SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                   FORM 10-KSB

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

    For the fiscal year ended December 31, 1997

[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT 
    OF 1934

    For the transition period from            to

                         Commission File Number 0-20911

                              ALGIERS BANCORP, INC.
           (Name of small business issuer as specified in its charter)

        LOUISIANA                                      72 - 1317594
(State or other jurisdiction of                     (I.R.S. Employer
incorporation or organization)                      Identification No.)

              #1 WESTBANK EXPRESSWAY, NEW ORLEANS, LOUISIANA 70114
                    (Address of principal executive offices)

          Issuer's telephone number, including area code: (504)367-8222 

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

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

                     Common Stock (par value $.01 per share
                                (Title of Class)

Check  whether the issuer (1) filed all reports  required to be filed by Section
13 or 15(d) of the  Exchange  Act during the past 12 months (or for such shorter
period  that the issuer was  required  to file such  reports),  and (2) has been
subject to such filing requirements for the past 90 days. Yes [X] No [ ]

Check if there is no disclosure of delinquent  filers in response to Item 405 of
Regulation S-B contained in this form, and no disclosure  will be contained,  to
the best of Issuer's  knowledge,  in definitive proxy or information  statements
incorporated by reference in Part III of this Form 10-KSB.  [  ] 

Issuer's revenues for the fiscal year ended December 31, 1997: $3.4 million

As of March 19, 1998, the aggregate market value of the 497,221 shares of Common
Stock of the Issuer held by  non-affiliates,  which excludes 109,903 shares held
by all directors,  executive  officers and employee benefit plans of the Issuer,
was approximately  $7.4 million.  This figure is based on the average of the bid
and asked prices of $14.88 per share of the  Issuer's  Common Stock on March 19,
1998

Number of shares of Common Stock outstanding on March 19, 1998 607,124

Transitional Small Business Disclosure Format (check one): Yes [  ]  No [X]
<PAGE>

                       DOCUMENTS INCORPORATED BY REFERENCE

         (1) Portions of the Annual  Report to  Stockholders  for the year ended
December 31, 1997 are incorporated into Part II, Items 5 through 8 and Part III,
Item 13 of this Form 10-KSB.

         (2)  Portions of the  definitive  proxy  statement  for the 1998 Annual
Meeting of Stockholders  to be filed on or about April 7, 1998 are  incorporated
into Part III, Items 9 through 12 of this Form 10-KSB.
<PAGE>
PART I.

Item 1. Description of Business.

         Algiers  Bancorp,  Inc.  (the  "Company")  is a  Louisiana  corporation
organized in February 1996 by Algiers  Homestead  Association  ("Algiers" or the
"Association")  for the  purpose of  becoming a unitary  holding  company of the
Association. The only significant assets of the Company are the capital stock of
the  Association,  the Company's loan to its Employee Stock  Ownership Plan (the
"ESOP"),  and the  remainder  of the net  proceeds  retained  by the  Company in
connection with the conversion of the  Association  from mutual to stock form on
July 8, 1996 (the  "Conversion").  The  business and  management  of the Company
primarily  consists of the  business  and  management  of the  Association.  The
Company  neither owns nor leases any  property,  but instead uses the  premises,
equipment  and  furniture  of the  Association.  The Company  does not intend to
employ any  persons  other than  officers  of the  Association,  and the Company
utilizes  the support  staff of the  Association  from time to time.  Additional
employees  will be hired as  appropriate  to the extent the  Company  expands or
changes its business in the future.

         The  Association  is  a  Louisiana-chartered  stock  savings  and  loan
association  that was  originally  formed  in  1926.  The  Association  conducts
business  from its main office in New Orleans,  Louisiana and a branch office in
Terrytown,  Louisiana.  At December 31, 1997,  the Company had $45.4  million of
total assets,  $35.9 million of total  liabilities,  including  $35.6 million of
deposits,  and $9.5 million of total stockholders' equity (representing 21.0% of
total assets).

         The  Association is primarily  engaged in attracting  deposits from the
general public through its offices and using those and other  available  sources
of funds to purchase  mortgage-backed  securities and to originate loans secured
primarily  by  one-  to  four-family  residences  located  in the  New  Orleans,
Louisiana  metropolitan  area. The Company had $28.4 million of  mortgage-backed
securities  at December  31, 1997,  representing  62.7% of the  Company's  total
assets.  At December 31, 1997, The Company's net loans receivable  totalled $9.2
million or 20.3% of the Company's  total assets.  Conventional  first  mortgage,
one- to four-family residential loans (excluding construction loans) amounted to
$8.1  million or 79.6% of the  Company's  total loan  portfolio  at December 31,
1997.  To  a  lesser  extent,  the  Company  also  originates   consumer  loans,
construction  loans and  commercial  real  estate  loans.  The  Company had $4.1
million of investment  securities  (excluding  FHLB stock) at December 31, 1997,
representing 9.1% of total assets. Of the $4.1 million of investment securities,
$701,000 or 17.1% mature within five years of December 31, 1997.

         The  Association  is a  community-oriented  savings  institution  which
emphasizes customer service and convenience.  It generally has sought to enhance
its net income by, among other  things,  maintaining  strong asset  quality.  In
pursuit of these goals,  the  Association  has adopted a business  strategy that
emphasizes the purchase of  mortgage-backed  securities,  as well as lending and
deposit  products and services  traditionally  offered by savings  institutions.
Certain results of the  implementation of the Association's  business  strategy,
briefly noted below, have enabled the Association to be profitable and to exceed
regulatory capital requirements.
 
         o Capital Position.  As of December 31, 1997, the Association had total
stockholder's equity of $ 7.2 million and exceeded all of its regulatory capital
requirements,  with tangible, core

                                       2
<PAGE>
and  risk-based  capital  ratios of 16.5%,  16.5% and 65.3 %,  respectively,  as
compared to the minimum requirements of 1.5%, 3.0% and 8.0%, respectively.

         o  Profitability.  The Company has been  profitable in each of the last
three years.  Net income  increased  from  $157,000 in 1996 to $211,000 in 1997,
including a net loss of $178,000 sustained by the Company's 70% owned subsidiary
Jefferson Community Lending,  LLC ("Jefferson").  Net income declined in 1996 to
$157,000  from  $169,000  in 1995  due to a  special  assessment  paid  for SAIF
insurance which amounted to $159,000 on an after-tax basis.

         o Asset  Quality.  Management  believes  that  good  asset  quality  is
important  to  the  Company's  long-term  profitability.   The  Company's  total
nonperforming  assets,  which consist of non-accruing  loans and net real estate
owned ("REO"), together with troubled debt restructurings,  amounted to $636,000
or 1.4% of total  assets at  December  31,  1997,  compared to $97,000 or .2% of
total assets at December 31, 1996 due to the  delinquency  of a commercial  loan
with a balance of $500,000. See "-Asset Quality-Classified  Assets." At December
31, 1997, the Company's  allowance for loan losses  amounted to $482,000 or 4.8%
of the total loan portfolio.

         o Interest  Rate Risk.  The Company  attempts to manage its exposure to
interest  rate  risk  by  maintaining  a  high   percentage  of  its  assets  in
adjustable-rate   mortgages   ("ARMs")   and   adjustable-rate   mortgage-backed
securities.  At December 31, 1997, ARMs amounted to $7.6 million or 75.2% of the
total loan  portfolio.  In  addition,  of the $28.4  million of  mortgage-backed
securities at December 31, 1997, $26.9 million or 97.5% have adjustable interest
rates.

         o Community  Orientation.  The  Association is committed to meeting the
financial needs of the communities in which it operates. Management believes the
Association  is large  enough to  provide  a full  range of  personal  financial
services,  yet small enough to be able to provide services on a personalized and
efficient basis. At December 31, 1997, most of the  Association's  loans were to
residents of its primary  market area. The  Association  intends to continue its
practice of investing in loans in its primary market area in accordance with its
underwriting  standards,  subject to economic conditions and the availability of
reasonable investment alternatives.

         The Association is subject to examination and comprehensive  regulation
by  the  Louisiana  Office  of  Financial  Institutions  ("OFI"),  which  is the
Association's  chartering  authority,  and by the  Office of Thrift  Supervision
("OTS"),  which is the Association's primary federal regulator.  The Association
is also regulated by the Federal Deposit  Insurance  Corporation  ("FDIC"),  the
administrator  of  the  Savings   Association   Insurance  Fund  ("SAIF").   The
Association is also subject to certain reserve  requirements  established by the
Board of Governors of the Federal  Reserve System ("FRB") and is a member of the
Federal Home Loan Bank ("FHLB") of Dallas, which is one of the 12 regional banks
comprising the FHLB System.

         The executive  office for the Company and the Association is located at
1 Westbank Expressway, New Orleans, Louisiana 70114, and its telephone number is
(504) 367-8222.

                                       3
<PAGE>
Market Area

         The  Company's   market  area   consists  of  Orleans,   Jefferson  and
Plaquemines  Parishes in the New  Orleans,  Louisiana  metropolitan  statistical
area. The  traditional  components of the area's economic base have consisted of
tourism,  the port of New Orleans and related  shipbuilding,  and the  petroleum
industry.  Slowdowns in the petroleum industry had a material negative impact on
the area's economy in the early 1980s,  which were compounded by defense-related
cutbacks in recent years.  The area's economy has stabilized in recent years due
to development of tourism and convention activities and related service-oriented
companies, as well as the gaming industry. In addition, the New Orleans economic
base has diversified into areas such as health services,  the aerospace industry
and research and  technology.  However,  there is still a significant  degree of
volatility  in the local economy due to a continued  heavy  reliance on the same
industries that led to the decline in the 1980s, and there has been a decline in
the population  since the early 1980s.  Competition  for deposits and lending in
Orleans,  Jefferson and Plaquemines  Parishes is  substantial,  with most of the
current competition being from commercial banks.

         New  Orleans  serves  as  the  headquarters  for  several  Fortune  500
companies, including Avondale Industries,  Freeport-McMoRan,  Louisiana Land and
Exploration  and McDermott,  Inc. Major  employers in the area include  Avondale
Industries,  Inc.,  Tulane  University,  Ochsner  Medical  Institutions,   Tenet
Healthcare  Corp.,  Schwegmann  Brothers Giant Super Markets,  Hibernia National
Bank, South Central Bell Telephone Company and First Commerce Corp.

Lending Activities

         Loan  Portfolio  Composition.  At December 31, 1997,  the Company's net
loan portfolio totalled $9.2 million,  representing  approximately  20.3% of the
Company's  $45.3  million of total assets at that date.  The  principal  lending
activity of the Company is the  origination of one- to  four-family  residential
loans. At December 31, 1997,  conventional  first mortgage,  one- to four-family
residential  loans  (excluding  construction  loans) amounted to $8.1 million or
79.6% of the total loan  portfolio,  before net items.  To a lesser extent,  the
Company originates construction loans, commercial real estate loans and consumer
loans. At December 31, 1997,  construction  loans amounted to $43,000 or 0.4% of
the total loan portfolio, commercial real estate loans totalled $738,000 or 7.8%
of the total loan  portfolio,  and  consumer  loans  amounted to $1.3 million or
12.6% of the total loan portfolio, in each case before net items.

                                       4
<PAGE>
         Loan  Portfolio  Composition.   The  following  table  sets  forth  the
composition  of the  Company's  loan  portfolio  by type  of  loan at the  dates
indicated.
<TABLE>
<CAPTION>
                                                                                  December 31,
                                               --------------------------------------------------------------------------- 
                                                         1997                         1996                       1995
                                               ----------------------       --------------------       ------------------- 
                                                Amount            %          Amount          %          Amount          %
                                                                           (Dollars in Thousands)
<S>                                            <C>             <C>          <C>           <C>          <C>           <C>
Real estate loans:
   One-to four-family residential:
     Conventional                              $ 8,018          79.3%       $ 8,134        82.9%       $ 7,978        76.0%
     FHA and VA                                     41           0.4             51         0.5             72         0.7
   Construction                                     43           0.4             89         0.9            491         4.7
   Commercial real estate                          738           7.3            668         6.8            858         8.1
                                                ------         -----        -------       -----        -------       -----
        Total real estate loans                  8,840          87.4          8,942        91.1          9,399        89.5
                                                ------         -----        -------       -----        -------       -----

   Consumer loans:
     Second mortgage                               189           1.9            175         1.8            111         1.1
      Other consumer  loans                        325           3.2              -         -                -         -
      Loans on deposits                            758           7.5            694         7.1            986         9.4
                                                ------         -----        -------       -----        -------       -----
        Total consumer loans                     1,272          12.6            869         8.9          1,097        10.5
                                                ------         -----        -------       -----        -------       -----
          Total loans                           10,112         100.0%         9,811       100.0%        10,496       100.0%
                                                               =====                      =====                      ===== 

Less:
   Unearned discounts and interest                  73                            7                          6
   Undisbursed portion of loans                    301                            7                        224
   Deferred loan fees                               55                           47                         42
   Allowance for loan losses                       485                          530                        534
                                               -------                      -------                    -------
     Net loans                                 $ 9,198                      $ 9,220                    $ 9,690
                                               =======                      =======                    =======
</TABLE>

                                       5
<PAGE>
         Contractual Terms to Final  Maturities.  The following table sets forth
certain information as of December 31, 1997 regarding the dollar amount of loans
maturing in the  Association's  portfolio,  based on the contractual date of the
loan's final maturity, before giving effect to net items. Demand loans and loans
having no stated  schedule of repayments and no stated  maturity are reported as
due in one year or less. The amounts shown below do not reflect normal principal
amortization;  rather, the balance of each loan outstanding at December 31, 1997
is shown in the appropriate year of the loan's final maturity.
<TABLE>
<CAPTION>
                                                        One-to
                                                      four-family                        Commercial
                                                      residential      Construction     real estate    Consumer    Total
                                                      -----------      ------------     -----------    --------    -----
                                                                               (In Thousands)
<S>                                                     <C>                <C>            <C>          <C>        <C>   
Amounts due after December 31, 1997 in:
   One year or less                                     $    50            $ 43           $   8        $   496    $    597
   After one year through two years                           -               -               -             36          36
   After two years through three years                       56               -               2             92         150
   After three years through five years                     199               -               6            387         592
   After five years through ten years                     1,929               -              71             47       2,047
   After ten years through fifteen years                  1,793               -               -            214       2,007
   After fifteen years                                    4,032               -             651              -       4,683
                                                        -------            ----           -----        -------    --------
     Total (1)                                          $ 8,059            $ 43           $ 738        $ 1,272    $ 10,112
                                                        =======            ====           =====        =======    ========
</TABLE>
(1)  Gross of loans in process, deferred loan fees, unearned discounts and
interest, and allowance for loan losses.

