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                      SECURITIES AND EXCHANGE COMMISSIONS
                             WASHINGTON, D.C. 20549
 
                                   FORM 10-K
 
[ X ]  Annual Report Pursuant to Section 13 or 15(d) of the Securities Act of
       1934 [FEE REQUIRED] For the Fiscal Year Ended December 31, 1996
 
                                       OR
 
[   ]  Transition Report Pursuant to Section 13 or 15(d) of the Securities
       Exchange Act of 1934 [NO FEE REQUIRED]
 
                        COMMISSION FILE NUMBER: 333-2692

                             PRESTIGE BANCORP, INC.
             (Exact name of registrant as specified in its charter)
 
<TABLE>
<S>                                           <C>
                 PENNSYLVANIA                                   25-1785128
       (State or Other Jurisdiction of                       (I.R.S. Employer
        Incorporation or Organization                     Identification Number)
</TABLE>
 
           710 OLD CLAIRTON ROAD, PLEASANT HILLS, PENNSYLVANIA 15236
                    (Address of principal executive offices)
 
       Registrant's telephone number, including area code: (412) 655-1190
 
   Securities Registered Pursuant to Section 12(b) of the Act: ______________
 
 Securities Registered Pursuant to Section 12(g) of the Act:         X
                                                               --------------
                    COMMON STOCK, PAR VALUE $1.00 PER SHARE
                                (Title of Class)
 
     Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
requirements for the past 90 days. Yes __X__  No _____
                                                
     Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [     ]
 
     As of March 20, 1997, the aggregate market value of the 963,023 shares of
Common Stock of the Registrant issued and outstanding on such date, excluding
the 68,097 shares held by all directors and executive officers, was $14.3
million. This figure is based on the reported closing bid in the NASDAQ system
of $16.00 per share of the Registrant's Common Stock as of March 20, 1997.
Although directors and executive officers were assumed to be "affiliates" of the
Registrant for purposes of this calculation, the classification is not to be
interpreted as an admission of such status.
 
     As of March 20, 1997, there were issued and outstanding 963,023 shares of
the Registrant's Common Stock.
 
                      DOCUMENTS INCORPORATED BY REFERENCE
 
1. Annual Report to Shareholders for the fiscal year ended December 31, 1996
   (Parts I, Item I, II and IV).
 
2. Proxy Statement for the Annual Meeting of Shareholders to be held on April
   23, 1997 (Part III).
 
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                                     PART I
 
ITEM 1. BUSINESS
 
GENERAL
 
  PRESTIGE BANCORP, INC.
 
     The Company was organized as a corporation under the laws of the
Commonwealth of Pennsylvania in March 1996 at the direction of the Board of
Directors of Prestige Bank, a Federal Savings Bank (the "Savings Bank") for the
purpose of acquiring all of the capital stock to be issued by the Savings Bank
in a conversion under and pursuant to the applicable rules and regulations of
the Office of Thrift Supervision, Department of the U.S. Treasury (the "OTS") of
the charter of the Savings Bank from a federal mutual chartered savings
association to a federal stock chartered savings association (the "Conversion").
The Company has received the approval of the OTS to become a savings and loan
holding company.
 
     The Company currently conducts business as a unitary savings and loan
holding company. As of December 31, 1996, the Company holds the shares of the
Savings Bank's common stock acquired in the Conversion, a loan receivable from
the Prestige Bancorp Employee Stock Ownership Plan (the "ESOP") and an equity
investment of $200,000 in the common stock of three unrelated savings
associations or their related holding companies. The Company has no significant
liabilities. The Company has no plans to change these business activities. The
Company is engaged principally in community banking activities through its
savings association subsidiary. At December 31, 1996, the Company had total
consolidated assets of $114.6 million, total consolidated deposits of $83.8
million, total consolidated liabilities (including deposits) of $99.2 million
and total consolidated equity of $15.4 million.
 
     The Company neither owns nor leases any property, but instead uses the
premises, equipment and furniture of the Savings Bank. The Company does not
employ any persons other than officers who are also officers of the Savings
Bank. The Company utilizes the support staff of the Savings Bank from time to
time. The profitability of the Company is highly dependent on the profitability
of the Savings Bank. The Company's executive office is located at the home
office of the Savings Bank at 710 Old Clairton Road, Pleasant Hills,
Pennsylvania 15236, and its telephone number is (412) 655-1190.
 
  PRESTIGE BANK, A FEDERAL SAVINGS BANK
 
     The Savings Bank is a federally chartered savings bank that was organized
under the laws of the United States in 1935. The deposits of the Savings Bank
are insured by the Savings Association Insurance Fund (the "SAIF") administered
by the Federal Deposit Insurance Corporation (the "FDIC"). The Savings Bank
conducts business from its executive offices located in Pleasant Hills,
Pennsylvania and 3 full-service offices located in Allegheny County,
Pennsylvania. At December 31, 1996, the Savings Bank had total assets of $114.4
million, total deposits of $87.5 million, total liabilities (including deposits)
of $102.8 million and total equity of $11.6 million.
 
     The Savings Bank's lending operations follow the traditional pattern of a
savings association by primarily emphasizing the origination of one-to-four
family residential loans for portfolio retention and to a substantially lesser
degree, the origination of commercial real estate loans, construction loans on
residential properties and consumer loans, including home equity or home
improvement loans, automobile loans, student loans, credit card loans and cash
collateral personal loans. The loan portfolio contains no loans to foreign
governments, foreign enterprises or foreign operations of domestic companies.
Deposit services offered by the Savings Bank include passbook savings accounts,
money market savings accounts, NOW accounts, non-interest bearing checking
accounts and certificates of deposit with a minimum maturity of 6 months and a
maximum maturity of 5 years. The Savings Bank does not utilize the services of
deposit brokers.
 
     The gross earnings of the Company on a consolidated basis for the fiscal
year ending December 31, 1996, by loan category and investment securities are
shown on page 11 of the 1996 Annual Report to Shareholders. The gross interest
expense of the Company on a consolidated basis for the fiscal year ending
December 31, 1996 is shown on page 3 of the 1996 Annual Report to Shareholders.
The amounts of the various deposit
 
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products of the Company (through its sole subsidiary, the Savings Bank) by
category for the fiscal year ending December 31, 1996 is shown on page 33 of the
1996 Annual Report to Shareholders.
 
     The Company's and the Savings Bank's profitability is highly dependent on
its net interest income which is the difference between income earned on
interest-earning assets less interest paid on interest-bearing liabilities. The
Company and Savings Bank are subject to interest rate risk and attempts to
minimize that risk by better matching asset and liability maturities and rates.
 
     The business of each of the Company and the Savings Bank is influenced by
prevailing economic conditions and governmental policies, both foreign and
domestic. The actions and policy directive of the Board of Governors of the
Federal Reserve System (the "Federal Reserve Board") determine to a significant
degree the cost and the availability of funds obtained from money market sources
for lending and investing. The Federal Reserve Board's policies and regulations
also influence, directly and indirectly, the rates of interest paid by thrift
institutions on their time and savings deposits. The nature and impact on the
Company and the Savings Bank of future changes in economic conditions and
monetary and fiscal policies, both foreign and domestic, are not predictable.
 
     In addition to its three branch offices, the Savings Bank operates three
automated teller machines ("ATMs"), one at each of the branch offices. The
Savings Bank is affiliated with a regional ATM network.
 
     The Savings Bank ended 1996 with a staff of 38 employees which comprised of
31 full-time and 7 part-time employees. Full-time equivalent employees averaged
34 in 1996.
 
     The Savings Bank's principal executive offices are located at 710 Old
Clairton Road, Pleasant Hills, Pennsylvania 15236 and its telephone number is
(412) 655-1190.
 
COMPETITION
 
     The Savings Bank's market area is primarily located in the southern portion
of the Pittsburgh metropolitan area. The largest employers in the Pittsburgh
area include the U.S. Government, the Pennsylvania State Government, USAir
Group, Inc., the University of Pittsburgh Medical Center, Westinghouse Electric
Corp., the University of Pittsburgh, PNC Bank Corp and Mellon Bank Corp. With
the contraction of the steel industry in the Pittsburgh area over the last 15
years, the number of manufacturing jobs in the Pittsburgh area has declined as
well as the overall population for the Pittsburgh area. The Savings Bank's
business and operating results are affected significantly by the general
economic conditions prevalent in its primary market area including population
levels, which are expected to decline.
 
