<PAGE>

                      SECURITIES AND EXCHANGE COMMISSION
                             Washington, DC  20549
                                  FORM 10-KSB

                  Annual report pursuant to Section 13 of the
                        Securities Exchange Act of 1934

                    For the fiscal year ended June 30, 1999

                          Commission File No. 0-21482

                          MBLA FINANCIAL CORPORATION
            (exact name of registrant as specified in its charter)

         DELAWARE                                           43-1637679
  (State of Incorporation)                           (IRS Employer I.D. No.)

                    101 Vine Street, Macon, Missouri  63552
                    (Address of principal executive office)

                                (660) 385-2122
             (registrant's telephone number, including area code)

       Securities registered pursuant to Section 12(b) of the Act:  None

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

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

     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 subjected 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 considered herein, and will not be contained, to
the best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part II of the Form 10-KSB or any
amendment to this Form 10-KSB.       X
                               _____________.

     The aggregate market value of the voting stock held by non-affiliates of
the registrant, i.e., persons other than directors and executive officers of the
registrant is $22,284,665 and is based upon the last sales price as quoted on
the NASDAQ National Market for June 30, 1999.

     As of June 30, 1999, the Registrant had 1,247,021 shares outstanding.

     Revenues for the fiscal year ended June 30, 1999: $14,214,000.

     Transitional Small Business Disclosure Format (check one): Yes_________
     No     X   .
        --------
<PAGE>

                                     INDEX
<TABLE>
<CAPTION>
                                                                       PAGE
                                                                       ----
PART I
<S>                                                                    <C>
 Item  1.      Business...............................................   1

 Item  2.      Properties.............................................  33

 Item  3.      Legal Proceedings......................................  33

 Item  4.      Submission of Matters to a Vote of Security Holders....  33


PART II

 Item  5.      Market for Registrant's Common Equity and
               Related Stockholder Matters............................  33

 Item  6.      Management's Discussion and Analysis of
               Financial Condition and Results of Operations..........  34

 Item  7.      Financial Statements...................................  39

 Item  8.      Changes in and Disagreements with Accountants
               on Accounting and Financial Disclosure.................  67


PART III

 Item  9.      Directors and Executive Officers of the Registrant
               and Control Persons; Compliance with Section 16(a)
               of the Exchange Act....................................  67

 Item 10.      Executive Compensation.................................  68

 Item 11.      Security Ownership of Certain Beneficial Owners
               and Management.........................................  71

 Item 12.      Certain Relationships and Related Transactions.........  71

 Item 13.      Exhibits and Reports on Form 8-K.......................  72

SIGNATURES      ......................................................  73
</TABLE>
<PAGE>

                                    PART I

Item 1.   Business.
-------------------

     On June 24, 1993, MBLA Financial Corporation (the "Company") closed its
public offering for 1,725,000 shares of its common stock and acquired Macon
Building and Loan Association, Macon, Missouri (the "Association" or "Macon") as
a part of the Association's conversion from a mutual to a stock state chartered
savings and loan association. The Company was incorporated under Delaware law on
February 23, 1993. The Company is a savings and loan holding company and is
subject to regulation by the Office of Thrift Supervision (the "OTS"), the
Federal Deposit Insurance Corporation (the "FDIC") and the Securities and
Exchange Commission (the "SEC"). Currently, the Company does not transact any
material business other than through the Association. Approximately 50% of the
net conversion proceeds amounting to $8.2 million which was retained by the
Company was principally invested in deposits with the Association and a $685,000
loan to the Association's Employee Stock Ownership Plan ("ESOP") in order to
fund the ESOP's purchase of stock in the Association's conversion. The Company
paid dividends of $ .60 per share, representing a dividend payout ratio of
36.6%, for the year ended June 30, 1999. At June 30, 1999, the Company had
approximately 356 stockholders of record. There were 1,247,021 shares of common
stock outstanding. This number does not reflect the number of persons or
entities who may hold their stock in nominee or "street" name through brokerage
firms.


     The Association has operated for over 100 years and was originally
organized in 1885 as a Missouri-chartered building and loan association. The
Association converted to a Federal chartered savings & loan effective June 1,
1995. The Association is a member of the Federal Home Loan Bank (the "FHLB")
System and its deposit accounts are insured up to applicable limits by the FDIC.
At June 30, 1999 the Company had total assets of $202.8 million and
stockholders' equity of $29.1 million.


     On May 3, 1999, the Company entered into an Agreement and Plan of Merger
with Citizens Bancshares Company ("Citizens") pursuant to which Citizens would
acquire the Company and each outstanding share of the Company's common stock
would be converted into the right to receive $24.15 in cash plus or minus an
amount that represents the change in the Company's adjusted book value per share
from December 31, 1998 to the end of the month prior to closing. The
shareholders of the Company approved the Agreement and Plan of Merger at a
special meeting held on August 25, 1999. The transaction is expected to be
completed early in the fourth quarter of 1999.


     The Association offers a variety of financial services to meet the needs of
the communities it serves. The Association's principal business has been and
continues to be attracting retail deposits from the general public and investing
those deposits, together with funds generated from operations, primarily in one-
to four-family residential mortgage loans through purchases and originations. To
a lesser extent, the Association invests in U.S. government federal agency
securities and mortgage-backed and related securities, interest-earning
deposits, commercial and multi-family real estate loans and consumer loans. The
Association's revenues are derived principally from interest on its mortgage
loan and mortgage-backed and related securities portfolios and earnings on its
investment securities. The Association's primary sources of funds are deposits
and principal and interest payments on loans and mortgage-backed and related
securities. The Association's primary expense is interest paid on deposits.



     Market Area

     The Association currently operates out of its main office in Macon and one
branch office located in Moberly, Missouri. The Association's deposit gathering
base is concentrated in Macon and Randolph Counties in Missouri. Due to the low
demand for loans in the Association's primary market area, at June 30, 1999,
approximately $123.9 million or 86.9% of the Association's total loan portfolio
consisted of loans purchased from selected mortgage banking companies and
financial institutions secured by properties located primarily in Columbia,
Missouri, and to a lesser extent, other cities in central Missouri.

                                       1
<PAGE>

Lending Activities

     Loan Portfolio Composition.   The Association's loan portfolio consists
     ---------------------------
primarily of conventional adjustable-rate and fixed-rate first mortgage loans
secured by one- to four-family residences.  The Association also originates
multi-family and commercial real estate mortgage loans, and consumer loans.  At
June 30, 1999, the Association's mortgage loans outstanding were $141.8 million,
of which $117.7 million were one- to four-family residential mortgage loans.  Of
the total loans outstanding at that date, $118.7 million were adjustable-rate
mortgage ("ARM") loans and $23.8 were fixed-rate loans.  At that same date,
commercial real estate loans totalled $15.0 million.  At June 30, 1999,
purchased whole mortgage loans and participations totalled $123.9 million or
86.9% of the Association's loan portfolio.  These loans were purchased without
recourse and are serviced by the sellers.

     Other loans held by the Association, which primarily consisted of consumer
loans, totalled $.7 million or .49% of total loans outstanding at June 30, 1999.
There were no loans held for sale at June 30, 1999

     Loan Purchases and Originations.  The Association purchases and originates
     --------------------------------
loans, which are secured by first mortgages on owner-occupied one- to four-
family residences and commercial real estate located primarily in Columbia,
Missouri and to a lesser extent, other cities in central Missouri. The
Association has purchased and originated primarily adjustable-rate loans and to
a lesser extent 15 and 20 year fixed-rate mortgage loans the amount of which is
dependent upon relative customer demand as well as current and expected future
levels of interest rates.  The Association has historically had a low demand for
loans in its primary market area and thus purchases loans, primarily one- to
four-family adjustable-rate loans from selected mortgage banking companies and
financial institutions.  The Association utilizes the same underwriting
standards for loan purchases as it uses for the loans it originates.  The
servicing rights on substantially all of the loans purchased by the Association
are retained by the loan originator.

                                       2
<PAGE>

The following table sets forth as of June 30, 1999, the portions of the
Association's loan portfolio which had been purchased from others and originated
by the Association.

<TABLE>
<CAPTION>
                                                            At June 30, 1999
                                    ----------------------------------------------------------------------
                                         Purchased (1)              Originated               Total
                                    ----------------------     -------------------     -------------------
                                    Amount         Percent     Amount      Percent     Amount      Percent
                                    ------         -------     ------      -------     ------      -------
                                                              (Dollars in thousands)
<S>                                 <C>            <C>         <C>         <C>         <C>         <C>
Mortgage Loans:
One-to four-family                  $102,231         71.73%    $15,516       10.89%   $117,747       82.62%
Multi-family                           8,999          6.31          72        0.05       9,071        6.36
Commercial real estate                12,498          8.77       2,509        1.76      15,007       10.53
                                    --------         -----     -------       -----    --------      ------

Total mortgage loans                 123,728         86.81      18,097       12.70     141,825       99.51
                                    --------         -----     -------       -----    --------      ------


Other loans:
Home improvement and land                 --            --          87        0.06          87        0.06
Loans on savings accounts                 --            --         434        0.30         434        0.30
Other                                    173          0.12          --          --         173        0.13
                                    --------         -----     -------       -----    --------      ------

Total other loans                        173          0.13         521        0.36         694         .49
                                    --------         -----     -------       -----    --------      ------

Total gross loans                   $123,901         86.94%    $18,618       13.06%   $142,519      100.00%
                                    ========         =====     =======       =====    ========      ======
</TABLE>


(1)  Includes both purchased whole loans and loan participations.

                                       3
<PAGE>

The following table sets forth the composition of the Association's mortgage and
other loan portfolios and mortgage-backed securities portfolio in dollar amounts
and in percentages at the dates indicated.

<TABLE>
<CAPTION>
                                                                           At June 30,
                               ----------------------------------------------------------------------------------------------------
                                       1999               1998                1997                1996                  1995
                               -------------------  ------------------  -------------------  -------------------  -----------------
                                        Percent of           Percent of          Percent of           Percent of           Percent
                                Amount    Total      Amount    Total     Amount    Total      Amount    Total      Amount  of Total
                               -------- ----------  -------- ---------  -------- ----------  -------- ----------  -------- --------
                                                                      (Dollars in Thousands)
<S>                            <C>      <C>         <C>      <C>        <C>      <C>         <C>      <C>         <C>      <C>
Mortgage loans:
   One-to-four family          $117,747     82.62%  $122,328    89.10%  $115,104     90.52%  $ 97,017     90.67%  $ 92,731   88.01%
   Multi-family                   9,071      6.36        714      .52      1,247       .98      1,367      1.27      4,401    4.18
   Commercial real estate        15,007     10.53     13,434     9.78      9,824      7.73      7,643      7.15      7,102    6.74
                               -------- ----------  -------- ---------  -------- ----------  -------- ----------  -------- --------
Total Mortgage Loans            141,825     99.51    136,476    99.40    126,175     99.23    106,027     99.09    104,234   98.93

  Other loans:
   Home improvement                  87      0.06        188     0.14        270      0.21        277      0.26        378    0.36
Loans on savings accounts           434      0.31        412     0.30        342      0.27        283      0.26        289    0.27
   Other loans -- FHA
    Non-mortgage                    173      0.12        224     0.16        372      0.29        415      0.39        459    0.44
                               -------- ----------  -------- ---------  -------- ----------  -------- ----------  -------- --------
    Total other loans               694      0.49        824      .60        984       .77        975       .91      1,126    1.07


  Total loans receivable       $142,519    100.00%  $137,300   100.00%  $127,159    100.00%  $107,002    100.00%  $105,360  100.00%
                               -------- ----------  -------- ---------  -------- ----------  -------- ----------  -------- --------

  Add:
      Premium on purchased
        loans                  $      5             $      6            $      8             $      8             $      9
      Deferred loan costs            24                   31                  27                   26                   31

  Less:
      Loans in process                3                   --                 116                   16                  165
      Allowance for loan
        losses                      705                  690                 630                  535                  535
                               --------             --------            --------             --------             --------
  Loans receivable, Net        $141,840             $136,647            $126,448             $106,485             $104,700
                               ========             ========            ========             ========             ========

  Mortgage-backed securities,
      net:
      FHLMC                    $    480      1.10%  $    675     1.40%  $    950      1.37%  $  1,220      1.72%  $  1,470    2.11%
      FHLMC ARM                     100      0.23        164      .34        245       .36        335       .47        507     .73
      FNMA/GNMA ARM               9,297     21.36     12,695    26.32     16,458     23.86     19,529     27.46     25,062   36.07
      FNMA/FHLMC REMIC           33,153     76.15     33,586    69.65     50,586      3.34     50,546     71.06     43,224   62.21
                               -------- ----------  -------- ---------  -------- ----------  -------- ----------  -------- --------
        Total mortgage-backed
          securities             43,030     98.84     47,120    97.71     68,239     98.93     71,630    100.71     70,263  101.12
        Net premiums and
          discounts                (225)    (0.52)      (231)    (.48)      (351)     (.51)      (779)    (1.10)    (1,044)  (1.50)
      SFAS #115 Adjustment to
          Fair Value                731      1.68      1,337     2.77      1,087      1.58        278       .39        263     .38
                               -------- ----------  -------- ---------  -------- ----------  -------- ----------  -------- --------
   Net mortgage-backed
      securities               $ 43,536    100.00%  $ 48,226   100.00%  $ 68,975    100.00%  $ 71,129    100.00%  $ 69,482  100.00%
                               ======== ==========  ======== =========  ======== ==========  ======== ==========  ======== ========
</TABLE>

                                       4
<PAGE>

The following table sets forth the Association's mortgage loan purchases and
originations, other loans and mortgage-backed securities purchased, sales and
principal repayments for the periods indicated:

<TABLE>
<CAPTION>
                                                     Year ended June 30,
                                                -----------------------------
                                                   1999       1998     1997
                                                --------   --------  --------
                                                         (in thousands)
<S>                                             <C>        <C>       <C>
Mortgage loans (gross):
  At beginning of period                        $136,476   $126,175  $106,027
                                                --------   --------  --------
  Mortgage loans purchased:
  One-to four-family                              29,216     24,668    29,077
  Multi-family                                     3,395      2,379     1,464
  Commercial real estate                           2,837      2,655     1,672
                                                --------   --------  --------

Total mortgage loans purchased                    35,448     29,702    32,213
                                                --------   --------  --------


Mortgage loans originated:
  One-to four-family                              11,911      6,763       983
  Multi-family                                        --         --        --
  Commercial real estate                           1,207         --       319
                                                --------   --------  --------

  Total mortgage loans originated                 13,118      6,763     1,302


Total mortgage loans purchased and
originated                                        48,566     36,465    33,515
                                                --------   --------  --------

Transfer of mortgage loans to foreclosed REO         174         --        30
Principal repayments                              36,628     26,164    13,337
Loans sold                                         6,415         --        --
                                                --------   --------  --------
At end of period                                $141,825   $136,476  $126,175
                                                ========   ========  ========

Other loans:
  At beginning of period                        $    824   $    984  $    975
  Other loans originated                             592        523       449
  Principal repayments                              (722)      (683)     (440)
                                                --------   --------  --------
  At end of period                              $    694   $    824  $    984
                                                ========   ========  ========

Mortgage-backed securities:
  At beginning of period                        $ 48,226   $ 68,975  $ 71,129
  Mortgage-backed securities purchased                --      4,000    17,000
  Mortgage-backed securities sold/called              --    (20,891)  (16,576)
  Amortization and repayments                     (4,083)    (4,109)   (3,387)
  SFAS #115 Adjustment to Fair Value                (607)       251       809
                                                --------   --------  --------
At end of period                                $ 43,536   $ 48,226  $ 68,975
                                                ========   ========  ========
</TABLE>

                                       5
<PAGE>

Loan and Mortgage-backed Securities by Contractual Maturity

     The following table shows the maturity of the Association's loan and
mortgage-backed securities portfolios at June 30, 1999.  The table does not
include prepayments or scheduled principal amortization.  Prepayments and
scheduled principal amortization on loans and mortgage-backed securities
totalled  $41.4 million, $31.0 million, and $17.2 million for the years ended
June 30, 1999, 1998 and 1997, respectively.

<TABLE>
<CAPTION>
                                                                At June 30, 1999
                               -----------------------------------------------------------------------------------
                                            Mortgage Loans                               Totals
                               ---------------------------------------  ------------------------------------------
                                                                 (In Thousands)
                                                                               Total        Mortgage-
                                 One-to-         Multi-   Commercial    Other  Loans        Backed
                                 Four-Family     Family   Real Estate   Loans  Receivable   Securities    Total
                               ---------------  --------  ------------  -----  -----------  ----------  ----------
<S>                            <C>              <C>       <C>           <C>    <C>          <C>         <C>
Amounts due:
  Within 1 year                      $  1,777   $     --      $     8    $607    $  2,392   $       --   $  2,392
                                     --------   --------      -------   -----    --------   ----------   --------
  After 1 year:
    1 to 3 years                        1,713        --            --      --       1,713           --      1,713
    3 to 5 years                          791        --            21      --         812           --        812
    5 to 10 years                       3,933        --         5,909      --       9,842          491     10,333
    10 to 20 years                    102,012       598         7,833      87     110,530          255    110,785
    over 20 years                       7,521     8,473         1,236      --      17,230       42,790     60,020
                                     --------   -------       -------   -----    --------   ----------   --------

 Total due after 1 year               115,970        --        14,999      87     140,127       43,536    183,663
                                     --------   -------       -------   -----    --------   ----------   --------
  Total amounts due                   117,747     9,071        15,007     694     142,519       43,536    186,055
                                     --------   -------       -------   -----    --------   ----------   --------

  Loans in process                         (3)       --            --      --          (3)          --         (3)
Unearned deferred loan fees                24        --            --      --          24           --         24
Allowance for loan losses                (584)      (42)          (74)     --        (700)          --       (700)
Premiums on purchased loans                --        --            --       5           5           --          5
                                     --------   -------       -------   -----    --------   ----------   --------

  Loans receivable and
  mortgage-backed
    securities, net                  $117,184    $9,029       $14,933    $699    $141,845      $43,536   $185,381
                                     ========   =======       =======   =====    ========   ==========   ========
</TABLE>

     The following table sets forth at June 30, 1999, the dollar amount of all
loans and mortgage-backed securities due after June 30, 2000, and whether such
loans have fixed interest rates or adjustable interest rates.

<TABLE>
<CAPTION>

                                                                       Due after
                                                                    June 30, 2000
                                                             ----------------------------
                                                              Fixed   Adjustable    Total
                                                             ------   ----------    -----
                                                                     (in thousands)
<S>                                                          <C>       <C>       <C>
Mortgage loans:
 One-to four-family                                          $ 7,487   $110,260  $117,747
 Multi-family                                                  8,473        598     9,071
 Commercial real estate                                        7,900      7,107    15,007
Other loans                                                      654         40       694
                                                             -------   --------  --------
 Total loans receivable                                       24,514    118,005   142,519

Mortgage-backed securities                                       490     43,046    43,536
                                                             -------   --------  --------
 Total loans receivable and mortgage-backed securities       $25,004   $161,051  $186,055
                                                             =======   ========  ========
</TABLE>

                                       6
<PAGE>

Purchased Loans.  Due to low loan demand in its primary market area, the
----------------
Association has  historically purchased a significant amount of mortgage loans,
substantially all of which have been adjustable-rate mortgage loans, including
one- to four- family, commercial real estate and multi-family.  The Association
purchases both whole mortgage loans, and to a lesser extent, participation
interests of less than 100 percent from selected mortgage banking companies and
financial institutions.  At June 30, 1999, purchased mortgage loans totalled
$123.9 million, or 86.9%, of the gross loan portfolio.  Approximately $119.6
million or 97% of the loans purchased by the Association are from thrift
institutions located in Fulton and Columbia, Missouri and a mortgage banking
company located in Columbia, Boone County, Missouri.  The Association has done
business with these institutions for over ten years.  Substantially all of the
purchased loans are first mortgage loans and are secured by one- to four-family
residential properties consisting of single family homes.  The Association has
occasionally purchased commercial real estate loans.  The Association does not
issue forward commitments to purchase loans.


     The vast majority of one- to four-family residential mortgage loans
purchased by the Association are secured by properties that serve as the primary
residence of the borrower.  As part of management's strategy to reduce the
Association's vulnerability to interest rate risk, substantially all of the
loans purchased have been adjustable-rate mortgage loans.  Although the terms of
the purchased adjustable-rate mortgage loans vary, all provide for qualification
of the borrowers at the fully indexed rate.  The Association does not purchase
delinquent loans or any loan that has ever shown a history of late mortgage
payments.


     One- to Four-Family Mortgage Lending.   The Association's primary lending
     -------------------------------------
activity is the purchase and origination of first mortgage loans secured by one-
to four-family residences.  Typically, such residences are single-family homes
that serve as the primary residence of the owner.  The Association generally
purchases and originates one- to four-family residential mortgage loans in
amounts up to 95% of the lesser of the appraised value or selling price of the
mortgaged property.  Loans purchased or originated in amounts over 80% of the
lesser of the appraised value or selling price of the mortgaged property, other
than loans to facilitate the sale of real estate acquired through foreclosure,
must be owner-occupied and private mortgage insurance must be provided by the
borrower on the amount in excess of 80%.  The Association had 51 one- to four-
family loans with principal balances that exceeded $250,000 to one borrower  at
June 30, 1999.  The largest of such loans had an outstanding balance of $2.5
million.  All such loans are current.


     At June 30, 1999, the purchased one- to four-family loans were being
serviced by approximately 13 companies.  Substantially all of these loans are
being serviced by two servicers who service approximately $119.6 million or
approximately 97% of Macon's purchased loans.  Servicers generally receive a fee
of 25 to 38 basis points on all loans serviced.  The Association has experienced
low levels of delinquencies and losses from its purchased one- to four-family
mortgage loans.  At June 30, 1999, loans totalling $477,000, or .33% of the
Association's portfolio were 90 days or more delinquent.


     Loan originations are generally obtained from existing or past customers,
members of the local community, and realtors within the Association's lending
area.  The Association offers both fixed-rate and adjustable-rate mortgage
loans.  Mortgage loans originated and held by the Association in its portfolio
generally include due-on-sale clauses which provide the Association with the
contractual right to deem the loan immediately due and payable in the event that
the borrower transfers ownership of the property without the Association's
consent.

                                       7
<PAGE>

     The Association offers fixed-rate mortgage loans with a 15-year and 20-year
term that are underwritten by the Association on terms consistent with
prevailing secondary mortgage market standards.  The Association's current
policy is to retain such loans in its portfolio.

     At June 30, 1999, 82.6% of total loans consisted of one- to four-family
residential loans.  Borrower demand for adjustable-rate versus fixed-rate
mortgage loans is a function of the level of interest rates, the expectations of
changes in the level of interest rates and the difference between the interest
rates and loan fees offered for fixed-rate mortgage loans and loan fees for
adjustable-rate mortgage loans.  The relative amount of fixed-rate mortgage
loans and adjustable-rate mortgage loans that can be originated at any time is
largely determined by the demand for each in a competitive environment.  The
Association currently offers adjustable-rate mortgage loans, which adjust
annually.  The Association's adjustable-rate mortgage loans may carry an initial
interest rate which is slightly less than the fully-indexed rate for the loan.
The initial discounted rate is determined by the Association in accordance with
market and competitive factors.  The adjustable-rate mortgage loans currently
being purchased and originated by the Association adjust by a maximum of 1% to
2% per adjustment and have a lifetime cap of 4% to 6% over the initial interest
rate.  Adjustable-rate loans are originated for a term of up to 30 years.


     Commercial Real Estate/Multi-Family Lending.  The Association also
     --------------------------------------------
purchases and originates loans secured by commercial real estate and multi-
family dwelling units (more than four units) primarily secured by apartments and
professional office buildings.  At June 30, 1999, $24.1 million of the
Association's total loan portfolio was invested in loans, secured by commercial
real estate and multi-family dwelling units, located primarily in central
Missouri.    Multi-family real estate loans are generally originated at 80% or
less of the appraised value of the property or selling price, whichever is less,
and are generally originated on an adjustable rate basis for one to three year
terms with the principal amortized on a basis of up to 25 years.  The commercial
real estate and multi-family ARM loans currently being purchased and originated
by the Association adjust, by a maximum of 1% to 2%, per adjustment and have a
lifetime cap of 4% to 6% over the initial interest rate.


     The Association originates permanent loans on commercial real estate up to
80% of the appraised value.  These loans generally have repayment schedules
based upon a 10 to 25 year constant payment amortization and are currently
originated with an interest rate that floats and is indexed to the Eleventh
District FHLB Cost of Funds. The Eleventh District FHLB Cost of Funds is a
lagging index, which may cause the yield on loans indexed to it to adjust more
slowly than the rest of the Association's interest-bearing liabilities,
especially in a rapidly rising interest rate environment.

     Of primary concern in commercial real estate and multi-family lending is
the feasibility and cash flow potential of the project and the borrower's
creditworthiness.  Loans secured by income properties are generally larger and
involve greater risks than one- to four- family residential mortgage loans
because payments on loans secured by income properties are often dependent on
successful operation or management of the properties.  As a result, repayment of
such loans may be subject to a greater extent than one- to four-family real
estate loans to adverse conditions in the real estate market or the economy.


