KENWOOD BANCORP, INC.

                               1997 ANNUAL REPORT
<PAGE>
                 SELECTED CONSOLIDATED FINANCIAL AND OTHER DATA
                             (Dollars in Thousands)

        The following  tables set forth certain  financial and other data of the
Company at the dates and for the periods  indicated.  For  additional  financial
information about the Company, reference is made to "Management's Discussion and
Analysis of Financial  Condition and Results of Operations" and the Consolidated
Financial Statements of the Company and related notes included elsewhere herein.
<TABLE>
<CAPTION>
                                                                                             At September 30,
                                                                     ---------------------------------------------------------------
                                                                       1997          1996          1995          1994          1993
                                                                     -------       -------       -------       -------       -------
<S>                                                                  <C>           <C>           <C>           <C>           <C>    
Selected Financial Condition Data(1):
Total assets                                                         $46,862       $50,231       $48,309       $42,578       $38,655
Interest-bearing deposits in other financial
  institutions(2)                                                      1,395         1,938         3,449         3,723         7,165
Investment securities - at cost                                        1,997         1,994         1,991         1,989         1,010
Investment securities available for sale - at market                     495           486         1,006          --            --
Mortgage-backed securities - at cost                                     223           245         7,311         8,150         5,773
Mortgage-backed securities available for sale -
  at market                                                            3,537         4,529          --            --            --
Loans receivable, net                                                 36,220        30,009        32,559        27,594        22,657
Loan held for sale                                                     1,525         9,322           213          --           1,017
Deposits                                                              40,996        41,636        44,428        38,837        35,171
FHLB advances                                                          1,049         3,653           194           212          --
Stockholders' equity                                                   4,359         4,239         3,216         3,205         3,101
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
                                                                                      Year Ended September 30,
                                                                --------------------------------------------------------------------
                                                                  1997           1996           1995           1994           1993
                                                                -------        -------         -------        -------        -------
<S>                                                             <C>            <C>             <C>            <C>            <C>    
Selected Operating Data(1):
Total interest income                                           $ 3,392        $ 3,423         $ 3,194        $ 2,511        $ 2,559
Total interest expense                                            2,392          2,534           2,310          1,621          1,600
                                                                -------        -------         -------        -------        -------
  Net interest income                                             1,000            889             884            890            959
Provision for losses on loans                                      --               14              12             11             27
                                                                -------        -------         -------        -------        -------
  Net interest income after provision
    for losses on loans                                           1,000            875             872            879            932
Other income                                                        251            221              62             79            352
General, administrative and other expense                         1,018          1,248             807            726            660
                                                                -------        -------         -------        -------        -------
Income (loss) before income taxes                                   233           (152)            127            232            624
Federal income taxes                                                 62            (48)             46             72            212
                                                                -------        -------         -------        -------        -------
Net income (loss)                                               $   171        $  (104)        $    81        $   160        $   412
                                                                =======        =======         =======        =======        =======
Earnings (loss) per share(3)                                    $   .61        $  (.37)        $   .53        $  1.06          $ N/A
                                                                =======        =======         =======        =======        =======
Dividends per share(3)                                          $   .28        $   .49         $   .56        $  1.06          $ N/A
                                                                =======        =======         =======        =======        =======
</TABLE>

                                       -4-
<PAGE>
<TABLE>
<CAPTION>
                                                                              At or For the Year Ended September 30,
                                                               -------------------------------------------------------------------
                                                                1997           1996            1995           1994           1993
                                                               ------         ------          ------         ------         ------
<S>                                                            <C>            <C>             <C>            <C>            <C>   
Selected Operating Ratios(1)(4):
Return on average assets(5)                                       .36%          (.21)%           .18%           .39%          1.12%
Return on average equity(5)                                      4.07          (2.81)           2.52           5.07          15.29
Average equity to average assets                                 8.83           7.62            6.98           7.76           7.31
Equity to assets at end of period                                9.30           8.44            6.66           7.53           8.02
Interest rate spread(6)                                          1.73           1.54            1.65           1.94           2.30
Net interest margin(6)                                           2.16           1.88            1.96           2.32           2.64
Average interest-earning assets to average
  interest-bearing liabilities                                 108.30         106.42          106.07         109.09         107.78
Net interest income after provision for
  losses on loans to total general
  administrative and other expenses(5)(7)                       98.23          70.1           108.05         121.07         141.21
General, administrative and other
  expenses to average total assets(5)(7)                         2.14           2.57            1.76           1.86           1.78
Non-performing loans to total loans at
  end of period(8)                                                .50           0.00            0.00            .12            .21
Non-performing assets to total
  assets at end of period(8)                                      .40           0.00            0.00            .08            .19
Allowance for loan losses to total
  loans at end of period                                          .25            .24             .25            .25            .25
</TABLE>

(1)     Financial  condition  data and  operating  data as of and for the  years
        ended  September 30, 1993,  1994,  1995 and up through June 28, 1996 are
        those of the Savings Bank prior to the Conversion and Reorganization.

(2)     Includes certificates of deposit.

(3)     Earnings per share and  dividends per share are not  applicable  for the
        year ended  September 30, 1993, as the Mutual  Association  converted to
        the stock form of ownership on November 13, 1992.

(4)     With the  exception  of end of period  ratios,  all  ratios are based on
        average monthly balances during the periods.

(5)     Excluding the one-time SAIF  recapitalization  assessment of $289,000 in
        fiscal 1996, return on average assets was .19%, return on average equity
        was 2.53%,  net interest  income after  provision for losses on loans to
        general  administrative  and other  expenses  was  91.24%  and  general,
        administrative  and other  expenses to average  total  assets was 1.97%,
        respectively, for the year ended September 30, 1996.

                                         (Footnotes continued on following page)

                                       -5-
<PAGE>
(6)     Interest  rate spread  represents  the  difference  between the weighted
        average yield on  interest-earning  assets and the weighted average rate
        on  interest-bearing  liabilities.  Net interest  margin  represents net
        interest income as a percentage of average interest-earning assets.

(7)     Includes  effect of the one-time  SAIF  recapitalization  assessment  of
        $289,000 in fiscal 1996.

(8)     Non-performing  loans consist of  non-accrual  loans and accruing  loans
        that are  contractually  past due 90 days or  more,  and  non-performing
        assets  consist of  non-performing  loans and real  estate  acquired  by
        foreclosure or deed-in-lieu thereof.


                                       -6-
<PAGE>
                     MANAGEMENT'S DISCUSSION AND ANALYSIS OF
                  FINANCIAL CONDITION AND RESULTS OF OPERATIONS

General

        The  Company,   through  the  Savings  Bank,  is  primarily  engaged  in
attracting  deposits from the general public and using those and other available
sources of funds to originate  permanent  loans  secured by  one-to-four  family
residences  located  primarily in Hamilton  County in  southwestern  Ohio.  To a
lesser  extent,  the  Savings  Bank also  originates  consumer  and other  loans
(primarily  home equity  lines of credit),  residential  construction  loans and
loans which are secured by existing multi-family  residential and nonresidential
real estate, as well as invests in interest-bearing  deposits in other financial
institutions (including certificates of deposit), mortgage-backed securities and
U.S. Government and federal agency obligations.

        The  profitability of the Company depends  primarily on its net interest
income,  which  is the  difference  between  interest  and  dividend  income  on
interest-earning  assets,  principally  loans,  mortgage-backed  securities  and
investment securities,  and interest expense on savings deposits and borrowings.
The  Company's  net income also is dependent  on the level of its other  income,
including gains on the sale of loans and other assets,  servicing fees and other
fees,  and its  general,  administrative  and other  expense,  such as  employee
compensation and benefits,  occupancy and equipment  expense,  deposit insurance
premiums,  franchise taxes and miscellaneous other expenses,  as well as federal
income tax expense.

        In general,  financial  institutions  are  vulnerable  to an increase in
interest rates to the extent that interest-bearing liabilities mature or reprice
more rapidly than  interest-earning  assets. The lending activities of financial
institutions,  including  the Savings Bank,  have  historically  emphasized  the
origination of long-term,  fixed-rate loans secured by single-family residences,
and the primary source of funds of such  institutions  has been deposits,  which
largely mature or are subject to repricing  within a short period of time.  This
factor,  in combination  with substantial  investments in long-term,  fixed-rate
loans, has historically caused the income earned by the Savings Bank on its loan
portfolio  to adjust more  slowly to changes in interest  rates than its cost of
funds.  While having  liabilities  that reprice more  frequently  than assets is
generally  beneficial  to net  interest  income in times of  declining  interest
rates, such an asset/liability  mismatch is generally detrimental during periods
of rising  interest  rates.  To reduce the effect of adverse changes in interest
rates  on its  operations,  the  Savings  Bank has  implemented  the  asset  and
liability management policies described below.

"Safe Harbor" Statement under the Private Securities
Litigation Reform Act of 1995

        In addition to historical  information,  forward-looking  statements are
contained  herein that are subject to risks and  uncertainties  that could cause
actual results to differ materially from those reflected in the  forward-looking
statements.  Factors  that  could  cause  future  results  to vary from  current
expectations, include, but are not limited to, the impact of economic conditions
(both  generally  and more  specifically  in the  markets  in which the  Company
operates), the impact of

                                       -7-
<PAGE>
competition  for the  Company's  customers  from other  providers  of  financial
services,  the impact of government  legislation  and regulation  (which changes
from time to time and over which the  Company has no  control),  and other risks
detailed  in this  Annual  Report  and in the  Company's  other  Securities  and
Exchange  Commission  ("SEC") filings.  Readers are cautioned not to place undue
reliance  on  these  forward-looking  statements,   which  reflect  management's
analysis  only as of the date hereof.  The Company  undertakes  no obligation to
publicly  revise  these  forward-  looking  statements,  to  reflect  events  or
circumstances that arise after the date hereof.  Readers should carefully review
the risk factors  described in other  documents  the Company  files from time to
time with the  SEC,including  the Quarterly  Reports on Form 10-Q to be filed by
the Company in 1998 and any Current Reports on Form 8-K filed by the Company.

Asset and Liability Management

        The Savings  Bank's Board of Directors  has in recent years  implemented
various asset and  liability  management  policies  designed to better match the
maturities and repricing terms of the Savings Bank's interest-earning assets and
interest-bearing  liabilities  in order to minimize  the adverse  effects on the
Savings  Bank's  results of operations  of material and  prolonged  increases in
interest   rates.   Such  policies   include  (i)   emphasizing   investment  in
adjustable-rate   single-family   residential  loans;  (ii)  selling  long-term,
fixed-rate single-family  residential loans into the secondary market; and (iii)
managing  interest  expense through the utilization of core deposits and outside
borrowings.

        As a result  of  implementing  the  assets  portfolio  aspects  of those
policies, at September 30, 1997, $18.4 million, or 48.7%, of the Company's total
loan portfolio consisted of adjustable-rate loans. In addition, as of such date,
$16.4 million, or 47.3%, of the Company's portfolio of single-family residential
mortgage loans consisted of adjustable-rate  loans.  However, due to competitive
pressures in its primary  market area, as of September  30, 1997,  the Company's
core  deposits  (passbook,  money  market  and NOW  accounts)  amounted  to $7.8
million, or only 18.8% of total deposits. This percentage is an improvement from
fiscal 1996 but is significantly  below its target core deposits of 30% of total
deposits.

        The effect of interest rate changes on a financial  institution's assets
and liabilities may be analyzed by examining the extent to which such assets and
liabilities  are "interest rate  sensitive"  and by monitoring an  institution's
interest  rate  sensitivity  "gap." An asset or liability is said to be interest
rate sensitive within a specific time period if it will mature or reprice within
that  time  period.  The  interest  rate  sensitivity  "gap" is  defined  as the
difference  between  interest-earning  assets and  interest-bearing  liabilities
maturing or repricing within a given time period.  A gap is considered  positive
when the amount of interest rate sensitive assets exceeds the amount of interest
rate  sensitive  liabilities.  A gap is  considered  negative when the amount of
interest rate sensitive  liabilities  exceeds  interest rate  sensitive  assets.
During a period  of  falling  interest  rates,  a  positive  gap  would  tend to
adversely affect net interest income,  while a negative gap would tend to result
in an increase in net interest income. During a period of rising interest rates,
a positive gap would tend to result in an increase in net interest  income while
a negative gap would tend to affect net interest income adversely.

                                       -8-
<PAGE>
        Notwithstanding  the  foregoing  asset  and  liability  strategies,  the
Company's  one-year  interest rate sensitivity gap amounted to (21.73)% of total
assets at September  30, 1997.  The one-year  interest rate  sensitivity  gap is
defined as the difference  between the Company's  interest-earning  assets which
are  scheduled  to mature or reprice  within  one year and its  interest-bearing
liabilities  which are  scheduled  to  mature or  reprice  within  one year.  At
September 30, 1997, the Company's  interest-earning assets maturing or repricing
within one year totalled  $12.2  million,  while the Company's  interest-bearing
liabilities  maturing  or  repricing  within one year  totalled  $22.4  million,
providing an excess of interest-bearing liabilities over interest-earning assets
of $10.2  million.  At  September  30, 1997,  the  percentage  of the  Company's
interest-earning  assets to interest-bearing  liabilities  maturing or repricing
within  one  year  was  54.5%.   While  the  Company's  one-year  interest  rate
sensitivity  gap is considered  by  management  and the Board of Directors to be
within the intended range of acceptable  positions based upon management's asset
and  liability  management  strategy,  the  Board  plans to  continue  to follow
policies that are designed to better match the maturities and repricing terms of
the Company's portfolio.


                                       -9-
<PAGE>
        The following  table presents the difference  between the Savings Bank's
interest-earning  assets  and  interest-bearing   liabilities  within  specified
maturities at September 30, 1997. This table does not  necessarily  indicate the
impact of general  interest  rate  movements on the Savings  Bank's net interest
income  because the repricing of certain  assets and  liabilities  is subject to
competitive and other limitations.  As a result,  certain assets and liabilities
indicated as maturing or otherwise  repricing within a stated period may in fact
mature or reprice at different times and at different volumes.

<TABLE>
<CAPTION>
                                                           Over One       Over                    Over Ten
                                                           Through       Three       Over Five    Through        Over
                                              One Year      Three       Through       Through      Twenty       Twenty
                                              or Less       Years      Five Years    Ten Years     Years         Years      Total
                                              --------     --------     --------     --------     --------     --------    --------
                                                                                    (Dollars in Thousands)
<S>                                           <C>          <C>          <C>          <C>          <C>          <C>         <C>     
Interest-earning assets:

Real estate mortgages:
  Adjustable-rate(1)(2)                       $  7,165     $ 10,648     $    556     $   --       $   --       $   --      $ 18,369
  Fixed-rate(1)(3)                                  64        1,460        1,413        8,366        2,608        5,439      19,350
Other loans(1)                                      24         --              2         --           --           --            26
Mortgage-backed securities(1)                    3,537         --           --           --            223         --         3,760
Investment securities and other
  interest earning assets(4)                     1,395        2,492         --           --           --            461       4,348
                                              --------     --------     --------     --------     --------     --------    --------
  Total interest-earning assets               $ 12,185     $ 14,600     $  1,971     $  8,366     $  2,831     $  5,900    $ 45,853
                                              ========     ========     ========     ========     ========     ========    ========
Interest-bearing liabilities:

Passbook and statement savings(5)             $    648     $  1,051     $    704     $    876     $    603     $    142    $  4,024
NOW accounts and demand accounts(5)                499          548          146          197          112           16       1,518
Money market deposits(5)                         1,451          486          231          111           80           19       2,378
Certificates of deposit(5)                      19,175       12,059        1,842         --           --           --        33,076
FHLB advances                                      595          167          144          143         --           --         1,049
                                              --------     --------     --------     --------     --------     --------    --------
  Total interest-bearing liabilities          $ 22,368     $ 14,311     $  3,067     $  1,327     $    795     $    177    $ 42,045
                                              ========     ========     ========     ========     ========     ========    ========

Interest rate sensitivity gap                 $(10,183)    $    289     $ (1,096)    $  7,039     $  2,036     $  5,723    $  3,808
                                              ========     ========     ========     ========     ========     ========    ========
Cumulative interest rate sensitivity gap      $(10,183)    $ (9,894)    $(10,990)    $ (3,951)    $ (1,915)    $  3,808    $  3,808
                                              ========     ========     ========     ========     ========     ========    ========
Percentage of cumulative gap to
  total assets                                  (21.73)%     (21.11)%     (23.45)%      (8.43)%      (4.09)%       8.13%       8.13%
                                              ========     ========     ========     ========     ========     ========    ========
Cumulative ratio of interest-earning
  assets to interest-bearing liabilities         54.48%       73.03%       72.35%       90.38%       95.43%      109.06%     109.06%
                                              ========     ========     ========     ========     ========     ========    ========
</TABLE>

(1)      The dollar  amount of loans and  mortgage-backed  securities  reflected
         within a repricing  period  includes the  scheduled  amortization  with
         respect to  fixed-rate  loans and  mortgage-backed  securities  and the
         scheduled   repricing  with  respect  to   adjustable-rate   loans  and
         mortgage-backed securities.