     The Savings Bank experiences significant competition in its local market
area in both originating loans and attracting deposits. Its most direct
competition comes from commercial banks, other thrift institutions and mortgage
banking companies. Many of these institutions maintain a state-wide or regional
presence and, in some cases, a national presence. Technological innovations have
also led to greater competition as well. With the advent of automated transfer
payment systems, competition between depository and nondepository institutions
has increased. These changes have led to even greater competition among
commercial banks, thrift institutions, credit unions, brokerage firms, money
market mutual funds, mutual bond funds, finance and insurance companies,
mortgage banking firms and retail establishments.
 
     The recent economic conditions in the Savings Bank's market area and the
reduction in population in the greater Pittsburgh metropolitan area in the last
ten years has resulted in a reduction in the demand for mortgage loans which
meet the underwriting criteria of the Savings Bank. This has led to change in
the composition of loan origination by the Savings Bank. Loan originations for
one to four family residential mortgages constituted $9.9 million for 1992, or
88.4% of all loan origination for such year, compared to loan origination for
one to four family residential mortgages of $17.1 million for 1996, or 64.3% of
all loan origination for such year.
 
     Federal legislation in recent years has eliminated many of the distinctions
between commercial banks and thrift institutions and holding companies and
allowed bank holding companies to acquire thrift institutions.
 
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Such legislation has generally resulted in an increase in the competition
encountered by thrift institutions and has resulted in a decrease in both the
number of thrift institutions and the aggregate size of the thrift industry.
 
     Commercial banks and thrift institutions have recently experienced
increasing consolidation. In the event of a downturn in the economy or
competitive pressures resulting from increasing consolidation, the Savings Bank
may experience reduced demand for mortgage loans. Effective June 1, 1997,
interstate branch banking will become permissible subject to certain
restrictions. Such interstate branch banking will result in increased
competition for deposits. The Savings Bank may have difficulty attracting
deposits in an environment of economic downturn, increased consolidation or
interstate branch banking.
 
SUPERVISION AND REGULATION
 
  PRESTIGE BANCORP. INC.
 
     General.  The Company, as a savings and loan holding company within the
meaning of Home Owners' Loan Act of 1933, as amended ("HOLA"), has registered
with the OTS and will be subject to OTS regulations, examinations, supervision
and reporting requirements. As a subsidiary of a savings and loan holding
company, the Savings Bank will be subject to certain restrictions in its
dealings with the Company and any other affiliates thereof.
 
     Federal Activities Restrictions.  There are few restrictions on the
activities of a savings and loan holding company which holds only one subsidiary
savings association so long as such savings association meets the "qualified
thrift lender" test (the "QTL Test"). In the first instance no savings and loan
holding company and no non-savings association subsidiary of a savings and loan
holding company may engage in any activity or render any service for or on
behalf of any savings association for the purpose, or with the effect of,
evading any law or regulation applicable to the related savings association. In
addition, if the Director of the OTS determines that there is reasonable cause
to believe that the continuation by a savings and loan holding company of an
activity constitutes a serious risk to the financial safety, soundness or
stability of its subsidiary savings association, the Director may impose such
restrictions as deemed necessary to address such risk, including limiting (i)
payment of dividends by the savings association; (ii) transactions between the
savings association and its affiliates; and (iii) any activities of the savings
association that might create a serious risk that the liabilities of the holding
company and its affiliates may be imposed on the savings association.
Notwithstanding the above rules as to permissible business activities of unitary
savings and loan holding companies, under OTS regulations, any savings and loan
holding company is required to register as a bank holding company within one
year of the failure of the QTL Test by its subsidiary insured institution. Under
such circumstances, the holding company would become subject to all of the
provisions of the Bank Holding Company Act of 1956, as amended ("BHC Act"), and
other statutes applicable to bank holding companies, in the same manner and to
the same extent as if the company were a bank holding company. The Savings Bank
currently satisfies the QTL Test.
 
     If the Company were to acquire control of another savings association,
other than through merger or other business combination with the Savings Bank,
the Company would thereupon become a multiple savings and loan holding company.
Except where such acquisition is pursuant to the authority to approve emergency
thrift acquisitions and where each subsidiary savings association meets the QTL
Test, as set forth below, the activities of the Company and any of its
subsidiaries (other than the Savings Bank or other subsidiary savings
associations) would thereafter be subject to further restrictions. No multiple
savings and loan holding company or subsidiary thereof which is not a savings
association 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, other than: (i) furnishing or performing management services
for a subsidiary savings association; (ii) conducting an insurance agency or
escrow business; (iii) holding, managing, or liquidating assets owned by or
acquired from a subsidiary savings association; (iv) holding or managing
properties used or occupied by a subsidiary savings association; (v) acting as
trustee under deeds of trust; (vi) those activities authorized by regulation as
of March 5, 1987 to be engaged in by multiple savings and loan holding
companies; or (vii) unless the Director of the OTS by regulation prohibits or
limits such activities for savings and loan holding companies, those activities
authorized by the Federal Reserve Board as permissible for bank holding
 
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companies. The activities described in (i) through (vi) above may only be
engaged in after giving the OTS prior notice and being informed that the OTS
does not object to such activities. In addition, the 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
associations and any affiliate are governed by Sections 23A and 23B of the
Federal Reserve Act ("FRA"). An affiliate of a savings association is any
company or entity which controls, is controlled by or is under common control
with the savings association. In a holding company context, the parent holding
company of a savings association (such as the Company) and any companies which
are controlled by such parent holding company are affiliates of the savings
association. Generally, Sections 23A and 23B (i) limit the extent to which the
savings association or its subsidiaries may engage in "covered transactions"
with any one affiliate to an amount equal to 10% of such association'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 association or subsidiary as those provided to a
non-affiliate. The term "covered transaction" includes the making of loans,
purchase of assets, issuance of a guarantee and similar transactions. In
addition to the restrictions imposed by Sections 23A and 23B, no savings
association may (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 association.
 
     In addition, Sections 22(h) and (g) of the FRA places restrictions on loans
to executive officers, directors and principal stockholders. Under Section
22(h), loans to a director, an executive officer and to a greater than 10%
stockholder of a savings institution (a "principal stockholder"), 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, 1996, the Savings Bank was in compliance with the
above restrictions.
 
     Restrictions on Acquisitions.  Except under limited circumstances, savings
and loan holding companies are prohibited from acquiring, without prior approval
of the Director of the OTS, (i) control of any other savings association or
savings and loan holding company or substantially all the assets thereof or (ii)
more than 5% of the voting shares of a savings association 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 association, other than
a subsidiary savings association, 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
associations in more than one state if (i) the multiple savings and loan holding
company involved controls a savings association which operated a home or branch
office located in the state of the association to be acquired as of March 5,
1987; (ii) the acquiror is authorized to acquire control of the savings
association pursuant to the emergency acquisition provisions of the Federal
Deposit Insurance Act, or (iii) the statutes of the state in which the
association to be acquired is located specifically permit institutions to be
acquired by the state-chartered associations 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 associations).
 
     Restrictions on Dividends from Subsidiary Savings Bank.  Every subsidiary
savings association must give the Director of the OTS not less than thirty days
notice of the proposed declaration by the board of directors of
 
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such savings association of a dividend on the stock of such savings association
held by its parent holding company. Thus, the Savings Bank must notify the OTS
thirty days before declaring any dividend to the Company.
 
     Federal Securities Laws.  The Company's Common Stock is registered with the
SEC under the Exchange Act. The Company is subject to the information, proxy
solicitation, insider trading restrictions and other requirements under the
Exchange Act.
 
  PRESTIGE BANK, A FEDERAL SAVINGS BANK
 
     General.  The Savings Bank is subject to examination and comprehensive
regulation by the OTS which is the Savings Bank's chartering authority. The
Savings Bank is also regulated by the FDIC, the administrator of the SAIF which
provides insurance for the deposits of the Savings Bank. The Savings Bank is
subject to certain reserve requirements established by the Board of Governors of
the Federal Reserve System ("FRB") and is a member of the FHLB of Pittsburgh,
which is one of the 12 regional banks comprising the Federal Home Loan Bank
System (the "FHLB System").
 
     The Savings Bank must file reports with the OTS and the FDIC concerning its
activities and financial condition in addition to obtaining regulatory approvals
prior to entering into certain transactions such as mergers with, or
acquisitions of, other financial institutions. There are periodic examinations
by the OTS and the FDIC to test the Savings Bank's compliance with various
regulatory requirements. This regulation and supervision establishes a
comprehensive framework of activities in which an institution can engage and is
intended primarily for the protection of the SAIF and depositors. The regulatory
structure also gives the regulatory authorities extensive discretion in
connection with their supervisory and enforcement activities and examination
policies, including policies with respect to the classification of assets and
the establishment of adequate loan loss reserves for regulatory purposes. Any
change in such policies, whether by the OTS, the FDIC or the Congress, could
have a material adverse impact on the Company, the Savings Bank and their
operations. Certain of the regulatory requirements applicable to the Savings
Bank are referred to below or elsewhere herein.
 
