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,
                                                          -------------------------------------------------------------------------
                                                               1998            1997           1996           1995           1994
                                                          ------------    ------------    -----------    -----------    -----------
<S>                                                         <C>             <C>            <C>            <C>            <C>    
Selected Financial Condition Data(1):
Total assets                                                $48,871         $46,862        $50,231        $48,309        $42,578
Interest-bearing deposits in other financial
  Institutions(2)                                             2,374           1,395          1,938          3,449          3,723
Investment securities - at cost                               1,499           1,997          1,994          1,991          1,989
Investment securities available for sale - at market            502             495            486          1,006             --
Mortgage-backed securities - at cost                            181             223            245          7,311          8,150
Mortgage-backed securities available for sale -
  at market                                                   3,972           3,537          4,529             --             --
Loans receivable, net                                        36,211          36,220         30,009         32,559         27,594
Loan held for sale                                            2,189           1,525          9,322            213             --
Deposits                                                     41,383          40,996         41,636         44,428         38,837
FHLB advances                                                 2,429           1,049          3,653            194            212
Stockholders' equity                                          4,564           4,359          4,239          3,216          3,205

<CAPTION>
                                                                                   Year Ended September 30,
                                                          -------------------------------------------------------------------------
                                                               1998            1997           1996           1995           1994
                                                          ------------    ------------    -----------    -----------    -----------
<S>                                                          <C>             <C>            <C>            <C>            <C>   
Selected Operating Data(1):
Total interest income                                        $3,522          $3,392         $3,423         $3,194         $2,511
Total interest expense                                        2,388           2,392          2,534          2,310          1,621
                                                             ------          ------         ------         ------         ------
  Net interest income                                         1,134           1,000            889            884            890
Provision for losses on loans                                   --               --             14             12             11
                                                             ------          ------         ------         ------         ------
  Net interest income after provision
    for losses on loans                                       1,134           1,000            875            872            879
Other income                                                    584             251            221             62             79
General, administrative and other expense                     1,241           1,018          1,248            807            726
                                                             ------          ------         ------         ------         ------
Income (loss) before income taxes                               477             233           (152)           127            232
Federal income taxes                                            188              62            (48)            46             72
                                                             ------          ------         ------         ------         ------
Net income (loss)                                            $  289          $  171         $ (104)        $   81         $  160
                                                             ======          ======         ======         ======         ======
Basic Earnings (loss) per share                              $ 1.02          $  .61         $ (.37)        $  .53         $ 1.06
                                                             ======          ======         ======         ======         ======
Dividends per share                                          $  .28          $  .28         $  .49         $  .56         $ 1.06
                                                             ======          ======         ======         ======         ======
</TABLE>
                                                              -4-
<PAGE>
<TABLE>
<CAPTION>
                                                                            At or For the Year Ended September 30,
                                                          -------------------------------------------------------------------------
                                                               1998            1997           1996           1995           1994
                                                          ------------    ------------    -----------    -----------    -----------
<S>                                                          <C>             <C>            <C>            <C>            <C>   
Selected Operating Ratios(1)(3):
Return on average assets(4)                                  $  .60             .36%          (.21)           .18%           .39%
Return on average equity(4)                                    6.40            4.07          (2.81)          2.52           5.07
Average equity to average assets                               9.34            8.83           7.62           6.98           7.76
Equity to assets at end of period                              9.34            9.30           8.44           6.66           7.53
Interest rate spread(5)                                        1.98            1.73           1.54           1.65           1.94
Net interest margin(5)                                         2.42            2.16           1.88           1.96           2.32
Average interest-earning assets to average
  interest-bearing liabilities                               108.79          108.30         106.42         106.07         109.09
Net interest income after provision for
  losses on loans to total general
  administrative and other expenses(4)(6)                     91.38           98.23           70.1         108.05         121.07
General, administrative and other
  expenses to average total assets(4)(6)                       2.58            2.14           2.57           1.76           1.86
Non-performing loans to total loans at
  end of period(7)                                               --             .50             --             --            .12
Non-performing assets to total
  assets at end of period(7)                                     --             .40             --             --            .08
Allowance for loan losses to total
  loans at end of period                                        .25             .25            .24            .25            .25
</TABLE>

-----------

(1)     Financial  condition  data and  operating  data as of and for the  years
        ended September 30, 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)     With the  exception  of end of period  ratios,  all  ratios are based on
        average monthly balances during the periods.

(4)     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.

(5)     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.

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

(7)     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.

                                                        -5-
<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

                                                        -6-
<PAGE>
generally and more  specifically in the markets in which the Company  operates),
the impact of 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 1999 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  asset  portfolio  aspects  of those
policies, at September 30, 1998, $19.6 million, or 51.0%, of the Company's total
loan portfolio consisted of adjustable-rate loans. In addition, as of such date,
$15.9 million, or 48.2%, 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, 1998,  the Company's
core  deposits  (passbook,  money  market  and NOW  accounts)  amounted  to $9.1
million, or only 21.9% 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

                                                        -7-
<PAGE>
increase in net  interest  income  while a negative gap would tend to affect net
interest income adversely.

        Notwithstanding  the  foregoing  asset  and  liability  strategies,  the
Company's  one-year  interest rate  sensitivity gap amounted to (13.7)% of total
assets at September  30, 1998.  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, 1998, the Company's  interest-earning assets maturing or repricing
within one year totaled  $16.5  million,  while the  Company's  interest-bearing
liabilities  maturing  or  repricing  within  one year  totaled  $23.1  million,
providing an excess of interest-bearing liabilities over interest-earning assets
of $6.7  million.  At  September  30,  1998,  the  percentage  of the  Company's
interest-earning  assets to interest-bearing  liabilities  maturing or repricing
within  one  year  was  71.2%.   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.

        The following  table presents the difference  between the Savings Bank's
interest-earning  assets  and  interest-bearing   liabilities  within  specified
maturities at September 30, 1998. 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.

                                                        -8-
<PAGE>
<TABLE>
<CAPTION>
                                                           Over One                                    Over Ten
                                                           Through      Over Three     Over Five       Through   
                                            One Year        Three         Through       Through         Twenty   
                                            or Less          Years      Five Years     Ten Years         Years   
                                           ----------     -----------    ----------    -----------     ----------
                                                                               (Dollars in Thousands)
<S>                                          <C>            <C>           <C>            <C>           <C>       
Interest-earning assets:

Real estate mortgages:
  Adjustable-rate(1)(2)                      $ 8,716        $10,450       $   421        $    --       $    --   
  Fixed-rate(1)(3)                             1,006              9         3,325          3,856         4,854   
Other loans(1)                                   440             --             2             --            --   
Mortgage-backed securities(1)                  3,972             --            --             --           181   
Investment securities and other
  interest earning assets(4)                   2,374          2,001            --             --            --   
                                             -------        -------       -------        -------       -------   
  Total interest-earning assets              $16,508        $12,460       $ 3,748        $ 3,856       $ 5,035   
                                             =======        =======       =======        =======       =======   

Interest-bearing liabilities:

Passbook and statement savings(5)            $ 1,488        $ 1,061       $   691        $   878       $   607   
NOW accounts and demand accounts(5)            1,152            422           170            228           125   
Money market deposits(5)                       1,493            288           106             82            57   
Certificates of deposit(5)                    18,921         10,203         3,199             --            --   
FHLB advances                                    126            241         1,731            331             -   
                                             -------        -------       -------        -------       -------   
  Total interest-bearing liabilities         $23,180        $12,215       $ 5,897        $ 1,519          $789   
                                             =======        =======       =======        =======          ====   

Interest rate sensitivity gap                $(6,672)       $   245       $(2,149)       $ 2,337       $ 4,246   
                                             =======        =======       =======        =======       =======   
Cumulative interest rate sensitivity gap     $(6,672)       $(8,576)      $(8,576)       $(6,239)      $(1,993)  
                                             =======        =======       =======        =======       =======   
Percentage of cumulative gap to
  total assets                               (13.65)%       (13.15)%      (17.55)%       (12.77)%       (4.08)%  
                                             ======         ======        ======         ======         =====    
Cumulative ratio of interest-earning
  assets to interest-bearing liabilities      71.22%         81.84%        79.23%         85.43%        95.43%   
                                              =====          =====         =====          =====         =====    

<PAGE>

<CAPTION>
                                           
                                             Over
                                            Twenty
                                             Years          Total
                                           ----------    --------------
                                              (Dollars in Thousands)
<S>                                          <C>             <C>    
Interest-earning assets:

Real estate mortgages:
  Adjustable-rate(1)(2)                      $   --          $19,587
  Fixed-rate(1)(3)                            5,321           18,371
Other loans(1)                                   --              442
Mortgage-backed securities(1)                    --            4,153
Investment securities and other
  interest earning assets(4)                    495            4,870
                                             ------          -------
  Total interest-earning assets              $5,816          $47,423
                                             ======          =======

Interest-bearing liabilities:

Passbook and statement savings(5)              $173          $ 4,898
NOW accounts and demand accounts(5)              23            2,120
Money market deposits(5)                         16            2,042
Certificates of deposit(5)                       --           32,323
FHLB advances                                     -            2,429
                                             ------          -------
  Total interest-bearing liabilities           $212          $43,812
                                               ====          =======

Interest rate sensitivity gap                $5,604          $ 3,611
                                             ======          =======
Cumulative interest rate sensitivity gap     $3,611          $ 3,611
                                             ======          =======
Percentage of cumulative gap to
  total assets                                7.39%            7.39%
                                              ====             ==== 
Cumulative ratio of interest-earning
  assets to interest-bearing liabilities    108.24%          108.24%
                                            ======           ====== 
</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.

