SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                   FORM 10-KSB


[X]ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES  EXCHANGE ACT
   OF 1934
                    For the Fiscal Year Ended March 31, 1999
                                       OR

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

  For the transaction period from ___________________ to ______________________



                         Commission File Number: 0-22951
                                                 -------
                            LANDMARK FINANCIAL CORP.
                   -------------------------------------------
                 (Name of Small Business Issuer in its Charter)

            Delaware                                   16-1531343
 ----------------------------------       ------------------------------------
 (State or Other Jurisdiction             (I.R.S. Employer Identification No.)
 of Incorporation or Organization)

 211 Erie Boulevard, Canajoharie, New York                           13317
 -----------------------------------------                         ---------
(Address of Principal Executive Office)                            (Zip Code)

                                 (518) 673-2012
               ---------------------------------------------------
               (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 $.10 per share
                    ----------------------------------------
                                (Title of Class)

     Indicate  by check mark  whether the  Registrant  (1) has filed all reports
required to be filed by Section 13 or 15(d) of the  Securities  Exchange  Act of
1934 during the  preceding  twelve  months (or for such shorter  period that the
Registrant  was required to file such  reports) and (2) has been subject to such
requirement for the past 90 days. YES X  NO
                                     ---   ---

     Indicate by check mark if disclosure of delinquent  filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's  knowledge,  in definitive proxy or information  statements
incorporated  by reference in Part III of this Form 10-KSB or any  amendments to
this Form 10-KSB. [X]

     As of March 31, 1999, the issuer's revenues\losses were ($96,404).

     As of June 10, 1999,  there were issued and  outstanding  154,508 shares of
the  Registrant's  Common Stock. The aggregate value of the voting stock held by
non-affiliates  of the Registrant,  computed by reference to the average bid and
asked prices of the Common Stock as of June 10, 1999 ($11.57) was $1,432,285.

                       DOCUMENTS INCORPORATED BY REFERENCE

1.   Sections of Annual Report to  Stockholders  for the fiscal year ended March
     31, 1999 (Parts II and IV).
2.   Proxy  Statement for the 1999 Annual Meeting of  Stockholders  (Parts I and
     III).



<PAGE>



                                     PART I
                                     ------

ITEM 1.     Business
--------------------

Landmark Financial Corp.

     Landmark Financial Corp. (the "Company") was organized in June 1997 for the
purpose of serving as the  holding  company  for  Landmark  Community  Bank (the
"Bank").  The Company has not engaged in any material  operations  to date.  The
Company has no significant  assets other than the  outstanding  capital stock of
the Bank, net proceeds from its mutual-to-stock conversion and a note evidencing
its loan to the Bank's  Employee Stock  Ownership  Plan ("ESOP").  The Company's
principal  business is  overseeing  and  directing  the business of the Bank and
investing the net conversion proceeds retained by it.

     At March 31,  1999,  the Company had  consolidated  assets of  $22,453,323,
deposits of $19,273,877 and stockholders' equity of $1,927,934.

     The  executive  office of the  Company is  located  at 211 Erie  Boulevard,
Canajoharie,  New York 13317-1117. Its telephone number at that address is (518)
673-2012.

Landmark Community Bank

     The Bank is a federally  chartered  stock  savings  bank  headquartered  in
Canajoharie,  New York. The Bank was chartered in 1925 as a New York savings and
loan  association   under  the  name  Canajoharie   Building  Savings  and  Loan
Association.  In 1997,  the Bank  converted  to a federal  mutual  savings  bank
charter and  changed  its name to Landmark  Community  Bank.  Its  deposits  are
insured up to the maximum  allowable  amount by the FDIC.  Through its office it
serves communities located in Montgomery County, New York.

     The Bank has been,  and  intends to  continue  to be, a  community-oriented
financial  institution offering selected financial services to meet the needs of
the  communities it serves.  The Bank attracts  deposits from the general public
and through brokers and historically has used such deposits, together with other
funds,  to originate  one- to four-family  residential  mortgage  loans,  and in
recent periods to originate  commercial real estate loans,  commercial  business
loans and  consumer  loans  consisting  primarily of personal  loans  secured by
automobiles.  At March 31,  1999,  the  Bank's  total loan  portfolio  was $19.4
million, of which $10.6 million,  or 54.8% were one- to four-family  residential
mortgage loans,  $1.3 million,  or 6.5% were commercial real estate loans,  $6.4
million, or 33.1% were consumer loans, and $1.1 million, or 5.6% were commercial
business loans.