(2)      Includes all adjustable-rate single-family residential (including loans
         designated  as  held  for  sale)  and   multi-family   residential  and
         non-residential  real estate loans,  net of the undisbursed  portion of
         loans  in  process,   allowance  for  loan  losses  and  deferred  loan
         origination fees.

                                         (Footnotes continued on following page)

                                      -10-
<PAGE>
(3)      Includes all  fixed-rate  single-family  residential  (including  loans
         designated  as  held  for  sale)  and   multi-family   residential  and
         non-residential  real estate loans,  net of the undisbursed  portion of
         loans  in  process,   allowance  for  loan  losses  and  deferred  loan
         origination fees.

(4)      Includes interest-bearing  deposits,  investment securities and FHLB of
         Cincinnati stock.

(5)      Based on the following decay rate assumptions:  (i) passbook decay will
         occur at the  following  annual rates during the time periods  shown in
         the above table:  17%,  17%, 16%, 14%, 14% and 14%; (ii) NOW and demand
         deposit  account decay will occur at the following  annual rates during
         the time periods shown in the above table:  37%, 32%, 17%, 17%, 17% and
         17%; (iii) money market decay will occur at the following  annual rates
         during the time periods  shown in the above table:  79%, 31%, 31%, 31%,
         31% and 31%;  and (iv)  certificates  of deposit  will not be withdrawn
         prior to maturity.


         Management also presently  monitors and evaluates the potential  impact
of interest rate changes upon the market value of the Savings  Bank's  portfolio
equity and the level of net  interest  income on a  quarterly  basis.  In August
1993, the OTS adopted a final rule incorporating an interest rate risk component
into the risk-based capital rules. Under the rule, an institution with a greater
than "normal"  level of interest rate risk will be subject to a deduction of its
interest  rate  component  from total  capital for purposes of  calculating  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 ("NPV")  exceeding  2.0% of the  estimated  market value of its
assets in the event of a 200 basis point increase or decrease in interest rates.
NPV is the difference  between incoming and outgoing  discounted cash flows from
assets, liabilities,  and off-balance sheet contracts. A resulting change in NPV
of more than 2% of the estimated  market value of an  institution's  assets will
require the  institution  to deduct from its capital 50% of that excess  change.
The rule provides that the OTS will  calculate the interest rate risk  component
quarterly  for each  institution.  In August  1995,  the OTS  indicated  that no
institution  will be required to deduct  capital  for  interest  rate risk until
further notice.


                                      -11-
<PAGE>
         The following table presents the Savings Bank's NPV as of September 30,
1997, as calculated by the OTS, based on information  provided to the OTS by the
Company.
<TABLE>
<CAPTION>
                                                 Net Portfolio Value
-------------------------------------------------------------------------------------------------------

                                                      Estimated
      Change in                                        NPV as a                                      Change as a
    Interest Rates            Estimated               Percentage                Amount                Percentage
    (basis points)                NPV                 of Assets               of Change               of Assets
-------------------     -------------------     -------------------     -------------------     -------------------
                                               (Dollars in Thousands)

<S>                             <C>                     <C>                   <C>                      <C>    
       +400                     $1,929                   4.42%                $(3,100)                 (6.47)%
       +300                      2,810                    6.28                 (2,219)                 (4.63)
       +200                      3,664                    7.98                 (1,315)                 (2.86)
       +100                      4,431                    9.43                   (598)                 (1.25)
        --                       5,029                   10.50                      --                     --
       -100                      5,367                   11.05                     338                    .71
       -200                      5,488                   11.19                     459                    .96
       -300                      5,560                   11.23                     531                   1.11
       -400                      5,741                   11.46                     712                   1.49
</TABLE>

         Certain  shortcomings are inherent in the method of analysis  presented
in both the computation of NPV and in the analysis  presented in the prior table
setting  forth  the  maturing  and  repricing  of  interest-earning  assets  and
interest-bearing  liabilities.  Although certain assets and liabilities may have
similar  maturities or periods  within which they will  reprice,  they may react
differently to changes in market interest  rates.  The interest rates on certain
types of assets and  liabilities  may  fluctuate in advance of changes in market
interest  rates,  while  interest rates on other types may lag behind changes in
market  rates.  Additionally,  adjustable-rate  mortgages  have  features  which
restrict  changes in interest  rates on a short-term  basis and over the life of
the asset.  The proportion of  adjustable-rate  loans could be reduced in future
periods if market interest rates would decrease and remain at lower levels for a
sustained period, due to increased refinance activity.  Further, in the event of
a change in interest rates,  prepayment and early withdrawal levels would likely
deviate  significantly from those assumed in the table.  Finally, the ability of
many borrowers to service their  adjustable-rate  debt may decrease in the event
of a sustained interest rate increase.

Changes in Financial Condition

         The Company had total assets of $46.9  million at September 30, 1997, a
decrease of $3.4 million or 6.7% from September 30, 1996. The reduction in total
assets was primarily due to the sale of approximately $8.0 million of adjustable
rate mortgage  loans in early fiscal 1997,  with the proceeds used  partially to
reduce advances from the FHLB of Cincinnati.

                                      -12-
<PAGE>
         Liquid assets (i.e. cash,  interest-bearing  deposits, and certificates
of deposit) decreased  $764,000,  or 35.6%,  during the year ended September 30,
1997. This reduction in liquid assets  reflected the Company's  emphasis on loan
growth as the funds were used for loan originations,  some of which are held for
sale. At September 30, 1997, the Savings Bank's regulatory liquidity amounted to
10.7%, which exceeded the current minimum OTS requirement of 4% by $2.7 million.
See "- Liquidity and Capital Resources."

         Loans  receivable  (including  loans  held  for  sale)  decreased  $1.6
million,  or 4.0%,  to total $37.7 million at September 30, 1997, as compared to
$39.3 million at September  30, 1996.  Loan  originations  of $22.4 million were
offset by loan  sales of $17.7  million  and  repayments  of $6.3  million.  The
Company has seen a decrease in its secondary market  activity,  due primarily to
the flat interest rate  environment and the competition in the loan  origination
market,  but also due to  changes in the  Company's  mortgage  loan  origination
office.  Of the $17.7 million in loan sales during fiscal 1997, the Company sold
approximately  $8.0  million in  adjustable  rate  mortgage  loans to a mortgage
company.  The  proceeds  from the sale were used to  originate  loans,  purchase
investments and mortgage-backed securities and repay FHLB advances. The sale was
completed in November  1996 with a recognized  gain of $72,000,  net of deferred
costs.

         As of  September  30, 1997,  the  Company's  allowance  for loan losses
amounted to $95,000,  which is the same amount as the  allowance for loan losses
maintained at September  30, 1996.  As of September 30, 1997,  the allowance for
loan losses consisted entirely of a general loss allowance, which is included as
a component of regulatory risk-based capital. As of such date, the allowance for
loan losses  amounted to .25% of total  loans.  As of September  30,  1997,  the
Company had  $187,000  of  non-performing  loans.  Management  will  continue to
monitor  its  allowance  for loan  losses and make  additions  to the  allowance
through the provision for loan losses as economic conditions  dictate.  Although
the Savings Bank  maintains  its  allowance  for loan losses at a level which it
considers to be adequate to provide for loan  losses,  there can be no assurance
that  future  losses  will  not  exceed  estimated  amounts  or that  additional
provisions for loan losses will not be required in the future. See Note 1 of the
Notes to Financial Statements.

         Mortgage-backed  securities  (including  securities available for sale)
decreased by $1.0 million,  or 21.2%,  during the year ended September 30, 1997.
During the year ended  September  30,  1997,  the Company  sold $3.5  million of
mortgage-backed  securities  at a gain of $17,000.  The Company  purchased  $3.3
million of available for sale  mortgage-backed  securities during the year ended
September 30, 1997, and had principal repayments of $879,000 during such period.
At  September  30,  1997,  the  Company  had  classified  $3.5  million  of  its
mortgage-backed  securities as available for sale and had net  unrealized  gains
with respect to such securities of $50,000.




                                      -13-
<PAGE>
         Investment securities (including securities classified as available for
sale) increased $12,000, or .4%, during the year ended September 30, 1997. As of
September  30,  1997,  the Company  had  classified  $495,000 of its  investment
securities  as  available  for sale and had net  unrealized  loss of $4,000 with
respect to such investment securities.

         Total  deposits  amounted to $41.0  million at  September  30,  1997, a
decrease  of  $640,000,  or 1.5%,  from the  $41.6  million  in  deposits  as of
September 30, 1996.  Deposits  which are subject to daily  repricing  (passbook,
statement savings, money market and checking accounts), increased by $88,000, or
1.1%,  from  September  30, 1996 to September  30,  1997.  During the year ended
September 30, 1997,  certificates  of deposit  decreased  $728,000,  or 2.2%, as
compared to the year ended  September 30, 1996. The reduction in certificates of
deposit was due to  consumer  demand for other  types of savings  vehicles.  The
Company has generally not engaged in offering the highest rates available in its
deposit  market  except upon  specific  occasions  when market  conditions  have
created opportunities to attract longer-term deposits.

         The Company had FHLB  advances of $1.0 million at September 30, 1997, a
significant  decrease in the balance  outstanding  at September 30, 1996 of $3.7
million. The decrease in borrowing was due to the repayment of the advances with
the proceeds from the sale of the  adjustable  rate mortgage  loans noted above.
The Company has used FHLB  advances as a short term  funding of the asset growth
versus offering  special rates on short term deposits.  The average rate paid on
the FHLB advances amounted to 5.65% for the year ended September 30, 1997.

         Stockholders'  equity increased $120,000,  or 2.8%, to $4.36 million at
September 30, 1997 from $4.24 million as of September 30, 1996. The increase was
due  primarily  to net income of  $171,000  for fiscal  1997 and an  increase in
unrealized  gain on  available  for sale  securities,  net of income  taxes,  of
$20,000.  The increase  was  partially  offset by $83,000 of dividends  declared
during the year ended September 30, 1997.

Average Balances, Net Interest Income and Yields Earned and Rates Paid

         The following table presents for the periods indicated the total dollar
amount of  interest  from  average  interest-earning  assets  and the  resultant
yields, as well as the interest expense on average interest-bearing liabilities,
expressed both in dollars and rates, and the net interest margin. The table does
not  reflect  any effect of income  taxes.  All  average  balances  are based on
month-end balances.

                                      -14-
<PAGE>
<TABLE>
<CAPTION>
                                                                      Year Ended September 30,
                                               ---------------------------------------------------------------------
                                                                                                                    
                                                              1997                                 1996             
                                               --------------------------------      -------------------------------
                                                Average                  Yield/      Average                  Yield/
                                                Balance     Interest      Rate       Balance     Interest      Rate 
                                               --------     -------     -------     --------     -------     -------
                                                                            (Dollars in Thousands)
<S>                                            <C>          <C>         <C>         <C>          <C>         <C>    
Interest-earning assets:
  Loans receivable(1)                           $35,205      $2,690      7.64%        $35,234     $2,670      7.58% 
  Mortgage-backed securities(2)                   6,137         404       6.58          7,055        457       6.48 
  Investment securities(2)                        2,936         180       6.13          3,046        189       6.20 
  Other interest-earning assets(3)                1,939         118       6.09          1,829        107       5.85 
                                                 ------      ------                    ------      -----            
  Total interest-earning assets                  46,217      $3,392      7.34%         47,164     $3,423      7.26% 
                                                              =====      ====                      =====    ======  
  Non-interest-earning assets                     1,332                                 1,410                       
                                                 ------                                ------                       
  Total assets                                  $47,549                               $48,574                       
                                                 ======                                ======                       
Interest-bearing liabilities:                                                                                       
  Deposits                                      $40,885      $2,291        5.60%      $43,006     $2,462      5.72% 
  FHLB advances                                   1,789         101       5.65          1,313         72       5.48 
                                                 ------       -----                    ------      -----            
  Total interest-bearing liabilities             42,674      $2,392      5.61%         44,319     $2,534      5.72% 
                                                              =====      ====                      =====    ======  
Non-interest-bearing liabilities:                   675                                   552                       
                                                -------                                ------                       
  Total liabilities                              43,349                                44,871                       
  Stockholders' equity                            4,200                                 3,703                       
                                                 ------                                ------                       
    Total liabilities and                                                                                           
      stockholders' equity                      $47,549                               $48,574                       
                                                 ======                                ======                       
  Net interest income; interest                                                                                     
    rate spread                                              $1,000      1.73%                    $  889      1.54% 
                                                              =====    ======                      =====    ======  
  Net interest margin(4)                                                 2.16%                                1.88% 
                                                                       ======                               ======  
  Average interest-earning assets                                                                                   
    to average interest-bearing                                                                                     
    liabilities                                                        108.30%                              106.42% 
                                                                       ======                               ======  
<PAGE>
<CAPTION>
                                                   Year Ended September 30,
                                               -------------------------------
                                                                                   At September 30,
                                                             1995                       1997
                                               -------------------------------     ---------------
                                               Average                  Yield/          Yield/
                                               Balance     Interest      Rate            Rate
                                               --------    -------     -------     ---------------
                                               
<S>                                            <C>         <C>         <C>         <C>
Interest-earning assets:
  Loans receivable(1)                           $30,792     $2,402      7.80%           7.66%
  Mortgage-backed securities(2)                   7,847        452       5.76            6.87
  Investment securities(2)                        2,477        140       5.65            6.13
  Other interest-earning assets(3)                3,933        200       5.09            6.09
                                                 ------      -----                      -----
  Total interest-earning assets                  45,049     $3,194      7.09%           7.45%
                                                             =====      ====           ===== 
  Non-interest-earning assets                       928                                      
                                                 ------                                      
  Total assets                                  $45,977                                      
                                                 ======                                      
Interest-bearing liabilities:                                                                
  Deposits                                      $41,753     $2,267      5.43%           5.59%
  FHLB advances                                     720         43       5.97            5.69
                                                 ------      -----                           
  Total interest-bearing liabilities             42,473     $2,310      5.44%           5.59%
                                                             =====      ====           ===== 
Non-interest-bearing liabilities:                   293                                      
                                                 ------                                      
  Total liabilities                              42,766                                      
  Stockholders' equity                            3,211                                      
                                                 ------                                      
    Total liabilities and                                                                    
      stockholders' equity                      $45,977                                      
                                                 ======                                      
  Net interest income; interest                                                              
    rate spread                                             $  884      1.65%           1.86%
                                                             =====      ====           ===== 
  Net interest margin(4)                                                1.96%                
                                                                        ====                 
  Average interest-earning assets                                                            
    to average interest-bearing                                                              
    liabilities                                                       106.07%                
                                                                      ======                 
</TABLE>

(1)      Includes loans held for sale.

