average balance                                1,944                  1,789                 1,313
Weighted average interest                   
  rate of FHLB advances                        5.81%                  5.65%                 5.48%
</TABLE>
                                         
         The following  table sets forth certain  information  as to the Savings
Bank's FHLB advances at the dates indicated.
<TABLE>
<CAPTION>
                                                                    September 30,
                                              -------------------------------------------------------
                                                     1998                 1997                1996
                                              ---------------    --------------------    ------------
                                                               (Dollars in Thousands)
<S>                                                <C>                <C>                 <C>   
FHLB advances                                      $2,429             $1,049              $3,653
Weighted average interest                                                              
  rate of FHLB advances                             5.43%              5.69%               5.46%
</TABLE>

Employees
                                                                                
         The  Savings  Bank  had  12  full-time  employees  and  five  part-time
employees at September 30, 1998.  None of these  employees is  represented  by a
collective  bargaining  agreement,  and the Savings Bank believes that it enjoys
good relations with its personnel.


                                                       -22-
<PAGE>
Competition

         The Savings Bank faces strong  competition both in attracting  deposits
and  making  real  estate  loans.  Its  most  direct  competition  for  deposits
historically  has come  from  other  savings  associations,  credit  unions  and
commercial banks located in the greater  Cincinnati  area,  including many large
financial  institutions  that have greater  financial  and  marketing  resources
available to them. In addition, during times of high interest rates, the Savings
Bank has faced  additional  significant  competition  for investors'  funds from
short-term   money  market   securities  and  other   corporate  and  government
securities.  The  ability  of the  Savings  Bank to attract  and retain  savings
deposits depends on its ability to generally provide a rate of return, liquidity
and risk comparable to that offered by competing investment opportunities.

         The Savings Bank experiences  strong  competition for real estate loans
principally  from other savings  associations,  commercial  banks,  and mortgage
banking companies.  The Savings Bank competes for loans principally  through the
interest  rates and loan fees it  charges  and the  efficiency  and  quality  of
services  it provides  borrowers.  Competition  may  increase as a result of the
continuing  reduction of restrictions on the interstate  operations of financial
institutions.

                                   REGULATION

The Company

         General.  The Company, as a registered savings and loan holding company
within the meaning of the Home Owners' Loan Act ("HOLA"),  is subject to OTS and
Division regulations, examinations, supervision and reporting requirements. As a
subsidiary  of a savings and loan  holding  company,  the  Savings  Bank will be
subject to certain  restrictions in its dealings with the Company and affiliates
thereof.

         Activities  Restrictions.  There are generally no  restrictions  on the
activities of a savings and loan holding  company that holds only one subsidiary
savings  institution.  However, if the Director of the OTS determines that there
is  reasonable  cause to believe  that the  continuation  by a savings  and loan
holding  company of an  activity  constitutes  a serious  risk to the  financial
safety,  soundness or  stability  of its  subsidiary  savings  institution,  the
Director may impose such  restrictions as deemed necessary to address such risk,
including  limiting (i) payment of dividends  by the savings  institution;  (ii)
transactions  between the savings institution and its affiliates;  and (iii) any
activities of the savings  institution that might create a serious risk that the
liabilities  of the  holding  company and its  affiliates  may be imposed on the
savings institution.  Notwithstanding the above rules as to permissible business
activities  of  unitary  savings  and loan  holding  companies,  if the  savings
institution  subsidiary  of such a  holding  company  fails to meet a  qualified
thrift lender ("QTL") test,  then such unitary holding company also shall become
subject to the activities  restrictions  applicable to multiple savings and loan
holding  companies  and,  unless the savings  institution  requalifies  as a QTL
within  one year  thereafter,  shall  register  as,  and  become  subject to the
restrictions applicable

                                                       -23-
<PAGE>
to, a bank  holding  company.  See "- The Savings  Bank - Federal  Regulation  -
Qualified Thrift Lender Test."

         If the Company were to acquire control of another savings  institution,
other than through merger or other business  combination  with the Savings Bank,
the Company would thereupon  become a multiple savings and loan holding company.
Except where such acquisition is pursuant to the authority to approve  emergency
thrift  acquisitions and where each subsidiary savings institution meets the QTL
test,  as set  forth  below,  the  activities  of  the  Company  and  any of its
subsidiaries   (other  than  the  Savings  Bank  or  other  subsidiary   savings
institutions) would thereafter be subject to further  restrictions.  Among other
things, no multiple savings and loan holding company or subsidiary  thereof that
is not a savings  institution shall commence or continue for a limited period of
time after  becoming a multiple  savings and loan holding  company or subsidiary
thereof any  business  activity,  upon prior  notice to, and no objection by the
OTS,  other  than:  (i)  furnishing  or  performing  management  services  for a
subsidiary  savings  institution;  (ii) conducting an insurance agency or escrow
business;  (iii) holding,  managing,  or liquidating assets owned by or acquired
from a subsidiary savings institution;  (iv) holding or managing properties used
or occupied by a subsidiary  savings  institution;  (v) acting as trustee  under
deeds of trust;  (vi) those  activities  authorized by regulation as of March 5,
1987 to be engaged in by multiple savings and loan holding  companies;  or (vii)
unless the Director of the OTS by regulation prohibits or limits such activities
for savings and loan  holding  companies,  those  activities  authorized  by the
Federal  Reserve  Board  as  permissible  for  bank  holding  companies.   Those
activities described in (vii) above also must be approved by the Director of the
OTS prior to being engaged in by a multiple savings and loan holding company.

         Limitations  on  Transactions  with  Affiliates.  Transactions  between
savings  institutions  and any affiliate are governed by Sections 23A and 23B of
the Federal Reserve Act. An affiliate of a savings institution is any company or
entity that  controls,  is  controlled  by or is under  common  control with the
savings institution. In a holding company context, the parent holding company of
a  savings  institution  (such  as the  Company)  and  any  companies  that  are
controlled  by  such  parent  holding  company  are  affiliates  of the  savings
institution.  Generally,  Sections 23A and 23B (i) limit the extent to which the
savings  institution or its  subsidiaries  may engage in "covered  transactions"
with any one affiliate to an amount equal to 10% of such  institution's  capital
stock and surplus,  and contain an aggregate limit on all such transactions with
all  affiliates  to an amount equal to 20% of such capital stock and surplus and
(ii) require that all such  transactions be on terms  substantially the same as,
or at least as favorable to, the  institution or subsidiary as those provided to
a non-affiliate.  The term "covered  transaction"  includes the making of loans,
purchase  of  assets,  issuance  of a  guarantee  and  similar  other  types  of
transactions.  In addition to the restrictions  imposed by Sections 23A and 23B,
no savings  institution may (i) loan or otherwise extend credit to an affiliate,
except for any affiliate  that engages only in activities  that are  permissible
for bank holding  companies,  or (ii)  purchase or invest in any stocks,  bonds,
debentures, notes or similar obligations of any affiliate, except for affiliates
that are subsidiaries of the savings institution.