     During the year ended March 31, 1999, the Bank originated  $10.1 million of
fixed-rate and $900,000 of adjustable rate loans,  all of which were retained in
the Bank's portfolio.

     The Bank's executive office is located at 211 Erie Boulevard,  Canajoharie,
New York 13317-1117. Its telephone number at that address is (518) 673-2012.

Market Area and Competition

     The Bank conducts its  operations  through its office in  Canajoharie,  New
York which is located in Montgomery County.  Montgomery  County's population has
remained  relatively stable over the last 10 years. The largest employers in the
Bank's market area are Beechnut Foods, Inc. and Richardson Foods.  Consequently,
the  local  economy  is not  expected  to  produce  a  large  number  of one- to
four-family   residential  mortgage  lending   opportunities.   Unemployment  in
Montgomery  County is higher than the average  nationally and in New York State.
At April 1999 the unemployment rate in Montgomery County was 6.6%.

     The Bank faces  competition in attracting  deposits and originating  loans.
Such competition  consists of two commercial banks, one savings  association and
one credit union.



<PAGE>



Lending Activities

     General.  The Bank has emphasized and, subject to market  conditions,  will
continue  to  emphasize  the  origination  of  one- to  four-family  residential
mortgage  loans.  However,  to a lesser extent,  the Bank intends to continue to
focus  additional   resources  and  lending  efforts  in  consumer  lending  and
commercial  business lending. At March 31, 1999, the Bank's portfolio of one- to
four-family  residential mortgage loans totaled $10.6 million, or 54.8% of total
loans.  At March 31, 1999, the  commercial  real estate  portfolio  totaled $1.3
million, or 6.5% of total loans, all of which were secured by properties located
in the Bank's  market  area.  The Bank's  consumer  loans  consist  primarily of
personal loans (primarily  secured by automobiles),  passbook loans and property
improvement  loans.  At March 31, 1999 consumer  loans totaled $6.4 million,  or
33.1% of  total  loans.  The Bank has  recently  commenced  the  origination  of
commercial  business loans which at March 31, 1999 totaled $1.1 million, or 5.6%
of total loans.

     Under  Office  of  Thrift  Supervision   ("OTS")   regulations,   a  thrift
institution's loans-to-one borrower limit is generally limited to the greater of
15% of  unimpaired  capital  and surplus or  $500,000.  At March 31,  1999,  the
maximum  amount  which the Bank  could  have lent  under  this  limit to any one
borrower and the borrower's  related  entities was  approximately  $500,000.  At
March 31,  1999,  the Bank had no loans or groups of loans to related  borrowers
with outstanding  balances in excess of this amount.  The Bank's largest lending
relationship at March 31, 1999 was approximately $198,000,  which was secured by
commercial real estate, a residence and a vehicle.  At March 31, 1999, this loan
was performing in accordance with its terms.

     Loan  Portfolio  Composition.  The  following  information  concerning  the
composition  of the Bank's loan  portfolio in dollar  amounts and in percentages
(before  deductions  for  loans in  process,  deferred  fees and  discounts  and
allowances for losses) as of the dates indicated.
<TABLE>
<CAPTION>

                                                                                  March 31,
                                                           --------------------------------------------------------
                                                                    1999                           1998
                                                           ------------------------       -------------------------
                                                             Amount         Percent        Amount          Percent
                                                           ---------       --------       ---------       ---------
                                                                             (Dollars in Thousands)
Real Estate Loans:
<S>                                                        <C>                <C>         <C>                 <C>
     One- to four-family..........................         $   10,613         54.76%      $   8,687           63.10%
     Commercial...................................              1,256          6.48             971            7.00
                                                           ----------      --------       ---------         -------
         Total real estate loans..................             11,869         61.24           9,658           70.10
                                                           ----------      --------       ---------         -------