     Consumer and Other Loans.  The Association also offers consumer loans to
     -------------------------
existing customers in the form of share loans, home improvement loans and
automobile loans.  These loans totalled $.52 million or .37% of total loans
receivable at June 30, 1999.  Federal regulations permit savings associations to
make secured and unsecured loans up to 35% of an institution's assets.  In
addition, a savings association has lending authority above the 35% category for
certain consumer loans, such as home equity loans, property improvement loans,
and loans secured by savings accounts.

                                       8
<PAGE>

     In connection with consumer loan applications, the Association receives the
borrower's income statement and reviews a credit bureau report.  In addition,
the relationship of the loan to the value of the collateral is considered.  All
automobile loan applications are reviewed and approved by the Association's
President.  The Association reviews the credit report of the borrower as well as
the value of the unit which secured the loan.

     Under state and federal regulations, savings associations are permitted to
make secured or unsecured loans for commercial, corporate, business or
agricultural purposes, including the issuance of letters of credit secured by
real estate, business equipment, inventories, accounts receivable and cash
equivalents.  The aggregate amount of such loans outstanding may not exceed 15%
of such institution's assets.  The Association does not make unsecured
commercial loans unless they are U.S. government insured.

     Loan Approval Authority and Underwriting.  All mortgage loans purchased and
     -----------------------------------------
originated by the Association must have the approval of the Executive Committee.
The Executive Committee meets as needed.  One- to four-family residential
mortgage loans are generally underwritten according to the Association's written
loan underwriting guidelines.  For all loans originated by the Association, upon
receipt of a completed loan application from a prospective borrower, a credit
report is ordered, income and certain other information is verified and, if
necessary, additional financial information is requested.  An appraisal of the
real estate intended to secure the proposed loan is required which currently is
performed by an independent appraiser designated and approved by the
Association.  It is the Association's policy to obtain abstracts certified by
licensed abstract officers and title companies or title insurance on all real
estate first mortgage loans.  Borrowers must also obtain hazard and flood
insurance (for loans on property located in a flood zone) prior to closing the
loan.  For all loans, borrowers are required to advance funds on a monthly basis
together with each payment of principal and interest to an escrow account from
which the Association makes disbursements for items such as real estate taxes
and hazard insurance premiums.  For other loans, the escrow of such funds is at
the borrower's option.

     The Association uses the same underwriting standards for loans it purchases
as loans it originates.  The Association generally requires income and deposit
verification of each borrower at the time of origination of the loan.  All loans
must be documented, including an appraisal that substantiates the value of the
subject property at the time of origination of the loan.  Agreements to purchase
loans include provisions allowing the Association to review all documentation to
ensure compliance with the Association's underwriting standards and the right to
inspect or appraise the properties within 90 to 120 days after purchase and to
put back to the seller or substitute loans that do not comply with the
Association's underwriting standards.  In addition, the Association or its
custodian obtains the original signed promissory notes after endorsement to the
Association and currently requires that each mortgage or deed of trust be
assigned to the Association.  Furthermore, the Association generally has the
right to sell a purchased loan back to the seller for a period of six months to
one year, depending on which company the loan was purchased from, as a result of
any material misstatement of the seller or breach by the seller of any material
warranty regarding the loan.  The servicing agreement generally provides that
the Association may terminate the servicing agreement if (i) the seller-
servicer, in the sole opinion of the Association, fails to perform its
obligations under the agreement; (ii) the seller-servicer becomes insolvent or
bankrupt or is placed in conservatorship or receivership; or (iii) the seller-
servicer assigns or attempts to assign its rights and obligations under the
agreement, without written consent of the Association.  The Board of Directors
ratifies all loans and participations approved by the Executive Committee.


     Mortgage-Backed Securities.  The Company also invests in mortgage-backed
     ---------------------------
and related securities.  At June 30, 1999, net mortgage-backed and related
securities aggregated $43.5 million, or 21.46% of total assets of which $43.0
million were adjustable-rate and  $.5 million were fixed-rate.  All securities
in the mortgage-backed and related securities portfolio at June 30, 1999, were
insured or guaranteed by either the FNMA, GNMA or the FHLMC.  All of the
mortgage-backed and related securities in the portfolio have coupon rates as of
June 30, 1999 ranging from 5.95% to 8.63% with a weighted average yield of 6.21%
at June 30, 1999.  At June 30, 1998, mortgage-backed securities totalled $48.2
million or 23.73% of total assets.

                                       9
<PAGE>

     Mortgage related securities at June 30, 1999, consisted of Real Estate
Mortgage Investment Conduits ("REMICs").  REMICs are securities derived by
reallocating cash flows from mortgage pass-through securities or from  pools of
mortgage loans held by a trust.  At June 30, 1999, the Association owned REMICs
with an amortized cost of $32.9 million and a market value of $33.6 million and
a weighted average yield of 6.20%.  The REMICs that the Association owned at
June 30, 1999 are long-term with an average estimated life of ten to fourteen
years and range in original principal amount from $.5 million to $5.3 million.
Management considers REMIC investments to be advantageous since they offer
yields above those available for investments of comparable credit quality and
duration and qualify as thrift investments under the QTL Test.  Under OTS
guidelines, certain REMICs are considered high risk because principal payments
are distributed on a lower priority basis to these tranches (the support
tranches) of the REMICs than the higher priority, planned amortization tranches.
In addition, the actual terms to maturity of the support tranches may be more
volatile than those of standard mortgage securities.  The REMICs acquired by the
Association are not interest only or principal only or residual interests.  The
Association has limited REMIC purchases to those that are adjustable rate and
not classified as high risk under the Federal Financial Institutions Examination
Counsel high-risk test.  Therefore, the Association believes that the risk
associated with the REMICs in its portfolio is significantly reduced.


Non-Performing and Problem Assets
---------------------------------

     Collection Procedures.  With respect to originated mortgage loans, the
     ----------------------
Association's collection procedures include sending a past due notice after 10
days and a late notice after payment is 30 days past due.  In the event that
payment is not received, letters are sent or phone calls are made to the
borrower.  When contact is made with the borrower at any time prior to
foreclosure, the Association will attempt to obtain full payment or work out a
repayment schedule with the borrower to avoid foreclosure.  Generally,
foreclosure notices are sent when a loan is over 60 days delinquent.

     The Association had $123.9 million in purchased loans and participations at
June 30, 1999.  The sellers retained servicing on substantially all of such
purchased loans.  The Association has no recourse against the seller on whole
mortgage loans and loan participations purchased.  The Association receives
monthly reports from the loan servicers which it uses to closely monitor its
purchased mortgage loan and loan participation portfolio.  On purchased loans,
the Association uses the servicer to commence foreclosure proceedings.

     The collection procedures are similar to those for the Association's own
loans except that the first late notice is sent when the loan becomes 15 days
delinquent.

     Uncollectible interest on loans that are contractually past due 90 days or
more is charged off or an allowance is established based on management's
periodic evaluation unless the obligation is well secured and in the process of
collection.  The allowance is established by a charge to interest income equal
to all interest previously accrued.

     Classified Assets.  Federal regulations provide for the classification of
     ------------------
loans and other assets, such as debt and equity securities, considered by the
OTS to be of lesser quality as "substandard", "doubtful" or "loss" assets.  An
asset is considered "substandard" if it is inadequately protected by the paying
capacity and net worth of the obligor or the collateral pledged, if any.
"Substandard" assets include those characterized by the "distinct possibility"
that the insured institution will sustain "some loss" if the deficiencies are
not corrected.  Assets classified as "doubtful" have all of the weaknesses
inherent in those classified "substandard," with the added characteristic that
the weaknesses present make "collection or liquidation in full" "highly
questionable and improbable," on the basis of currently existing facts,
conditions, and values.  Assets classified as "loss" are those considered
"uncollectible" and of such little value that their continuance as assets
without the establishment of a specific loss reserve is not warranted.  Assets
which do not currently expose the insured institution to a sufficient degree of
risk to warrant classification in one of the aforementioned categories but
possess credit deficiencies or potential weaknesses are required to be
designated "special mention" by management.

                                       10
<PAGE>

     When an insured institution classifies problem assets as either substandard
or doubtful, it is required to establish general allowances for losses in an
amount deemed prudent by management.  General allowances represent loss
allowances which have been established to recognize the inherent risk associated
with lending activities, but which, unlike specific allowances, have not been
allocated to particular problem assets.  When an insured institution classifies
problem assets as "loss", it is required to establish a specific allowance for
losses equal to 100% of the amount of the asset so classified or to charge-off
such amount.  The Association regularly reviews the assets in its portfolio to
determine whether any assets require classification in accordance with
applicable regulations.

     As of June 30, 1999, the Association had total classified assets of
$669,349 of which $157,807 were classified as substandard and $229,190 were
classified as doubtful.  Special mention assets totalled $282,352 at June 30,
1999.

                                       11
<PAGE>

Delinquent Loans
At June 30, 1999, 1998 and 1997, delinquent loans in the Association's portfolio
were as follows:

<TABLE>
<CAPTION>
                                            At June 30, 1999                                   At June 30, 1998
                             ---------------------------------------------        --------------------------------------------
                                  60-90 Days            90 Days or More                 60-90 Days         90 Days or More
                             ---------------------   ---------------------        ---------------------  ---------------------
                             Number      Principal   Number      Principal        Number      Principal  Number      Principal
                             of          Balance     of          Balance          of          Balance    of          Balance
                             Loans       of Loans    Loans       of Loans         of Loans    Loans      of Loans    of Loans
                             ---------  ----------   ---------   ---------        ----------  ---------  ---------  ----------
<S>                          <C>        <C>          <C>         <C>              <C>         <C>        <C>        <C>
                                                                    (Dollars in Thousands)
One- to four-family                  7  $      193           9   $     477                13  $     451         21  $      924
Multi-family                        --          --          --          --                --         --         --          --
Commercial real estate              --          --          --          --                --         --         --          --
                             ---------  ----------   ---------   ---------        ----------  ---------  ---------  ----------

Total mortgage loans                 7  $      193           9   $     477                13  $     451         21  $      924
                             =========  ==========   =========   =========        ==========  =========  =========  ==========

Delinquent loans to total gross loans         0.14%                   0.33%                        0.33%                  0.67%
</TABLE>

<TABLE>
<CAPTION>
                                              At June 30, 1997
                              --------------------------------------------------
                                    60-90 Days               90 Days or More
                              ----------------------      ----------------------
                              Number       Principal      Number       Principal
                              of           Balance        of           Balance
                              Loans        of Loans       Loans        of Loans
                              ---------    ---------      ---------    ---------
<S>                           <C>          <C>            <C>          <C>
One- to four-family                   8    $     115             11    $     577
Multi-family                         --           --             --           --
Commercial real estate               --           --             --           --
                              ---------    ---------      ---------    ---------

Total mortgage loans                  8    $     115             11    $     577
                              =========    =========      =========    =========

Delinquent loans to total gross loans           0.09%                       0.46%
</TABLE>

Non-Performing Assets.  The following table sets forth information regarding
delinquent loans and real estate owned by the Association at the dates
indicated.  At June 30, 1999, 1998 and 1997, the Association had no restructured
loans within the meaning of FASB Statement 15.

<TABLE>
<CAPTION>
                                                            At June 30,
                                           ------------------------------------------
                                                1999           1998            1997
                                           ----------       ---------       ---------
                                                      (Dollars in thousands)
<S>                                        <C>              <C>             <C>
Non-accrual mortgage loans                 $      477       $     924       $     577
Non-accrual other loans                            --              --              --
                                           ----------       ---------       ---------
Total non-performing loans                        477             924             577
                                           ----------       ---------       ---------

Total foreclosed real estate,
 net of related reserves                          120              --              --
                                           ----------       ---------       ---------

Total non-performing assets (1)            $      597       $     924       $     577
                                           ==========       =========       =========

Non-performing loans to total loans              0.33%           0.67%           0.46%
Total non-performing assets to total assets      0.42%           0.45%           0.25%
</TABLE>

(1)  All non-performing assets at June 30, 1999 were included in classified
     assets at that date.

                                       12
<PAGE>

ALLOWANCE FOR LOAN LOSSES AND REAL ESTATE ACQUIRED IN SETTLEMENT OF LOANS

The Association provides valuation allowances for estimated losses from
uncollectible loans.  Management's periodic evaluation of the adequacy of the
allowance for loan losses is based on loss experience, known and inherent risk
in the portfolio, prevailing market conditions, and management's judgement as to
their collectibility.  The allowance for loan losses is increased by charges to
earnings and decreased by charge-offs (net of recoveries).

The following table sets forth the Association's allowance for loan losses at
the dates indicated:

<TABLE>
<CAPTION>
                                                               At or For the Year
                                       -------------------------------------------------------------------
                                                                 Ended June 30,
                                       -------------------------------------------------------------------
                                          1999           1998          1997          1996          1995
                                       ---------      ---------     ----------    ----------    ----------
                                                             (Dollars in thousands)
<S>                                    <C>            <C>           <C>           <C>           <C>
Balance at beginning of period         $     690      $     630     $      535    $      535    $      425
Provision for loan losses                     15             60             95            --           115
Charge-offs                                   --             --             --            --            (5)
Recoveries                                    --             --             --            --            --
                                       ---------      ---------     ----------    ----------    ----------

Balance at end of period               $     705      $     690     $      630    $      535    $      535
                                       =========      =========     ==========    ==========    ==========

Ratio of net charge-offs during
  the period to average loans
  outstanding during the period               --             --             --            --            --

Ratio of allowance for loan losses
  to non-performing loans at
  end of period                           147.80%         74.68%        109.19%        80.69%       126.16%

Ratio of allowance for loan losses
  to total non-performing assets at
  the end of period                       118.09%         74.68%        109.19%        77.99%       126.16%

 Ratio of allowance for loan losses
  to total loans receivable at
  the end of period                         0.49%          0.50%          0.50%         0.50%         0.51%
</TABLE>

                                       13
<PAGE>

The following table sets forth the Association's general allowance for loan
losses by type of loan at the dates indicated.

<TABLE>
<CAPTION>
                                                                        At June 30,
                                    ------------------------------------------------------------------------------------
                                             1999                      1998                            1997
                                    ------------------------     -------------------------     -------------------------
                                                 Percentage                    Percentage                   Percentage
                                                 of loans in                   of loans in                  of loans in
                                                 Category to                   Category to                  Category to
                                                 Total                         Total                        Total
                                                 Outstanding                   Outstanding                  Outstanding
                                    Amount       Loans           Amount        Loans           Amount       Loans
                                    -----------  ------------    -----------   -----------     ----------   ------------
                                                                   (Dollars in thousands)
<S>                                 <C>          <C>             <C>           <C>             <C>          <C>
General Allowances Allocated to:

Mortgage loans:
 One- to four-family                $       584         82.84%   $       615         89.10%    $      570          90.48%
 Multi-family                                47          6.66              4           .52              6            .95
 Commercial real estate                      74         10.50             67          9.78             51           8.10


Other loans:
 Home improvement                            --            --              3          0.44              1           0.16
 Loans on savings                            --            --             --            --             --             --
 Consumer                                    --            --              1          0.16              2           0.31
                                    -----------  ------------    -----------   -----------     ----------   ------------

 Total general allowance            $       705           100%   $       690           100%    $      630            100%
                                    ===========  ============    ===========   ===========     ==========   ============
</TABLE>

                                       14
<PAGE>

Investment Activities
The investment policy of the Association, which is established by the Board of
Directors and implemented by the Asset/Liability Committee, is designed
primarily to provide and maintain liquidity, to generate a favorable return on
investments without incurring undue interest rate and credit risk, and to
complement the Association's lending activities. Investments generally are made
with the intent to hold them to maturity. Savings institutions have the
authority to invest in various types of liquid assets, including United States
Treasury obligations, securities of various federal agencies, certain
certificates of deposit of insured banks and savings institutions, certain
bankers acceptances, repurchase agreements and loans on federal funds. Subject
to various restrictions, savings institutions may also invest a portion of their
assets in commercial paper, corporate debt securities and asset-backed
securities. At June 30, 1999, the Association had investment securities with a
fair value of $58.8 million as shown in the following table.

                                       15
<PAGE>

INVESTMENT ACTIVITIES:

The following table sets forth certain information regarding the amortized cost
and fair values of the Company's investment securities portfolio at the dates
indicated.

<TABLE>
<CAPTION>
                                                                               At June 30,
                                       ---------------------------------------------------------------------------------------
                                                  1999                        1998                            1997
                                       ------------------------    -------------------------      ----------------------------
                                       Amortized        Fair       Amortized        Fair          Amortized          Fair
                                       Cost             Value      Cost             Value         Cost               Value
                                       ---------        -------    ---------        --------      ---------          ---------
                                                                           (In thousands)
<S>                                    <C>              <C>        <C>              <C>           <C>                <C>
Interest-earning deposits:
  FHLB daily time                      $   4,340        $ 4,340    $   2,523        $  2,523      $   3,265          $   3,265
  FHLB demand deposit                        279            279          483             483          1,184              1,184
  Passbook savings                             6              6           48              48             35                 35
                                       ---------        -------    ---------        --------      ---------          ---------

Total interest-earning deposits            4,625          4,625        3,054           3,054          4,484              4,484


Investment securities:
  U.S. Government and federal
  agency obligations
  available-for-sale                       7,499          7,480        9,745           9,770         26,971             27,039

FHLB Stock                                 3,134          3,134        3,134           3,134          5,652              5,652

Mortgage-backed securities
  available-for-sale                      42,805         43,536       46,889          48,226         67,889             68,975
                                       ---------        -------    ---------        --------      ---------          ---------

Total                                  $  58,063        $58,775    $  62,822        $ 64,184      $ 104,996          $ 106,150
                                       =========        =======    =========        ========      =========          =========
</TABLE>

                                       16
<PAGE>

The table below sets forth certain information regarding the carrying value,
weighted average yields and maturities of the Company's investment securities at
June 30, 1999.

<TABLE>
<CAPTION>
                                                                At June 30, 1999
                         -------------------------------------------------------------------------------------------------

                                                   After One           After Five
                              One Year              Through             Through                  After          Total Investment
                              or less              Five Years           10 Years                10 Years           Securities
                         ------------------    ------------------   ------------------     ------------------  -------------------

                                 Annualized            Annualized           Annualized             Annualized           Annualized
                                 Weighted              Weighted             Weighted               Weighted             Weighted
                         Fair    Average       Fair    Average      Fair    Average        Fair    Average     Fair     Average
                         Value   Yield         Value   Yield        Value   Yield          Value   Yield       Value    Yield
                         ------  ----------    ------  ----------   ------  ----------     ------  ----------  ------   ----------
                                                                  (Dollars in thousands)
<S>                      <C>     <C>           <C>     <C>          <C>     <C>            <C>     <C>         <C>      <C>
U.S.
 Government obligations  $  751        5.69%   $   --          --%  $   --          --     $   --          --  $  751         5.69%

FHLB Debentures           3,004        5.77     3,725        5.43       --          --         --          --   6,729         5.58
                         ------  ----------    ------  ----------   ------  ----------     ------  ----------  ------   ----------

Total                    $3,755        5.75%   $3,725        5.43%  $   --          --         --          --  $7,480         5.95%
                         ======  ==========    ======  ==========   ======  ==========     ======  ==========  ======   ==========
</TABLE>

                                      17
<PAGE>

AVERAGE BALANCE

The following table sets forth certain information relating to the Company's
consolidated statement of financial condition at June 30, 1999, 1998 and 1997
and reflects the average yield on assets and average cost of liabilities for the
periods indicated. Such yields and costs are derived by dividing income or
expense by the average balance of assets or liabilities, respectively, for the
periods shown. Average balances are derived from monthly balances. The yields
and costs include fees which are considered adjustments to yields. Average
balances include nonaccruing loans.

<TABLE>
<CAPTION>
                                                                        Year Ended June 30,
                             ------------------------------------------------------------------------------------------------------
                                            1999                               1998                                1997
                             ---------------------------------   ---------------------------------  -------------------------------
                              Average               Average       Average              Average       Average             Average
                              Balance    Interest   Yield/Cost    Balance   Interest   Yield/Cost    Balance   Interest  Yield/Cost
                             ---------   --------   ----------   ---------  --------   ----------   --------   --------  ----------
                                                                      (Dollars in thousands)
<S>                          <C>         <C>        <C>          <C>        <C>        <C>          <C>        <C>       <C>
Assets:
  Interest-earning assets:
    Loans                    $ 141,052   $ 10,362         7.35%  $ 130,745  $  9,619         7.36%  $113,387   $  8,254        7.28%
    Interest-earning
     deposits                    5,762        264         4.58       6,044       331         5.48      4,000        197        4.93
    Investment securities
     and
      FHLB stock                11,339        668         5.89      18,157     1,118         6.16     27,142      1,860        6.85
    Mortgage-backed
     securities                 45,864      2,920         6.37      61,182     4,210         6.88     69,330      4,729        6.82
                             ---------   --------                ---------  --------                --------   --------
    Total interest-earning
      assets                   204,017     14,214         6.97     216,128    15,278         7.07    213,859     15,040        7.03
                                         --------                           --------                           --------
  Non-interest earning
   assets                        2,175                               2,366                             2,484
                             ---------                           ---------                          --------
  Total assets               $ 206,192                           $ 218,494                          $216,343
                             =========                           =========                          ========

Liabilities:
  Interest-bearing
   liabilities:
    Passbook accounts        $   6,214   $    187         3.01   $   6,059  $    183         3.02   $  6,815   $    170        2.49
    Certificates and money
        market                 111,984      6,232         5.57     102,510     5,952         5.81     85,670      4,937        5.76
 FHLB Advances                  57,933      3,101         5.35      79,922     4,553         5.70     94,327      5,329        5.65
                             ---------   --------                ---------  --------                --------   --------
Total Interest-bearing
  liabilities                  176,131      9,520         5.41     188,491    10,688         5.67    186,812     10,436        5.59
                                         --------                           --------                           --------
Non-interest bearing
       liabilities               1,590                               1,654                             1,896
                             ---------                           ---------                          --------
  Total liabilities            177,721                             190,145                           188,708
  Stockholders' equity          28,471                              28,349                            27,635
                             ---------                           ---------                          --------

Total liabilities and
  Stockholders' Equity       $ 206,192                           $ 218,494                          $216,343
                             =========                           =========                          ========
Net interest
 income/interest
  rate spread (1)                        $  4,694         1.56%             $  4,590         1.40%             $  4,604        1.44%
                                         ========   ==========              ========   ==========              ========  ==========

Net interest margin/net
  earning assets (2)                                      2.30%                              2.12%                             2.15%
                                                    ==========                         ==========                        ==========
Ratio of interest-earning
 assets
  to interest-bearing liabilities                       115.83%                            114.66%                           114.48%
                                                    ==========                         ==========                        ==========
</TABLE>

1)   Interest rate spread represents the difference between the average on
     interest-earning assets and the average cost of interest-bearing
     liabilities.
2)   Net interest margin represents net income before the provision for loan
     losses divided by average interest-earning assets.

                                       18
<PAGE>

Sources of Funds

The Association's primary sources of funds are deposits, repayments on loans and
mortgage-backed and related securities. The Association offers a variety of
deposit accounts having a range of interest rates and terms. The Association's
deposits principally consist of fixed-term certificates, regular passbook
accounts, and IRAs. The Association does not offer transaction accounts. The
flow of deposits is influenced significantly by general economic conditions, the
restructuring of the thrift industry, changes in money market and other
prevailing interest rates and competition. The Association's deposits are
typically obtained from the area in which its offices are located. The
Association relies primarily on customer service and long-standing relationships
with customers to attract and retain these deposits. The Association has no
brokered deposits.

The Association seeks to maintain a high level of stable core deposits by
advertising. The volume of passbook accounts has been increasing because of the
low interest rate environment. When pricing deposits, consideration is given to
local competition, the Association's gap position, U.S. Treasury rates and the
need for funds. Management's strategy is to price at or just below the median
competition, contingent upon the need for funds, and to stratify the pricing
system to attract deposits and maintain a controlled gap position. At the
present time, in order to manage its gap position, the Association has offered a
more attractive rate on longer term certificates of deposit.

The following table presents the deposit activity of the Association for the
periods indicated.

<TABLE>
<CAPTION>
                                     Year Ended June 30,
                                 ----------------------------
                                   1999      1998     1997
                                   ----      ----     ----
                                       (In thousands)
<S>                              <C>        <C>      <C>
Deposits.......................   $17,456   $23,216  $24,207
Withdrawals....................    19,306    13,153   12,245
                                  -------   -------  -------
Excess of deposits
  over (under) withdrawals.....    (1,850)   10,063   11,962
Interest credited on deposits..     4,471     4,088    3,281
                                  -------   -------  -------
Total increase
  (decrease) in deposits.......   $ 2,621   $14,151  $15,243
                                  =======   =======  =======
</TABLE>

     At June 30, 1999, the Association had deposit accounts in the amounts of
$100,000 or more maturing as follows (in thousands):

<TABLE>
<S>                               <C>
One month through three months..   $ 3,413
Three through six months........     3,951
Six through 12 months...........     8,490
Over 12 months..................     3,827
                                   -------
  Total.........................   $19,681
                                   =======
</TABLE>

                                       19
<PAGE>

The following table sets forth the distribution of the Association's deposit
accounts based on original maturity at the dates indicated and the weighted
average interest rates on each category of deposits presented. Management does
not believe that the use of period end balances instead of average daily balance
resulted in any difference in the information presented.