                                                       -24-
<PAGE>
         In addition,  Sections  22(h) and (g) of the Federal  Reserve Act place
restrictions   on  loans  to  executive   officers,   directors   and  principal
stockholders. Under Section 22(h), loans to a director, an executive officer and
to a  greater  than  10%  stockholder  of a  savings  institution,  and  certain
affiliated  interests  of  either,  may not  exceed,  together  with  all  other
outstanding  loans to such person and affiliated  interests,  the  institution's
loans  to one  borrower  limit  (generally  equal  to  15% of the  institution's
unimpaired  capital and  surplus).  Section  22(h) also  requires  that loans to
directors,  executive  officers  and  principal  stockholders  be made on  terms
substantially  the same as those  offered in  comparable  transactions  to other
persons and also requires prior board  approval for certain loans.  In addition,
the aggregate  amount of extensions  of credit by a savings  institution  to all
insiders  cannot  exceed  the  institution's  unimpaired  capital  and  surplus.
Furthermore,  Section 22(g) places additional restrictions on loans to executive
officers.  At September 30, 1998,  the Savings Bank was in  compliance  with the
above restrictions.

         Restrictions  on  Acquisitions.  Except  under  limited  circumstances,
savings and loan holding companies are prohibited from acquiring,  without prior
approval  of  the  Director  of the  OTS,  (i)  control  of  any  other  savings
institution or savings and loan holding company or substantially  all the assets
thereof or (ii) more than 5% of the voting  shares of a savings  institution  or
holding company thereof that is not a subsidiary. Except with the prior approval
of the Director of the OTS, no director or officer of a savings and loan holding
company or person owning or  controlling  by proxy or otherwise more than 25% of
such company's stock, may acquire control of any savings institution, other than
a  subsidiary  savings  institution,  or of any other  savings and loan  holding
company.

         The Director of the OTS may only approve acquisitions  resulting in the
formation of a multiple  savings and loan holding company that controls  savings
institutions in more than one state if (i) the multiple savings and loan holding
company involved  controls a savings  institution that operated a home or branch
office  located in the state of the  institution  to be  acquired as of March 5,
1987;  (ii) the  acquiror  is  authorized  to  acquire  control  of the  savings
institution  pursuant to the  emergency  acquisition  provisions  of the Federal
Deposit Insurance Act ("FDIA");  or (iii) the statutes of the state in which the
institution to be acquired is located  specifically  permit  institutions  to be
acquired  by the  state-chartered  institutions  or  savings  and  loan  holding
companies  located in the state where the  acquiring  entity is located (or by a
holding company that controls such state-chartered savings institutions).

         The Financial  Institutions  Reform,  Recovery,  and Enforcement Act of
1989  ("FIRREA")  amended  provisions of the Bank Holding Company Act of 1956 to
specifically  authorize the Federal Reserve Board to approve an application by a
bank holding  company to acquire control of a savings  institution.  FIRREA also
authorized a bank holding  company that controls a savings  institution to merge
or consolidate  the assets and liabilities of the savings  institution  with, or
transfer  assets and liabilities to, any subsidiary bank that is a member of the
Bank  Insurance  Fund ("BIF"),  the federal  deposit  insurance fund that covers
commercial bank deposits,  with the approval of the appropriate  federal banking
agency and the Federal  Reserve Board.  As a result of these  provisions,  there
have been a number of  acquisitions  of  savings  institutions  by bank  holding
companies in recent years.


                                                       -25-

<PAGE>
The Savings Bank - Federal Regulation

         General. The OTS has extensive authority over the operations of savings
institutions.  As part of this authority,  savings  institutions are required to
file periodic  reports with the OTS and are subject to periodic  examinations by
the OTS and the FDIC. Such regulation and supervision is intended  primarily for
the protection of depositors.

         Although the  investment  and lending  authority of the Savings Bank is
prescribed by Ohio laws and regulations,  many federal laws and regulations also
apply to state  chartered  savings  associations.  Certain of the investment and
lending  authorities for federally  chartered savings  associations were amended
significantly  and made  applicable to state chartered  savings  associations by
FIRREA.

         The OTS's  enforcement  authority  over all  savings  institutions  was
enhanced  substantially by FIRREA. This enforcement  authority  includes,  among
other  things,   the  ability  to  assess  civil  money   penalties,   to  issue
cease-and-desist  or  removal  orders and to  initiate  injunctive  actions.  In
general,  these enforcement  actions may be initiated for violations of laws and
regulations  and unsafe or unsound  practices.  Other  actions or inactions  may
provide  the basis for  enforcement  action,  including  misleading  or untimely
reports filed with the OTS. FIRREA increased the amount of and grounds for civil
money penalties significantly.

         On  December  19,  1991,  the  Federal  Deposit  Insurance  Corporation
Improvement  Act of 1991  ("FDICIA")  was enacted into law. The FDICIA  provided
for, among other things, the  recapitalization  of the BIF; the authorization of
the FDIC to make  emergency  special  assessments  under  certain  circumstances
against BIF members and members of the SAIF;  the  establishment  of  risk-based
deposit   insurance   premiums;   and  improved   examinations   and   reporting
requirements.  The FDICIA also  provided for  enhanced  federal  supervision  of
depository  institutions based on, among other things, an institution's  capital
level.

         Insurance of Accounts.  The deposits of the Savings Bank are insured to
the maximum extent permitted by the SAIF, which is administered by the FDIC, and
are backed by the full faith and credit of the U.S. Government.  As insurer, the
FDIC is  authorized  to conduct  examinations  of, and to require  reporting by,
FDIC-insured  institutions.  It also may prohibit any  FDIC-insured  institution
from engaging in any activity the FDIC determines by regulation or order to pose
a serious  threat  to the FDIC.  The FDIC  also has the  authority  to  initiate
enforcement  actions  against  savings  institutions,  after  giving  the OTS an
opportunity to take such action.

         Under  FDIC  regulations,  institutions  are  assigned  to one of three
capital groups for insurance premium purposes -- "well capitalized," "adequately
capitalized" and  "undercapitalized"  -- which are defined in the same manner as
the regulations  establishing the prompt  corrective action system, as discussed
below.  These three groups are then divided  into  subgroups  which are based on
supervisory   evaluations  by  the  institution's   primary  federal  regulator,
resulting  in  nine  assessment  classifications.  Effective  January  1,  1997,
assessment rates for both SAIF-insured institutions and

                                                       -26-

<PAGE>
BIF-insured institutions ranged from 0% of insured deposits for well-capitalized
institutions  with minor  supervisory  concerns to .27% of insured  deposits for
undercapitalized   institutions  with  substantial   supervisory   concerns.  In
addition,  an additional  assessment of 6.4 basis points and 1.3 basis points is
added  to  the  regular   SAIF-assessment   and  the   regular   BIF-assessment,
respectively,  until December 31, 1999 in order to cover  Financing  Corporation
debt service payments.

         Both the SAIF and the BIF are required by law to attain and  thereafter
maintain a reserve ratio of 1.25% of insured deposits.  The BIF has achieved the
required  reserve ratio,  and as a result,  the FDIC reduced the average deposit
insurance premium paid by BIF-insured banks to a level  substantially  below the
average premium previously paid by savings institutions. Banking legislation was
enacted  September  30,  1996 to  eliminate  the  premium  differential  between
SAIF-insured institutions and BIF-insured institutions. The legislation provided
that all insured  depository  institutions  with  SAIF-assessable  deposits as a
March 31,  1995 pay a special  one-time  assessment  to  recapitalize  the SAIF.
Pursuant to this  legislation,  the FDIC promulgated a rule that established the
special  assessment  necessary to recapitalize  the SAIF at 65.7 basis points of
SAIF-assessable  deposits  held by affected  institutions  as of March 31, 1995.
Based upon its level of SAIF  deposits as of March 31,  1995,  the Savings  Bank
paid a special assessment of $289,000.
The assessment was accrued in the quarter ended September 30, 1996.