         The following  table sets forth the dollar amount of all loans,  before
net items,  due after one year from  December 31, 1997 as shown in the preceding
table,  which have fixed  interest  rates or which have  floating or  adjustable
interest rates.
<TABLE>
<CAPTION>
                                    Floating or
                                    Fixed-Rate     Adjustable-Rate     Total
                                    ----------     ---------------     -----
                                                   (In Thousands)
<S>                                  <C>              <C>            <C>
One-to four-family residential       $ 2,234          $ 5,775        $ 8,009
Commercial real estate                     -              730            730
Consumer                                 300              476            776
                                     -------          -------        -------    
   Total                             $ 2,534          $ 6,981        $ 9,515
                                     =======          =======        =======
</TABLE>
<PAGE>
         Scheduled  contractual  maturities of loans do not necessarily  reflect
the actual term of the Company's  loan  portfolio.  The average life of mortgage
loans is substantially less than their average contractual terms because of loan
prepayments and enforcement of due-on-sale  clauses,  which give the Company the
right to declare a loan  immediately  due and payable in the event,  among other
things,  that the borrower  sells the real property  subject to the mortgage and
the loan is not repaid.  The average  life of mortgage  loans tends to increase,
however, when current mortgage loan rates substantially exceed rates on existing
mortgage loans and,  conversely,  decrease when rates on existing mortgage loans
substantially exceed current mortgage loan rates.

                                       6
<PAGE>
         Origination of Loans.  The lending  activities of the  Association  are
subject to the written  underwriting  standards and loan origination  procedures
established  by the  Association's  Board  of  Directors  and  management.  Loan
originations are obtained through a variety of sources, including referrals from
real estate brokers, builders and existing customers.  Written loan applications
are  taken  by  lending  personnel,  and  the  loan  department  supervises  the
procurement of credit reports,  appraisals and other documentation involved with
a loan.  Property  valuations  are performed by independent  outside  appraisers
approved by the Association's Board of Directors or a committee thereof.

         Under the  Association's  real estate  lending  policy,  either a title
opinion  signed by an  approved  attorney  or a title  insurance  policy must be
obtained for each real estate  loan.  The  Association  also  requires  fire and
extended  coverage  casualty  insurance,  in order  to  protect  the  properties
securing  its real estate  loans.  Borrowers  must also obtain  flood  insurance
policies  when the  property  is in a flood  hazard  area as  designated  by the
Department  of Housing  and Urban  Development.  Borrowers  may be  required  to
advance  funds on a monthly  basis  together  with each payment of principal and
interest  to  a  mortgage  loan  account  from  which  the   Association   makes
disbursements for items such as real estate taxes, hazard insurance premiums and
private mortgage insurance premiums as they become due.

         The  Association's  loan  approval  process is  intended  to assess the
borrower's ability to repay the loan, the viability of the loan and the adequacy
of the value of the  property  that will  secure  the  loan.  The  Association's
lending  policies require that most loans to be originated by the Association be
approved in advance by the Board of Directors, except that the President and the
Chief Operating Officer are each authorized to approve second mortgage loans not
to exceed $5,000.
 
         The following table shows total loans  originated and repaid during the
periods indicated. No loans were purchased or sold during the periods shown.
<TABLE>
<CAPTION>
                                                      Year Ended December 31,
                                               --------------------------------- 
                                                 1997        1996        1995
                                                 ----        ----        ----
                                                          (In Thousands)
<S>                                            <C>         
Loan originations:
   One-to four-family residential              $ 1,167      $  802      $  583
   Construction                                     43          89         491
   Commercial real estate                           28         108           -
   Consumer                                      1,105       1,166         425
                                               -------      ------      ------
        Total loan originations                  2,343       2,165       1,499
Loan principal repayments                       (2,042)     (2,844)     (1,847)
Increase (decrease) due to other
   items, net (1)                                 (323)        216        (203)
                                               -------      ------      ------
Net increase (decrease) in
   loan portfolio                              $   (22)     $ (463)     $ (551)
                                               =======      ======      ====== 
</TABLE>
(1)  Other  items  consist of loans in  process,  deferred  loan fees,  unearned
     discounts and interest, and allowance for loan losses.

                                       7
<PAGE>
         Real Estate  Lending  Standards and  Underwriting  Policies.  Effective
March 19, 1993, all financial  institutions  were required to adopt and maintain
comprehensive written real estate lending policies that are consistent with safe
and sound banking practices.  These lending policies must reflect  consideration
of the Interagency  Guidelines for Real Estate Lending  Policies  adopted by the
federal banking  agencies,  including the OTS, in December 1992  ("Guidelines").
The  Guidelines  set forth uniform  regulations  prescribing  standards for real
estate  lending.  Real estate lending is defined as extensions of credit secured
by liens on interests  in real estate or made for the purpose of  financing  the
construction of a building or other  improvements to real estate,  regardless of
whether a lien has been taken on the property.

         An   institution's   lending  policy  must  address   certain   lending
considerations  set forth in the  Guidelines,  including  loan-to-value  ("LTV")
limits,  loan  administration  procedures,   underwriting  standards,  portfolio
diversification   standards,   and   documentation,   approval   and   reporting
requirements. The policy must also be appropriate to the size of the institution
and the nature and scope of its operations, and must be reviewed and approved by
the institution's board of directors at least annually. The LTV ratio framework,
with the LTV ratio being the total  amount of credit to be  extended  divided by
the appraised  value or purchase price of the property at the time the credit is
originated,  must be  established  for each category of real estate loans.  If a
loan is not secured by a first lien,  the lender must  combine all senior  liens
when calculating this ratio. The Guidelines,  among other things,  establish the
following  supervisory  LTV limits:  raw land  (65%);  land  development  (75%);
construction  (commercial,  multi-family  and  nonresidential)  (80%);  improved
property and one- to four-family  residential  construction  (85%);  and one- to
four-family (owner occupied) and home equity (no maximum ratio; however, any LTV
ratio  in  excess  of  90%  should  require  appropriate  insurance  or  readily
marketable collateral).
 
         Certain  institutions  can make real  estate  loans that do not conform
with the  established  LTV ratio  limits up to 100% of the  institution's  total
capital.   Within  this  aggregate  limit,   total  loans  for  all  commercial,
agricultural,   multi-family  and  other   non-one-to-four   family  residential
properties  should not exceed 30% of total  capital.  An  institution  will come
under increased supervisory scrutiny as the total of such loans approaches these
levels.  Certain loans are exempt from the LTV ratios (e.g., those guaranteed by
a government  agency,  loans to facilitate the sale of real estate owned,  loans
renewed,  refinanced  or  restructured  by the  original  lender(s)  to the same
borrower(s) where there is no advancement of new funds, etc.).

         The Association is in compliance with the above standards.

         Although Louisiana laws and regulations permit state-chartered  savings
institutions,  such as the Association,  to originate and purchase loans secured
by real estate located throughout the United States,  the Association's  present
lending is done  primarily  within its primary  market area,  which  consists of
Orleans,  Jefferson  and  Plaquemines  Parishes  in  Louisiana.  Subject  to the
Association's  loans-to-one borrower limitation, the Association is permitted to
invest without  limitation in  residential  mortgage loans and up to 400% of its
capital in loans  secured by  non-residential  or  commercial  real estate.  The
Association may also invest in secured and unsecured consumer loans in an amount
not exceeding 35% of the Association's  total assets. This 35% limitation may be
exceeded for certain types of consumer  loans,  such as home equity and property
improvement  loans  secured by  residential  real  property.  In  addition,  the
Association  may invest up to 10% of its total  assets in secured and  unsecured
loans for commercial, 

                                       8
<PAGE>
corporate,  business  or  agricultural  purposes.  At  December  31,  1997,  the
Association was well within each of the above lending limits.
 
         A savings institution  generally may not make loans to one borrower and
related  entities in an amount which exceeds 15% of its  unimpaired  capital and
surplus,  although  loans in an amount equal to an additional  10% of unimpaired
capital and surplus may be made to a borrower if the loans are fully  secured by
readily marketable securities.  At December 31, 1997, the Association's limit on
loans-to-one  borrower  was  $500,000  and its five  largest  loans or groups of
loans-to-one  borrower,  including  persons or entities related to the borrower,
amounted to $500,000, $439,000,  $300,000, $270,000 and $256,000,  respectively,
at such  date.  The  $500,000  borrowing  relationship  consists  of a  $500,000
commercial  real estate loan which is treated as a classified  asset at December
31,  1997 All of these  loans were  current at  December  31,  1997,  except the
$500,000  loan treated as a  classified  asset.  See "-Asset  Quality-Classified
Assets."

         Loans on  Existing  Residential  Properties.  The  primary  real estate
lending  activity of the Company is the  origination  of loans  secured by first
mortgage liens on one- to  four-family  residences.  At December 31, 1997,  $8.1
million  or 79.6% of the  Company's  total  loan  portfolio,  before  net items,
consisted of conventional first mortgage,  one-to four-family  residential loans
(excluding construction loans).

         The  loan-to-value  ratio,  maturity and other  provisions of the loans
made by the Association  generally have reflected the policy of making less than
the maximum loan permissible  under applicable  regulations,  in accordance with
sound  lending   practices,   market   conditions  and  underwriting   standards
established by the Association.  The  Association's  lending policies on one- to
four-family residential mortgage loans generally limit the maximum loan-to-value
ratio to 95% of the  lesser  of the  appraised  value or  purchase  price of the
property,  and generally one- to four-family  residential  loans in excess of an
80% loan-to-value ratio require private mortgage insurance. Residential mortgage
loans are  amortized  on a monthly  basis with  principal  and interest due each
month and customarily include "due-on-sale" clauses, which are provisions giving
the Association  the right to declare a loan  immediately due and payable in the
event the borrower sells or otherwise  disposes of the real property  subject to
the mortgage or the loan is not repaid.  The  Association  enforces  due-on-sale
clauses to the extent permitted under applicable laws.

         Various  legislative and regulatory  changes have given the Association
the  authority  to  originate  and  purchase  mortgage  loans which  provide for
periodic  interest  rate  adjustments  subject  to  certain   limitations.   the
Association  has  been  actively   marketing  ARMs  in  order  to  decrease  the
vulnerability  of its operations to changes in interest  rates.  At December 31,
1997, one- to four-family  residential ARMs represented $5.9 million or 58.4% of
the total loan portfolio, before net items.

         The  Association's  one- to  four-family  residential  ARMs  are  fully
amortizing loans with contractual maturities of up to 30 years. These loans have
interest rates which are scheduled to adjust  periodically  in accordance with a
designated  index.  The Association  currently offers ARMs on which the interest
rate  adjusts  every  year  based  upon the  monthly  median  cost of funds  for
SAIF-insured institutions, plus a specified margin. The margin above the cost of
funds index is generally  2.65%.  There is a 2% cap on the rate  adjustment  per
period  and a 6% cap on the  rate  adjustment  over the  life of the  loan.  The
Association   has  originated   ARMs  using  other  indexes  in  the  past.  The
adjustable-rate loans in the Association's loan portfolio are not convertible by

                                       9
<PAGE>
their terms into fixed-rate  loans, are not assumable  without the Association's
consent,  do not  contain  prepayment  penalties  and do  not  produce  negative
amortization.

         The Association  qualifies borrowers based on the initial interest rate
on the ARM  rather  than the  fully  indexed  rate.  In a rising  interest  rate
environment,  the interest rate on the ARM will increase on the next  adjustment
date,  resulting in an increase in the borrower's monthly payment. To the extent
the increased rate adversely  affects the borrower's  ability to repay his loan,
the  Association  is exposed to increased  credit risk. As of December 31, 1997,
the  Association's  non-accruing  residential  loans were $126,000.  See "-Asset
Quality."

         The  demand  for  adjustable-rate  loans in the  Association's  primary
market  area has been a function  of  several  factors,  including  the level of
interest  rates,  and the  difference  between  the  interest  rates  offered by
competitors for fixed-rate loans and adjustable-rate loans. Due to the generally
lower rates of interest  prevailing  in recent  periods,  the market  demand for
adjustable-rate  loans has decreased as consumer preference for fixed-rate loans
has increased.

         Construction  Loans.  At  December  31,  1997,  $43,000  or 0.4% of the
Company's total loan portfolio,  before net items, consisted of one loan for the
construction of one- to four-family residences. Construction loans are not being
actively marketed and are offered primarily as a service to existing  customers.
The  two  construction  loans  each  bear  a  fixed  interest  rate  during  the
construction  phase  and  are  structured  to be  converted  to  adjustable-rate
permanent loans at the end of the construction phase.
 
         Construction lending is generally considered to involve a higher degree
of risk of loss than long-term financing on improved, owner-occupied real estate
because of the uncertainties of construction, including the possibility of costs
exceeding the initial  estimates and the need to obtain a tenant or purchaser if
the  property  will not be  owner-occupied.  The Company  generally  attempts to
mitigate the risks associated with construction  lending by, among other things,
lending   primarily  in  its  market  area,  using   conservative   underwriting
guidelines, and closely monitoring the construction process.

         Commercial Real Estate Loans. The Company's commercial real estate loan
portfolio  primarily  consists  of loans  secured  by office  buildings,  retail
establishments, churches and multi-family dwellings located within the Company's
primary market area.  Commercial  real estate loans amounted to $738,000 or 7.4%
of the total loan  portfolio at December 31, 1997. The largest  commercial  real
estate loan at December 31, 1997 was $500,000 (gross of a $261,000 reserve), and
the balance of such loan at December 31, 1997 was $500,000.  See "-Asset Quality
Nonperforming  Assets." The remaining  commercial  real estate loan portfolio at
December 31, 1997 consisted of 7 loans with an average balance of $34,000.