(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.


                                                        -9-

<PAGE>
         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.

         The following tables present the Savings Bank's NPV as of September 30,
1998 and 1997, as calculated by the OTS,  based on  information  provided to the
OTS by the Savings Bank.
<TABLE>
<CAPTION>
                                  Net Portfolio Value as of September 30, 1998
--------------------------------------------------------------------------------------------------------------
                                                    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                      3,526                    7.50%            (1,137)                    -2.53%
    +300                      4,011                    8.37%              (652)                    -1.47%
    +200                      4,383                    8.98%              (281)                    -0.64%
    +100                      4,593                    9.28%               (70)                    -0.16%
     --                       4,663                    9.32%                --                      0.00%
    -100                      4,635                    9.18%               (29)                    -0.07%
    -200                      4,602                    9.03%               (61)                    -0.15%
    -300                      4,602                    8.94%               (61)                    -0.15%
    -400                      4,624                    8.89%               (39)                    -0.10%
</TABLE>

                                                       -10-
<PAGE>
<TABLE>
<CAPTION>
                                  Net Portfolio Value as of September 30, 1997
--------------------------------------------------------------------------------------------------------------
                                                    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)                -6.57%
     +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%                    --                  0.00%
     -100                      5,367                  11.05%                   338                  0.71%
     -200                      5,488                  11.19%                   459                  0.96%
     -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 tables
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 tables.  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 $48.9 million at September 30, 1998, an
increase of $2.0 million or 4.3% from  September 30, 1997. The increase in total
assets was  primarily  due to the increase in loan  activity  during the current
year. The current  interest rate market has increased the number of refinancings
by  consumers  which has enabled the Company to increase  its  secondary  market
lending activities.  The excess funds from the refinancings has temporarily been
invested in short-term interest-bearing deposits.


                                                       -11-

<PAGE>
         Liquid assets (i.e. cash,  interest-bearing  deposits, and certificates
of deposit) increased $1.7 million,  or 125.7%,  during the year ended September
30, 1998.  This  increase in liquid  assets  reflected the effect of the current
interest rate market and the number of  refinancings  of mortgage loans at lower
fixed  interest  rates.  At September 30, 1997,  the Savings  Bank's  regulatory
liquidity amounted to 22.1%, which exceeded the minimum OTS requirement of 4% by
$7.5 million. See "-Liquidity and Capital Resources."

         Loans receivable (including loans held for sale) increased $655,000, or
1.7%, to total $38.4 million at September 30, 1998, as compared to $37.7 million
at September 30, 1997. Loan  originations of $53.2 million were partially offset
by loan sales of $41.2 million and repayments of $11.3 million.  The Company has
seen a significant  increase in its secondary market activity,  due primarily to
the current  interest rate  environment  and, to a lesser extent,  the hiring of
additional  personnel to staff the Company's  mortgage loan origination  office.
The Company has hired additional loan originators to manage the increased demand
for mainly fixed-rate loans.

         As of  September  30, 1998,  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, 1997.  As of September 30, 1998,  the allowance for
loan loss 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,  1998,  the
Company had no  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
Consolidated Financial Statements.

         Mortgage-backed  securities  (including  securities available for sale)
increased  by  $393,000,  or 10.4%,  during the year ended  September  30, 1998.
During  the year  ended  September  30,  1998,  the  Company  sold  $716,000  of
mortgage-backed securities at a minimal gain. The Company purchased $2.1 million
of available for sale mortgage-backed securities during the year ended September
30, 1998,  and had  principal  repayments  of $976,000  during such  period.  At
September   30,  1998,   the  Company  had   classified   $4.0  million  of  its
mortgage-backed  securities as available for sale and had net  unrealized  gains
with respect to such securities of $25,000.

         Investment securities (including securities classified as available for
sale) decreased  $491,000,  or 19.7%,  during the year ended September 30, 1998.
The  Company  used  interest-bearing  deposits  for  excess  cash due to the low
interest rate market currently  available on U.S. Government agency bonds. As of
September  30,  1998,  the Company  had  classified  $502,000 of its  investment
securities  as available  for sale and had net  unrealized  gains of $2,000 with
respect to such investment securities.


                                                       -12-

<PAGE>
         Total  deposits  amounted to $41.3  million at September  30, 1998,  an
increase of $387,000,  or .9% from the $41.0 million in deposits as of September
30, 1997.  Deposits which are subject to daily  repricing  (passbook,  statement
savings,  money market and checking  accounts),  increased by $1.1  million,  or
14.4%,  from  September 30, 1997 to September 30, 1998. The Company has marketed
their statement savings accounts over the past year and have seen an increase in
this  type of  demand  deposit.  During  the  year  ended  September  30,  1997,
certificates  of deposit  decreased  $753,000,  or 2.3%, as compared to the year
ended  September  30, 1997.  The reduction in  certificates  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 $2.4 million at September 30, 1998, an
increase of $1.4 million from the balance  outstanding  at September 30, 1997 of
$1.0 million.  The increase in borrowings was due to the liquidity  needs of the
Company  during the current year. The Company has used FHLB advances as a source
of  short-term  funding  of its asset  growth  and for  liquidity  needs  versus
offering special rates on long-term deposits.  The average rate paid on the FHLB
advances amounted to 5.81% for the year ended September 30, 1998.

         Stockholders'  equity increased  $205,000,  or 4.7%, to $4.6 million at
September 30, 1998 from $4.4 million as of September 30, 1997.  The increase was
due  primarily to net income of $289,000 for the fiscal year 1998.  The increase
was  partially  offset by $83,000 of  dividends  declared  during the year ended
September 30, 1998.



                                                       -13-

<PAGE>
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.
<TABLE>
<CAPTION>
                                                                     Year Ended September 30,                                       
                              ----------------------------------------------------------------------------------------------------- 
                                            1998                             1997                                1996               
                              ------------------------------   --------------------------------   --------------------------------  
                               Average                Yield/    Average                 Yield/     Average                 Yield/   
                               Balance     Interest    Rate     Balance     Interest     Rate      Balance    Interest      Rate    
                               -------     --------    ----     -------     --------     ----      -------    --------      ----    
                                                                      (Dollars in Thousands)
<S>                              <C>       <C>      <C>        <C>          <C>     <C>          <C>          <C>          <C>      
Interest-earning assets:
  Loans receivable(1)            $38,840   $3,018     7.77%    $35,205      $2,690    7.64%      $35,234      $2,670         7.58%  
  Mortgage-backed securities(2)    3,509      229     6.53       6,137         404    6.58         7,055         457          6.48  
  Investment securities(2)         2,705      165     6.10       2,936         180    6.13         3,046         189          6.20  
  Other interest-earning
     assets(3)                     1,720      110     6.40       1,939         118    6.09         1,829         107          5.85  
                                   -----      ---                -----         ---                 -----         ---                
  Total interest-earning assets   46,774    3,522     7.53%     46,217      $3,392    7.34%       47,164      $3,423         7.26%  
                                            =====     ====                  ======    ====                    ======         ====   
  Non-interest-earning assets      1,420                         1,332                             1,410
                                   -----                         -----                             -----
  Total assets                   $48,194                       $47,549                           $48,574
                                 =======                       =======                           =======
Interest-bearing liabilities:
  Deposits                       $41,051    2,275     5.54%    $40,885      $2,291    5.60%      $43,006      $2,462         5.72%  
  FHLB advances                    1,944      113     5.81       1,789         101    5.65         1,313          72          5.48  
                                   -----      ---                -----         ---                 -----                      ----  
  Total interest-bearing
     liabilities                  42,995   $2,388     5.55%     42,674      $2,392     5.61%      44,319      $2,534         5.72%  
                                           ======     ====                  ======     ====                   ======         ====   
Non-interest-bearing
     liabilities                     700                           675                               552
                                     ---                           ---                               ---
  Total liabilities               43,695                        43,349                            44,871
  Stockholders' equity             4,499                         4,200                             3,703
                                   -----                         -----                             -----
    Total liabilities and
      stockholders' equity       $48,194                       $47,549                           $48,574
                                 =======                       =======                           =======
  Net interest income; interest
    rate spread                            $1,134     1.98%                 $1,000     1.73%                  $  889         1.54%  
                                           ======     ====                  ======     ====                   ======         ====   
  Net interest margin(4)                              2.42%                            2.16%                                 1.88%
                                                      ====                             ====                                  ==== 
  Average interest-earning
    assets to average interest-
    bearing  liabilities                            108.79%                          108.30%                               106.42%
                                                    ======                           ======                                ====== 
<PAGE>
<CAPTION>
                                        At
                                    September
                                       30,
                                       1998
                                   -----------