         Another  component of the SAIF  recapitalization  plan provides for the
merger of the SAIF and the BIF on  January  1,  1999,  provided  that no insured
depository  institution is a savings association on that date. If legislation is
enacted  which  requires  the  Savings  Bank to convert to a bank  charter,  the
Company  would become a bank  holding  company  subject to the more  restrictive
activity  limits imposed on bank holding  companies  unless special  grandfather
provisions are included in such  legislation.  The Company does not believe that
its activities would be materially affected in the event that it was required to
become a bank holding company.

         The FDIC may terminate the deposit insurance of any insured  depository
institution,  including the Savings Bank, if it determines  after a hearing that
the institution has engaged or is engaging in unsafe or unsound practices, is in
an unsafe or unsound  condition  to continue  operations,  or has  violated  any
applicable law, regulation,  order or any condition imposed by an agreement with
the FDIC. It also may suspend deposit insurance  temporarily  during the hearing
process for the permanent  termination of insurance,  if the  institution has no
tangible  capital.  If insurance of accounts is terminated,  the accounts at the
institution at the time of the termination,  less subsequent withdrawals,  shall
continue to be insured for a period of six months to two years, as determined by
the FDIC. There are no pending proceedings to terminate the deposit insurance of
the Savings Bank.

         Regulatory Capital Requirements. Federally insured savings institutions
are  required to maintain  minimum  levels of  regulatory  capital.  The OTS has
established  capital  standards  applicable to all savings  institutions.  These
standards generally must be as stringent as the comparable capital  requirements
imposed  on  national  banks.  The OTS  also is  authorized  to  impose  capital
requirements  in excess  of these  standards  on  individual  institutions  on a
case-by-case basis.


                                                       -27-
<PAGE>
         Current OTS capital standards  require savings  institutions to satisfy
three  different   capital   requirements.   Under  these   standards,   savings
institutions must maintain "tangible" capital equal to at least 1.5% of adjusted
total assets, "core" capital equal to at least 3.0% of adjusted total assets and
"total" capital (a combination of core and "supplementary"  capital) equal to at
least 8.0% of "risk-  weighted"  assets.  For purposes of the  regulation,  core
capital generally consists of common  stockholders'  equity (including  retained
earnings), noncumulative perpetual preferred stock and related surplus, minority
interests in the equity  accounts of fully  consolidated  subsidiaries,  certain
nonwithdrawable  accounts  and  pledged  deposits  and  "qualifying  supervisory
goodwill."  Tangible  capital is given the same  definition  as core capital but
does not include qualifying supervisory goodwill and is reduced by the amount of
all of  the  savings  institution's  intangible  assets,  with  only  a  limited
exception  for  purchased  mortgage  servicing  rights.  The Savings Bank had no
goodwill  or other  intangible  assets  at  September  30,  1998.  Both core and
tangible   capital  are  further  reduced  by  an  amount  equal  to  a  savings
institution's debt and equity investments in subsidiaries  engaged in activities
not permissible to national banks (other than subsidiaries engaged in activities
undertaken  as  agent  for  customers  or in  mortgage  banking  activities  and
subsidiary   depository   institutions  or  their  holding   companies).   These
adjustments do not affect the Savings Bank's regulatory  capital.  Supplementary
capital generally consists of hybrid capital  instruments;  perpetual  preferred
stock,  which is not eligible to be included as core capital;  subordinated debt
and intermediate-term preferred stock; and general allowances for loan losses up
to a  maximum  of 1.25%  of  risk-weighted  assets.  See "--  Prompt  Corrective
Action."

         In determining  compliance with the risk-based capital  requirement,  a
savings  institution may include both core capital and supplementary  capital in
its total capital,  provided that the amount of  supplementary  capital included
does not exceed the savings  institution's  core  capital.  In  determining  the
required  amount  of  risk-based  capital,   total  assets,   including  certain
off-balance  sheet  items,  are  multiplied  by a risk weight based on the risks
inherent  in the  type of  assets.  The  risk  weights  assigned  by the OTS for
principal  categories of assets are (i) 0% for cash and securities issued by the
U.S.  Government or  unconditionally  backed by the full faith and credit of the
U.S.  Government;  (ii) 20% for securities (other than equity securities) issued
by U.S.  Government-sponsored agencies and mortgage-backed securities issued by,
or fully  guaranteed  as to  principal  and  interest by, the FNMA or the FHLMC,
except  for  those   classes   with   residual   characteristics   or   stripped
mortgage-related securities; (iii) 50% for prudently underwritten permanent one-
to four-family  first lien mortgage  loans not more than 90 days  delinquent and
having a loan-to-value  ratio of not more than 80% at origination unless insured
to such  ratio  by an  insurer  approved  by the FNMA or the  FHLMC,  qualifying
residential  bridge loans made  directly  for the  construction  of  one-to-four
family residences and qualifying  multi-family  residential loans; and (iv) 100%
for all other loans and investments, including consumer loans, commercial loans,
and  single-family  residential  real estate loans more than 90 days delinquent,
and for repossessed assets.

         At September 30, 1998,  the Savings Bank exceeded all of its regulatory
capital  requirements,  with  core and  risk-based  capital  ratios of 8.72% and
19.17%, respectively.


                                                       -28-

<PAGE>
         A  savings  institution  that  is not in  capital  compliance  or  that
otherwise  is deemed to  require  more than  normal  supervision  is  subject to
restrictions  on its ability to grow  pursuant to Regulatory  Bulletin  3a-1. In
addition,  a provision of HOLA generally  provides that the Director of OTS must
restrict  the asset growth of savings  institutions  not in  regulatory  capital
compliance,  subject to a limited  exception for growth not  exceeding  interest
credited.

         A  savings  institution  that  is not in  capital  compliance  also  is
automatically  subject to the following:  (i) new directors and senior executive
officers and employment contracts for senior executive officers must be approved
by the OTS in advance;  (ii) the savings institution may not accept or renew any
brokered  deposits;  (iii) the  savings  institution  is  subject  to higher OTS
assessments as a capital-deficient institution; and (iv) the savings institution
may not make any capital distributions without prior written approval.

         Any savings  institution that fails any of the capital  requirements is
subject to possible  enforcement  actions by the OTS or the FDIC.  Such  actions
could  include a capital  directive,  a cease-  and-desist  order,  civil  money
penalties,  the establishment of restrictions on the  institution's  operations,
termination of federal deposit insurance and the appointment of a conservator or
receiver.  The OTS'  capital  regulation  provides  that such  actions,  through
enforcement proceedings or otherwise,  could require one or more of a variety of
corrective actions.

