<PAGE>   1

                     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, 1996

                                     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)


                    Ohio                                    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)


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 $10.50 closing price of the Registrant's common stock as of
December 24, 1996, the aggregate market value of the 234,793  shares of the
Registrant's common stock deemed to be held by non-affiliates of the Registrant
was approximately $2.47 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 24, 1996: 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, 1996 are incorporated into Part II, Items 5 through 8 of this Form 10-K.

(2)  Portions of the definitive proxy statement for the 1997 Annual Meeting of
Stockholders are incorporated into Part III, Items 9 through 13 of this Form
10-K.
<PAGE>   2
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, 1996, the
Company had $50.2 million of total assets, $46.0 million of total liabilities,
including $41.6 million of deposits, and $4.2 million of total stockholders'
equity.

         Kenwood is an Ohio-chartered stock savings institution which 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
was originally 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") whereby
the Mutual Association (i) organized a newly formed stock savings and loan
association; (ii)





                                       1
<PAGE>   3
transferred substantially all of its assets and liabilities to the newly formed
stock savings and loan association in exchange for all of the common stock of
such institution; and (iii) reorganized from an Ohio-chartered mutual savings
and loan association to a federally chartered, mutual holding company known as
"Kenwood Federal Mutual Holding Company."  As part of the MHC Reorganization,
the newly formed stock savings and loan association issued 69,000 shares of
common stock to certain members of the general public and 81,000 shares of
common stock to the Mutual Holding Company.

         The Savings Bank is primarily 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 $37.7 million, or
94.6%, of the Savings Bank's total loan portfolio at September 30, 1996.  To a
much lesser extent, the Savings Bank originates consumer and other loans, which
amounted to $860,000, or 2.2%, of the total loan portfolio at September 30,
1996, as well as loans secured by existing multi-family residential and
nonresidential real estate, which amounted to $126,000, or 0.3%, and $142,000,
or 0.4%, 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 which 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 ("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 ("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, 1996, the Savings Bank's net loan portfolio
(including loans held for sale) totalled $39.3 million, representing
approximately 78.3% of the Savings Bank's $50.2 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.





                                      -2-
<PAGE>   4
         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 which 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 borrower if
the loans are fully secured by readily marketable securities.  At September 30,
1996, 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 $364,000, $310,000, $297,000, $297,000 and $279,000.  All
of these loans are secured by single-family residential real estate located in
Hamilton County, Ohio and all of these loans were performing in accordance with
their terms at September 30, 1996.

         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,
                                         ----------------------------------------------------------------------- 
                                               1996                      1995                       1994
                                         ------------------        ------------------         ------------------ 
                                          Amount        %           Amount        %            Amount        %
                                         --------    ------        --------    ------         ---------   ------ 

                                                                 (Dollars in Thousands)

 <S>                                     <C>         <C>           <C>         <C>            <C>         <C>
 One-to-four family residential(1)       $37,699      94.6%        $31,464      95.7%         $26,187      93.9%
 Multi-family residential                    126       0.3             239       0.7              655       2.3
 Nonresidential real estate                  142       0.4             232       0.7              345       1.2
 Construction                              1,016       2.5             226       0.7              519       1.9
                                          ------      ----          ------     -----           ------      ----
         Total real estate loans          38,983      97.8          32,161      97.8           27,706      99.3

 Consumer and other loans:
   Home equity lines of credit               817       2.1             366       1.2               --        --
   Deposit secured                            41       0.1             306       0.9              121       0.4
   Other(2)                                    2        --              35       0.1               69       0.3
                                          ------     -----          ------     -----           ------     -----
         Total consumer and other            860       2.2             707       2.2              190       0.7
           loans                          ------     -----          ------     -----           ------     -----
         Total loans                      39,843     100.0%         32,868     100.0%          27,896     100.0%
                                          ------     =====          ------     =====           ------     ===== 
 Less (add):
   Undisbursed portion of
     loans-in-process                        502                        61                        265
   Deferred loan origination costs           (85)                      (46)                       (32)
   Allowance for loan losses                  95                        81                         69
                                          ------                    ------                     ------
                                             512                        96                        302
                                          ------                    ------                     ------
         Net loans                       $39,331                   $32,772                    $27,594
                                          ======                    ======                     ======
                       
-----------------------
</TABLE>

(1)      Included $9.3 million, $213,000 and $0 of loans designated as held for
         sale at September 30, 1996, 1995 and 1994, respectively.

(2)      Consists of secured commercial business loans.