     Business Activities.  The activities of savings institutions are governed
by HOLA, and in certain respects, the Federal Deposit Insurance Act ("FDI Act").
The Federal banking statutes, as amended by the Financial Institutions Reform,
Recovery and Enforcement Act of 1989 ("FIRREA") and Federal Deposit Insurance
Corporation Improvement Act of 1991 ("FDICIA") (1) restrict the solicitation of
brokered deposits by savings institutions that are troubled or not
well-capitalized, (2) prohibit the acquisition of any corporate debt security
that is not rated in one of the four highest rating categories, (3) restrict the
aggregate amount of loans secured by non-residential real estate property to
400% of capital, (4) permit savings and loan holding companies to acquire up to
5% of the voting shares of non-subsidiary savings institutions or savings and
loan holding companies without prior approval, and (5) permit bank holding
companies to acquire healthy savings institutions.
 
     Loans to One Borrower.  Under the HOLA, savings institutions are generally
subject to the national bank limits on loans to one borrower. Generally, savings
institutions may not make a loan or extend credit to a single or related group
of borrowers in excess of 15% of the Savings Bank's unimpaired capital and
surplus. An additional amount may be lent, equal to 10% of unimpaired capital
and surplus, if such loan is secured by readily-marketable collateral, which is
defined to include certain securities and bullion, but generally does not
include real estate. At December 31, 1996, the Savings Bank's largest aggregate
amount of loans to any one borrower consisted of $1.0 million which was below
the Savings Bank's loans to one borrower limit of $1.7 million at such date.
 
     QTL Test.  The HOLA requires savings institutions to meet a QTL Test. Under
the QTL test, a savings association is required to maintain at least 65% of its
"portfolio assets" (total assets less (i) specified liquid assets up to 20% of
total assets, (ii) intangibles, including goodwill, and (iii) the value of
property used to conduct business) in certain "qualified thrift investments"
(primarily residential mortgages and related investments, including certain
mortgage-backed and related securities) on a monthly basis in 9 out of every 12
months.
 
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     A savings association that fails the QTL Test must either convert to a bank
charter or operate under certain restrictions. As of December 31, 1996, the
Savings Bank maintained 89.99% of its portfolio assets in qualified thrift
investments and, therefore, met the QTL Test.
 
     Limitation on Capital Distributions.  OTS regulations impose limitations
upon all capital distributions by savings institutions, such as cash dividends,
payments to repurchase or otherwise acquire its shares, payments to shareholders
of another institution in a cash-out merger and other distributions charged
against capital. The rule establishes three tiers of institutions, which are
based primarily on an institution's capital level. An institution that exceeds
all fully phased-in capital requirements before and after a proposed capital
distribution ("Tier 1 Association") and has not been advised by the OTS that it
is in need of more than normal supervision, could, after prior notice but
without the approval of the OTS, make capital distributions during a calendar
year equal to the greater of (1) 100% of its net earnings to date during the
calendar year plus the amount that would reduce by one-half its "surplus capital
ratio" (the excess capital over its fully phased-in capital requirements) at the
beginning of the calendar year; or (ii) 75% of its net earnings for the previous
four quarters; provided that the institution would not be undercapitalized, as
that term is defined in the OTS Prompt Corrective Action regulations, following
the capital distribution. Any additional capital distributions would require
prior regulatory approval. The Savings Bank currently qualifies as a Tier 1
Association. In the event the Savings Bank's capital fell below its fully-phased
in requirement or the OTS notified it that it was in need of more than normal
supervision, the Savings Bank's ability to make capital distributions could be
restricted. In addition, the OTS could prohibit a proposed capital distribution
by any institution, which would otherwise be permitted by the regulation, if the
OTS determines that such distribution would constitute an unsafe or unsound
practice.
 
     Liquidity.  The Savings Bank is required to maintain an average daily
balance of liquid assets (cash, certain time deposits, bankers' acceptances,
specified U.S. Government, state or Federal agency obligations, shares of
certain mutual funds and certain corporate debt securities and commercial paper)
equal to a monthly average of not less than a specified percentage of its net
withdrawable deposit accounts plus short-term borrowings. This liquidity
requirement may be changed from time to time by the OTS to any amount within the
range of 4.0% to 10% depending upon economic conditions and the savings flow of
member institutions, and is currently 5%. OTS regulations also require each
savings institution to maintain an average daily balance of short-term liquid
assets at a specified percentage (currently 1%) of the total of its net
withdrawable deposit accounts and borrowings payable in one year or less.
Monetary penalties may be imposed for failure to meet these liquidity
requirements. The Savings Bank's average monthly liquidity ratio at December 31,
1996 was 12.9%, which exceeded the then applicable requirements. The Savings
Bank has never been subject to monetary penalties for failure to meet its
liquidity requirements.
 
     Assessments.  Savings institutions are required by OTS regulation to pay
assessments to the OTS to fund the operations of the OTS. The general
assessment, paid on a semi-annual basis, is computed upon the savings
institution's total assets, including consolidated subsidiaries, as reported in
the institution's latest quarterly thrift financial report. The assessments paid
by the Savings Bank for the years ended December 31, 1996 and 1995 totaled
$30,000 and $29,000, respectively.
 
     Branching.  Under OTS regulations, Federally chartered savings associations
are permitted, subject to OTS approval, to branch nationwide to the extent
allowed by Federal statute. This permits Federal savings associations with
interstate networks to diversify their loan portfolios and lines of business.
The OTS authority preempts any state law purporting to regulate branching by
Federal savings associations. The OTS will evaluate a branching applicant's
record of compliance with the Community Reinvestment Act, as amended ("CRA") as
part of any grant of permission to establish a new branch. A poor CRA record may
be the basis for denial of a branching application.
 
     Community Reinvestment.  Under the CRA, as implemented by OTS regulations,
a savings institution has a continuing and affirmative obligation consistent
with its safe and sound operation to help meet the credit needs of its entire
community, including low and moderate income neighborhoods. The CRA does not
establish specific lending requirements or programs for financial institutions
nor does it limit an institution's discretion to develop the types of products
and services that it believes are best suited to its particular
 
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community, consistent with the CRA. The CRA requires the OTS, in connection with
its examination of a savings institution, to assess the institution's record of
meeting the credit needs of its community and to take such record into account
in its evaluation of certain applications by such institution. The CRA rating
system identifies four levels of performance that may describe an institution's
record of meeting community needs: "outstanding", "satisfactory", "needs to
improve" and "substantial noncompliance". The CRA also requires all institutions
to make public disclosure of their CRA ratings. The Savings Bank received a
"Satisfactory" CRA rating in its most recent Federal examination by the OTS.
 
     Brokered Deposits.  Under FDIC regulations, well-capitalized institutions
that are not troubled are subject to no brokered deposit limitations, while
adequately capitalized institutions are able to accept, renew or roll over
brokered deposits only (i) with a waiver from the FDIC and (ii) subject to the
limitation that they do not pay an effective yield on any such deposit which
exceeds by more than (a) 75 basis points of the effective yield paid on deposits
of comparable size and maturity in such institution's normal market area for
deposits accepted in its normal market area or (b) 120 basis points for retail
deposits and 130 basis points for wholesale deposits, respectively, of the
current yield on comparable maturity U.S. treasury obligations for deposits
accepted outside the institution's normal market area. Undercapitalized
institutions are not permitted to accept brokered deposits and may not solicit
deposits by offering an effective yield that exceeds by more than 75 basis
points of the prevailing effective yields on insured deposits of comparable
maturity in the institution's normal market area or in the market area in which
such deposits are being solicited. Although there exist no prohibitions under
FDIC regulations, the Savings Bank does not solicit nor accept brokered
deposits. The Savings Bank does not currently intend to change this policy.
 