         In  August  1993,  the  OTS  adopted  a  final  rule  incorporating  an
interest-rate risk component into the risk-based capital  regulation.  Under the
rule, an institution with a greater than "normal" level of interest rate risk is
subject to a deduction of its interest  rate risk  component  from total capital
for  purposes  of  calculating  its  risk-based  capital.  As a result,  such an
institution is required to maintain  additional  capital in order to comply with
the risk-based capital requirement.  An institution with a greater than "normal"
interest rate risk is defined as an institution  that would suffer a loss of net
portfolio value exceeding 2.0% of the estimated  economic value of its assets in
the  event of a 200  basis  point  increase  or  decrease  (with  certain  minor
exceptions) in interest  rates.  The interest rate risk component is calculated,
on a quarterly  basis,  as one-half of the difference  between an  institution's
measured  interest rate risk and 2.0%,  multiplied by the economic  value of its
assets.  The rule also  authorizes the Director of the OTS, or his designee,  to
waive or defer an  institution's  interest rate risk component on a case-by-case
basis.  The final rule was  originally  to be  effective  as of January 1, 1994,
subject  however to a three quarter "lag" time between the reporting date of the
data used to calculate an  institution's  interest  rate risk and the  effective
date of each quarter's interest rate risk component.  However,  in October 1994,
the Director of the OTS indicated that it would waive the capital  deduction for
institutions  with  greater  than  "normal"  interest  rate  risk  until the OTS
publishes an appeals  process.  The OTS has recently  indicated  that no savings
institution  will be required to deduct  capital  for  interest  rate risk until
further  notice.  In any event,  management of the Savings Bank does not believe
that the OTS'  adoption of an interest  rate risk  component  to the risk- based
capital  requirement will adversely affect the Savings Bank's regulatory capital
position.

         Prompt Corrective Action. Under Section 38 of the FDIA, as added by the
FDICIA, each federal banking agency was required to implement a system of prompt
corrective action for

                                                       -29-

<PAGE>
institutions that it regulates. The federal banking agencies, including the OTS,
adopted  substantially  similar regulations to implement Section 38 of the FDIA,
effective as of December 19, 1992.  Under the  regulations,  an  institution  is
deemed to be (i) "well  capitalized" if it has total risk-based capital of 10.0%
or more,  has a Tier 1 risk-based  capital  ratio of 6.0% or more,  has a Tier 1
leverage  capital ratio of 5.0% or more and is not subject to any order or final
capital  directive to meet and maintain a specific capital level for any capital
measure,  (ii)  "adequately  capitalized" if it has a total  risk-based  capital
ratio of 8.0% or more, a Tier 1 risk-based  capital  ratio of 4.0% or more and a
Tier 1 leverage capital ratio of 4.0% or more (3.0% under certain circumstances)
and does not meet the definition of "well capitalized," (iii) "undercapitalized"
if it has a total  risk-based  capital  ratio that is less than  8.0%,  a Tier 1
risk-based  capital  ratio that is less than 4.0% or a Tier 1  leverage  capital
ratio  that  is  less  than  4.0%  (3.0%  under  certain  circumstances),   (iv)
"significantly undercapitalized" if it has a total risk-based capital ratio that
is less than 6.0%, a Tier 1 risk-based capital ratio that is less than 3.0% or a
Tier 1  leverage  capital  ratio  that is less than  3.0%,  and (v)  "critically
undercapitalized"  if it has a ratio of tangible  equity to total assets that is
equal  to or  less  than  2.0%.  Section  38 of the  FDIA  and  the  regulations
promulgated  thereunder also specify circumstances under which a federal banking
agency may reclassify a well capitalized  institution as adequately  capitalized
and may require an adequately  capitalized  institution  or an  undercapitalized
institution to comply with  supervisory  actions as if it were in the next lower
category   (except   that   the  FDIC  may  not   reclassify   a   significantly
undercapitalized institution as critically undercapitalized).

         An institution  generally must file a written capital  restoration plan
that meets  specified  requirements  with an appropriate  federal banking agency
within 45 days of the date that the institution  receives notice or is deemed to
have  notice  that it is  undercapitalized,  significantly  undercapitalized  or
critically   undercapitalized.   A  federal  banking  agency  must  provide  the
institution with written notice of approval or disapproval  within 60 days after
receiving a capital restoration plan, subject to extensions by the agency.

         An institution  that is required to submit a capital  restoration  plan
must  concurrently  submit a performance  guaranty by each company that controls
the  institution.  Such guaranty shall be limited to the lesser of (i) an amount
equal to 5.0% of the institution's  total assets at the time the institution was
notified  or  deemed to have  notice  that it was  undercapitalized  or (ii) the
amount  necessary to restore the relevant capital measures of the institution to
the  levels  required  for  the  institution  to  be  classified  as  adequately
capitalized.  Such a guarantee  shall  expire after the federal  banking  agency
notifies the institution that it has remained adequately capitalized for each of
four  consecutive  calendar  quarters.  An  institution  that  fails to submit a
written  capital  restoration  plan within the requisite  period,  including any
required performance guarantee(s), or fails in any material respect to implement
a capital  restoration  plan, shall be subject to the restrictions in Section 38
of  the  FDIA,   which  are   applicable   to   significantly   undercapitalized
institutions.

         Immediately upon becoming undercapitalized, an institution shall become
subject to the provisions of Section 38 of the FDIA (i)  restricting  payment of
capital  distributions  and management fees, (ii) requiring that the appropriate
federal  banking agency monitor the condition of the institution and its efforts
to restore its capital,  (iii)  requiring  submission  of a capital  restoration
plan,

                                                       -30-

<PAGE>
(iv) restricting the growth of the institution's  assets and (v) requiring prior
approval of certain expansion proposals.  The appropriate federal banking agency
for an  undercapitalized  institution  also may take any number of discretionary
supervisory  actions  if the  agency  determines  that any of these  actions  is
necessary  to resolve the  problems  of the  institution  at the least  possible
long-term  cost to the  deposit  insurance  fund,  subject in  certain  cases to
specified procedures.  These discretionary supervisory actions include requiring
the  institution to raise  additional  capital;  restricting  transactions  with
affiliates;  restricting  interest  rates paid by the  institution  on deposits;
requiring  replacement of senior executive  officers and directors;  restricting
the activities of the institution and its affiliates;  requiring  divestiture of
the institution or the sale of the institution to a willing  purchaser;  and any
other supervisory action that the agency deems appropriate. These and additional
mandatory  and  permissive  supervisory  actions  may be taken  with  respect to
significantly undercapitalized and critically undercapitalized institutions.

         At September 30, 1998 the Savings Bank was deemed a "well  capitalized"
institution for purposes of the above regulations and as such was not subject to
the above mentioned restrictions.

         Safety and Soundness.  FDICIA requires each federal banking  regulatory
agency to  prescribe,  by  regulation  or  guideline,  standards for all insured
depository institutions and depository institution holding companies relating to
(i)  internal  controls,  information  systems  and  audit  systems;  (ii)  loan
documentation;  (iii) credit underwriting; (iv) interest rate risk exposure; (v)
asset  growth;  (vi)  compensation,  fees and  benefits;  and (vii)  such  other
operational and managerial standards as the agency determines to be appropriate.
The  compensation   standards  would  prohibit  employment  contracts  or  other
compensatory arrangements that provide excess compensation,  fees or benefits or
that could lead to material  financial  loss. In addition,  each federal banking
regulatory agency must prescribe, by regulation or guideline, standards relating
to asset quality,  earnings and stock  valuation as the agency  determines to be
appropriate. On July 10, 1995, the federal banking agencies,  including the OTS,
adopted final rules and proposed guidelines  concerning standards for safety and
soundness required to be prescribed by regulation  pursuant to Section 39 of the
FDIA.  In  general,  the  standards  relate to (1)  operational  and  managerial
matters; (2) asset quality and earnings;  and (3) compensation.  The operational
and managerial  standards cover (a) internal  controls and information  systems,
(b) internal audit systems, (c) loan documentation, (d) credit underwriting, (e)
interest  rate  exposure,  (f)  asset  growth,  and (g)  compensation,  fees and
benefits.  Under the proposed asset quality and earnings standards,  the Savings
Bank would be required to establish and maintain systems to (i) identify problem
assets and prevent  deterioration in those assets, and (ii) evaluate and monitor
earnings and ensure that earnings are  sufficient to maintain  adequate  capital
reserves.  Finally, the proposed  compensation standard states that compensation
will be considered  excessive if it is unreasonable or  disproportionate  to the
services actually  performed by the individual being  compensated.  If a savings
institution fails to meet any of the standards  promulgated by regulation,  then
such  institution  will be  required  to submit a plan within 30 days to the OTS
specifying the steps it will take to correct the deficiency. In the event that a
savings  institution  fails  to  submit  or  fails in any  material  respect  to
implement  a  compliance  plan within the time  allowed by the  federal  banking
agency,  Section 39 of the FDIA provides that the OTS must order the institution
to correct the  deficiency  and may (1) restrict  asset growth;  (2) require the
savings institution to increase its ratio