Other Loans:
     Consumer Loans:
     Property improvement.........................                113           .58              16             .10
     Passbook loans...............................                 74           .38             102             .70
     Personal loans (1)...........................              6,243         32.21           3,818           27.70
                                                           ----------      --------       ---------         -------
         Total consumer loans.....................              6,430         33.17           3,936           28.50
     Commercial business loans....................              1,080          5.59             168            1.20
                                                           ----------      --------       ---------         -------

     Total loans..................................         $   19,380        100.00%      $  13,762          100.00%
                                                           ----------      --------       ---------         =======


Less:
     Loans in process.............................         $       --                     $      --
     Allowance for losses.........................               (191)                         (122)
                                                           -----------                    ----------
     Total loans receivable, net..................         $   19,189                     $  13,640
                                                           ==========                     ==========
</TABLE>
----------
(1) Personal loans are primarily comprised of loans secured by automobiles.




                                        2

<PAGE>



     The following  table shows the  composition of the Bank's loan portfolio by
fixed- and adjustable-rate at the dates indicated.

<TABLE>
<CAPTION>

                                                                               March 31,
                                                          ------------------------------------------------
                                                                   1999                      1998
                                                          ----------------------     ---------------------
                                                            Amount      Percent        Amount     Percent
                                                          ---------    ---------     ---------   ---------
                                                                        (Dollars in Thousands)
Fixed-Rate Loans:
 Real estate:
<S>                                                       <C>             <C>        <C>            <C>
   One- to four-family...........................         $   7,336       37.85%     $  4,713       34.20%
   Commercial....................................               691        3.57           971        7.00
                                                          ---------    --------      --------    --------
       Total real estate loans...................             8,027       41.42         5,684       41.30
   Consumer......................................             6,431       33.18         4,105       29.80
                                                          ---------    --------      --------    --------
   Commercial....................................               844        4.36            --       --
       Total fixed-rate loans....................            15,302       78.96         9,789       71.10
                                                          ---------    --------      --------    --------


Adjustable-Rate Loans:
 Real estate:
   One- to four-family...........................             3,277       16.91         3,973       28.80
                                                                                     --------    --------
   Commercial....................................               565        2.92
       Total real estate loans...................             3,842       19.83         3,973       28.80
                                                          ---------    --------      --------    --------
   Commercial....................................               236        1.22
       Total adjustable-rate loans...............             4,078       21.04         3,973       28.80
                                                          ---------    --------      --------    --------
       Total loans...............................         $  19,380      100.00%     $ 13,762      100.00%
                                                          ---------    --------      --------    --------

Less:
   Loans in process..............................         $      --                  $     --
   Allowance for loan losses.....................              (191)                     (122)
                                                                                     ---------
   Total loans receivable, net...................         $  19,189                  $  13,640
                                                          ---------                  =========
</TABLE>

     One- to Four-Family  Mortgage Loans. The Bank's primary lending activity is
the  origination  for its  portfolio  of one-  to  four-family,  owner-occupied,
residential  mortgage  loans  secured by property  located in the Bank's  market
area.  Loans are generated  through the Bank's marketing  efforts,  its existing
customers and referrals, real estate brokers, builders and local businesses. The
Bank generally has limited its real estate loan originations to the financing of
properties  located within its market area. The average principle balance of the
loans in the Bank's one-to four-family  residential  mortgage loan portfolio was
approximately  $36,700 at March 31, 1999. At March 31, 1999,  the Bank had $10.6
million,  or 54.8% of its total  loan  portfolio,  invested  in  mortgage  loans
secured by one- to four-family residences.

     The Bank originates  fixed-rate  residential one- to four-family loans with
terms of up to 20 years.  As of March 31, 1999,  $7.3  million,  or 37.9% of the
Bank's loan portfolio,  consisted of fixed-rate  residential one- to four-family
loans. The Bank's fixed-rate  mortgage loans amortize monthly with principal and
interest due each month.  Residential real estate loans often remain outstanding
for significantly shorter periods than their contractual terms because borrowers
may  refinance  or prepay  loans at their  option.  The Bank also  originates  a
fixed-rate  residential  balloon  loan  with  either a five or ten year term and
which amortizes over 30 years.