(2)      Includes securities classified as available for sale.

(3)      Consists primarily of interest-bearing deposits (including certificates
         of deposit).

(4)      Net  interest   margin  is  net  interest  income  divided  by  average
         interest-earning assets.

                                      -15-
<PAGE>
Rate/Volume Analysis

         The following  table  describes the extent to which changes in interest
rates and  changes in volume of  interest-related  assets and  liabilities  have
affected the Company's interest income and expense during the periods indicated.
For each category of interest-earning  assets and interest-bearing  liabilities,
information is provided on changes attributable to (i) changes in volume (change
in volume  multiplied by prior year rate),  (ii) changes in rate (change in rate
multiplied by prior year volume), and (iii) total change in rate and volume. The
combined  effect  of  changes  in  both  rate  and  volume  has  been  allocated
proportionately to the change due to rate and the change due to volume.

<TABLE>
<CAPTION>
                                                                                    Year Ended September 30,
                                                        ----------------------------------------------------------------------------
                                                                     1997 vs. 1996                            1996 vs. 1995
                                                        ------------------------------------      ----------------------------------
                                                             Increase                                    Increase
                                                            (Decrease)                                  (Decrease)         
                                                              Due to                Total                 Due to            Total
                                                        --------------------       Increase       --------------------     Increase
                                                        Rate          Volume      (Decrease)      Rate          Volume    (Decrease)
                                                        ----          ------      ----------      ----          ------    ----------
<S>                                                     <C>           <C>           <C>           <C>           <C>           <C>  
Interest-earning assets:
  Loans(1)                                              $  22         $  (2)        $  20         $ (79)        $ 347         $ 268
  Mortgage-backed securities(2)                             7           (60)          (53)           51           (46)            5
  Investment securities(2)                                 (2)           (7)           (9)           17            32            49
  Other interest-earnings assets(3)                         4             7            11            14          (107)          (93)
                                                        -----         -----         -----         -----         -----         -----
    Total interest-earning assets                       $  31         $ (62)        $ (31)        $   3         $ 226         $ 229
                                                        =====         =====         =====         =====         =====         =====
Interest-bearing liabilities:
  Deposits                                              $ (50)        $(121)        $(171)          127            68         $ 195
  FHLB advances                                             2            27            29            (6)           35            29
                                                        -----         -----         -----         -----         -----         -----
    Total interest-bearing liabilities                  $ (48)        $ (94)        $(142)        $ 121         $ 103         $ 224
                                                        =====         =====         =====         =====         =====         =====
Increase in net interest income                                                     $ 111                                     $   5
                                                                                    =====                                     ===== 
</TABLE>

(1)      Includes loans held for sale.

(2)      Includes securities classified as available for sale.

(3)      Consists primarily of interest-bearing deposits (including certificates
         of deposit).

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

         The  Company  reported  net  income  of  $171,000  for the  year  ended
September 30, 1997 as compared to $99,000 for the year ended September 30, 1996,
before the special  one-time  assessment of $289,000 to recapitalize the Savings
Association Insurance Fund ("SAIF"), the Savings Bank's federal deposit insurer,
in fiscal 1996. The Company reported

                                      -16-
<PAGE>
a net loss for fiscal 1996 of $104,000 after the SAIF assessment. See Note 14 of
the Notes to Financial Statements.

         Interest  income  decreased  $31,000,  or .9%, to $3.39 million for the
year ended  September 30, 1997,  from $3.42 million for the year ended September
30, 1996.  Interest income on loans increased $20,000,  or .7%, to $2.69 million
for the year ended September 30, 1997. The increase in interest on loans was due
to an increase in the average yield from 7.58% at September 30, 1996 to 7.64% at
September  30,  1997,  offset  by a  slight  decrease  in  the  average  balance
outstanding on loans for the year ended  September 30, 1997.  Interest income on
mortgage-backed securities decreased $53,000, or 11.6%, to $404,000 for the year
ended  September  30, 1997.  Such  decrease was due to a decrease in the average
balance outstanding thereon from $7.1 million to $6.1 million for the year ended
September  30,  1997.  The  decrease  in  the  average  balance  outstanding  on
mortgage-backed  securities was due to the sale of mortgage-backed securities of
$3.5 million and the normal repayments of $879,000,  offset by purchases of $3.3
million. Interest income on investments decreased $9,000, or 4.8%, during fiscal
1997 due to a decrease in the average balance  outstanding  from $3.0 million to
$2.9 million  year-to-year and a decrease in the average yield from 6.20% during
fiscal 1996 to 6.13%  during  fiscal  1997.  Interest  income on other  interest
earning assets  increased  $11,000,  or 10.3%,  to $118,000,  for the year ended
September  30, 1997 from  $107,000 for the year ended  September  30, 1996.  The
increase in interest income during the year ended September 30, 1997, was due to
an increase in the average balance outstanding from $1.8 million to $1.9 million
year-to-year  and an increase in the average yield from 5.85% for the year ended
September 30, 1996 to 6.09% for the year ended September 30, 1997.

         Interest expense decreased $142,000,  or 5.6%, to $2.39 million for the
year ended  September  30, 1997 as compared to $2.53  million for the year ended
September 30, 1996. Interest expense on deposits decreased $171,000, or 6.9%, to
$2.3 million for the year ended September 30, 1997. This decrease was due to the
decrease in the average balance of deposits outstanding  year-to-year as well as
a decrease  in the average  rate of 12 basis  points.  Interest  expense on FHLB
advances increased $29,000,  or 40.3%, during fiscal 1997 due to the increase in
the  average  balance  outstanding  and an  increase  in the  average  rate paid
thereon. The Company has used the availability of the FHLB advances to fund loan
demand.  The Company  repaid a portion of the FHLB  advances in late fiscal 1997
with proceeds from the sale of adjustable rate mortgage loans.

         As a result of the  foregoing  changes in interest  income and interest
expense,  net interest income has increased $111,000,  or 12.5%, during the year
ended  September 30, 1997 as compared to the year ended  September 30, 1996. The
interest  rate spread  increased to 1.73% during 1997,  from 1.54% during fiscal
1996,  while the net interest margin  increased to 2.16% during fiscal 1997 from
1.88% during fiscal 1996. The increase in the Company's interest rate spread and
net interest  margin  resulted  partially  from the  reduction in average  rates
offered   on   certificates   of  deposit   and  higher   yields  on  loans  and
mortgage-backed securities.

                                      -17-
<PAGE>
         The  Company's  had no provision for losses on loans for the year ended
September  30,  1997,  as compared to $14,000 for the year ended  September  30,
1996.  The  absence of a  provision  for the year ended  September  30, 1997 was
influenced  by the  decrease  in  the  total  loan  portfolio  and  management's
assessment of the related inherent risk in mortgage lending.

         Other  income  increased  by $30,000,  or 13.6%,  during the year ended
September  30,  1997,  as compared to the year ended  September  30,  1996.  The
increase was due  primarily to the $22,000  increase in gain on sale of mortgage
loans.  The Company  experienced a reduction in loans originated for sale on the
secondary  market due to demand for loan  originations in the local market.  The
Company made a one-time  sale of  adjustable  rate loans to a mortgage  company,
which  generated a gain on sale of $79,000.  Gain on sale of available  for sale
securities  increased  $6,000, or 54.5% during the year ended September 30, 1997
as  compared  to the year  ended  September  30,  1996.  During  the year  ended
September 30, 1997, the Company originated $9.95 million in loans originated for
sale on the secondary  market,  as compared to $ 13.2 million for the year ended
September  30,  1996.  The ability to generate  gains from the sale of loans and
investments  is dependent on market and economic  conditions  and,  accordingly,
there can be no assurance  that gains  similar to those  reported in the current
fiscal year can be achieved in the future.

         General,  administrative  and other  expenses  decreased  $230,000,  or
18.4%,  for the year ended  September  30,  1997,  as compared to the year ended
September  30,  1996.  Included as part of this  decrease is the  one-time  SAIF
assessment  of  $289,000  in fiscal  1996,  which if  excluded  from 1996,  such
expenses for 1997 would have shown an increase of $59,000,  or 6.1%, as compared
to fiscal 1996. This increase was due primarily to a $54,000, or 12.3%, increase
in employee  compensation  and  benefits,  and an  increase  in other  operating
expenses of $36,000 or 14.3%,  offset by a decrease in recurring federal deposit
insurance  premiums  of $52,000 or 50%,  during  fiscal  1997.  The  increase in
employee  compensation  and benefits  resulted from normal merit pay  increases,
increased  originators  and  support  staff,  along with an increase in employee
health care costs.  Other operating  expenses  increased  during fiscal 1997 due
primarily to  professional  fees relating to various  securities  and regulatory
filings.  The decrease in FDIC  premiums  was due to the  reduction in insurance
rates after the SAIF recapitalization.

         The Company  reported a provision  for federal  income taxes of $62,000
for the year ended September 30, 1997. The Company  reported a net loss for 1996
and therefore a tax benefit of $48,000 for the year ended September 30, 1996 for
reasons  previously  discussed.  The  effective  tax rates  for the years  ended
September 30, 1997 and 1996, were 26.6% and 31.6%, respectively.


                                      -18-
<PAGE>
Results of Operations Comparison of the Years Ended September 30, 1996
and September 30, 1995

         The Company  reported a net loss for the year ended  September 30, 1996
of $104,000. The loss reflects the one-time SAIF recapitalization  assessment of
$289,000 which was accounted for in the fourth quarter of the Company's  current
fiscal  year.  Prior to this  assessment,  the Company  would have  reported net
income of  $99,000,  as  compared  to  $81,000  of net income for the year ended
September  30,  1995,  an increase of $17,000,  or 21.0% from fiscal  1995.  The
increase in net income prior to the SAIF  assessment  resulted  primarily from a
slight  increase in net interest  income and from an increase in gain on sale of
loans,  partially  offset by an  increase  in general  administrative  and other
expenses, as well as an increase in the provision for loan losses.

         Interest income  increased  $229,000,  or 7.2%, to $3.4 million for the
year ended  September 30, 1996,  from $3.2 million for the year ended  September
30, 1995. Interest income on loans increased $268,000, or 11.2%, to $2.7 million
for the year ended September 30, 1996. The increase in interest on loans was due
to the increase in the average balance  outstanding on loans of $4.4 million for
the year ended  September  30, 1996,  offset by a reduction in the average yield
from 7.86% at September 30, 1995 to 7.58% at September  30, 1996.  The reduction
in average yield was due to the lower interest rates seen in the mortgage market
during fiscal 1996.  Interest  income on  mortgage-backed  securities  increased
$5,000,  or 1.1%,  to  $457,000  for the year ended  September  30,  1996.  Such
increase was due to an increase in the average  yield earned  thereon from 5.76%
to 6.48% as the adjustable  rate  mortgage-backed  securities  adjusted  upwards
during fiscal 1996. The increase in interest on  mortgage-backed  securities was
partially  offset by a  reduction  in the  average  balance  of  mortgage-backed
securities as the Company sold $1.7 million of mortgage-backed  securities along
with normal  repayments of $1.3 million during fiscal 1996.  Interest  income on
investments  increased $49,000,  or 35.0%, during fiscal 1996 due to an increase
in average balances outstanding from $2.5 million to $3.1 million  year-to-year,
and the average  yield  increase  from 5.65% during  fiscal 1995 to 6.20% during
fiscal 1996. Interest income on other interest earning assets decreased $93,000,
or 46.5%,  to $107,000,  for the year ended September 30, 1996 from $200,000 for
the year ended  September 30, 1995.  The decrease in interest  income during the
year ended  September  30,  1996,  was also due to the  reduction in the average
balance  outstanding of $2.1 million,  as the Company  converted  other interest
earning assets into loans and investments which earned higher yields.

         Interest expense increased  $224,000,  or 9.7%, to $2.5 million for the
year ended  September  30, 1996 as  compared to $2.3  million for the year ended
September 30, 1995. Interest expense on deposits increased $195,000, or 8.6%, to
$2.5 million for the year ended September 30, 1996. This increase was due to the
increase in the average balance of deposits outstanding  year-to-year as well as
an increase in the average  rate of 29 basis  points.  Interest  expense on FHLB
advances increased $29,000,  or 67.4%, during fiscal 1996 due exclusively to the
increase in the average balance outstanding offset by a reduction in

                                      -19-
<PAGE>
the average rate paid thereon. The Company has used the availability of the FHLB
advances to fund the recent outflow of deposits and to fund loan demand.

         As a result of the  foregoing  changes in interest  income and interest
expense,  net interest income has increased  $5,000, or less than 1%, during the
year ended  September 30, 1996 as compared to the year ended September 30, 1995.
The interest  rate spread  decreased  from 1.65%  during  1995,  to 1.54% during
fiscal 1996,  while the net interest  margin  decreased from 1.96% during fiscal
1995 to 1.88% during fiscal 1996.  The decrease in the  Company's  interest rate
spread and net interest  margin resulted from a faster increase in rates paid by
the Company on its interest bearing  liabilities than in the rates earned on its
interest  earning assets,  which is partially due to the Company's  negative gap
position.

         The Company's  provision for losses on loans  totalled  $14,000 for the
year ended  September  30,  1996,  as  compared  to  $12,000  for the year ended
September  30, 1995.  The  provision  for the year ended  September 30, 1996 was
influenced by the increase in the total loan portfolio and the related  inherent
risk in mortgage lending.

         Other income increased by $159,000,  or 300.56%,  during the year ended
September  30,  1996,  as compared to the year ended  September  30,  1995.  The
increase was due primarily to the $147,000  increase in gain on sale of mortgage
loans in the secondary  market during fiscal 1996 over the level achieved during
fiscal 1995.  The Company also  recognized  an $11,000 gain on sale of available
for sale  securities  during  fiscal  1996 with no such  corresponding  sales in
fiscal  1995.  The current  interest  market and the demand for fixed rate loans
allowed the Company to increase its  secondary  market  activity  during  fiscal
1996.  During the year ended  September 30, 1996, the Company  originated  $13.2
million in loans  originated  for sale on the secondary  market,  as compared to
$3.4  million for the year ended  September  30,  1995.  The ability to generate
gains from the sale of loans and investments is dependent on market and economic
conditions  and,  accordingly,  there can be no assurance  that gains similar to
those reported in the current fiscal year can be achieved in the future.

         General,  administrative  and other  expenses  increased  $441,000,  or
54.6%,  for the year ended  September  30,  1996,  as compared to the year ended
September  30,  1995.  Included as part of this  increase is the  one-time  SAIF
assessment  of  $289,000,  which if  excluded,  would have shown an  increase of
$152,000,  or 18.8%, in such expenses compared to fiscal 1995. This increase was
due  primarily to a $65,000,  or 17.5%,  increase in employee  compensation  and
benefits,  and an  increase  in other  operating  expenses  of $58,000 or 29.9%,
during fiscal 1996. The increase in employee  compensation and benefits resulted
from  normal  merit pay  increases  coupled  with the  growth  in the  Company's
mortgage loan  origination  staff.  Other operating  expenses  increased  during
fiscal 1996 due primarily to a full year of costs  associated  with the mortgage
loan origination office which was opened in March 1995.


                                      -20-
<PAGE>
         The Company  reported a benefit for federal income taxes of $48,000 for
the year ended  September  30,  1996,  due to the loss  before  income  taxes of
$152,000.  The loss before income taxes was due to the one-time SAIF  assessment
discussed previously.  The effective tax rates for the years ended September 30,
1996 and 1995, were 31.6% and 36.2%, respectively.