                                                       -31-

<PAGE>
of  tangible  equity to assets;  (3)  restrict  the rates of  interest  that the
savings  institution  may pay; or (4) take any other  action  that would  better
carry out the purpose of prompt  corrective  action.  The Savings Bank  believes
that  it has  been  and  will  continue  to be in  compliance  with  each of the
standards as they have been adopted by the OTS.

         Liquidity  Requirements.  All  savings  institutions  are  required  to
maintain an average daily balance of liquid assets equal to a certain percentage
of the sum of its average daily balance of net withdrawable deposit accounts and
borrowings payable in one year or less. The liquidity  requirement may vary from
time to time (between 4% and 10%) depending upon economic conditions and savings
flows of all savings  institutions.  At the present time,  the required  minimum
liquid asset ratio is 4%. At September 30, 1998,  the Savings  Bank's  liquidity
ratio was 22.4%.

         Capital Distributions.  OTS regulations govern capital distributions by
savings  institutions,  which  include  cash  dividends,  stock  redemptions  or
repurchases, cash-out mergers, interest payments on certain convertible debt and
other  transactions  charged to the capital account of a savings  institution to
make capital distributions.  Generally, the regulation creates a safe harbor for
specified levels of capital  distributions  from  institutions  meeting at least
their minimum capital requirements,  so long as such institutions notify the OTS
and receive no objection to the distribution from the OTS. Savings  institutions
and distributions that do not qualify for the safe harbor are required to obtain
prior OTS approval before making any capital distributions.

         Generally,  a savings  institution  that before and after the  proposed
distribution  meets or exceeds its fully phased-in capital  requirements (Tier 1
institutions) may make capital  distributions  during any calendar year equal to
the higher of (i) 100% of net income for the calendar  year-to-date  plus 50% of
its "surplus capital ratio" at the beginning of the calendar year or (ii) 75% of
net income over the most recent four-quarter period. The "surplus capital ratio"
is  defined to mean the  percentage  by which the  institution's  ratio of total
capital to assets exceeds the ratio of its fully phased-in  capital  requirement
to  assets.  "Fully  phased-in  capital  requirement"  is  defined  to  mean  an
institution's  capital requirement under the statutory and regulatory  standards
applicable  on  December  31,  1994,  as  modified  to  reflect  any  applicable
individual minimum capital requirement imposed upon the institution.  Failure to
meet fully  phased-in  or minimum  capital  requirements  will result in further
restrictions on capital  distributions,  including possible  prohibition without
explicit OTS approval. See "- Regulatory Capital Requirements."

         Tier 2 institutions,  which are institutions  that before and after the
proposed  distribution  meet or exceed their minimum capital  requirements,  may
make  capital  distributions  up to 75% of their net income over the most recent
four-quarter period.

         In order to make  distributions  under these safe  harbors,  Tier 1 and
Tier 2  institutions  must  submit  30 days  written  notice to the OTS prior to
making the  distribution.  The OTS may object to the  distribution  during  that
30-day  period based on safety and  soundness  concerns.  In addition,  a Tier 1
institution  deemed to be in need of more than normal supervision by the OTS may
be  downgraded  to a  Tier  2 or  Tier  3  institution  as a  result  of  such a
determination.

                                                       -32-

<PAGE>
         Tier 3 institutions,  which are  institutions  that do not meet current
minimum  capital  requirements,  or that have  capital in excess of either their
fully phased-in  capital  requirement or minimum  capital  requirement but which
have been  notified  by the OTS that it will be treated as a Tier 3  institution
because  they  are in need of more  than  normal  supervision,  cannot  make any
capital  distribution  without  obtaining  OTS  approval  prior to  making  such
distributions.

         At September 30, 1998,  the Savings Bank was a Tier 1  institution  for
purposes of this regulation.

         On January 7, 1998,  the OTS published a notice of proposed  rulemaking
to amend its capital  distribution  regulation.  Under the  proposal,  a savings
institution that would remain at least  "adequately  capitalized"  following the
capital distribution and that meets other specified  requirements,  would not be
required  to provide  any notice or  application  to the OTS for cash  dividends
below a specified amount. A savings  institution is "adequately  capitalized" if
it has a total  risk-based  capital  ratio of 8.0% or more,  a Tier 1 risk-based
capital  ratio of 4.0% or more, a Tier 1 leverage  capital ratio of 4.0% or more
(or 3% or more if the savings  institution is assigned a composite rating of 1),
and does not meet the definition of "well capitalized." Because the Savings Bank
is a subsidiary of the Company, the proposal, however, would require the Savings
Bank to provide notice to the OTS of its intent to make a capital  distribution,
unless an application is otherwise  required.  The Savings Bank does not believe
that  the  proposal   will   adversely   affect  its  ability  to  make  capital
distributions if it is adopted substantially as proposed.

         Loans to One  Borrower.  FIRREA  imposed  limitations  on the aggregate
amount  of loans  that a savings  institution  could  make to any one  borrower,
including related entities.  The permissible amount of loans-to-one borrower now
follows the national bank  standard for all loans made by savings  institutions.
Loans-to-one  borrower  may  not  exceed  the  greater  of  $500,000  or  15% of
unimpaired capital and surplus. Loans in an amount equal to an additional 10% of
unimpaired  capital and surplus  also may be made to a borrower if the loans are
fully secured by readily marketable securities.

         Qualified Thrift Lender Test. All savings  institutions are required to
meet a QTL test set forth in Section  10(m) of the HOLA and  regulations  of the
OTS  thereunder to avoid certain  restrictions  on their  operations.  A savings
institution  that  does  not  meet  the QTL  test  set  forth  in the  HOLA  and
implementing  regulations  must either  convert to a bank charter or comply with
the following restrictions on its operations: (i) the institution may not engage
in any new activity or make any new investment,  directly or indirectly,  unless
such  activity  or  investment  is  permissible  for a national  bank;  (ii) the
branching  powers of the institution  shall be restricted to those of a national
bank;  (iii) the  institution  shall not be eligible to obtain any advances from
its FHLB; and (iv) payment of dividends by the  institution  shall be subject to
the rules regarding payment of dividends by a national bank. Upon the expiration
of three years from the date the savings institution ceases to be a QTL, it must
cease any activity and not retain any investment not  permissible for a national
bank and immediately  repay any outstanding FHLB advances (subject to safety and
soundness considerations).