     The Bank also offers ARM loans with maturities  ranging up to 30 years. The
Bank  currently  offers ARM loans that adjust  every year,  with  interest  rate
adjustment  limitations  up to two  percentage  points  per  year  and up to six
percentage  points  over  the  life  of the  loan.  In a  rising  interest  rate
environment,  such rate  limitations  may  prevent ARM loans from  repricing  to
market  interest  rates,  which  would  have an adverse  effect on net  interest
income.  The Bank has used different interest indices for ARM loans in the past,
and  currently  uses the one year U.S.  Treasury  Index  adjusted  to a constant
maturity, with a margin of 350 basis points for agency-conforming ARM loans. ARM
loans  secured by  residential  one- to  four-family  real estate  totaled  $3.3
million,  or 16.9% of the Bank's total loan  portfolio  at March 31,  1999.  The
origination  of  fixed-rate  mortgage  loans versus ARM loans is monitored on an
ongoing  basis and is  affected  significantly  by the level of market  interest
rates,  customer  preference,  the Bank's  interest  rate gap  position and loan
products  offered by the Bank's  competitors.  Particularly  in a relatively low
interest  rate  environment,  borrowers  prefer  fixed-rate  loans to ARM loans.
During fiscal 1999, the Bank originated  $3.5 million in fixed-rate  residential
mortgage loans and no ARM loans.



                                        3

<PAGE>



     The  primary  purpose  of  offering  ARM loans is to make the  Bank's  loan
portfolio more interest rate sensitive.  However,  as the interest income earned
on ARM loans varies with prevailing  interest rates, such loans do not offer the
Bank  predictable  cash flows as would  long-term,  fixed-rate  loans. ARM loans
carry increased credit risk associated with potentially  higher monthly payments
by  borrowers  as  general  market  interest  rates  increase.  It is  possible,
therefore,   during  periods  of  rising  interest  rates,   that  the  risk  of
delinquencies  and  defaults  on ARM  loans  may  increase  due  to  the  upward
adjustment  of interest  costs to the  borrower,  resulting  in  increased  loan
losses.

     The Bank's residential first mortgage loans customarily include due-on-sale
clauses,  which  are  provisions  giving  the Bank the  right to  declare a loan
immediately due and payable in the event, among other things,  that the borrower
sells or otherwise  disposes of the underlying real property serving as security
for the loan.  Due-on-sale  clauses are a means of imposing  assumption fees and
increasing the interest rate on the Bank's mortgage  portfolio during periods of
rising interest rates.

     Regulations  limit the amount that a savings  association may lend relative
to the appraised value of the real estate securing the loan, as determined by an
appraisal at the time of loan  origination.  Such  regulations  permit a maximum
loan-to-value  ("LTV") ratio of 95% for residential property (and 100% for loans
guaranteed  by the  Veterans  Administration)  and 90% for all other real estate
loans.  The Bank's lending  policies,  however,  generally limit the maximum LTV
ratio to 80% of the lesser of the appraised  value or the purchase  price of the
property  securing the loan in the case of loans secured by one- to  four-family
owner-occupied  properties.  On conventional  one-to four-family loans, the Bank
will lend up to a 95% LTV ratio; however, loans with LTV ratios in excess of 80%
may require  private  mortgage  insurance and loans with LTV ratios in excess of
90%, with rare  exceptions,  require  private  mortgage  insurance or additional
readily marketable collateral.

     When underwriting residential real estate loans, the Bank reviews each loan
applicant's  employment,  income and  credit  history.  The Bank's  policy is to
obtain credit reports and financial  statements on all borrowers and guarantors.
Properties  securing  real estate loans are  appraised by the Bank's  directors.
Appraisals  are  subsequently  reviewed by the Bank's chief  executive  officer.
Management  believes that stability of income,  past credit history and adequacy
of the  proposed  security  are  integral  parts  in the  underwriting  process.
Generally, the applicant's total monthly mortgage payment,  including all escrow
amounts, is limited to 28% of the applicant's total monthly income. In addition,
total monthly obligations of the applicant,  including mortgage payments, should
not generally exceed 36% of total monthly income.  Written appraisals are always
required on real estate property offered to secure an applicant's loan. The Bank
requires  fire and casualty  insurance on all  properties  securing  real estate
loans, as well as title insurance or a certified abstract and written attorney's
title opinion.