<TABLE>
<CAPTION>
                                                                       At June 30,
                                -----------------------------------------------------------------------------------------
                                            1999                             1998                         1997
                                ------------------------------  ----------------------------- ----------------------------
                                                     Weighted                       Weighted                      Weighted
                                           Percent   Average              Percent   Average              Percent   Average
                                           of Total  Nominal              of Total  Nominal              of Total  Nominal
                                  Amount   Deposits  Rate       Amount    Deposits  Rate       Amount    Deposits  Rate
                                --------  --------   --------   --------  --------  -------   --------   --------  -------
                                                                 (Dollars in thousands)
<S>                             <C>       <C>        <C>        <C>       <C>       <C>       <C>        <C>       <C>
Passbook accounts               $  6,490      5.50%      3.00%  $  5,975     5.18%     3.00%  $  6,299    6.18%     3.00%
                                --------    ------              --------   ------             --------  ------

Certificate accounts:

 Within one year                  83,601     70.88       5.20     82,784    71.78      5.79     70,030   68.69      5.79

 One year to three years          20,053     17.00       5.48     19,051    16.52      5.84     18,133   17.78      5.87

 Over three years                  1,511      1.28       5.37      1,415     1.23      5.80      1,449    1.42      5.79

 Individual retirement
  accounts                         6,296      5.34       5.45      6,105     5.29      5.84      6,048    5.93      5.80
                                --------    ------              --------   ------             --------  ------

  Total Certificates             111,461     94.50               109,355    94.82               95,660   93.82
                                --------    ------              --------   ------             --------  ------

Total deposits                  $117,951    100.00%             $115,330   100.00%            $101,959  100.00%
                                ========    ======              ========   ======             ========  ======
</TABLE>

                                       20
<PAGE>

The following table presents, by various rate categories, the amount of
certificate accounts outstanding at June 30, 1999, 1998 and 1997 and the periods
to maturity of the certificate accounts at June 30, 1999.

<TABLE>
<CAPTION>
                                                                            Period to Maturity from
                                         At June 30,                              June 30, 1999
                               --------------------------   ----------------------------------------------
                                                             Within     Two to
                                  1999      1998    1997    One Year   Three Years  Thereafter       Total
                                  ----      ----    ----    --------   -----------  ----------      ------
                                                            (in thousands)
<S>                             <C>      <C>      <C>       <C>        <C>          <C>             <C>
Certificate accounts:

  4.00% to 4.99%               $ 34,295  $     18  $  1,277   $32,157       $  2,138          --    $ 34,295

  5.00% to 5.99%                 74,460    99,672    59,634    52,561         20,270       1,629      74,460

  6.00% to 6.99%                  1,363     8,356    33,383       914            449          --       1,363

  7.00% to 7.99%                  1,342     1,308     1,365     1,342             --          --       1,342

  8.00% to 8.99%                      1         1         1         1             --          --           1
                                -------  --------  --------   -------    -----------  ----------    --------

 Total                         $111,461  $109,355  $ 95,660   $86,975       $ 22,857    $  1,629    $111,461
                               ========  ========  ========   =======    ===========  ==========    ========
</TABLE>

                                       21
<PAGE>

Borrowings

    Deposits are the Association's primary source of funds. The Association's
policy has been to utilize borrowings only when necessary and when they are a
less costly source of funds or can be invested at a positive rate of return. The
Association may obtain advances from the FHLB-Des Moines upon the security of
its capital stock of the FHLB-Des Moines and certain of its mortgage loans.


Subsidiary Activities

    MBL Financial Services.  The Association has one wholly-owned subsidiary,
    -----------------------
MBL Financial Services ("MBL") which was formed to offer various financial
services to its customers. MBL is engaged in offering credit life insurance,
discount brokerage services, mutual funds, unit investment trusts, and other
related securities. At June 30, 1999, MBL had total assets of $4,976.


Competition

    The Association faces strong competition. The Association's competition for
loans comes principally from savings and loan associations, mortgage banking
companies, and commercial banks. Its most direct competition for deposits has
historically come from commercial banks and credit unions. The Association faces
additional competition for deposits from short-term money market funds and other
corporate and government securities funds. The Association also faces increased
competition from other financial institutions such as brokerage firms.
Competition may also increase as a result of the lifting of restrictions on the
interstate operations of financial institutions.

    The Association is a community-oriented financial institution serving its
market area with a wide selection of residential loans and retail financial
services. Management considers the Association's reputation for financial
strength and customer service as its major competitive advantage in attracting
and retaining customers in its market area. The Association also believes it
benefits from its community orientation as well as its relatively high core
deposit base.

Personnel

    As of June 30, 1999, the Association had 14 full-time employees. The
employees are not represented by a collective bargaining unit, and the
Association considers its relationship with its employees to be excellent.

                                       22
<PAGE>

Rate/Volume Analysis

    The following table presents the extent of which changes in interest rates
and changes in the volume of interest-earning assets and interest-bearing
liabilities have affected the Association's interest income and interest expense
during the periods indicated. Information is provided in each category with
respect to (i) changes attributable to changes in volume (changes in volume
multiplied by prior rate), (ii) changes attributable to changes in rate (changes
in rate multiplied by prior volume), and (iii) the net change (the sum of the
prior columns). The changes attributable to the combined impact of volume and
rate have been allocated proportionately to the changes due to volume and
changes due to rate.

<TABLE>
<CAPTION>
                                                   Year ended June 30, 1998                        Year ended June 30, 1997
                                                          Compared to                                    Compared to
                                                   Year ended June 30, 1999                        Year ended June 30, 1998
                                                      Increase (Decrease)                             Increase (Decrease)
                                              -----------------------------------            -----------------------------------
                                                           Due to                                           Due to
                                              -----------------------------------            -----------------------------------
                                              Volume          Rate         Net               Volume          Rate         Net
                                              -------       --------     --------            -------       --------     --------
                                                                                (In Thousands)
<S>                                           <C>           <C>          <C>                 <C>           <C>          <C>
Interest-earning assets:
    Loans, net                                $   756       $    (13)    $    743            $ 1,273       $     92     $  1,375
    Mortgage-backed securities                   (995)          (295)      (1,290)              (560)            41         (519)
    Interest-earning deposits                     (14)           (53)         (67)               110             24          134
    Investment securities                        (403)           (47)        (450)              (568)          (174)        (742)
                                              -------       --------     --------            -------       --------     --------

      Total interest-earning assets           $  (656)      $   (408)    $ (1,064)           $   255       $    (17)    $    238
                                              =======       ========     ========            =======       ========     ========

Interest-bearing liabilities:
    Deposits                                  $   533       $  (249)     $    284            $   952       $     76     $  1,028
    FHLB Advances                              (1,187)         (265)       (1,452)              (823)            47         (776)
                                              -------       --------     --------            -------       --------     --------
      Total interest-bearing liabilities      $  (654)      $  (514)     $ (1,168)           $   129       $    123     $    252
                                              =======       =======      ========            =======       ========     ========

Net change in interest income                 $    (2)      $   106      $    104            $   126       $   (140)    $    (14)
                                              =======       =======      ========            =======       ========     ========
</TABLE>

                                       23
<PAGE>

                                  REGULATION

    Set forth below is a brief description of certain laws which related to the
regulation of the Company and the Association. As of June 1, 1995, the
Association became a federally chartered stock savings association. Therefore,
the following discussion relates to the regulation of a federally chartered
savings association. The description does not purport to be complete and is
qualified in its entirety by reference to applicable laws and regulations.

General

    The Association is subject to extensive regulation, examination and
supervision by the OTS as its chartering agency, and the FDIC, as the insurer of
its deposits.  The activities of federal savings institutions are governed by
the Home Owners' Loan Act, as amended (the "HOLA") and, in certain respects, the
Federal Deposit Insurance Act ("FDIA") and the regulations issued by the OTS and
the FDIC to implement these statutes.  These laws and regulations delineate the
nature and extent of the activities in which federal savings associations may
engage.  Lending activities and other investments must comply with various
statutory and regulatory capital requirements.  In addition, the Association's
relationship with its depositors and borrowers is also regulated to a great
extent, especially in such matters as the ownership of deposit accounts and the
form and content of the Association's mortgage documents.  The Association 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 review
the Association's compliance with various regulatory requirements.  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 Congress, could have a
material adverse impact on the Association and its operations.

Federal Regulation of Savings Associations

    Office of Thrift Supervision.  The OTS is an office in the Department of the
    -----------------------------
Treasury subject to the general oversight of the Secretary of the Treasury.  The
OTS generally possesses the supervisory and regulatory duties and
responsibilities formerly vested in the Federal Home Loan Bank Board.  Among
other functions, the OTS issues and enforces regulations affecting federally
insured savings associations and regularly examines these institutions.

    Federal Home Loan Bank System.  The FHLB System, consisting of 12 FHLBs, is
    ------------------------------
under the jurisdiction of the Federal Housing Finance Board ("FHFB").  The
designated duties of the FHFB are to supervise the FHLBs, to ensure that the
FHLBs carry out their housing finance mission, to ensure that the FHLBs remain
adequately capitalized and able to raise funds in the capital markets, and to
ensure that the FHLBs operate in a safe and sound manner.  The Association, as a
member of the FHLB-Des Moines, is required to acquire and hold shares of capital
stock in the FHLB-Des Moines in an amount equal to the greater of (i) 1.0% of
the aggregate outstanding principal amount of residential mortgage loans, home
purchase contracts and similar obligations at the beginning of each year, or
(ii) 1/20 of its advances (i.e., borrowings) from the FHLB-Des Moines.  The
Association is in compliance with this requirement with an investment in FHLB-
Des Moines stock of $3.1 million at June 30, 1999.  Among other benefits, the
FHLB-Des Moines provides a central credit facility primarily for member
institutions.  It is funded primarily from proceeds derived from the sale of
consolidated obligations of the FHLB System.  It makes advances to members in
accordance with policies and procedures established by the FHFB and the Board of
Directors of the FHLB-Des Moines.

                                       24
<PAGE>

    Federal Deposit Insurance Corporation.  The FDIC is an independent federal
    --------------------------------------
agency that insures the deposits, up to prescribed statutory limits, of
depository institutions.  The FDIC currently maintains two separate insurance
funds:  the Association Insurance Fund ("BIF") and the SAIF.  As insurer of the
Association's deposits, the FDIC has examination, supervisory and enforcement
authority over the Association.

    The Association's accounts are insured by the SAIF to the maximum extent
permitted by law.  The Association pays deposit insurance premiums based on a
risk-based assessment system established by the FDIC.  Under applicable
regulations, institutions are assigned to one of three capital groups that are
based solely on the level of an institution's capital --  "well capitalized" and
"undercapitalized"  --  which are defined in the same manner as the regulations
establishing the prompt corrective action system, as discussed below.  These
three groups are then divided into three subgroups which reflect varying levels
of supervisory concern, from those which are considered to be healthy to those
which are considered to be of substantial supervisory concern.  The matrix so
created results in nine assessment risk classifications, with rates that until
September 30, 1996 ranged from 0.23% for well capitalized, financially sound
institutions with only a few minor weaknesses, to 0.31% for undercapitalized
institutions that pose a substantial risk of loss to the SAIF unless effective
corrective action is taken.

    Pursuant to the Deposit Insurance Funds Act ("DIF Act"), which was enacted
on September 30, 1996, the FDIC imposed a special assessment on each depository
institution with SAIF-assessable deposits which resulted in the SAIF achieving
its designated reserve ratio.  In connection therewith, the FDIC reduced the
assessment schedule for SAIF members, effective January 1, 1997, to a range of
0% to 0.27%, with most institutions, including the Association, paying 0%.  This
assessment schedule is the same as that for the BIF, which reached its
designated reserve ratio in 1955.  In addition, since January 1, 1997, SAIF
members are charged an assessment of .065% of SAIF-assessable deposits for the
purpose of paying interest on the obligations issued by the Financing
Corporation (FICO") in the 1980s to help fund the thrift industry cleanup.  BIF-
assessable deposits will be charged an assessment to help pay interest on the
FICO bonds at a rate of approximately .013% until the earlier of December 31,
1999 or the date upon which the last savings association ceases to exist, after
which time the assessment will be the same for all insured deposits.

    The DIF Act provides for the merger of the BIF and the SAIF into the Deposit
Insurance Fund on January 1, 1999, but only if no insured depository institution
is a savings association on that date.  The DIF Act contemplates the development
of a common charter for all federally chartered depository institutions and the
abolition of separate charters for national banks and federal savings
associations.  It is not known what form the common charter may take and what
effect, if any, the adoption of a new charter would have on the operation of the
Association.

    The FDIC may terminate the deposit insurance of any insured depository
institution 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 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 that could result in termination of the
deposit insurance of the Association.

    Liquidity Requirements.  Under OTS regulations, each savings institution is
    -----------------------
required to maintain an average daily balance of liquid assets (cash, certain
time deposits and savings accounts, bankers' acceptances, and specified U.S.
Government, state or federal agency obligations and certain other investments)
equal to a monthly average of not less than a specified percentage (currently
4.0%) of its net withdrawable accounts plus short-term borrowings.  Monetary
penalties may be imposed for failure to meet liquidity requirements.  At June
30, 1999, the Association's liquidity ratio was 12.36%.

                                       25
<PAGE>

    Prompt Corrective Action.  Under the FDIC, each federal banking agency is
    -------------------------
required to implement a system of prompt corrective action for institutions that
it regulates.  The federal banking agencies have promulgated substantially
similar regulations to implement this system of prompt corrective action.  Under
the regulations, an institution shall be deemed to be (i) "well capitalized" if
it has a total risk-based capital ratio of 10.0% or more, has a Tier 1 risk-
based capital ratio of 6.0% or more, has a leverage ratio of 5.0% or more and is
not subject to specified requirements 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, has a Tier 1 risk-based capital ratio
of 4.0% or more, has a leverage 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%, has a Tier 1 risk-based capital ratio that is less than 4.0% or has a
leverage ratio that is less than 4.0% (3.0% in certain circumstances); (iv)
"significantly undercapitalized" if it has a total risk-based capital ratio that
is less than 6.0%, has a Tier 1 risk-based capital ratio that is less than 3.0%
or has a leverage 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%.

    A federal banking agency may, after notice and an opportunity for a hearing,
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 if
the institution is in an unsafe or unsound condition or has received in its most
recent examination, and has not corrected, a less than satisfactory rating for
asset quality, management, earnings or liquidity.  (The OTS may not, however,
reclassify a significantly undercapitalized institution as critically
undercapitalized.)

    An institution generally must file a written capital restoration plan that
meets specified requirements, as well as a performance guaranty by each company
that controls the institution, with the 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.  Immediately upon becoming undercapitalized, an
institution shall become subject to various mandatory and discretionary
restrictions on its operations.

    At June 30, 1999, the Association was categorized as "well capitalized"
under the prompt corrective action regulations of the OTS.

    Standards for Safety and Soundness.  The federal banking regulatory agencies
    -----------------------------------
have prescribed, by regulation, standards for all insured depository
institutions relating to: (i) internal controls, information systems and
internal audit systems; (ii) loan documentation; (iii) credit underwriting; (iv)
interest rate risk exposure; (v) asset growth; (vi) asset quality; (vii)
earnings; and (viii) compensations, fees and benefits ("Guidelines").  The
Guidelines 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.  If the OTS determines that the Association
fails to meet any standard prescribed by the Guidelines, the agency may require
the Association to submit to the agency an acceptable plan to achieve compliance
with the standard.  OTS regulations establish deadlines for the submission and
review of such safety and soundness compliance plans.

    Qualified Thrift Lender Test.  All savings associations are required to meet
    -----------------------------
a qualified thrift lender ("QTL") test to avoid certain restrictions on their
operations.  A savings institution that fails to become or remain a QTL shall
either convert to a national bank charter or be subject to the following
restrictions on its operations: (i) the Association may not make any new
investment or engage in activities that would not be permissible for national
banks; (ii) the Association may not establish any new branch office where a
national bank located in the savings institution's home state would not be able
to establish a branch office; (iii) the Association shall be ineligible to
obtain new advances from any FHLB; and (iv) the payment of dividends by the
Association shall be subject to the rules regarding the statutory and regulatory
dividend restrictions applicable to national banks.  Also, beginning three years
after the date on which the savings institution ceases to be a QTL, the savings
institution would be prohibited from retaining any investment or engaging in any
activity not permissible for a national bank and would be required

                                       26
<PAGE>

to repay any outstanding advances to any FHLB. In addition, within one year of
the date on which a savings association controlled by a company ceases to be a
QTL, the company must register as a bank holding company and become subject to
the rules applicable to such companies. A savings institution may requalify as a
QTL if it thereafter complies with the QTL test.

    Currently, the QTL test requires that either an institution qualify as a
domestic building and loan association under the Internal Revenue Code or that
65% of an institution's "portfolio assets" (as defined) consist of certain
housing and consumer-related assets on a monthly average basis in nine out of
every 12 months.  Assets that qualify without limit for inclusion as part of the
65% requirement are loans made to purchase, refinance, construct, improve or
repair domestic residential housing and manufactured housing; home equity loans;
mortgage-backed securities (where the mortgages are secured by domestic
residential housing or manufactured housing); FHLB stock; direct or indirect
obligations of the FDIC; and loans for educational purposes, loans to small
businesses and loans made through credit cards.  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 loans; and stock issued by Freddie Mac or Fannie Mae.  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 June
30, 1999, the Association was in compliance with the QTL test.

    Capital Requirements.  Under OTS regulations, a savings association must
    ---------------------
satisfy three minimum capital requirements:  core capital, tangible capital and
risk-based capital.  Savings associations must meet all of the standards in
order to comply with the capital requirements.

    OTS capital regulations establish a 3% core capital or leverage ratio
(defined as the ratio of core capital to adjusted total assets).  Core capital
is defined to include common stockholders' equity, noncumulative perpetual
preferred stock and any related surplus, and minority interests in equity
accounts of consolidated subsidiaries, less (i) any intangible assets, except
for certain qualifying intangible assets; (ii) certain mortgage servicing
rights; and (iii) equity and debt investments in subsidiaries that are not
"includable subsidiaries", which is defined as subsidiaries engaged solely in
activities not impermissible for a national bank, engaged in activities
impermissible for a national bank but only as an agent for its customers, or
engaged solely in mortgage-banking activities.  In calculating adjusted total
assets, adjustments are made to total assets to give effect to the exclusion of
certain assets from capital and to account appropriately for the investments in
and assets of both includable and non-includable subsidiaries.  Institutions
that fail to meet the core capital requirement would be required to file with
the OTS a capital plan that details the steps they will take to reach
compliance.  In addition, the OTS's prompt corrective action regulation provides
that a savings institution that has a leverage ratio of less than 4% (3% for
institutions receiving the highest CAMEL examination rating) will be deemed to
be "undercapitalized" and may be subject to certain restrictions.  See "--
Federal Regulation of Savings Associations  --  Prompt Corrective Action."

    Savings associations also must maintain "tangible capital" not less than
1.5% of adjusted total assets.  "Tangible capital" is defined, generally, as
core capital minus any "intangible assets" other than purchased mortgage
servicing rights.

    Savings associations must maintain total risk-based capital equal to at
least 8% of risk-weighted assets.  Total risk-based capital consists of the sum
of core and supplementary capital, provided that supplementary capital cannot
exceed core capital, as previously defined.  Supplementary capital includes (i)
permanent capital instruments such as cumulative perpetual preferred stock,
perpetual subordinated debt and mandatory convertible subordinated debt; (ii)
maturing capital instruments such as subordinated debt, intermediate-term
preferred stock and mandatory convertible subordinated debt, subject to an
amortization schedule, and (iii) general valuation loan and lease loss
allowances up to 1.25% of risk-weighted assets.

                                       27
<PAGE>

    The risk-based capital regulation assigns each balance sheet asset held by a
savings institution to one of four risk categories based on the amount of credit
risk associated with that particular class of assets.  Assets not included for
purposes of calculating capital are not included in calculating risk-weighted
assets.  The categories range from 0% for cash and securities that are backed by
the full faith and credit of the U.S. Government to 100% for repossessed assets
or assets more than 90 days past due.  Qualifying residential mortgage loans
(including multi-family loans) are assigned to a 50% risk weight.  Consumer,
commercial, home equity and residential construction loans are assigned a 100%
risk weight, as are nonqualifying residential mortgage loans and that portion of
land loans and nonresidential construction loans that do not exceed an 80% loan-
to-value ratio.  The book value of assets in each category is multiplied by the
weighing factor (from 0% to 100%) assigned to that category.  These products are
then totalled to arrive at total risk-weighted assets.  Off-balance sheet items
are included in risk-weighted assets by converting them to an approximate
balance sheet "credit equivalent amount" based on a conversion schedule.  These
credit equivalent amounts are then assigned to risk categories in the same
manner as balance sheets assets and included as risk-weighted.


    The OTS has incorporated an interest rate risk component into its regulatory
capital rule.  Under the rule, savings associations with "above normal: interest
rate risk exposure would be subject to a deduction from total capital for
purposes of calculating their risk-based capital requirements.  A savings
association's interest rate risk is measured by the decline in the net portfolio
value of its assets (i.e., the difference between incoming and outgoing
                     ----
discounted cash flows from assets, liabilities and off-balance sheet contracts)
that would result from a hypothetical 200 basis point increase or decrease in
market interest rates divided by the estimated economic value of the
Association's assets, as calculated in accordance with guidelines set forth by
the OTS.  A savings association whose measured interest rate risk exposure
exceeds 2% must deduct an interest rate risk component in an amount equal to
one-half of the difference between the institution's measured interest rate risk
and 2%, multiplied by the estimated economic value of the Association's assets.
That dollar amount is deducted from an association's total capital in
calculating compliance with its risk-based capital requirement.  Under the rule,
there is a two quarter lag between the reporting date of an institution's
financial data and the effective date for the new capital requirement based on
that data.  A savings association with assets of less than $300 million and
risk-based capital ratios in excess of 12% is not subject to the interest rate
risk component, unless the OTS determines otherwise.  The rule also provides
that the Director of the OTS may waive or defer an association's interest rate
risk component on a case-by-case basis.  Under certain circumstances, a savings
association may request an adjustment to its interest rate risk component if it
believes that the OTS-calculated interest rate risk component overstates its
interest rate risk exposure.  In addition, certain "well capitalized"
institutions may obtain authorization to use their own interest rate risk model
to calculate their interest rate risk component in lieu of the OTS-calculated
amount.  The OTS has postponed the date that the component will first be
deducted from an institution's total capital.

         For information regarding the Association's capital levels as of June
30, 1999, see Note 11 Regulatory Matters in the Financial Statement Notes.

         Limitations on Capital Distributions.  OTS regulations impose uniform
         -------------------------------------
limitations on the ability of all savings associations to engage in various
distributions of capital such as dividends, stock repurchases and cash-out
mergers.  In addition, OTS regulations require the Association to give the OTS
30 days' advance notice of any proposed declaration of dividends, and the OTS
has the authority under its supervisory powers to prohibit the payment of
dividends.  The regulation utilizes a three-tiered approach which permits
various levels of distributions based primarily upon a savings association's
capital level.

         A Tier 1 savings association has capital in excess of its capital
requirement (both before and after the proposed capital distribution).  A Tier 1
savings association may make (without application but upon prior notice

                                       28
<PAGE>

to, and no objection made by, the OTS) capital distributions during a calendar
year up to 100% of its net income to date during the calendar year plus one-half
of its surplus capital ratio (i.e., the amount of capital in excess of its
                             ------
requirement) at the beginning of the calendar year or the amount authorized for
a Tier 2 association. Capital distributions in excess of such amount require
advance notice to the OTS. A Tier 2 savings association has capital equal to or
in excess of its minimum capital requirement but below its requirement (both
before and after the proposed capital distribution). Such an association may
make (without application) capital distributions up to an amount equal to 75% of
its net income during the previous four quarters depending on how close the
Association is to meeting its capital requirement. Capital distributions
exceeding this amount require prior OTS approval. Tier 3 associations are
savings associations with capital below the minimum capital requirement (either
before or after the proposed capital distribution). Tier 3 associations may not
make any capital distributions without prior approval from the OTS.

         The Association currently meets the criteria to be designated a Tier 1
association and, consequently, could at its option (after prior notice to, and
no objection made by, the OTS) distribute up to 100% of its net income during
the calendar year plus 50% of its surplus capital ratio at the beginning of the
calendar year less any distributions previously paid during the year.