                                                       -33-

<PAGE>
         Currently,   the  QTL  test  requires  that  65%  of  an  institution's
"portfolio assets" (as defined) consist of certain housing and  consumer-related
assets on a monthly  average  basis in nine out of every 12 months.  Assets that
qualify  without  limit for inclusion as part of the 65%  requirement  are loans
made to purchase,  refinance,  construct, improve or repair domestic residential
housing and manufactured housing; home equity loans;  mortgage-backed securities
(where the mortgages are secured by domestic residential housing or manufactured
housing);  stock  issued  by the FHLB of  Cincinnati;  and  direct  or  indirect
obligations of the FDIC. In addition, the following assets, among others, may be
included in meeting the test  subject to an overall  limit of 20% of the savings
institution's portfolio assets: 50% of residential mortgage loans originated and
sold within 90 days of  origination;  100% of  consumer  and  educational  loans
(limited to 10% of total portfolio assets); and stock issued by the FHLMC or the
FNMA. Portfolio assets consist of total assets minus the sum of (i) goodwill and
other  intangible  assets,  (ii)  property  used by the savings  institution  to
conduct its  business,  and (iii) liquid  assets up to 20% of the  institution's
total assets.  At September 30, 1998,  the qualified  thrift  investments of the
Savings Bank were approximately 99% of its portfolio assets.

         Federal Home Loan Bank System. The Savings Bank is a member of the FHLB
of  Cincinnati,  which is one of 12  regional  FHLBs that  administers  the home
financing credit function of savings institutions. Each FHLB serves as a reserve
or  central  bank for its  members  within  its  assigned  region.  It is funded
primarily from proceeds derived from the sale of consolidated obligations of the
FHLB  System.  It makes loans to members  (i.e.,  advances) in  accordance  with
policies and procedures established by the Board of Directors of the FHLB.

         As a member,  the Savings  Bank is required  to purchase  and  maintain
stock  in the  FHLB of  Cincinnati  in an  amount  equal  to at  least 1% of its
aggregate unpaid residential  mortgage loans, home purchase contracts or similar
obligations  at the beginning of each year.  At September 30, 1998,  the Savings
Bank had $495,000 in FHLB stock, which was in compliance with this requirement.

         As a result of FIRREA,  the FHLBs are required to provide funds for the
resolution  of troubled  savings  institutions  and to  contribute to affordable
housing programs through direct loans or interest subsidies on advances targeted
for community  investment and low- and moderate-income  housing projects.  These
contributions have adversely affected the level of FHLB dividends paid and could
continue to do so in the future.  These contributions also could have an adverse
effect on the value of FHLB stock in the  future.  For the year ended  September
30, 1998,  dividends paid by the FHLB of Cincinnati to the Savings Bank amounted
to $34,300, compared to $31,000 during the same period in the prior year.

         Federal  Reserve  System.   The  Federal  Reserve  Board  requires  all
depository  institutions to maintain reserves against their transaction accounts
(primarily  NOW and Super NOW checking  accounts).  As of September 30, 1998, no
reserves were required to be maintained on the first $4.3 million of transaction
accounts,  reserves of 3% were required to be maintained  against the next $52.0
million  of net  transaction  accounts  (with  such  dollar  amounts  subject to
adjustment by the Federal Reserve Board), and a reserve of 10% (which is subject
to adjustment by the Federal Reserve Board

                                                       -34-

<PAGE>
to a level between 8% and 14%) against all remaining net  transaction  accounts.
Because  required  reserves  must be  maintained  in the form of vault cash or a
noninterest-bearing  account  at a  Federal  Reserve  Bank,  the  effect of this
reserve requirement is to reduce an institution's earning assets.

The Savings Bank - Ohio Regulation

         As an  Ohio-chartered  savings  institution,  the Savings  Bank also is
subject to  regulation  and  supervision  by the  Division.  The Savings Bank is
required to file periodic  reports with and is subject to periodic  examinations
at least once within  every  18-month  period by the  Division.  The lending and
investment  authority  of the  Savings  Bank  is  prescribed  by Ohio  laws  and
regulations, as well as applicable federal laws and regulations, and the Savings
Bank is prohibited  from engaging in any  activities  not permitted by such laws
and regulations.

         The Savings Bank is required by Ohio law and regulations to comply with
certain reserve and net worth requirements.  Currently,  Ohio-chartered  savings
institutions are required to establish and maintain a reserve for the absorption
of bad  debts  and  other  losses  in an  amount  at  least  equal  to 3% of the
institutions's  deposit  account  balance.  For purposes of complying  with this
reserve requirement, such savings institutions are able to include the amount of
any  permanent  stock issued and  outstanding,  contributed  surplus,  undivided
profits,  specific  loss or  valuation  reserves  and any other  nonwithdrawable
accounts.  In addition,  Ohio-chartered  savings  institutions which are rated a
Composite  One  under the  Uniform  Financial  Institutions  Rating  System  are
required to  establish  and maintain a ratio of net worth to total assets of not
less than 3%. All other Ohio-chartered savings institutions are required to have
a ratio of net  worth to total  assets  of not less  than 4%.  Net  worth  shall
consist of common stockholders' equity,  noncumulative perpetual preferred stock
(including  any  related  surplus),  minority  interests  in the equity  capital
accounts of consolidated  subsidiaries and  subordinated  debentures (in varying
amounts and  percentages).  At  September  30,  1998,  the  Savings  Bank was in
compliance with applicable reserve and net worth requirements.

         Ohio law and  regulations  also  restrict  the lending  and  investment
authority of  Ohio-chartered  savings  institutions.  Such laws and  regulations
restrict the amount an  Ohio-chartered  savings  institution can lend to any one
borrower to an amount which, in the aggregate, does not exceed the lesser of (i)
10%  of  the  association's  withdrawable  accounts  or  (ii)  the  sum  of  the
association's  capital and  surplus.  Notwithstanding  the  foregoing,  Ohio law
permits any such institution to lend to any one borrower an aggregate amount not
exceeding $500,000.

         In addition,  Ohio law restricts the ability of Ohio-chartered  savings
institutions to invest in, among other things,  (i) commercial real estate loans
(including commercial construction real estate loans) up to 20% of total assets;
(ii) land  acquisition  and  development  loans up to 2% of total assets;  (iii)
consumer  loans,  commercial  paper and corporate  debt  securities up to 20% of
total assets;  (iv)  commercial  business  loans up to 10% of total assets;  (v)
stock or other equity  securities  up to 10% of total  assets;  and (vi) capital
stock,  obligations  and other  securities of service  corporations up to 15% of
total  assets.  Ohio law also sets forth the maximum  loan-to-value  ratios with
respect to various types of loans.

                                                       -35-

<PAGE>
         The investment  authority of  Ohio-chartered  savings  institutions  is
broader in many respects than that of federally chartered savings  institutions.
However,  since the enactment of FIRREA,  state-chartered  savings institutions,
such as the Savings Bank, are generally  prohibited  from acquiring or retaining
any equity investment,  other than certain investments in service  corporations,
of a type  or in an  amount  that is not  permitted  for a  federally  chartered
savings and loan association.  This prohibition applies to equity investments in
real  estate,  investments  in equity  securities  and any other  investment  or
transaction that is in substance an equity  investment,  even if the transaction
is nominally a loan or other permissible transaction. At September 30, 1998, the
Savings Bank had no investments subject to the foregoing prohibition.

         Furthermore,  a state-chartered  savings  institution may not engage as
principal in any activity not permitted for federal institutions unless the FDIC
has determined that such activity would pose no significant risk to the affected
deposit  insurance fund and the  institution  is in compliance  with the capital
standards prescribed under FIRREA. When certain activities are permissible for a
federal  institution,  the state  institution  may engage in the  activity  in a
higher amount if the FDIC has not  determined  that such  activity  would pose a
significant  risk  of  loss  to the  affected  deposit  insurance  fund  and the
association meets its capital requirements.  This increased investment authority
does not apply to investments in nonresidential  real estate loans. At September
30,  1998,  the  Savings  Bank had no  investments  that  were  affected  by the
foregoing limitations.