     Commercial  Real  Estate  Lending.  The Bank  originates  loans  secured by
commercial real estate. At March 31, 1999, $1.3 million,  or 6.5%, of the Bank's
loan portfolio  consisted of 27 commercial real estate loans. At March 31, 1999,
the Bank's  commercial real estate loans were all performing  according to their
terms. The Bank will seek to emphasize the origination of commercial real estate
lending in the future.

     Commercial real estate loans originated by the Bank may be either fixed- or
adjustable-rate loans with terms to maturity and amortization schedules of up to
20 years.  Commercial  real estate  loans are written in amounts of up to 75% of
the lesser of the appraised value of the property or the sales price.

     Appraisals  on  properties  which secure  commercial  real estate loans are
performed by an independent  appraiser designated by the Bank before the loan is
made. All appraisals on commercial  real estate loans are reviewed by the Bank's
chief  executive  officer.  In  underwriting  such  loans,  the  Bank  primarily
considers  the cash  flows  generated  by the real  estate to  support  the debt
service, the financial resources and income level of the borrower and the Bank's
experience with the borrower.  In addition,  the Bank's underwriting  procedures
require  verification  of the  borrower's  credit  history,  an  analysis of the
borrower's income,  financial statements and banking relationships,  a review of
the borrower's  property management  experience and references,  and a review of
the property,  including cash flow projections and historical operating results.
The Bank seeks to ensure  that the  property  securing  the loans will  generate
sufficient  cash flow to adequately  cover  operating  expenses and debt service
payments.



                                        4

<PAGE>



     Commercial  real estate lending  affords the Bank an opportunity to receive
interest at rates higher than those generally available from one- to four-family
residential  lending.  Nevertheless,   loans  secured  by  such  properties  are
generally  larger,  more  difficult  to  evaluate  and monitor  and,  therefore,
generally involve a greater degree of risk than one- to four-family  residential
mortgage loans.  Because payments on loans secured by commercial real estate are
often  dependent on the  successful  operation or management of the  properties,
repayment of such loans may be subject to adverse  conditions in the real estate
market or the  economy.  If the cash  flow  from the  project  is  reduced,  the
borrower's  ability to repay the loan might be impaired.  The Bank has attempted
to  minimize  these  risks by  lending  primarily  to the  ultimate  user of the
property or on existing income-producing properties.

     Consumer  and Other  Lending.  The Bank  originates  a limited  variety  of
consumer  loans,  primarily  property  improvement  loans,  passbook  loans  and
personal loans which are secured by automobiles.  The Bank currently  originates
substantially all of its consumer loans in its primary market area.

     The primary  component of the Bank's  consumer loan  portfolio  consists of
personal loans secured by automobiles. In the past two years the Bank has sought
to increase its consumer loan  originations.  It has entered into  correspondent
relationships with a number of automobile dealerships in its market area whereby
a borrower  wishing to acquire an  automobile  will  complete a loan form at the
dealership. The loan document is sent to the Bank which evaluates the borrower's
credit  worthiness,  including the borrower's  credit  history,  ability to meet
existing  obligations and payments on the proposed loan. The Bank generally will
not make an automobile loan with a  loan-to-value  ratio in excess of 80% of the
invoice  price  or the  automobile's  National  Automobile  Dealers  Association
"yellow book" value.  The Bank's  personal loans are generally  fixed rate loans
and have terms that do not exceed 66 months.

     Finally,  the Bank has  originated  a small  number of loans  for  property
improvement.  Such loans are  generally  secured by a second  mortgage  or UCC-1
filing on  improvements,  and are  originated as fixed-rate  loans with terms of
less than 66 months.

     Consumer  loan terms vary  according  to the type and value of  collateral,
length of  contract  and  creditworthiness  of the  borrower.  The  underwriting
standards  employed  by the  Bank  for  originated  consumer  loans  include  an
application,  a determination of the applicant's  payment history on other debts
and an assessment of ability to meet  existing  obligations  and payments on the
proposed  loan.  Although   creditworthiness  of  the  applicant  is  a  primary
consideration,  the underwriting process also includes a comparison of the value
of the security, if any, in relation to the proposed loan amount.