         Loans to One Borrower.  Under the HOLA, savings institutions are
         ----------------------
generally subject to the national bank limit on loans to one borrower.
Generally, this limit is 15% of the Association's unimpaired capital and
surplus, plus an additional 10% of unimpaired capital and surplus, if such loan
is secured by readily-marketable collateral, which is defined to include certain
financial instruments and bullion.  The OTS by regulation has amended the loans
to one borrower rule to permit savings associations meeting certain
requirements, including capital requirements, to extend loans to one borrower in
additional amounts under circumstances limited essentially to loans to develop
or complete residential housing units.  At June 30, 1999, the Association's
regulatory limit on loans to one borrower was $4.3 million.

         Activities of Associations and Their Subsidiaries.  A savings
         --------------------------------------------------
association may establish operating subsidiaries to engage in any activity that
the savings association may conduct directly and may establish service
corporation subsidiaries to engage in certain preapproved activities or, with
approval of the OTS, other activities reasonably related to the activities of
financial institutions.  When a savings association establishes or acquires a
subsidiary or elects to conduct any new activity through a subsidiary that the
Association controls, the savings association must notify the FDIC and the OTS
30 days in advance and provide the information each agency may, by regulation,
require.  Savings associations also must conduct the activities of subsidiaries
in accordance with existing regulations and orders.

         The OTS may determine that the continuation by a savings association of
its ownership control of, or its relationship to, the subsidiary constitutes a
serious risk to the safety, soundness or stability of the Association or is
inconsistent with sound banking practices or with the purposes of the FDIA.
Based upon that determination, the FDIC or the OTS has the authority to order
the savings association to divest itself of control of the subsidiary.  The FDIC
also may determine by regulation or by order that any specific activity poses a
serious threat to the SAIF.  If so, it may require that no SAIf member engage in
that activity directly.

         Transactions with Affiliates.  Savings associations must comply with
         -----------------------------
Sections 23A and 23B of the Federal Reserve Act relative to transactions with
affiliates in the same manner and to the same extent as if the savings
association were a Federal Reserve member bank.  A savings and loan holding
company, its subsidiaries and any other company under common control are
considered affiliates of the subsidiary savings association under the HOLA.
Generally, Sections 23A and 23B: (i) limit the extent to which the insured
association or its subsidiaries may engage in certain covered transactions with
an affiliate to an amount equal to 10% of such institution's capital and surplus
and place an aggregate limit on all such transactions with affiliates to an
amount equal to 20% of such capital and surplus  and (ii) require that all such
transactions be on terms substantially the same, or at least as

                                       29
<PAGE>

favorable to the institution or subsidiary, as those provided to a non-
affiliate. The term "covered transaction" includes the making of loans, the
purchase of assets, the issuance of a guarantee and similar types of
transactions. Any loan or extension of credit by the Association to an affiliate
must be secured by collateral in accordance with Section 23A.

         Three additional rules apply to savings associations: (i) a savings
association may not make any loan or other extension of credit to an affiliate
unless that affiliate is engaged only in activities permissible for bank holding
companies; (ii) a savings association may not purchase or invest in securities
issued by an affiliate (other than securities of a subsidiary); and (iii) the
OTS may, for reasons of safety and soundness, impose more stringent restrictions
on savings associations but may not exempt transactions from or otherwise
abridge Section 23A or 23B.  Exemptions from Section 23A or 23B may be granted
only by the Federal Reserve, as is currently the case with respect to all FDIC-
insured banks.

         The Association's authority to extend credit to executive officers,
directors and 10% shareholders, as well as entities controlled by such persons,
is currently governed by Sections 22(g) and 22(h) of the Federal Reserve Act,
and Regulation O thereunder.  Among other things, these regulations require that
such loans be made on terms and conditions substantially the same as those
offered to unaffiliated individuals and not involve more than the normal risk of
repayment.  Regulation O also places individual and aggregate limits on the
amount of loans the Association may make to such persons based, in part, on the
Assoication's capital position, and requires certain board approval procedures
to be followed.  The OTS regulations, with certain minor variances, apply
Regulation O to savings institutions.

         Community Reinvestment Act.  Savings associations are also subject to
         ---------------------------
the provisions of the Community Reinvestment Act of 1977, which requires the
appropriate federal bank regulatory agency, in connection with its regular
examination of a savings association, to assess the saving association's record
in meeting the credit needs of the community serviced by the savings
association, including low and moderate income neighborhoods.  The regulatory
agency's assessment of the savings association's record is made available to the
public.  Further, such assessment is required of any savings association which
has applied, among other things, to establish a new branch office that will
accept deposits, relocate an existing office or merge or consolidate with, or
acquire the assets or assume the liabilities of, a federally regulated financial
institution.

Savings and Loan Holding Company Regulations

         Holding Company Acquisitions.  The HOLA and OTS regulations issued
         -----------------------------
thereunder generally prohibit a savings and loan holding company, without prior
OTS approval, from acquiring more than 5% of the voting stock of any other
savings association or savings and loan holding company or controlling the
assets thereof.  They also prohibit, among other things, any director or officer
of a savings and loan holding company, or any individual who owns or controls
more than 25% of the voting shares of such holding company, from acquiring
control of any savings association not a subsidiary of such savings and loan
holding company, unless the acquisition is approved by the OTS.

         Holding Company Activities.  As a unitary savings and loan holding
         ---------------------------
company, the Company generally is not subject to activity restrictions under the
HOLA.  If the Company acquires control of another savings association as a
separate subsidiary other than in a supervisory acquisition, it would become a
multiple savings and loan holding company.  There generally are more
restrictions on the activities of a multiple savings and loan holding company
than on those of a unitary savings and loan holding company.  The HOLA provides
that, among other things, no multiple savings and loan holding company or
subsidiary thereof which is not an insured association shall

                                       30
<PAGE>

commence or continue for more than two years after becoming a multiple savings
and loan association holding company or subsidiary thereof, any business
activity other than: (i) furnishing or performing management services for a
subsidiary insured institution, (ii) conducting an insurance agency or escrow
business, (iii) holding, managing, or liquidating assets owned by or acquired
from a subsidiary insured institution, (iv) holding or managing properties used
or occupied by a subsidiary insured institution, (v) acting as trustee under
deeds of trust, (vi) those activities previously directly authorized by
regulation as of March 5, 1987 to be engaged in by multiple holding companies or
(vii) those activities authorized by the Federal Reserve Board as permissible
for bank holding companies, unless the OTS by regulation, prohibits or limits
such activities for savings and loan holding companies. Those activities
described in (vii) above also must be approved by the OTS prior to being engaged
in by a multiple savings and loan holding company.


         Qualified Thrift Lender Test.  The HOLA provides that any savings and
         ----------------------------
loan holding company that controls a savings association that fails the QTL
test, as explained under "-- Federal Regulation of Savings Associations --
Qualified Thrift Lender Test", must, within one year after the date on which the
Association ceases to be a QTL, register as and be deemed a bank holding company
subject to all applicable laws and regulations.

                                   TAXATION
Federal Taxation

         General.  The Company and the Association report their income on a
         -------
fiscal year basis using the accrual method of accounting and are subject to
federal income taxation in the same manner as other corporations with some
exceptions, including particularly the Association's reserve for bad debts
discussed below. 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 Association or the Company.

         Bad Debt Reserve.  Historically, savings institutions such as the
         ----------------
Association which met certain definitional tests primarily related to their
assets and the nature of their business ("qualifying thrift") were permitted to
establish a reserve for bad debts and to make annual additions thereto, which
may have been deducted in arriving at their taxable income. The Association's
deductions with respect to "qualifying real property loans", which are generally
loans secured by a certain interest in real property, were computed using an
amount based on the Association's actual loss experience, or a percentage equal
to 8% of the Association's taxable income, computed with certain modifications
and reduced by the amount or any permitted additions to the non-qualifying
reserve. Due to the Association's loss experience, the Association generally
recognized a bad debt deduction equal to 8% of taxable income.

         The thrift bad debt rules were revised by Congress in 1996. The new
rules eliminated the percentage of taxable income method for deducting additions
to the tax bad debt reserves for all thrifts for tax years beginning after
December 31, 1995. These rules also required that all institutions recapture all
or a portion of their bad debt reserves added since the base year (last taxable
year beginning before January 1, 1988). For taxable years beginning after
December 31, 1995, the Association's bad debt deduction must be determined under
the experience method using a formula based on actual bad debt experience over a
period of years or, if the Association is a "large" association (assets in
excess of $500 million) on the basis of net charge-offs during the taxable year.
The new rules allowed an institution to suspend bad debt reserve recapture for
the 1996 and 1997 tax years if the institution's lending activity for those
years is equal to or greater than the institution's average mortgage lending
activity for the six taxable years preceding 1996 adjusted for inflation. For
this purpose, only home purchase or home improvement loans are included and the
institution can elect to have the tax years with the highest and lowest lending
activity removed from the average calculation. If an institution is permitted to
postpone the reserve recapture, it must begin its six year recapture no later
than the 1998 tax year. The unrecaptured tax year reserves will not be subject
to recapture as long as the institution continues to carry on the business of
banking. In addition,

                                       31
<PAGE>

the balance of the pre-1988 bad debt reserve will be recaptured in the case of
certain excess distributions to shareholders.

         Distributions.  To the extent that the Association makes "nondividend
         -------------
distributions" to the Company, such distributions will be considered to result
in distributions from the balance of its bad debt reserve as of December 31,
1987 (or a lesser amount if the Association's loan portfolio decreased since
December 31, 1987) and then from the supplemental reserve for losses on loans
("Excess Distributions"), and an amount based on the Excess Distributions will
be included in the Association's taxable income. Nondividend distributions
include distributions in excess of the Association's current and accumulated
earnings and profits, distributions in excess of the Association's current and
accumulated earnings and profits, distributions in redemption of stock and
distributions in partial or complete liquidation. However, dividends paid out of
the Association's current or accumulated earnings and profits, as calculated for
federal income tax purposes, will not be considered to result in a distribution
from the Association's bad debt reserve. The amount of additional taxable income
created from an Excess Distribution is an amount that, when reduced by the tax
attributable to the income, is equal to the amount of the distribution. Thus, if
the Association makes a "nondividend distribution", then approximately one and
one-half times the Excess Distribution would be includable in gross income for
federal income tax purposes, assuming a 34% corporate income tax rate (exclusive
of state and local taxes). See "REGULATION" and for limits on the payment of
dividends by the Association. The Association does not intend to pay dividends
that would result in a recapture of any portion of its tax bad debt reserve.

         Corporate Alternative Minimum Tax.  The Code imposes a tax on
         ---------------------------------
alternative minimum taxable income ("AMTI") at a rate of 20%.  The excess of the
tax bad debt reserve deduction using the percentage of taxable income method
over the deduction that would have been allowable under the experience method is
treated as a preference item for purposes of computing the AMTI.  In addition,
only 90% of AMTI can be offset by net operating loss carryovers.  AMTI is
increased by an amount equal to 75% of the amount by which the Association's
adjusted current earnings exceeds its AMTI (determined without regard to this
preference and prior to reduction for net operating losses).  For taxable years
beginning after December 31, 1986, and before January 1, 1996, an environmental
tax of 0.12% of the excess of AMTI (with certain modification) over $2.0 million
is imposed on corporations, including the Association, whether or not an
Alternative Minimum Tax is paid.

         Dividends-Received Deduction.  The Company may exclude from its income
         ----------------------------
100% of dividends received from the Association 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 Association will not file a consolidated tax
return, except that if the Company or the Association owns more than 20% of the
stock of a corporation distributing a dividend, then 80% of any dividends
received may be deducted.

         Audits.  The Association's federal income tax returns have not been
         ------
audited during the past ten years.

State Taxation

         Missouri Taxation.  Missouri-based thrift institutions, such as the
         -----------------
Association, are subject to a special financial institutions tax, based on net
income without regard to net operating loss carryforwards, at the rate of 7% of
net income. This tax is in lieu of certain other state taxes on thrift
institutions, on their property, capital or income, except taxes on tangible
personal property owned by the Association and held for lease or rental to
others and on real estate, contributions paid pursuant to the Unemployment
Compensation Law of Missouri, social security taxes, sales taxes and use taxes.
In addition, the Association is entitled to credit against this tax all taxes
paid to the State of Missouri or any political subdivision, except taxes on
tangible personal property owned by the Association and held for lease or rental
to others and on real estate, contributions paid pursuant to the

                                       32
<PAGE>

Unemployment Compensation Law of Missouri, social security taxes, sales and use
taxes, and taxes imposed by the Missouri Financial Institutions Tax Law.
Missouri thrift institutions are not subject to the regular corporate income
tax.


         Delaware.  As a Delaware holding company not earning income in
         ---------
Delaware, the Company is exempt from Delaware corporate income tax, but is
required to file an annual report with and pay an annual franchise tax to the
State of Delaware.


Item 2. Properties.
--------------------

         The Company is located and conducts its business at the Association's
office in Macon, located at 101 Vine Street in Macon, Missouri. The Association
also has a branch office at 801 North Morley in Moberly, Missouri. See Note 6 to
the "Notes to Consolidated Financial Statements" for the net book value of the
Association's premises and equipment in the Annual Report to Stockholders. Both
offices are owned by the Company.


Item 3. Legal Proceedings.
--------------------------

         Neither the Company nor its subsidiaries are involved in any pending
legal proceedings, other than routine legal matters occurring in the ordinary
course of business, which in the aggregate involve amounts which are believed by
management to be immaterial to the consolidated financial condition or results
of operations of the Company.


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

         None applicable.

                                    PART II


Item 5. Market for Registrant's Common Equity and Related Stockholder Matters.
-----------------------------------------------------------------------------

Stock Listing

MBLA Financial Corporation stock is traded on the over-the-counter market under
the NASDAQ symbol of MBLF and can be found listed in the following newspapers
under the noted abbreviations:

         Wall Street Journal:     MBLA    USA Today:     MBLA

The following table sets forth market price information for the common stock of
the Company for the periods indicated and dividend payments for each semi-annual
period as indicated.  There is no assurance that the Company will continue to
pay dividends due to future changes in economic conditions and future interest
rates.

          Quarter Ended           High     Low    Dividends
          -------------         -------  -------  ---------
          September 30, 1997    $ 27.25  $ 23.25  N/A
          December 30, 1997     $ 30.50  $ 25.25  $.20

                                       33
<PAGE>

          Quarter Ended          High          Low        Dividends
          -------------         -------      -------      ---------
          March 30, 1998        $30.625      $27.25        N/A
          June 30, 1998         $27.125      $23.00       $.30
          September 30, 1998    $24.75       $18.375      $.20
          December 31, 1998     $20.938      $13.75       $.30
          March 31, 1999        $21.00       $18.375       N/A
          June 30, 1999         $23.75       $16.438      $.30

Item 6. Management's Discussion and Analysis of Financial Condition and Results
-------------------------------------------------------------------------------
of Operations.
-------------

MBLA Financial Corporation ("Company") is the savings and loan holding company
for Macon Building and Loan Association, F.A. (the "Association" or "Macon").
Apart from the operations of the Association, the Company did not engage in any
significant operations during the year ended June 30, 1999.

The business of the Association consists principally of attracting deposits from
the general public and using such deposits to purchase and originate mortgage
loans secured by one- to four-family residences. The servicing rights on
substantially all loans purchased by the Association are retained by the
sellers. In addition, the Association invests in U.S. government and federal
agency securities and mortgage-backed and related securities, interest-earning
deposits and commercial and multi-family real estate loans and consumer loans.
The Association's profitability depends primarily on its net interest income
which is the difference between the income it receives on its loans and
investment portfolio and its cost of funds, which consists of interest paid on
deposits and other borrowed funds. Net interest income is also affected by the
relative amounts of interest-earning assets and interest-bearing liabilities.
When interest-earning assets approximate or exceed interest-bearing liabilities,
any positive interest rate spread will generate net interest income. To a lesser
extent, the Association's profitability is also affected by the level of other
income and non-interest expenses. Other income has not been significant. Other
expenses consists of compensation and benefits, occupancy related expenses,
deposit insurance premiums, losses on the sale of real estate acquired through
foreclosure and other operating expenses.

The Association's loan portfolio has increased to $141.8 million at June 30,
1999 from $136.6 million at June 30, 1998. While management cannot predict the
duration of the increase in loan demand, the Association will pursue other
possible investment alternatives to help diversify its portfolio while raising
appropriate funds for these purposes.

The Association's operating strategies have been developed to respond to the
economic conditions prevailing in the Association's primary market area.
However, due to traditional low local loan demand, the Association has, for over
32 years, purchased the majority of its loans from selected mortgage banking
companies and financial institutions located primarily in Columbia, Boone
County, Missouri, and to a lesser extent other cities in central Missouri. The
sellers retain servicing rights on the loans purchased by the Association. By
extending its lending market area and employing alternative investment
opportunities, such as mortgage-backed and investment securities, the
Association has attempted to limit, and believes it has been successful in
limiting, the impact of low local loan demand on its results of operations.

The economy of Boone County depends primarily on the service and government
industries. The education industry also plays an important role in the economy
of Boone County as three colleges and universities are located there.

The population of Macon and Randolph Counties declined between 1980 and 1994 and
this trend is assumed to now be stabilized. In contrast, the population of Boone
County has grown faster than the state and national growth rates during the last
thirteen years, and the population of Boone County is expected to continue to
grow. Boone County's per capita income in 1996 was higher than the income levels
for Macon and Randolph Counties, but was still lower than the state and national
per capita income levels.

                                       34
<PAGE>

The Association continues to maintain a high level of asset quality and has
remained profitable notwithstanding the decline in the local economy and
traditional low demand for mortgage loans in its market area.

The operations of Macon are influenced significantly by local economic
conditions and by policies of financial institution regulatory agencies,
including the OTS and the FDIC. The Association's cost of funds is influenced by
interest rates on competing investments and general market interest rates.
Lending activities are affected by the demand for financing of real estate and
other types of loans, which in turn are affected by the interest rates at which
such financing may be offered. Historically, the Association has foregone growth
to maintain profitability.

The Association has employed various strategies intended to minimize the adverse
effect of interest rate risk on future operations by providing a close match
between the interest rate sensitivity of its assets and liabilities and by
expanding its activities which are not directly dependent on interest rate
spreads. The Association's strategies are intended to stabilize net interest
income for the long-term by protecting its interest rate spread against changes
in interest rates.

The Board of Directors has appointed an Asset/Liability Committee comprised of
the President and the entire Board of Directors. It is the responsibility of
this committee to manage the interest rate sensitivity of the Association's
balance sheet in order to minimize large fluctuations in the net income of the
Association. The Association utilizes adjustable rate mortgages ("ARMs") to
provide repricing opportunities more closely matched within the time frames in
which its deposits are repriced. The committee is charged with the
responsibility to manage interest rate risk while remaining sensitive to the
Board's directive that credit risk not be substituted for interest rate risk. As
a result of these efforts, approximately 83.4% of Macon's mortgage loan
portfolio as of June 30, 1999, consisted of ARMs, including ARMs secured by
commercial real estate.

The difference between the amount of interest-earning assets and interest-
bearing liabilities to be repriced during a specific time period is referred to
as the "GAP position." The amounts of assets or liabilities which mature or
reprice during a particular period are determined in accordance with the
contractual terms of the asset or liability but are not adjusted for loan
amortization. Adjustable rate loans and mortgage-backed securities are adjusted
for scheduled repayments and prepayments. The Association's passbook accounts
generally are subject to immediate withdrawal and are included in the three
months or less category on the Association's one year GAP projection. The GAP
position of the Association's assets and liabilities could vary substantially if
different assumptions were used.

The balance sheet structure poses a challenge of interest rate risk to the
management. The Association's one year GAP at June 30, 1999, was a  negative
4.84% or $9.8 million.

The Association's one year GAP is reflected in the following table:

                Maturities within One Year

                Assets:         $119,120,000
                Liabilities:     128,928,000
                                ------------
                GAP:            $ -9,808,000

A negative one year GAP is defined to be the excess of interest-bearing
liabilities over interest-earning assets that mature or reprice in one year.
Generally, during a period of rising interest rates, a negative gap within a
given period of time would adversely affect net interest income, while a
positive gap within a given period of time would result in an increase in net
interest income; during a period of falling interest rates, a negative gap
within a given

                                       35
<PAGE>

period of time would result in an increase in net interest income while a
positive gap within a given period of time would have the opposite effect. Many
factors affect the one-year GAP position which are beyond the control of the
Association such as regulatory policy changes and customer reactions to interest
rate changes. However, Macon believes that its asset/liability management
enables it, in part, to avoid large swings in the profitability of the
Association.

Effect of Inflation and Changing Prices

The Financial Statements and related data presented herein have been prepared in
accordance with generally accepted accounting principles which require the
measurement of financial position and operating results in terms of historical
dollars, without considering changes in the relative purchasing power of money
over time due to inflation. The primary impact of inflation on the operations of
Macon is reflected in increased operating costs. Unlike most industrial
companies, virtually all of the assets and liabilities of a financial
institution are monetary in nature. As a result, interest rates generally have a
more significant impact on a financial institution's performance than does
inflation. Interest rates do not necessarily move the same direction or to the
same extent as the price of goods and services. However, long-term mortgage
rates, which are influenced by inflationary expectations, have a significant
impact on the types of loans originated. For example, ARMs are more acceptable
to the borrowing public during times of higher interest rates and are originated
to be retained for the loan portfolio by Macon. In the current interest rate
environment, liquidity and the maturity structure of Macon's assets and
liabilities are critical to the maintenance of acceptable performance levels.

Liquidity and Capital Resources

The Association's principal sources of funds are proceeds from maturities of
investment securities, principal payments received on mortgage-backed and
related securities, loan repayments and deposits.

The primary investing activities of the Association are originating and
purchasing loans and purchasing investments and mortgage-backed securities.
Proceeds from maturities of investment securities and principal payments
received on mortgage-backed and related securities provided $10.1 million of
liquidity for the year ended June 30, 1999. New loan closings exceeded
repayments and purchases by $11.9 million.

The Association's most significant financing activities are deposit accounts,
FHLB borrowings, taxes and insurance on behalf of borrowers, and the payment of
dividends. During the year ended June 30, 1999, the Association repaid $4.2
million of FHLB advances while the net increase in deposits and escrow balances
was $2.6 million.

Federal regulations require the Association to maintain minimum levels of liquid
assets (i.e., cash and eligible investments). The required percentage has varied
from time to time based upon economic conditions and savings flows and is
currently 4% of the average daily balance of its net withdrawable savings
deposits and short-term borrowings. The Association attempts to maintain levels
of liquidity at levels in excess of those required by regulation. Maintaining
levels of liquidity acts, in part, to reduce the Association's balance sheet
exposure to interest rate risk. At June 30, 1999, the Association's liquidity
ratio (liquid assets as a percentage of net withdrawable savings deposits and
short-term borrowings) was 12.36%.

The Association must also maintain adequate levels of liquidity to ensure the
availability of funds to satisfy loan commitments and deposit withdrawals. At
June 30, 1999, the Association had outstanding commitments to originate loans of
$7.1 million. At the same time, certificates of deposit which are scheduled to
mature in one year or less totalled $86.4 million. Based upon historical
experience, management believes the majority of maturing certificates of deposit
will remain with the Association. In addition, management of the Association
believes that it can adjust the offering rates of certificates of deposit to
retain deposits in changing interest rate environments. In the event that a
significant portion of these deposits are not retained by the Association, the
Association would be able to

                                       36
<PAGE>

utilize FHLB advances to fund deposit withdrawals, which would result in an
increase in interest expense to the extent that the average rate paid on such
advances exceeds the average rate paid on deposits of similar duration.

Management believes its ability to generate funds internally will satisfy its
liquidity requirements. If the Association requires funds beyond its ability to
generate them internally, it has the ability to borrow funds from the FHLB under
a blanket agreement which assigns all investments in FHLB stock as well as
qualifying first mortgage loans equal to 150% of the outstanding advances as
collateral to secure the amounts borrowed. At June 30, 1999, the Association had
approximately $62.7 million available to it under the above-mentioned borrowing
arrangement. At June 30, 1999, the Association had $54.3 million in advances
from the FHLB.

The Association is required to maintain specific amounts of capital pursuant to
OTS regulations on minimal capital standards. As of June 30, 1999, the
Association complied with all regulatory capital requirements as of that date
with tangible and risk-based capital ratios of 14.03% and 32.44% respectively.
For a detailed discussion of regulatory capital requirements, see "REGULATION --
Federal Regulation of Savings Associations -- Capital Requirements."


Comparison of Operating Results for the Years Ended June 30, 1999 and 1998

Net Income.  Net income for fiscal 1999 increased $137,000 from fiscal 1998.
----------
The increase in net income primarily resulted from an increase in mortgage
lending activity and was offset somewhat from a decrease in mortgage-backed and
related securities activity and investment securities. Interest rates were
stable on interest-earning assets and interest-bearing liabilities during the
first half of the fiscal year, but were on the rise for the second half.

Interest Income.  Interest income decreased $1 million for fiscal year 1999 due
---------------
primarily to a decrease in mortgage-backed and related securities income and
investment securities income. The decrease in mortgage-backed and related
securities income is due to the Association reducing its mortgage securities
portfolio by $20.7 million in fiscal year 1998.