                                      -3-
<PAGE>   5
         CONTRACTUAL PRINCIPAL REPAYMENTS AND INTEREST RATES.  The following
table sets forth certain information at September 30, 1996 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 
                                     1997           1998           1999         09/30/96        09/30/96  
                                 -----------    -----------    ------------  -------------   -------------
                                                                (In Thousands)      
                                                                                                          
 <S>                                <C>            <C>            <C>          <C>              <C>       
 One-to-four family residential     $ 75            $24           $197         $3,469           $7,927    
 Multi-family residential and                                                                             
   nonresidential real estate         --             --             --             --              203    
 Construction                         --             --             --             --               --    
 Consumer and other                   43             --             --            817               --    
                                     ---            ---            ---          -----            -----    
      Total                         $118           $ 24           $197         $4,286           $8,130    
                                     ===            ===            ===          =====            =====    
</TABLE>

<TABLE>
<CAPTION>
                                     Due 10-20         Due 20
                                    years after      years after
                                      09/30/96        09/30/96         Total
                                   -----------      -----------    ------------
                                                  (In Thousands)      
                                   
 <S>                                  <C>            <C>              <C>
 One-to-four family residential       $4,195         $21,812          $37,699
 Multi-family residential and      
   nonresidential real estate             65              --              268
 Construction                             --           1,016            1,016
 Consumer and other                       --              --              860
                                       -----          ------           ------
      Total                           $4,260         $22,828          $39,843
                                       =====          ======           ======
</TABLE>





                                      -4-
<PAGE>   6
         The following table sets forth the dollar amount of all loans, before
net items, due after one year from September 30, 1996 which have fixed interest
rates or which have floating or adjustable interest rates.

<TABLE>
<CAPTION>
                                                                           Floating
                                                        Fixed                 or
                                                        Rates          Adjustable Rates           Total
                                                   -------------    ---------------------    ---------------
                                                                        (In Thousands)

 <S>                                                   <C>                    <C>                  <C>
 Single-family residential                             $17,791                $19,833              $37,624
 Multi-family residential and
   nonresidential real estate                               80                    188                  268
 Construction                                               --                  1,016                1,016
 Consumer and other                                         --                    817                  817
                                                        ------                 ------               ------
      Total                                            $17,871                $21,854              $39,725
                                                        ======                 ======               ======
</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 are generally
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 is first reviewed by the Savings Bank's loan officer and then is
submitted for approval to the Board of Directors.  All loans must be approved
by the Loan Committee appointed by the Board of Directors.  In addition, Thomas
W.





                                      -5-
<PAGE>   7
Burns, Executive Vice President and Chief Executive Officer, has been granted
loan approval authority by 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.  However, since fiscal
1991, 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, 1996, there were $9.3 million of loans designated as held for sale.  The
Savings Bank's loan policy currently limits the total amount of loans
designated as held for sale to a maximum of $1.5 million, excluding the special
loan sale of adjustable rate mortgages in December 1996.  Sales of loans to
date generally have been under terms which 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, 1996, the Savings Bank was servicing
$18.2 million of loans for others.

         Historically, the Savings Bank has not been an active purchaser of
loans.  At September 30, 1996, loans purchased and serviced by others totalled
$225,000.





                                      -6-
<PAGE>   8
         The following table shows total loans originated, purchased, sold and
repaid during the periods indicated.


<TABLE>
<CAPTION>
                                                        Year Ended September 30,
                                               --------------------------------------------
                                                  1996              1995            1994
                                               -----------   ----------------    ----------
                                                             (In Thousands)

 <S>                                           <C>                <C>               <C>
 Loan originations:
   One-to-four family residential
    and construction(1)                        $24,801            $13,298           $18,676
   Multi-family residential                         --                 --                --
   Nonresidential real estate                       --                 --                --
   Consumer and other                              773                683               133
                                                 -----             ------            ------
         Total loans originated                 25,574             13,981            18,809
 Purchases                                          --                 --                --
                                                 -----            -------            ------
         Total loans originated and
                    purchased                   25,574             13,981            18,809


 Sales and loan principal reductions:
   Loans sold                                   12,595              3,175             7,014
   Loan principal reductions                     6,445              5,630             7,878
                                                ------              -----            ------
         Total loans sold and
           principal reductions                 19,040              8,805            14,892

 Increase due to other net items                    25                  2                 3
                                                 -----              -----            ------