Liquidity and Capital Resources

         The Savings Bank is required under  applicable  federal  regulations to
maintain  specified  levels of "liquid"  investments in qualifying types of U.S.
Government, federal agency and other investments having maturities of five years
or less.  Current OTS regulations  require that a savings  institution  maintain
liquid  assets  of  not  less  than  4% of  its  average  daily  balance  of net
withdrawable  deposit  accounts  and  borrowings  payable  in one  year or less.
Monetary  penalties  may be imposed  for  failure to meet  applicable  liquidity
requirements.
         The  liquidity of the Savings  Bank,  as measured by the ratio of cash,
cash  equivalents  (not  committed,  pledged or required to  liquidate  specific
liabilities), investment and qualifying mortgage-backed securities to the sum of
total deposits plus  borrowings  payable within one year, was 10.7% at September
30,  1997,  as  compared  to 10.0% and  13.7% at  September  30,  1996 and 1995,
respectively. At September 30, 1997, the Savings Bank's "liquid" assets totalled
approximately $4.3 million,  which was $2.7 million in excess of the current OTS
minimum requirement.

         The Company's liquidity, represented by cash and cash equivalents, is a
product of its  operating,  investing  and financing  activities.  The Company's
primary sources of funds are deposits, borrowings, amortization, prepayments and
maturities of outstanding loans and  mortgage-backed  securities,  maturities of
investment  and  mortgage-backed  securities and other  short-term  investments,
sales  of loans  and  securities  and  funds  provided  from  operations.  While
scheduled  loan  and  mortgage-backed   securities   amortization  and  maturing
investment  securities and  short-term  investments  are relatively  predictable
sources of funds,  deposit flows and loan prepayments are greatly  influenced by
general interest rates, economic conditions and competition. The Company manages
the pricing of its deposits to maintain a steady deposit  balance.  In addition,
the Company  invests  excess  funds in overnight  deposits and other  short-term
interest-earning  assets which provides liquidity to meet lending  requirements.
The Company  generates cash through the retail deposit market and, to the extent
deemed  necessary,   utilizes   borrowings  for  liquidity  purposes  (primarily
consisting of advances from the FHLB of Cincinnati).  At September 30, 1997, the
Company had $1.0 million of  outstanding  advances from the FHLB of  Cincinnati.
Furthermore, the Company has access to the Federal Reserve Bank discount window.

         Liquidity management is both a daily and long-term function of business
management.  Excess  liquidity is generally  invested in short-term  investments
such as overnight  deposits.  On a longer-term  basis,  the Company  maintains a
strategy  of  investing  in  various  loans,   mortgage-backed   securities  and
investment securities. The Company uses

                                      -21-
<PAGE>
its sources of funds primarily to meet its ongoing commitments,  to pay maturing
savings certificates and savings withdrawals, fund loan commitments and maintain
a portfolio of investment and mortgage-backed securities.

         At  September  30, 1997,  the Company had  outstanding  commitments  to
originate  residential real estate loans of approximately  $156,000. At the same
date, the total amount of certificates of deposit which were scheduled to mature
by  September  30,  1998 was $19.2  million.  The Company  believes  that it has
adequate  resources  to fund all of its  commitments  and that it can adjust the
rates on savings  certificates  to retain  deposits  in changing  interest  rate
environments.

Impact of Inflation and Changing Prices

         The financial  statements and related  financial data presented  herein
have been prepared in accordance with generally accepted accounting  principles,
which require the  measurement  of financial  position and operating  results in
terms of historical dollars,  without considering changes in relative purchasing
power over time due to inflation.

         Unlike most industrial companies, virtually all of the Company's assets
and  liabilities are monetary in nature.  As a result,  interest rates generally
have a more  significant  impact on a financial  institution's  performance than
does the effect of inflation.

                                      -22-
<PAGE>
                         CLARK, SCHAEFER, HACKETT & CO.
                          Certified Public Accountants




               REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS


Board of Directors
Kenwood Bancorp Inc. and Subsidiary:


We have audited the accompanying  consolidated statements of financial condition
of Kenwood  Bancorp Inc.  (formerly  Kenwood Savings and Loan  Association)  and
Subsidiary  as of  September  30, 1997 and 1996,  and the  related  consolidated
statements of  operations,  stockholders'  equity,  and cash flows for the years
ended  September 30, 1997,  1996 and 1995.  These  financial  statements are the
responsibility of the Bancorp's management.  Our responsibility is to express an
opinion on these financial statements based on our audit.

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

In our opinion, the consolidated  financial statements referred to above present
fairly, in all material respects, the financial position of Kenwood Bancorp Inc.
and  Subsidiary  as of  September  30,  1997 and 1996,  and the  results  of its
operations and its cash flows for the years ended  September 30, 1997,  1996 and
1995, in conformity with generally accepted accounting principles.


/s/CLARK, SCHAEFER, HACKETT & CO.

Cincinnati, Ohio
October 31, 1997

                                     - 23 -
<PAGE>
<TABLE>
<CAPTION>
                       KENWOOD BANCORP INC. AND SUBSIDIARY

                 Consolidated Statements of Financial Condition

                           September 30, 1997 and 1996
                                 (In thousands)

                                     Assets

                                                                 1997      1996
                                                               -------   -------
<S>                                                            <C>       <C>
Cash and due from banks                                        $   367       588
Interest-bearing deposits in other
      financial institutions                                     1,015     1,558
                                                               -------   -------
          Cash and cash equivalents                              1,382     2,146

Certificates of deposit in other financial institutions            380       380
Investment securities - held to maturity, at
      amortized cost,  approximate market value
      of $1,991 and $1,959 at September 30,
      1997 and 1996                                              1,997     1,994
Investment securities - available for sale
      (amortized cost of $499 at September 30,
       1997 and 1996)                                              495       486
Mortgage-backed securities - held to maturity,
      at cost, approximate market value of $234
      and $250 at September 30, 1997 and 1996                      223       245
Mortgage-backed securities - available for sale
      (amortized cost of $3,487 and $4,499 at
       September 30, 1997 and 1996)                              3,537     4,529
Loans receivable, net                                           36,220    30,009
Loans held for sale - at lower of cost or market                 1,525     9,322

Property and equipment, net                                        349       362
Federal Home Loan Bank stock - at cost                             461       430
Accrued interest receivable:
      Loans                                                        174       199
      Mortgage-backed securities                                    27        26
      Investment and interest-bearing deposits                      20        20
Prepaid expenses and other assets                                   57        74
Prepaid federal income taxes                                        15         9
                                                               -------   -------

          Total assets                                         $46,862    50,231
                                                               =======   =======
</TABLE>

See accompanying notes to financial statements.

                                     - 24 -
<PAGE>
<TABLE>
<CAPTION>
                      Liabilities and Stockholders' Equity

                                                            1997         1996
                                                          --------     --------
<S>                                                       <C>            <C>   
Deposits                                                  $ 40,996       41,636
Advances from the Federal Home Loan Bank                     1,049        3,653
Accounts payable on mortgage loans serviced
      for others                                                12           37
Advances by borrowers for taxes and insurance
                                                               231          215
Other liabilities
                                                                96          417
Deferred federal income taxes
                                                               119           34
                                                          --------     --------

             Total liabilities                              42,503       45,992
                                                          --------     --------

Stockholders' equity:
      Preferred stock - authorized 1,000,000
         shares of $.10 par value, none issued                --           --
      Common stock - authorized 4,000,000
         shares $.01 and $.10 par value, 295,133
         and 151,656 shares issued and outstanding
         at September 30, 1997 and 1996                          3            3
      Additional paid-in capital                             1,771        1,771
      Retained earnings - substantially restricted           2,685        2,597
      Shares acquired by Management Recognition
         Plan                                                  (17)         (18)
      Unearned ESOP shares                                    (115)        (126)
      Unrealized gain on available for sale
         securities, net of income taxes                        32           12
                                                          --------     --------

             Total stockholders' equity                      4,359        4,239
                                                          --------     --------

             Total liabilities and stockholders' equity   $ 46,862       50,231
                                                          ========     ========
                                                                                                   


                                     - 25 -
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
                       KENWOOD BANCORP INC. AND SUBSIDIARY

                      Consolidated Statements of Operations

                            Years Ended September 30,
                                 (In Thousands)
                                                       1997       1996       1995
                                                     -------    -------    -------
<S>                                                  <C>          <C>        <C>  
Interest income:
     Loans                                           $ 2,690      2,670      2,402
     Mortgage-backed securities                          404        457        452
     Investment securities                               180        189        140
     Interest-bearing deposits and other                 118        107        200
                                                     -------    -------    -------
         Total interest income                         3,392      3,423      3,194
                                                     -------    -------    -------
Interest expense:
     Deposits                                          2,291      2,462      2,267
     Borrowings                                          101         72         43
                                                     -------    -------    -------
         Total interest expense                        2,392      2,534      2,310
                                                     -------    -------    -------
         Net interest income                           1,000        889        884
Provision for losses on loans                           --           14         12
                                                     -------    -------    -------
         Net interest income after
            provision for losses on loans              1,000        875        872
                                                     -------    -------    -------
Other income:
     Gain on sale of mortgage loans                      215        193         46
     Gain on sale of available for sale securities        17         11       --
     Other operating                                      19         17         16
                                                     -------    -------    -------
         Total other income                              251        221         62
                                                     -------    -------    -------
General, administrative and other expense:
     Employee compensation and benefits                  491        437        372
     Occupancy and equipment                             132        124        110
     Federal deposit insurance premiums                   52        393         90
     Franchise taxes                                      55         42         41
     Other                                               288        252        194
                                                     -------    -------    -------
         Total general, administrative
            and other expense                          1,018      1,248        807
                                                     -------    -------    -------
         Income (loss) before income
            taxes (benefits)                             233       (152)       127
<PAGE>
<CAPTION>
                                                       1997       1996       1995
                                                     -------    -------    -------
<S>                                                  <C>          <C>        <C>  
Federal income taxes (benefits):
     Current                                             (14)        19         26
     Deferred                                             76        (67)        20
                                                     -------    -------    -------
                                                          62        (48)        46
                                                     -------    -------    -------
         Net income (loss)                           $   171       (104)        81
                                                     =======    =======    =======

Earnings (loss) per share, restated for effects of
     conversion from mutual holding company          $  0.61      (0.37)      0.29
                                                     =======    =======    =======
</TABLE>



See accompanying notes to financial statements.



                                     - 26 -
<PAGE>
<TABLE>
<CAPTION>
                                                 KENWOOD BANCORP INC. AND SUBSIDIARY
                                           Consolidated Statements of Stockholders' Equity
                                            Years Ended September 30, 1997, 1996 and 1995
                                                           (In Thousands)
                                                                                           Unrealized
                                                                                             Gain on
                                                                     Additional             Available   Shares   Unearned
                                                             Common    Paid-In   Retained   for Sale   Acquired    ESOP
                                                             Stock     Capital   Earnings  Securities   By MRP    Shares      Total
                                                             ------  ----------  --------  ----------  --------  --------    ------
<S>                                                          <C>        <C>       <C>        <C>       <C>        <C>        <C>  
Balance at September 30, 1994                                $   15        452     2,756       --         (18)      --        3,205
     Amortization of MRP expense                               --         --        --         --          (1)      --           (1)
     Net income for the year ended
        September 30, 1995                                     --         --          81       --        --         --           81
     Increase in unrealized gain on
        available sale securities - net of tax                 --         --        --            5      --         --            5
     Cash dividends of $.56 per share                          --         --         (74)      --        --         --          (74)
                                                             ------     ------    ------     ------    ------     ------     ------

Balance at September 30, 1995                                    15        452     2,763          5       (19)      --        3,216
     Amortization of MRP expense                               --         --        --         --           1       --            1
     Net loss for the year ended
        September 30, 1996                                     --         --        (104)      --        --         --         (104)
     Increase in unrealized gain on
        available for sale securities net of
        tax                                                    --         --        --            7      --         --            7
     Cash dividends of $.49 per share                          --         --         (62)      --        --         --          (62)
     Shares acquired by ESOP                                   --         --        --         --        --         (126)      (126)
     Reorganization with issuance of
        common stock in second step conversion                  (12)     1,319      --         --        --         --        1,307
                                                             ------     ------    ------     ------    ------     ------     ------

Balance at September 30, 1996                                     3      1,771     2,597         12       (18)      (126)     4,239
     Amortization of MRP expense                               --         --        --         --           1       --            1
     Amortization of unearned ESOP                             --         --        --         --        --           11         11
     Net loss for the year ended
        September 30, 1997                                     --         --         171       --        --         --          171
     Increase in unrealized gain on
        available for sale securities net of
        tax                                                    --         --        --           20      --         --           20
     Cash dividends of $.28 per share                          --         --         (83)      --        --         --          (83)
                                                             ------     ------    ------     ------    ------     ------     ------

Balance at September 30, 1997                                $    3      1,771     2,685         32       (17)      (115)     4,359
                                                             ======     ======    ======     ======    ======     ======     ======
</TABLE>

See accompanying notes to financial statements 

                                     - 27 -
<PAGE>
<TABLE>
<CAPTION>
                                       KENWOOD BANCORP INC. AND SUBSIDIARY
                                      Consolidated Statements of Cash Flows
                                            Years Ended September 30,
                                                  (In Thousands)

                                                                      1997        1996        1995
                                                                    --------    --------    --------
<S>                                                                  <C>         <C>         <C>     
Cash flows from operating activities:
     Net income (loss) for the year                                 $    171        (104)         81
     Adjustments to reconcile net income (loss) to net cash
        used in operating activities:
           Depreciation and amortization                                  31          30          21
           Loans disbursed for sale in the secondary market           (9,950)    (13,218)     (3,388)
           Proceeds from sale of loans in the secondary market         9,574      12,788       3,221
           Gain on sale of mortgage loans                               (215)       (193)        (46)
           Gain on sale of investments                                   (17)        (11)       --
           Federal Home Loan Bank stock dividends                        (31)        (29)        (24)
           Amortization of premium (discount) on investments              (5)       --          --
           Amortization of deferred loan origination (fees) costs          3         (39)        (14)
           Amortization of expense of management
             recognition plan                                              1           1          (1)
           Amortization of unearned ESOP                                  11        --          --
           Provision for losses on loans                                --            14          12
           Increase (decrease) in cash due to changes in:
             Accrued interest receivable                                  24         (34)        (25)
             Prepaid expenses and other assets                            17          (4)         (9)
             Accounts payable on mortgage loans serviced
                on others                                                (25)        (70)         66
             Other liabilities                                          (321)        332          (3)
             Federal income taxes:
                Current                                                   (6)         20          14
                Deferred                                                  76         (67)         36
                                                                    --------    --------    --------
             Net cash used in operating activities                      (662)       (584)        (59)
                                                                    --------    --------    --------
Cash flows from investing activities:
     Principal repayments on loans and mortgage-backed
        securities                                                     7,226       7,777       6,469
     Loan disbursements                                              (12,495)    (12,356)    (10,593)
     Proceeds from sale of loans                                       8,322        --          --
     Purchase of mortgage-backed securities available for sale        (3,293)       (513)       --
     Proceeds from sale of mortgage-backed securities
        available for sale                                             3,467       1,743        --
     Maturity of investment securities                                  --           500        --
     Purchase of investment securities                                  --          (500)       --
     Maturity of investment securities available for sale               --           500        --
     Purchase of investment securities available for sale               --          (500)     (1,000)
     Proceeds from sale of investment securities available
        for sale                                                        --           513        --
     Purchase of Federal Home Loan Bank stock                           --          --           (50)
     Purchase of office premises and equipment                           (18)        (12)         (9)
     (Increase) decrease in certificates of deposit in other
        financial institutions                                          --           950         725
                                                                    --------    --------    --------
             Net cash provided by (used in) investing activities       3,209      (1,898)     (4,458)
                                                                    --------    --------    --------
             Net cash flows provided by (used in) operating and
                investing activities (subtotal carried forward)     $  2,547      (2,482)     (4,517)
                                                                    --------    --------    --------
</TABLE>

See accompanying notes to financial statements.