     Transactions with Related Parties.  The Savings Bank's authority to engage
in transactions with related parties or "affiliates" (i.e., any company that
controls or is under common control with an institution, including the Company
and its non-savings institution subsidiaries) or to make loans to certain
insiders, is limited by Sections 23A and 23B of the FRA. Section 23A limits the
aggregate amount of transactions with any individual affiliate to 10% of the
capital and surplus of the savings institution and also limits the aggregate
amount of transactions with all affiliates to 20% of the savings institution's
capital and surplus. Certain transactions with affiliates are required to be
secured by collateral in an amount and of a type described in Section 23A and
the purchase of low quality assets from affiliates is generally prohibited.
Section 23B provides that certain transactions with affiliates, including loans
and asset purchases, must be on terms and under circumstances, including credit
standards, that are substantially the same or at least as favorable to the
institution as those prevailing at the time for comparable transactions with
nonaffiliated companies. In the absence of comparable transactions, such
transactions may only occur under terms and circumstances, including credit
standards, that in good faith would be offered to or would apply to
nonaffiliated companies. Notwithstanding Sections 23A and 23B, savings
institutions are prohibited from lending to any affiliate that is engaged in
activities that are not permissible for bank holding companies under Section
4(c) of the BHC Act. Further, no savings institution may purchase the securities
of any affiliate other than a subsidiary.
 
     The Savings Bank's authority to extend credit to executive officers,
directors and 10% stockholders, as well as entities controlled by such persons,
is currently governed by Sections 22(g) and 22(h) of the FRA, and Regulation O
thereunder. Among other things, these regulations require such loans to be made
on terms substantially the same as those offered to unaffiliated individuals and
do not involve more than the normal risk of repayment, place limits on the
amount of loans the Savings Bank may make to such persons based, in part, on the
Savings Bank's capital position, and require certain approval procedures to be
followed. The OTS regulations, with certain minor variances, apply Regulation O
to savings institutions.
 
     Enforcement.  Under the FDI Act, the OTS has primary enforcement
responsibility over savings institutions and has the authority to bring
enforcement action against all "institution-related parties," including
stockholders, and any attorneys, appraisers and accountants who knowingly or
recklessly participate in wrongful action likely to have an adverse effect on an
insured institution. Civil penalties cover a wide range of violations and
actions and range up to $25,000 per day unless a finding of reckless disregard
is made, in which case penalties may be as high as $1 million per day. Criminal
penalties for most financial institution crimes include fines of up to $1
million and imprisonment for up to 30 years. In addition, regulators have
substantial discretion to impose enforcement action on an institution that fails
to comply with its regulatory
 
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<PAGE>   9
 
requirements, particularly with respect to the capital requirements. Possible
enforcement action ranges from the imposition of a capital plan and capital
directive to receivership, conservatorship or the termination of deposit
insurance. Under the FDI Act, the FDIC has the authority to recommend to the
Director of OTS that enforcement action be taken with respect to a particular
savings institution. If action is not taken by the director, the FDIC has
authority to take such action under certain circumstances.
 
     Standards for Safety and Soundness.  The FDI Act, as amended by FDICIA,
requires each Federal banking agency to prescribe for all insured depository
institutions and their holding companies standards relating to, among other
things, internal controls, information systems and audit systems, loan
documentation, credit underwriting, interest rate risk exposure, asset growth,
asset quality, liquidity, capital levels and compensation, fees and benefits and
such other operational and managerial standards as the agency deems appropriate.
Under the FDI Act, if an insured depository institution or its holding company
fails to meet any of its standards described above, it will be required to
submit to the appropriate Federal banking agency a plan specifying the steps
that will be taken to cure the deficiency. If an institution fails to submit an
acceptable plan or fails to implement the plan, the appropriate Federal banking
agency will require the institution or holding company, to correct the
deficiency and until corrected, may impose restrictions on the institution or
the holding company including any of the restrictions applicable under the
prompt corrective action regulations.
 
     The Federal banking agencies recently adopted a final regulation and
Interagency Guidelines Prescribing Standards for Safety and Soundness ("Safety
and Soundness Guidelines") and a final rule which will implement the safety and
soundness standards established by FDICIA. The Safety and Soundness Guidelines
and the final rule set forth the safety and soundness standards that the Federal
banking agencies use to identify and address problems at insured depository
institutions before capital becomes impaired. The standards set forth in the
Safety and Soundness Guidelines address internal controls and information
systems: internal audit system; credit underwriting; loan documentation;
interest rate risk exposure; asset growth; and compensation, fees and benefits.
The agencies also adopted a proposed rule which proposes asset quality and
earnings standards which, if adopted in final, would be added to the Safety and
Soundness Guidelines. If the appropriate Federal banking agency determines that
an institution fails to meet any standard prescribed by the Safety and Soundness
Guidelines, the agency may require the institution to submit to the agency an
acceptable plan to achieve compliance with the standard, as required by the FDI
Act. The final rule establishes deadlines for the submission and review of such
safety and soundness compliance plans.
 
     Capital Requirements.  OTS capital regulations require savings institutions
to meet three capital standards: (1) tangible capital equal to 1.5% of total
adjusted assets, (2) a leverage ratio (core capital) equal to at least 3% of
total adjusted assets and (3) a risk-based capital requirement equal to 8.0% of
total risk-weighted assets.
 
     Tangible capital is defined as core capital less all intangible assets
(including supervisory goodwill), plus purchased mortgage servicing rights
valued at the lower of the maximum percentage established by the OTS or the
amount includable in core capital. Core capital is defined as common
stockholders' equity (including retained earnings), noncumulative perpetual
preferred stock and minority interests in the equity accounts of consolidated
subsidiaries, and qualifying supervisory goodwill, less nonqualifying intangible
assets.
 
     The capital standards require core capital (as defined above) equal to at
least 3% of adjusted total assets (as defined by regulation). As a result of the
prompt corrective action provisions of FDICIA, however, a savings association
must maintain a core capital ratio of at least 4% to be considered adequately
capitalized unless its supervisory condition is such to allow it to maintain a
3% ratio. At December 31, 1996, the Savings Bank had no intangibles which would
affect the application of these tests.
 
     The OTS requires that only those savings associations rated a composite one
(the highest rating) under the CAMEL rating system for savings associations will
be permitted to operate at nor near the regulatory minimum leverage ratio of 3%.
All other savings associations will be required to maintain a minimum leverage
ratio of 4% to 5%. The OTS will assess each individual savings association
through the supervisory process on a case-by-case basis to determine the
applicable requirement.
 
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<PAGE>   10
 
     The risk-based capital standard for savings institutions requires the
maintenance of total risk-based capital (which is defined as core capital plus
supplementary capital) of 8.0% of risk-weighted assets. The components of
supplementary capital include, among other items, cumulative perpetual preferred
stock, perpetual subordinated debt, mandatory convertible subordinated debt,
intermediate-term preferred stock and the allowance for loan and lease losses.
The portion of the allowance for loan and lease losses includable in
supplementary capital is limited to a maximum of 1.25% of risk-weighted assets.
Overall, supplementary capital is limited to 100% of core capital. A savings
association must calculate its risk-weighted assets by multiplying each asset
and off-balance sheet item by various risk factors as determined by the OTS,
which range from 0% for cash to 100% for delinquent loans, property acquired
through foreclosure, commercial loans and other assets.
 
     In August, 1995, the OTS and Federal Financial Institutions Examination
Council ("FFIEC") announced that effective October 1, 1995, they would not
require institutions to include unrealized gains and losses on available for
sale debt securities when calculating regulatory capital. This announcement
reversed prior OTS policy concerning the implementation of SFAS No. 115. As a
result, institutions must now value available for sale debt securities at
amortized cost, rather than at fair value, for purposes of calculating
regulatory capital. Institutions are still required to comply with SFAS No. 115
for financial reporting purposes.
 
     In August 1993, the OTS adopted a final rule incorporating an interest-rate
component into the risk-based capital regulation. Under the rule, an institution
with a greater that "normal" level of interest rate risk is subject to a
deduction of its interest rate risk component from total capital for purposes of
calculating its risk-based capital requirement. An institution with a greater
than "normal" interest rate risk is defined as an institution that would suffer
a loss of net portfolio value exceeding 2.0% of the estimated economic value of
its assets in the event of a 200 basis point increase or decrease (with certain
minor exceptions) in interest rates. The interest rate risk component is
calculated, on a quarterly basis, as one-half of the difference between an
institutions'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 institutions's interest rate risk component on a
cases-by-case basis. The final rule was originally to be effective as of January
1, 1994, subject however to a three quarter "lag" time between the reporting
date of the data used to calculate an institution's interest rate risk and the
effective date of each quarter's interest rate risk component. However, in
October 1994, the Director of the OTS indicated that it would waive the capital
deduction for institutions with greater that "normal" interest rate risk until
the OTS publishes an appeals process. In August 1995, the OTS issued Thrift
Bulletin No. 67 which allows eligible institutions to request adjustment to
their interest rate risk component as calculated by the OTS, or to request to
use their own models to calculate their interest rate component. The OTS also
indicated that it will delay invoking its interest rate rule requiring
institutions with above normal interest rate risk exposure to adjust their
regulatory capital requirement until new procedures are implemented and
evaluated. The OTS has not yet established an effective date for the capital
deduction. In any event, management of the Savings Bank does not believe that
the OTS' adoption of an interest rate risk component to the risk-based capital
requirement will adversely affect the Savings Bank's regulatory capital
position.
 