 Net increase in loan portfolio                $ 6,559             $5,178           $ 3,920
                                                ======              =====            ======
</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, 1996, $37.7
million, or 94.6%, 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 include
non-conventional loans (loans which are either insured by the Federal Housing
Administration or partially guaranteed by the Department of Veterans Affairs)
and conventional loans.  Although a majority of the Savings Bank's loans
consist of conventional loans, the Savings Bank has recently increased its
origination of non-conventional mortgage loans.  The Savings Bank





                                      -7-
<PAGE>   9
has also recently 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
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, 1996, $20.9 million, or 54.0%, 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 which
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





                                      -8-
<PAGE>   10
and adjustable-rate residential loans that can be originated at any time is
largely determined 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 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, 1996, consumer and other
loans totalled $860,000, or 2.2%, 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 $817,000, or 2.1%, 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 which 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, 1996, $41,000
of loans secured by customer deposits and $2,000 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, 1996, $126,000, or 0.3%, and $142,000, or 0.4%, 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, nine 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 which range up to 25 years.  Although some of the multi-family
residential and nonresidential real estate loans which 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 2% with a 6% cap over the life of
the loan.  At September 30, 1996, $188,000, or 70.1%, of the multi-family
residential and nonresidential real estate loan portfolio consisted of
adjustable-rate loans.





                                      -9-
<PAGE>   11
         Multi-family residential and nonresidential real estate loans are
generally made in amounts up to 75% of the appraised value of the security
property.  All appraisals are generally 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.

         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,
1996, construction loans amounted to $1.0 million or 2.5% of the Savings Bank's
total loan portfolio (including loans held for sale), before net items.  Of
this amount, $1.0 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,
1996.

         Construction lending is generally limited to the Savings Bank's
primary lending area.  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 which 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 is
generally 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 is
typically dependent 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





                                      -10-
<PAGE>   12
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, 1996, the Savings Bank had $85,000 of
loan costs which had been deferred and are 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, 1996, in dollar amount and as a
percentage of the Savings Bank's total loan 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 which are
past due.

<TABLE>
<CAPTION>
                                                              Total
                                                ---------------------------------
                                                   Amount            Percentage
                                                -------------     ---------------
                                                (Dollars in Thousands)

 <S>                                               <C>                     <C>
 Loans delinquent for:
   30 - 59 days                                    $  916                  2.3%
   60 - 89 days                                       140                  0.4
   90 days and over                                    --                   --
                                                    -----                  ---
 Total delinquent loans(1)                         $1,056                  2.7%
                                                    =====                  === 
</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 are generally 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.
While the Savings Bank generally prefers to work with borrowers to resolve such
problems, when the account becomes 90 days delinquent, the Savings Bank does
institute foreclosure or other proceedings, as necessary, 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 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





                                      -11-
<PAGE>   13
accrued and unpaid at the time a loan is placed on non-accrual status is
charged against interest income.  Subsequent payments are either 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.

         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,
                                                     -----------------------------------------------------
                                                         1996                 1995              1994
                                                     --------------      ---------------    --------------
                                                                  (Dollars in Thousands)

 <S>                                                        <C>                 <C>                <C>
 Non-accruing loans(1)                                      $  --               $ --               $ 33
 Accruing loans greater than
  90 days delinquent(1)                                        --                 --                 --
 Real estate owned                                             --                 --                 --
                                                             ----               ----               ----
   Total non-performing assets                              $  --               $ --               $ 33
                                                             ====                ===                ===
   Total non-performing loans as
    a percentage of total loans                                --%                --%               .12%
                                                             ====                ===                === 
   Total non-performing assets as
      a percentage of total assets                             --%                --%               .08%
                                                             ====                ===                === 
</TABLE>

-------------------------

(1)      Consisted solely of single-family residential loans.


         The interest income that would have been recorded during the years
ended September 30, 1996, 1995 and 1994 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, $0 and $1,800, 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,





                                     -12-
<PAGE>   14
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
loss is considered uncollectible and of such little value that continuance as
an asset of the institution is not warranted.  Another category designated
"special mention" also must be established and maintained for assets which 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 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 loss allowances established to cover possible
losses related to assets classified 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 a recent OTS proposal which would
revise the amount of general loss allowances required with respect to
classified and other assets, see "- Allowance for Loan Losses."  At September
30, 1996, 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, 1996, 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>   15
         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,
                                            ---------------------------------------------------------------
                                                  1996                1995                     1994
                                            ---------------    ----------------------    ------------------
                                                               (Dollars in Thousands)