                                      Yield/
                                       Rate
                                       ----
<S>                                  <C>  
Interest-earning assets:
  Loans receivable(1)                  7.71%
  Mortgage-backed securities(2)         6.49
  Investment securities(2)              5.65
  Other interest-earning
     assets(3)                          5.45
                                            
  Total interest-earning assets        7.40%
                                       ==== 
  Non-interest-earning assets  
                               
  Total assets                 
                               
Interest-bearing liabilities:
  Deposits                             5.43%
  FHLB advances                        5.43
                                            
  Total interest-bearing
     liabilities                       5.43%
                                       ==== 
Non-interest-bearing
     liabilities               
                               
  Total liabilities            
  Stockholders' equity         
                               
    Total liabilities and
      stockholders' equity     
                               
  Net interest income; interest
    rate spread                        1.97%
                                       ==== 
  Net interest margin(4)       
                               
  Average interest-earning
    assets to average interest-
    bearing  liabilities       
                               
</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.

                                                       -14-
<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,
                                   -----------------------------------------------------------------------------------
                                                  1998 vs. 1997                                1997 vs. 1996
                                   ---------------------------------------       -------------------------------------
                                       Increase (Decrease)                         Increase (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)                              $47           $281             $328        $ 22          $ (2)             $ 20
  Mortgage-backed
   securities(2)                         (3)          (172)            (175)          7           (60)              (53)
  Investment securities(2)               (1)           (14)             (15)         (2)           (7)               (9)
  Other interest-earning
   assets(3)                              6            (14)              (8)           4            7                11
                                       ----           -----            ----         ----        -----             ----- 
    Total interest-earning assets        $49           $ 81            $130          $31        $ (62)             $(31)
                                         ===           ====            ====          ===        =====              ==== 
Interest-bearing liabilities:
  Deposits                             $(25)          $   9            $(16)       $(50)        $(121)            $(171)
  FHLB advances                           3               9              12           2            27                29
                                       ----           -----            ----        ----         -----             ----- 
    Total interest-bearing
     liabilities                       $(22)           $ 18              (4)       $(48)         $(94)            $(142)
                                       ====            ====            ====        ====          ====             ===== 
Increase in net interest income                                        $134                                        $111
                                                                       ====                                       =====

</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).

                                                       -15-
<PAGE>
Results of  Operations  Comparison  for the Years Ended  September  30, 1998 and
September 30, 1997.

         The  Company  reported  net  income  of  $289,000  for the  year  ended
September  30,  1998,  an increase of $118,000  from the  $171,000 of net income
recorded for the year ended  September 30, 1997.  The increase in net income was
due  primarily to the increase in gain on sale of mortgage  loans as the Company
has seen an  increase  in its  secondary  market  activities  due to the current
interest rate market.

         Interest  income  increase  $130,000,  or 3.8%, to $3.5 million for the
year ended  September 30, 1998,  from $3.4 million for the year ended  September
30, 1997. Interest income on loans increased $328,000, or 12.1%, to $3.0 million
for the year ended September 30, 1998. The increase in interest on loans was due
to the higher average balance  outstanding on loans for the year ended September
30, 1998 as compared to  September  30, 1997,  together  with an increase in the
average  yield from 7.64% at September  30, 1997 to 7.77% at September 30, 1998.
Interest income on mortgage-backed  securities decreased $175,000,  or 43.3%, to
$229,000  for the year ended  September  30,  1998.  Such  decrease was due to a
decrease in the average  balance  outstanding  thereon from $6.1 million for the
year ended  September 30, 1997 to $3.5 million for the year ended  September 30,
1998. The Company had reduced its total  mortgage-backed  securities  during the
1997 fiscal year.  Interest income on investments  decreased  $15,000,  or 8.3%,
during fiscal 1998 due to a decrease in average  balances  outstanding from $2.9
million to $2.7 million year-to-year and by a decrease in the average yield from
6.13% during fiscal 1997 to 6.10% during fiscal 1998.  Interest  income on other
interest-earning  assets decreased  $8,000,  or 6.8%, to $110,000,  for the year
ended  September 30, 1998 from  $118,000 for the year ended  September 30, 1997.
The decrease in interest income on other interest-earning assets during the year
ended September 30, 1998, was due to a decrease in average  balance  outstanding
from $1.9 million to $1.7 million  year-to-year  and was partially  offset by an
increase in the average  yield from 6.09% for the year ended  September 30, 1997
to 6.40% for the year ended September 30, 1998.

         Interest expense  decreased $4,000, or .2% for the year ended September
30, 1998 as compared to the year ended September 30, 1997.  Interest  expense on
deposits decreased $16,000, or .7%, to $2.3 million for the year ended September
30,  1998.  This  decrease  was due to the  decrease in the average rate paid on
deposits from 5.60% for the year ended  September 30, 1997 to 5.54% for the year
ended  September 30, 1998,  which was offset slightly by the increase in average
deposits outstanding  year-to-year.  Interest expense on FHLB advances increased
$12,000, or 11.9%, during fiscal 1998 due to the increase in the average balance
outstanding,  together  with an increase in the average rate paid  thereon.  The
Company has used FHLB advances to fund liquidity needs and loan demand.

         As a result of the  foregoing  changes in interest  income and interest
expense,  net interest income has increase $134,000,  or 13.4%,  during the year
ended  September 30, 1998 as compared to the year ended  September 30, 1997. The
interest  rate spread  increased to 1.98% during 1998,  from 1.73% during fiscal
1997, while the net interest margin increased to 2.42% during the fiscal

                                                       -16-

<PAGE>
1998 from 2.16% during fiscal 1997. The increase in the Company's  interest rate
spread and net interest margin  resulted  primarily from the increase in average
balances  outstanding on loans and an increase in the average interest  received
on interest-earning assets.

         The  Company  has had no  provisions  for losses on loans for the years
ended September 30, 1998 or 1997. The absence of a provision for the years ended
September  30, 1998 and 1997 was  influenced  by the level loan  portfolio,  the
amount of  non-performing  assets and  management's  assessment  of the  related
inherent risk in mortgage lending.

         Other income  increased by $333,000,  or 132.7%,  during the year ended
September  30,  1998,  as compared to the year ended  September  30,  1997.  The
increase was due primarily to the $334,000  increase in gain on sale of mortgage
loans.  The Company has seen a  significant  increase  in its  secondary  market
activities  during the 1998 fiscal year due to the interest rate environment for
fixed-rate  loans and the increase in the number of loan  originators  to manage
the increase in the activity.  The Company  during the year ended  September 30,
1998 sold $41.2  million of loans on the  secondary  market as  compared to $9.6
million of such sales during the year ended  September 30, 1997.  The ability to
generate  gains  from the sale of loans 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  $223,000,  or
21.9%,  for the year ended  September  30,  1998,  as compared to the year ended
September 30, 1997.  This  increase was due  primarily to a $156,000,  or 31.8%,
increase  in  employee  compensation  and  benefits,  and an  increase  in other
operating  expenses  of  $64,000,  or  22.2%,  which was  partially  offset by a
decrease in federal  deposit  insurance  premiums of $14,000,  or 26.9%,  during
fiscal 1998 as compared to fiscal 1997.  The  increase in employee  compensation
and benefits resulted from the hiring of additional loan originators and related
expense  incurred  in order to manage the  increase in the  Company's  secondary
market  activity.  Other  operating  expenses  increased  during fiscal 1997 due
primarily to  additional  expenses  relating to the mortgage loan office and the
Company's secondary market activities.  The decrease in deposit premiums was due
to the reduction in insurance premiums following the SAIF recapitalization.

         The Company  reported a provision for federal  income taxes of $188,000
for the year ended  September  30, 1998,  an increase of $126,000 as compared to
the year ended  September 30, 1998.  The effective tax rates for the years ended
September 30, 1998 and 1997, were 39.4% and 26.6%, respectively. The increase in
the effective rate during 1998 was due to the increase in the net income coupled
with the change in the estimated tax rate for deferred income taxes.  See Note 9
of the Notes to Consolidated Financial Statements.