                                     - 28 -
<PAGE>
<TABLE>
<CAPTION>
                                      KENWOOD BANCORP INC. AND SUBSIDIARY
                               Consolidated Statements of Cash Flows (Continued)
                                           Years Ended September 30,
                                                 (In Thousands)

                                                                        1997       1996      1995
                                                                      -------    -------    -------
<S>                                                                   <C>        <C>        <C>
             Net cash flows provided by (used in) operating and
                and investing activities (subtotal brought forward)   $ 2,547     (2,482)    (4,517)

Cash flows from financing activities:
     Net increase (decrease) in deposits                                 (640)    (2,792)     5,591
     Proceeds from Federal Home Loan Bank advances                      7,200      6,000       --
     Repayment of Federal Home Loan Bank advances                      (9,804)    (2,541)       (18)
     Advances by borrowers for taxes and insurance                         16         34         48
     Net proceeds from the issuance of common stock                      --        1,181       --
     Dividends paid on common stock                                       (83)       (62)       (74)
                                                                      -------    -------    -------

             Net cash provided by (used in) financing activities       (3,311)     1,820      5,547
                                                                      -------    -------    -------

Net increase (decrease) in cash and cash equivalents                     (764)      (662)     1,030

Cash and cash equivalents at beginning of year                          2,146      2,808      1,778
                                                                      -------    -------    -------

Cash and cash equivalents at end of year                              $ 1,382      2,146      2,808
                                                                      =======    =======    =======

Supplemental disclosure of cash flow information:
     Cash paid (refunded) during the year for:
        Federal income taxes                                          $    (8)        (2)        12
                                                                      =======    =======    =======

        Interest on deposits and borrowings                             2,389      2,533      2,301
                                                                      =======    =======    =======

Supplemental disclosure of noncash investing activities:
        Transfers of investment securities to available for sale
          classification                                              $  --        7,253       --
                                                                      =======    =======    =======

        Change in unrealized gains on securities available for
          sale - net of related tax effects                                20          7          5
                                                                      =======    =======    =======
</TABLE>

See accompanying notes to financial statements.

                                     - 29 -
<PAGE>
                       KENWOOD BANCORP INC. AND SUBSIDIARY

                          Notes to Financial Statements


 1.  Organization and Summary of Significant Accounting Policies:

        The following describes the organization and the significant  accounting
        policies followed in the preparation of these financial statements.

             Nature of operations and principles of consolidation

             Kenwood  Bancorp Inc. (the Bancorp) is a holding  company formed in
             1996 in  conjunction  with the "second step"  conversion of Kenwood
             Savings Bank from a mutual holding  company to a stock savings bank
             on June 28, 1996. The Bancorp's  financial  statements  include the
             accounts of its wholly-owned subsidiary,  Kenwood Savings Bank. All
             significant intercompany transactions have been eliminated.

             Kenwood Savings Bank is a state chartered savings bank and a member
             of the  Federal  Home  Loan  Bank  system  (FHLB)  and  subject  to
             regulation by the Office of Thrift  Supervision (OTS), an office of
             the U.S.  Department  of Treasury.  As a member of the FHLB system,
             Kenwood  Savings Bank  maintains a required  investment  in capital
             stock of the Federal Home Loan Bank of Cincinnati.

             The Bancorp's  business  consists of  attracting  deposits from the
             general  public and  applying  those  funds in the  origination  of
             residential, consumer and nonresidential loans.

             Savings accounts are insured by the Savings  Association  Insurance
             Fund  (SAIF),   a  division  of  the  Federal   Deposit   Insurance
             Corporation  (FDIC),   within  certain   limitations.   Semi-annual
             premiums are required by the SAIF for the insurance of such savings
             accounts.

             Use of estimates

             The   preparation  of  financial   statements  in  conformity  with
             generally accepted  accounting  principles  requires  management to
             make estimates and assumptions  that affect the reported amounts of
             assets and  liabilities  and  disclosure of  contingent  assets and
             liabilities at the date of the financial statements and that affect
             the reported  amounts of revenues and expenses during the reporting
             period. Actual results could differ from those estimates.




                                     - 30 -
<PAGE>
             Concentrations of credit risk

             The Bancorp  grants  first  mortgage  and other loans to  customers
             located primarily in the Metropolitan Cincinnati area. Accordingly,
             a  substantial  portion  of its  debtor's  ability  to honor  their
             contracts  is  dependent  upon the  financial  health  of the local
             economy and market.

             Management may at times,  maintain  deposit accounts with financial
             institutions in excess of federal deposit insurance limits.

             Cash and cash equivalents

             For the purpose of  presentation  in the  statements of cash flows,
             the  Bancorp  considers  all highly  liquid debt  instruments  with
             original maturity when purchased of three months or less to be cash
             equivalents.

             Investment and mortgage-backed securities

             The Bancorp adopted Statement of Financial Accounting Standards No.
             115,  "Accounting  for  Certain  Investments  in  Debt  and  Equity
             Securities," as of October 1, 1994.  Statement No. 115 requires the
             classification  of investments in debt and equity  securities  into
             three  categories;  held to maturity,  trading,  and  available for
             sale.  Debt securities that the Bancorp has the positive intent and
             ability to hold to  maturity  are  classified  as held to  maturity
             securities  and  reported  at  amortized   cost.  Debt  and  equity
             securities that are bought and held  principally for the purpose of
             selling in the near-term are  classified as trading  securities and
             reported at fair value,  with unrealized  gains and losses included
             in earnings.

             The Bancorp has no trading  securities.  Debt and equity securities
             that are not  classified  as either held to maturity  securities or
             trading  securities are classified as available for sale securities
             and  reported  at fair  value,  with  unrealized  gains  or  losses
             excluded  from  earnings  and  reported as a separate  component of
             equity, net of deferred taxes.

             The Bancorp designates  investment  securities and  mortgage-backed
             securities   as  held  to  maturity  or  available  for  sale  upon
             acquisition.  At December  31,  1995,  the Bancorp  made a one-time
             reassessment  of  the  classification  of  certain  mortgage-backed
             securities  in  accordance  with  "A  Guide  to  Implementation  of
             Statement No. 115 on Accounting for Certain Investments in Debt and
             Equity Securities" issued in November 1995. The Bancorp transferred
             mortgage-backed  securities  with an amortized cost of $7.2 million
             from the held to maturity  classification to the available for sale
             classification at December 31, 1995 to reflect  management's intent
             as to the  classification of these  securities.  Gains or losses on
             the sales of investment  securities and mortgage-backed  securities
             available for sale are  determined  on the specific  identification
             method.

                                     - 31 -
<PAGE>

             Premiums and discounts on investment securities and mortgage-backed
             securities are amortized or accreted using the interest method over
             the expected lives of the related securities.

             Loans receivable

             Loans  held  in  portfolio  are  stated  at  the  principal  amount
             outstanding, adjusted for deferred loan origination fees and costs,
             the allowance for loan losses,  and premiums and discounts on loans
             purchased.  Premiums and discounts on loans purchased are amortized
             and  accreted  to  operations  using the  interest  method over the
             estimated life of the underlying loans.

             Loan  origination  fees and certain  direct  origination  costs are
             capitalized  and  recognized  as an  adjustment of the yield on the
             related loan.

             Interest is accrued as earned unless the collectibility of the loan
             is in doubt. Uncollectible interest on loans that are contractually
             past due is charged off, or an allowance  is  established  based on
             management's periodic evaluation. The allowance is established by a
             charge to interest income equal to all interest previously accrued,
             and income is subsequently  recognized only to the extent that cash
             payments  are  received  until,  in  management's   judgment,   the
             borrower's ability to make periodic interest and principal payments
             has  returned  to  normal,  in which case the loan is  returned  to
             accrual status.

             Loans  held for sale are  carried  at the lower of cost or  market,
             determined  in the  aggregate.  In computing  cost,  deferred  loan
             origination  fees and  costs  are  aggregated  with  the  principal
             balances  of the related  loans.  At  September  30, 1997 and 1996,
             loans held for sale were carried at cost.

             The Bancorp  will either  sell the  related  servicing  on loans or
             retain  the  servicing  on  loans  sold  and  agree to remit to the
             investor loan  principal and interest at agreed-upon  rates.  These
             rates  can  differ  from  the  loan's  contractual   interest  rate
             resulting in a "yield  differential." Prior to 1997, in addition to
             previously  deferred loan origination fees and cash gains, gains on
             sale of loans  represented  the present  value of the future  yield
             differential  less a normal  servicing  fee,  capitalized  over the
             estimated  life of the  loans  sold.  Normal  servicing  fees  were
             determined by reference to the stipulated minimum servicing fee set
             forth by the government  agencies to whom the loans were sold. Such
             servicing  fees  were   representative   of  the  Bancorp's  normal
             servicing costs. The resulting capitalized excess servicing fee was
             amortized  to  operations  over the  life of the  loans  using  the
             interest  method.  If  prepayments  are higher  than  expected,  an
             immediate  charge to operations was made. If prepayments are lower,
             then the related adjustments were made prospectively.



                                     - 32 -
<PAGE>

             The allowance  for loan losses is  maintained at a level which,  in
             management's  judgment,  is  adequate  to absorb  potential  losses
             inherent  in the loan  portfolio.  The amount of the  allowance  is
             based on management's  evaluation of the collectibility of the loan
             portfolio,   including   the  nature  of  the   portfolio,   credit
             concentrations,  trends in  historical  loss  experience,  specific
             impaired loans,  and economic  conditions.  Allowances for impaired
             loans are generally  determined  based on collateral  values or the
             present value of estimated  cash flows.  The allowance is increased
             by a  provision  for loan  losses,  which is charged to expense and
             reduced by charge-offs, net of recoveries. Changes in the allowance
             relating to impaired loans are charged or credited to the provision
             for  loan  losses.   Because  of  uncertainties   inherent  in  the
             estimation process, management's estimate of credit losses inherent
             in the loan  portfolio and the related  allowance may change in the
             near term.  However,  the amount of the change  that is  reasonably
             possible cannot be estimated.

             In May  1993,  the  Financial  Accounting  Standards  Board  issued
             Statement of Financial Accounting Standards No. 114, "Accounting by
             Creditors for Impairment of a Loan". This standard amends Statement
             No. 5 to clarify that a creditor should evaluate the collectibility
             of both contractual interest and contractual principal on all loans
             when  assessing the need for a loss accrual.  In October 1994,  the
             Financial  Accounting Standards Board issued Statement of Financial
             Accounting   Standards  No.  118   "Accounting   by  Creditors  for
             Impairment of a Loan - Income  Recognition and  Disclosure",  which
             amends  Statement  No.  114 to  allow a  creditor  to use  existing
             methods for  recognizing  interest  income on impaired  loans.  The
             statements are effective for the fiscal year  beginning  October 1,
             1995 and the adoption of these  statements  did not have a material
             effect on the Bancorp's financial statements.

             A loan is  defined  as  impaired  under  SFAS  No.  114  when it is
             probable  that a creditor will be unable to collect all amounts due
             according to contractual  terms of the loan agreement.  In applying
             the  provisions  of  SFAS  No.  114,  the  Bancorp   considers  its
             investment in  one-to-four  family  residential  loans and consumer
             loans  to be  homogeneous  and  therefore  excluded  from  separate
             identification  for evaluation of  impairment.  With respect to the
             Bancorp's  investment in impaired  multi-family and non-residential
             real estate  loans,  such loans are  collateral  dependent and as a
             result are carried as a practical expedient at the lower of cost or
             fair value.

             It is the Bancorp's policy to consider  collateral  dependent loans
             which are more than ninety days  delinquent to constitute more than
             a minimum  delay in  repayment  and  therefore  are  evaluated  for
             impairment  under SFAS No. 114 at that time.  Interest  on impaired
             loans  is  reported  on the cash  basis.  Impaired  loans  would be
             charged off in the same manner as all loans  subject to charge off.
             At September 30, 1997 and 1996, the Bancorp had no loans that would
             be defined as impaired under SFAS No. 114.




                                     - 33 -
<PAGE>

             Foreclosed real estate

             Real  estate  properties  acquired  through,  or in lieu  of,  loan
             foreclosures are initially  recorded at lower of cost or fair value
             less estimated costs to sell at the date of foreclosure. Subsequent
             declines  in value are  charged to  operations.  The Bancorp had no
             real estate acquired by foreclosure at September 30, 1997 and 1996.

             Property and equipment

             Property  and  equipment  are  carried  at cost,  less  accumulated
             depreciation  and  amortization   computed  by  straight-line   and
             accelerated   methods  over  the  estimated  useful  lives  of  the
             respective assets.

             Income taxes

             The Bancorp  accounts for income taxes under Statement of Financial
             Accounting  Standards No. 109, "Accounting for Income Taxes". Under
             this standard,  deferred tax assets and  liabilities  represent the
             tax effects of the  temporary  differences  in the basis of certain
             assets and  liabilities for tax and financial  statement  purposes,
             calculated at currently effective tax rates.

             The  Bancorp's  principal  temporary   differences  between  pretax
             financial  income and taxable income result from different  methods
             of accounting for deferred loan origination fees and costs, Federal
             Home Loan Bank stock dividends, the accretion of unearned discounts
             arising from loans sold in a reciprocal loan sale transaction,  the
             general  loan  loss  allowance  and  the  post-1987  percentage  of
             earnings bad debt  deduction.  For certain  assets  acquired  after
             December 31, 1980, a temporary  difference is also  recognized  for
             depreciation  utilizing  accelerated methods for Federal income tax
             purposes.

             Off balance sheet instruments

             In the ordinary  course of  business,  the Bancorp has entered into
             off-balance sheet financial  instruments  consisting of commitments
             to extend credit and commitments  under line of credit loans.  Such
             financial instruments are recorded in the financial statements when
             they are funded or related fees are incurred or received.









                                     - 34 -
<PAGE>

             Recent accounting pronouncements

             In May 1995, the Financial Accounting Standards Board (FASB) issued
             Statement  of  Financial   Accounting  Standards  (SFAS)  No.  122,
             "Accounting for Mortgage Servicing Rights". This statement requires
             that a mortgage  banking  enterprise  recognize as separate  assets
             rights  to  service  mortgage  loans  for  others,   however  those
             servicing rights are acquired.  A mortgage banking  enterprise that
             acquires  mortgage  servicing rights through either the purchase or
             origination of mortgage loans and sells or securitizes  those loans
             with servicing rights retained would allocate the total cost of the
             mortgage loans to the mortgage servicing rights and the loans based
             on their  relative fair value.  Statement No. 122 was effective for
             transactions  occurring  after  September 30, 1996. The adoption of
             this  standard  did not have a  material  impact  on the  financial
             statements.

             In October  1995,  the FASB issued SFAS No.  123,  "Accounting  for
             Stock-Based  Compensation".  This statement establishes  accounting
             and reporting standards for stock-based employee compensation plans
             including stock options.  The statement defines a "fair value based
             method" for employee  stock options and  encourages all entities to
             adopt that method for such options. However, it allows an entity to
             continue  to measure  compensation  cost for those  plans using the
             "intrinsic  value based  method" of  accounting  prescribed  by APB
             Opinion No. 25. Entities  electing to remain with the accounting in
             Opinion  25  must  make  proforma  disclosures  of net  income  and
             earnings  per  share,  as if the fair  value  method of  accounting
             defined  in this  statement  had been  applied.  SFAS  No.  123 was
             effective for transactions  entered into in fiscal years that begin
             after  December 15, 1995,  and therefore was applied to fiscal year
             ended  September  30, 1997.  The adoption of this  standard did not
             have a material impact on the financial statements.