 <S>                                             <C>                <C>                      <C>
 Total net loans outstanding(1)                   $39,331           $32,772                  $27,594
                                                   ======            ======                   ======
 Average loans outstanding, net                   $35,234           $30,792                  $23,844
                                                   ======            ======                   ======
 Balance at beginning of period                   $    81           $    69                  $    60
 Charge-offs                                           --                --                       (2)
 Recoveries                                            --                --                       --
                                                   ------           -------                  -------
 Net charge-offs                                       --                --                       (2)
 Provision for losses on loans                         14                12                       11
                                                  -------            ------                  -------
 Balance at end of period                        $     95           $    81                  $    69
                                                  =======            ======                   ======
 Allowance for loan losses as a
  percent of total loans
  outstanding                                         .24%              .25%                     .25%
                                                     ====               ===                      === 
 Ratio of net charge-offs to average
  loans outstanding                                    --%               --%                      --%(2)
                                                     ====               ===                      ===    
</TABLE>
----------------------------

(1)      Includes loans held for sale.

(2)      Less than .1%.


         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 which 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.  While the Policy
Statement sets forth this quantitative measure, such guidance is not intended
as a "floor" or "ceiling."





                                      -14-
<PAGE>   16
         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,
                            ---------------------------------------------------------------------------------------
                                        1996                        1995                         1994
                            ---------------------------   ----------------------------    -------------------------
                                           Percent of                   Percent of                     Percent of
                                              Total                        Total                          Total
                                            Loans by                      Loans by                       Loans by
                               Amount       Category         Amount       Category         Amount        Category
                            -------------  ------------   ------------  --------------    ----------   ------------

                                                            (Dollars in Thousands)

 <S>                            <C>        <C>                <C>       <C>                  <C>      <C>
 One-to-four family
   residential                  $91          95.8%            $78         96.9%              $65        93.9%
 Multi-family residential        --           0.3               1           .7                 2         2.3
 Nonresidential real estate      --           0.4               1           .7                 1         1.2
 Construction                     2           1.3               1           .7                 1         1.9
 Consumer and other loans         2           2.2              --          1.0                --          .7
                                 --        ------              --       ------                --      ------
      Total                     $95        100.00%            $81       100.00%              $69      100.00%
                                 ==        ======              ==       ======                ==      ====== 
</TABLE>


         Management of the Savings Bank believes that the reserves it has
established are adequate to cover any potential losses in the Savings Bank's
loan portfolio.  However, future adjustments to these reserves may be
necessary, 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 which management utilized 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





                                      -15-
<PAGE>   17
to hold these securities to maturity.  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 a recent 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,
1996, the Company had $486,000 of investment securities and $4.5 million of
mortgage-backed securities classified as available for sale and the Company's
stockholders' equity reflected a net unrealized gain of $12,000.

         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 which 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>   18
         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, 1996, 1995 and 1994 (including those designated as available for
sale).

<TABLE>
<CAPTION>
                                                             September 30,
                              --------------------------------------------------------------------------
                                          1996                    1995                   1994
                              -------------------------   --------------------  ------------------------
                                  Amortized    Market     Amortized    Market     Amortized   Market
                                    Cost        Value        Cost      Value         Cost      Value
                              -------------  ----------   ---------  ---------  -----------  -----------
                                                            (In Thousands)

 <S>                               <C>        <C>         <C>          <C>        <C>          <C>
 FHLMC participation                                                                                 
   certificates                    $  348     $   339     $  397       $  396     $  616       $  597
 GNMA participation                                                                                  
   certificates                     3,835       3,867      6,033        6,080      6,484        6,226
 FNMA participation                                                                                  
   certificates                       560         573        881          888      1,050        1,021
                                    -----       -----      -----        -----      -----        -----
 Total mortgage-backed
   securities                      $4,743      $4,779     $7,311       $7,364     $8,150       $7,844
                                    =====       =====      =====        =====      =====        =====
</TABLE>


         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,
                                                    -----------------------------------------------------
                                                       1996                  1995               1994
                                                    ------------   --------------------    --------------
                                                                   (Dollars in Thousands)
 <S>                                                  <C>                  <C>                    <C>
 Mortgage-backed securities
   at beginning of period                             $7,311               $8,150                 $5,773
 Purchases                                               513                   --                  3,090
 Repayments                                           (1,332)                (839)                  (689)
 Sales                                                (1,745)
 Change in unrealized gain on available
   for sale securities                                    30                   --                     --
 Premium amortization                                     (3)                  --                    (24)
                                                        -----              ------                  ----- 
 Mortgage-backed securities at end
   of period(1)                                       $4,774               $7,311                 $8,150
                                                       =====                =====                  =====
 Weighted average yield at end of
   period                                               6.63%                6.23%                  5.06%
                                                       =====                 ====                   ==== 
</TABLE>

--------------------------

(1)      At September 30, 1996, $4.5 million of such securities were classified
         as available for sale.