                                                       -17-
<PAGE>
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 a net loss for fiscal  1996 of $104,000
after the SAIF  assessment.  See Note 14 of the Notes to Consolidated  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 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

                                                       -18-
<PAGE>
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  received  on loans and
mortgage-backed securities.

         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 $10.0 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 fiscal year
1997 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,
additional hirings of loan 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 premiums following 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.

                                                       -19-
<PAGE>
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 22.1% at September
30,  1998,  as  compared  to 10.7% and  10.0% at  September  30,  1997 and 1996,
respectively.  At September 30, 1998, the Savings Bank's "liquid" assets totaled
approximately $9.2 million,  which was $7.5 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, 1998, the
Company had $2.4 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 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, 1998,  the Company had  outstanding  commitments  to
originate  residential real estate loans of approximately  $715,000. At the same
date, the total amount of certificates of deposit which were scheduled to mature
by September 30, 1999 was $18.9 million. The Company

                                                       -20-
<PAGE>
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.

Year 2000

         As with all financial  institutions,  the Company's  operations  depend
almost  entirely on computer  systems.  The Company has  addressed the potential
problems  associated  with the  possibility  that the computers which control or
operate the Company's operating systems,  facilities and infrastructures may not
be  programmed to read four digit date codes and, upon arrival of the year 2000,
may recognize the two digit code "00" as the year 1900,  causing systems to fail
to function or to generate erroneous data.

         The Company has  developed an action plan which  assesses the magnitude
of the Year 2000  problem,  provides a strategy that  neutralizes  the impact of
these  problems,  develops a  contingency  plan to be  implemented  if  critical
systems do not become Year 2000  compliant  and develop  testing  procedures  to
insure that the systems  are Year 2000  compliant.  The status of this effort is
reported to the Board of Directors on a regular basis.

         All mission  critical  third party  providers  of software  have either
certified  their  product  as  compliant  or have  indicated  that  they will be
compliant by the end of the first  quarter of 1999.  The major  provider of data
processing  services to the Company has  completed  its migration to a Year 2000
ready platform operating system and data base.  Customer  transaction testing is
scheduled  to be  completed  during the fourth  quarter  of 1998.  All  computer
equipment  has  been  tested  for  Year  2000   compliance   and  any  necessary
replacements have been made.

         The  Company  has not  identified  any  significant  expense  which are
reasonably likely to be incurred in future periods in connection with this issue
and does not expect to incur  significant  expenses to implement  any  necessary
corrective  actions.  No assurance can be given, at this time, that  significant
expenses will not be incurred in future periods.  In the unlikely event that the
Company  is  ultimately  required  to  purchase  replacement  computer  systems,
programs and equipment, or that substantial expense must be incurred to make the
Company's current systems,

                                                       -21-
<PAGE>
programs  and  equipment  year 2000  compliant,  the  Company'  net  income  and
financial condition could be adversely affected.

         In addition  to  possible  expense  relating  to its own  systems,  the
Company  could  incur  losses  if loan  payments  are  delayed  due to Year 2000
problems  affecting  any of its  significant  borrowers or impairing the payroll
systems of large  employers in the Company's  primary  market area.  Because the
Company's  loan  portfolio  is highly  diversified  with  regard  to  individual
borrowers  and  types  of  businesses   and  its  primary  market  area  is  not
significantly  dependent  upon one  employer or  industry,  the Company does not
expect any significant or prolonged difficulties that could affect net income or
cash flow.

                                                       -22-

<PAGE>
                                  [LETTERHEAD]
                        Clark, Schaefer, Hacket & Co.

                          CERTIFIED PUBLIC ACCOUNTANTS
                              BUSINESS CONSULTANTS

               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. and  Subsidiary as of September 30, 1998 and 1997,  and
the related  consolidated  statements of operations,  stockholders'  equity, and
cash flows for each of the three years in the period ended  September  30, 1998.
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,  1998 and 1997,  and the  results  of its
operations  and its cash flows for each of the three  years in the period  ended
September 30, 1998, in conformity with generally accepted accounting principles.

/s/Clark, Schaefer, Hacket & Co.

Cincinnati, Ohio
November 2, 1998

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

                                 Consolidated Statements of Financial Condition

                                          September 30, 1998 and 1997
                                                 (In thousands)

                                                     Assets
<CAPTION>

                                                              1998         1997
                                                              ----         ----
<S>                                                          <C>          <C>   
Cash and due from banks ................................     $   745         367
Interest-bearing deposits in other
      financial institutions ...........................       2,374       1,015
                                                             -------      ------
          Cash and cash equivalents ....................       3,119       1,382

Certificates of deposit in other financial institutions         --           380
Investment securities - held to maturity, at
      amortized cost, approximate market value
      of $1,502 and $1,991 at September 30,
      1998 and 1997 ....................................       1,499       1,997
Investment securities - available for sale
      (amortized cost of $500 and $499 at
       September 30, 1998 and 1997) ....................         502         495
Mortgage-backed securities - held to maturity,
      at cost, approximate market value of $191
      and $234 at September 30, 1998 and 1997 ..........         181         223
Mortgage-backed securities - available for sale
      (amortized cost of $3,947 and $3,487 at
       September 30, 1998 and 1997) ....................       3,972       3,537
Loans receivable, net ..................................      36,211      36,220
Loans held for sale - at lower of cost or market .......       2,189       1,525
Property and equipment, net ............................         354         349
Federal Home Loan Bank stock - at cost .................         495         461
Accrued interest receivable:
      Loans ............................................         204         174
      Mortgage-backed securities .......................          25          27
      Investment and interest-bearing deposits .........          18          20
Prepaid expenses and other assets ......................          80          57
Prepaid federal income taxes ...........................          22          15
                                                             -------      ------
          Total assets .................................     $48,871      46,862
                                                             =======      ======
</TABLE>

See accompanying notes to financial statements.
                                                     - 24 -
<PAGE>
<TABLE>
                      Liabilities and Stockholders' Equity
<CAPTION>
                                                             1998         1997
                                                           --------      ------
<S>                                                        <C>           <C>   
Deposits ...............................................   $ 41,383      40,996
Advances from the Federal Home Loan Bank ...............      2,429       1,049
                                                           --------      ------
Accounts payable on mortgage loans serviced
      for others .......................................         28          12
Advances by borrowers for taxes and insurance ..........        220         231
Other liabilities ......................................         96          96
Deferred federal income taxes ..........................        151         119
                                                           --------      ------
             Total liabilities .........................     44,307      42,503
                                                           --------      ------

Stockholders' equity:
      Preferred stock - authorized 1,000,000
          shares of $.10 par value, none issued ........       --          --
      Common stock - authorized 4,000,000
          shares, $.01 par value, 295,133 shares
          issued and outstanding at September
          30, 1998 and 1997 ............................          3           3
      Additional paid-in capital .......................      1,774       1,771
      Retained earnings - substantially restricted .....      2,891       2,685
      Shares acquired by Management Recognition
          Plan .........................................        (17)        (17)
      Unearned ESOP shares .............................       (106)       (115)
      Unrealized gain on available for sale
          securities, net of income taxes ..............         19          32
                                                           --------      ------

             Total stockholders' equity ................      4,564       4,359
                                                           ========      ======


             Total liabilities and stockholders' equity    $ 48,871      46,862
                                                           ========      ======
</TABLE>

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

                                  Consolidated Statements of Operations

                                        Years Ended September 30,
                              (In Thousands except Earnings per Share Data)
<CAPTION>
                                                         1998      1997      1996
                                                        ------    -----     -----
<S>                                                     <C>       <C>       <C>  
Interest income:
     Loans ..........................................   $3,018    2,690     2,670
     Mortgage-backed securities .....................      229      404       457
     Investment securities ..........................      165      180       189
     Interest-bearing deposits and other ............      110      118       107
                                                        ------    -----     -----
        Total interest income .......................    3,522    3,392     3,423
                                                        ------    -----     -----
Interest expense:
     Deposits .......................................    2,275    2,291     2,462
     Borrowings .....................................      113      101        72
                                                        ------    -----     -----
        Total interest expense ......................    2,388    2,392     2,534
                                                        ------    -----     -----
        Net interest income .........................    1,134    1,000       889

Provision for losses on loans .......................     --       --          14
                                                        ------    -----     -----
        Net interest income after
            provision for losses on loans ...........    1,134    1,000       875
                                                        ------    -----     -----
Other income:
     Gain on sale of mortgage loans .................      549      215       193
     Gain on sale of available for sale securities ..     --         17        11
     Gain on sale of real estate owned ..............       10     --        --
     Other operating ................................       25       19        17
                                                        ------    -----     -----
        Total other income ..........................      584      251       221
                                                        ------    -----     -----
General, administrative and other expense:
     Employee compensation and benefits .............      647      491       437
     Occupancy and equipment ........................      142      132       124
     Federal deposit insurance premiums .............       38       52       393
     Franchise taxes ................................       62       55        42
     Other ..........................................      352      288       252
                                                        ------    -----     -----
        Total general, administrative
            and other expense .......................    1,241    1,018     1,248
                                                        ------    -----     -----
        Income (loss) before income
            taxes (benefits) ........................      477      233      (152)

Federal income taxes (benefits):
     Current ........................................      151      (14)       19
     Deferred .......................................       37       76       (67)
                                                        ------    -----     -----
                                                           188       62       (48)
                                                        ------    -----     -----
        Net income (loss) ...........................   $  289      171      (104)
                                                        ======      ===      ==== 

Basic and diluted earnings (loss) per share, restated
     for effects of conversion from mutual holding
     company ........................................   $ 1.02     0.61     (0.37)
                                                        ======     ====     ===== 
</TABLE>

See accompanying notes to financial statements.