     At December 31, 1996, the Savings Bank met each of its capital
requirements. For further information on the Savings Bank capital levels, see
pages 34 and 35 of the 1996 Annual Report to Shareholders. For further
information on the application of the interest rate risk component, see pages 9
and 10 of the 1996 Annual Report.
 
     Prompt Corrective Regulatory Action.  Under the OTS Prompt Corrective
Action regulations, the OTS is required to take certain supervisory actions
against undercapitalized institutions, the severity of which depends upon the
institution's degree of capitalization. Generally, a savings institution that
has total risk-based capital of less than 8.0% or a leverage ratio or a Tier 1
capital ratio that is less than 4.0% is considered to be undercapitalized. A
savings institution that has total risk-based capital less than 6.0%, a Tier 1
risk-based capital ratio of less than 3% or a leverage ratio that is less than
3.0% is considered to be "significantly undercapitalized" and a savings
institution that has a tangible capital to assets ratio equal to or less than 2%
is deemed to be "critically undercapitalized". Subject to a narrow exception,
the banking regulator is required to appoint a receiver or conservator for an
institution that is critically undercapitalized. The regulation also
 
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<PAGE>   11
 
provides that a capital restoration plan must be filed with the OTS within 45
days of the date an institution receives notice that it is "undercapitalized,"
"significantly undercapitalized" or "critically undercapitalized". In addition,
numerous mandatory supervisory actions become immediately applicable to the
institution, including, but not limited to, restrictions on growth, investment
activities, capital distributions, and affiliate transactions. The OTS could
also take any one of a number of discretionary supervisory actions, including
the issuance of a capital directive and the replacement of senior executive
officers and directors.
 
     As of December 31, 1996, the Savings Bank was classified as a
"well-capitalized" institution (an institution with 10% or more total risk-based
capital ratio, a Tier I risk-based capital ratio of 6% or more, and a 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
and as such is not subject to any prompt corrective action measures.
 
     Insurance of Deposit Accounts. The FDIC assigns an institution to one of
three capital categories based on the institution's financial information, as of
the reporting period ending seven months before the assessment period,
consisting of 1) well capitalized, 2) adequately capitalized or 3)
undercapitalized, and one of three supervisory subcategories within each capital
group. The supervisory subgroup to which an institution is assigned is based on
a supervisory evaluation provided to the FDIC by the institution's primary
Federal regulator and information which the FDIC determines to be relevant to
the institution's financial condition and the risk posed to the deposit
insurance funds. An institution's assessment rate depends on the capital
category and supervisory category to which it is assigned. There are nine
assessment risk classifications (i.e., combinations of capital groups and
supervisory subgroups) to which different assessment rates are applied. Prior to
October 1, 1996, assessment rates for members of the SAIF ranged from 23 basis
points for an institution in the highest category (i.e., well-capitalized and
healthy) to 31 basis points for an institution in the lowest category (i.e.,
undercapitalized and substantial supervisory concern). After September 30, 1996,
assessment rate varied from 0 basis points for an institution rated in the
highest category to 27 basis points for an institution rated in the lowest
category. For the fiscal year ending December 31, 1997, the insurance fund
assessment payable by the Savings Bank is 6.45 basis points which is a reduction
from the general assessment of 23 basis points applicable to the Savings Bank
for the first and the second six-month period of the fiscal year ended December
31, 1996.
 
     The FDIC sets the assessment rate for institutions on a semi-annual basis.
The FDIC is authorized to raise the assessment rates in certain circumstances.
If the FDIC determined to increase the assessment rates for all institutions,
institutions in all risk categories could be affected. The FDIC has exercised
this authority several times in the past and may raise insurance premiums in the
future.
 
     Pursuant to the Deposit Insurance Funds Act of 1996, the FDIC imposed a one
time special assessment of 65.7 basis points against insured deposits of the
Savings Bank as of March 31, 1995. This special assessments was charged against
all financial institutions with deposits insured by the SAIF. This special
assessment was used to provide a capital infusion into the SAIF. The money
collected will capitalize the thrift fund and let thrift premiums be brought in
line with those of commercial banks by the year 2000. This legislation also
provided that this special assessment is fully deductible against the income of
the Savings Bank for the fiscal year ending December 31, 1996. Although this
special assessment charged to the Savings Bank was $501,727, the after-tax
effect of such special assessment was approximately $308,000. This legislation
has as a goal the merger of the thrift fund into the stronger Bank Insurance
Fund (BIF) by 1999, but not until the bank and thrift charters are combined.
 
     Under the FDI Act, insurance of deposits may be terminated by the FDIC upon
a finding that the institution has engaged in unsafe or unsound practices, is in
an unsafe or unsound condition to continue operations or has violated any
applicable law, regulation, rule, order or condition imposed by the FDIC or the
OTS. The management of the Savings Bank does not know of any practice, condition
or violation that might lead to termination of deposit insurance.
 
     Federal Home Loan Bank System.  The Savings Bank is a member of the FHLB
System, which consists of 12 regional FHLBs. The FHLB provides a central credit
facility primarily for member institutions. The Savings Bank, as a member of the
FHLB, is required to acquire and hold shares of capital stock in the FHLB
 
                                       11
<PAGE>   12
 
in an amount at least equal to 1% of the aggregate principal amount of its
unpaid residential mortgage loans and similar obligations at the beginning of
each year, or 1/20 of its advances (borrowings) from the FHLB, whichever is
greater. The Savings Bank was in compliance with this requirement with an
investment in FHLB stock at December 31, 1996, of $754,000.
 
     The FHLBs are required to provide funds for the resolution of insolvent
thrifts and to contribute funds for affordable housing programs. These
requirements could reduce the amount of dividends that the FHLBs pay to their
members and could also result in the FHLBs imposing a higher rate of interest on
advances to their members. For the years ended December 31, 1996, 1995 and 1994,
dividends from the FHLB to the Savings Bank amounted to $46,413, $48,667 and
$41,050, respectively. If dividends were reduced, or interest on future FHLB
advances increased, the Savings Bank's net interest income would likely also be
reduced. Further, there can be no assurance that the impact of FDICIA and the
FIRREA on the FHLBs will not also cause a decrease in the value of the FHLB
stock held by the Savings Bank.
 
     Federal Reserve System.  The Federal Reserve Board regulations require
savings institutions to maintain non-interest-earning reserves against their
transaction accounts (primarily NOW and regular checking accounts). The Federal
Reserve Board regulations generally require that reserves be maintained against
aggregate transaction accounts as follows: For accounts aggregating $54.0
million or less (subject to adjustment by the Federal Reserve Board) the reserve
requirement is 3%; and for accounts greater than $54.0 million, the reserve
requirement is $1.6 million plus 10% (subject to adjustment by the Federal
Reserve Board between 8% and 14%) against that portion of total transaction
accounts in excess of $54.0 million. The first $4.2 million of otherwise
reservable balances (subject to adjustments by the Federal Reserve Board) are
exempted from the reserve requirements. The Savings Bank is in compliance with
the foregoing requirements. The balances maintained to meet the reserve
requirements imposed by the FRB may be used to satisfy liquidity requirements
imposed by the OTS. Because required reserves must be maintained in the form of
either vault cash, a non-interest-bearing account at a Federal Reserve Bank or a
pass-through account as defined by the FRB, the effect of this reserve
requirement is to reduce the Savings Bank's interest-earning assets. FHLB System
members are also authorized to borrow from the Federal Reserve "discount
window," but Federal Reserve Board regulations require institutions to exhaust
all FHLB sources before borrowing from a Federal Reserve Bank.
 
     FIRREA requires the OTS to establish accounting standards to be applicable
to all savings associations for purposes of complying with regulations, except
to the extent otherwise specified in the capital standards. Such standards must
incorporate generally accepted accounting principles to the same degree as is
prescribed by the Federal banking agencies for banks or may be more stringent
than such requirements.
 