                                     -17-
<PAGE>   19
         At September 30, 1996, of the $4.8 million portfolio, $348,000 was
scheduled to mature in between one and five years and $4.4 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 $4.8 million of mortgage-backed securities, $245,000 consisted
of fixed-rate and $4.5 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,
                                -----------------------------------------------------------------------------
                                         1996                       1995                      1994
                                -------------------------   ----------------------   ------------------------
                                 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)                 $2,493      $2,445         $2,990     $2,995         $1,989      $1,989
                                   =====       =====          =====      =====          =====       =====
 Weighted average yield
   at end of period                  6.0%                      6.16%                     5.02%
                                    ====                       ====                      ==== 

</TABLE>

-------------------

(1)      At September 30, 1996, $486,000 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, 1996.

<TABLE>
<CAPTION>
                                                   Amortized        Market
                                                      Cost           Value
                                                  ------------- -------------
                                                        (In Thousands)

 <S>                                                  <C>           <C>
 One year                                             $   --        $   --
 One to five years                                     2,493         2,445
 Five to ten years                                        --            --
 More than ten years                                      --            --
                                                       -----         -----
     Total                                            $2,493        $2,445
                                                       =====         =====
</TABLE>





                                     -18-
<PAGE>   20
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 may also 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 $5.7 million at September 30, 1996.  Deposit account terms vary,
with the principal differences being the minimum balance required, the time
period 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>   21
         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,
                         --------------------------------------------------------------------------------
                                    1996                      1995                        1994
                         --------------------------   ------------------------  -------------------------
                             Amount     Percentage     Amount      Percentage     Amount      Percentage
                         ------------  ------------   ---------   ------------  ----------   ------------
                                                      (Dollars in Thousands)
 <S>                     <C>             <C>        <C>             <C>          <C>            <C>
 Certificate accounts:
  2.00  -  4.00%         $      --          --%     $      --          --%       $ 2,626          6.8%
  4.01  -  6.00%            18,807        45.2         18,061        40.6         24,788         63.8
  6.01  -  8.00%            14,997        36.0         19,530        44.0          2,513          6.5
  8.01  - 10.00%                --          --             53          .1            309           .8
 10.01  - 12.00%                --          --             22          .1             20           .1
                            ------       -----        -------       -----         ------        -----
 Total certificate                                                                                   
   accounts                 33,804        81.2         37,666        84.8         30,256         78.0
                            ------       -----         ------       -----         ------        -----

 Transactions
   accounts:
   Passbook accounts         1,396         3.3          1,939         4.4          1,999          5.1
   Statement savings         2,535         6.1
   Money market              2,616         6.3          4,082         9.2          5,980         15.4
     accounts
   NOW accounts              1,285         3.1            741         1.6            602          1.5
                            ------       -----          -----       -----         ------        -----
 Total transaction                                                                                   
   accounts                  7,832        18.8          6,762        15.2          8,581         22.0
                            ------       -----         ------       -----         ------        -----
 Total deposits            $41,636       100.0%       $44,428       100.0%       $38,837        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,
                                          ------------------------------------------------------
                                              1996                1995               1994
                                          -------------   --------------------    --------------
                                                            (In Thousands)

 <S>                                          <C>                <C>                  <C>
 Deposits                                     $30,928            $ 37,426             $ 28,193
 Withdrawals                                  (35,751)            (33,750)             (25,811)
                                              -------             -------              ------- 
   Net increase (decrease)
     before interest credited                  (4,823)              3,676                2,382
 Interest credited                              2,031               1,915                1,284
                                               ------             -------               ------
   Net increase (decrease)
    in deposits                               $(2,792)           $  5,591             $  3,666
                                               ======             =======              =======
</TABLE>





                                     -20-
<PAGE>   22
         The following table shows the interest rate and maturity information
for the Savings Bank's certificates of deposit at September 30, 1996.

<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%    $13,019         $4,484          $1,246              $ 58        $18,807
                           
                     6.01 -  8.00%      8,636          2,523           3,212               626         14,997
                                       ------          -----           -----               ---         ------

                          Total       $21,655         $7,007          $4,458              $684        $33,804
                                       ======          =====           =====               ===         ======
</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, 1996.