                                                  - 26 -
<PAGE>
<TABLE>
                                                           KENWOOD BANCORP INC. AND SUBSIDIARY

                                                     Consolidated Statements of Stockholders' Equity

                                                      Years Ended September 30, 1998, 1997 and 1996
                                                                     (In Thousands)
<CAPTION>
                                                                                                     Unrealized
                                                                                                       Gain on
                                                                        Additional                    Available       Shares  
                                                           Common        Paid-In       Retained       for Sale       Acquired 
                                                           Stock         Capital       Earnings      Securities      By MRP   
                                                           -----         -------       --------      ----------      ------   
<S>                                                        <C>            <C>           <C>                <C>          <C>   
Balance at September 30, 1995                              $  15            452         2,763               5           (19)  
     Amortization of MRP expense                               -              -             -               -             1   
     Net loss for the year ended                           
        September 30, 1996                                     -              -          (104)              -             -   
     Increase in unrealized gain on                        
        available for sale securities net of tax               -              -             -               7             -   
     Cash dividends of $.49 per share                          -              -           (62)              -             -   
     Shares acquired by ESOP                                   -              -             -               -             -   
     Reorganization with issuance of                       
        common stock in second step conversion               (12)         1,319            -               -             -    
                                                           -----          -----         -----              --           ---   
Balance at September 30, 1996                                  3          1,771         2,597              12           (18)  
     Amortization of MRP expense                               -              -             -               -             1   
     ESOP shares committed to be allocated                 
        at average market price                                -              -             -               -             -   
     Net income for the year ended                         
        September 30, 1997                                     -              -           171               -             -   
     Increase in unrealized gain on                        
        available for sale securities net of tax               -              -             -              20             -   
     Cash dividends of $.28 per share                          -              -           (83)              -             -   
                                                           -----          -----         -----              --           ---   
Balance at September 30, 1997                                  3          1,771         2,685              32           (17)  
     ESOP shares committed to be allocated                 
        at average market price                                -              3             -               -             -   
     Net income for the year ended                         
        September 30, 1998                                     -              -           289               -             -   
     Decrease in unrealized gain on                        
        available for sale securities net of tax               -              -             -             (13)            -   
     Cash dividends of $.28 per share                         -               -           (83)              -             -   
                                                           -----          -----         -----              --           ---   
Balance at September 30, 1998                              $   3          1,774         2,891              19           (17)  
                                                           =====          =====         =====              ==           ===   
                                                    

<PAGE>

<CAPTION>
                                                          
                                                          
                                                             Unearned
                                                               ESOP
                                                              Shares        Total
                                                              ------        -----
<S>                                                            <C>         <C>  
Balance at September 30, 1995                                     -        3,216
     Amortization of MRP expense                                  -            1
     Net loss for the year ended                          
        September 30, 1996                                        -         (104)
     Increase in unrealized gain on                       
        available for sale securities net of tax                  -            7
     Cash dividends of $.49 per share                             -          (62)
     Shares acquired by ESOP                                   (126)        (126)
     Reorganization with issuance of                      
        common stock in second step conversion                    -        1,307
                                                               ----        -----
Balance at September 30, 1996                                  (126)       4,239
     Amortization of MRP expense                                  -            1
     ESOP shares committed to be allocated                
        at average market price                                  11           11
     Net income for the year ended                        
        September 30, 1997                                        -          171
     Increase in unrealized gain on                       
        available for sale securities net of tax                  -           20
     Cash dividends of $.28 per share                             -          (83)
                                                               ----        -----
Balance at September 30, 1997                                  (115)       4,359
     ESOP shares committed to be allocated                
        at average market price                                   9           12
     Net income for the year ended                        
        September 30, 1998                                        -          289
     Decrease in unrealized gain on                       
        available for sale securities net of tax                  -          (13)
     Cash dividends of $.28 per share                             -          (83)
                                                               ----        -----
Balance at September 30, 1998                                  (106)       4,564
                                                               ====        =====
</TABLE>

See accompanying notes to financial statements.
                                       - 27 -
<PAGE>
<TABLE>
                                       KENWOOD BANCORP INC. AND SUBSIDIARY
                                      Consolidated Statements of Cash Flows
                                            Years Ended September 30,
                                                  (In Thousands)
<CAPTION>
                                                                        1998          1997        1996
                                                                      --------       -----       -----
<S>                                                                   <C>           <C>         <C>  
Cash flows from operating activities:
     Net income (loss) for the year ...............................   $    289         171        (104)
     Adjustments to reconcile net income (loss) to net cash
        used in operating activities:
           Depreciation and amortization ..........................         32          31          30
           Loans disbursed for sale in the secondary market .......    (41,841)     (9,950)    (13,218)
           Proceeds from sale of loans in the secondary market ....     41,726       9,574      12,788
           Gain on sale of mortgage loans .........................       (549)       (215)       (193)
           Gain on sale of investments ............................       --           (17)        (11)
           Federal Home Loan Bank stock dividends .................        (34)        (31)        (29)
           Amortization of premium (discount) on investments ......          1          (5)       --
           Amortization of deferred loan origination (fees) costs .          6           3         (39)
           Amortization of market value adjustment on purchased
              loans ...............................................         (6)       --          --
           Amortization expense of management
              recognition plan ....................................       --             1           1
           ESOP expense ...........................................         12          11        --
           Provision for losses on loans ..........................       --          --            14
           Increase (decrease) in cash due to changes in:
              Accrued interest receivable .........................        (26)         24         (34)
              Prepaid expenses and other assets ...................        (23)         17          (4)
              Accounts payable on mortgage loans serviced
                on others .........................................         16         (25)        (70)
              Other liabilities ...................................       --          (321)        332
              Federal income taxes:
                Current ...........................................         (7)         (6)         20
                Deferred ..........................................         37          76         (67)
                                                                      --------       -----       -----
              Net cash used in operating activities ...............       (367)       (662)       (584)
                                                                      --------       -----       -----
Cash flows from investing activities:
     Principal repayments on loans and mortgage-backed
        securities ................................................     12,298       7,226       7,777
     Loan disbursements ...........................................    (11,316)    (12,495)    (12,356)
     Proceeds from sale of loans ..................................       --         8,322        --
     Purchase of mortgage-backed securities available for sale ....     (2,110)     (3,293)       (513)
     Proceeds from sale of mortgage-backed securities
        available for sale ........................................        716       3,467       1,743
     Maturity of investment securities ............................        500        --           500
     Purchase of investment securities ............................       --          --          (500)
     Maturity of investment securities available for sale .........       --          --           500
     Purchase of investment securities available for sale .........       --          --          (500)
     Proceeds from sale of investment securities available
        for sale ..................................................       --          --           513
     Purchase of office premises and equipment ....................        (37)        (18)        (12)
     Decrease in certificates of deposit in other financial
        institutions ..............................................        380        --           950
                                                                      --------       -----       -----
              Net cash provided by (used in) investing activities .        431       3,209      (1,898)
                                                                      --------       -----       -----
              Net cash flows provided by (used in) operating and
                investing activities (subtotal carried forward) ...   $     64       2,547      (2,482)
                                                                      --------       -----       -----
</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)

                                                                        1998          1997        1996
                                                                      --------       -----       -----
<S>                                                                   <C>           <C>         <C>  

              Net cash flows provided by (used in) operating and
                and investing activities (subtotal brought forward)   $     64       2,547      (2,482)

Cash flows from financing activities:
     Net increase (decrease) in deposits ..........................        387        (640)     (2,792)
     Proceeds from Federal Home Loan Bank advances ................      9,800       7,200       6,000
     Repayment of Federal Home Loan Bank advances .................     (8,420)     (9,804)     (2,541)
     Advances by borrowers for taxes and insurance ................        (11)         16          34
     Net proceeds from the issuance of common stock ...............       --          --         1,181
     Dividends paid on common stock ...............................        (83)        (83)        (62)
                                                                      --------       -----       -----
              Net cash provided by (used in) financing activities .      1,673      (3,311)      1,820
                                                                      --------       -----       -----
Net increase (decrease) in cash and cash equivalents ..............      1,737        (764)       (662)

Cash and cash equivalents at beginning of year ....................      1,382       2,146       2,808
                                                                      --------       -----       -----
Cash and cash equivalents at end of year ..........................   $  3,119       1,382       2,146
                                                                      ========       =====       =====
Supplemental disclosure of cash flow information:
 Cash paid (refunded) during
     the year for:
        Federal income taxes ......................................   $    158          (8)         (2)
                                                                      ========       =====       =====
        Interest on deposits and borrowings .......................      2,406       2,389       2,533
                                                                      ========       =====       =====
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 ......................        (13)         20           7
                                                                      ========       =====       =====

</TABLE>


See accompanying notes to financial statements.
                                                      - 29 -
<PAGE>
                       KENWOOD BANCORP INC. AND SUBSIDIARY

                          Notes to Financial Statements
                  (In Thousands except Earnings per Share Data)

 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 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 and loan 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, 1998 and 1997,
             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>
             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 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.