     Consumer  loans entail  greater  credit risk than do  residential  mortgage
loans,  particularly  in the case of consumer  loans which are  unsecured or are
secured  by  rapidly  depreciable  assets,  such as  automobiles.  Further,  any
repossessed collateral for a defaulted consumer loan may not provide an adequate
source of repayment of the  outstanding  loan balance as a result of the greater
likelihood  of  damage,  loss  or  depreciation.   In  addition,  consumer  loan
collections are dependent on the borrower's continuing financial stability,  and
thus  are  more  likely  to  be  affected  by  adverse  personal  circumstances.
Furthermore,  the  application  of various  federal  and state  laws,  including
bankruptcy and  insolvency  laws, may limit the amount which can be recovered on
such  loans.  At March  31,  1999,  three  consumer  loans  were  classified  as
non-performing.   Aggregate  balances  of  non-performing  consumer  loans  were
$18,400.

     Commercial Business Lending. The Bank originates  commercial business loans
to borrowers  located in its market area which are secured by  collateral  other
than real  estate.  Such  commercial  business  loans are  generally  secured by
equipment,  inventory  and accounts  receivable.  At March 31, 1999,  the Bank's
commercial business loan portfolio totaled $1.1 million, or 5.6% of total loans.
At that date, all of the Bank's  commercial  business  loans were  performing in
accordance with their terms.

     The underwriting  standards used by the Bank for commercial  business loans
include a determination of the borrower's  ability to meet existing  obligations
and  payments on the  proposed  loan from normal  cash flow  generated  from the
borrower's business. The financial strength of each borrower is assessed through
a review of tax returns and credit reports.


                                        5

<PAGE>



     Commercial business loans generally bear higher interest rates than one- to
four-family  residential  loans,  but they also involve a higher risk of default
since their repayment is dependent on the successful operation of the borrower's
business.










































                                        6

<PAGE>



Loan Maturity Schedule

     The following table illustrates the interest rate sensitivity of the Bank's
loan  portfolio  at  March  31,  1999.   Mortgages   which  have  adjustable  or
renegotiable interest rates are shown as maturing in the period during which the
contract  is due.  The  schedule  does  not  reflect  the  effects  of  possible
prepayments or enforcement of due-on-sale clauses.
<TABLE>
<CAPTION>

                                                          Commercial                              Commercial
                                   One- to Four-Family    Real Estate          Consumer            Business             Total
                                   ------------------  ------------------  ------------------   ----------------- -----------------
                                             Weighted            Weighted            Weighted            Weighted
                                             Average             Average              Average             Average
                                     Amount    Rate    Amount     Rate      Amount     Rate      Amount    Rate    Amount     Rate
                                   ---------  -----    -------    ----     --------   ------    --------  ------  --------   ------
                                                              (Dollars in Thousands)
Due During Years Ending March 31,

<S>                                <C>        <C>     <C>          <C>      <C>         <C>     <C>        <C>     <C>         <C>
2000.............................  $     59   8.22%   $     7      8.75%    $   317     8.79%   $   291    9.02%   $    674    9.09%
2001.............................        13   9.97         --     --            405    10.02         15    8.68         433   10.17
2002 and 2003....................       757   8.59         75      8.75       5,252     9.42        552    8.25       6,636    9.35
2004 to 2008.....................     1,837   8.58        279      9.99         315     8.58         22    7.38       2,453    8.82
2009 to 2023.....................     6,639   8.33        815      8.97         142     8.20         --   --          7,596    8.38
2024 and following...............     1,308   8.56         80      7.50          --    --           200    7.75       1,588    7.77
                                   --------           -------               -------             -------            --------
         Total Amount Due          $ 10,613           $ 1,256               $ 6,431             $ 1,080            $ 19,380
                                   ========           =======               =======             =======            ========
</TABLE>


(1) Includes demand loans, loans having no stated maturity and overdraft loans.


     The total amount of loans due after March 31, 2000 which have predetermined
interest rates is $15.6 million,  while the total amount of loans due after such
date which has floating or adjustable interest rates is $3.1 million.