<TABLE>
<CAPTION>
                                    Certificates of deposit
                                    maturing in quarter ending:
                                    -----------------------------------

                                                                                 (In Thousands)

                                    <S>                                              <C>
                                    December 31, 1996                                $    --

                                    March 31, 1997                                     1,014

                                    June 30, 1997                                        100

                                    September 30, 1997                                   310

                                    After September 30, 1997                           2,112
                                                                                       -----

                                    Total certificates of deposit
                                      with balances of $100,000
                                      or more                                         $3,536
                                                                                       =====
</TABLE>





                                     -21-
<PAGE>   23
         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, 1996, the Savings Bank had a $6.0
million line of credit with the FHLB of Cincinnati.  As of such date the
Savings Bank had $3.7 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,
                                          ----------------------------------------------------
                                             1996                1995                1994
                                          -------------     -------------------   ------------
                                                          (Dollars in Thousands)

 <S>                                           <C>                 <C>                  <C>
 Maximum balance                               $3,658              $1,708               $1,715
 Average balance                                1,313                 720                  521
 Weighted average interest
   rate of FHLB advances                         5.48%               5.97%                4.61%
</TABLE>

         The following table sets forth certain information as to the Savings
Bank's FHLB advances at the dates indicated.

<TABLE>
<CAPTION>
                                                               September 30,
                                                --------------------------------------------
                                                    1996              1995           1994
                                                --------------   --------------   ----------
                                                          (Dollars in Thousands)

 <S>                                                <C>                <C>              <C>
 FHLB advances                                      $3,653             $194             $212
 Weighted average interest
   rate of FHLB advances                              5.46%            5.65%            5.65%
</TABLE>


EMPLOYEES

         The Savings Bank had 11 full-time employees and three part-time
employees at September 30, 1996.  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>   24
COMPETITION

         The Savings Bank faces strong competition both in attracting deposits
and making real estate loans.  Its most direct competition for deposits has
historically come from other savings associations, credit unions and commercial
banks located in the greater Cincinnati area, including many large financial
institutions which 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.  As of
September 30, 1996, it was estimated that the Savings Bank held approximately
1.6% of total thrift deposits within Hamilton County, Ohio and 0.2% of total
thrift and bank deposits within such county.

         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 which 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





                                      -23-
<PAGE>   25
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 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
which 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 which 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 which 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, 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





                                      -24-
<PAGE>   26
an affiliate, except for any affiliate which engages only in activities which
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 which are subsidiaries of the savings institution.

         In addition, Sections 22(h) and (g) of the Federal Reserve Act places
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 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, 1996, 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 which 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 which controls savings
institutions in more than one state if (i) the multiple savings and loan
holding company involved controls a savings institution which 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





                                      -25-
<PAGE>   27
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 which 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.

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
primarily intended 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' enforcement authority over all savings institutions was
substantially enhanced 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 significantly increased the amount of and grounds for civil money
penalties.

         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





                                      -26-
<PAGE>   28
authority to initiate enforcement actions against savings institutions, after
giving the OTS an opportunity to take such action.

         Under current FDIC regulations, institutions are assigned to one of
three capital groups which are based solely on the level of an institution's
capital--"well capitalized," "adequately capitalized," and
"undercapitalized"--which are defined in the same manner as the regulations
establishing the prompt corrective action system under Section 38 of the FDIA,
as discussed below.  These three groups are then divided into three subgroups
which reflect varying levels of supervisory concern, from those which are
considered to be healthy to those which are considered to be of substantial
supervisory concern.  The matrix so created results in nine assessment risk
classifications, with rates previously ranging from .23% for well capitalized,
healthy institutions to .31% for undercapitalized institutions with substantial
supervisory concerns.  As of September 30, 1996, the insurance premiums for the
Savings Bank amounted to .23% of insured deposits.

         On November 14, 1995, the FDIC adopted a new assessment rate schedule
of zero to 27 basis points (subject to a $2,000 minimum) for BIF members
beginning on or about January 1, 1996 while retaining the existing assessment
rate schedule for SAIF member institutions.  In announcing this new schedule,
the FDIC noted that the premium differential may have adverse consequences for
SAIF members, including reduced earnings and an impaired ability to raise funds
in the capital markets.  In addition, SAIF members, such as the Savings Bank,
could be placed at a competitive disadvantage to BIF members with respect to
pricing of loans and deposits and the ability to achieve lower operating costs.