             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.


                                                             - 33 -

<PAGE>

             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, 1998 and 1997, the Bancorp had no loans that would
             be defined as impaired under SFAS No. 114.

             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, 1998 and 1997.

             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.

                                                             - 34 -
<PAGE>
             Income taxes

             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 of  future  deductible  or  taxable
             amounts  attributable  to events  that have  been  recognized  on a
             cumulative basis in the financial statements.

             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.

             Stock-based compensation

             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 pro  forma  disclosures  of net  income  and
             earnings  per  share,  as if the fair  value  method of  accounting
             defined in this statement had been applied. The Bancorp has elected
             to remain with the accounting requirements of APB Opinion No. 25.

                                                          - 35 -

<PAGE>
             Recent accounting pronouncements

             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.  This  standard was adopted for the year
             ended September 30, 1998.

             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.

             In June 1997,  the FASB  issued  SFAS No.  131,  "Disclosure  about
             Segments of an Enterprise  and Related  Information."  SFAS No. 131
             significantly  changes  the way that  public  business  enterprises
             report  information  about operating  segments in annual  financial
             statements  and requires  that those  enterprises  report  selected
             information about reportable  segments in interim financial reports
             issued to shareholders.  It also establishes  standards for related
             disclosures about products and services, geographic areas and major
             customers.  SFAS No. 131 uses a  "management  approach" to disclose
             financial  and  descriptive   information   about  an  enterprise's
             reportable   operating   segments   which  is  based  on  reporting
             information the way that  management  organizes the segments within
             the  enterprise  for  making  operating   decisions  and  assessing
             performance.  For many  enterprises,  the management  approach will
             likely  result in more  segments  being  reported.  SFAS No. 131 is
             effective  for financial  statements  for periods  beginning  after
             December 15, 1997.  Management  is currently  assessing  the impact
             that adoption will have on the Bancorp's financial statements.

             Earnings per share

             Weighted  average shares for September 30, 1998, 1997 and 1996 have
             been  restated  for the  adoption  of SFAS No.  128  "Earnings  Per
             Share".  Earnings per common share have been  computed on the basis
             of the weighted average number of common shares  outstanding,  and,
             when applicable, those stock options that are dilutive.

                                                             - 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>
                                                                            1998
                                        --------------------------------------------------------------------
                                                               Gross                Gross
                                        Amortized           Unrealized           Unrealized           Market
                                          Cost                 Gains               Losses              Value
                                          ----                 -----               ------              -----
<S>                                      <C>                   <C>                  <C>                <C>
        U.S. Government
          agency obligations             $ 1,499                   3                   -               1,502
                                         =======               =====                =====              =====

<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
                                         =======               =====                =====              =====

</TABLE>
        At  each of the  dates  presented,  all  investment  securities  held to
        maturity are due within one to five years.
<PAGE>
        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:
<TABLE>
<CAPTION>
                                                                            1998
                                        --------------------------------------------------------------------
                                                               Gross                Gross
                                        Amortized           Unrealized           Unrealized           Market
                                          Cost                 Gains               Losses              Value
                                          ----                 -----               ------              -----
<S>                                      <C>                   <C>                  <C>                <C>

        U.S. Government
          agency obligations             $  500                    2                   -                502
                                         =======               =====                =====              =====
<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
                                         =======               =====                =====              =====
</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>
                                                                            1998
                                        --------------------------------------------------------------------
                                                              Gross               Gross
                                        Amortized           Unrealized           Unrealized           Market
                                          Cost                 Gains               Losses              Value
                                          ----                 -----               ------              -----
<S>                                       <C>                   <C>                <C>                   <C>
        Government National
          Mortgage Association            $ 181                  10                   -                 191
                                          =====                 ===                ====                 ===
<CAPTION>
                                                                            1997
                                        --------------------------------------------------------------------
                                                               Gross                Gross
                                        Amortized           Unrealized           Unrealized           Market
                                          Cost                 Gains               Losses              Value
                                          ----                 -----               ------              -----
<S>                                       <C>                   <C>                <C>                   <C>
        Government National
          Mortgage Association            $ 223                  11                  -                  234
                                          =====                 ===                ====                 ===
</TABLE>

        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>
                                                                            1998
                                        --------------------------------------------------------------------
                                                               Gross                Gross
                                        Amortized           Unrealized           Unrealized           Market
                                          Cost                 Gains               Losses              Value
                                          ----                 -----               ------              -----
<S>                                       <C>                  <C>                   <C>             <C>  
        Federal Home Loan
          Mortgage Corporation            $   426                -                     -                 426
        Federal National
          Mortgage Association                221                4                     -                 225
        Government National
          Mortgage Association              3,300               23                     2               3,321
                                          -------              ---                   ---               -----
                                          $ 3,947               27                     2               3,972
                                          =======              ===                   ===               =====

</TABLE>

                                                          - 38 -

<PAGE>
<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>

        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>
                                               1998                   1997
                                      ---------------------   --------------------
                                      Amortized     Market    Amortized    Market
                                       Cost         Value       Cost       Value
                                       ----         -----       ----       -----
<S>                                   <C>          <C>         <C>         <C>  
Due in one to five years .......      $ --          --           247         247
Due in ten to twenty years .....         181         191         223         234
Due after twenty years .........       3,947       3,972       3,240       3,290
                                      ------       -----       -----       -----
                                      $4,128       4,163       3,710       3,771
                                      ======       =====       =====       =====
</TABLE>

        Proceeds and resulting gains and loses realized from sale of investments
        and  mortgage-backed  securities  from the year ended September 30, 1998
        and 1997 were as follows:
<TABLE>
<CAPTION>
                                                                          1998
                                        ------------------------------------------------------------------------
                                                                                                        Net
                                          Gross                Gross                Gross            Realized
                                        Proceeds               Gains               Losses           Gain/(Loss)
                                        --------               -----               ------           -----------
<S>                                        <C>                 <C>                 <C>              <C>   
        Mortgage-backed
          securities                       $ 716                  -                   -                -
                                           =====               ====                ====             ====

</TABLE>

                                                          - 39 -
<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>

 3.     Loans Receivable:

        The composition of the loan portfolio at September 30 is as follows:
<TABLE>
<CAPTION>
                                                           1998           1997
                                                         --------        ------
<S>                                                      <C>             <C>   
One-to-four family residential real estate .........     $ 34,613        35,290
Multi-family residential  real estate ..............        1,302           558
Construction .......................................        1,403           534
Nonresidential real estate .........................          221           336
Home equity line of credit .........................        1,275         1,226
Commercial .........................................          352             2
Consumer and other .................................           90            24
                                                           39,256        37,970
Add/(less):
  Undisbursed portion of loans-in-process ..........         (838)         (212)
  Deferred loan origination costs ..................           77            82
  Allowance for loan losses ........................          (95)          (95)
                                                         --------        ------
                                                         $ 38,400        37,745
                                                         ========        ======
</TABLE>

        The Bancorp's lending efforts have  historically  focused on one-to-four
        family and multi-family  residential  real estate loans,  which comprise
        approximately  $35.0  million,  or 89% of the total  loan  portfolio  at
        September 30, 1998 and $35.5 million, or 94% of the total loan portfolio
        at September 30, 1997.  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  $12.6  million,  $16.1  million,  and  $18.2  million  at
        September  30,  1998,  1997 and 1996.  All of the loans held for sale at
        September 30, 1998 and 1997 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>
                                                                      1998                 1997              1996
                                                                      ----                 ----              ----
<S>                                                                   <C>                    <C>               <C>
        Beginning balance                                             $ 95                   95                81
        Charge-offs                                                     -                    -                 -
        Provision for loan losses                                       -                    -                 14
                                                                      ----                   --                --
        Ending balance                                                $ 95                   95                95
                                                                      ====                   ==                ==
</TABLE>

        At  September  30, 1998,  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, 1998 and
        1996.