         Nonresidential  real  estate  loans  may have  terms up to 30 years and
generally have adjustable  rates of interest.  As part of its commitment to loan
quality,  the Company's senior management reviews each nonresidential loan prior
to  approval  by the Board of  Directors.  All loans are based on the  appraised
value of the secured  property  and loans are  generally  not made in amounts in
excess of 70% of the appraised value of the secured property. All appraisals are
performed by an independent appraiser designated by the Company and are reviewed
by management.  In originating  nonresidential  loans, the Company considers the
quality  of the  property,  the  credit  of the  borrower,  the  historical  and
projected  cash flow of the  project,  the 

                                       10
<PAGE>
location  of the real  estate and the quality of the  property  management.  The
Company  orginated  $28,000 in commercial real estate loans in 1997 and $108,000
in 1996.

         Commercial  real estate  lending is generally  considered  to involve a
higher  degree of risk than  single-family  residential  lending.  Such  lending
typically  involves  large loan balances  concentrated  in a single  borrower or
groups of related borrowers for rental or business properties.  In addition, the
payment experience on loans secured by income-producing  properties is typically
dependent  on the success of the  operation  of the related  project and thus is
typically  affected by adverse  conditions  in the real estate market and in the
economy.  The Company  generally  attempts to mitigate the risks associated with
commercial real estate lending by, among other things,  lending primarily in its
market area and using low LTV ratios in the underwriting process.

         Consumer  Loans.  The  Company's  consumer  loans  consist  of loans on
deposits, boat loans and second mortgage loans. The consumer loans are not being
actively marketed and are offered primarily as a service to existing  customers.
At December 31, 1997, loans on deposits amounted to $758,000, representing 59.6%
of total consumer loans and 7.5% of the total loan portfolio,  before net items.
Loans secured by deposit  accounts are  generally  offered with an interest rate
equal to 2% above the rate on the deposit account.

         The Company's second mortgage loans amounted to $189,000 or 1.9% of the
total loan portfolio at December 31, 1997.  The second  mortgages are secured by
one- to four-family residences, are for a fixed amount and a fixed term, and are
made to individuals  for a variety of purposes.  All of the second  mortgages at
December 31, 1997 have adjustable interest rates.
 
         The  Company's  other  consumer  loans  consisted of three loans in the
amount of $325,000 or 3.2% of the total loan portfolio at December 31, 1997. The
largest  of these  loans in the  amount of  $300,000  or 3.0% of the total  loan
portfolio at December 31, 1997 is secured by a boat and other collateral.

         The  Association is considering  expanding the types of loans it offers
to include equity lines of credit. The Association has applied for an FHA Lender
Number.  This  number  would  authorize  the  Association  to make all  types of
government loans for sale in the secondary market. In addition,  the Association
could  offer FHA Title I home  improvement  loans.  As of January  2, 1998,  the
Association had three  commissioned loan originators and a loan processor on its
staff. The Association has made an arrangement with a home improvement dealer to
purchase home improvement loans. Loans which meet the Association's underwriting
criteria will be kept in the  Association's  loan  portfolio.  Loans that do not
meet  the  Association's  underwriting  criteria  will be sold in the  secondary
market to investors who have  committed to the purchase of the loan prior to the
loan closing.

         Loan Fees and  Servicing  Income.  In addition  to  interest  earned on
loans,  the Company receives income through the servicing of loans and loan fees
charged in connection with loan originations and  modifications,  late payments,
prepayments,  changes  of  property  ownership  and for  miscellaneous  services
related to its loans. Income from these activities varies from  period-to-period
with the volume and type of loans made.

         Loan  origination  fees or "points" are a percentage  of the  principal
amount of the mortgage loan and are charged to the borrower in  connection  with
the  origination  of the loan. The Company's  loan  origination  fees are offset
against direct loan origination  costs, and the 

                                       11
<PAGE>
resulting  net amount is deferred  and  amortized  as  interest  income over the
contractual  life of the  related  loans as an  adjustment  to the yield of such
loans. At December 31, 1997, the Company had approximately  $55,000 of loan fees
which had been deferred.  The deferred loan fees are being  recognized as income
over the lives of the related loans.
 
Asset Quality

         Delinquent Loans. The following table sets forth information concerning
delinquent  loans at December 31, 1997, in dollar amounts and as a percentage of
the Company's total loan portfolio.  The amounts  presented  represent the total
outstanding  principal  balances  of the related  loans,  rather than the actual
payment amounts which are past due.
<TABLE>
<CAPTION>
                                                                            December 31, 1997
                                         ------------------------------------------------------------------------------  
                                                30-59                                               90 or More Days
                                             Days overdue              60-89 Days overdue               Overdue
                                         ----------------------     --------------------------------------------------- 
                                                        Percent                     Percent                     Percent
                                                       of Total                     of Total                   of Total
                                         Amount          Loans         Amount        Loans        Amount         Loans
                                         ------          -----         ------        -----        ------         -----
                                                                      (Dollars in Thousands)
<S>                                       <C>             <C>          <C>             <C>        <C>             <C>
One- to four-family
   residential real estate
   loans                                  $ 459           4.54%        $  62           0.61%      $ 275           2.72%
Commercial real estate
   loans                                      -              -            45           0.45         508           5.02
Consumer loans                              121           1.20            16           0.16          16           0.16
                                          -----           ----         -----           ----       -----           ----
   Total delinquent loans                 $ 580           5.74%        $ 123           1.22%      $ 799           7.90%
                                          =====           ====         =====           ====       =====           ====
</TABLE>
Nonperforming Assets. When a borrower fails to make a required loan payment, the
Company attempts to cause the default to be cured by contacting the borrower. In
general,  contacts  are made  after a payment  is more than 15 days past due.  A
significant  portion of the  Company's  loans provide for a 45 day grace period,
and no late  charge is assessed on these loans until the payment is 46 days past
due. Defaults are cured promptly in most cases. If the delinquency on a mortgage
loan exceeds 90 days and is not cured  through the Company's  normal  collection
procedures,  or an acceptable  arrangement  is not worked out with the borrower,
the Company will commence foreclosure action.

         If foreclosure is effected,  the property is sold at a sheriff's  sale.
If the Company is the successful  bidder,  the acquired real estate  property is
then included in the Company's "real estate owned" account until it is sold. The
Association is permitted under  applicable  regulations to finance sales of real
estate owned by "loans to facilitate" which may involve more favorable  interest
rates  and  terms  than  generally  would be  granted  under  the  Association's
underwriting  guidelines.  At December 31, 1997, the Association had no loans to
facilitate.

         The  Company  generally  places  loans on  non-accrual  status when the
payment of interest becomes more than 90 days past due or when interest payments
are otherwise deemed uncollectible.

                                       12
<PAGE>
         The   following   table  sets   forth  the  amount  of  the   Company's
nonperforming assets at the dates indicated.
<TABLE>
<CAPTION>
                                                          December 31,
                                                 ------------------------------- 
                                                 1997        1996         1995
                                                 ----        ----        ----
                                                      (Dollars In Thousands)
<S>                                              <C>          <C>         <C>
Total nonperforming assets:
   Non-accruing loans                            $ 636        $ 52        $ 76
   Real estate owned, net (1)                       -           45          92
                                                    --         ---          --
   Total nonperforming assets                    $ 636        $ 97        $168
                                                 =====        ====        ==== 
Troubled debt restructurings                     $  18        $ -         $ 66
                                                 =====        ====        ====
Total nonperforming loans and
  troubled debt restructurings
  as a percentage of total loans                  6.47%       0.53%       1.35%
                                                  ====        ====        ==== 
Total nonperforming loans and
  troubled debt restructurings
  as a percentage of total assets                 1.44%       0.20%       0.55%
                                                  ====        ====        ==== 
</TABLE>
(1)  Net of related loss allowances as of each date shown,  which  allowances at
     December 31, 1997 amounted to $90,000 for real estate owned.

         The $636,000 of  non-accruing  loans at December 31, 1997  consisted of
three one-to four- family residential loans for $126,000 and two commercial real
estate loans for $510,000.  The largest  non-accruing  loan at December 31, 1997
consisted of a $500,000 adjustable-rate commercial real estate loan secured by a
furniture store and a warehouse,  on which the Company has established  reserves
of $261,000 at December 31, 1997. The collateral was previously  foreclosed upon
by the Association,  and the borrower repurchased the real estate owned property
from the  Association in June 1991 at the  Association's  total carrying  value.
Until recently,  the loan had been performing in accordance with its terms since
June 1992, and the reserve was established solely because the appraised value of
the collateral in April 1992 was less than the principal balance of the loan. In
1997,  an  appraisal  of the  property  indicated  a value of  $469,000.  It was
management's  decision to leave the reserve at  $261,000  until the  property is
disposed of. The entire $500,000  balance at December 31, 1997 was classified as
substandard.  The Company's  management is closely  monitoring  this loan and is
discussing  its status with the borrower.  It is the opinion of management  that
the property  securing this loan has a value adequate to cover the net amount of
the loan.

         The  Company's  real estate owned has steadily  declined  over the last
three years,  and at December 31, 1997 the Company's real estate owned consisted
of two one- to four-family  residential properties and one vacant lot in the New
Orleans  metropolitan  area.  During 1997 the specific reserves on the Company's
real estate owned was  increased  to an amount that  resulted in the real estate
being fully  reserved.  The $90,000 of real estate owned at December 31, 1997 is
net of a  $90,000  allowance  for  loss.  See Note I of  Notes  to  Consolidated
Financial Statements 

                                       13
<PAGE>
contained in the 1997 Annual Report to  Stockholders,  which is filed as Exhibit
13 hereto (the "Annual Report").

         Classified  Assets. All loans are reviewed on a regular basis under the
Company's asset classification  policy. The Company's total classified assets at
December 31, 1997 excluding loss assets  specifically  reserved for, amounted to
$799,000, of which $38,000 was classified as as special mention and $744,000 was
classified as  substandard.  The largest  classified  asset at December 31, 1997
consisted of a $500,000,  adjustable-rate commercial real estate loan secured by
a furniture store and a warehouse, on which the Company has established reserves
of $261,000. See "-Asset Quality-Classified Assets."

         The  remaining  $261,000 of  substandard  assets at  December  31, 1997
consisted of (1)  residential  mortgage loans totalling  $235,000,  of which the
largest  loan had a balance  of  $109,000  at  December  31,  1997,  and (2) one
commercial  loan with a  balance  of  $10,000  which is fully  reserved  and (3)
consumer loans totalling $16,000. The $109,000 substandard  residential mortgage
loan is  secured  by a  duplex  and a  $20,000  certificate  of  deposit  at the
Association. See "Regulation - The Association - Classified Assets."

         Allowance  for  Loan  Losses.  At  December  31,  1997,  the  Company's
allowance  for loan  losses  amounted  to  $482,000  or 4.8% of the  total  loan
portfolio.   The  Company's  loan  portfolio   consists  primarily  of  one-  to
four-family  residential  loans and, to a lesser extent,  commercial real estate
loans,  construction  loans  and  consumer  loans.  The loan loss  allowance  is
maintained by management at a level considered adequate to cover possible losses
that are currently  anticipated  based on prior loan loss experience,  known and
inherent  risks  in the  portfolio,  adverse  situations  that  may  affect  the
borrower's  ability to repay, the estimated value of any underlying  collateral,
general economic  conditions,  and other factors and estimates which are subject
to  change  over  time.  Although  management  believes  that it uses  the  best
information  available  to  make  such  determinations,  future  adjustments  to
allowances may be necessary,  and net income could be significantly affected, if
circumstances  differ  substantially  from the  assumptions  used in making  the
initial determinations.
<PAGE>
 
           The  following  table  summarizes  changes in the  allowance for loan
losses and other selected statistics for the periods presented:
<TABLE>
<CAPTION>
                                                   At or For the Year Ended December 31,
                                                   --------------------------------------
                                                     1997           1996           1995
                                                   --------       --------       -------- 
                                                             (Dollars in Thousands)
<S>                                                <C>            <C>            <C>

Total loans outstanding ......................     $ 10,112       $  9,811       $ 10,496
                                                   ========       ========       ========
Allowance for loan losses, beginning of period     $    530       $    534       $    558
Provision (credit) for loan losses ...........          (45)            (4)           (24)
Loans charged-off (recovered)(1) .............         --             --             --
                                                   --------       --------       --------
Allowance for loan losses, end of period .....     $    485       $    530       $    534
                                                   ========       ========       ========
Allowance for loan losses as a percent of
   total loans outstanding ...................          4.8%           5.4%           5.9%
                                                   ========       ========       ========
Allowance for loan losses as a percent of
   nonperforming loans and troubled debt
   restructurings ............................        74.16%      1,019.23%        702.63%
                                                   ========       ========       ========
</TABLE>
(1)  There were no loan charge-off or recoveries in 1997, 1996 and 1995.


                                       14
<PAGE>
         The following table presents the allocation of the Company's  allowance
for loan losses by type of loan at each of the dates indicated.
<TABLE>
<CAPTION>
                                                                           December 31,
                                        ---------------------------------------------------------------------------------- 
                                                1997                          1996                           1995
                                        ----------------------       -----------------------         --------------------- 
                                                       Loan                           Loan                          Loan
                                                     Category                       Category                      Category
                                         Amount        as a %         Amount         as a %           Amount       as a %
                                           of         of Total           of         of Total            of        of Total
                                        Allowance       Loans        Allowance        Loans          Allowance      Loans
                                        ---------       -----        ---------        -----          ---------      -----
<S>                                       <C>           <C>             <C>           <C>            <C>           <C>
One-to four-family residential            $ 214          79.7%          $ 298         83.4%          $ 338          76.7%

Construction                                  -           0.4               3           0.9              -           4.7

Commercial real estate                      271           7.3             229           6.8            196           8.1

Consumer                                     -           12.6              -            8.9             -           10.5
                                              
                                          -----         -----           -----         -----          -----         -----
Total                                     $ 485         100.0%          $ 530         100.0%         $ 534         100.0%
                                          =====         =====           =====         =====          =====         ===== 
</TABLE>
 
Mortgage-Backed Securities

        The Company has  invested in a portfolio of  mortgage-backed  securities
that are insured or  guaranteed  by the Federal Home Loan  Mortgage  Corporation
("FHLMC"),  the Federal National Mortgage Association ("FNMA") or the Government
National Mortgage Association ("GNMA").  Mortgage-backed  securities (which also
are known as mortgage participation  certificates or pass-through  certificates)
represent  a  participation  interest  in a  pool  of  one-  to  four-family  or
multi-family residential mortgages, the principal and interest payments on which
are passed from the mortgage originators, through intermediaries (generally U.S.
government  agencies  and  government  sponsored   enterprises)  that  pool  and
repackage the  participation  interests in the form of securities,  to investors
such as the  Company.  FHLMC  is a  public  corporation  chartered  by the  U.S.
government and guarantees the timely payment of interest and the ultimate return
of principal.  FHLMC mortgage-backed securities are not backed by the full faith
and  credit  of the  United  States,  but  because  FHLMC  is a U.S.  government
sponsored  enterprise,  these securities are considered high quality investments
with minimal credit risks. The GNMA is a government agency within the Department
of Housing and Urban  Development,  which is intended to help finance government
assisted housing  programs.  The GNMA guarantees the timely payment of principal
and interest, and GNMA securities are backed by the full faith and credit of the
U.S.  Government.  The FNMA  guarantees  the  timely  payment of  principal  and
interest, and FNMA securities are indirect obligations of the U.S. government.