     On September 2, 1992, the OTS amended a number of its accounting
regulations and reporting requirements (effective October 2, 1992). The
amendments reflected the adoption by the OTS of the following standards: (i)
regulatory reports will incorporate generally accepted accounting principles
when generally accepted accounting principles are used by Federal banking
agencies; (ii) savings association transactions, financial condition and
regulatory capital must be reported and disclosed in accordance with OTS
regulatory reporting requirements that will be at least as stringent as for
national banks; and (iii) the director of the OTS may prescribe regulatory
reporting requirements more stringent than generally accepted accounting
principles whenever the director determines that such requirements are necessary
to ensure the safe and sound reporting and operation of savings associations.
The OTS anticipates further similar revisions to its regulations in the near
future.
 
     The OTS adopted a statement of policy ("Statement") set forth in Thrift
Bulletin 52 concerning (i) procedures to be used in the selection of a
securities dealer, (ii) the need to document and implement prudent policies and
strategies for securities, whether held to maturity, trading or for sale, and to
establish systems and internal controls to ensure that securities activities are
consistent with the financial institution's policies and strategies, (iii)
securities trading and sales practices that may be unsuitable in connection with
securities held in an investment portfolio, (iv) high-risk mortgage securities
that are not suitable for investment portfolio holdings for financial
institutions, and (v) disproportionately large holdings of long-term,
zero-coupon bonds that may constitute an imprudent investment practice. The
Statement applies to
 
                                       12
<PAGE>   13
 
investment securities, high-yield, corporate debt securities, loans,
mortgage-backed securities and derivative securities, and provides guidance
concerning the proper classification of, and accounting for, securities held to
maturity, sale, and trading. Securities held to maturity, sale or trading may be
differentiated based upon an institution's desire to earn an interest yield
(held to maturity), to realize a holding gain from assets held for indefinite
periods of time (held for sale), or to earn a dealer's spread between the bid
and asked prices (held for trading). Depository institution investment
portfolios are maintained to provide earnings consistent with the safety factors
of quality, maturity, marketability and risk diversification. Securities that
are purchased to accomplish these objectives may be reported at their amortized
cost only when the depository institution has both the intent and ability to
hold the assets for long-term investment purposes. Securities held to maturity
may be accounted for at amortized cost, securities held for sale are to be
accounted for at the lower of cost or market, and securities held for trading
are to be accounted for at market. The Savings Bank believes that its investment
activities have been and will continue to be conducted in accordance with the
requirements of OTS policies and generally accepted accounting principles.
 
     Special Liquidation Rights. In connection with the Conversion, a special
"liquidation account" was established for the benefit of the eligible account
holders and the supplemental eligible account holders of the Savings Bank
determined in accordance with the plan of conversion adopted by the Savings Bank
under applicable law governing the conversion of mutual savings banks. This
liquidation account is equal to the amount of the net worth of the Savings Bank
as of the date of its latest statement of financial condition contained in the
final prospectus used in connection with the Conversion. This amount is
$7,085,000. Each eligible account holder and supplemental eligible account
holder, if he were to continue to maintain his deposit account at the Savings
Bank, would be entitled, on a complete liquidation of the Savings Bank after
Conversion, to an interest in the liquidation account prior to any payment to
the stockholders of the Savings Bank. Each such eligible account holder or
supplemental eligible account holder of the Savings Bank will have a pro rata
interest in the total liquidation account for each of his, her or its, as the
case may be, deposit accounts based on the proportion that the balance of each
such deposit account on the eligibility record dates for such account holders
bore to the balance of all deposit accounts in the Savings Bank on each of the
such eligibility record date. Under certain circumstances the interests of an
eligible account holder or a supplemental eligible account holder may be
terminated.
 
     Were a mutual savings bank to liquidate, all claims of creditors (including
those of depositors, to the extent of deposit balances) would be paid first.
Thereafter, if there were any assets remaining, depositors would receive such
remaining assets, pro rata, based upon the deposit balances in their deposit
accounts immediately prior to liquidation. These liquidation rules survived the
Conversion. In the event that the Savings Bank were to be liquidated after
Conversion, all claims of creditors (including those of depositors, to the
extent of their deposit balances) would also be paid first, followed by
distribution of the "liquidation account" to the eligible account holders and
the supplemental eligible account holders of the Savings Bank, with any assets
remaining thereafter distributed to the Company as the holder of the Savings
Bank's capital stock. Pursuant to the rules and regulations of the OTS, a
post-Conversion merger, consolidation, sale of bulk assets or similar
combination or transaction with another insured savings institution would not be
considered a liquidation and, in such a transaction, the liquidation account
would be required to be assumed by the surviving institution.
 
FEDERAL AND STATE TAXATION
 
     General.  The Company and the Savings Bank are subject to the corporate tax
provisions of the Code, as well as certain additional provisions of the Code
which apply to thrift and other types of financial institutions. The following
discussion of tax matters is intended only as a summary and does not purport to
be a comprehensive description of the tax rules applicable to the Company and
the Savings Bank.
 
     Fiscal Year.  The Company and the Savings Bank will file a consolidated
Federal income tax return on a December 31 year end basis.
 
     Method of Accounting.  The Company maintains its books and records for
Federal income tax purposes using the accrual method of accounting. The accrual
method of accounting generally requires that items of
 
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<PAGE>   14
 
income be recognized when all events have occurred that establish the right to
receive the income and the amount of income can be determined with reasonable
accuracy, and that items of expense be deducted at the later of (i) the time
when all events have occurred that establish the liability to pay the expense
and the amount of such liability can be determined with reasonable accuracy or
(ii) the time when economic performance with respect to the item of expense has
occurred.
 
     Bad Debt Reserves.  With a limited exception, effective for taxable years
beginning after 1995, the Small Business Job Protection Act of 1996 (the "1996
Act") repealed the reserve method of accounting for bad debts by savings
institutions. The reserve method permitted savings institutions to establish
reserves for bad debts and to make annual additions thereto which qualified as
deductions from taxable income for federal tax purposes. Prior to the effective
date of repeal, the bad debt deduction was generally based on a savings
institution's actual loss experience (the "Experience Method") or, if certain
definitional tests relating to the composition of assets and the nature of its
business were met, by reference to a percentage of the savings institution's
taxable income (the "Percentage Method").
 
     The 1996 Act provides a limited exception to the repeal of the reserve
method by retaining the Experience Method for savings institutions, such as the
Savings Bank, which have assets with adjusted bases of $500 million or less. The
Percentage Method is no longer available for any savings institution. For
taxable years ended on or before December 31, 1995, the Savings Bank generally
had elected to use the Percentage Method to compute the amount of its bad debt
deduction.
 
     Under the Experience Method, the deductible annual addition continues to be
the amount necessary to increase the balance of the reserve at the close of the
taxable year to the greater of (i) the amount which bears the same ratio to
loans outstanding at the close of the taxable year as the total net bad debts
sustained during the current and five preceding taxable years bear to the sum of
the loans outstanding at the close of those six years, or (ii) the lower of (x)
the balance in the reserve account at the close of the Savings Bank's "base
year," which was its tax year ended December 31, 1987, or (y) if the amount of
loans outstanding at the close of the current year is less than the amount of
loans outstanding at the close of the base year, the amount which bears the same
ratio to loans outstanding at the close of the current year as the balance of
the reserve at the close of the base year bears to the amount of loans
outstanding at the close of the base year.
 
     Under the Percentage Method, the bad debt deduction with respect to
qualifying real property loans was computed as a percentage of the Savings
Bank's taxable income before such deduction, as adjusted for certain items (such
as capital gains and the dividends received deduction). Under the Percentage
Method, a qualifying institution such as the Savings Bank generally could deduct
8% of its taxable income.
 
     The 1996 Act mandates that a savings institution required to change its
method of computing reserves for bad debts shall take into income ratably over a
six year period its "applicable excess reserve", commencing with the first
taxable year beginning after 1995. Under a special rule that is applicable only
for taxable years that begin after December 31, 1995 and before January 1, 1998,
if a savings institution meets the "residential loan requirement" for a taxable
year, the recapture of the applicable excess reserve that would otherwise be
required to be taken into account will be suspended. The effect of this is that
all savings institutions will be required to recapture their applicable excess
reserves within six, seven or eight years after the effective date of the
change.
 
     The Savings Bank's "applicable excess reserves" would be the excess of (1)
the balance in its reserve account as of the close of its last taxable year
beginning before January 1, 1996, over (2) the greater of the balance of (a) its
pre-1988 reserves, or (b) what the Savings Bank's reserves would have been at
the close of its last taxable year beginning before January 1, 1996, had the
Savings Bank always used the Experience Method. As of December 31, 1996, the
Savings Bank had approximately $37,000 of applicable excess reserves.
Approximately $6,200 of which will be recaptured on an annual basis. If the
Savings Bank maintains the applicable residential loan requirement, this
recapture will commence no later than its taxable year beginning January 1,
1998.
 