Interest Expense. Interest expense for fiscal 1999 was $9.5 million as compared
----------------
to $10.7 million for fiscal 1998. The decrease in interest expense was primarily
due to lower cost of funds on deposits and also on FHLB advances. The average
cost of funds decreased to 5.41% for fiscal 1999 from 5.67% for fiscal 1998.

Net Interest Income.  Net interest income for fiscal 1999 increased $104,000
-------------------
over fiscal 1998 due primarily to the decrease in interest expense being greater
than the decrease in interest income.

Provisions for Loan Losses.  During fiscal 1999, the Association decreased its
--------------------------
provision for loan losses to $15,000 from $60,000 in fiscal 1998. The loan loss
allowance was at $705,000 at June 30, 1999. The Association has historically
experienced low losses. However, no assurances can be given as to future loss
levels. The Association's policy requires that a loan loss provision be equal to
1/2 of 1% of outstanding mortgage loans.

Other Income.  Other income for fiscal 1999 totalled $100,000 as compared to
------------
$44,000 for fiscal 1998. Other income is not considered a significant part of
the total income of the Association.

Other Expense.  Other expenses during fiscal 1999 were $1.6 million as compared
-------------
to $1.6 million for fiscal 1998.  All expenses were at approximately the same
levels for fiscal 1999 as fiscal 1998.

                                       37
<PAGE>

Income Taxes. The provision for federal and state income taxes increased
------------
$113,000 to $1.2 million in fiscal 1999 from $1.1 million in fiscal 1998. The
effective tax rate was 37.1% in fiscal 1999 as compared to 36.4% in fiscal 1998.


Comparison of Operating Results for the Years Ended June 30, 1998 and 1997

Net Income. Net income for fiscal 1998 increased $443,000 from fiscal 1997. The
----------
increase in net income primarily resulted from an increase in mortgage lending
activity and was offset somewhat from a decrease in mortgage-backed and related
securities activity and a decrease in SAIF deposit insurance premiums. Interest
rates remained stabilized on interest-earning assets and interest-bearing
liabilities during the period.

Interest Income. Interest income increased $238,000 for fiscal year 1998 due
---------------
primarily to increased mortgage loan activity. The higher balance of loans
outstanding during fiscal 1998 reflects an increase in deposit growth, improved
local loan demand and a continued volume of purchased loans. Total loans
originated and purchased during fiscal 1998 increased loans outstanding by $10.1
million. During this period, the Association reduced its mortgage-backed
securities portfolio by $20.7 million.

Interest Expense. Interest expense for fiscal 1998 was $10.7 million as compared
----------------
to $10.4 million for fiscal 1997. The increase in interest expense was primarily
due to the increase in deposits and off-set by the decrease in Federal Home Loan
Bank advances. The average cost of deposits increased from 5.52% for fiscal 1997
to 5.65% for fiscal 1998. Due to current interest rates, customers continue to
move funds into shorter term certificates of deposit.

Net Interest Income.  Net interest income for fiscal 1998 remained relatively at
-------------------
the same level as fiscal year 1997.  Although the Association's mortgage loan
activity increased during fiscal 1998, net interest income decreased due to a
decrease in mortgage-backed and related securities.

Provisions for Loan Losses. During fiscal 1998, the Association decreased its
--------------------------
provision for loan losses to $60,000 from $95,000 in fiscal 1997. The loan loss
allowance was at $690,000 at June 30, 1998. The Association has historically
experienced low losses. However, no assurances can be given as to future loss
levels. The Association's policy requires that a loan loss provision be equal to
1/2 of 1% of outstanding mortgage loans.

Other Income. Other income for fiscal 1998 totalled $44,000 as compared to
------------
$10,000 for fiscal 1997. Other income is not considered a significant part of
the total income of the Association.

Other Expense. Other expenses during fiscal 1998 were $1.6 million as compared
-------------
to $2.1 million for fiscal 1997. The decrease of approximately $480,000 was due
to the decrease in the SAIF deposit insurance of accounts premium offset by a
slight increase in compensation and benefits.

Income Taxes. The provision for federal and state income taxes increased $93,000
------------
to $1.1 million in fiscal 1998 from $1.0 million in fiscal 1997. The effective
tax rate was 36.4% in fiscal 1998 as compared to 40.6% in fiscal 1997.


Year 2000

The Year 2000 issue exists because many computer systems and applications use
two-digit date fields to designate a year. As the century date change occurs,
date-sensitive systems may recognize the Year 2000 as 1900, or not at all. This
inability to recognize or properly treat the Year 2000 may cause systems to
process financial and operational information incorrectly.

                                       38
<PAGE>

Item 7.  Financial Statements
-----------------------------

                 CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION

<TABLE>
<CAPTION>
                                                                     As of  June 30
                                                                   --------------------
                                                                     1999        1998
                                                                   --------    --------
                                                                     (In thousands)
<S>                                                                <C>         <C>
    ASSETS

Cash on hand and noninterest-earning deposits                      $    233    $    580
Interest-earning deposits in other institutions                       4,625       3,055
Investment securities (Note 2)
    Securities available-for-sale, at fair value                      7,480       9,770
Mortgage-backed securities (Note 3)
    Securities available-for-sale, at fair value                     43,536      48,226
Loans receivable, net (Notes 4 and 15)                              141,840     136,647
Accrued interest receivable (Note 5)                                  1,101       1,162
Investment required by law
Stock in Federal Home Loan Bank, at cost                              3,134       3,134
Real estate owned                                                       120          --
Premises and equipment (Note 6)                                         259         282
Other assets                                                            505         372
                                                                   --------    --------
    Total assets                                                   $202,833    $203,228
                                                                   ========    ========

    LIABILITIES AND STOCKHOLDERS' EQUITY

Deposits (Note 7)                                                  $117,951    $115,330
Federal Home Loan Bank advances (Note 8)                             54,393      58,640
Advances from borrowers for taxes and insurance                         173         165
Income tax liabilities (Note 10)                                        413         541
Accrued expenses and other liabilities                                  403         711
Dividends payable                                                       374          --
                                                                   --------    --------
    Total liabilities                                               173,707     175,387
                                                                   --------    --------

Commitments and contingencies (Note 13)

Preferred stock, $.01 par value; authorized 500,000
  shares; none outstanding                                               --          --
Common stock $.01 par value; authorized 2,500,000 shares,
  issued 1,765,211 shares in 1999 and 1998                               17          17
Additional paid-in capital                                           17,838      17,526
Retained earnings, substantially restricted                          20,304      19,022
Less:
    Treasury stock, 518,190 shares in 1999 and 1998                  (9,395)     (9,395)
    Accumulated other comprehensive income                              448         859
    Common stock acquired by the ESOP (Note 9)                          (86)       (188)
                                                                   --------    --------
    Total stockholders' equity                                       29,126      27,841
                                                                   --------    --------

    Total liabilities and stockholders' equity                     $202,833    $203,228
                                                                   ========    ========
</TABLE>

         See accompanying notes to consolidated financial statements.

                                       39
<PAGE>

                                         For the Three Years Ended June 30, 1999

                       CONSOLIDATED STATEMENTS OF INCOME

<TABLE>
<CAPTION>
                                                                 Years Ended June 30
                                                             --------------------------
                                                               1999      1998     1997
                                                             -------   -------  -------
                                                                  (In thousands)
<S>                                                          <C>       <C>      <C>
Interest income:
    Loans receivable (Note 4)                                $10,362   $ 9,619  $ 8,254
    Investment securities and FHLB stock                         668     1,118    1,860
    Mortgage-backed and related securities                     2,920     4,210    4,729
    Other interest-earning assets                                264       331      197
                                                             -------   -------  -------
          Total interest income                               14,214    15,278   15,040
                                                             -------   -------  -------

Interest expense:
    Deposits (Note 7)                                          6,419     6,135    5,107
    Federal Home Loan Bank advances                            3,101     4,553    5,329
                                                             -------   -------  -------
          Total interest expense                               9,520    10,688   10,436
                                                             -------   -------  -------

Net interest income                                            4,694     4,590    4,604

Provision for loan losses (Note 4)                                15        60       95
                                                             -------   -------  -------
Net interest income after provision for loan losses            4,679     4,530    4,509
                                                             -------   -------  -------

Noninterest income:
    Other (Note 12)                                              100        44       10
                                                             -------   -------  -------

Noninterest expense:
    Compensation and benefits (Note 9)                         1,007     1,099      927
    Occupancy and equipment (Note 6)                              72        84       81
    SAIF deposit insurance premiums                              122       127      740
    Loss on sale of real estate owned                             32        --       10
    Net loss on sale of mortgage-backed securities                --        --       59
    Other (Note 12)                                              333       301      275
                                                             -------   -------  -------
          Total noninterest expense                            1,566     1,611    2,092
                                                             -------   -------  -------

Income before income taxes                                     3,213     2,963    2,427
Income tax expense (Note 10)                                   1,192     1,079      986
                                                             -------   -------  -------
Net income                                                   $ 2,021   $ 1,884  $ 1,441
                                                             =======   =======  =======

Earnings per share -- basic                                  $  1.64   $  1.52  $  1.11

Earnings per share -- diluted                                $  1.58   $  1.44  $  1.04
</TABLE>

          See accompanying notes to consolidated financial statements.

                                       40
<PAGE>

                                         For the Three Years Ended June 30, 1999
                CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

<TABLE>
<CAPTION>
                                                Years ended June 30
                                            ---------------------------
                                             1999       1998      1997
                                            ------     ------    ------
                                                   (In thousands)
<S>                                         <C>        <C>       <C>
Net income                                  $2,021     $1,884    $1,441

Other comprehensive income,
     Net of income tax:

       Unrealized gain (loss) on
         Securities available-for-sale        (411)       132       574
                                            ------     ------    ------

Comprehensive income                        $1,610     $2,016    $2,015
                                            ======     ======    ======

</TABLE>


         See accompanying notes to consolidated financial statements.

                                       41
<PAGE>

                                         For the Three Years Ended June 30, 1999
                CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

<TABLE>
<CAPTION>
                                                                 Three Years Ended June 30, 1999
                                           -------------------------------------------------------------------------------
                                                                             (In thousands)

                                                                                         Accumulated     Common    Common
                                                      Additional                            Other         Stock     Stock
                                             Common    Paid-In    Retained   Treasury   Comprehensive   Acquired   Awarded
                                             Stock     Capital    Earnings     Stock        Income      by ESOP    by RRP    Total
                                           ---------- ----------  --------   --------   -------------   --------   -------  -------
<S>                                        <C>        <C>         <C>        <C>        <C>             <C>        <C>      <C>
Balance, June 30, 1996                     $       17 $   16,754  $ 17,665   $ (5,924)  $         153   $   (390)  $  (208) $28,067

Additions (deductions) for the year
  ended June 30, 1997:
    Net income                                     --         --     1,441         --              --         --        --    1,441
    Stock options retired                          --         --       (58)        --              --         --        --      (58)
    Dividends declared ($.40 per share)            --         --      (513)        --              --         --        --     (513)
    Compensation expense related to ESOP           --        119        --         --              --         --        --      119
    Deferred tax on RRP                            --         71        --         --              --         --        --       71
    Reduction of employee stock ownership
      plan obligation                              --         --        --         --              --        108        --      108
    Amortization of executive stock plan           --         --        --         --              --         --       150      150
    Purchase of treasury stock
      (66,699 shares)                              --         --        --     (1,423)             --         --        --   (1,423)
    Other comprehensive income                     --         --        --         --             574         --        --      574
                                           ---------- ----------  --------   --------   -------------   --------   -------  -------
Balance, June 30, 1997                     $       17 $   16,944  $ 18,535     (7,347)            727       (282)      (58)  28,536
                                           ========== ==========  ========   ========   =============  =========   =======  =======
Additions (deductions) for the
  year ended June 30, 1998:
    Net income                                     --         --     1,884         --              --         --        --    1,884
    Stock options exercised                        --        270        --         --              --         --        --      270
    Stock options retired                          --         --      (779)        --              --         --        --     (779)
    Dividends declared ($.50 per share)            --         --      (618)        --              --         --        --     (618)
    Compensation expense related
     to ESOP                                       --        151        --         --              --         --        --      151
    Deferred tax on RRP                            --         73        --         --              --         --        --       73
    Reduction of employee stock
     ownership plan obligation                     --         --        --         --              --         94        --       94
    Amortization of executive stock plan           --         88        --         --              --         --        58      146
    Purchase of treasury stock
     (78,491 shares)                               --         --        --     (2,048)             --         --        --   (2,048)
    Other comprehensive income                     --         --        --         --             132         --        --      132
                                           ---------- ----------  --------   --------   -------------  ---------   -------  -------
Balance, June 30, 1998                     $       17 $   17,526  $ 19,022   $ (9,395)  $         859  $    (188)  $    --  $27,841
                                           ========== ==========  ========   ========   =============  =========   =======  =======
Additions (deductions) for the
  year ended June 30, 1999:
    Net income                                     --         --     2,021         --              --         --        --    2,021
    Dividends declared ($.60 per share)            --         --      (739)        --              --         --        --     (739)
    Compensation expense related
     to ESOP                                       --        102        --         --              --         --        --      102
    Deferred tax on RRP and options                --        210        --         --              --         --        --      210
    Reduction of employee stock
     ownership plan obligation                     --         --        --         --              --        102        --      102
    Other comprehensive income                     --         --        --         --            (411)        --        --     (411)
                                           ---------- ----------  --------   --------   -------------  ---------   -------  -------
Balance, June 30, 1999                     $       17 $   17,838  $ 20,304   $ (9,395)  $         448  $     (86)  $    --  $29,126
                                           ========== ==========  ========   ========   =============  =========   =======  =======
</TABLE>

         See accompanying notes to consolidated financial statements.

                                       42
<PAGE>

                                         For the Three Years Ended June 30, 1999
                     CONSOLIDATED STATEMENTS OF CASH FLOW


<TABLE>
<CAPTION>
                                                      1999       1998      1997
                                                    --------   --------   --------
                                                             (In thousands)
<S>                                                 <C>        <C>        <C>
Cash flows from operating activities:
 Net income                                         $  2,021   $  1,884   $  1,441
 Adjustments to reconcile net earnings
  to net cash provided by operating
  activities:
   Provision for loan losses                              15         60         95
   Net loss on sale of
   real estate owned                                      32         --         10
     mortgage-backed securities                           --        (14)        59
   Depreciation                                           37         48         45
   Amortization of premiums and discounts                (11)       (22)       (58)
   RRP compensation expense                               --        135         38
   Decrease (increase) in interest receivable             62        433       (443)
   Decrease (increase) in other assets                  (134)      (279)        42
   Increase (decrease) in income tax payable             112       (126)        13
   Increase in other liabilities                          66         26         33
   Excess of fair value over cost of ESOP
     unallocated shares                                  101        151        118
   Deferred tax on RRP and options                       210         73         72
                                                    --------   --------   --------
     Net cash provided by operating
     activities                                        2,511      2,369      1,465
                                                    --------   --------   --------

Cash flows from investing activities:
 Loans purchased                                     (35,448)   (29,702)   (32,213)
 Proceeds from the sale of loans                       6,415         --         --
 Decrease in loans, net                               23,645     19,443     12,126
 Proceeds from maturities of investment
 securities                                            6,000     27,992     31,927
 Sale of investment securities                            --      1,174         --
 Proceeds from sale of mortgage-backed securities         --      3,891     16,516
 Mortgage-backed securities called                        --     17,000         --
 Purchase of investment securities
   and FHLB stock                                     (3,749)   (11,915)   (47,799)
 Principal collected on repayments and
  maturities of mortgage-backed and
  related securities                                   4,091      4,119      3,431
 Purchase of mortgage-backed and
  related securities                                      --     (4,000)   (17,000)
 Proceeds from the sale of real estate owned              26         --         42
 FHLB stock redeemed                                      --      2,518         --
 Purchase of equipment                                   (15)       (22)       (69)
                                                    --------   --------   --------
   Net cash provided (used) by
   investing activities                                  965     30,498    (33,039)
                                                    --------   --------   --------
</TABLE>

         See accompanying notes to consolidated financial statements.

                                       43
<PAGE>

                                         For the Three Years Ended June 30, 1999
                CONSOLIDATED STATEMENTS OF CASH FLOW (continued)

<TABLE>
<CAPTION>
                                                                      Years Ended June 30
                                                                  --------------------------
                                                                  1999         1998     1997
                                                                  ----         ----     ----
                                                                         (In thousands)
<S>                                                           <C>        <C>         <C>
 Cash flows from financing activities:
 Net proceeds from the issuance of common stock               $     --   $     271   $    --
 Purchase of treasury stock                                         --      (2,048)   (1,423)
 Net increase in deposits                                        2,622      13,371    15,243
  Stock options retired                                             --        (779)      (58)
 Net increase (decrease) in advances from
     borrowers for taxes and insurance                               8          (6)       15
 Dividends paid                                                   (738)       (618)     (513)
 Proceeds from FHLB advances                                    65,000      62,000    18,000
 Principal payments on FHLB advances                           (69,247)   (106,231)     (215)
 Unearned ESOP compensation decrease                               102          94       108
                                                              --------   ---------   -------
   Net cash provided (used) by financing
        activities                                              (2,253)    (33,946)   31,157
                                                              --------   ---------   -------

   Increase (decrease) in cash and
   cash equivalents                                              1,223      (1,079)     (417)

Cash and cash equivalents at beginning
 of period                                                       3,635       4,714     5,131
                                                              --------   ---------   -------

Cash and cash equivalents at end of period                    $  4,858   $   3,635   $ 4,714
                                                              ========   =========   =======

Supplemental cash flow disclosures:
Cash paid for:
 Interest                                                     $  5,078   $   6,615   $ 7,088
                                                              ========   =========   =======

 Income taxes                                                 $    858   $   1,133   $   903
                                                              ========   =========   =======

Noncash activity:
Loans transferred to real estate owned                        $    178   $      --   $    30
                                                              ========   =========   =======
</TABLE>

         See accompanying notes to consolidated financial statements.

                                       44
<PAGE>

                                                    June 30, 1999, 1998 and 1997

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1:  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Business
--------
MBLA Financial Corporation (the "Company") is a Delaware corporation
incorporated February 23, 1993, for the purpose of being the savings and loan
holding company for Macon Building and Loan Association, F.A. (the
"Association").

The Association provides financial services to individuals and corporate
customers, and is subject to competition from other financial institutions. The
Association is also subject to the regulations of certain Federal agencies and
undergoes periodic examination by those regulatory authorities.

Basis of Financial Statement Presentation
-----------------------------------------
The accompanying consolidated financial statements include the accounts of the
Company, and its wholly-owned subsidiary, Macon Building and Loan Association,
F.A., and MBL Financial Services, Inc., the Association's wholly owned
subsidiary. All significant intercompany transactions and balances are
eliminated in consolidation.

The consolidated financial statements have been prepared in conformity with
generally accepted accounting principles. In preparing the consolidated
financial statements, management is required to make estimates and assumptions
that affect the reported amounts of assets and liabilities as of the date of the
statement of financial condition and revenues and expenses for the year. Actual
results could differ significantly from those estimates.

Material estimates that are particularly susceptible to significant change
relate to the determination of the allowance for losses on loans and the
valuation of real estate acquired in connection with foreclosures or in
satisfaction of loans. In connection with the determination of the allowances
for losses on loans and foreclosed real estate, management obtains independent
appraisals for significant properties.

While management uses available information to recognize losses on loans and
foreclosed real estate, future additions to the allowances may be necessary
based on changes in local economic conditions. In addition, regulatory agencies,
as an integral part of their examination process, periodically review the
Association's allowances for losses on loans and foreclosed real estate. Such
agencies may require the Association to recognize additions to the allowances
based on their judgements about information available to them at the time of
their examination.

Cash Equivalents
----------------
Cash equivalents of $4.9 million and $3.6 million at June 30, 1999 and 1998,
respectively, consist of cash on hand and funds due from banks. For purposes of
the statements of cash flows, the C ompany considers all highly liquid debt
instruments with original maturities when purchased of three months or less to
be cash equivalents.

Investment Securities
---------------------
Investment securities that are held for short-term resale are classified as
trading securities and are carried at fair value. Debt securities that
management has the ability and intent to hold to maturity are classified as
held-to-maturity and are carried at cost, adjusted for amortization of premium
and accretion of discounts using methods approximating the interest method.
Other marketable securities are classified as available-for-sale and are carried
at fair value. Realized and unrealized gains and losses on trading securities
are included in net income. Unrealized gains and losses, net of tax, on
securities available-for-sale are recognized as direct increases or decreases in
stockholders' equity. Cost of securities sold is determined using the specific
identification method.

Mortgage-Backed and Related Securities
--------------------------------------
Mortgage-backed securities represent participating interest in pools of long-
term first mortgage loans originated and serviced by issuers of the securities.
Mortgage-backed securities are classified as available for sale and are carried
at fair value. Premiums and discounts are amortized using methods approximating
the interest method over the remaining period to contractual maturity, adjusted
for anticipated prepayments. The Company evaluates mortgage-backed securities on
a monthly basis to monitor prepayments and the resulting effects on yields and
valuations. Management considers the concentration of credit risk to be minimal
on mortgage-backed securities because all such securities are guaranteed as to
timely payment of principal and interest by FNMA, FHLMC or GNMA. Should any be
sold, gains and losses are recognized based on the specific-identification
method. All sales are made without recourse.

At June 30, 1999 and 1998, the Company had no outstanding commitments to sell
securities.

                                       45
<PAGE>

                                                    June 30, 1999, 1998 and 1997

NOTE 1:  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES  (CONTINUED)

Equity securities that are nonmarketable are carried at cost.  Nonmarketable
equity securities held by the Association consist of stock in the Federal Home
Loan Bank.  The Association, as a member of the Federal Home Loan Bank system,
is required to maintain an investment in capital stock of the Federal Home Loan
Bank in an amount based on its outstanding loans and advances.


No ready market exists for the Bank stock and they have no quoted market value.
For reporting purposes, these investments are assumed to have a market value
equal to cost.

Loans Receivable
----------------
Loans receivable are stated at unpaid principal balances, less the allowance for
loan losses, and net deferred loan origination fees and costs.

Provisions for Losses on Loans and Interest Receivable
------------------------------------------------------
Provision for losses on loans receivable are based upon management's estimate of
the amount required to maintain an adequate allowance for losses, relative to
the risks in the loan portfolio. The estimate is based on reviews of the
portfolio, including assessment of the carrying value of the loans to the
estimated net realizable value of the related underlying collateral, considering
past loss experience, current economic conditions and such other factors which,
in the opinion of management, deserve current recognition. The Association is
subject to the regulations of certain federal agencies and undergoes periodic
examinations by those regulatory authorities. As an integral part of those
examinations, the various regulatory agencies periodically review the
Association's allowance for loan losses. Such agencies may require the
Association to recognize changes to the allowance based on their judgements
about information available to them at the time of their examination.

Accrual of interest income on loans is discontinued for those loans with
interest more than ninety days delinquent or sooner if management believes
collectibility of the interest is not probable. Management's assessment of
collectibility is primarily based on a comparison of the estimated value of
underlying collateral to the related loan and accrued interest receivable
balances.

Financial accounting standards define the recognition criteria for loan
impairment and the measurement methods for certain impaired loans and loans for
which terms have been modified in troubled-debt restructurings (a restructured
loan). Specifically, a loan is considered impaired when it is probable a
creditor will be unable to collect all amounts due - both principal and
interest - according to the contractual terms of the loan agreement. When
measuring impairment, the expected future cash flows of an impaired loan are
required to be discounted at the loan's effective interest rate. Alternatively,
impairment can be measured by reference to an observable market price, if one
exists, or the fair value of the collateral for a collateral-dependent loan.

Regardless of the historical measurement method used, a creditor is required to
measure impairment based on the fair value of the collateral when the creditor
determines foreclosure is probable. Additionally, impairment of a restructured
loan is measured by discounting the total expected future cash flows at the
loan's effective rate of interest as stated in the original loan agreement. The
Association applies the recognition criteria to multifamily real estate loans,
commercial real estate loans and restructured loans. Smaller balance,
homogeneous loans, including one-to-four family residential and construction
loans and consumer loans, are collectively evaluated for impairment. A creditor
is allowed to use existing methods for recognizing interest income on impaired
loans. The Association has elected to continue to use its existing nonaccrual
methods for recognizing interest on impaired loans.

Loan Origination Fees, Commitment Fees, and Related Costs
---------------------------------------------------------
Loan fees and certain direct loan origination costs are deferred, and the net
fee or cost is recognized as an adjustment to interest income using the interest
method over the contractual life of the loans, adjusted for prepayments.

                                       46
<PAGE>

                                                    June 30, 1999, 1998 and 1997

NOTE 1:  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES  (CONTINUED)

Foreclosed Real Estate
----------------------
Real estate properties acquired through, or in lieu of, loan foreclosures are
initially recorded at the estimated fair value less estimated selling costs at
the date of foreclosure. Costs relating to development and improvement of
property are capitalized, whereas costs relating to the holding of property are
expensed.
Valuations are periodically performed by management, and losses are charged to
operations if the carrying value of a property exceeds its estimated net
realizable value.
All foreclosed real estate owned is held for sale.