                                       15
<PAGE>
        Of the $28.4 million of mortgage-backed securities at December 31, 1997,
$21.8 million were accounted for as held to maturity and had an aggregate market
value  of  $21.6  million  at  such  date.   The   remaining   $6.6  million  of
mortgage-backed  securities  at December 31, 1997 are accounted for as available
for sale and are thus  carried  at  market  value.  For  additional  information
relating to the  Company's  mortgage-backed  securities,  see Note G of Notes to
Consolidated Financial Statements in the Annual Report.

      Mortgage-backed  securities  generally  yield  less  than the  loans  that
underlie such  securities,  because of the cost of payment  guarantees or credit
enhancements  that result in nominal  credit risk. In addition,  mortgage-backed
securities  are more liquid than  individual  mortgage  loans and may be used to
collateralize   obligations   of  the  Company.   In  general,   mortgage-backed
pass-through  securities are weighted at no more than 20% for risk-based capital
purposes,  compared  to an  assigned  risk  weighting  of 50% to 100% for  whole
residential  mortgage  loans. As a result,  these types of securities  allow the
Company to optimize regulatory capital to a greater extent than  non-securitized
whole loans.  While  mortgage-backed  securities  carry a reduced credit risk as
compared  to whole  loans,  such  securities  remain  subject to the risk that a
fluctuating  interest  rate  environment,  along with other  factors such as the
geographic  distribution  of  the  underlying  mortgage  loans,  may  alter  the
prepayment  rate of such mortgage loans and so affect both the prepayment  speed
and value of such securities.
 
        The  following  table  sets  forth  the  composition  of  the  Company's
mortgage-backed securities at each of the dates indicated.
<TABLE>
<CAPTION>

                                       December 31,
                              ----------------------------------- 
                                 1997         1996         1995
                                 ----         ----         ----
                                        (In Thousands)
<S>                           <C>          <C>           <C>
Mortgage-backed
   securities held to
   maturity:
      FNMA                    $ 15,256     $ 16,684      $ 13,971
      FHLMC                      3,773        3,927         2,771
      GNMA                       2,801        3,199         3,719
                              --------     --------      --------
          Subtotal              21,830       23,810        20,461
                              --------     --------      --------

Mortgage-backed
   securities available
    for sale:
      FNMA                       4,963        5,415         3,293
      FHLMC                      1,142        2,761         3,237
      GNMA                         510          901         1,158
                              --------     --------      --------
          Subtotal               6,615        9,077         7,688
                              --------     --------      --------
Total                         $ 28,445     $ 32,887      $ 28,149
                              ========     ========      ========
</TABLE>
<PAGE>
 
         Information  regarding the contractual  maturities and weighted average
yield of the Company's mortgage-backed securities portfolio at December 31, 1997
is presented  below.  Due to  repayments  of the  underlying  loans,  the actual
maturities of mortgage-backed  securities  generally are substantially less than
the scheduled maturities.

                                       16
<PAGE>
<TABLE>
<CAPTION>


                                                  Amounts at December 31, 1997 Which Mature In
                                       ------------------------------------------------------------------ 
                                                                      After Five
                                       One Year     After One to         to         Over 10
                                       or Less       Five Years       10 Years       Years          Total
                                       -------       ----------       --------       -----          -----
                                                               (Dollars In Thousands)
<S>                                     <C>            <C>            <C>            <C>            <C>    
Held to maturity:
    FNMA ........................       $    47        $   808        $   743        $13,658        $15,256
    FHLMC .......................          --             --             --            3,773          3,773
    GNMA ........................          --             --             --            2,801          2,801
                                        -------        -------        -------        -------        -------
  Total .........................       $    47        $   808        $   743        $20,232        $21,830
                                        =======        =======        =======        =======        =======

   Weighted average
       yield ....................          6.00%          6.12%          6.25%          6.45%          6.43%
                                        =======        =======        =======        =======        =======

Available for sale:
    FNMA ........................       $  --          $    41        $    97        $ 4,825        $ 4,963
    FHLMC .......................          --               70           --            1,073          1,143
    GNMA ........................             5            124            115            265            509
                                        -------        -------        -------        -------        -------
  Total .........................       $     5        $   235        $   212        $ 6,163        $ 6,615
                                        =======        =======        =======        =======        =======
   Weighted average
       yield ....................         11.25%         11.25%          9.23%          6.98%          7.20%
                                        =======        =======        =======        =======        =======

Total mortgage-backed securities:
    FNMA ........................       $    47        $   849        $   840        $18,483        $20,219
    FHLMC .......................          --               70           --            4,846          4,916
    GNMA ........................             5            124            115          3,066          3,310
                                        -------        -------        -------        -------        -------
  Total .........................       $    52        $ 1,043        $   955        $26,395        $28,445
                                        =======        =======        =======        =======        =======
   Weighted average
       yield ....................          6.01%          9.78%          6.91%          6.57%          6.58%
                                        =======        =======        =======        =======        =======
</TABLE>
                                       17
<PAGE>
The following table sets forth the purchases,  sales and principal repayments of
the Company's mortgage-backed securities during the periods indicated.
<TABLE>
<CAPTION>
                                                  At or For the
                                             Year Ended December 31,
                                       ---------------------------------- 
                                         1997        1996         1995
                                         ----        ----         ----
                                             (Dollars in Thousands)
<S>                                    <C>         <C>          <C>
Mortgage-backed securities
  at beginning of period               $ 32,918    $ 28,149     $ 27,357
Purchases                                   969       8,360        4,170
Repayments                               (3,769)     (3,719)      (3,653)
Sales                                    (1,650)          -            -
Mark to market adjustment                    54           -          408
Amortizations of premiums
  and discounts, net                        (77)        128         (133)
                                       --------    --------     --------
Mortgage-backed securities at
  end of period                        $ 28,445    $ 32,918     $ 28,149
                                       =========   ========     ========
Weighted average yield at
  end of period                            6.58%       6.59%        6.96%
                                       ========    ========     ========

</TABLE>

 Investment Securities

       The investment  policy of the Company,  which is established by the Board
of  Directors,  is designed  to maintain  liquidity  within  regulatory  limits,
maintain  a balance  of  high-quality  investments  to  minimize  risk,  provide
collateral for pledging requirements,  provide alternative investments when loan
demand is low,  maximize  returns while  preserving  liquidity  and safety,  and
manage  interest  rate risk.  The  Association  is required to maintain  certain
liquidity  ratios and does so by investing in securities  that qualify as liquid
assets under OTS  regulations.  Such securities  include  obligations  issued or
fully  guaranteed by the United States  Government  and certain  federal  agency
obligations.

        Investment  securities  (excluding  FHLB stock) totalled $4.1 million or
9.1% of total  assets at  December  31,  1997.  All $4.1  million of  investment
securities,  which  consists  of U.S.  Government  and  agency  securities,  are
accounted for as available for sale and are carried at market value. Of the $4.1
million of investment securities,  $701,000 or 17.1% mature within five years of
December 31, 1997.

                                       18
<PAGE>
         The  following  table sets forth  certain  information  relating to the
Company's investment securities portfolio at the dates indicated.
<TABLE>
<CAPTION>
                                                                 December 31,
                                 ------------------------------------------------------------------------- 
                                          1997                      1996                     1995
                                 ------------------------------------------------------------------------- 
                                 Carrying      Market      Carrying      Market     Carrying       Market
                                   Value       Value         Value       Value        Value        Value
                                  ------       ------       ------       ------       ------       ------
                                                                 (In Thousands)
<S>                               <C>          <C>          <C>          <C>          <C>          <C>
Available for Sale:
   U.S. Treasury ..........       $ --         $ --         $ --         $ --         $  697       $  697
   FHLB notes .............        2,787        2,785        1,999        1,992         --           --
   FNMA notes .............          200          200          325          325         --           --
   FHLMC notes ............        1,100        1,100          150          151         --           --
   Southeast Texas
    Housing Finance
    Authority(1) ..........         --           --             43           43           83           83
   Louisiana Agricultural
    Finance Authority(1) ..         --           --             19           19           46           46
                                  ------       ------       ------       ------       ------       ------
   Subtotal ...............        4,087        4,085        2,536        2,530          826          826

Less:
   Allowance for loss .....         --           --             62           62          129          129
   Discount on securities .         --           --              2            2         --           --
                                  ------       ------       ------       ------       ------       ------
Total available for sale ..        4,087        4,085        2,472        2,466          697          697
                                  ------       ------       ------       ------       ------       ------
Held to maturity
   Louisiana Public
    Facility Authority ....         --           --           --           --            300          300
   FHLB notes .............         --           --            425          425          925          904
   Federal Farm Credit Bank         --           --            200          200         --           --
   Certificates of deposit          --           --           --           --           --           --
   Sallie Mae .............         --           --            200          200         --           --
   FHLB stock .............          483          483          455          455          430          430
                                  ------       ------       ------       ------       ------       ------
Total held to maturity ....          483          483        1,280        1,280        1,655        1,634
                                  ------       ------       ------       ------       ------       ------
    Total .................       $4,570       $4,568       $3,752       $3,746       $2,352       $2,331
                                  ======       ======       ======       ======       ======       ======
</TABLE>
(1)  Gross of a related allowance for loss.

                                       19
<PAGE>
         The  following  table sets forth the  amount of  investment  securities
which  mature  during each of the periods  indicated  and the  weighted  average
yields for each range of maturities  at December 31, 1997. No tax-exempt  yields
have been adjusted to a tax-equivalent basis.
<TABLE>
<CAPTION>
                                                              Amounts at December 31, 1997 Which Mature In
                                         ------------------------------------------------------------------------------------
                                                                        Over One
                                                        Weighted          Year           Weighted       Over         Weighted
                                         One Year       Average         Through          Average        Five          Average
                                         or Less         Yield         Five Years         Yield         Years          Yield
                                         -------         -----         ----------         -----         -----          -----
                                                                         (Dollars in thousands)
<S>                                         <C>            <C>            <C>              <C>        <C>              <C>
Bonds and other debt 
  securities available for sale:

   FHLB notes                               $  -              - %         $ 500            6.50%      $ 2,287           7.55%
   FNMA notes                                200           7.09               -               -             -              -
   FHLMC notes                                 -              -               -               -         1,100           7.15
                                           -----           ----           -----            ----       -------           ---- 
   Subtotal                                  200           7.09             500            6.50         3,387           7.42
Equity securities held to :
 maturity:
  FHLB stock (1)                               -              -               -               -           483           6.00
                                           -----           ----           -----            ----       -------           ---- 
     Total                                 $ 200           7.09%          $ 500            6.50%      $ 3,870           7.24%
                                           =====           ====           =====            ====       =======           ====
</TABLE>

(1)  As a member of the FHLB of Dallas,  the Association is required to maintain
     its investment in FHLB stock, which has no stated maturity.


          At December 31, 1997, the Company did not have  investments in any one
issuer which exceeded more than 10% of the Company's total stockholders' equity,
except for FHLB notes which had both a carrying value and a market value of $2.6
million at December 31, 1997 and FHLMC notes which had both a carrying value and
a market value of $1.1 million at December 31, 1997

Sources of Funds

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

        Deposits.  The Company's deposits are attracted  principally from within
the Company's  primary market area through the offering of a broad  selection of
deposit instruments,  including negotiable order of withdrawal ("NOW") accounts,
money market deposit accounts  ("MMDA's"),  regular savings  accounts,  and term
certificate  accounts.  Included  among these  deposit  products are  individual
retirement account  certificates of approximately $4.5 million or 12.6% of total
deposits at December 31, 1997.  Deposit  account terms vary,  with the principal
differences being the minimum balance required,  the time periods the funds must
remain on deposit and the interest rate.

                                       20
<PAGE>
        The large variety of deposit  accounts  offered by the  Association  has
increased the Association's ability to retain deposits and allowed it to be more
competitive  in  obtaining  new  funds,  but has not  eliminated  the  threat of
disintermediation  (the flow of funds away from savings institutions into direct
investment vehicles such as government and corporate securities). During periods
of high interest rates,  deposit  accounts that have  adjustable  interest rates
have been more costly than  traditional  passbook  accounts.  In  addition,  the
Association is subject to short-term fluctuations in deposit flows because funds
in  transaction  accounts can be withdrawn at any time and because  52.5% of the
certificates  of deposit at December  31,  1997 mature in one year or less.  The
Association's  ability to attract and maintain  deposits is affected by the rate
consciousness  of its  customers  and  their  willingness  to  move  funds  into
higher-yielding  accounts.  The  Association's  cost of funds has been, and will
continue to be, affected by money market conditions.