     The base year (i.e. December 31, 1987) bad debt reserve under the
Percentage Method is permanently suspended, and therefore not subject to
recapture, unless a base year loan contraction occurs in a subsequent
 
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<PAGE>   15
 
year. A base year loan contraction occurs when the total loans at the end of the
year is less than the total loans at December 31, 1987. In such cases, a
proportionate reduction to the base year bad debt reserve at December 31, 1987
is required and the reduction to the reserve is recaptured. Furthermore, the
base year bad debt reserve constitutes a restriction for tax purposes of the
Bank's use of retained earnings for distributions or redemptions.
 
     In accordance with FASB statement No. 109, the Bank has recorded deferred
income tax associated with the temporary differences related to the portion of
the bad debt reserve arising in tax years after December 31, 1987. For the
period before December 31, 1987, there is an unrecognized deferred tax liability
of approximately $565,000 at December 31, 1996. If the suspended base year bad
debt reserve at December 31, 1987 is reduced by certain excess distributions,
redemptions or a base year loan contraction, income tax expense will be
recognized at the prevailing tax rate.
 
     The Savings Bank will meet the residential loan requirement if, for a
taxable year, the principal amount of residential loans made by it are generally
not less than the average principal amount of residential loans made by it
during the six most recent taxable years beginning before January 1, 1996.
 
     Distributions.  If the Savings Bank were to distribute cash or property to
its sole stockholder having a total fair market value in excess of its
accumulated tax-paid earnings and profits, or were to distribute cash or
property to its stockholder in redemption of its stock, the Savings Bank would
generally be required to recognize as income an amount which, when reduced by
the amount of Federal income tax that would be attributable to the inclusion of
such amount in income, is equal to the lesser of: (i) the amount of the
distribution or (ii) the sum of (a) the amount of the accumulated bad debt
reserve of the Savings Bank with respect to qualifying real property loans (to
the extent that additions to such reserve exceed the additions that would be
permitted under the Experience Method) and (b) the amount of the Savings Bank's
supplemental bad debt reserve. The Savings Bank will continue to deduct
additions to its bad debt reserves in the same manner as it has in past years.
 
     Minimum Tax.  The Code imposes an alternative minimum tax at a rate of 20%
on a base of regular taxable income plus certain tax preferences ("alternative
minimum taxable income" or "AMTI"). The alternative minimum tax 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. The 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) for taxable years beginning after 1989, 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 losses can offset no more than 90% of
AMTI. Certain payments of alternative minimum tax may be used as credits against
regular tax liabilities in future years.
 
     Federal Income Tax Returns.  The Savings Bank's Federal income tax returns
have been filed for taxable years through December 31, 1995. The Savings Bank
has not been notified by the IRS that it intends to examine any of the corporate
income tax returns filed by the Savings Bank. Under the current statute of
limitations, the Savings Bank's returns for taxable years ending December 31,
1992 and prior are free from examination by the IRS.
 
     Dividends Received Deduction and Other Matters.  The Company may exclude
from its income 100% of dividends received from the Savings Bank as a member of
the same affiliated group of corporations. The corporate dividends received
deduction is generally 70% in the case of dividends received from unaffiliated
corporations with which the Company and the Savings Bank will not file a
consolidated tax return, except that if the Company owns more than 20% of the
stock of a corporation distributing a dividend, 80% of any dividends received
may be deducted.
 
     State and Local Taxation.  The Savings Bank is subject to the Mutual Thrift
Institutions Tax of the Commonwealth of Pennsylvania based on the Savings Bank's
financial net income determined in accordance with generally accepted accounting
principles with certain adjustments. The tax rate under the Mutual Thrift
 
                                       15
<PAGE>   16
 
Institutions Tax is 11.5%. Interest on Commonwealth of Pennsylvania and Federal
obligations is excluded from net income. An allocable portion of net interest
expense incurred to carry the obligations is disallowed as a deduction. Three
year carryforwards of losses are allowed.
 
     The Company is subject to the Corporate Net Income Tax and the Capital
Stock Tax of the Commonwealth of Pennsylvania.
 
STATISTICAL DISCLOSURE BY SAVINGS AND LOAN HOLDING COMPANIES
 
     Information regarding statistical disclosure for a savings and loan holding
company required by the Securities Act Industry Guide 3 is set forth in the
portions of the 1996 Annual Report which are incorporated herein by reference.
 
     I.   Distribution of Assets, Liabilities and Stockholders' Equity; Interest
          Rates and Interest Differential.
 
          Information required by this section is presented on pages 10 through
          12 of the 1996 Annual Report and is incorporated herein by reference.
 
     II.  Investment Portfolio.
 
          Information required by this section is presented on pages 27 through
          32 of the 1996 Annual Report and is incorporated herein by reference.
 
     III. Loan Portfolio.
 
          Information required by this section is presented on pages 17 through
          25 of the 1996 Annual Report and is incorporated herein by reference.
 
     IV.  Summary of Loan Loss Experience.
 
          Information required by this section is presented on pages 23 through
          27 of the 1996 Annual Report and is incorporated herein by reference.
 
     V.   Deposits.
 
          Information required by this section is presented on pages 32 through
          34 of the 1996 Annual Report and is incorporated herein by reference.
 
     VI.  Return on Equity and Assets.
 
          Information required by this section is presented on pages 3 through 4
          of the 1996 Annual Report and is incorporated herein by reference.
 
     VII. Short-Term Borrowing.
 
          Information required by this section is presented on page 34 of the
          1996 Annual Report and is incorporated herein by reference.
 
EXECUTIVE OFFICERS OF THE COMPANY
 
<TABLE>
<CAPTION>
                     NAME                     AGE             POSITION WITH REGISTRANT
    --------------------------------------    ---     -----------------------------------------
    <S>                                       <C>     <C>
    Robert S. Zyla........................    49      President
    Patricia A. White.....................    50      Vice President, Secretary and Treasurer
    James M. Hein.........................    33      Controller
</TABLE>
 
Each of Robert S. Zyla, Patricia A. White and James M. Hein were elected to
their respective positions in connection with the Conversion. After the Annual
Meeting of the shareholders of the Company, the Board of Directors of the
Company has a reorganization meeting and elects the executive officers of the
Company. The positions held by the executive officers of the Savings Bank during
the past five years are as follows:
 
<TABLE>
<CAPTION>
                  NAME                     TERM              POSITION WITH SAVINGS BANK
    --------------------------------    ----------    ----------------------------------------
    <S>                                 <C>           <C>
    Robert S. Zyla..................    1992-1996     President/CEO and Treasurer(1)
    Patricia A. White...............    1992-1996     Executive Vice President and Secretary
    James M. Hein...................    1992-1996     Controller and Chief Financial
                                                      Officer(2)
</TABLE>
 
---------
 
(1) Mr. Zyla assumed the additional title of Chief Executive Officer and
    Treasurer on January 18, 1995.
 
(2) Mr. Hein assumed the additional title of Chief Financial Officer on January
    17, 1996.
 
                                       16
<PAGE>   17
 
ITEM 2. PROPERTIES
 
     The following table sets forth certain information with respect to the
Savings Bank's branch offices and operations center at December 31, 1996.
 
<TABLE>
<CAPTION>
                                                            NET BOOK VALUE     AMOUNT OF
          DESCRIPTION/ADDRESS              LEASED/OWNED      OF PROPERTY       DEPOSITS
          -------------------              -------------    --------------     ---------
                                                            (IN THOUSANDS)
<S>                                        <C>              <C>                <C>
Corporate and Main Office:
--------------------------             
710 Old Clairton Road                          Owned             $562           $37,308
Pleasant Hills, Pennsylvania 15236
 
Branch Offices:
---------------                        
543 Brownsville Road                           Owned             $451           $32,166
Mt. Oliver, Pennsylvania 15210

6257 Library Road                              Owned             $180           $17,979
Bethel Park, Pennsylvania 15102
</TABLE>
 
     The Board of Directors of the Company and the Savings Bank have authorized
the expansion and remodeling of the Corporate Headquarters of the Company and
the Savings Bank. Management intends to construct a 4,000 square foot addition
to this Corporate Headquarters. The total estimated cost of this project is
$600,000.
 
     In April, 1996, the Savings Bank exercised its option to purchase a parcel
of land in Bethel Park, Pennsylvania located within 3/4 of a mile of the current
Bethel Park branch office of the Savings Bank. The purchase price for this
parcel was $250,000. The current book value of this property is $265,717. The
Company and the Savings Bank are currently exploring the development of this
property. Management is considering the construction of a an office building on
this parcel. No final decision has been made to start this project.
 