Income Taxes
------------
The Company files a consolidated federal income tax return with the Association.
The provision for federal and state taxes on income is based on earnings
reported in the financial statements.
Deferred income taxes arise from temporary differences between the financial
statement carrying amounts and the tax basis of existing assets and liabilities.

An asset and liability approach is used for financial accounting and reporting
of income taxes which, among other things, requires the Company to take into
account changes in the tax rates when valuing the deferred income tax accounts
recorded on the balance sheet. A deferred tax liability or asset is recognized
for the estimated future tax effects attributable to temporary differences and
loss carryforwards. Temporary differences include differences between financial
statement income and tax return income which are expected to reverse in future
periods as well as differences between the tax basis of assets and liabilities
and their amounts for financial reporting which are also expected to be settled
in future periods. To the extent a deferred tax asset is established which is
not realizable, a valuation allowance shall be established against such asset.

Premises and Equipment
----------------------
Land is carried at cost. Buildings, furniture, fixtures, and equipment are
carried at cost, less accumulated depreciation and amortization. Buildings and
furniture, fixtures, and equipment are depreciated using straight-line and
accelerated methods over the estimated useful lives of the assets.

Earnings Per Share
------------------
Earnings per share has been computed in accordance with Financial Accounting
Standards Board Statement No. 128 (SFAS No.128). This Statement, which is
effective for periods ending after December 15, 1997, requires disclosure of
basic earnings per share and diluted earnings per share, and also requires
restatement of earnings per share data for prior periods. Basic earnings per
share was computed by dividing income available to common stockholders by the
weighted average number of common shares outstanding for the periods. Diluted
earnings per share reflects the potential dilution that could occur if stock
options were converted into common stock under the treasury stock method.

The following shows the amounts used in computing earnings per share and the
effect on income and the weighted average number of shares of dilutive potential
common stock. The earnings per share information for 1997 have been restated
from the amounts previously reported to comply with SFAS No. 128.

<TABLE>
<CAPTION>
                                                    1999                                     1998
                                   -------------------------------------   ------------------------------------
                                     Income        Shares      Per-Share       Income       Shares    Per-Share
                                   (numerator)  (denominator)   Amount     (numerator)  (denominator)   Amount
<S>                                <C>          <C>            <C>         <C>          <C>            <C>
Basic EPS Net Income               $2,021,000    1,235,303      $1.64       $1,884,000    1,240,977       $1.52
                                                                =====                                     =====
Effect of Dilutive
Securities stock options                   --       44,175                          --       65,181
                                   ----------    ---------                  ----------    ---------
Diluted EPS Net Income and
assumed conversions                $2,021,000    1,279,478      $1.58       $1,884,000    1,306,158       $1.44
                                   ==========    =========      =====       ==========    =========       =====

<CAPTION>


                                                     1997
                                   --------------------------------------
                                     Income         Shares      Per-Share
                                   (numerator)   (denominator)    Amount
<S>                                <C>           <C>            <C>
Basic EPS Net Income               $1,441,000      1,303,465      $1.11
                                                                  =====
Effect of Dilutive
Securities stock options                   --         76,404
                                   ----------    -----------
Diluted EPS Net Income and
assumed conversions                $1,441,000      1,379,869      $1.04
                                   ==========    ===========      =====
</TABLE>

                                       47
<PAGE>

                                                    June 30, 1999, 1998 and 1997


NOTE 2:  INVESTMENT SECURITIES
Securities available-for-sale consist of the following:

<TABLE>
<CAPTION>
                                          Amortized   Unrealized  Unrealized   Fair
                                           Cost         Gains      Losses      Value
                                           -------      -------    ------    --------
                                                            (In thousands)
<S>                                       <C>               <C>   <C>        <C>
U.S. Government and federal agencies       $ 7,499      $     6    $  (25)   $  7,480
                                           =======      =======    ======    ========
</TABLE>

<TABLE>
<CAPTION>
                                                          June 30, 1998
                                           -------------------------------------------
                                             Gross      Gross
                                           Amortized  Unrealized  Unrealized    Fair
                                             Cost       Gains       Losses     Value
                                           ---------  ---------   ---------- --------
                                                            (In thousands)
<S>                                        <C>        <C>         <C>          <C>
U.S. Government and federal agencies       $ 9,745      $    26    $   (1)   $  9,770
                                           =======    =========    ======    ========
</TABLE>

The following is a summary of maturities of investment securities available-
for-sale as of June 30:

<TABLE>
<CAPTION>
                                                 1999                1998
                                         ----------------------  --------------------
                                         Amortized       Fair    Amortized   Fair
                                           Cost          Value     Cost      Value
                                         ---------      -------  ---------  ---------
                                                         (In thousands)
<S>                                      <C>            <C>      <C>        <C>
Amounts maturing in:
 One year or less                          $ 3,749      $ 3,755    $ 5,996   $  6,015
 After one year through five years           3,750        3,725      3,749      3,755
 After five years through ten years             --           --         --         --
                                           -------      -------     ------   --------
                                           $ 7,499      $ 7,480     $9,745   $  9,770
                                           =======      =======     ======   ========
</TABLE>

There were no sales of investment securities during the years ended June 30,
1999, 1998, or 1997.

U.S. Government and federal agency securities of $7,480,000 were pledged to
collateralize customer deposit accounts of $6,667,000 at June 30, 1999.

NOTE 3:  MORTGAGE-BACKED AND RELATED SECURITIES

<TABLE>
<CAPTION>


                                                          June 30, 1999
                                           --------------------------------------------
                                                        Gross        Gross
                                           Amortized  Unrealized   Unrealized    Fair
                                             Cost        Gains       Losses      Value
                                           ---------  -----------  -----------  -------
<S>                                        <C>        <C>          <C>          <C>
                                                          (In thousands)
FHLMC-REMIC                                  $26,948        $593      $   (39)  $27,502
FNMA-REMIC                                     5,970         101          (18)    6,053
GNMA ARM certificate                           9,046          86           --     9,132
FHLMC certificates                               469          22           --       491
FNMA ARM certificates                            269          --          (14)      255
FHLMC ARM certificates                           103          --           --       103
                                             -------        ----      -------   -------

                                             $42,805        $802      $   (71)  $43,536
                                             =======        ====      =======   =======
</TABLE>

                                       48
<PAGE>

                                                    June 30, 1999, 1998 and 1997

NOTE 3:  MORTGAGE-BACKED AND RELATED SECURITIES (CONTINUED)

<TABLE>
<CAPTION>
                                         June 30, 1998
                          --------------------------------------------
                                        Gross        Gross
                          Amortized  Unrealized   Unrealized    Fair
                            Cost        Gains       Losses      Value
                          ---------  -----------  -----------  -------
                                         (In thousands)
<S>                       <C>        <C>          <C>          <C>
FHLMC-REMIC                 $27,064      $1,010      $    (8)  $28,066
FNMA-REMIC                    6,278         144          (27)    6,395
GNMA ARM certificate         12,400         193           --    12,593
FHLMC certificates              659          37           --       696
FNMA ARM certificates           320          --          (12)      308
FHLMC ARM certificates          168          --           --       168
                            -------      ------      -------   -------

                            $46,889      $1,384      $   (47)  $48,226
                            =======      ======      =======   =======
</TABLE>

The amortized cost and fair value of mortgage-backed securities by contractual
maturity are shown below.  Expected maturities  will differ from contractual
maturities because borrowers may have the right to call or prepay obligations
with or without call or prepayment penalties.

<TABLE>
<CAPTION>
                                                        June 30, 1999                June 30, 1998
                                                      Available-for-Sale            Available-for-Sale
                                                   ------------------------------   --------------------------
                                                      Amortized           Fair         Amortized        Fair
                                                         Cost              Value          Cost          Value
                                                      ---------         --------       ---------      --------
                                                                           (In thousands)
<S>                                                   <C>               <C>            <C>            <C>
Due in one year or less                                 $    --          $    --         $    --      $     --
Due after one year through five years                        --               --              --            --
Due after five years through ten years                      469              491             659           696
Due after ten years                                      42,336           43,045          46,230        47,530
                                                        -------          -------         -------       -------
                                                        $42,805          $43,536         $46,889       $48,226
                                                        =======          =======         =======       =======
</TABLE>

There were no sales of mortgage-backed and related securities for
 the year ended June 30, 1999.

NOTE 4:  LOANS RECEIVABLE

<TABLE>
<CAPTION>
Loans receivable are summarized as follows:                      1999                 1998
                                                                ------              ------
                                                                      (In thousands)
<S>                                                           <C>                 <C>
Mortgage loans:
 One- to four-family                                          $117,747            $122,328
 Multi-family                                                    9,071                 714
 Commercial real estate                                         15,007              13,434
                                                              --------            --------

  Total mortgage loans                                         141,825             136,476
                                                              --------            --------
Other loans:
 Home improvement                                                   87                 188
 Loans on savings accounts                                         434                 412
 Other loans - FHA Non-mortgage                                    173                 224
                                                              --------            --------

  Total other loans                                                694                 824
                                                              --------            --------

  Total loans receivable                                       142,519             137,300
Add:
 Premium on purchased loans                                          5                   6
 Deferred loan costs                                                24                  31
Less:
 Loans in process                                                   (3)                 --
 Allowance for loan losses                                        (705)               (690)
                                                              --------            --------
 Loans receivable, net                                        $141,840            $136,647
                                                              ========            ========
</TABLE>

                                       49
<PAGE>

                                                    June 30, 1999, 1998 and 1997

NOTE 4:  LOANS RECEIVABLE (CONTINUED)

At June 30, 1999, the Association's loan portfolio consisted of $23,771,000 of
fixed rate loans and $118,748,000 of variable rate loans. The fixed rate loans
had a weighted average term to maturity of 15.0 years and a weighted average
interest rate of 8.19%. The variable rate loans had a weighted average term to
maturity of 15.9 years and a weighted average interest rate of 7.20%. The
Association is required to maintain qualifying collateral for the Federal Home
Loan Bank of Des Moines (the "Bank") representing 150 percent of current Bank
credit. (See Note 8) At June 30, 1999, the Association met this requirement.
Qualifying collateral is defined as fully disbursed, whole first mortgage loans
on improved residential property or securities representing a whole interest in
such mortgages. The mortgages must not be past due more than 60 days. Loans
pledged at June 30, 1999 total $67.9 million.

They must not be otherwise pledged or encumbered as security for other
indebtedness, and the documents must be in the physical possession or control of
the Association. The documents that govern the determination of the qualifying
mortgage collateral are the (a) Federal Home Loan Bank of Des Moines's Credit
Policy Statement, dated October, 1998, and (b) the Agreement for Advances,
Pledge and Security Agreement between the Association and the Federal Home Loan
Bank of Des Moines, dated April 14, 1989.

<TABLE>
<CAPTION>
Activity in the allowance for loan losses is summarized as follows:                    June 30
                                                                           ------------------------------
                                                                           1999         1998        1997
                                                                           -----        -----       -----
                                                                                    (In thousands)
<S>                                                                        <C>          <C>         <C>
Balance at beginning of period                                             $ 690        $ 630       $ 535
 Provision charged to income                                                  15           60          95
 Charge-offs and recoveries, net                                              --           --          --
                                                                           -----        -----       -----

 Balance at end of period                                                  $ 705        $ 690       $ 630
                                                                           =====        =====       =====
</TABLE>

Nonaccrual and renegotiated loans for which interest has been reduced totaled
approximately $477,000 and $924,000 at June 30, 1999 and 1998, respectively.
Interest that would have been recognized on nonaccrual loans under their
original terms but for which an allowance has been established amounted to
$29,000 and $64,000 at June 30, 1999 and 1998, respectively. The amount that was
included in income on such loans was $26,000 and $46,000 for the years ended
June 30, 1999 and 1998, respectively.

The Association is not committed to lend additional funds to debtors whose loans
have been modified.

NOTE 5:  ACCRUED INTEREST RECEIVABLE

 Accrued interest receivable is summarized as follows:

<TABLE>
<CAPTION>
                                            1999         1998
                                           ------       -----
                                             (In thousands)
<S>                                       <C>           <C>
Investment securities                     $  111       $  164
Mortgage-backed and related securities       172          216
Loans receivable                             818          782
                                          ------       ------

                                          $1,101       $1,162
                                          ======       ======
</TABLE>

                                       50
<PAGE>

                                                    June 30, 1999, 1998 and 1997


NOTE 6:  PREMISES AND EQUIPMENT

 Premises and equipment are summarized as follows:
<TABLE>
<CAPTION>
                                                         1999         1998
                                                         ----         ----
                                                         (In thousands)
<S>                                                     <C>          <C>
 Cost:
  Land                                                  $  37        $  37
  Buildings                                               472          472
  Furniture, fixtures and equipment                       336          322
                                                        -----        -----
                                                          845          831

  Less accumulated depreciation and amortization         (586)        (549)
                                                        -----        -----
                                                        $ 259        $ 282
                                                        =====        =====
</TABLE>

 Depreciation expense for the years ended June 30, 1999, 1998, and 1997 was
$37,000, $48,000, and  $45,000, respectively.

<TABLE>
<CAPTION>
NOTE 7:  DEPOSITS

 Deposits are summarized as follows:
                                                      1999                               1998
                                        ------------------------           -------------------------
                                        Weighted                           Weighted
                                         Average                            Average
                                            Rate      Amount       %          Rate       Amount     %
                                        --------   ---------    ------     --------    --------   ------
                                                            (In thousands)
<S>                                     <C>        <C>          <C>        <C>         <C>        <C>
 Passbook savings                           3.00%   $   6,490     5.50         3.00%   $  5,975     5.18
                                        --------    ---------   ------     --------    --------   ------

 Certificates of deposit:
   4.00% to 4.99%                           4.80       34,295    29.07         4.45          18      .02
   5.00% to 5.99%                           5.43       74,460    63.13         5.76      99,672    86.42
   6.00% to 6.99%                           6.12        1,363     1.16         6.17       8,356     7.25
   7.00% to 7.99%                           7.00        1,342     1.14         7.00       1,308     1.13
   8.00% to 8.99%                           8.00            1       --         8.00           1       --
                                                    ---------   ------                 --------   ------
                                            5.26      111,461    94.50         5.80     109,355    94.82
                                                    ---------   ------                 --------   ------

                                            5.14    $ 117,951   100.00         5.67    $115,330   100.00
                                        ========    =========   ======     ========    ========   ======
</TABLE>

The aggregate amount of jumbo certificates of deposit with a minimum
denomination of $100,000 was approximately $19.7 and $18.3 million at June 30,
1999 and 1998, respectively.


                                       51
<PAGE>

                                                  June 30, 1999, 1998 and 1997

NOTE 7:  DEPOSITS (CONTINUED)

 Scheduled maturities of certificates of deposit are as follows:

<TABLE>
<CAPTION>
                                                                            Year Ended June 30, 1999
                                                      -------------------------------------------------------------------------
                                                        2000          2001         2002         2003         2004    Thereafter
                                                      --------      --------     --------      -------      -------  ----------
                                                                                        (In thousands)
<S>                                                   <C>           <C>          <C>           <C>          <C>      <C>
4.00% to 4.99%                                        $  8,875      $ 23,901     $  1,519      $    --      $    --     $    --
5.00% to 5.99%                                          37,301        23,231        9,243        3,497        1,114          73
6.00% to 6.99%                                             271           943          150           --           --          --
7.00% to 7.99%                                              --         1,342           --           --           --          --
8.00% to 8.99%                                               1            --           --           --           --          --
                                                      --------      --------     --------      -------      -------     -------
                                                      $ 46,448      $ 49,417     $ 10,912      $ 3,497      $ 1,114          73
                                                      ========      ========     ========      =======      =======     =======


                                                                              Year Ended June 30, 1998
                                                      -------------------------------------------------------------------------
                                                        1999          2000         2001          2002        2003    Thereafter
                                                      --------      --------     --------      -------      -------  ----------
                                                                                        (In thousands)
4.00% to 4.99%                                        $     18      $     --     $     --      $    --      $    --     $    --
5.00% to 5.99%                                          79,184        12,690        6,247        1,432          119          --
6.00% to 6.99%                                           7,174           894          288           --           --          --
7.00% to 7.99%                                              --         1,308           --           --           --          --
8.00% to 8.99%                                              --             1           --           --           --          --
                                                      --------      --------     --------      -------      -------     -------
                                                      $ 86,376      $ 14,893     $  6,535      $ 1,432      $   119     $    --
                                                      ========      ========     ========      =======      =======     =======
</TABLE>

Interest expense on deposits is summarized as follows:

<TABLE>
<CAPTION>
                                                                                                  Years Ended

                                                                                                    June 30
                                                                                 -------------------------------------------
                                                                                  1999               1998               1997
                                                                                 -------            -------            -------
                                                                                                (In thousands)
<S>                                                                              <C>                <C>                <C>

Passbook                                                                         $   187            $   183            $   205
Certificates of deposit and money market demand                                    5,298              5,109              4,462
Certificates of deposit $100,000 or more                                             934                843                440
                                                                                 -------            -------            -------
                                                                                 $ 6,419            $ 6,135            $ 5,107
                                                                                 =======            =======            =======
</TABLE>

                                       52
<PAGE>

                                                  June 30, 1999, 1998 and 1997

NOTE 8:  FEDERAL HOME LOAN BANK ADVANCES

  Advances consist of the following:

<TABLE>
<CAPTION>
                                               As of June 30
                                         ------------------------
    Maturity             Interest            1999            1998
                                         --------          ------
     Date                 Rate                 (In thousands)
   --------             --------
   <S>                  <C>              <C>               <C>
   07-02-98              5.516%          $    --           $ 8,000
   01-15-99              5.680%               --             8,000
   03-19-99              5.618%               --             5,000
   05-28-99              5.606%               --            15,000
   06-25-99              5.606%               --            12,000
   03-28-00              5.120%            2,000                --
   04-17-00              5.460%            5,000                --
   06-16-00              4.970%            8,000                --
   06-22-00              5.000%            4,000                --
   08-28-00              5.090%           17,000                --
   11-07-00              5.460%            5,000             7,000
   01-21-02              4.620%           10,000                --
                                         -------           -------

  Total short-term advances               51,000            55,000
                                         -------           -------

   11-18-08              6.17%               585               626
   11-24-08              6.30%             1,199             1,284
   11-28-08              6.28%             1,159             1,247
   12-05-08              6.24%               200               214
   12-30-08              6.19%               250               269
                                         -------           -------
  Total long-term advances                 3,393             3,640
                                         -------           -------

  Total advances                         $54,393           $58,640
                                         =======           =======
</TABLE>

  See Notes 2, 3, and 4 of the financial statements for collateral securing this
  indebtedness.

  Advances at June 30, 1999, have maturity dates as follows:

<TABLE>
   <S>                                   <C>               <C>
   06-30-99                              $    --           $48,247
   06-30-00                               19,265               265
   06-30-01                               22,284             7,284
   06-30-02                               10,304               303
   06-30-03                                  325               325
   06-30-04                                  348                --
   Thereafter                              1,867             2,216
                                         -------           -------
                                         $54,393           $58,640
                                         =======           =======
</TABLE>

The maximum amount of Federal Home Loan Bank advances outstanding at any month
end during the years ended June 30, 1999 and 1998 was $60,601,000 and
$89,852,000 respectively.
Advances maturing January 15, 1999 and November 7, 2000, and all long-term
advances are fixed rates.  The remaining advance rates adjust monthly.

                                       53

<PAGE>

                                                  June 30, 1999, 1998 and 1997
NOTE 9:  OFFICER, DIRECTOR AND EMPLOYEE PLANS

Stock Option Plans
------------------
The Company adopted an incentive stock option plan for the benefit of the
officers and employees of the Company and its affiliates and a director's stock
option plan for the benefit of outside directors of the Company. The number of
shares of common stock authorized under the Employees' Plan is 103,674. For the
year ended June 30, 1993, 103,674 options were granted at $10.00 per share. No
options were granted subsequently.

Options granted under the Incentive Plan become exercisable in seven annual
installments with the first installment exercisable on the date of grant, June
24, 1993. The term of the options issued under the Employees' Plan expires ten
years from the date of grant, or within one year from the date of death,
disability or retirement of the optionee. The number of shares of common stock
authorized under the Directors' Plan is 68,826. For the year ended June 30,
1993, stock options to purchase 58,993 shares were granted at a price of $10.00
per share and are exercisable immediately. During the year ended June 30, 1998,
stock options to purchase 9,828 shares were granted at a price of $23.50 per
share and are exercisable immediately. The term of the options issued under the
Director's Plan expires ten years from the date of grant, or three years from
the date of death, disability or retirement of the optionee.

The company applies Accounting Principles Board Opinion No. 25, "Accounting for
Stock Issued to Employees," and related interpretations in accounting for its
plans. Accordingly, no compensation cost has been recognized for the stock
option plans. If the methodology prescribed under Statement of Financial
Accounting Standards No. 123, "Accounting for Stock-Based Compensation" (SFAS
no. 123) had been applied, compensation cost would have been determined based on
the fair market value at the grant date for awards under those plans. The pro
forma effect of applying SFAS No. 123 is as follows for the applicable income
statement components:

<TABLE>
<CAPTION>
                                                    June 30, 1998
                                         -----------------------------------
                                             As      Pro Forma     Under
                                          Reported    Effect    SFAS No. 123
                                         ----------  ---------  ------------
           <S>                           <C>         <C>        <C>
           Compensation and benefits     $1,099,000    $56,000    $1,155,000
                                         ==========    =======    ==========
           Income before income taxes    $2,963,000    $56,000    $2,907,000
           Income tax expense             1,079,000     21,000     1,058,000
                                         ----------    -------    ----------
           Net Income                    $1,884,000    $35,000    $1,849,000
                                         ==========    =======    ==========
           Earning Per Share-basic       $     1.52    $   .03    $     1.49
                                         ==========    =======    ==========
           Earning Per Share-diluted     $     1.44    $   .03    $     1.41
                                         ==========    =======    ==========
</TABLE>

The weighted-average grant-date fair value of the options granted during the
year ended June 30, 1998 was $56,000. The fair value of options granted was
determined using the Black-Scholes option-pricing model. Significant assumptions
used were- risk-free interest rate of 6.15%; expected life of 5.9 years;
expected volatility of 15%; and expected dividends of $.40 per share. A summary
of the status of the company's two fixed stock option plans as of June 30, 1997,
1998, and 1999 and changes during the years ending in those dates is presented
below:

<TABLE>
<CAPTION>
                                                1997                     1998                  1999
                                          ---------------------   --------------------   ------------------
                                                      Weighted-              Weighted-            Weighted-
                                                        Average                Average              Average
Fixed Options                                 Shares      Price      Shares      Price     Shares     Price
----------------------------------------  ----------  ---------   ---------  ---------   --------  --------
<S>                                       <C>         <C>         <C>        <C>         <C>       <C>
Outstanding at beginning of year            149,556     $ 10.00     139,723    $ 10.00     78,255  $  11.70
Granted                                          --                   9,828      23.50         --
Exercised                                        --                 (27,100)     10.00         --
Retired                                      (9,833)      10.00     (44,226)     10.00         --
                                            -------               ---------              --------
Outstanding at end of year                  139,723       10.00      78,225      11.70     78,225     11.70
                                            =======               =========              ========

Options Exercisable at year end             129,348                  77,845                78,225
Weighted-average fair value of options
granted during the year                         N/A               $  56,000                   N/A
</TABLE>

                                       54
<PAGE>

                                                  June 30, 1999, 1998 and 1997

NOTE 9:  OFFICER, DIRECTOR AND EMPLOYEE PLANS (CONTINUED)

The following table summarizes the information about fixed stock options
outstanding at June 30, 1999:

<TABLE>
<CAPTION>
                   Options Outstanding                                                 Options Exercisable
---------------------------------------------------------------            -----------------------------------------
                                        Weighted-
                                         Average                                                     Weighted-
                                       Remaining       Weighted                     Number             Average
                       Outstanding    Contractual       Average                  Exercisable          Exercise
  Exercise Price    At June 30, 1999      Life       Exercise Price           At June 30, 1999         Price
----------------    ----------------  -----------    --------------           ----------------       ---------
<S>                 <C>               <C>            <C>                      <C>                    <C>
     $10.00              68,397        4.0 Years        $10.00                     68,017             $10.00
     $23.50               9,828        4.0 Years        $23.50                      9,828             $23.50
</TABLE>

Employee Stock Ownership Plan
-----------------------------
The ESOP covers substantially all employees with more than one year of
employment and who have attained the age of 21. The ESOP borrowed $685,000 from
the Company and purchased 68,500 common shares. The loan is payable over a
period of 10 years with an interest rate of 4 percent. The Association makes
scheduled discretionary cash contributions to the ESOP sufficient to service the
amount borrowed.

Shares are released for allocation to participants based upon the ratio of the
current year's debt service to the sum of total principal and interest payments
over the life of the loan. Released shares are allocated among ESOP participants
on the basis of compensation in the year of allocation. Dividends paid on
allocated and unallocated shares are added to participant accounts.