             In June  1996,  the  FASB  issued  SFAS  No.  125  "Accounting  for
             Transfers and Servicing of Financial Assets and  Extinguishments of
             Liabilities" which established  accounting and reporting  standards
             for transfers and servicing of financial assets and extinguishments
             of liabilities. The standards are based on a consistent application
             of a financial  components approach that focuses on control.  Under
             that  approach,  after a transfer of  financial  assets,  an entity
             recognizes  the financial and servicing  assets it controls and the
             liabilities  it has incurred,  derecognizes  financial  assets when
             control has been  surrendered,  and  derecognizes  liabilities when
             extinguished.  SFAS  No.  125  provides  consistent  standards  for
             distinguishing  transfers of  financial  assets that are sales from
             transfers that are secured borrowings. SFAS No. 125 supercedes SFAS
             No. 122.  SFAS No. 125 was  effective  for  transactions  occurring
             after December 31, 1996. The adoption of this standard did not have
             a material impact on the financial statements.




                                     - 35 -

<PAGE>

             In March 1997,  the FASB issued SFAS No. 128,  "Earnings per Share"
             which will replace the current presentation of "primary" and "fully
             diluted"   earnings  per  share  with  newly  defined  "basic"  and
             "diluted"  earnings per share.  "Basic" earnings per share will not
             include dilutive effect on earnings.  "Diluted"  earnings per share
             will reflect the potential  dilution of securities that could share
             in  an  enterprises  earnings.  The  statement  will  require  dual
             presentation of basic and diluted  earnings per share on the income
             statement for all entities having complex capital structures. It is
             effective for all financial  statements  issued for periods  ending
             after  December 31, 1997.  Management  is currently  assessing  the
             impact  that  adoption   will  have  on  the  Bancorp's   financial
             statements.

             In  June  1997,   the  FASB  issued   SFAS  No.   130,   "Reporting
             Comprehensive Income" which establishes standards for reporting and
             display  of  comprehensive  income  and its  components  (revenues,
             expenses, gains and losses) in financial statements. This statement
             requires  that all items that are required to be  recognized  under
             accounting  standards  as  components  of  comprehensive  income be
             reported in a financial  statement  that is displayed with the same
             prominence as other financial  statements.  This statement requires
             that (a) items of other comprehensive income be classified by their
             nature in a financial  statement and (b) the accumulated balance of
             other  comprehensive  income be displayed  separately from retained
             earnings and  additional  paid-in  capital in the equity section of
             the statement of financial position.  SFAS No. 130 is effective for
             fiscal years  beginning  after  December 15,  1997.  Management  is
             currently  assessing  the  impact  that  adoption  will have on the
             Bancorp's financial statements.

             Earnings per share

             Earnings per share for the fiscal years ended  September  30, 1997,
             1996 and 1995 is based on net income  (loss)  divided  by  280,771,
             282,521, and 282,521 weighted average shares outstanding during the
             respective period. Weighted average shares for fiscal year 1995 was
             adjusted for the  reorganization  from the mutual  holding  company
             form to the stock holding  company form effected in the 1996 fiscal
             year.














                                     - 36 -

<PAGE>

2.      Investments and Mortgage-Backed Securities:

        The amortized cost, gross unrealized gains, gross unrealized losses, and
        approximate  market values of investment  securities held to maturity at
        September 30, are summarized as follows:
<TABLE>
<CAPTION>
                                                                            1997
                                        --------------------------------------------------------------------
                                                               Gross                Gross
                                        Amortized           Unrealized           Unrealized           Market
                                          Cost                 Gains               Losses              Value
                                        ---------           ----------           ----------           ------
<S>                                     <C>                 <C>                  <C>                  <C>
        U.S. Government
          agency obligations             $ 1,997                  -                     6              1,991
                                         =======              ======                =====              =====
<CAPTION>
                                                                            1996
                                        --------------------------------------------------------------------
                                                              Gross               Gross
                                        Amortized           Unrealized           Unrealized           Market
                                          Cost                 Gains               Losses              Value
                                        ---------           ----------           ----------           ------
<S>                                     <C>                 <C>                  <C>                  <C>
        U.S. Government
          agency obligations             $ 1,994                  -                    35              1,959
                                         =======              ======                =====              =====
</TABLE>

        At  each of the  dates  presented,  all  investment  securities  held to
        maturity are due within one to five years.

        The amortized costs,  gross unrealized gains,  gross unrealized  losses,
        and  market  value  of  investment  securities  available  for  sale  at
        September 30, are summarized as follows:
<PAGE>
<TABLE>
<CAPTION>
                                                                            1997
                                        --------------------------------------------------------------------
                                                               Gross                Gross
                                        Amortized           Unrealized           Unrealized           Market
                                          Cost                 Gains               Losses              Value
                                        ---------           ----------           ----------           ------
<S>                                     <C>                 <C>                  <C>                  <C>
        U.S. Government
          agency obligations             $   499                  -                     4                495
                                         =======              ======                =====              =====
<CAPTION>
                                                                            1996
                                        --------------------------------------------------------------------
                                                               Gross                Gross
                                        Amortized           Unrealized           Unrealized           Market
                                          Cost                 Gains               Losses              Value
                                        ---------           ----------           ----------           ------
<S>                                     <C>                 <C>                  <C>                  <C>
        U.S. Government
          agency obligations             $   499                  -                    13                486
                                         =======              ======                =====              =====

</TABLE>

                                     - 37 -
<PAGE>

        At each of the dates presented,  all investment securities available for
        sale are due within one to five years.

        The amortized cost, gross unrealized gains, gross unrealized losses, and
        market value of mortgage-backed securities held to maturity at September
        30, are summarized as follows:
<TABLE>
<CAPTION>
                                                                            1997
                                        --------------------------------------------------------------------
                                                               Gross                Gross
                                        Amortized           Unrealized           Unrealized           Market
                                          Cost                 Gains               Losses              Value
                                        ---------           ----------           ----------           ------
<S>                                     <C>                 <C>                  <C>                  <C>
        Government National
          Mortgage Association             $ 223                  11                   -                 234
                                         =======              ======                =====              =====
<CAPTION>
                                                                            1996
                                        --------------------------------------------------------------------
                                                               Gross                Gross
                                        Amortized           Unrealized           Unrealized           Market
                                          Cost                 Gains               Losses              Value
                                        ---------           ----------           ----------           ------
<S>                                     <C>                 <C>                  <C>                  <C>
        Government National
          Mortgage Association             $ 245                   5                   -                 250
                                         =======              ======                =====              =====
</TABLE>
<PAGE>

        The amortized cost, gross unrealized gains, gross unrealized losses, and
        market  value  of  mortgage  backed  securities  available  for  sale at
        September 30, are summarized as follows:
<TABLE>
<CAPTION>
                                                                            1997
                                        --------------------------------------------------------------------
                                                               Gross                Gross
                                        Amortized           Unrealized           Unrealized           Market
                                          Cost                 Gains               Losses              Value
                                        ---------           ----------           ----------           ------
<S>                                     <C>                 <C>                  <C>                  <C>
        Federal Home Loan
          Mortgage Corporation          $ 1,283                  -                      7             1,276  
        Federal National                                                                                     
          Mortgage Association              413                   11                   -                424  
        Government National                                                                                  
          Mortgage Association            1,791                   46                   -              1,837  
                                        -------                -----                -----             -----  
                                                                                                             
                                        $ 3,487                   57                    7             3,537  
                                        =======                =====                =====             =====  
</TABLE>

                                     - 38 -

<PAGE>
<TABLE>
<CAPTION>
                                                                            1996
                                        --------------------------------------------------------------------
                                                               Gross                Gross
                                        Amortized           Unrealized           Unrealized           Market
                                          Cost                 Gains               Losses              Value
                                        ---------           ----------           ----------           ------
<S>                                     <C>                 <C>                  <C>                  <C>
        Federal Home Loan
          Mortgage Corporation          $   348                  -                       9              339
        Federal National
          Mortgage Association              560                   13                   -                573
        Government National
          Mortgage Association            3,591                   28                     2            3,617
                                        -------                -----                 -----            -----

                                        $ 4,499                   41                    11            4,529
                                        =======                =====                 =====            =====
</TABLE>

        The amortized cost and market value of all mortgage-backed securities at
        September 30, by contractual terms to maturity is shown below.  Expected
        maturities will differ from contractual maturities because borrowers may
        generally prepay obligations without prepayment penalties.
<TABLE>
<CAPTION>
                                                                1997                                 1996
                                                      ------------------------             -------------------------
                                                      Amortized         Market             Amortized          Market
                                                        Cost             Value               Cost             Value
                                                      ---------         ------             ---------          ------
<S>                                                   <C>               <C>                  <C>             <C>  
        Due in one to five years                      $   247             247                  348             339
        Due in ten to twenty years                        223             234                  -               -
        Due after twenty years                          3,240           3,290                4,396           4,440
                                                      -------           -----                -----           -----

                                                      $ 3,710           3,771                4,744           4,779
                                                      =======           =====                =====           =====
</TABLE>
<PAGE>

        Proceeds and resulting gains and loses realized from sale of investments
        and  mortgage-backed  securities  from the year ended September 30, 1997
        and 1996 were as follows:
<TABLE>
<CAPTION>
                                                                          1997
                                        -----------------------------------------------------------------------
                                                                                                        Net
                                          Gross                Gross                Gross            Realized
                                        Proceeds               Gains               Losses           Gain/(Loss)
                                        --------               -----               ------           -----------
<S>                                     <C>                    <C>                 <C>              <C>
        Mortgage-backed
          securities                    $ 3,467                  17                    -                  17
                                        =======               =====                =====               =====
</TABLE>

                                     - 39 -

<PAGE>
<TABLE>
<CAPTION>
                                                                          1996
                                        -----------------------------------------------------------------------
                                                                                                        Net
                                          Gross                Gross                Gross            Realized
                                        Proceeds               Gains               Losses           Gain/(Loss)
                                        --------               -----               ------           -----------
<S>                                     <C>                    <C>                 <C>              <C>
        Investments                        $   513                 13                  -                     13
        Mortgage-backed
          securities                         1,743                -                      2                   (2)
                                           -------              -----                -----                -----

                                           $ 2,256                 13                    2                   11
                                          ========              =====                =====                =====

</TABLE>

 3.     Loans Receivable:

        The composition of the loan portfolio at September 30 is as follows:
<TABLE>
<CAPTION>
                                                                                           1997              1996
                                                                                           ----              ----

<S>                                                                                    <C>                 <C>   
        One-to-four family residential real estate                                     $ 35,290            37,699
        Multi-family residential  real estate                                               558               126
        Construction                                                                        534             1,016
        Nonresidential real estate                                                          336               142
        Home equity line of credit                                                        1,226               817
        Consumer and other                                                                   26                43
                                                                                       --------            ------
                                                                                         37,970            39,843
        Add/(less):
          Undisbursed portion of loans-in-process                                          (212)             (502)
          Deferred loan origination costs                                                    82                85
          Allowance for loan losses                                                         (95)              (95)
                                                                                       --------            ------
                                                                                       $ 37,745            39,331
                                                                                       ========            ======
</TABLE>

        The Bancorp's lending efforts have  historically  focused on one-to-four
        family and multi-family  residential  real estate loans,  which comprise
        approximately  $35.5  million,  or 94% of the total  loan  portfolio  at
        September 30, 1997 and $38.3 million, or 97% of the total loan portfolio
        at September 30, 1996.  Generally,  such loans have been underwritten on
        the  basis  of no  more  than  an 80%  loan-to-value  ratio,  which  has
        historically  provided the Bancorp with adequate  collateral coverage in
        the event of default. Any loan with loan to value exceeding 80% requires
        PMI  insurance.   Nevertheless,   the  Bancorp,   as  with  any  lending
        institution,  is subject to the risk that residential real estate values
        could  deteriorate  in its primary  lending area of  southwestern  Ohio,
        thereby  impairing  collateral  values.  However,  management  is of the
        belief that real estate values in the Bancorp's primary lending area are
        presently stable.


                                     - 40 -
<PAGE>

        As discussed  previously,  the Bancorp has sold certain  whole loans and
        participating interests in the loans in the secondary market,  retaining
        servicing on the loans sold.  Loans sold and serviced for others totaled
        approximately  $16.1  million,  $18.2  million,  and  $20.3  million  at
        September  30,  1997,  1996 and 1995.  All of the loans held for sale at
        September  30,  1997  and  1996,  will be sold  with the  servicing  not
        retained by the Bancorp.

        The  activity in the  allowance  for loan losses at  September  30 is as
        follows:
<TABLE>
<CAPTION>
                                                                      1997                 1996              1995
                                                                      ----                 ----              ----
<S>                                                                  <C>                   <C>               <C>
        Beginning balance                                            $  95                   81                69
        Charge-offs                                                     -                    -                 -
        Provision for loan losses                                       -                    14                12
                                                                       ---                  ---               ---

        Ending balance                                               $  95                   95                81
                                                                       ===                  ===               ===
</TABLE>

        At  September  30, 1997,  the  Bancorp's  allowance  for loan losses was
        comprised  solely of a general loan loss allowance,  which is includible
        as a component of regulatory risk-based capital.

        The balance of loans not  accruing  interest at  September  30, 1997 was
        $186,721. The Bancorp had no non-accrual loans at September 30, 1996 and
        1995.

 4.     Property and Equipment:

        Property and equipment consist of the following at September 30:
<TABLE>
<CAPTION>
                                                                            1997                      1996
                                                                            ----                      ----
<S>                                                                        <C>                         <C>
        Land and improvements                                              $ 148                       148
        Building and improvements                                            325                       325
        Furniture and equipment                                              190                       172
                                                                             ---                       ---
                                                                             663                       645
        Less accumulated depreciation
          and amortization                                                   314                       283
                                                                             ---                       ---

                                                                           $ 349                       362
                                                                             ===                       ===
</TABLE>


                                     - 41 -
<PAGE>
 5.     Deposits:


        Deposits  on account  bearing  interest  and  certificates  by  original
        maturity are summarized as follows:
<TABLE>
<CAPTION>
                                                     1997                                              1996
                                 ------------------------------------------          ------------------------------------------
                                  Weighted                          Percent          Weighted                          Percent
                                   Average                            of              Average                            of
                                    Rate            Amount         Deposits            Rate           Amount          Deposits
                                    ----            ------         --------            ----           ------          --------
<S>                                   <C>            <C>              <C>                 <C>          <C>              <C>
Passbook savings                      2.94%          $ 1,446            3.53%             2.94%          1,396             3.35%
Statement savings                     4.52             2,578            6.29              4.55           2,535             6.09
Demand deposits                       3.65             1,518            3.70              3.73           1,285             3.09
Money market deposits                 3.66             2,378            5.80              3.65           2,616             6.28
                                                      ------          ------                            ------           ------
                                                       7,920           19.32                             7,832            18.81

Certificates
     3 month                          5.24             1,015            2.48              5.25           1,007             2.42
     6 month                          5.51             2,751            6.71              5.17           2,612             6.27
    11 month                          5.65             2,582            6.30              5.34           2,831             6.80
    12 month                          5.74             4,753           11.59              5.39           3,915             9.40
    18 month                          5.80             1,436            3.50              5.58           1,258             3.02
    18 month IRA                      5.89               102            0.25              5.92             113             0.27
    22 month                          5.97             5,367           13.09              6.66           4,999            12.01
    24 month                          5.85             3,685            8.99              6.30           5,236            12.57
    30 month                          5.96               742            1.81              6.27           1,465             3.52
    36 month                          6.50             3,179            7.75              6.25           3,046             7.32
    60 month                          6.55             7,464           18.21              6.52           7,322            17.59
                                                      ------          ------                            ------           ------

                                                      33,076           80.68                            33,804            81.19
                                                      ------          ------                            ------           ------

                                                      40,996          100.00%                           41,636           100.00%
                                                      ======          ======                            ======           ======
</TABLE>


                                     - 42 -
<PAGE>
        Interest expense on deposits at September 30 is summarized as follows:
<TABLE>
<CAPTION>
                                                                1997              1996             1995
                                                                ----              ----             ----
                                                                             (In thousands)
<S>                                                            <C>                <C>               <C>  
        Passbook                                               $    43               45                50
        Certificates of deposit                                  1,970            2,179             2,016
        NOW, money market deposit
           accounts and statement savings                          278              238               201
                                                                 -----            -----             -----

                                                               $ 2,291            2,462             2,267
                                                                 =====            =====             =====
</TABLE>

        Maturities of  outstanding  certificates  of deposit at September 30 are
        summarized as follows:
<TABLE>
<CAPTION>
                                                                                  1997             1996
                                                                                  ----             ----
                                                                                       (In thousands)
<S>                                                                            <C>                 <C>   
        Less than one year                                                     $ 19,175            21,945
        One year to three years                                                  12,059             7,709
        More than three years                                                     1,842             4,150
                                                                                 ------            ------

                                                                               $ 33,076            33,804
                                                                                 ======            ======
</TABLE>

        The aggregate  amount of  certificates  of deposit in  denominations  of
        $100,000 or more was $3.7 million and $3.5 million at September 30, 1997
        and 1996  respectively.  Deposit  accounts  exceeding  $100,000  are not
        federally insured.