 4.     Property and Equipment:

        Property and equipment consist of the following at September 30:
<TABLE>
<CAPTION>
                                                                            1998                      1997
                                                                            ----                      ----
<S>                                                                        <C>                         <C>
        Land and improvements                                              $ 148                       148
        Building and improvements                                            325                       325
        Furniture and equipment                                              227                       190
                                                                           -----                       ---
                                                                             700                       663
        Less accumulated depreciation
          and amortization                                                   346                       314
                                                                           -----                       ---
                                                                           $ 354                       349
                                                                           =====                       ===
</TABLE>


                                                          - 41 -
<PAGE>
 5.     Deposits:

        Deposits  on account  bearing  interest  and  certificates  by  original
maturity are summarized as follows:
<TABLE>
<CAPTION>
                                                      1998                                                    1997
                                             -----------------------                                ------------------------
                           Weighted                          Percent               Weighted                          Percent
                            Average                            of                   Average                            of
                             Rate            Amount         Deposits                 Rate           Amount          Deposits
                             ----            ------         --------                 ----           ------          --------
<S>                           <C>           <C>             <C>                      <C>           <C>              <C> 
Passbook savings              3.09%         $  1,521          3.68%                  2.94%         $ 1,446            3.53%
Statement savings             4.48             3,377          8.16                   4.52            2,578            6.29
Demand deposits               3.70             2,120          5.12                   3.65            1,518            3.70
Money market deposits         3.66             2,042          4.93                   3.66            2,378            5.80
                                               9,060         21.89                                   7,920           19.32
                                                                                                                  
Certificates                                                                                                      
     3 month                  5.04             1,203          2.91                   5.24            1,015            2.48
     6 month                  5.15             2,889          6.98                   5.51            2,751            6.71
    11 month                  5.43             3,677          8.89                   5.65            2,582            6.30
    12 month                  5.39             3,020          7.30                   5.74            4,753           11.59
    18 month                  5.78             1,358          3.28                   5.80            1,436            3.50
    18 month IRA              5.89               102          0.25                   5.89              102            0.25
    22 month                  5.90             5,100         12.32                   5.97            5,367           13.09
    24 month                  5.93             3,205          7.74                   5.85            3,685            8.99
    30 month                  5.86               739          1.79                   5.96              742            1.81
    36 month                  5.91             3,443          8.32                   6.50            3,179            7.75
    60 month                  6.62             7,587         18.33                   6.55            7,464           18.21
                                            --------        ------                                --------          ------ 
                                              32,323         78.11                                  33,076           80.68
                                            --------        ------                                --------          ------ 
                                            $ 41,383        100.00%                               $ 40,996          100.00%
                                            ========        ======                                ========          ====== 
                                                                                                              

</TABLE>

                                     - 42 -
<PAGE>
        Interest expense on deposits at September 30 is summarized as follows:
<TABLE>
<CAPTION>
                                                   1998         1997       1996
                                                  ------      ------      ------
<S>                                               <C>          <C>         <C>  
Passbook ...................................      $   46          43          45
Certificates of deposit ....................       1,950       1,970       2,179
NOW, money market deposit
   accounts and statement savings ..........         279         278         238
                                                  ------      ------      ------

                                                  $2,275       2,291       2,462
                                                  ======      ======      ======
</TABLE>

        Maturities of  outstanding  certificates  of deposit at September 30 are
summarized as follows:
<TABLE>
<CAPTION>
                                                   1998             1997
                                                   ----             ----
<S>                                             <C>                 <C>   
        Less than one year .................    $ 18,921            19,175
        One year to three years ............      10,203            12,059
        More than three years ..............       3,199             1,842
                                                --------            ------
                                                $ 32,323            33,076
                                                ========            ======
</TABLE>

        The aggregate  amount of  certificates  of deposit in  denominations  of
        $100,000 or more was $4.3 million and $3.7 million at September 30, 1998
        and 1997  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, 1998, are as follows:
<TABLE>
<CAPTION>
                                                       September 30, 1998
                                              ------------------------------------
                                              Carrying                       Fair
                                               Amounts                       Value
                                               -------                       -----
<S>                                              <C>                        <C>  
Financial assets:
   Cash and interest bearing deposits            $ 3,119                     3,119
   Investment securities available
        for sale                                     502                       502
   Investment securities held to
        maturity                                   1,499                     1,502
   Loans receivable                               38,400                    39,116
   Mortgage-backed securities
        available for sale                         3,972                     3,972
   Mortgage-backed securities held
        to maturity                                  181                       191
   Investment in FHLB stock                          495                       495
Financial liabilities:
   Savings accounts                               41,383                    41,999
   Federal Home Loan Bank advances                 2,429                     2,433

<CAPTION>
                                             Contractual                     Fair
                                               Amount                        Value
                                               ------                        -----
<S>                                                <C>                       <C>  
Unrecognized financial instruments:
   Commitments to extend credit                    1,877                     1,877

</TABLE>


                                     - 45 -

<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>

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, 1998 and 1997:
<TABLE>
<CAPTION>
                                                              1998         1997
                                                             ------       ------
<S>                                                          <C>           <C>  
Short term (advances at variable rates -
 5.90% at September 30, 1997) ........................       $ --            500
Long term note (interest at 5.65%) ...................          134          155
Long term note (interest at 5.45%) ...................          320          394
Long term note (interest at 6.00%) ...................          475         --
Long term note (interest at 5.22%) ...................        1,500         --
                                                             ------       ------
                                                             $2,429        1,049
                                                             ======       ======
</TABLE>

                                     - 46 -

<PAGE>
        Maturities on these advances at September 30, 1998, are as follows:

                                                         Amount
                                                         ------

        1999                                            $   126
        2000                                                122
        2001                                                119
        2002                                                116
        2003                                                115
        Subsequent years                                  1,831
                                                        -------
                                                        $ 2,429
                                                        =======
 
8.    Benefit Plans:

        401(k) profit sharing plan

        The  Bancorp  maintains  a 401(k)  profit  sharing  plan that 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  $11, $8 and $12 for the years ended  September  30, 1998,
        1997 and 1996 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.
        Total shares  granted under the plan total 823, 859 and 968 shares as of
        September 30, 1998, 1997 and 1996, respectively.  The Bancorp recognized
        $1 of amortization expense in each of 1998, 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, 1998 and 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                                          9/30/98
                                 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 1999           1,891                                                           $ 10.50
                                     =====                                                           =======

        Shares available for
          future grants at
          September 30, 1998        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 that 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 a ten-year period.  Expense
        for shares  committed to be allocated  was $12 and $11 at September  30,
        1998 and 1997. Shares committed to be allocated as of September 30, 1998
        totaled 2,838, resulting in 9,774 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>
                                                     1998      1997       1996
                                                     ----      ----       ---- 
<S>                                                  <C>       <C>        <C>  
Federal income taxes (benefit) at
  the statutory rate ...........................     $162        79        (52)
Other, primarily surtax exemption ..............        1       (17)         4
Effect of change in estimated tax rate
  for deferred taxes ...........................       25      --         --
                                                     ----      ----       ---- 
Federal income tax provision (benefit) per
  financial statements .........................     $188        62        (48)
                                                     ====      ====       ==== 
Effective tax rate .............................     39.4%     26.6%      31.6%
                                                     ====      ====       ==== 

</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>
                                                                   1998    1997    1996
                                                                   ----    ----    ----
<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 .................................................   $ (2)     (1)     11
Federal Home Loan Bank stock dividends .........................     12       8       8
Unearned discount on loans purchased in
  reciprocal sale transaction ..................................     (2)     (4)     (2)
SAIF assessment not deductible until paid ......................    --       80     (80)
Effect of change in estimated tax rate
  for deferred taxes ...........................................     25    --      --
Other ..........................................................      4      (7)     (4)
                                                                   ----    ----    ----
Deferred federal income tax expense (benefit)
  per financial statements .....................................   $ 37      76     (67)
                                                                   ====    ====    ====
</TABLE>

        The composition of the Bancorp's net deferred tax liability at September
30 is as follows:
<TABLE>
<CAPTION>
                                                              1998         1997
                                                             -----        -----
<S>                                                          <C>          <C>
Taxes (payable) refundable on temporary
   differences at statutory rate:
Deferred loan origination fees (costs) ...............       $  26           23
Federal Home Loan Bank stock dividends ...............          88           62
Unearned discount on loans purchased in
   reciprocal sale transaction .......................          20           17
Unrealized gain on investments available
   for sale ..........................................           8           14
Book/tax depreciation ................................          14            9
Reserve for uncollectible interest ...................        --             (2)
General loan loss allowance ..........................         (32)         (26)
Percentage of earnings bad debt deduction ............          27           22
                                                             -----        -----
Net deferred tax liability ...........................       $ 151          119
                                                             =====        =====
</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,  1998   included   earnings  of
        approximately  $250  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.