          The  following  table shows the  distribution  of , and certain  other
information  relating to, the Company's  deposits by type of deposit,  as of the
dates indicated.
<TABLE>
<CAPTION>
                                                                      December 31,
                                ---------------------------------------------------------------------------------  
                                           1997                          1996                        1995
                                ---------------------------------------------------------------------------------
                                  Amount            %          Amount            %         Amount            %
                                  ------            -          ------            -         ------            -
                                                               (Dollars in Thousands)
<S>                              <C>               <C>        <C>             <C>         <C>             <C>
Certificate accounts:
   2.00% - 2.99%                 $     -              - %     $    94           0.3%      $   169           0.5%
   3.00% - 3.99%                      33              -             -             -            12             -
   4.00% - 4.99%                       -              -         6,957          19.0        10,058          26.3
   5.00% - 5.99%                  23,644           66.6        13,347          36.4        10,505          27.5
   6.00% - 6.99%                   2,293            6.5         5,544          15.1         5,704          14.9
   7.00% - 7.99%                   1,068            3.0         1,990           5.4         2,091           5.5
   8.00%  or more                      -              -             -             -             4             -
                                 -------           ----       -------         -----       -------           --- 
                                   
       Total certificate
         accounts                 27,038           76.1        27,932          76.2        28,543          74.7
                                 -------           ----       -------         -----       -------           ---      
Transaction accounts:
  Passbook savings                 5,483           15.4         5,774          15.8         6,431          16.8
  MMDAs                            1,098            3.1         1,216           3.3         1,530           4.0
  Demand and NOW
   accounts(1)                     1,915            5.4         1,713           4.7         1,699           4.5
                                 -------           ----       -------         -----       -------           --- 
                                   
     Total transaction
       accounts                    8,496           23.9         8,703          23.8         9,660          25.3
                                 -------           ----       -------         -----       -------           --- 
                                   
     Total deposits             $ 35,534          100.0%     $ 36,635         100.0%     $ 38,203         100.0%
                                ========          =====      ========         =====      ========         ===== 
</TABLE>
         The  following  table  presents  the  average  balance  of each type of
deposit  and the  average  rate paid on each  type of  deposit  for the  periods
indicated.

                                       21
<PAGE>
<TABLE>
<CAPTION>
                                                       Year Ended December 31,
                               ------------------------------------------------------------------------ 
                                      1997                     1996                     1995
                              --------------------    ----------------------    ----------------------- 
                                           Average                  Average                     Average
                               Average       Rate       Average       Rate       Average          Rate
                               Balance       Paid       Balance       Paid       Balance          Paid
                               -------       ----       -------       ----       -------          ----
                                                              (Dollars in Thousands)
<S>                           <C>           <C>        <C>             <C>        <C>            <C>
Passbook savings accounts     $ 5,602        2.60%     $ 6,856         2.56%      $ 6,662         2.73%
Demand and NOW accounts .       1,893        2.20        1,716         2.20         1,453         2.36
MMDAs ...................       1,210        2.40        1,475         2.41         1,829         2.56
Certificates of deposit .      27,242        5.53       28,706         5.47        27,296         5.39

   Total interest-bearing
     deposits ...........     $35,947        4.79%     $38,753         4.69%     $ 37,240         4.66%
                              =======        ====      =======         ====      ========         ====

</TABLE>

         The following  table sets forth the savings flows of the Company during
the periods indicated.

<TABLE>
<CAPTION>
                                                        Year Ended December 31,
                                                --------------------------------- 
                                                   1997         1996        1995
                                                   ----         ----        ----
                                                          (In Thousands)
<S>                                             <C>          <C>           <C>
Increase (decrease) before interest
   credited (1)                                 $ (2,657)    $ (3,001)     $ (834)
Interest credited                                  1,556        1,433       1,212
                                                   ------       ------     ------
   Net increase (decrease) in deposits          $ (1,101)    $ (1,568)     $  378
                                                =========    =========     ======
</TABLE>
(1)  The  information  provided is net of deposits and  withdrawals  because the
     gross amount of deposits and withdrawals is not readily available.


         The Association attempts to control the flow of deposits by pricing its
accounts to remain generally  competitive  with other financial  institutions in
its market area, but does not  necessarily  seek to match the highest rates paid
by competing institutions. The Association has generally not taken a position of
price  leadership in its markets,  except when there has been an  opportunity to
market longer term deposits.
  
         The  principal  methods  used by the  Association  to attract  deposits
include the  offering of a wide variety of services  and  accounts,  competitive
interest rates and convenient office locations.
<PAGE>
         The Association  does not advertise for deposits outside of its primary
market area.  At December 31, 1997,  the  Association  had no deposits that were
obtained  through deposit  brokers.  The Association  does not actively  solicit
broker deposits and does not pay fees to such brokers.

         The following table presents, by various interest rate categories,  the
amount of  certificates  of deposit at December 31, 1997 which mature during the
periods indicated.

                                       22
<PAGE>
<TABLE>
<CAPTION>
                                                             Balance at December 31, 1996
                                                   Maturing in the 12 Months Ending December 31,
                                       ----------------------------------------------------------------
Certificates of Deposit                   1998           1998         2000       Thereafter       Total
-----------------------                   ----           ----         ----       ----------       -----
                                                                 (In Thousands)
<S>                                    <C>            <C>          <C>             <C>          <C>    
   3.00% - 3.99%                       $     33       $     -      $     -         $    -       $    33
   4.00% - 4.99%                              -             -            -              -             -
   5.00% - 5.99%                         13,905         5,179        4,399            161        23,644
   6.00% - 6.99%                            100           119          104          1,970         2,293
   7.00% - 7.99%                            134            55          474            405         1,068
                                            
       Total certificate accounts      $ 14,172       $ 5,353      $ 4,977        $ 2,536      $ 27,038
                                      ==========      ========     ========       ========     ======== 
</TABLE>
         The  following  table  sets  forth  the  maturities  of  the  Company's
certificates  of  deposit  of  $100,000  or more at  December  31,  1997 by time
remaining to maturity.
<TABLE>
<CAPTION>
Maturing During Quarter Ending:                               Amounts
-------------------------------                               ------- 
                                                           (In Thousands)
<S>                                                           <C>
March 31, 1998                                                $   348
June 30, 1998                                                     202
September 30, 1998                                                213
December 31, 1998                                                 559
After December 31, 1998                                           424
                                                              -------
   Total certificates of deposit with
      balances of $100,000 or more                            $ 1,746
                                                              =======
</TABLE>
Borrowings. The Association may obtain advances from the FHLB of Dallas upon the
security of the common stock it owns in that bank and certain of its residential
mortgage loans, investment securities and mortgage-backed  securities,  provided
certain  standards related to credit worthiness have been met. See "Regulation -
The  Association  - Federal  Home  Loan Bank  System."  Such  advances  are made
pursuant to several credit programs, each of which has its own interest rate and
range of maturities.  Such advances are generally available to meet seasonal and
other  withdrawals  of deposit  accounts and to permit  increased  lending.  The
Association did not have any advances from the FHLB at December 31, 1997.
<PAGE>

     Subsidiary

         At December  31,  1997,  the  Association  had no  subsidiaries.  Under
Louisiana law, a state-chartered  association may invest up to 10% of its assets
in service  organizations  or  corporations.  On  December  26, 1996 the Company
formed a  subsidiary  corporation,  Jefferson,  along with  Jefferson  Community
Housing  Foundation  (the  "Foundation").  Jefferson  was  formed  to  originate
mortgage loans for sale in the secondary  market.  For the year ending  December
31, 1997, Jefferson had a net operating loss of approximately  $178,000.  Due to
the  large  loss  sustained  for the year it was the  decision  of the  Board of
Directors to dissolve Jefferson effective December 31, 1997.


                                       23
<PAGE>
         The  operations of Jefferson have been moved into the  Association  and
will  be  under  the  direct  control  of  the  Association's  management.   The
Association  has applied for an FHA Lender Number and will  originate  loans for
sale in the secondary market. Until such time as the FHA number is obtained, the
Association will use sources it has identified to sell the loans it originates.

Competition

         The Company faces significant  competition both in attracting  deposits
and in  making  loans.  Its  most  direct  competition  for  deposits  has  come
historically from commercial banks, credit unions and other savings institutions
located in its primary market area, including many large financial  institutions
which have greater financial and marketing  resources available to them. Some of
the  Company's  major  competitors  include Bank One,  Hibernia  National  Bank,
Whitney  National  Bank,  First  National  Bank of Commerce  and Fifth  District
Savings  and  Loan.  In  addition,  the  Company  faces  additional  significant
competition for investors'  funds from short-term  money market mutual funds and
issuers of  corporate  and  government  securities.  The  Company  competes  for
deposits  principally by offering depositors a variety of deposit programs.  The
Company does not rely upon any individual group or entity for a material portion
of its deposits.  The Company  estimates that its market share of total deposits
in Orleans parish and Jefferson parish, Louisiana is less than 1.0%.

         The Company's  competition for real estate loans comes principally from
mortgage banking  companies,  commercial banks,  other savings  institutions and
credit unions. The Company competes for loan originations  primarily through the
interest  rates and loan fees it  charges,  and the  efficiency  and  quality of
services it provides  borrowers  and real estate  brokers.  Factors which affect
competition include general and local economic conditions, current interest rate
levels and volatility in the mortgage markets.

Employees

         The Company and its subsidiaries had 13 full-time employees at December
31,  1997,  and  has  added  four  additional  employees  in the  mortgage  loan
department as of January 2, 1998.  None of these  employees are represented by a
collective  bargaining  agent,  and the  Company  believes  that it enjoys  good
relations with its personnel.
 
                                   REGULATION

The Company

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

         Activities  Restrictions.  There are generally no  restrictions  on the
activities of a savings and loan holding company which holds only one subsidiary
savings  institution.  However, if the Director of the OTS determines that there
is  reasonable  cause to believe  that the  continuation  by a

                                       24
<PAGE>
savings and loan holding  company of an activity  constitutes  a serious risk to
the  financial  safety,   soundness  or  stability  of  its  subsidiary  savings
institution,  the Director may impose such  restrictions as deemed  necessary to
address  such risk,  including  limiting (i) payment of dividends by the savings
institution;   (ii)  transactions   between  the  savings  institution  and  its
affiliates;  and (iii) any  activities  of the  savings  institution  that might
create a serious  risk  that the  liabilities  of the  holding  company  and its
affiliates may be imposed on the savings institution.  Notwithstanding the above
rules as to permissible  business activities of unitary savings and loan holding
companies, if the savings institution subsidiary of such a holding company fails
to meet the QTL test, as discussed  under "-The  Association - Qualified  Thrift
Lender Test," then such unitary holding company also shall become subject to the
activities   restrictions  applicable  to  multiple  savings  and  loan  holding
companies and,  unless the savings  institution  requalifies as a QTL within one
year  thereafter,  shall  register  as, and become  subject to the  restrictions
applicable to, a bank holding company.  See "-The Association - Qualified Thrift
Lender Test."

         If the Company were to acquire control of another savings  institution,
other than through merger or other business  combination  with the  Association,
the Company would thereupon  become a multiple savings and loan holding company.
Except where such acquisition is pursuant to the authority to approve  emergency
thrift  acquisitions and where each subsidiary savings institution meets the QTL
test,  as set  forth  below,  the  activities  of  the  Company  and  any of its
subsidiaries   (other  than  the   Association  or  other   subsidiary   savings
institutions) would thereafter be subject to further  restrictions.  Among other
things, no multiple savings and loan holding company or subsidiary thereof which
is not a savings  institution shall commence or continue for a limited period of
time after  becoming a multiple  savings and loan holding  company or subsidiary
thereof any business  activity,  except upon prior notice to and no objection by
the OTS,  other than:  (i)  furnishing or performing  management  services for a
subsidiary  savings  institution;  (ii) conducting an insurance agency or escrow
business;  (iii) holding,  managing,  or liquidating assets owned by or acquired
from a subsidiary savings institution;  (iv) holding or managing properties used
or occupied by a subsidiary  savings  institution;  (v) acting as trustee  under
deeds of trust;  (vi) those  activities  authorized by regulation as of March 5,
1987 to be engaged in by multiple savings and loan holding  companies;  or (vii)
unless the Director of the OTS by regulation prohibits or limits such activities
for savings and loan holding companies,  those activities  authorized by the FRB
as permissible for bank holding companies.  Those activities  described in (vii)
above also must be approved by the Director of the OTS prior to being engaged in
by a multiple savings and loan holding company.
 
         Limitations  on  Transactions  with  Affiliates.  Transactions  between
savings  institutions  and any affiliate are governed by Sections 23A and 23B of
the  Federal  Reserve  Act  and  OTS  regulations.  An  affiliate  of a  savings
institution  is any company or entity which  controls,  is  controlled  by or is
under common control with the savings institution. In a holding company context,
the parent holding  company of a savings  institution  (such as the Company) and
any companies which are controlled by such parent holding company are affiliates
of the savings institution.  Generally,  such provisions (i) limit the extent to
which the  savings  institution  or its  subsidiaries  may  engage  in  "covered
<PAGE>

transactions"  with  any  one  affiliate  to an  amount  equal  to 10%  of  such
institution's  capital stock and surplus,  and contain an aggregate limit on all
such  transactions with all affiliates to an amount equal to 20% of such capital
stock  and  surplus  and (ii)  require  that all such  transactions  be on terms
substantially  the  same,  or at  least  as  favorable,  to the  institution  or
subsidiary as those provided to a non-affiliate.  The term "covered transaction"
includes the making of loans,  purchase of assets,  issuance of a guarantee  and
other  similar  transactions.  In addition to the  restrictions  imposed by such
provisions, no savings institution may 

                                       25
<PAGE>
(i) loan or otherwise  extend credit to an  affiliate,  except for any affiliate
which  engages  only in  activities  which  are  permissible  for  bank  holding
companies, or (ii) purchase or invest in any stocks, bonds, debentures, notes or
similar   obligations  of  any  affiliate,   except  for  affiliates  which  are
subsidiaries of the savings institution.

         In addition,  Sections  22(h) and (g) of the Federal  Reserve Act place
restrictions   on  loans  to  executive   officers,   directors   and  principal
stockholders. Under Section 22(h), loans to a director, an executive officer and
to a  greater  than  10%  stockholder  of a  savings  institution,  and  certain
affiliated  interests  of  either,  may not  exceed,  together  with  all  other
outstanding  loans  to  such  person  and  affiliated  interests,   the  savings
institution's  loans  to  one  borrower  limit  (generally  equal  to 15% of the
institution's unimpaired capital and surplus).  Section 22(h) also requires that
loans to directors,  executive  officers and principal  stockholders  be made on
terms  substantially  the same as offered in  comparable  transactions  to other
persons and also requires prior board  approval for certain loans.  In addition,
the aggregate  amount of extensions  of credit by a savings  institution  to all
insiders  cannot  exceed  the  institution's  unimpaired  capital  and  surplus.
Furthermore,  Section 22(g) places additional restrictions on loans to executive
officers. At December 31, 1997, the Association was in compliance with the above
restrictions.