 6.     Financial Instruments:

        The following  fair value  disclosures  are made in accordance  with the
        requirements of SFAS No. 107,  "Disclosure about Fair Value of Financial
        Instruments."  SFAS  No.  107  requires  the  disclosure  of fair  value
        information about both  on-and-off-balance  sheet financial  instruments
        where it is  practical  to estimate  that value.  In cases where  quoted
        market  prices were not  available,  fair values were based on estimates
        using present value of other valuation methods,  as described below. The
        use of  different  assumptions  (e.g.,  discount  rates  and  cash  flow
        estimates)  and  estimation  methods could have a significant  effect on
        fair value amounts.  Accordingly, the estimates presented herein are not
        necessarily  indicative  of the amounts the Bancorp  could  realize in a
        current market exchange. Because SFAS No. 107 excludes certain financial
        instruments  and  all  nonfinancial   instruments  from  its  disclosure
        requirements,  any aggregation of the fair value amounts presented would
        not represent the underlying value of the Bancorp.


                                     - 43 -

<PAGE>

        The following  methods and assumptions  were used in estimating the fair
        values of financial  instruments,  cash,  interest  bearing deposits and
        investment  in FHLB  stock.  The  carrying  value of cash  and  interest
        bearing deposits approximates those assets' fair value.

        Investments and mortgage-backed securities

        For  investment   securities  (debt  instruments)  and   mortgage-backed
        securities,  fair  values  are  based on  quoted  market  prices,  where
        available.  If a quoted  market  price is not  available,  fair value is
        estimated using quoted market prices of comparable instruments.

        Loans receivable

        The  fair  value  of the  loan  portfolio  is  estimated  by  evaluating
        homogeneous categories of loans with similar financial  characteristics.
        Loans are segregated by types, such as residential mortgage,  commercial
        real estate, and consumer.  Each loan category is further segmented into
        fixed  and  adjustable  rate  interest,  terms,  and by  performing  and
        nonperforming categories.

        The fair value of performing loans,  except residential  mortgage loans,
        is  calculated by  discounting  contractual  cash flows using  estimated
        market  discount  rates which  reflect the credit and interest rate risk
        inherent in the loan. For performing  residential  mortgage loans,  fair
        value is estimated by  discounting  contractual  cash flows adjusted for
        prepayment  estimates  using  discount  rates based on secondary  market
        sources. The fair value for significant  nonperforming loans is based on
        recent internal or external  appraisals.  Assumptions  regarding  credit
        risk, cash flow, and discount rates are judgmentally determined by using
        available market information.

        Savings accounts

        The fair values of passbook  accounts,  NOW  accounts,  and money market
        savings and demand deposits approximates their carrying values. The fair
        value of fixed  maturity  certificates  of deposit is estimated  using a
        discounted cash flow  calculation  that applies interest rates currently
        offered for deposits of similar remaining maturities.

        Commitments to extend credit

        The  fair  value  of  commitments  to  extend  credit  approximates  the
        contractual  amount  due to  the  comparability  of  current  levels  of
        interest rates and the committed rates.

        Fair values for off-balance-sheet  lending commitments are based on fees
        currently charged to enter into similar agreements,  taking into account
        the remaining  terms of the  agreements and the  counterparties'  credit
        standings.


                                     - 44 -

<PAGE>
        The estimated  fair values of the  Bancorp's  financial  instruments  at
        September 30, 1997, are as follows:
<TABLE>
<CAPTION>
                                                                                   September 30, 1997
                                                                          ----------------------------------
                                                                          Carrying                     Fair
                                                                           Amounts                     Value
                                                                          --------                     -----
<S>                                                                         <C>                       <C>   
        Financial assets:
           Cash and interest bearing deposits                              $ 1,382                     1,382
           Certificates of deposit                                             380                       380
           Investment securities available
                for sale                                                       495                       495
           Investment securities held to
                maturity                                                     1,997                     1,991
           Loans receivable                                                 37,745                    38,299
           Mortgage-backed securities
                available for sale                                           3,537                     3,537
           Mortgage-backed securities held
                to maturity                                                    223                       234
           Investment in FHLB stock                                            461                       461
        Financial liabilities:
           Savings accounts                                                 40,996                    41,238
           Federal Home Loan Bank advances                                   1,049                     1,037

<CAPTION>
                                                                       Contractual                     Fair
                                                                         Amount                        Value
                                                                         ------                        -----
<S>                                                                      <C>                           <C>
        Unrecognized financial instruments
           Commitments to extend credit                                  1,148                         1,148
</TABLE>

                                     - 45 -

<PAGE>
        The estimated  fair values of the  Bancorp's  financial  instruments  at
        September 30, 1996, are as follows:
<TABLE>
<CAPTION>
                                                                                   September 30, 1996
                                                                        Carrying                       Fair
                                                                         Amounts                       Value
                                                                         -------                       -----
<S>                                                                        <C>                        <C>
        Financial assets:
           Cash and interest bearing deposits                              $ 2,146                     2,146
           Certificates of deposit                                             380                       380
           Investment securities available
                for sale                                                       486                       486
           Investment securities held to
                maturity                                                     1,994                     1,959
           Loans receivable                                                 39,331                    39,520
           Mortgage-backed securities
                available for sale                                           4,529                     4,529
           Mortgage-backed securities held
                to maturity                                                    245                       250
           Investment in FHLB stock                                            430                       430
        Financial liabilities:
           Savings accounts                                                 41,636                    41,860
           Federal Home Loan Bank advances                                   3,653                     3,653

<CAPTION>
                                                                       Contractual                     Fair
                                                                         Amount                        Value
                                                                         ------                        -----
<S>                                                                          <C>                       <C>  
        Unrecognized financial instruments
           Commitments to extend credit                                      1,301                     1,301
</TABLE>

 7.     Advances From the Federal Home Loan Bank:

        Pursuant to a collateral agreement with the FHLB advances are secured by
        all stock owned in the FHLB and qualifying first mortgage loans totaling
        150% of the advanced balance.

        Advances consist of the following at September 30, 1997 and 1996:
<TABLE>
<CAPTION>
                                                                          1997                         1996
                                                                          ----                         ----
<S>                                                                        <C>                         <C>
        Short term (advances at variable rates
          (5.90% and 5.45% at September 30,  
           1997 and 1996)                                                  $   500                     3,000
        Long term note (interest at 5.65%)                                     155                       175
        Long term note (interest at 5.45%)                                     394                       478
                                                                             -----                     -----

                                                                           $ 1,049                     3,653
                                                                             =====                     =====
</TABLE>

                                     - 46 -

<PAGE>
        Maturities on these advances at September 30, 1997, are as follows:

                                                          Amount
                                                          ------

        1998                                             $  595
        1999                                                 87
        2000                                                 80
        2001                                                 74
        2002                                                 70
        Subsequent years                                    143
                                                          -----

                                                        $ 1,049

8.    Benefit plans

        401(k) profit sharing plan
        The Bancorp  maintains a 401(k)  profit  sharing  plan which  covers all
        employees  who have  attained the age of 20 1/2 and have  completed  six
        months of service.  Employer contributions are made at the discretion of
        the Board of Directors.  The Bancorp's contribution to such plan totaled
        approximately  $8,000,  $12,000 and $8,000 for the years ended September
        30, 1997, 1996 and 1995 respectively.

        1992 Management Recognition Plan

        In conjunction with the initial public  offering,  the Bancorp adopted a
        Management Recognition Plan (MRP). The MRP purchased 2,070 shares of the
        common stock issued in the offering which were converted to 4,027 shares
        in the second step  conversion.  Common stock granted under the MRP will
        vest ratably over a five-year  period,  commencing on the date of grant.
        During fiscal 1995,  the Bancorp  granted  additional 140 shares to plan
        participants  and  recognized  a  credit  of  approximately   $1,000  of
        amortization expense.  Total shares granted under the plan total 859 and
        968 shares as of  September  30, 1997 and 1996.  The Bancorp  recognized
        $1,000 of amortization expense in 1997 and 1996.

        1996 Management Recognition Plan

        On  January  30,  1997,  the  shareholders  approved  a  new  Management
        Recognition  Plan.  Under the provisions of the Plan, 6,306 shares shall
        be purchased  and made  available  for  distribution  to  employees  and
        non-employee directors at the discretion of a Board appointed committee.
        Plan share awards are earned by a recipient  over a 5 - year period.  At
        September 30, 1997,  there were no shares purchased or awarded under the
        plan.





                                     - 47 -

<PAGE>

        1992 Directors' Stock Option Plan

        The Bancorp has a Stock  Option Plan that  provides  for the issuance of
        2,070 shares of authorized,  but unissued shares. Shares exercised under
        option totaled 1,656 leaving 414  unexercised  shares under option at an
        exercise  price of $10.  The  unexercised  shares were  converted to 805
        unexercised shares in the second step conversion at an exercise price of
        $5.14.

        1996 Stock Option Plan

        On January 30,  1997,  the  stockholders  approved the 1996 Stock Option
        Plan.  Under  the  provisions  of the  Plan,  15,765  shares  have  been
        allocated for non-qualified and incentive stock options to be granted to
        directors and selected  employees.  Grantees are awarded 10-year options
        to acquire  shares at the market price on the date the option is granted
        in five equal annual installments  commencing one year after the date of
        the grant.

        Set forth below is activity under the plan.
<TABLE>
<CAPTION>
                                    1996                                          9/30/97
                                 Options         Options        Options           Options        Option Price
         Date of Grant           Granted        Exercised      Forfeited        Outstanding        Per Share
         -------------           -------        ---------      ---------        -----------        ---------
<S>                                 <C>           <C>          <C>                   <C>             <C>
        January 30, 1997             4,728               -            -              4,728           $ 10.50
                                    ======        ========     ========              =====             =====

        Exercisable in
          fiscal year 1998             948                                                           $ 10.50
                                       ===                                                             =====

        Shares available for
          future grants at
          September 30, 1997        11,037
</TABLE>

        The  Bancorp  applies  Accounting  Principles  Board  (APB)  Opinion 25,
        "Accounting for Stock Issued to Employees",  and related Interpretations
        in accounting for its option plans.  Accordingly,  no compensation  cost
        has been recognized. Had compensation cost for the Bancorp's stock-based
        compensation  plans been determined based on the fair value at the grant
        dates for awards  under those plans  consistent  with the method of FASB
        Statements 123, "Accounting for Stock-Based Compensation," the effect on
        net income and  earnings  per share  would have been  immaterial  to the
        financial statements.



                                     - 48 -

<PAGE>
        Employee Stock Ownership Plan

        Concurrent  with the conversion  from the mutual holding company form to
        the  stock  holding  company  form or  organization,  on June 29,  1996,
        Kenwood Savings Bank established an Employee Stock Ownership Plan (ESOP)
        which provides  retirement  benefits for substantially all employees who
        have  completed  one year of service and have  attained age 21. The ESOP
        initially  acquired  12,612  shares  of common  stock in the  conversion
        offering. The funds used by the ESOP to purchase the stock were provided
        by a loan from the Bancorp which will be repaid by  contributions to the
        ESOP by the company in the future.  Management intends to allocate these
        shares to eligible employees' accounts over the next ten years.  Expense
        for shares  committed to be allocated was $8,673 and $2,060 at September
        30, 1997 and 1996.  Shares committed to be allocated as of September 30,
        1997 totaled 1,577, resulting in 11,035 unallocated shares.

 9.     Federal Income Taxes:

        The  provision  for federal  income  taxes  (benefits)  differs from the
        amounts  computed  at the  statutory  corporate  tax rate as  follows at
        September 30:
<TABLE>
<CAPTION>
                                                                              1997         1996         1995
                                                                              ----         ----         ----
                                                                                      (In thousands)
<S>                                                                          <C>           <C>           <C>
        Federal income taxes (benefit) at
          the statutory rate                                                 $   79         (52)           42
        Other, primarily surtax exemption                                       (17)          4            (9)
        Effect of change in estimated tax rate
          for deferred taxes                                                    -            -             13
                                                                              ----         ----          ----

        Federal income tax provision (benefit) per
          financial statements                                               $   62         (48)           46
                                                                               ====        ====          ====

        Effective tax rate                                                     26.6%       31.6%         36.2%
                                                                               ====        ====          ==== 

</TABLE>

                                     - 49 -

<PAGE>

        Deferred  federal income tax expense results from temporary  differences
        in the  recognition  of  revenue  and  expense  for  tax  reporting  and
        financial  reporting  purposes.  A reconciliation  of the sources of the
        Bancorp's  temporary  differences at the statutory corporate tax rate to
        the amount of deferred tax expense is as follows at September 30:
<TABLE>
<CAPTION>
                                                                              1997         1996         1995
                                                                              ----         ----         ----
                                                                                      (In thousands)
<S>                                                                         <C>             <C>           <C>
        Effect of temporary differences at statutory corporate tax rate:
        Loan origination fees deferred for financial
          reporting but recognized currently for
          tax purposes                                                      $  (1)           11            5
        Federal Home Loan Bank stock dividends                                  8             8            8
        Unearned discount on loans purchased in
          reciprocal sale transaction                                          (4)           (2)          (4)
        SAIF assessment not deductible until paid                              80           (80)           -
        Effective of change in estimated tax rate
          for deferred taxes                                                    -             -           13
        Other                                                                  (7)           (4)          (2)
                                                                            -----           ---           --

        Deferred federal income tax expense (benefit)
          per financial statements                                          $  76           (67)          20
                                                                            =====           ===           ==
</TABLE>

        The composition of the Bancorp's net deferred tax liability at September
30 is as follows:
<TABLE>
<CAPTION>
                                                                              1997                 1996
                                                                              ----                 ----
                                                                                   (In thousands)
<S>                                                                        <C>                       <C>
        Taxes (payable) refundable on temporary differences
            at statutory rate:
        Deferred loan origination fees (costs)                             $   23                    24
        Federal Home Loan Bank stock dividends                                 62                    54
        Unearned discount on loans purchased in
           reciprocal sale transaction                                         17                    21
        SAIF assessment not deductible until paid                               -                   (80)
        Unrealized gain on investments available
           for sale                                                            14                     5
        Book/tax depreciation                                                   9                    14
        Reserve for uncollectible interest                                     (2)                    -
        General loan loss allowance                                           (26)                  (26)
        Percentage of earnings bad debt deduction                              22                    22
                                                                           ------                    --

        Net deferred tax liability                                         $  119                    34
                                                                           ======                    ==
</TABLE>

                                     - 50 -

<PAGE>

        The Bancorp has qualified under  provisions of the Internal Revenue Code
        which  permit  the  Savings  Bank to  deduct  from  taxable  income  and
        allowance for bad debts based on a percentage  of taxable  income before
        such  deduction.  The Tax  Reform  Act of 1969  gradually  reduced  this
        reduction to 40% for years beginning in 1979. The Tax Reform Act of 1986
        reduced this deduction to 8% beginning in 1988 and starting in 1997, the
        percentage of taxable income method is no longer allowed.