         The U.S. Congress has enacted, and on September 30, 1996, the
President signed into law legislation which eliminates the premium differential
between SAIF-insured institutions and BIF-insured institutions by
recapitalizing the SAIF's reserves to the required ratio.  The legislation
provides that all SAIF member institutions pay a special one-time assessment to
recapitalize the SAIF, which in the aggregate will be sufficient to bring the
reserve ratio in the SAIF to 1.25% of insured deposits.  The amount of the
special assessment required to recapitalize the SAIF will be 65.7 basis points
of the SAIF-assessable deposits as of March 31, 1995.  The special assessment
was due on October 1, 1996, and payable on November 27, 1996.  Based on
deposits of the Saving Bank as of March 31, 1995, the Savings Bank incurred an
adverse earnings impact of approximately $289,000, gross of related tax
benefits, for the fourth quarter of fiscal 1996.

         After the recapitalization of the SAIF, premiums paid by SAIF-insured
institutions are to be reduced to 0 to 27 basis points, effective January 1,
1997, plus an additional 6.4 basis points to cover applicable FICO assessments.
The legislation also provides for the merger of the BIF and the SAIF, with such
merger being conditioned upon the prior elimination of the thrift charter.

         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





                                      -27-
<PAGE>   29
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.
Pursuant to FIRREA, 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.

         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 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, 1996.  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.

         In determining compliance with the risk-based capital requirement, a
savings institution is allowed to 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





                                      -28-
<PAGE>   30
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, 1996, the Savings Bank exceeded all of its regulatory
capital requirements, with tangible, core and risk-based capital ratios of
7.9%, 7.9% and 18.5%, respectively.

         A savings institution which is not in capital compliance or which is
otherwise 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 which is not in capital compliance is also
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.





                                      -29-
<PAGE>   31
         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 institutions which 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





                                      -30-
<PAGE>   32
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
which 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 which 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 which 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, (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.





                                      -31-
<PAGE>   33
         At September 30, 1996, 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 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 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,





                                      -32-
<PAGE>   34
the required minimum liquid asset ratio is 5%.  At September 30, 1996, the
Savings Bank's liquidity ratio was 8.9%.

         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.

         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.





                                      -33-
<PAGE>   35
         At September 30, 1996, the Savings Bank was a Tier 1 institution for
purposes of this regulation.

         On December 5, 1994, the OTS published a notice of proposed rulemaking
to amend its capital distribution regulation.  Under the proposal, savings
institutions would be permitted to only make capital distributions that would
not result in their capital being reduced below the level required to remain
"adequately capitalized."  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 and a Tier 1 leverage capital ratio of 4.0% or
more.  Because the Savings Bank is a subsidiary of the Company, the proposal
would require the Savings Bank to provide notice to the OTS of its intent to
make a capital distribution.  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).

         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





                                      -34-
<PAGE>   36
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, 1996, the qualified thrift
investments of the Savings Bank were approximately 99.0% 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, 1996, the Savings
Bank had $430,000 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, 1996, dividends paid by the FHLB of Cincinnati
to the Savings Bank amounted to $29,000, compared to $24,000 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, 1996, 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 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.





                                      -35-
<PAGE>   37
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, 1996, 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.





                                      -36-
<PAGE>   38
         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, 1996,
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, 1996, the Savings Bank had no investments which 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 which 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.





                                      -37-
<PAGE>   39
         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, 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 which 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, 1996, the Savings Bank's bad
debt reserve subject to recapture over a six-year period totaled approximately
$250,000.

         If the Savings Bank ceases to qualify as a "bank" (as defined in Code
Section 581) or converts to a credit union, the pre-1988 reserves and
supplemental reserves are restored to income ratably over a six-year period,
beginning in the tax year the association no longer qualifies as a bank.  The
balance of the pre-1988 reserve are also 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, 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





                                      -38-
<PAGE>   40
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 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.  A financial institution may carry back
net operating losses ("NOLs") to the preceding three taxable years and forward
to the succeeding 15 taxable years.  This provision applies to losses incurred
in taxable years beginning after 1986.  At September 30, 1996, 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 which 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 are currently 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.





                                      -39-
<PAGE>   41
         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, 1995, 1994 and 1993 are open
under the statute of limitations and are subject to review by the IRS.

STATE TAXATION

         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 1996.





                                      -40-
<PAGE>   42
ITEM 2.  PROPERTIES.

         At September 30, 1996, 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, 1996.

<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                   $348                   $41,636

 10999 Reed Hartman Highway
 Cincinnati, Ohio  45242                           Leased                    14                        --
 (loan origination office)                                                 ----                     -----
                          
   Total                                                                   $362                   $41,636
                                                                            ===                    ======
</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.