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

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

         Under the Bank Holding  Company Act of 1956,  the FRB is  authorized to
approve an application by a bank holding company to acquire control of a savings
institution.  In  addition,  a bank  holding  company  that  controls  a savings
institution  may merge or consolidate  the assets and liabilities of the savings
institution  with, or transfer  assets and  liabilities  to, any subsidiary bank
which is a member of the Bank  Insurance  Fund  ("BIF") with the approval of the
appropriate federal banking agency and the FRB. As a result of these provisions,
there have been a number of acquisitions of savings institutions by bank holding
companies in recent years.

                                       26
<PAGE>
The Association

         General. The OFI is the Association's chartering authority, and the OTS
is the  Association's  primary  federal  regulator.  The OTS  and  the OFI  have
extensive   authority  over  the  operations  of   Louisiana-chartered   savings
institutions.  As part of this authority,  savings  institutions are required to
file  periodic  reports  with the OTS and the OFI and are  subject  to  periodic
examinations  by the OTS,  the OFI and the  FDIC.  The  investment  and  lending
authority  of  savings   institutions   are   prescribed  by  federal  laws  and
regulations,   and  such  institutions  are  prohibited  from  engaging  in  any
activities  not  permitted by such laws and  regulations.  Such  regulation  and
supervision is primarily intended for the protection of depositors.

         The OTS' enforcement  authority over all savings institutions and their
holding  companies  includes,  among other  things,  the ability to assess civil
money  penalties,  to issue  cease and desist or removal  orders and to initiate
injunctive actions.  In general,  these enforcement actions may be initiated for
violations  of laws and  regulations  and unsafe and  unsound  practices.  Other
actions or inactions may provide the basis for  enforcement  actions,  including
misleading or untimely reports filed with the OTS.

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

         Under  current FDIC  regulations,  institutions  are assigned to one of
three  capital  groups which are based  solely on the level of an  institution's
capital--"well       capitalized,"       "adequately      capitalized,"      and
"undercapitalized"--which  are  defined  in the same  manner as the  regulations
establishing the prompt  corrective  action system discussed below.  These three
groups are then divided into three  subgroups  which reflect  varying  levels of
supervisory  concern,  from those  which are  considered  to be healthy to those
which are considered to be of  substantial  supervisory  concern.  The matrix so
created  results in nine  assessment  risk  classifications,  with rates ranging
prior to September 30, 1996 from .23% for well capitalized, healthy institutions
to .31% for undercapitalized institutions with substantial supervisory concerns.
The insurance  premiums for the Association for the first half of 1994 were .26%
(per annum) of insured deposits and for each of the semi-annual periods from the
second half of 1994  through the first nine months of 1996 were .23% (per annum)
of insured deposits.

         The deposits of the Association are currently insured by the SAIF. Both
the SAIF and the BIF, the federal deposit  insurance fund that covers commercial
bank deposits,  are required by law to attain and thereafter  maintain a reserve
ratio of 1.25% of insured deposits. The BIF achieved a fully funded status first
and, therefore,  as discussed below, effective January 1, 1996 the FDIC recently
substantially  reduced the average deposit  insurance premium paid by commercial
banks.

         On November 14, 1995, the FDIC approved a final rule regarding  deposit
insurance  premiums.  The final rule reduced deposit insurance  premiums for BIF
member  institutions  to zero basis  points  (subject to a $2,000  minimum)  for
institutions  in the lowest  risk  category,  while  holding  deposit  insurance
premiums  for SAIF  members at their then  current  levels (23 basis  points

                                       27
<PAGE>
for institutions in the lowest risk category).  The reduction was effective with
respect to the semiannual premium assessment beginning January 1, 1996.

         On September 30, 1996,  President  Clinton signed into law  legislation
which eliminated the premium differential between SAIF-insured  institutions and
BIF-insured  institutions by recapitalizing  the SAIF's reserves to the required
ratio.  The  legislation  required all SAIF member  institutions  pay a one-time
special  assessment to recapitalize  the SAIF,  with the aggregate  amount to be
sufficient to bring the reserve ratio in the SAIF to 1.25% of insured  deposits.
The legislation  also provides for the merger of the BIF and the SAIF, with such
merger being conditioned upon the prior elimination of the thrift charter.

         Implementing  FDIC regulations  imposed a one-time  special  assessment
equal to 65.7 basis  points  for all  SAIF-assessable  deposits  as of March 31,
1995,  which was  accrued as an expense on  September  30,  1996.  The  one-time
special  assessment for the Association  amount to $241,000.  Net of related tax
benefits,  the  one-time  special  assessment  amounted  to $159,000 or $.25 per
share.  The payment of such  special  assessment  had the effect of  immediately
reducing the Association's capital by such amount. Nevertheless, management does
not believe that this one-time special  assessment had a material adverse effect
on the Company's consolidated financial condition.

         In the fourth quarter of 1996,  the FDIC lowered the  assessment  rates
for SAIF members to reduce the disparity in the assessment rates paid by BIF and
SAIF members.  Beginning  October 1, 1996,  effective SAIF rates generally range
from zero basis points to 27 basis points, except that during the fourth quarter
of 1996,  the rates for SAIF  members  ranged  from 18 basis  points to 27 basis
points  in order  to  include  assessments  paid to the  Financing  Corporations
("FICO"). From 1997 through 1999, SAIF members will pay 6.4 basis points to fund
the FICO, while BIF member institutions will pay approximately 1.3 basis points.
The  Association's  insurance  premiums,  which had amounted to 23 basis points,
were thus reduced to 6.4 basis points  effective  January 1, 1997.  Based on the
$36.5 million of assessable  deposits at December 31, 1996, the Association paid
approximately $73,000 less in insurance premiums in 1997.
 
         The FDIC may terminate the deposit insurance of any insured  depository
institution,  including the  Association,  if it determines after a hearing that
the institution has engaged or is engaging in unsafe or unsound practices, is in
an unsafe or unsound  condition  to continue  operations,  or has  violated  any
applicable law, regulation,  order or any condition imposed by an agreement with
the FDIC. It also may suspend deposit insurance  temporarily  during the hearing
process for the permanent  termination of insurance,  if the  institution has no
tangible  capital.  If insurance of accounts is terminated,  the accounts at the
institution at the time of the termination,  less subsequent withdrawals,  shall
continue to be insured for a period of six months to two years, as determined by
the FDIC. Management is aware of no existing circumstances which would result in
termination of the Association's deposit insurance.

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

                                       28
<PAGE>
         Current OTS capital standards  require savings  institutions to satisfy
three  different   capital   requirements.   Under  these   standards,   savings
institutions must maintain "tangible" capital equal to at least 1.5% of adjusted
total assets, "core" capital equal to at least 3.0% of adjusted total assets and
"total" capital (a combination of core and "supplementary"  capital) equal to at
least 8.0% of  "risk-weighted"  assets.  For  purposes of the  regulation,  core
capital generally consists of common  stockholders'  equity (including  retained
earnings).  Tangible capital is given the same definition as core capital but is
reduced by the amount of all the savings  institution's  intangible assets, with
only a limited  exception for purchased  mortgage  servicing rights. At December
31,  1997,  the  Association  had no  intangible  assets  which are  deducted in
computing  its  tangible  capital.  Both core and  tangible  capital are further
reduced  by  an  amount  equal  to  a  savings  institution's  debt  and  equity
investments in  subsidiaries  engaged in activities not  permissible to national
banks (other than  subsidiaries  engaged in  activities  undertaken as agent for
customers  or  in  mortgage   banking   activities  and  subsidiary   depository
institutions or their holding companies).  At December 31, 1997, the Association
had no subsidiaries.

         In determining  compliance with the risk-based capital  requirement,  a
savings  institution  is allowed to include both core capital and  supplementary
capital in its total capital,  provided that the amount of supplementary capital
included does not exceed the savings  institution's core capital.  Supplementary
capital generally consists of general allowances for loan losses up to a maximum
of  1.25% of  risk-weighted  assets,  together  with  certain  other  items.  In
determining the required amount of risk-based capital,  total assets,  including
certain  off-balance  sheet items,  are multiplied by a risk weight based on the
risks inherent in the type of assets.  The risk weights  assigned by the OTS for
principal  categories of assets are (i) 0% for cash and securities issued by the
U.S.  Government or  unconditionally  backed by the full faith and credit of the
U.S.  Government;  (ii) 20% for securities (other than equity securities) issued
by U.S.  Government-sponsored agencies and mortgage-backed securities issued by,
or fully  guaranteed  as to  principal  and  interest by, the FNMA or the FHLMC,
except  for  those   classes   with   residual   characteristics   or   stripped
mortgage-related securities; (iii) 50% for prudently underwritten permanent one-
to four-family  first lien mortgage  loans not more than 90 days  delinquent and
having a loan-to-value  ratio of not more than 80% at origination unless insured
to such  ratio  by an  insurer  approved  by the FNMA or the  FHLMC,  qualifying
residential  bridge  loans  made  directly  for  the  construction  of  one-  to
four-family residences,  and qualifying multi-family residential loans; and (iv)
100% for all other loans and investments,  including consumer loans,  commercial
loans,  and one- to four-family  residential real estate loans more than 90 days
delinquent, and for repossessed assets.

         In  August  1993,  the  OTS  adopted  a  final  rule  incorporating  an
interest-rate risk component into the risk-based capital  regulation.  Under the
rule, an  institution  with a greater than "normal"  level of interest rate risk
will be subject to a deduction of its interest  rate risk  component  from total
capital for purposes of calculating its risk-based capital. As a result, such an
institution will be required to maintain  additional  capital in order to comply
with the risk-based  capital  requirement.  An  institution  with a greater than
"normal"  interest  rate risk is defined as an  institution  that would suffer a
loss of net portfolio  value  exceeding 2.0% of the estimated  economic value of
its assets in the event of a 200 basis point  increase or decrease (with certain
minor  exceptions) in interest  rates.  The interest rate risk component will be
<PAGE>

calculated,  on a quarterly  basis,  as one-half  of the  difference  between an
institution's  measured interest rate risk and 2.0%,  multiplied by the economic
value of its assets.  The rule also  authorizes  the Director of the OTS, or his
designee,  to waive or defer an institution's  interest rate risk component on a
case-by-case  basis.  The final rule was  originally  effective as of January 1,
1994,  subject however to a two quarter "lag" time between the reporting date of
the data used to calculate an institution's interest rate risk and the effective
date of 

                                       29
<PAGE>
each  quarter's  interest  rate risk  component.  However,  in October  1994 the
Director of the OTS  indicated  that it would waive the capital  deductions  for
institutions  with a greater  than  "normal"  risk  until the OTS  published  an
appeals  process.  On August 21, 1995, the OTS released Thrift Bulletin 67 which
established (i) an appeals process to handle  "requests for  adjustments" to the
interest  rate risk  component  and (ii) a process  by which  "well-capitalized"
institutions may obtain  authorization to use their own interest rate risk model
to  determine  their  interest  rate risk  component.  The  Director  of the OTS
indicated,  concurrent with the release of Thrift Bulletin 67, that the OTS will
continue to delay the  implementation of the capital deduction for interest rate
risk pending the testing of the appeals process set forth in Thrift Bulletin 67.

         At December 31, 1997,  the  Association  exceeded all of its regulatory
capital  requirements,  with  tangible,  core and  risk-based  capital ratios of
16.5%,  16.5% and  65.3%,  respectively.  The  following  table  sets  forth the
Association's  compliance with each of the above-described  capital requirements
as of December 31, 1997.
 
<TABLE>
<CAPTION>
                                          Tangible       Core         Risk-Based
                                           Capital      Capital(1)    Capital(2)
                                                  (Dollars in Thousands)
<S>                                        <C>           <C>           <C>
Capital under GAAP ...................     $ 7,185       $ 7,185       $ 7,185
Additional capital items:
  General valuation
   allowances(3) .....................        --            --             142
   Net unrealized gain on
   securities available for sale .....          (1)           (1)           (1)
                                           -------       -------       -------
Regulatory capital ...................       7,184         7,184         7,326
Minimum required
   regulatory capital(4) .............         653         1,306           898
                                           -------       -------       -------
Excess regulatory capital ............     $ 6,531       $ 5,878       $ 6,428
                                           =======       =======       =======
Regulatory capital as a
   percentage ........................       16.51%        16.51%        65.29%
Minimum capital required
   as a percentage(4) ................        1.50%          3.0%         8.00%
Regulatory capital as a
   percentage in excess of
   requirements ......................       15.01%        13.51%        57.29%
                                           =======       =======       =======
</TABLE>
(1)  Does not reflect the 4.0% requirement to be met in order for an institution
     to be "adequately capitalized." See " -Prompt Corrective Action."
(2)  Does not reflect the interest-rate risk component in the risk-based capital
     requirement,  the effective  date of which has been  postponed as discussed
     above.
(3)  General valuation allowances are only used in the calculation of risk-based
     capital. Such allowances are limited to 1.25% of risk-weighted assets.
(4)  Tangible and core capital are  computed as a percentage  of adjusted  total
     assets of $43.5 million.  Risk-based capital is computed as a percentage of
     adjusted risk-weighted assets of $11.2 million.

                                       30
<PAGE>
         Effective  November 28, 1994, the OTS revised its interim policy issued
in August  1993 under  which  savings  institutions  computed  their  regulatory
capital in accordance with SFAS No.115,  "Accounting for Certain  Investments in
Debt and Equity Securities." Under the revised OTS policy,  savings institutions
must  value  securities  available  for sale at  amortized  cost for  regulatory
capital  purposes.  This means that in  computing  regulatory  capital,  savings
institutions  should add back any  unrealized  losses and deduct any  unrealized
gains, net of income taxes, on debt securities  reported as a separate component
of GAAP capital.  This change in policy increased the  Association's  regulatory
capital at December 31, 1997 by approximately $1,000.