The Company accounts for its ESOP in accordance with Statement of Position 93-6.
Accordingly, the debt of the ESOP is recorded as debt and shares pledged as
collateral are reported as unearned ESOP shares, a reduction of stockholder's
equity. As shares are released from collateral, the Association records
compensation expense in an amount equal to the fair value of the shares, and the
shares become outstanding for earnings-per-share (EPS) computations.
Compensation expense is also recognized for Company dividends on unallocated
shares paid or added to participant accounts. ESOP compensation expense was
$213,000, $257,000 and $240,000 for the years ended June 30, 1999, 1998 and 1997
respectively.

The ESOP shares as of June 30, 1999 were as follows:

<TABLE>
           <S>                                     <C>
           Allocated shares                          53,684
           Shares released for allocation             5,295
           Unreleased shares                         12,237
                                                   --------
           Total ESOP shares                         71,216
                                                   ========
           Fair value of unreleased shares
            at June 30, 1999                       $423,000
                                                   ========
</TABLE>

Association Recognition and Retention Plan
------------------------------------------
The Company formed an Association Recognition and Retention Plan ("RRP"), which
was authorized to acquire 4% of the shares of common stock. The total shares
authorized were awarded to directors and to employees in key management
positions in order to provide them with a proprietary interest in the Company in
a manner designed to encourage such employees to remain with the Company.

The Association contributed funds to the RRP plan to enable it to acquire the
shares of common stock required to fund the RRP (69,000 shares). For the year
ended June 30, 1993, there were 64,308 shares awarded. Awards under the RRP Plan
become vested at a rate of 25% per year.

The $690,000 contributed to the RRP was amortized to compensation expense as the
plan participants become vested in those shares. For the year ended June 30,
1997, the Association recognized compensation expense of $37,000 for the RRP
plan. The unamortized cost, which is comparable to deferred compensation, is
reflected as a reduction of stockholders' equity. During the year ended June 30,
1998, there were 4,692 shares awarded to directors which resulted in an
additional $135,000 of compensation expense.

                                       55
<PAGE>

                                                  June 30, 1999, 1998 and 1997


NOTE 9:  OFFICER, DIRECTOR AND EMPLOYEE PLANS  (CONTINUED)

Outside Directors' Retirement Plan
----------------------------------
Under this plan an outside director who has served as a director for at least 15
years at the time of retirement will be eligible to receive a benefit equal to
50% of the annual directors fee for five years.   In addition, a director's
heirs are eligible to receive 1/2 of the benefit due to the director.

The Outside Directors' Retirement Plan is unfunded.  All benefits will be
payable from the Association's current assets.

The Association estimated the future cost of the Outside Directors Retirement
Plan and accrues current compensation expense.  The Association estimated the
cost based on an assumed retirement age of 75 and an assumption that all
directors would have at least 15 years service at the time of retirement.  The
estimated cost is being amortized into compensation expense over a 14 year
period.  This is the estimated average number of years to retirement plus the
five year benefit period for the existing board members.  This amortization
resulted in expense of approximately $15,000, $8,000, and $8,000 for the years
ended June 30, 1999, 1998, and 1997.


NOTE 10:  INCOME TAXES

As discussed in Note 1, the Company uses the liability method of accounting for
income taxes. Under this method, deferred income taxes are recognized for the
tax consequences of "temporary differences" by applying statutory tax rates
applicable to future years to differences between the financial statement
carrying amounts and tax basis of existing assets and liabilities.

A deferred tax asset is to be recognized for the bad debt reserve established
for financial reporting purposes and requires a deferred tax liability to be
recorded for increases in the tax bad debt reserve since January 1, 1988, the
effective date of certain changes made by the Tax Reform Act of 1986 to the
calculation of savings institutions' bad debt deduction. Accordingly, retained
earnings at June 30, 1999, include approximately $4,714,000 for which no
deferred federal income tax liability has been recognized.

The Company and the Association file consolidated federal income tax returns on
a fiscal year ended June 30 basis. In accordance with the Tax Sharing Agreement,
the Association agrees to remit its prorata share of the total consolidated tax
liability, calculated as if it were filing a separate return for the year, to
the Company on a quarterly basis. There were no significant intercompany tax
receivable/payable balances at June 30, 1999.

   Income tax expense for the periods then ended is summarized as follows:

<TABLE>
<CAPTION>
                                        June 30
                                 ----------------------
                                  1999    1998    1997
                                 ------  ------  ------
                                     (In thousands)
<S>                              <C>     <C>     <C>
Federal:
   Current                       $  807  $  941   $ 763
   Deferred                         252      12     109
State:
   Current                          125     131     111
   Deferred                           8      (5)      3
                                 ------  ------   -----
                                 $1,192  $1,079   $ 986
                                 ======  ======   =====
</TABLE>

Total income tax expense differed from the amounts computed by applying the U.S.
Federal income tax rates of 34 percent to income before income taxes as a result
of the following:

<TABLE>
<CAPTION>
                                                                       June 30
                                                                ----------------------
                                                                  1999    1998    1997
                                                                ------  -------  -----
                                                                    (In thousands)
<S>                                                             <C>     <C>      <C>
Expected income tax expense at federal tax rate                 $1,092  $1,007   $ 825
State income tax, net of federal tax benefit                        87      83      75
</TABLE>

                                       56
<PAGE>

                                               June 30, 1999, 1998, and 1997
NOTE 10:  INCOME TAXES (Continued)

<TABLE>
  <S>                                                <C>      <C>      <C>
  Nondeductible loan loss provision                      --      20      32
  Compensation expense for employee stock plans          --      --      41
  Other                                                  13     (31)     13
                                                     ------  ------   -----
  Total income tax expense                           $1,192  $1,079   $ 986
                                                     ======  ======   =====
</TABLE>

Temporary differences between the financial statement carrying amounts and tax
basis of assets and liabilities that give rise to significant portions of the
deferred tax liability relate to the following:

<TABLE>
<CAPTION>
                                                             1999     1998
                                                            -----    -----
                                                            (In thousands)
    <S>                                                     <C>      <C>
    Income tax basis of FHLB stock versus carrying value    $  77    $  77
    Deferred loan fees                                         10       13
    Unrealized gain on investments                            263      504
                                                            -----    -----
      Gross deferred tax liabilities                          350      594
                                                            -----    -----
    SFAS 106 deferred tax asset (Note 9)                      (25)     (19)
    RRP expense deferred for tax                               --      (60)
    State deferred tax benefit for bad debts                  (49)     (48)
                                                            -----    -----
      Gross deferred tax assets                               (74)    (127)
                                                            -----    -----
    Net deferred tax liability (asset)                        276      467
                                                            -----    -----
    Federal tax payable                                        83       15
    State tax payable                                          54       59
                                                            -----    -----
    Net current tax liability                                 137       74
                                                            -----    -----
      Total income tax liability                            $ 413   $  541
                                                            =====    =====
</TABLE>

Deferred tax expense (benefit) results from temporary differences between the
financial statement carrying amounts and tax basis of existing assets and
liabilities. The sources and tax effects of these temporary differences are as
follows:

<TABLE>
<CAPTION>

                                                                                                   June 30
                                                                                      -----------------------------------
                                                                                        1999            1998         1997
                                                                                      ------           -----        -----
                                                                                                  (In thousands)
   <S>                                                                                <C>            <C>            <C>
   FHLB stock dividends                                                               $   --         $   (62)       $  --
   Deferred loan fees                                                                     (2)              2            1
   Post retirement benefits - SFAS 106                                                   (11)             (3)          (3)
   State bad debt                                                                         (1)             (9)         (14)
   RRP expense deferred for tax                                                           60               6           48
   Tax benefit of RRP plan                                                                32              73           73
   Tax benefit of stock options                                                          182              --           --
                                                                                      ------         -------        -----
   Total deferred tax expense                                                         $  260         $     7        $ 112
                                                                                      ======         =======        =====
</TABLE>


                                       57
<PAGE>

                                                   June 30, 1999, 1998, and 1997

NOTE 11:  REGULATORY MATTERS

The Association is subject to various regulatory capital requirements
administered by its primary federal regulator, the Office of Thrift Supervision
(OTS). Failure to meet the minimum regulatory capital requirements can initiate
certain mandatory, and possible additional discretionary actions by regulators,
that if undertaken, could have a direct material affect on the Association and
the consolidated financial statements. Under the regulatory capital adequacy
guidelines and the regulatory framework for prompt corrective action, the
Association must meet specific capital guidelines involving quantitative
measures of the Association's assets, liabilities, and certain off-balance-sheet
items as calculated under regulatory accounting practices. The Association's
capital amounts and classification under the prompt corrective action guidelines
are also subject to qualitative judgements by the regulators about components,
risk weightings, and other factors.

Quantitative measures established by regulation to ensure capital adequacy
require the Association to maintain minimum amounts and ratios of: total risk-
based capital and Tier I capital to risk-weighted assets (as defined in the
regulations), and Tier I capital to adjusted total assets (as defined), and
tangible capital to adjusted total assets (as defined). As discussed in greater
detail below, as of June 30, 1999, the Association does meet all of the capital
adequacy requirements to which it is subject.

At June 30, 1999, as of the most recent notification from the OTS, the
Association was categorized as well-capitalized under the regulatory framework
for prompt corrective action. To be categorized as well-capitalized, the
Association must maintain minimum total risk-based, Tier I risk-based, and Tier
I leverage ratios as disclosed in the table below. There are no conditions or
events since the most recent notification that management believes have changed
the Association's prompt corrective action category.

<TABLE>
<CAPTION>
                                                                    For Capital Adequacy Purposes
                                                                   and to be Well-Capitalized under
                                                                     the Prompt Corrective Action   Minimum For Capital Adequacy
                                                         Actual               Provisions                       Purposes
                                              ---------------------------------------------------------------------------------
                                                Amount            Ratio    Amount          Ratio        Amount          Ratio
                                                ------            -----    ------          -----        ------          -----
                                                                          (dollars in
                                                                          thousands)
<S>                                           <C>                 <C>     <C>              <C>          <C>             <C>
As of June 30, 1999
 Total Risk-Based Capital (to Risk-Weighted
 Assets)                                        $29,092           32.4%       $ 8,969        10.0%        $7,174           8.0%
 Tier I Capital (to Risk-Weighted Assets)       $28,387           31.7%       $ 5,381         6.0%        $3,587           4.0%
 Tier I Capital (to Adjusted Total Assets)      $28,387           14.0%       $12,138         6.0%        $8,092           4.0%
 Tangible Capital (to Adjusted Total Assets)    $28,387           14.0%       $10,115         5.0%            --             --

As of June 30, 1998
 Total Risk-Based Capital (to                   $27,406           32.1%       $ 8,549        10.0%        $6,840           8.0%
 Risk-Weighted Assets)                          $26,716           31.2%       $ 5,130         6.0%        $3,420           4.0%
 Tier I Capital (to Risk-Weighted Assets)       $26,716           13.2%       $12,148         6.0%        $8,099           4.0%
 Tier I Capital (to Adjusted Total Assets)      $26,716           13.2%       $10,124         5.0%            --             --
 Tangible Capital (to Adjusted Total Assets)
</TABLE>

                                       58
<PAGE>

                                                    June 30, 1999, 1998 and 1997

NOTE 12:  OTHER NON-INTEREST INCOME AND EXPENSE

Other non-interest income and expense amounts are summarized as follows:

<TABLE>
<CAPTION>
                                                                                                   1999           1998         1997
                                                                                                 -------        -------      -------
                                                                                                              (In thousands)
<S>                                                                                              <C>            <C>          <C>
Other non-interest income:
   Gain on sale of investments and loans                                                          $   74         $   34        $  --
   Loan late charges                                                                                   3              3            4
   Other                                                                                              23              7            6
                                                                                                  ------        -------        -----
Other non-interest expense:
   Advertising and promotion                                                                      $   39         $   47        $  40
   Data processing                                                                                    67             70           56
   Professional fees                                                                                  62             51           59
   Printing, postage and supplies                                                                     29             26           27
   Telephone                                                                                          20             20           12
   Other                                                                                             116             87           81
                                                                                                  ------         ------        -----
                                                                                                  $  333         $  301        $ 275
                                                                                                  ======         ======        =====
</TABLE>

NOTE 13:  COMMITMENTS AND CONTINGENCIES

Loan Commitments
----------------

The Association had outstanding  firm commitments to originate or purchase loans
as follows:

<TABLE>
<CAPTION>
                                                                      June 30, 1999                           June 30, 1998
                                                            ---------------------------------       --------------------------------
                                                            Fixed-       Variable-                  Fixed-      Variable-
                                                             Rate          Rate        Total         Rate         Rate        Total
                                                            ------        ------      -------       ------       ------       ------
                                                                                             (In thousands)
<S>                                                         <C>          <C>          <C>           <C>         <C>           <C>
First-mortgage loans                                        $4,471        $6,034      $10,505       $1,388       $8,153       $9,541
                                                            ======        ======      =======       ======       ======       ======
</TABLE>

The Association is, from time to time, a party to certain lawsuits arising in
the ordinary course of its business. The Association believes that none of these
lawsuits would, if adversely determined, have a material adverse effect on its
financial condition or results of operations.

Investment Commitments
----------------------

As of June 30, 1999 the Association was committed to purchase a $500,000 federal
agency bond.

                                       59
<PAGE>

                                                    June 30, 1999, 1998 and 1997

NOTE 14: FINANCIAL INSTRUMENTS WITH OFF-BALANCE-SHEET RISK

The Association is a party to financial instruments with off-balance-sheet risk
in the normal course of business to meet the financing needs of its customers.
These financial instruments include commitments to extend credit. Those
instruments involve, to varying degrees, elements of credit risk in excess of
the amount recognized in the statement of financial position. The contract of
those instruments reflect the extent of the Association's involvement in
particular classes of financial instruments.

The Association's exposure to credit loss in the event of nonperformance by the
other party to the financial instrument for commitments to extend credit, is
represented by the contractual amount of those instruments. The Association uses
the same credit policies in making commitments as it does for on-balance-sheet
instruments.

                                                        Contract Amount
                                                        ---------------
                                                             June 30
                                                             -------
                                                        1999       1998
                                                        ----       ----
                                                        (In thousands)
                Financial instruments, the
                contract amounts of which
                represent credit risk:
                   Commitments to
                   extend credit                      $6,481     $9,541
                                                      ======     ======

Commitments to extend credit are agreements to lend to a customer as long as
there is no violation of any condition established in the contract. Commitments
generally have fixed expiration dates or other termination clauses and may
require payment of a fee. Since some commitments can expire without being drawn
upon the total commitment amounts do not necessarily represent future cash
requirements. The Association evaluates each customer's credit worthiness on a
case-by-case basis. The amount of collateral obtained, if it is deemed necessary
by the Association upon extension of credit, is based on management's credit
evaluation of the counterparty. Collateral held varies but may include
residential and income-producing commercial properties. The loan commitments at
June 30, 1999, were at fixed rates of 7.9% to 8.3% for 5 to 20 years on $447,000
and variable rates of 6.7% to 8.2% on $6,034,000. The Association maintains cash
accounts at the Federal Home Loan Bank and two local banks. Balances reflected
on the local banks' statements exceed the $100,000 insurance limit by varying
amounts on a daily basis. The Association controls this risk by monitoring the
financial condition of the local banks. The Federal Home Loan Bank is an
instrumentality of the U.S. Government.

NOTE 15: SIGNIFICANT CONCENTRATIONS OF CREDIT RISK

Most of the Association's business activity is with customers located within the
State of Missouri. As of June 30, 1999 and 1998, the Association's loans
receivable included approximately $119.6 million and $119.1 million,
respectively of loans originated or purchased in the Columbia, Missouri area. A
substantial part of these loans are on 1 to 4 family residences. Included is
approximately $11.2 million and $9.4 million of commercial loans, respectively.

NOTE 16: RELATED PARTY TRANSACTIONS

Certain directors and executive officers of the Company or its subsidiary were
loan customers. A summary of aggregate related party loan activity, for loans
aggregating $60,000 or more to any one related party is as follows:


                                              June 30
                                     ------------------------
                                        1999           1998
                                     ---------      ---------

   Beginning balance                  $254,000       $261,000
   New loans                                --         10,000
   Repayments                           19,000         17,000
                                     ---------      ---------
   Ending balance                     $235,000       $254,000
                                     =========      =========

                                       60
<PAGE>

                                                    June 30, 1999, 1998 and 1997

NOTE 17:  CONDENSED PARENT COMPANY ONLY FINANCIAL STATEMENTS

The following condensed statement of financial condition, as of June 30, 1999
and 1998 and condensed statements of earnings and cash flows for the years then
ended for MBLA Financial Corporation should be read in conjunction with the
consolidated financial statements and the notes thereto.

<TABLE>
<CAPTION>
                                                                       June 30
                                                              -----------------------
                                                                 1999        1998
                                                              ----------  -----------
                                                                  (In thousands)
<S>                                                           <C>         <C>
          ASSETS
Interest-earning deposits in other institutions               $      546  $       473
Investment in subsidiary                                          28,835       27,575
ESOP loan receivable                                                  86          188
Other assets                                                          75           --
                                                              ----------  -----------
            Total assets                                      $   29,542  $    28,236
                                                              ==========  ===========

          LIABILITIES AND STOCKHOLDERS' EQUITY
Income taxes payable                                          $       (4) $        (4)
Dividends payable                                                    374          374
Accrued expenses                                                      46           25
                                                              ----------  -----------
            Total liabilities                                        416          395
                                                              ----------  -----------

          STOCKHOLDERS' EQUITY
Common stock                                                          17           17
Additional paid in capital                                        17,838       17,526
Retained earnings                                                 20,304       19,022
Less:
   Treasury stock                                                 (9,395)      (9,395)

Accumulated other comprehensive income                               448          859
ESOP obligation                                                      (86)        (188)
                                                              ----------  -----------
          Total Stockholders' Equity                              29,126       27,841
                                                              ----------  -----------
            Total liabilities and stockholders' equity        $   29,542  $    28,236
                                                              ==========  ===========
</TABLE>

                                       61
<PAGE>

                                                   June 30, 1999, 1998 and 1997
NOTE 17:  CONDENSED PARENT COMPANY ONLY FINANCIAL STATEMENTS (Continued)

                              Statement of Income

<TABLE>
<CAPTION>
                                                                                                  Years Ended June 30
                                                                                                 ---------------------
                                                                                                    1999        1998
                                                                                                 ---------   ---------
                                                                                                     (In thousands)
<S>                                                                                              <C>         <C>
Interest income:
      Other interest-earning assets                                                              $       4   $      41
      ESOP loan                                                                                          7          10
                                                                                                 ---------   ---------
                                                                                                        11          51
Income from investment in subsidiary                                                                 2,199       1,945
Noninterest expense:
      Other                                                                                           (189)       (122)
                                                                                                 ---------   ---------
Income before income taxes                                                                           2,021       1,874
Income tax (expense) recovery                                                                           --          10
                                                                                                 ---------   ---------
      Net income                                                                                 $   2,021   $   1,884
                                                                                                 =========   =========
</TABLE>

                           Statement of Cash Flows

<TABLE>
<CAPTION>
                                                                                                 Years Ended June 30
                                                                                                ----------------------
                                                                                                   1999        1998
                                                                                                ----------   ---------
                                                                                                    (In thousands)
<S>                                                                                             <C>          <C>
Cash flows from operating activities:
   Net income                                                                                   $    2,021   $   1,884
   Equity in earnings of subsidiary                                                                 (1,249)        (45)
   Adjustments to reconcile net earnings to net cash
    provided by operating activities:
      Increase (decrease) in interest receivable                                                         2          (1)
      Increase (decrease) in other assets                                                              (75)         --
      Increase (decrease) in other liabilities                                                          21         126
                                                                                                ----------   ---------
         Net cash provided (used) by operating activities                                              720       1,964
                                                                                                ----------   ---------

Cash flows from investing activities:
   Proceeds from maturities of investment securities
     and certificates of deposit                                                                        --       1,174
   Purchase of investment securities and certificates
     of deposit                                                                                         --      (1,174)
   (Increase) decrease in loans receivable ESOP                                                        102          94
                                                                                                ----------   ---------
         Net cash provided (used) in investing activities                                              102          94
                                                                                                ----------   ---------

Cash flows from financing activities:
   Proceeds from issuance of common stock                                                               --         271
   Stock options retired                                                                                --        (779)
   Purchase of treasury stock                                                                           --      (2,048)
   Dividends paid                                                                                     (748)       (631)
                                                                                                ----------   ---------
         Net cash provided (used) by financing activities                                             (748)     (3,187)
                                                                                                ----------   ---------
         Increase (decrease) in cash and cash equivalents                                               74      (1,129)

Cash and cash equivalents at beginning of period                                                       472       1,601
                                                                                                ----------   ---------

Cash and cash equivalents at end of period                                                      $      546   $     472
                                                                                                ==========   =========

Dividends paid by subsidiary to parent                                                          $      950   $   1,900
                                                                                                ==========   =========
</TABLE>

                                       62
<PAGE>

                                                    June 30, 1999, 1998 and 1997
NOTE 18:  FAIR VALUE OF FINANCIAL INSTRUMENTS

The following table presents the carrying amounts and fair values of the
company's financial instruments at June 30, 1999 and 1998. FASB Statement No.
107, Disclosures About Fair Value of Financial Instruments, defines the fair
     -----------------------------------------------------
value of a financial instrument as the amount at which the instrument could be
exchanged in a current transaction between willing parties, other than in a
forced or liquidation sale.

<TABLE>
<CAPTION>
                                       June 30, 1999                                             June 30, 1998
                              ------------------------------                            ------------------------------
                                Carrying            Fair                                  Carrying            Fair
                                 Amount            Value                                   Amount            Value
                              ------------      ------------                            ------------      ------------
                                      (In thousands)                                            (In thousands)
<S>                           <C>               <C>                                     <C>               <C>
Nontrading instruments:
  Cash and cash
    equivalents               $      4,858      $      4,858                            $      3,635      $      3,635
  Investment securities
    and mortgage-backed
    securities                $     51,016      $     51,016                            $     57,996      $     57,996
  Loans, net                  $    141,840      $    141,179                            $    136,647      $    136,925
  Accrued interest
    receivable                $      1,162      $      1,162                            $      1,162      $      1,162
  FHLB stock                  $      3,134      $      3,134                            $      3,134      $      3,134
  Deposit liabilities         $   (117,951)     $   (118,201)                           $   (115,330)     $   (115,635)
  Debt-FHLB advances          $    (54,393)     $    (53,806)                           $    (58,640)     $    (58,541)
  Other liabilities           $       (989)     $       (989)                           $     (1,417)     $     (1,417)
</TABLE>


The carrying amounts in the tables are included in the statement of financial
position under the indicated captions, except for advances from borrowers for
taxes and insurance, income taxes payable and accrued expenses and other
liabilities which have been combined into other liabilities.

Estimation of Fair Values
-------------------------
The following notes summarize the major methods and assumptions used in
estimating the fair values of financial instruments. Short-term financial
instruments are valued at their carrying amounts included in the statement of
financial position, which are reasonable estimates of fair value due to the
relatively short period to maturity of the instruments. This approach applies to
cash and cash equivalents, accrued receivables, and certain other liabilities.

Loans are valued on the basis of estimated future receipts of principal and
interest, discounted at various rates and reduced by the loan loss allowance.
Future cash flows of loans are estimated based on their maturities and weighted
average rates and are discounted at current rates offered for similar loan terms
to new borrowers.

Investment securities are valued at quoted market prices if available. For
unquoted securities, the reported fair value is estimated by the Company on the
basis of financial and other information.

Fair value of demand deposits and deposits with no defined maturity is taken to
be the amount payable on demand at the reporting date. The fair value of fixed-
maturity deposits is estimated using rates currently offered for deposits of
similar remaining maturities. The intangible value of long-term relationships
with depositors is not taken into account in estimating the fair values
disclosed.

Rates currently available to the Company for Federal Home Loan Bank advances
with similar terms and remaining maturities are used to estimate the fair value
of existing borrowings as the present value of expected cash flows. Advances
which have maturities within one year or rates which adjust monthly are valued
at the carrying amount.

NOTE 19:  MARKET RISK DISCLOSURES
The Association's net portfolio values would change as market interests change.
Based on the Office of Thrift Supervision's Interest Rate Risk Exposure Report
as of June 30, 1999, a 200 basis point increase in market interest rates would
cause a $4.7 million, or 17 percent, decline in the market value of its
portfolio assets.

                                       63
<PAGE>

                                                    June 30, 1999, 1998 and 1997
NOTE 20:  YEAR 2000

The Association utilizes a service bureau's thrift platform for data processing.
The Association installed new teller terminals during the quarter ended December
31, 1998 at an approximate installed cost of $12,000. These new terminals are
Y2K compliant as is all other computer hardware currently in use.

Y2K testing of the thrift platform processing system has been completed. The
Association participated in proxy testing and has received written documentation
of testing. Proxy testing of the thrift platform indicates the system is Y2K
compliant. Testing of the "connectivity" to the service bureau was successfully
completed in March 1999.