                                      -41-
<PAGE>   43
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 47 of the Company's 1996 Annual Report to
Stockholders ("1996 Annual Report").

ITEM 6.  SELECTED FINANCIAL DATA.

         The information required herein is incorporated by reference from page
four to six of the 1996 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 seven to 20 of the 1996 Annual Report.

ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.

         The information required herein is incorporated by reference from
pages four to six and 23 to 46 of the 1996 Annual Report.

ITEM 9.  CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
         FINANCIAL DISCLOSURE.

         On April 27, 1995, the Board of Directors of the Savings Bank
terminated the services of Grant Thornton LLP as the Savings Bank's independent
auditors.  At the same meeting, the Board of Director selected the accounting
firm of Clark, Schaefer, Hackett & Co. ("Clark, Shaefer") to serve as
independent auditors for the Savings Bank for the fiscal year ending September
30, 1995.  Clark, Shaefer has continued to serve as independent auditors for
the Savings Bank since such selection and also serves as independent auditors
to the Company.

         In connection with their audit for fiscal 1994 and during subsequent
interim periods prior to their termination, there were no disagreements with
Grant Thornton LLP on any matter of accounting principles or practices,
financial statement disclosures, or auditing scope or procedure.

         Grant Thornton LLP's report on the financial statements for fiscal
1994 did not contain an adverse opinion or disclaimer of opinion and was not
qualified as to uncertainty, audit scope or accounting principles.





                                      -42-
<PAGE>   44
         During the Savings Bank's two most recent fiscal years and the
subsequent interim periods preceding the selection of Clark, Schaefer, the
Savings Bank did not consult Clark, Schaefer regarding the application of
accounting principles, either contemplated or proposed, the type of audit
opinion that might be rendered on the Savings Bank's financial statements or
any other matters that would be required to be reported herein.

PART III.

ITEM 10.  DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.

         The information required herein is incorporated by reference from
pages five to eight of the Company's definitive proxy statement to be filed
within 120 days of the Company's fiscal year end (September 30, 1996)
("Definitive Proxy Statement").

ITEM 11.  EXECUTIVE COMPENSATION.

         The information required herein is incorporated by reference from
pages 17 to 20 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 four of the Company's Definitive Proxy Statement.

ITEM 13.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.

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





                                      -43-
<PAGE>   45
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, 1996 and 1995
                 Consolidated Statements of Income for the Fiscal Periods Ended
                    September 30, 1996, 1995 and 1994
                 Consolidated Statements of Shareholders' Equity for the Fiscal
                    Periods Ended September 30, 1996, 1995 and 1994
                 Consolidated Statements of Cash Flows for the Fiscal Periods
                    ended September 30, 1996, 1995 and 1994
                 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.





                                      -44-
<PAGE>   46
         (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          1996 Annual Report to Stockholders, specified portion (pp. 4 to 47) of the Company's
               Annual Report to Stockholders for the year ended September 30, 1996.
 21.0          Subsidiaries of the Registrant - Reference is made to "Item 1. Business" for the required
               information
 23.1          Consent of Clark, Schaefer, Hackett & Co.
 23.2          Consent of Grant Thornton LLP.
 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 filed a Current Report on Form 8-K ("Form 8-K")
with the SEC on July 1, 1996.  In Item 5 of the Form 8-K, the Company reported
that on June 28, 1996, the Savings Bank announced that the Company completed
its stock offering in connection with the Savings Bank's conversion from the
mutual holding company form of organization to the stock holding company form
of organization.  In Item 7 (c) of the Form 8-K, the Company included as an
exhibit the Company's press release dated June 28, 1996.





                                      -45-
<PAGE>   47
                                   SIGNATURES


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



                                       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,
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 26, 1996
-------------------------------                                               
Robert P. Isler                                            
President and Chairman of the                              
 Board                                                     
                                                           
                                                           
/s/ Thomas W. Burns                                        December 26, 1996
------------------------------                                                
Thomas W. Burns                                            
Executive Vice President and                               
 Chief Executive Officer                                   
 (principal executive and                                  
 financial officer)                                        
                                                           
                                                           
/s/ Richard C. Kent                                        December 26, 1996
------------------------------                                                
Richard C. Kent                                            
Director                                                   
<PAGE>   48

/s/ Donald G. Ashcraft                                     December 26, 1996
------------------------------                             
Donald G. Ashcraft
Director


/s/ P. Lincoln Mitchell                                    December 26, 1996
------------------------------                             
P. Lincoln Mitchell
Secretary and Director


                                    
------------------------------                             
James N. Murphy
Director