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

         Prompt   Corrective   Action.   Under  the  prompt   corrective  action
regulations of the OTS, an institution is deemed to be (i) "well capitalized" if
it has  total  risk-based  capital  of 10.0% or  more,  has a Tier 1  risk-based
capital  ratio of 6.0% or more,  has a Tier 1 leverage  capital ratio of 5.0% or
more and is not  subject  to any order or final  capital  directive  to meet and
maintain a specific  capital  level for any capital  measure,  (ii)  "adequately
capitalized" if it has a total risk-based  capital ratio of 8.0% or more, a Tier
1 risk-based  capital ratio of 4.0% or more and a Tier 1 leverage  capital ratio
of 4.0% or more  (3.0%  under  certain  circumstances)  and  does  not  meet the
definition of "well  capitalized,"  (iii)  "undercapitalized"  if it has a total
risk-based  capital  ratio that is less than 8.0%, a Tier 1  risk-based  capital
ratio  that is less than 4.0% or a Tier 1  leverage  capital  ratio that is less
than   4.0%   (3.0%   under   certain   circumstances),    (iv)   "significantly
undercapitalized"  if it has a total risk-based  capital ratio that is less than
6.0%,  a Tier 1  risk-based  capital  ratio  that is less  than 3.0% or a Tier 1
leverage   capital   ratio  that  is  less  than  3.0%,   and  (v)   "critically
undercapitalized"  if it has a ratio of tangible  equity to total assets that is
equal to or less than 2.0%.  Under  specified  circumstances,  a federal banking
agency may reclassify a well capitalized  institution as adequately  capitalized
and may require an adequately  capitalized  institution  or an  undercapitalized
institution to comply with  supervisory  actions as if it were in the next lower
category   (except   that   the  FDIC  may  not   reclassify   a   significantly
undercapitalized institution as critically undercapitalized).

         An institution  generally must file a written capital  restoration plan
which meets specified  requirements with its appropriate  federal banking agency
within 45 days of the date that the institution  receives notice or is deemed to
have  notice  that it is  undercapitalized,  significantly  undercapitalized  or
critically   undercapitalized.   A  federal  banking  agency  must  provide  the
institution with written notice of approval or disapproval  within 60 days after
receiving a capital  restoration  plan,  subject to extensions by the agency. An
institution  which  is  required  to  submit a  capital  restoration  plan  must
concurrently  submit a  performance  guaranty by each company that  controls the
institution. In addition,  undercapitalized  institutions are subject to various
regulatory  restrictions,  and the  appropriate  federal banking agency also may
take any number of discretionary supervisory actions.
 
         At December 31, 1997,  the  Association  was deemed a well  capitalized
institution for purposes of the above  regulations and as such is not subject to
the above mentioned restrictions.

                                       31
<PAGE>
         Safety and Soundness.  The OTS and other federal banking  agencies have
established  guidelines for safety and  soundness,  addressing  operational  and
managerial  standards,  as well as  compensation  matters for insured  financial
institutions.  Institutions  failing to meet these  standards  are  required  to
submit compliance plans to their appropriate federal regulators. The OTS and the
other  agencies have also  established  guidelines  regarding  asset quality and
earnings standards for insured institutions. The Association believes that it is
in compliance with these guidelines and standards.

         Liquidity  Requirements.  All  savings  institutions  are  required  to
maintain an average daily balance of liquid assets equal to a certain percentage
of the sum of its average daily balance of net withdrawable deposit accounts and
borrowings payable in one year or less. The liquidity  requirement may vary from
time to time (between 4% and 10%) depending upon economic conditions and savings
flows of all savings  institutions.  At the present time,  the required  minimum
liquid  asset ratio is 4%. At December  31, 1997,  the  Association's  liquidity
ratio was 7.43%.

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

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

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

         At December 31, 1997,  the  Association  was a Tier 1  institution  for
purposes of this regulation.
<PAGE> 
         On December 5, 1994, the OTS published a notice of proposed  rulemaking
to amend its capital distribution regulation.  Under the proposal,  institutions
would be permitted to only make capital  distributions  that would not result in
their  capital  being  reduced  below the level  required to remain  "adequately
capitalized,"  as defined above under "-Prompt  Corrective  Action." Because the
Association  will be a  subsidiary  of a holding  company,  the  proposal  would
require  the  Association  to provide  notice to the OTS of its intent to make a
capital  distribution.  The Association  does not

                                       32
<PAGE>
believe  that the  proposal  will  adversely  affect its ability to make capital
distributions if it is adopted substantially as proposed.

         Loans to One Borrower.  The permissible amount of loans-to-one borrower
now  generally  follows the national bank standard for all loans made by savings
institutions.  The national bank standard generally does not permit loans-to-one
borrower  to exceed the greater of  $500,000  or 15% of  unimpaired  capital and
surplus. Loans in an amount equal to an additional 10% of unimpaired capital and
surplus also may be made to a borrower if the loans are fully secured by readily
marketable  securities.  For  information  about the largest  borrowers from the
Association,  see "Business - Lending Activities - Real Estate Lending Standards
and Underwriting Policies."

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

         Branching  by  Federal   Savings   Institutions.   OTS  policy  permits
interstate  branching  to  the  full  extent  permitted  by  statute  (which  is
essentially  unlimited).   Generally,  federal  law  prohibits  federal  savings
institutions  from  establishing,  retaining or  operating a branch  outside the
state  in  which  the  federal  institution  has  its  home  office  unless  the
institution meets the Internal Revenue Service's domestic building and loan test
(generally,  60% of a thrift's assets must be housing-related) ("IRS Test"). The
IRS Test  requirement  does not apply if: (i) the  branch(es)  result(s) from an
emergency  acquisition  of a  troubled  savings  institution  (however,  if  the
troubled  savings  institution is acquired by a bank holding  company,  does not
have its home office in the state of the bank holding  company  bank  subsidiary
and does not  qualify  under the IRS  Test,  its  branching  is  limited  to the
branching  laws  for  state-chartered  banks  in the  state  where  the  savings
institution  is  located);  (ii) the law of the state where the branch  would be
located  would  permit  the  branch to be  established  if the  federal  savings
institution were chartered by the state in which its home office is located;  or
(iii) the branch was operated  lawfully as a branch under state law prior to the
savings institution's conversion to a federal charter.

                                       33
<PAGE>
         Furthermore,  the OTS will evaluate a branching  applicant's  record of
compliance   with  the  Community   Reinvestment   Act  of  1977   ("CRA").   An
unsatisfactory   CRA  record  may  be  the  basis  for  denial  of  a  branching
application.

         Community   Reinvestment  Act  and  the  Fair  Lending  Laws.   Savings
institutions have a responsibility  under the CRA and related regulations of the
OTS to help  meet the  credit  needs of their  communities,  including  low- and
moderate-income neighborhoods. In addition, the Equal Credit Opportunity Act and
the Fair Housing Act (together,  the "Fair Lending Laws") prohibit  lenders from
discriminating  in their  lending  practices  on the  basis  of  characteristics
specified  in those  statutes.  An  institution's  failure  to  comply  with the
provisions of CRA could, at a minimum,  result in regulatory restrictions on its
activities,  and failure to comply with the Fair  Lending  Laws could  result in
enforcement actions by the OTS, as well as other federal regulatory agencies and
the Department of Justice.

         Qualified Thrift Lender Test. All savings  institutions are required to
meet a QTL  test in order to avoid  certain  restrictions  on their  operations.
Under Section 2303 of the Economic Growth and Regulatory Paperwork Reduction Act
of 1996, a savings institution can comply with the QTL test by either qualifying
as a domestic building and loan association as defined in Section 7701(a)(19) of
the  Internal  Revenue Code of 1986,  as amended  ("Code") or meeting the second
prong  of the QTL test  set  forth in  Section  10(m)  of the  HOLA.  A  savings
institution  that  does  not meet the QTL test  must  either  convert  to a bank
charter or comply with the following  restrictions  on its  operations:  (i) the
institution  may not  engage  in any new  activity  or make any new  investment,
directly or indirectly,  unless such activity or investment is permissible for a
national bank; (ii) the branching powers of the institution  shall be restricted
to those of a national  bank;  (iii) the  institution  shall not be  eligible to
obtain  any  advances  from its  FHLB;  and (iv)  payment  of  dividends  by the
institution  shall be subject to the rules  regarding  payment of dividends by a
national  bank.  Upon the  expiration  of three  years from the date the savings
institution  ceases to meet the QTL test,  it must  cease any  activity  and not
retain any investment not permissible for a national bank and immediately  repay
any outstanding FHLB advances (subject to safety and soundness considerations).

         Currently,  the  prong  of the QTL test  that is not  based on the Code
requires that 65% of an institution's "portfolio assets" (as defined) consist of
certain housing and  consumer-related  assets on a monthly average basis in nine
out of very 12 months.  Assets that qualify  without limit for inclusion as part
of the 65% requirement are loans made to purchase, refinance, construct, improve
or repair domestic  residential  housing and manufactured  housing;  home equity
loans;  mortgage-backed  securities (where the mortgages are secured by domestic
residential  housing  or  manufactured  housing);  stock  issued  by the FHLB of
Dallas;  and  direct or  indirect  obligations  of the FDIC.  In  addition,  the
following assets,  among others,  may be included in meeting the test subject to
an overall limit of 20% of the savings  institution's  portfolio assets:  50% of
residential  mortgage loans  originated and sold within 90 days of  origination;
100% of  consumer  and  educational  loans  (limited  to 10% of total  portfolio
assets);  and stock issued by the FHLMC or the FNMA. Portfolio assets consist of
total assets minus the sum of (i) goodwill  and other  intangible  assets,  (ii)
property  used by the savings  institution  to conduct its  business,  and (iii)
liquid assets up to 20% of the institution's total assets. At December 31, 1997,
the qualified thrift investments of the Association were approximately  83.7% of
its portfolio assets.

         Federal Home Loan Bank System.  The Association is a member of the FHLB
of Dallas, which is one of 12 regional FHLBs that administers the home financing
credit  function  of  savings  

                                       34
<PAGE>
institutions.  Each FHLB  serves as a reserve  or central  bank for its  members
within its assigned  region.  It is funded  primarily from proceeds derived from
the sale of  consolidated  obligations  of the FHLB  System.  It makes  loans to
members (i.e.,  advances) in accordance with policies and procedures established
by the Board of Directors of the FHLB.

         As a member, the Association is required to purchase and maintain stock
in the FHLB of Dallas in an amount equal to at least 1% of its aggregate  unpaid
residential  mortgage loans, home purchase  contracts or similar  obligations at
the beginning of each year. At December 31, 1997, the  Association  had $483,000
in FHLB stock, which was in compliance with this requirement.

         The FHLBs are required to provide funds for the  resolution of troubled
savings  institutions  and to contribute to affordable  housing programs through
direct loans or interest subsidies on advances targeted for community investment
and low-and moderate-income housing projects. These contributions have adversely
affected the level of FHLB  dividends  paid in the past and could continue to do
so in the future.  These  contributions also could have an adverse effect on the
value of FHLB stock in the future.

         Federal Reserve System. The FRB requires all depository institutions to
maintain  reserves against their transaction  accounts  (primarily NOW and Super
NOW checking accounts) and non-personal time deposits.  As of December 31, 1997,
no  reserves  were  required  to be  maintained  on the first  $4.4  million  of
transaction accounts,  reserves of 3% were required to be maintained against the
next $46.3 million of net transaction accounts (with such dollar amounts subject
to adjustment by the FRB),  and a reserve of 10% (which is subject to adjustment
by the FRB to a level between 8% and 14%, is required  against all remaining net
transaction  accounts.  Because required reserves must be maintained in the form
of vault cash or a  noninterest-bearing  account at a Federal  Reserve Bank, the
effect of this reserve requirement is to reduce an institution's earning assets.

         Thrift Charter.  Congress has been  considering  legislation in various
forms that would require federal thrifts,  such as the  Association,  to convert
their charters to national or state bank charters.  Recent legislation  required
the  Treasury  Department  to  prepare  for  Congress a  comprehensive  study on
development of a common charter for federal savings  institutions and commercial
banks;  and, in the event that the thrift  charter was  eliminated by January 1,
1999,  would  require  the merger of the BIF and the SAIF into a single  Deposit
Insurance Fund on that date. The Association  cannot  determine  whether,  or in
what form,  such  legislation  may  eventually  be  enacted  and there can be no
assurance that any  legislation  that is enacted would not adversely  affect the
Association and its parent holding company.
 
     Louisiana Regulation

         As a Louisiana-chartered  savings association,  the Association also is
subject to regulation and supervision by the OFI. The Association is required to
file periodic reports with and is subject to periodic examinations at least once
every  three  years by the OFI.  The lending  and  investment  authority  of the
Association  is  prescribed  by  Louisiana  laws  and  regulations,  as  well as
applicable federal laws and regulations,  and the Association is prohibited from
engaging in any activities not permitted by such law and regulations.


                                       35
<PAGE>
         The  Association is required by Louisiana law and regulations to comply
with  certain  reserve  and capital  requirements.  At December  31,  1997,  the
Association  was  in  compliance   with  all  applicable   reserve  and  capital
requirements.

         Louisiana law and regulations  also restrict the lending and investment
authority of Louisiana-chartered savings institutions. Such laws and regulations
restrict the amount a  Louisiana-chartered  savings  association can lend to any
one borrower to an amount which, in the aggregate, does not exceed the lesser of
(i)  10%  of  the  association's  savings  deposits  or  (ii)  the  sum  of  the
association's  paid-in  capital,  surplus,  reserves for losses,  and  undivided
profits. Federal law imposes more restrictive limitations. See "Business-Lending
Activities."  Notwithstanding  the foregoing,  Louisiana and federal law permits
any such association to lend to any one borrower an aggregate amount of at least
$500,000.

         In addition, Louisiana law restricts the ability of Louisiana-chartered
savings  associations  to invest in, among other  things,  (i)  commercial  real
estate loans (including commercial  construction real estate loans) up to 40% of
total  assets;  (ii) real estate  investments  for other than the  association's
offices up to 10% of total assets;  (iii) consumer loans,  commercial  paper and
corporate debt securities up to 30% of total assets; (iv) commercial, corporate,
business or agricultural loans up to 10% of total assets; and (v) capital stock,
obligations  and other  securities of service  organizations  up to 10% of total
assets.  Louisiana law also sets forth maximum loan-to-value ratios with respect
to  various  types  of  loans.   Applicable  federal   regulations  impose  more
restrictive   limitations   in   certain   instances.    See   "Business-Lending
Activities-Real Estate Lending Standards and Underwriting Policies."