        Retained   earnings  at  September   30,  1997   included   earnings  of
        approximately $250,000,  representing such bad debt deductions for which
        no provision for federal  income taxes has been made. In the future,  if
        the Bancorp does not meet the federal income tax requirements  necessary
        to permit it to deduct an allowance  for bad debts,  the Bancorp will be
        subject  to  federal  income  tax at the then  current  corporate  rate.
        Management  does not  contemplate  any  action  which  would  cause such
        pre-1988  cumulative  bad debt deduction to be subject to federal income
        taxes,  although it is possible that changes in legislation  could, at a
        future date require recapture of all or part of this bad debt deduction.

        A bill  repealing  the thrift bad debt  reserve has been signed into law
        and is effective for taxable years  beginning  after  December 31, 1995.
        All savings  banks and thrifts are  required to account for tax reserves
        for bad debts in the same  manner as banks.  Such  entities  with assets
        less than  $500  million  are  required  to  maintain  a moving  average
        experience  based  reserve  and no longer  will be able to  calculate  a
        reserve based on a percentage of taxable income.

        Tax  reserves  accumulated  after  1987  are  automatically  subject  to
        recapture.  The  recapture  will be done in equal amounts over six years
        beginning in 1997 and can be deferred up to two years,  depending on the
        level of loans originated.

        As a result of the tax law change, the Bancorp is expected to ultimately
        recapture  approximately $80,000 of tax reserves accumulated after 1987,
        resulting in additional tax payments of $22,000.  The recapture of these
        reserves will not result in any significant  income  statement effect to
        the Bancorp. Pre-1988 tax reserves will not have to be recaptured unless
        the thrift or successor institution liquidates, redeems shares or pays a
        dividend in excess of earnings and profits.

 10.    Commitments:

        The Bancorp is a party to financial  instruments with  off-balance-sheet
        risk in the normal  course of  business to meet the  financing  needs of
        their customers including commitments to extend credit. Such commitments
        involve,  to varying degrees,  elements of credit and interest-rate risk
        in  excess  of the  amount  recognized  in the  statement  of  financial
        condition.  The contract or notional amounts of the commitments  reflect
        the extent of the Bancorp's involvement in such financial instruments.



                                     - 51 -

<PAGE>

        The Bancorp's  exposure to credit loss in the event of nonperformance by
        the other party to the financial  instrument  for  commitments to extend
        credit  is  represented  by the  contractual  notional  amount  of those
        instruments.  The  Bancorp  uses  the same  credit  policies  in  making
        commitments   and   conditional   obligations   as  those  utilized  for
        on-balance-sheet instruments.

        The following schedule lists commitments and off-balance-sheet  items at
        September 30, 1997 and 1996.
<TABLE>
<CAPTION>
                                                                                                     Unused
                                                                     Loan                          Home Equity
                                                                  Commitments                    Line of Credit
                                                                  -----------                    --------------
<S>                                                                 <C>                                <C>
                  September 30, 1997                                $ 156                              992
                  September 30, 1996                                  413                              888
</TABLE>

        In the opinion of management,  the loan commitments  equaled or exceeded
        prevalent  market  interest  rates as of  September  30,  1997,  and all
        commitments  will be funded via cash flow from  operations  and existing
        excess liquidity.  At September 30, 1997, loan commitments  consisted of
        an adjustable  rate  residential  loan which was designated for sale. Of
        the total loan  commitments  at September  30, 1996,  $267,000 was fixed
        rate  residential  loans,  with  rates  ranging  from  7.50% to  8.125%,
        $207,000 of which were designated for sale. Management expects no losses
        as a result of these transactions.

        The Bancorp leases office space for its loan origination  office under a
        month-to-month  lease with monthly lease expense of $1,133. Rent expense
        for the year ended  September 30, 1997,  and 1996,  totaled  $15,690 and
        $14,280.  The lease  may be  canceled  at any time  with 60 days  notice
        required.

11.     Capital Requirements:

        The Savings Bank is subject to minimum regulatory  capital  requirements
        promulgated by the OTS. The minimum capital standards  generally require
        the maintenance of regulatory  capital  sufficient to meet each of three
        tests,  hereinafter  described as the tangible capital requirement,  the
        core capital requirement and the risk-based capital requirement.

        The tangible capital  requirement  provides for minimum tangible capital
        (defined as  stockholders'  equity less all intangible  assets) equal to
        1.5% of adjusted total assets. The core capital requirement provides for
        minimum core capital (tangible capital plus certain forms of supervisory
        goodwill  and  other  qualifying  intangible  assets)  equal  to 3.0% of
        adjusted total assets.  The  risk-based  capital  requirement  currently
        provides  for  the   maintenance  of  core  capital  plus  general  loss
        allowances  equal  to  8.0%  of  risk-weighted   assets.   In  computing
        risk-weighted  assets,  the Savings  Bank  multiplies  the value of each
        asset  on  its   statement   of   financial   condition   by  a  defined
        risk-weighting  factor, e.g., one-to-four family residential loans carry
        a risk-weighted factor of 50%.


                                     - 52 -

<PAGE>

        As of September 30, 1997 and 1996, the Savings Bank's regulatory capital
        exceeded  all minimum  capital  requirements  as shows in the  following
        table:
<TABLE>
<CAPTION>
                                                                                1997
                                              ------------------------------------------------------------------------
                                                                         Regulatory Capital
                                              Taxable                    Core                  Risk-based
                                              Capital      Percent      Capital      Percent     Capital       Percent
                                              -------      -------      -------      -------     -------       -------
<S>                                        <C>              <C>       <C>             <C>        <C>          <C>
        Capital under generally
          accepted accounting
          principles                          $ 4,217         -            4,217        -           4,217        -
        Unrealized gain on
          available for sale
          securities                               (32)       -              (32)       -             (32)       -
        General valuation
          allowances                              -           -              -          -             95         -
                                           ----------       -----     ----------      -----      -------      -----
        Regulatory capital
          computed                              4,185         8.9          4,185        8.9         4,280      19.7
        Minimum capital
          requirements                            704         1.5          1,408        3.0         1,742       8.0
                                               ------        ----          -----       ----         -----     -----

        Regulatory capital-
          excess                                3,481         7.4          2,777        5.9         2,538      11.7
                                                =====         ===          =====        ===         =====      ====

<PAGE>

<CAPTION>
                                                                                1996
                                              ------------------------------------------------------------------------
                                                                         Regulatory Capital
                                              Taxable                    Core                  Risk-based
                                              Capital      Percent      Capital      Percent     Capital       Percent
                                              -------      -------      -------      -------     -------       -------
<S>                                         <C>              <C>       <C>            <C>         <C>          <C>
        Capital under generally
          accepted accounting
          principles                          $ 4,007         -            4,007        -           4,007         -
        Unrealized gain on
          available for sale
          securities                               (12)       -              (12)       -             (12)        -
        General valuation
          allowances                              -           -              -          -              95         -
                                            ---------        ----      ---------      -----       -------      ------
        Regulatory capital
          computed                              3,995         7.9          3,995        7.9         4,090        18.5
        Minimum capital
          requirements                            757         1.5          1,513        3.0         1,767         8.0
                                                -----        ----          -----       ----         -----       -----

        Regulatory capital-
          excess                                3,238         6.4          2,482        4.9         2,323        10.5
                                                =====        ====          =====       ====         =====       =====
</TABLE>

                                     - 53 -

<PAGE>

12.     Reorganization and Change of Corporate Form:

        On June 28, 1996, Kenwood Savings Bank, and Ohio-chartered stock savings
        and loan  association  ("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 "Bancorp") 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  81,000  or 53.4% of 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 Bancorp,  merged with and into Kenwood. As a result of
        the merger of the Interim with and into Kenwood, Kenwood became a wholly
        owned  subsidiary  of the Bancorp and the  outstanding  shares of common
        stock of Kenwood  which  amounted to 70,756  shares or 46.6% (other than
        those held by the Mutual Holding  Company) were converted  pursuant to a
        specified  exchange  ratio into  shares of common  stock of the  Bancorp
        (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 Bancorp also offered and sold additional
        shares of its common stock to certain  depositors  and employee  benefit
        plans of Kenwood (the "Offering").

        In November 1992,  The Kenwood  Savings and Loan  Association  (Kenwood)
        completed its reorganization pursuant to its plan of reorganization (the
        Plan) into a  federally-chartered  mutual holding company.  The Plan was
        approved by the Board of  Directors,  Kenwood's  members,  the Office of
        Thrift Supervision,  and the Federal Deposit Insurance Corporation prior
        to its implementation.

        In accordance with the Reorganization, Kenwood organized Kenwood Savings
        and Loan Association (the Association), a state-chartered, stock savings
        and loan association, and transferred all but $100,000 of its assets and
        all of its  liabilities to the Association in exchange for 81,000 shares
        of common  stock,  $.10 par  value per  share,  and  reorganized  from a
        state-chartered    mutual   savings   and   loan    association   to   a
        federally-chartered  mutual  holding  company  known as Kenwood  Federal
        Mutual Holding Company (the Company).

        Concurrent with the Reorganization, the Association issued an additional
        69,000  shares of its  common  stock to members of the public at $10 per
        share.

                                     - 54 -

<PAGE>

        The  rights  of the  Savings  Banks  depositors  in  liquidation  in the
        conversion to stock form are maintained by the Savings Bank in an amount
        equal to the  retained  earnings of the Savings  Bank  reflected  in the
        statement  of  financial  condition  used  in  the  conversion  offering
        circular.  The liquidation account will be maintained for the benefit of
        eligible savings account holders who maintained  deposit accounts in the
        Savings Bank after conversion.

13.     Summarized Financial Information of the Parent Company:

        The following  condensed  financial  statements  summarize the financial
        position of Kenwood Bancorp, Inc. as of September 30, 1997 and 1996, and
        the results of its operations for the year ended  September 30, 1997 and
        1996.
<TABLE>
<CAPTION>
                              KENWOOD BANCORP, INC.

                        Statements of Financial Condition
                                 (In Thousands)

                                                          1997            1996
                                                        -------         -------
<S>                                                     <C>             <C>  
Assets:
     Cash                                               $   131             239
     Investment in Kenwood Savings Bank                     926             926
     Prepaid federal income taxes                            10            --
                                                        -------         -------

                                                        $ 1,067           1,165
                                                        =======         =======

Liabilities and stockholders' equity:
     Liabilities:
        Accounts payable - Kenwood Savings Bank         $  --                 6
                                                        -------         -------

     Stockholders' equity:
        Common stock                                          3               3
        Additional paid in capital                        1,304           1,304
        Retained earnings                                  (125)            (22)
        Less unearned ESOP shares                          (115)           (126)
                                                        -------         -------

                                                          1,067           1,159
                                                        -------         -------

                                                        $ 1,067           1,165
                                                        =======         =======

</TABLE>

                                     - 55 -

<PAGE>

<TABLE>
<CAPTION>
                            Statements of Operations

                                                          1997            1996
                                                        -------         -------
<S>                                                     <C>             <C>  
Interest income                                           $ 20                2

Director's fees                                            (13)              (3)
Franchise taxes                                             (5)            --
Other expenses                                             (32)            --
                                                          ----             ----

        Net loss before tax benefit                        (30)              (1)
Federal income tax benefit                                 (10)            --
                                                          ----             ----

        Net loss                                          $(20)              (1)
                                                          ====             ====
</TABLE>

14.     SAIF Special Assessment:

        The  deposits of the  Savings  Bank are  presently  insured by the SAIF,
        which together with the BIF, are the two insurance funds administered by
        the FDIC. On November 8, 1995, the FDIC revised the premium schedule for
        BIF-insured  banks to  provide a range of .00% to .31% of  deposits  (as
        compared  to the  range  of .23% to 31.% of  deposits  for  SAIF-insured
        institutions) due to the BIF achieving its statutory reserve ratio. As a
        result,  BIF members  generally would pay  substantially  lower premiums
        than SAIF members. It was previously anticipated that the SAIF would not
        be adequately recaptialized until 2002, absent a substantial increase in
        premium  rates  or  the  imposition  of  special  assessments  or  other
        significant developments.

        On September 30, 1996,  the President  signed an omnibus  appropriations
        package which included the  recapitalization  of the Savings Association
        Insurance Fund (SAIF).  All SAIF members were required to pay a one-time
        assessment  of 65.7 cents per $100 in deposits  held on March 31,  1995.
        The Savings Bank's special  assessment was approximately  $289,000.  The
        assessment was charged against  earnings during the 1996 fiscal year and
        was carried as a payable until actually paid during the first quarter of
        the 1997  fiscal  year.  Beginning  January 1, 1997,  SAIF  members  are
        assessed a premium of 6.4 cents per $100 of  deposits  to cover the FICO
        obligation plus a regular  insurance  premium.  Other  provisions of the
        appropriations  package  require  the  Treasury  Department  to  provide
        Congress,  by March 31,  1997,  with a report on merging of the bank and
        thrift  charters and merging the SAIF and Bank  Insurance  Fund (BIF) by
        January 1, 1999,  provided  that the bank and thrift  charters have been
        merged by that  date.  It also  required  BIF and SAIF  members to begin
        sharing  the FICO  obligation  on a  pro-rata  basis at the  earlier  of
        January 1, 2000, or when the BIF and SAIF funds are merged.


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<PAGE>
STOCK INFORMATION

         The  reorganization of the Savings Bank into the mutual holding company
form of organization  was completed  effective  November 13, 1992. In connection
with the  reorganization,  the Savings Bank issued 69,000 shares of common stock
to certain  members of the  general  public at the  initial  price of $10.00 per
share and an additional  81,000 shares of common stock to Kenwood Federal Mutual
Holding Company. On June 28, 1996, the Savings Bank completed its reorganization
into the stock holding company form of  organization.  In connection  therewith,
shares of common stock of the Savings Bank were  converted into shares of common
stock of the Company,  the Savings  Bank's newly formed stock  holding  company,
pursuant to a specified  exchange ratio.  In addition,  the Company also offered
and sold  additional  shares of common stock to certain  depositors and employee
benefit plans of the Savings Bank.

         At December 24, 1997, and as a result of the foregoig,  the Company had
295,133 shares of common stock  outstanding which were held by approximately 173
stockholders.  There is no active and liquid public trading market for shares of
the Company's common stock.

         During  fiscal  1995,  1996 and 1997,  the Boards of  Directors  of the
Savings Bank and the Company declared and paid cash dividends as follows:

                         Amount Per
Declaration Date         Share (2)          Record Date        Distribution Date
----------------         ---------          -----------        -----------------

October 13, 1994(1)         .07           November 1, 1994    November 15, 1994
January 12, 1995            .07           February 1, 1995    February 15, 1995
April 13, 1995              .07           May 1, 1995         May 15, 1995
July 6, 1995                .07           August 1, 1995      August 15, 1995
October 5, 1995             .07           November 1, 1995    November 15, 1995
January 11, 1996(1)         .07           February 1, 1996    February 15, 1996
April 11, 1996(1)           .07           May 1, 1996         May 15, 1996
July 9, 1996                .07           August 1, 1996      August 15, 1996
October 10, 1996            .07           November 1, 1996    November 15, 1996
January 9, 1997             .07           February 3, 1997    February 17, 1997
April 10, 1997              .07           May 1, 1997         May 16, 1997
July 10, 1987               .07           August 1, 1997      August 15, 1997

(1)  Cash dividends were waived by Kenwood Federal Mutual Holding Company.

(2)  Cash  dividends  declared  per  share  prior to June 28,  1996,  have  been
     adjusted  to account  for the  exchange  of one share of the Bank's  common
     stock for 1.9463 shares of the Company's common stock in the Conversion and
     Reorganization.

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