ITEM 3. LEGAL PROCEEDINGS
 
     The Company is 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 financial condition of the Company.
 
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SHAREHOLDERS
 
     During the fourth quarter of the fiscal year of the Company ending December
31, 1996, no matter was submitted to a vote of the security holders of the
Company through the solicitation of proxies or otherwise.
 
                                       17
<PAGE>   18
 
                                    PART II
 
ITEM 5. MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED SHAREHOLDER MATTERS
 
     Pages 2-5 of the 1996 Annual Report to Shareholders is herein incorporated
by reference.
 
ITEM 6. SELECTED CONSOLIDATED FINANCIAL AND OTHER DATA
 
     Pages 2-5 of the 1996 Annual Report to Shareholders is herein incorporated
by reference.
 
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
        OF OPERATIONS
 
     Pages 6-17 of the 1996 Annual Report to Shareholders are herein
incorporated by reference.
 
ITEM 8. FINANCIAL STATEMENTS
 
     Pages 36-58 of the 1996 Annual Report to Shareholders are herein
incorporated by reference.
 
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
        AND FINANCIAL DISCLOSURE
 
     There has been no change in public accountants for the Company or the
Savings Bank during the last two fiscal years.
 
                                    PART III
 
ITEM 10. DIRECTORS AND OFFICERS OF THE REGISTRANT
 
     Information concerning Directors of the Registrant and Executive Officers
of the Registrant who are not Directors are incorporated herein by reference to
pages 4-7 of the Registrant's definitive Proxy Statement dated March 31, 1997.
 
ITEM 11. EXECUTIVE COMPENSATION
 
     Information concerning executive compensation is incorporated herein by
reference to pages 7-10 of the Registrant's definitive Proxy Statement dated
March 31, 1997.
 
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
 
     Information concerning security ownership of certain owners and management
is incorporated herein by reference to pages 2-5 of the Registrant's definitive
Proxy Statement dated March 31, 1997.
 
ITEM 13. CERTAIN TRANSACTIONS
 
     Information concerning certain relationships and transactions is
incorporated herein by reference to pages 8, 9, 16 and 17 of the Registrant's
definitive Proxy Statement dated March 31, 1997.
 
                                       18
<PAGE>   19
 
                                    PART IV
 
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
 
  (a)(1) FINANCIAL STATEMENTS
 
     The following information appearing in the Registrant's 1996 Annual Report
to Shareholders for the year ended December 31, 1996 is incorporated by
reference from Item 8 hereof (see Exhibit 13).
 
<TABLE>
<CAPTION>
                                                                             PAGES IN
        ANNUAL REPORT SECTION                                             ANNUAL REPORT
        ---------------------                                             ------------- 
        <S>                                                               <C>
        Independent Auditors' Report                                            36
        Consolidated Balance Sheet                                              37
        Consolidated Statements of Income                                       38
        Consolidated Statements of Stockholders' Equity                         39
        Consolidated Statements of Cash Flows                                   40
        Notes to Consolidated Financial Statements                            41-58
</TABLE>
 
  (a)(2) FINANCIAL STATEMENT SCHEDULES
 
     All financial schedules have been omitted as the required information is
inapplicable or has been included in the Notes to Consolidated Financial
Statements.
 
  (a)(3) EXHIBITS REQUIRED BY ITEM 601
 
<TABLE>
<CAPTION>
                                                                                     PAGE # WHERE
                                                                                  ATTACHED EXHIBITS
                                                               REFERENCE TO      ARE LOCATED IN THIS
                                                             PRIOR FILING OR       FORM 10-K REPORT
  REGULATION S-K                                              EXHIBIT NUMBER      OR THE INTEGRATED
  EXHIBIT NUMBER                 DOCUMENT                    ATTACHED HERETO        ANNUAL REPORT
  --------------                 --------                    --------------      ------------------  
  <C>             <S>                                      <C>                   <C>
        3.1       Certificate of Incorporation of                   *               Not Applicable
                  Prestige Bancorp, Inc.

        3.2       Bylaws of Prestige Bancorp, Inc.                  *               Not Applicable

        4         Rights of Security Holders                      *****             Not Applicable

       10.1       1997 Recognition and Retention Plan and          ***              Not Applicable
                  Trust for Officers, Directors and
                  Employees**

       10.2       1997 Stock Option Plan for Officers,             ***              Not Applicable
                  Directors and Employees**

       10.3       Employment Agreement among the Company,           *               Not Applicable
                  the Savings Bank and Robert S. Zyla,
                  Patricia A. White and James M. Hein,
                  dated June 27, 1996**

       10.4       Loan Documents with FHLB of Pittsburgh           10.4            (filed with SEC;
                                                                                 copy available from
                                                                                 Company on request)

         11       Statement re Computation of Per Share            ****          Page 3 of the Annual
                  Earnings                                                              Report
</TABLE>
 
                                       19
<PAGE>   20
 
<TABLE>
<CAPTION>
                                                                                     PAGE # WHERE
                                                                                  ATTACHED EXHIBITS
                                                               REFERENCE TO      ARE LOCATED IN THIS
                                                             PRIOR FILING OR       FORM 10-K REPORT
  REGULATION S-K                                              EXHIBIT NUMBER      OR THE INTEGRATED
  EXHIBIT NUMBER                 DOCUMENT                    ATTACHED HERETO        ANNUAL REPORT
  --------------                 --------                    ---------------     -------------------
  <C>             <S>                                      <C>                   <C>
         13       Annual Report to Shareholders               Not Applicable             ****

         21       Subsidiaries of Registrant                        *               Not Applicable

         27       Financial Data Schedule                   (For SEC use only)    (For SEC use only)
</TABLE>
 
---------
 
    * Incorporated by reference from the Company's Registration Statement on
      Form S-1 (File No. 33-83666) filed by the Company with the SEC on May 9,
      1996, as amended.
 
   ** Management plan or compensatory plan or arrangement.
 
  *** Incorporated by reference from the Company's definitive proxy statement
      for its 1997 Annual Meeting filed by the Company with the SEC on April 4,
      1997.
 
 **** The Annual Report for 1996 is included as part of this integrated filing
      of 1996 Annual Report to Shareholders and Form 10-K Report.
 
***** Articles 6 and 14 of the Articles of Incorporation of Prestige Bancorp,
      Inc. Such Certificate of Incorporation can be found as an exhibit to the
      Company's Registration Statement on Form S-1 (File No. 33-83666) filed by
      the Company with the SEC on May 9, 1996, as amended. A summary discussion
      on certain limitations on the rights of Stockholders can be obtained at
      pages 16 and 17 and pages 98 through 108 of the final prospectus filed by
      the Company with the SEC in connection with such Form S-1.
 
  (b) REPORTS ON FORM 8-K
 
     The Registrant did not file any reports on Form 8-K during the quarter
ended December 31, 1996.
 
                                       20
<PAGE>   21
 
                                   SIGNATURES
 
     Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report [to be executed
on] its behalf by the undersigned, thereunto duly authorized.
 
Date: March 31, 1997                    PRESTIGE BANCORP, INC.
 
                                              /s/ ROBERT S. ZYLA
                                        By:____________________________
                                                Robert S. Zyla
                                              President and Director
 
     Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
 
      /s/ ROBERT S. ZYLA                          /s/ MICHAEL R. MACOSKO
----------------------------------          ----------------------------------
Robert S. Zyla                              Michael R. Macosko
President and Director                      Director 
(Principal Executive Officer)               Date: March 31, 1997
Date: March 31, 1997

 
       /s/ JOHN A. STIVER                           /s/ MARK R. SCHOEN
----------------------------------          ----------------------------------
John A. Stiver                              Mark R. Schoen 
Chairman of the Board of Directors          Director
Date: March 31, 1997                        Date: March 31, 1997
 

 
      /s/ PATRICIA A. WHITE                     /s/ CHARLES P. MCCULLOUGH
----------------------------------          ----------------------------------
Patricia A. White                           Charles P. McCullough
Treasurer, Secretary and Director           Director 
Date: March 31, 1997                        Date: March 31, 1997
 

       /s/ MARTIN W. DOWLING                         /s/ JAMES M. HEIN
----------------------------------          ----------------------------------
Martin W. Dowling                           James M. Hein 
Director                                    Controller
Date: March 31, 1997                        (Principal Financial and 
                                            Accounting Officer) 
                                            Date: March 31, 1997
 
 
 
                                       21