        The investment authority of Louisiana-chartered  savings associations is
broader  in many  respects  than that of  federally-chartered  savings  and loan
associations.   However,  state-chartered  savings  associations,  such  as  the
Association,  are generally  prohibited  from  acquiring or retaining any equity
investment, other than certain investments in service corporations, of a type or
in  an  amount  that  is  not  permitted  for  a   federally-chartered   savings
association.  This  prohibition  applies to equity  investments  in real estate,
investments in equity securities and any other investment or transaction that is
in substance an equity  investment,  even if the transaction is nominally a loan
or other permissible  transaction.  At December 31, 1997, the Association was in
compliance with such provisions.

        Furthermore,  effective  January  1,  1990,  a  state-chartered  savings
association  may not engage as  principal  in any  activity  not  permitted  for
federal  associations  unless the FDIC has  determined  that such activity would
pose  no  significant  risk  to the  affected  deposit  insurance  fund  and the
Association  is  in  compliance  with  the  fully  phased-in  capital  standards
prescribed under FIRREA.  When certain  activities are permissible for a federal
association, the state association may engage in the activity in a higher amount
if the FDIC has not determined that such activity would pose a significant  risk
of loss to the affected  deposit  insurance fund and the  Association  meets the
fully phased-in capital  requirements.  This increased investment authority does
not apply to investments in  nonresidential  real estate loans.  At December 31,
1997, the  Association  had no investments  which were affected by the foregoing
limitations.

         Under  Louisiana law, a  Louisiana-chartered  savings  association  may
establish  or  maintain  a  branch  office  anywhere  in  Louisiana  with  prior
regulatory approval. In addition, an out-of-state savings association or holding
company may acquire a Louisiana-

                                       36
<PAGE>
chartered savings  association or holding company if the OFI determines that the
laws of such other state permit a  Louisiana-chartered  savings  association  or
holding  company to  acquire a savings  association  or holding  company in such
other state. Any such acquisition would require the out-of-state entity to apply
to the OFI and receive OFI approval.

                                    TAXATION

Federal Taxation

         General.  The Company and the  Association are subject to the generally
applicable  corporate tax provisions of the Code, and the Association is subject
to certain  additional  provisions  of the Code which apply to thrifts and other
types of financial institutions. The following discussion of federal taxation is
intended only to summarize certain pertinent federal income tax matters material
to the taxation of the Company and the  Association  and is not a  comprehensive
discussion of the tax rules applicable to the Company and the Association.

         Year. The Company and the  Association  file federal income tax returns
on the basis of a calendar  year ending on December  31. For 1997 and 1998,  the
Company and the Association intend to file separate tax returns.

        Bad Debt Reserves. In August 1966,  legislation was enacted that repeals
the reserve  method of accounting  (including  the  percentage of taxable income
method) previously used by many savings institutions to calculate their bad debt
reserve for federal income tax purposes.  Savings institutions with $500 million
or less in assets may,  however,  continue to use the  experience  method.  As a
result, the Association must recapture that portion of its reserve which exceeds
the amount that could have been taken under the experience  method for post-1987
tax years.  At December 31, 1997, the  Association's  post -1987 excess reserves
amounted to  approximately  $445,000.  The recapture  will occur over a six-year
period,  the  commencement  of which was delayed  until the first  taxable  year
beginning after December 31, 1997, since the Association met certain residential
lending  requirements.  The legislation  also requires  savings  institutions to
account  for bad debts for  federal  income  tax  purposes  on the same basis as
commercial banks for tax years beginning after December 31, 1995. This change in
accounting  method  and  reversal  and excess bad debt  reserves  is  adequately
provided for in the Association's deferred tax liability.

         At  December  31,  1997,   the  federal  income  tax  reserves  of  the
Association  included  $1.3  million  for which no  federal  income tax has been
provided.  Because of these  federal  income tax  reserves  and the  liquidation
account  established for the benefit of certain depositors of the Association in
connection  with the  conversion of the  Association to stock form, the retained
earnings of the Association are substantially restricted.
 
         Distributions.  If the Association  were to distribute cash or property
to its sole  stockholder,  and the  distribution  was  treated as being from its
accumulated bad debt reserves,  the distribution  would cause the Association to
have additional  taxable income. A distribution is deemed to have been made from
accumulated  bad debt  reserves to the extent that (a) the  reserves  exceed the
amount that would have been  accumulated on the basis of actual loss experience,
and (b) the distribution is a "non-qualified  distribution." A distribution with
respect to stock is a non-qualified distribution to the extent that, for federal
income tax purposes, (i) it is in redemption of shares, (ii) it is pursuant to a
liquidation of the institution,  or (iii) in the case of a current distribution,
together with all other such  distributions  during the taxable year, it exceeds
the institution's  current and post-1951  accumulated  earnings and profits. The
amount of additional  taxable income created by a non-

                                       37
<PAGE>
qualified distribution is an amount that when reduced by the tax attributable to
it is equal to the amount of the distribution.

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

         Net Operating Loss Carryovers.  A financial  institution may carry back
net operating  losses  ("NOLs") to the preceding three taxable years and forward
to the succeeding 15 taxable years. This provision applies to losses incurred in
taxable years beginning after 1986. At December 31, 1997, the Association had no
NOL carryforwards for federal income tax purposes.

         Capital Gains and Corporate Dividends-Received Deduction. Corporate net
capital   gains   are   taxed  at  a  maximum   rate  of  35%.   The   corporate
dividends-received  deduction  is 80% in the  case of  dividends  received  from
corporations  with which a corporate  recipient does not file a consolidated tax
return,  and corporations  which own less than 20% of the stock of a corporation
distributing a dividend may deduct only 70% of dividends  received or accrued on
their behalf.  However, a corporation may deduct 100% of dividends from a member
of the same affiliated group of corporations.

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

         The  Association's  federal  income tax returns for the tax years ended
December  31, 1994  forward are open under the  statute of  limitations  and are
subject to review by the IRS.
 
State Taxation

         The Company is subject to the Louisiana Corporation Income Tax based on
its Louisiana taxable income, as well as franchise taxes. The Corporation Income
Tax  applies  at  graduated  rates from 4% upon the first  $25,000 of  Louisiana
taxable income to 8% on all Louisiana taxable income in excess of $200,000.  For
these  purposes,  "Louisiana  taxable  income"  means net income which is earned
within or derived from sources within the State of Louisiana,  after adjustments
permitted under  Louisiana law,  including a federal income tax deduction and an
allowance for net operating losses, if any. In addition,  beginning in 1997, the
Association  is subject to the  Louisiana  Shares  Tax,  which is imposed on the
assessed  value of its stock.  The formula for deriving the assessed value is to
calculate 15% of the sum of (a) 20% of the company's capitalized earnings,  plus
(b) 80% of the company's taxable stockholders' equity, and to subtract from that
figure 50% of the company's real and personal property assessment. Various items
may also be subtracted in calculating a company's capitalized earnings.

                                       38
<PAGE>
Item 2. Description of Property.

         At December 31, 1997, the Company and the  Association  conducted their
business  from the  Association's  main office and one branch  office in the New
Orleans,  Louisiana  area.  The  following  table  sets forth the net book value
(including furnishings and equipment) and certain other information with respect
to the offices and other properties of the Company at December 31, 1997.
                                                              
                                                   Net  Book
                                     Value of      Amount of
Description/Address               Leased/Owned     Property       Deposits
-------------------               ------------     --------       --------
                                                         (In thousands)
Main Office:
# 1 Westbank Expressway
New Orleans, Louisiana 70114        Leased           $ 60          $20,144

Branch Office:
2021 Carol Sue Avenue
Terrytown, Louisiana  70056         Owned             173           15,390
                                                     ----          -------
    Total                                            $233          $35,534
                                                     ====          =======
 

Item 3. Legal Proceedings.

         The  Company  and  the   Association  are  involved  in  routine  legal
proceedings  occurring  in  the  ordinary  course  of  business  which,  in  the
aggregate,  are believed by  management  to be  immaterial  to the  consolidated
financial condition and results of operations of the Company.  In addition,  see
Note BB of Notes to Consolidated Financial Statements in the Annual Report.

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

         Not applicable.

PART II.

Item 5.   Market for Common Equity and Related Stockholder Matters.

         The  information   required  herein,  to  the  extent  applicable,   is
incorporated by reference from the inside front cover page of the Company's 1997
Annual Report.

Item 6.  Management's Discussion and Analysis or Plan of Operation.

         The information required herein is incorporated by reference from pages
37 to 46 of the 1997 Annual Report.

Item 7.  Financial Statements.

         The information required herein is incorporated by reference from pages
1 to 36 of the 1997 Annual Report.

                                       39
<PAGE>
Item 8.  Changes in and Disagreements With Accountants on Accounting and
               Financial  Disclosure.

         Not applicable.

PART III.

Item 9.  Directors,   Executive   Officers,   Promoters  and  Control   Persons;
Compliance with Section 16(a) of the Exchange Act.

         The information required herein is incorporated by reference from pages
2, 3, 5, 6, and 7 of the  definitive  proxy  statement  of the  Company  for the
Annual Meeting of Stockholders to be held on April 29, 1998, which will be filed
on or about April 7, 1997 ("Definitive Proxy Statement").

Item 10. Executive Compensation.

         The information required herein is incorporated by reference from pages
8 to 11 the Definitive Proxy Statement.

Item 11.  Security Ownership of Certain Beneficial Owners and Management.

         The information required herein is incorporated by reference from pages
6 to 7 the Definitive Proxy Statement.

Item 12.  Certain Relationships and Related Transactions.

         The information required herein is incorporated by reference from pages
10 to 11 the Definitive Proxy Statement.

Item 13.  Exhibits, List and Reports on Form 8-K.

         (a)   Documents Filed as Part of this Report

         (1) The following  financial  statements are  incorporated by reference
from Item 7 hereof (see Exhibit 13):

                  Independent Auditor's Report
                  Consolidated  Statements of Financial Condition as of December
                      31, 1997 and 1996
                  Consolidated  Statements  of  Operations  for the Years  Ended
                      December 31, 1997 and 1996
                  Consolidated Statements of Changes in Stockholders' Equity for
                      the Years Ended December 31, 1997 and 1996
                  Consolidated  Statements  of Cash  Flows for the  Years  Ended
                      December 31, 1997 and 1996
                  Notes to Consolidated Financial Statements


                                       40
<PAGE>

         (2) All  schedules  for  which  provision  is  made  in the  applicable
accounting  regulations of the Securities  and Exchange  Commission  ("SEC") are
omitted  because of the absence of  conditions  under which they are required or
because the  required  information  is included  in the  consolidated  financial
statements and related notes thereto.
 
         (3) The following  exhibits are filed as part of this Form 10-KSB,  and
this list includes the Exhibit Index.

                                  Exhibit Index


 2.1*       Plan of Conversion
 3.1*       Articles of Incorporation of Algiers Bancorp, Inc.
 3.2*       Bylaws of Algiers Bancorp, Inc.
 4.1*       Stock Certificate of Algiers Bancorp, Inc.
10.1*       Employment Agreement among Algiers Bancorp, Inc.,
                  Algiers Homestead Association and Hugh E.
                  Humphrey, Jr., dated July 8, 1996
10.2*       Employment Agreement among Algiers Bancorp, Inc.,
                  Algiers Homestead Association and Dennis J.
                  McCluer, dated July 8, 1996
10.3**      Employment Agreement among Algiers Bancorp, Inc.,
                  Algiers Homestead Association and Hugh E.
                  Humphrey, III, dated July 8, 1996
10.4*       Lease for main office building
13.0        1997 Annual Report to Stockholders
21.0        Subsidiaries of the Registrant - Reference is made to Item 2.
                  "Business" for the required information
27.0        Financial Data Schedule


(*) Incorporated herein by reference from the Company's  Registration  Statement
on Form SB-2  (Registration  No.  333-2770) filed by the Company with the SEC on
March 26, 1996, as subsequently  amended.  (**) Incorporated herein by reference
from the Company's Form 10-KSB for the year ended December 31, 1996.

           (b) Reports on Form 8-K

         The  Company  did not file any  reports  on Form 8-K  during the fourth
quarter of the year ended December 31, 1997.

                                       41
<PAGE>
                                   SIGNATURES

         In  accordance  with  Section  13 or 15(d)  of the  Exchange  Act,  the
registrant  caused  this  report to be signed on its behalf by the  undersigned,
thereunto duly authorized.

                              ALGIERS BANCORP, INC.


                                              By:   /s/Hugh E. Humphrey, Jr.
                                                    ------------------------
                                                    Hugh E. Humphrey, Jr.
                                                    Chairman of the Board,
                                                    President
                                                    and  Chief Executive Officer

         In accordance  with the Exchange Act, this report has been signed below
by the following  persons on behalf of the  registrant and in the capacities and
on the dates indicated.
<TABLE>
<CAPTION>
Name                                              Title                              Date
----                                              -----                              ----
<S>                                      <C>                                    <C>
/s/ Hugh E  Humphrey, Jr.                Chairman of the Board, President       April 3,  1998
-------------------------                and  Chief Executive Officer
Hugh E. Humphrey, Jr.                     


/s/ Thu Dang                             Director                               April 3,  1998
------------
Thu Dang


/s/ John H. Gary, III                    Director                               April 3, 1998
---------------------
John H. Gary, III


/s/ Thomas L. Arnold, Sr.                Director                               April 3,  1998
------------------------- 
Thomas L. Arnold, Sr.


/s/ Hugh E. Humphrey,  III               Director                               April 3,  1998
--------------------------
Hugh E. Humphrey, III


/s/ Dennis J. McCluer                    Vice President and Chief Operating     April 3,  1998
---------------------                    Officer
Dennis J. McCluer                              


/s/ Francis M. Minor, Jr.                Chief Financial Officer                April 3,  1998
------------------------
Francis M.  Minor, Jr.
</TABLE>
                                       42