The Association has contacted major multi-family and commercial borrowers
regarding their Y2K compliance. All responses received by the Association
indicate borrowers' awareness of Y2K issues; borrowers' awareness, and if
appropriate steps are being taken to correct any problems: if borrowers'
computer/software is compliant and has been tested; if the testing has not been
undertaken, when to expect completion; and Y2K awareness but computers not used
for their accounting system. Responses received by borrowers indicate awareness
of issues and systems are either currently Y2K compliant or will be in 1999.

The Association has contacted all other major software vendors and mission
critical third-party providers regarding Y2K compliance. All major software
vendors and mission critical third-party providers who responded to the
Association inquiries have indicated their software and/or systems are Y2K
compliant.

The Association has adopted a "Business Resumption Contingency Plan" in the
event of a "worst-case" failure or interruption of mission critical systems. A
"worst-case" scenario would involve complete failure of the Association computer
systems caused by either power failure by local utility companies who supply
electricity or by inability of Association computer system to function/operate
on January 3, 2000. Association management and personnel will be available
January 1 and January 2, 2000 to further test systems and to again validate
Association systems. The Association does not expect any major capital
expenditures on these areas at this time.


NOTE 21:  RECENT ACCOUNTING PRONOUNCEMENTS

SFAS No. 130 "Reporting Comprehensive Income," was adopted on July 1, 1998. This
statement provides accounting and reporting standards to report a measure of all
changes in equity of an enterprise that results from recognized transactions and
economic events of the period.  The major component of comprehensive  income for
the Company is unrealized  gains and losses on certain  investments  in debt and
equity securities.

SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities,"
establishes accounting and reporting standards for derivative instruments,
including certain derivative instruments embedded in other contracts,
(collectively referred to as derivatives) and for hedging activities. It
requires that an entity recognize all derivatives as either assets or
liabilities in the statement of financial position and measure those instruments
at fair value. If certain conditions are met, a derivative may be specifically
designated as (a) a hedge of the exposure to changes in the fair value of a
recognized asset or liability or an unrecognized firm commitment, (b) a hedge of
the exposure to variable cash flows of a forecasted transaction, or (c) a hedge
of the foreign currency exposure of a net investment in a foreign operation, an
unrecognized firm commitment, an available-for-sale security, or a foreign-
currency-denominated forecasted transaction. This statement is effective for all
fiscal quarters of fiscal years beginning after June 15, 2000.

Management believes adoption of SFAS Nos. 130 and 133 does not have a material
effect on the financial position or results of operations, nor will adoption
require additional capital resources.

The foregoing does not constitute a comprehensive summary of all material
changes or developments affecting the manner in which the Association keeps its
books and records and performs its financial accounting responsibilities. It is
intended only as a summary of some of the recent pronouncements made by the FASB
which are of particular interest to financial institutions.

                                       64
<PAGE>

                                                   June 30, 1999, 1998, and 1997

NOTE 22:  COMPREHENSIVE INCOME

During the year, the Company adopted FASB Statement No. 130, Reporting
Comprehensive Income. Statement No. 130 requires the reporting of comprehensive
income in addition to net income from operations. Comprehensive income is a more
inclusive financial reporting methodology that includes disclosures of certain
financial information that historically has not been recognized in the
calculation of net income.

The Company had unrealized gains on available-for-sale securities, which are a
part of comprehensive income. The before tax and after tax amounts as well as
the deferred tax expense are summarized below.

<TABLE>
<CAPTION>
                                                                                                 As of June 30
                                                                                   ---------------------------------------
                                                                                      1999          1998          1997
                                                                                   -----------   -----------   -----------
      <S>                                                                          <C>           <C>           <C>
      Unrealized gains before tax                                                  $   712,000   $ 1,363,000   $ 1,155,000

      Deferred tax expense                                                             264,000       504,000       428,000
                                                                                   -----------   -----------   -----------

      Unrealized gain after tax                                                    $   448,000   $   859,000   $   727,000
                                                                                   ===========   ===========   ===========
</TABLE>

NOTE 23:  PENDING MERGER

On May 3, 1999, the Company's board of directors approved a merger agreement
with Citizens Bancshares Company (Citizens). The merger is conditioned on the
approval of the agreement by the Company's shareholders. Shareholders were
mailed a proxy statement on or about July 13, 1999 advising them of the
agreement and announcing a special shareholders' meeting to be held August 25,
1999. The agreement requires regulatory approvals which are in process. The
merger agreement was approved by the shareholders.

The merger agreement provides for a business combination in which the Company
will merge with a wholly owned subsidiary of Citizens. The Company will be the
surviving corporation in the merger and will become a wholly owned subsidiary of
Citizens. The current directors and officers of the Company will cease to be
directors and officers upon completion of the merger. Under the merger
agreement, Citizens has the right to revise the structure of the transaction as
long as the revised structure does not change the amount or kind of
consideration being paid to the Company's stockholders, diminish the benefits of
the transaction to the Company's stockholders, directors, officers and
employees, or materially delay or impede the receipt of any required regulatory
approval.

As a result of the merger, except as noted below, each outstanding share of the
Company's common stock will become exchangeable for a cash payment equal to
$24.15 plus or minus an amount that represents the change in the Company's
adjusted book value per share from December 31, 1998 to the end of the month
prior to closing.

Under the merger agreement, each outstanding stock option granted under the
Company's stock option plans will be canceled at the consummation of the merger
and the option holder will receive a cash payment.

                                       65
<PAGE>

        [LETTERHEAD OF LOCKRIDGE, CONSTANT & CONRAD, LLC APPEARS HERE]

                          INDEPENDENT AUDITORS' REPORT
                          ----------------------------

The Board of Directors
MBLA Financial Corporation
Macon, Missouri

We have audited the accompanying consolidated statements of financial condition
of MBLA Financial Corporation and Subsidiary as of June 30, 1999 and 1998, and
the related consolidated statements of income, comprehensive income,
stockholders' equity and cash flows for each of the years in the three-year
period ended June 30, 1999. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audits.

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

In our opinion, the consolidated financial statements referred to in the first
paragraph present fairly, in all material respects, the financial position of
MBLA Financial Corporation and Subsidiary as of June 30, 1999 and 1998, and the
results of their operations and their cash flows for each of the years in the
three-year period ended June 30, 1999, in conformity with generally accepted
accounting principles.

/s/ Lockridge, Constant & Conrad, LLC

August 9, 1999
(except for Note 23, as to which the
   date is August 25, 1999)
Chillicothe, Missouri

                                      66
<PAGE>

Item 8.   Change in and Disagreements with Accountants on Accounting and
------------------------------------------------------------------------
          Financial Disclosure.
          --------------------

     None.


                                   PART III

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

          Executive Officers of the Registrant.

<TABLE>
<CAPTION>
                    Name                   Age (1)               Position Held With The Association
                    ----                   ------                ----------------------------------
<S>                                        <C>         <C>
Clyde D. Smith.........................      39        Vice President, Chief Financial Officer and Secretary
Tom Robison............................      52        Vice President Mortgage Operations
Sarah Hartung..........................      41        Vice President and Savings Supervisor
Melinda Masten.........................      40        Treasurer
</TABLE>

________________
(1) At June 30, 1999


     The following table sets forth the names of the directors of the Company
including their ages, a brief description of their recent business experience,
including present occupations and employment, certain directorships held by
each, the year in which each became a director, the year in which their term as
director of the Company expires, and the amount of Common Stock and the percent
thereof beneficially owned by each and all directors and executive officers as a
group.

<TABLE>
<CAPTION>
                                                                                    Shares of
  Name and Principal Occupation                                    Expiration     Common Stock      Ownership
   at Present and for the Past                      Director       of Term as     Beneficially     As a Percent
           Five Years                Age (1)         Since          Director      Owned (2) (3)     of Class
---------------------------------  -----------  --------------  --------------   ----------------   ---------
<S>                                <C>          <C>             <C>              <C>                <C>
Charles L. Hutton                          81             1964            1999   46,599 (2)(3)(4)     3.51
Chairman of the Board of the
Company and the Association

Truman L. Gehringer                        76             1966            1999    4,931(4)             .37
Former Vice President of the
Company and  the Association

John T. Neer                               50             1985            1999   84,195(4)(6)         6.13
President and Chief Executive
Officer of the Company and the
Association

Carl B. Barrows                            79             1973            2000   25,346(3)(4)         1.91
Vice Chairman of the Board of
the Company and the Association

Arnold L. Walter                           74             1978            2000   41,766(2)(4)(5)      3.15
Owner, Walter's Service Garage
</TABLE>

                                       67
<PAGE>

<TABLE>
<CAPTION>
                                                                                    Shares of
  Name and Principal Occupation                                    Expiration     Common Stock      Ownership
   at Present and for the Past                      Director       of Term as     Beneficially     As a Percent
           Five Years                Age (1)         Since          Director      Owned (2) (3)     of Class
---------------------------------  -----------  --------------  --------------   ----------------   ---------
<S>                                <C>          <C>             <C>              <C>                <C>
Richard C. Miller, Jr.                      62            1974            1998    41,796(2)(3)(4)      3.15
Owner, Miller Rexall Drug Store

Robert M. Wilhite                           61            1973            1998    41,356(2)(3)(4)      3.12
Dentist

Stock Beneficial Ownership                                                       364,203(7)           27.48
of all Directors and executive
officers as a group (11 persons)
and unallocated ESOP stock
voted by the ESOP trustee
</TABLE>

____________________
(1)  As of June 30, 1999.
(2)  Each person or relative of such person whose shares are included herein,
     exercises sole (or shared with spouse, relative or affiliate) voting or
     dispositive power as to the shares reported.
(3)  Includes 9,833 shares subject to options at $10.00 per share that may be
     acquired by each director under the MBLA Financial Corporation 1993 Stock
     Option Plan for Outside Directors (the "Directors' Option Plan").
(4)  Includes 1,404 shares subject to options at $23.50 per share that may be
     acquired by each director under the MBLA Financial Corporation Stock Option
     Plan.
(5)  Includes 5,000 shares subject to options at $10.00 per share that may be
     acquired by each director under the MBLA Financial Corporation 1993 Stock
     Option Plan for Outside Directors (the "Directors' Option Plan").
(6)  Includes 13,779 shares with respect to which shares may be acquired through
     the exercise of stock options under the MBLA Financial Corporation 1993
     Stock Option Plan "Incentive Option Plan" at $10.00 per share.
(7)  Mr. Hutton serves as trustee of the Employee Stock Ownership Plan ("ESOP")
     which holds 70,816 shares of common stock for the benefit of Association
     employees. Such stock will be allocated to ESOP participants as the ESOP
     debt is repaid over the next 2 year period. As of the Record Date, 51,994
     shares have been allocated to ESOP participants for which such participants
     may direct the ESOP trustee to voting. The remaining 18,822 unallocated
     shares, and allocated shares for which no timely voting direction is
     received by the ESOP Trustee, will be voted by the trustee in accordance
     with the instructions received on allocated shares, subject to the
     trustee's fiduciary duty under the Employee Retirement Income Security Act
     of 1974, as amended. Mr. Hutton disclaims beneficial ownership of all
     shares held by the ESOP.


Item 10.  Executive Compensation.
--------------------------------

Directors' Compensation
     Directors' Fees. Directors of the Company do not receive any fees or
retainer for serving on the Company's Board. All directors of the Association
receive a fee of $800 for each meeting held. Members of the Association's
Executive Committee, Audit Committee, and Investment Committee receive $25 per
meeting for serving on these Committees. Directors receive no additional fees as
directors of the service corporation.

     Directors' Consultation and Retirement Plan. The purpose of the Plan is to
provide retirement benefits to Directors of Macon Building and Loan Association
(the "Association") who have provided expertise in enabling the Association to
experience successful growth and development, so as to ensure that the
Association will have their continued services to assist the Association in the
conduct of its affairs.

     Within thirty (30) days of a Participant's Termination Date, a Participant
who has agreed to provide Consulting Services shall be designated a Consulting
Director, and such Consulting Director shall be paid the portion of an annual
Retirement Benefit based on years of service, in equal monthly installments for
the number of months equal to the lesser of (1) the number months such
Participant has agreed to provide Consulting Services as a Consulting Director,
or (2) five (5) years. At the expiration of the period for which the Participant
is entitled to benefits under this paragraph, his or her status as a Consulting
Director shall cease.

     Other. CORPORATION COMPENSATION PLAN. The purpose of the Plan is to provide
compensation to directors, officers and employees of the Corporation. Each
director, officer and employee of the Corporation,

                                       68
<PAGE>

or its subsidiary, shall be compensated for contributions to the Corporation.
Such level of compensation shall be determined based upon the number of options
awarded under the Corporation's Stock Options Plan.

     The Plan shall provide that upon the payment of a cash dividend on the
Common Stock, the participant, whether or not such options are still held by the
participant, shall receive payment of cash in an amount equivalent to the cash
dividend when paid to stockholders of record on record date as compensation
under the Plan.  In addition, it should be understood that these and all future
options granted shall be considered in determination of such compensation rights
under the Plan.

     Although it is anticipated that such compensation payable to such Plan
participants shall be paid each time that a cash dividend is paid on the Common
Stock, the Board reserves the right to amend, modify, suspend, or cancel this
Plan at any time without prior notice to any participants to the Plan.

Executive Compensation

Summary Compensation Table. The following table shows, for the fiscal years
ended June 30, 1999, 1998 and 1997, the cash compensation paid by the
Association, as well as certain other compensation paid or accrued for those
years, to the Chief Executive Officer of the Company and the Association. No
other executive officer of the Company or the Association received salary and
bonus in excess of $100,000 in fiscal 1998.

<TABLE>
<CAPTION>
                               Annual Compensation                                             Long Term Compensation
------------------------------------------------------------------------                       ----------------------
                                                                                                       Awards
                                                                                                       ------
Name and                                                Other Annual         All Other                Number of
Principal Position     Year  Salary($)(1)    Bonus($) Compensation($)(2)  Compensation($)(3)           Options
------------------     ----  ------------    -------- ------------------  ------------------          ---------
<S>                    <C>   <C>             <C>      <C>                 <C>                  <C>
John T. Neer           1999    $134,600      $   ---                 ---             $30,000              1,404
 President, Chief      1998    $129,600      $   ---                 ---             $30,000                ---
 Executive Officer,    1997    $127,200      $   ---                 ---             $30,000                ---
 and Director
</TABLE>

----------------------------------------------
(1)  Includes fees as director of the Association.
(2)  Does not include perquisites for the fiscal years ended June 30, 1999, 1998
     and 1997 which did not exceed the lesser of $50,000.
(3)  Includes 3,000 and 3,000 shares of common stock allocated under the ESOP
     during the fiscal year ended June 30, 1999 and 1998 respectively. As of
     June 30, 1999, the value of such shares was $23.50.

     Employment Agreement. The Association and the Company have entered into an
employment agreement with Mr. John T. Neer. The employment agreement provides
for a three-year term. Commencing on the first anniversary date and continuing
each anniversary date thereafter, the agreement may be extended for an
additional year so that the remaining term shall be three years if the Board of
Directors, after conducting performance evaluations, votes to extend the
agreement. The agreement provides that the base salary for Mr. Neer is $120,000.
In addition to the base salary, the agreement provides for, among other things,
disability pay, participation in stock benefit plans, and other fringe benefits.
The agreement provides for termination by the Association for cause at any time.
In the event the Association chooses to terminate Mr. Neer's employment for
reasons other than for cause or in the event of Mr. Neer's resignation upon (i)
the failure to re-elect or nominate Mr. Neer to his current offices or board
membership, (ii) a material change in the executive's functions, duties, or
responsibilities, or relocation of his principal place of employment, (iii) a
liquidation, dissolution, consolidation, reorganization, or merger in which the
Association is not the resulting entity, or (iv) a breach of the agreement by
the Association if termination,

                                       69
<PAGE>

voluntary or involuntary, occurs following a hostile change in control of the
Association, Mr. Neer or, in the event of death, his beneficiary, would be
entitled to a severance payment equal to three times his average annual
compensation over the past three years of employment with the Association. The
Association would also continue the executive's life, health, accident, and
disability coverage for the remaining unexpired term of the agreement. A hostile
change in control is defined to mean a change in control of which the Board of
Directors of the Association has not approved or recommended to shareholders. A
change in control is generally defined to mean the acquisition by a person or
group of persons having beneficial ownership of 20% or more of the Association's
or Company's Common Stock during the term of the agreement or a tender offer for
20% of the Common Stock or exchange offer, merger, or other form of business
combination, sale of assets, or an election of directors which result in a
change of a majority of the Board of Directors.

     Payments under the employment agreement in the event of a change in control
may constitute an excess parachute payment under Section 280G of the Code
resulting in the imposition of an excise tax on the recipient and denial of a
deduction to the Association for all amounts in excess of the executive's
average annual compensation for the five tax years preceding the change in
control. The agreement provides that benefits payable to the executive under a
change in control will be reduced to an amount that would not constitute an
excess parachute payment (as that term is defined in Section 280G of the Code)
if the reduced amount is greater than the non-reduced amount less payments of
any excise tax.

     Salary Continuation Agreement. February 19, 1998, the Association approved
a salary continuation agreement with Mr. John T. Neer to encourage his retention
and to provide him with an additional source of retirement income. The agreement
provides that, upon his termination of employment with the Association, Mr. Neer
will receive 10 annual payments equal to 41.5 percent of his average base salary
during the three most recently completed calendar years preceding his
termination date. The Association has purchased an insurance policy with Mr.
Neer as insured to provide an informal source of funding for the Association's
obligations under the agreement. For the fiscal year ended June 30, 1999, the
Association accured compensation expense of $11,960.00 with respect to these
obligations.


     Stock Option Plan. The following table provides certain information with
respect to the number of shares of Common Stock represented by outstanding stock
options held by John T. Neer as of June 30, 1999 under the Company's Incentive
Stock Option Plan. Also reported are the value for "in-the-money" options which
represent the positive spread between the exercise price of any such existing
stock options and the year-end price of the Common Stock.

              Aggregated Option/SAR Exercises in Last Fiscal Year
                    and Fiscal Year End Options/SAR Values

<TABLE>
<CAPTION>
                                                Number of         Value of Unexercised
                                               Unexercised            In-the-money
                Shares Acquired    Value     Options/SARs at         Options/SARs at
Name            on Exercise (#)   Realized  Fiscal Year End(#)  Fiscal Year End ($)(1)(2)
----            ----------------  --------  ------------------  -------------------------
                                               Exercisable/           Exercisable/
                                              Unexercisable           Unexercisable
                                              -------------           -------------
<S>             <C>               <C>       <C>                 <C>
John T. Neer                   0         0      13,779/0               $149,985/0
</TABLE>

---------------------------------
(1) The exercise price of the option is $10.00 on shares as of June 30, 1999,
    the closing price of the Common Stock, as reported on the Nasdaq National
    Market, was $23.50.
(2) The exercise price on 1,404 shares is $23.50.


     Compliance with Section 16(a) of the Exchange Act. Section 16(a) of the
Exchange Act requires the Company's executive officers, directors and persons
who own more than 10% of any registered class of the Company's equity
securities, to file reports of ownership and changes in ownership with the SEC.
Executive officers, directors and greater than 10% stockholders are required by
regulation to furnish the Company with copies of all Section 16(a) forms they
file.

                                       70
<PAGE>

    Based solely on its review of the copies of such forms it has received and
written representations provided to the Company by the above referenced persons,
the Company believes that, during the fiscal year ended June 30, 1999, all
filing requirements applicable to its reporting officers, directors and greater
than 10% stockholders were properly and timely complied.


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

    Beneficial Ownership of MBLA Common Stock. The following table provides
information as of June 30, 1999 with respect to persons known to MBLA to be the
beneficial owners of more than 5% of MBLA's outstanding common stock.


<TABLE>
<CAPTION>
                                             Number of Shares     Percent of Common
Name and Address                            Beneficially Owned    Stock Outstanding
----------------                            -------------------   -----------------
<S>                                         <C>                   <C>
Mary Kathryn Drake                                  156,250 (1)               12.5%
2104 Dornoch
League City, Texas

John T. Neer                                         84,195 (2)                6.7%
405 N. Wentz
Macon, Missouri

Macon Building and Loan Association, F.A.            71,216 (3)                5.7%
Employee Stock Ownership Plan
101 Vine Street
Macon, Missouri  63552
</TABLE>

---------------------------------------------------------------
(1) This information is based on a Schedule 13D, dated August 11, 1994, filed
    with the Securities and Exchange Commission.
(2) Includes 13,779 shares that may be acquired upon the exercise of outstanding
    stock options and 18,416 shares allocated to Mr. Neer under Macon Building
    and Loan's ESOP over which Mr. Neer has shared voting power.
(3) Includes 8,604 shares which have not been allocated to participants'
    accounts and over which the trustee has sole voting power and 57,316 shares
    which have been allocated to participants' accounts and over which the
    trustee has shared voting power. Under the terms of the ESOP, the trustee
    will vote unallocated shares and allocated shares for which no voting
    instructions are received in the same proportion as shares for which the
    trustee has received voting instructions from participants. The trustee of
    the ESOP is Charles L. Hutton, who is a director of MBLA. Mr. Hutton
    disclaims beneficial ownership of all shares held by the ESOP.

Item 12.  Certain Relationships and Related Transactions.
--------------------------------------------------------

    The Association had no "interlocking" relationships existing on or after
July 1, 1994 in which (i) any executive officer is a member of the Association's
Board of Directors, or where (ii) any executive officer is a member of the
compensation committee of another entity, one of whose executive officers is a
member of the Association's Board of Directors. The Association, like many
financial institutions, has followed a policy of granting various types of loans
to officers, directors, and employees. The loans have been made in the ordinary
course of business and on substantially the same terms, including interest rates
and collateral, as those prevailing at the time for comparable transactions with
the Association's other customers, and do not involve more than the normal risk
of collectibility, nor present other unfavorable features. All loans by the
Association to its directors and executive officers are subject to OTS
regulations restricting loans and other transactions with affiliated persons of
the Association. The Association's affiliates must qualify for loans on terms
and conditions comparable to those for similar transactions with non-affiliates.
Furthermore, loans to an affiliate must be approved in advance by a
disinterested majority of the Board of Directors or be within other guidelines
established as a result of OTS

                                       71
<PAGE>

regulations. At June 30, 1999, the aggregate amount of loans outstanding to
officers and directors of the Association was approximately $340,344.21.

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

Exhibits
--------

        (a) The following exhibits are filed as a part of this report:

 2.0        Agreement and Plan of Merger dated as of May 3, 1999 by and between
            Citizens Bancshares Company and MBLA Financial Corporation
            (Incorporated by reference to Exhibit 2.1 to the Current Report on
            Form 8-K filed May 4, 1999).

10.6        Form of Employment Agreement between MBLA Financial Corporation,
            Macon Building and Loan Association Executive. (Filed as an exhibit
            to the Form 10-K for fiscal year ending June 30, 1993. Filed with
            the Securities and Exchange Commission on September 24, 1993 and is
            herein incorporated by reference.)
11.0        Computations of earnings per share (filed herewith)

21.0        Subsidiary information is incorporated herein by reference to "Part
            I -- Subsidiaries"

23.0        Consent of Lockridge, Constant & Conrad (filed herewith)

27.0        Financial Data Schedule


Reports on Form 8-K
--------------------

        (b) The following reports were filed during the last quarter of the
            fiscal year 1999:

Item 5.     May 4, 1999 filed SEC Form 8-K announcing Plan of Merger.

Item 5.     June 24, 1999 filed SEC Form 8-K announcing payment of semi-annual
            cash dividend.

Item 5.     August 26, 1999 filed SEC Form 8-K announcing approval of Agreement
            and Plan of Merger with Citizens Bancshares Company.

                                       72
<PAGE>

                                  SIGNATURES

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

                                       MBLA FINANCIAL CORPORATION

                                       By:  /s/  John T. Neer
                                           -------------------------
                                           John T. Neer
DATED:  September 22, 1999                 President, Chief Executive Officer
        ------------------
                                            and Director


     Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed by the following persons in the capacities and on the
dates indicated.

Name                           Title                        Date
----                           -----                        ----

/s/ John T. Neer               President, Chief Executive   September 22, 1999
-----------------------------                               ------------------
    John T. Neer               Officer and Director


/s/ Charles L. Hutton          Chairman of the              September 22, 1999
-----------------------------                               ------------------
    Charles L. Hutton          Board of Directors


/s/ Carl B. Barrows            Vice Chairman of the         September 22, 1999
-----------------------------                               ------------------
    Carl B. Barrows            Board of Directors


/s/ Truman L. Gehringer        Vice President and           September 22, 1999
-----------------------------                               ------------------
    Truman L. Gehringer        Director


/s/ Richard C. Miller, Jr.     Director                     September 22, 1999
-----------------------------                               ------------------
    Richard C. Miller, Jr.


/s/ Arnold L. Walter           Director                     September 22, 1999
-----------------------------                               ------------------
    Arnold L. Walter


/s/ Robert M. Wilhite          Director                     September 22, 1999
-----------------------------                               ------------------
    Robert M. Wilhite


/s/ Clyde D. Smith             Principal Financial          September 22, 1999
-----------------------------                               ------------------
    Clyde D. Smith             Officer

                                       73