         Under Ohio law, an out-of-state  savings institution or holding company
may  charter or  otherwise  acquire an  Ohio-chartered  savings  institution  or
holding  company if the  Division  determines  that the laws of such other state
permit an  Ohio-chartered  savings  institution or holding company to charter or
otherwise  acquire an in-state  savings  institution or holding company on terms
that are, on the whole,  substantially  no more  restrictive  than Ohio law. Any
such acquisition would require the out-of-state  entity to apply to the Division
and receive Division approval.


                                    TAXATION

Federal Taxation

         General.  The Company and the Savings Bank are subject to the generally
applicable  corporate tax  provisions  of the Internal  Revenue Code of 1986, as
amended  (the  "Code"),  and the Savings  Bank is subject to certain  additional
provisions  of the Code  that  apply to  thrifts  and other  types of  financial
institutions.  The following  discussion of federal taxation is intended only to
summarize   certain   pertinent   federal  income  tax  matters  and  is  not  a
comprehensive discussion of the tax rules applicable to the Savings Bank.

         Fiscal  Year.  The  Company and the  Savings  Bank file a  consolidated
federal income tax return on the basis of a fiscal year ending on September 30.


                                                       -36-

<PAGE>
         Bad Debt Reserves.  Under Section 593 of the Code,  until the first tax
year  beginning on or after  January 1, 1996,  thrift  institutions  such as the
Savings Bank, which met certain  definitional  tests primarily relating to their
assets and the nature of their  business,  were  permitted  to  establish  a tax
reserve for bad debts and to make annual  additions  thereto,  which  additions,
within  specified  limitations,  could be deducted in arriving at their  taxable
income.  The Savings Bank's deduction with respect to "qualifying  loans," which
are generally loans secured by certain interests in real property, were computed
using  an  amount  based on the  Savings  Bank's  actual  loss  experience  (the
"Experience Method") or a percentage equal to 8.0% of the Savings Bank's taxable
income (the "PTI Method")  computed  without  regard to this  deduction and with
additional  modifications and reduced by the amount of any permitted addition to
the non-qualifying reserve.

         Under  recently  enacted  legislation,  however,  the  PTI  Method  was
repealed.  If an  institution  is not a "large"  thrift  institution,  i.e., the
quarterly average of the institution's total assets or of the consolidated group
of which it is a member exceeds $500 million for the year, the institution  will
continue  to be  permitted  to use  the  Experience  Method.  In  addition,  the
institution is required to recapture (i.e.,  take into income) over a multi-year
period its "applicable  excess  reserves,"  i.e., the balance of its reserve for
losses on qualifying loans and nonqualifying  loans, as of the close of its last
tax year beginning  before  January 1, 1996,  over the greater of (a) balance of
such reserves as of December 31, 1987 or (b) in the case of an institution  that
is not a "large" thrift institution,  an amount that would have been the balance
of such reserves as of the close of its last tax year  beginning  before January
1, 1996, had the institution always computed the additions to its reserves using
the experience  method.  The institution  would not be required to recapture its
supplemental  reserves or its pre-1988  reserves,  even if the institution later
became a supplemental reserves or its pre-1988 reserves, even if the institution
later became a "large" bank. Under the legislation,  such recapture requirements
would be suspended for each of two successive taxable years beginning January 1,
1997 if the principle amount of residential loans made by the institution during
each such year is not less than the  average  of the  principal  amounts of such
loans made by the institution  during its six taxable years preceding January 1,
1996.  As of June 30,  1998,  the  Savings  Bank's bad debt  reserve  subject to
recapture over a six-year period totaled approximately $80,000.

         If the  Savings  Bank ceases to qualify as a "bank" (as defined in Code
Section  581) or converts to a credit  union,  then the  pre-1988  reserves  and
supplemental  reserves  are restored to income  ratably over a six-year  period,
beginning  in the tax year in which the  association  no longer  qualifies  as a
bank.  The balance of the pre-1988  reserve also are subject to recapture in the
case of certain excess distributions to (including  distributions on liquidation
and dissolution), or redemptions of stockholders.

         Distributions.  If the Savings Bank distributes cash or property to its
stockholders,  and the distribution is treated as being from its accumulated bad
debt  reserves,  then the  distribution  will  cause  the  Savings  Bank to have
additional  taxable  income.  A  distribution  is  deemed to have been made from
accumulated  bad debt  reserves to the extent that (a) the  reserves  exceed the
amount that would have been  accumulated on the basis of actual loss experience,
and (b) the distribution is a "non-qualified  distribution." A distribution with
respect to stock is a non-dividend distribution to

                                                       -37-
<PAGE>
the extent that,  for federal  income tax  purposes,  (i) it is in redemption of
shares, (ii) it is pursuant to a liquidation of the institution, or (iii) in the
case of a  current  distribution,  together  with all other  such  distributions
during the taxable  year,  it exceeds the  institution's  current and  post-1951
accumulated  earnings  and  profits.  The amount of  additional  taxable  income
created by a non-  dividend  distribution  is an amount that when reduced by the
tax attributable to it is equal to the amount of the distribution.

         Minimum Tax. The Code imposes an  alternative  minimum tax at a rate of
20%. The alternative  minimum tax generally applies to a base of regular taxable
income plus certain tax  preferences  ("alternative  minimum  taxable income" or
"AMTI")  and is  payable to the  extent  such AMTI is in excess of an  exemption
amount.  The Code provides  that an item of tax  preference is the excess of the
bad debt  deduction  allowable for a taxable year pursuant to the  percentage of
taxable income method over the amount  allowable  under the  experience  method.
Other items of tax  preference  that  constitute  AMTI  include  (a)  tax-exempt
interest on newly issued (generally,  issued on or after August 8, 1986) private
activity bonds other than certain  qualified bonds and (b) 75% of the excess (if
any) of (i)  adjusted  current  earnings as defined in the Code,  over (ii) AMTI
(determined  without  regard to this  preference  and prior to  reduction by net
operating losses).

         Net Operating Loss Carryovers. For taxable years beginning after August
5, 1997, a financial institution may carry back net operating losses ("NOLs") to
the two preceding taxable years and carry forward and deduct from taxable income
for the 20 succeeding taxable years. At September 30, 1998, the Savings Bank had
no NOL carryforwards for federal income tax purposes.

         Capital Gains and Corporate Dividends-Received Deduction. Corporate net
capital   gains   are   taxed  at  a  maximum   rate  of  34%.   The   corporate
dividends-received  deduction  is 80% in the  case of  dividends  received  from
corporations  with which a corporate  recipient does not file a consolidated tax
return,  and  corporations  that own less than 20% of the stock of a corporation
distributing a dividend may deduct only 70% of dividends  received or accrued on
their behalf.  However, a corporation may deduct 100% of dividends from a member
of the same affiliated group of corporations.

         Other Matters. Federal legislation is introduced from time to time that
would  limit the  ability of  individuals  to deduct  interest  paid on mortgage
loans.  Individuals  currently are not permitted to deduct  interest on consumer
loans.  Significant  increases  in tax  rates  or  further  restrictions  on the
deductibility of mortgage interest could adversely affect the Savings Bank.