        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 of tax  reserves  accumulated  after 1987,
        resulting in  additional  tax  payments of $22.  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.

                                     - 51 -
<PAGE>
10.     Earnings Per Share:

        Earnings per share for the years ended September 30, 1998, 1997 and 1996
        is calculated as follows:
<TABLE>
<CAPTION>
                                                                    For the Year Ended September 30, 1998
                                                                ---------------------------------------------
                                                                  Income            Shares          Per-Share
                                                                (Numerator)      (Denominator)       Amount
                                                                -----------      -------------       ------
<S>                                                                <C>                <C>            <C>   
        Basic EPS
        Income available to common stockholders                    $  289             281,591        $ 1.02
                                                                                                     ======
        Effect of Dilutive Securities:
           Stock options
                1992 Plan                                             -                   492
                1996 Plan                                             -                   970
                                                                   ------             -------               
        Diluted EPS
        Income available to common stockholders
           + assumed conversions                                   $  289             283,053        $ 1.02
                                                                   ======             =======        ======

<CAPTION>
                                                                    For the Year Ended September 30, 1997
                                                                ---------------------------------------------
                                                                  Income            Shares          Per-Share
                                                                (Numerator)      (Denominator)       Amount
                                                                -----------      -------------       ------
<S>                                                                <C>                <C>            <C>   
        Basic EPS
        Income available to common stockholders                    $  171             280,348        $ 0.61
                                                                                                     ======
        Effect of Dilutive Securities:
           Stock options
                1992 Plan                                             -                   429
                                                                   ------             -------
        Diluted EPS
        Income available to common stockholders
           + assumed conversions                                   $  171             280,777        $ 0.61
                                                                   ======             =======        ======

<CAPTION>
                                                                    For the Year Ended September 30, 1996
                                                                ---------------------------------------------
                                                                  Income            Shares          Per-Share
                                                                (Numerator)      (Denominator)       Amount
                                                                -----------      -------------       ------
<S>                                                                <C>                <C>            <C>   
        Basic EPS
        Income available to common stockholders                   $  (104)            282,092        $ (0.37)
                                                                                                     ======= 
        Effect of Dilutive Securities:
           Stock options
                1992 Plan                                             -                   429
                                                                  -------             -------        ------- 
        Diluted EPS
        Income available to common stockholders
           + assumed conversions                                  $  (104)            282,521        $ (0.37)
                                                                  =======             =======        ======= 
</TABLE>

                                     - 52 -

<PAGE>
11.     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.

        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, 1998 and 1997.
<TABLE>
<CAPTION>
                                                                                                     Unused
                                                                     Loan                          Home Equity
                                                                  Commitments                    Line of Credit
                                                                  -----------                    --------------
<S>                                                                 <C>                              <C>
                  September 30, 1998                                $ 715                            1,162
                  September 30, 1997                                  156                              992
</TABLE>

        In the opinion of management,  the loan commitments  equaled or exceeded
        prevalent  market  interest  rates as of  September  30,  1998,  and all
        commitments  will be funded via cash flow from  operations  and existing
        excess  liquidity.  Of the total loan commitments at September 30, 1998,
        $220 was fixed rate  residential  loans that 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
        two-year lease expiring in February 2000,  with monthly lease expense of
        $2. Rent expense for the year ended  September 30, 1998 and 1997 totaled
        $18 and $16.  Future  minimum lease  commitments  are $19 and $8 for the
        years ended September 30, 1999 and 2000.

        At September 30, 1998, the Bancorp had a contract to purchase a building
        for $329 to be used as a branch location. A deposit of $13 had been paid
        prior to the fiscal year end.

12.     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 two tests,
        hereinafter described as the core capital requirement and the risk-based
        capital requirement.


                                     - 53 -

<PAGE>
        In general,  the capital standards  established for savings institutions
        must be no less stringent than capital standards established to national
        banks set by the Office of the Comptroller of the Currency. At September
        30, 1998, the core capital requirement provides for minimum core capital
        (tangible  capital plus certain forms of supervisory  goodwill and other
        qualifying  intangible  assets) equal to 4.0% of adjusted  total assets.
        The  risk-based  capital  requirement at September 30, 1998 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%.

        As of September 30, 1998 and 1997, the Savings Bank's regulatory capital
        exceeded  all minimum  capital  requirements  as shows in the  following
        table:
<TABLE>
<CAPTION>
                                                                                1998
                                                           ---------------------------------------------
                                                                       Regulatory Capital
                                                            Core                   Risk-based
                                                           Capital      Percent      Capital     Percent
                                                           -------      -------      -------     -------
<S>                                                     <C>                <C>      <C>          <C>
        Capital under generally
          accepted accounting
          principles                                     $ 4,322              -      4,322            -
        Unrealized gain on
          available for sale
          securities                                         (19)             -        (19)           -
        General valuation
          allowances                                          -              -          95            -
                                                         -------            ---       -----        ----
        Regulatory capital
          computed                                         4,303            8.7       4,398        19.2
        Minimum capital
          requirements                                     1,969            4.0       1,832         8.0
                                                         -------            ---       -----        ----
        Regulatory capital-
          excess                                         $ 2,334            4.7       2,566        11.2
                                                         =======            ===       =====        ====
</TABLE>

                                     - 54 -

<PAGE>
<TABLE>
<CAPTION>
                                                                                1997
                                             -------------------------------------------------------------------------
                                                                            Regulatory Capital
                                             Tangible                    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
                                              =======       ===            =====      ===           =====      ====
</TABLE>

13.     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").

                                     - 55 -
<PAGE>

        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 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.

        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.

14.     Summarized Financial Information of the Parent Company:

        The following  condensed  financial  statements  summarize the financial
        position of Kenwood Bancorp, Inc. as of September 30, 1998 and 1997, and
        the results of its operations for the year ended  September 30, 1998 and
        1997.

<TABLE>
                              KENWOOD BANCORP, INC.

                        Statements of Financial Condition

<CAPTION>
                                                           1998            1997
                                                         -------          -----
<S>                                                      <C>              <C>
Assets:
     Cash ........................................       $   219            131
     Investment in Kenwood Savings Bank ..........           926            926
     Prepaid federal income taxes ................            23             10
                                                         -------          -----
                                                         $ 1,168          1,067
                                                         =======          =====
Stockholders' equity:
     Common stock ................................       $     3              3
     Additional paid in capital ..................         1,304          1,304
     Retained earnings ...........................           (33)          (125)
     Less unearned ESOP shares ...................          (106)          (115)
                                                         -------          -----
                                                         $ 1,168          1,067
                                                         =======          =====
</TABLE>

                                     - 56 -

<PAGE>
<TABLE>
                            Statements of Operations

<CAPTION>
                                                       Year Ended September 30,
                                                      -------------------------
                                                       1998      1997      1996
                                                      -----     -----     -----
<S>                                                   <C>       <C>        <C>
Interest income ..................................    $  12        20         2
Dividend income - Kenwood Savings Bank ...........      200      --        --

Director's fees ..................................      (14)      (13)       (3)
Franchise taxes ..................................       (8)       (5)     --
Other expenses ...................................      (30)      (32)     --
                                                      -----     -----     -----
        Net (income) loss before tax benefit .....      160       (30)       (1)
Federal income tax benefit .......................      (14)      (10)     --
                                                      -----     -----     -----
        Net (income) loss ........................    $ 174       (20)       (1)
                                                      =====     =====     =====
</TABLE>

15.     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.

        Legislation  was  enacted  to  recapitalize   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.  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.

                                      - 57-
<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 22, 1998, and as a result of the foregoing, the Company had
295,133 shares of common stock  outstanding which were held by approximately 167
stockholders.  There is no active and liquid public trading market for shares of
the Company's common stock.

         During  fiscal  1996,  1997 and 1998,  the Boards of  Directors  of the
Savings Bank and the Company declared and paid cash dividends as follows:
<TABLE>
<CAPTION>
                                            Amount Per
Declaration Date                             Share(2)       Record Date                  Distribution Date
-----------------------------------    -----------------    -------------------------    --------------------------
<S>                                          <C>            <C>                          <C>
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, 1997                                .07            August 1, 1997               August 15, 1997
October 8, 1997                              .07            November 3, 1997             November 17, 1997
January 15, 1998                             .07            February 2, 1998             February 17, 1998
April 2, 1998                                .07            May 1, 1998                  May 15, 1998
July 9, 1998                                 .07            August 3, 1998               August 17, 1998
</TABLE>
                                                 
--------------------
(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.

                                                       -58-