         The Savings  Bank's federal income tax returns have not been audited by
the Internal  revenue Service ("IRS") in recent years and its federal income tax
returns for the tax years ended September 30, 1997, 1996 and 1995 are open under
the statute of limitations and are subject to review by the IRS. State Taxation


                                                       -38-

<PAGE>
         The  Company is subject to an Ohio tax based on the  greater of its tax
liability as determined  under  separate net worth and net income  computations.
The  Company  will  exclude its  investment  in Kenwood in  determining  its tax
liability under the net worth computation. The tax liability under the net worth
computation  will be computed at .596% of the Company's net taxable  value.  The
tax liability  under the net income method will be computed at a graduated  rate
not exceeding 9.12% of the Company's Ohio taxable income.

         The  Savings  Bank is  subject  to an Ohio  franchise  tax based on its
equity capital plus certain reserve  amounts.  Total capital for this purpose is
reduced by certain exempted assets. The resultant net taxable value was taxed at
a rate of 1.5% for 1998.



                                                       -39-

<PAGE>
Item 2.  Properties.
--------------------

         At  September  30,  1998,  Kenwood  conducted  its  business  from  its
headquarters and main office in Cincinnati, Ohio and one loan origination office
located in Cincinnati,  Ohio. The following  table sets forth the net book value
(including leasehold  improvement,  furnishings and equipment) and certain other
information with respect to the offices of Kenwood at September 30, 1998.
<TABLE>
<CAPTION>
                                                                              Net Book
                                                                              Value of                Amount of
            Description/Address                    Leased/Owned               Property                 Deposits
-----------------------------------------     ---------------------    --------------------    ----------------------
                                                                                        (In Thousands)
<S>                                                   <C>                       <C>                    <C>    
7711 Montgomery Road
Cincinnati, Ohio  45236                                Owned                    $329                   $41,383

9462 Towne Square Avenue
Cincinnati, Ohio  45242
(loan origination office)                             Leased                      25                        --
                                                                                ----                   -------
  Total                                                                         $354                   $41,383
                                                                                ====                   =======
</TABLE>

Item 3.  Legal Proceedings.
---------------------------

         The Company is not involved in any pending legal proceedings other than
nonmaterial legal proceedings occurring in the ordinary course of business.

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

         Not applicable.


                                                       -40-

<PAGE>
PART II.

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

         The  information   required  herein,  to  the  extent  applicable,   is
incorporated  by reference  from page 58 of the Company's  1998 Annual Report to
Stockholders ("1998 Annual Report").

Item 6.  Selected Financial Data.
---------------------------------

         The information required herein is incorporated by reference from pages
four and five of the 1998 Annual Report.

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

         The information required herein is incorporated by reference from pages
six to 22 of the 1998 Annual Report.

Item 7A. Quantitative and Qualitative Disclosures About Market Risk
------------------------------------------------------------------- 

         The information required herein is incorporated by reference from pages
seven to 11 of the 1998 Annual Report.

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

         The information required herein is incorporated by reference from pages
four and five and 23 to 57 of the 1998 Annual Report.

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

         Not applicable.

PART III.

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

         The information required herein is incorporated by reference from pages
five to nine of the Company's  definitive proxy statement to be filed within 120
days of the  Company's  fiscal year end  (September  30, 1998) (the  "Definitive
Proxy Statement").

                                                       -41-
<PAGE>
Item 11.  Executive Compensation.
---------------------------------

         The information required herein is incorporated by reference from pages
nine to 13 of the Company's Definitive Proxy Statement.

Item 12.  Security Ownership of Certain Beneficial Owners and Management.
-------------------------------------------------------------------------
 
         The information required herein is incorporated by reference from pages
two to five of the Company's Definitive Proxy Statement.

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

         The information  required herein is incorporated by reference from page
13 of the Company's Definitive Proxy Statement.

PART IV.

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

         (a)  Documents Filed as Part of this Report

         (1) The following  financial  statements are  incorporated by reference
from Item 8 hereof (see Exhibit 13):

             Reports of Independent Certified Public Accountants
             Consolidated Statement of Financial Condition as of September 30,
               1998 and 1997
             Consolidated Statements of Income for the Fiscal Periods Ended
                September 30, 1998, 1997 and 1996
             Consolidated Statements of Shareholders' Equity for the Fiscal
                Periods Ended September 30, 1998, 1997 and 1996
             Consolidated  Statements of Cash Flows for the Fiscal  Periods
                ended September 30, 1998, 1997 and 1996
             Notes to Consolidated Financial Statements

         (2) All  schedules  for  which  provision  is  made  in the  applicable
accounting  regulation  of  the  SEC  are  omitted  because  of the  absence  of
conditions under which they are required or because the required  information is
included in the consolidated financial statements and related notes thereto.


                                                       -42-

<PAGE>
         (3) The  following  exhibits  are filed as part of this Form 10-K,  and
this list includes the Exhibit Index.
<TABLE>
<CAPTION>
No.                                                         Description
---------         ------------------------------------------------------------------------------------------------
<S>               <C>
 2.1              Plan of Conversion and Agreement and Plan of Reorganization1/
 3.1              Certificate of Incorporation of Kenwood Bancorp, Inc.1/
 3.2              Bylaws of Kenwood Bancorp, Inc.1/
 4.1              Specimen Stock Certificate of Kenwood Bancorp, Inc.1/
10.1              1992 Stock Incentive Plan1/
10.2              1992 Directors' Stock Option Plan1/
10.3              1992 Management Recognition Plan1/
10.4              Kenwood Bancorp, Inc. Employee Stock Ownership Plan and Trust1/
13.0              1998 Annual Report to Stockholders, specified portion (pp. 4 to 58) of the
                  Company's  Annual  Report to  Stockholders  for the year ended
                  September 30, 1998.
21.0              Subsidiaries of the Registrant - Reference is made to "Item 1. Business" for the
                  required information
23.0              Consent of Clark, Schaefer, Hackett & Co.
27.0              Financial Data Schedule
</TABLE>
----------------
1/       Incorporated  herein  by  reference  from  the  Company's  Registration
         Statement on Form S-1  (Registration No. 333-2698) filed by the Company
         with the Securities and Exchange  Commission ("SEC") on March 22, 1996,
         as subsequently amended.


         (b) The Company did not file any Current Reports on Form 8-K during the
fiscal quarter ended September 30, 1998.

                                                       -43-

<PAGE>
                                   SIGNATURES


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

                                             KENWOOD BANCORP, INC.

                                             By:    /s/ Thomas W. Burns
                                                   --------------------
                                                    Thomas W. Burns
                                                    Executive Vice President and
                                                      Chief Executive Officer

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

/s/ Robert P. Isler                            December 29, 1998
-----------------------------------
Robert P. Isler
President and Chairman of the Board


/s/ Thomas W. Burns                            December 29, 1998
-----------------------------------
Thomas W. Burns
Executive Vice President and
 Chief Executive Officer
 (principal executive and
 financial officer)


/s/ Richard C. Kent                            December 29, 1998
-----------------------------------
Richard C. Kent
Director
<PAGE>
/s/ Donald G. Ashcraft                         December 29, 1998
-----------------------------------
Donald G. Ashcraft
Director


/s/ P. Lincoln Mitchell                        December 29, 1998
-----------------------------------
P. Lincoln Mitchell
Secretary and Director


/s/ James N. Murphy                            December 29, 1998
-----------------------------------
James N. Murphy
Director