                                        7

<PAGE>



Loan Originations

     Loan  originations  are developed from continuing  business with depositors
and borrowers,  soliciting realtors, builders, walk-in customers and third-party
sources.  The Board of Directors of the Bank has authorized  certain officers to
originate  loans  within  specified  underwriting  limits.  Specifically,   Bank
officers may originate loans secured by single-family, owner occupied residences
up to  $150,000.  All loans over  $75,000 or with a loan to value ratio over 80%
require  action by the Bank's Loan  Committee.  In  addition,  the full Board of
Directors  meets on a monthly  basis to review all loans made by officers of the
Bank.

     While the Bank originates both  adjustable-rate  and fixed-rate  loans, its
ability to originate  loans to a certain  extent is dependent  upon the relative
customer demand for loans in its market,  which is affected by the interest rate
environment,  among other factors.  For fiscal 1999, the Bank  originated  $10.9
million in fixed-rate loans and $879,000 in adjustable-rate loans.

     The following table shows the loan origination and repayment  activities of
the Bank for the periods indicated.  The Bank did not purchase or sell any loans
during the periods indicated.

                                                Years Ended March 31,
                                             ---------------------------
                                              1999                1998
                                             ------              -------
                                                    (In Thousands)
Originations by Type:
     Adjustable rate real estate:
         - one- to four-family...........   $       219        $     239
         - multi-family..................            --               --
         - commercial....................           175               --
Non-real estate-consumer.................            30               --
     Commercial business.................           455               --
                                            -----------        ---------
              Total adjustable-rate......           879              239
                                            -----------        ---------
     Fixed-rate real estate:
         - one- to four-family...........         3,450            2,689
         - multi-family..................            --               --
         - commercial....................           236               --
     Non-real estate-- consumer..........         6,379            4,300
     Commercial business.................            --              725
                                            -----------        ---------
              Total fixed-rate...........        10,065            7,714
                                            -----------        ---------
              Total loans originated.....        10,944            7,953
                                            -----------        ---------

Principal repayments.....................         5,326            3,780
                                            -----------        ---------
              Total reductions...........         5,326            3,780
                                            -----------        ---------
Net increase (decrease)..................   $     5,618        $   4,173
                                            ===========        =========

Asset Quality

     The Bank's  collection  procedures  provide that when a real estate loan is
past due 15 days, a delinquent  notice is sent  requesting  payment.  Prior to a
loan  becoming 30 days past due,  personal  contact is  attempted  by the Bank's
collection  officer. If the loan document provides for a right to cure, then the
required  notice is  mailed by  certified  mail and  regular  mail when the loan
becomes 30 days past due.  Personal  contact is continued on all delinquent real
estate loans until the loan is completely current.

     With  respect to consumer  loans,  a delinquent  notice is sent  requesting
payment 15 days after the due date. If payment is not made by the 30th day after
it is due, the Bank sends a certified  letter  requesting that the borrower cure
the  delinquency.  If consumer loans are not resolved by 90 days, the account is
put on  non-accrual  status and  repossession  and/or  legal  action is normally
initiated.  Real estate loans of 60 days or more past due and consumer  loans of
30 or more past due are  reported  monthly to the Board of  Directors.  For both
consumer  loans and real estate  loans,  the Bank officer has authority to begin
foreclosure  and/or  repossession  procedures  at any  time it is  necessary  or
advisable.  At March 31, 1999,  the total loans  delinquent  90 days or more was
$106,000 and the total loans delinquent 60 to 89 days was $97,000.



                                        8

<PAGE>



     Delinquent Loans and Non-performing Assets. Loans are reviewed on a regular
basis and are placed on  non-accrual  status when, in the opinion of management,
the  collection  of  additional  interest  is  doubtful.  Loans  are  placed  on
non-accrual  status when principal is 90 days or more past due. Interest accrued
and unpaid at the time a loan is placed on non-accrual status is charged against
interest  income.  The loan will remain on non-accrual  status until the loan is
brought current.

     Real estate acquired through  foreclosure or by deed-in-lieu of foreclosure
is  classified  as real estate  owned  until such time as it is sold.  When real
estate  owned is acquired,  it is recorded at the lower of the unpaid  principal
balance of the related loan, or its fair value, less estimated selling expenses.
Any further  write-down  of real estate owned is charged  against  earnings.  At
March 31, 1999, the Bank had two  properties  classified as real estate owned in
the amount of $119,000.

     The following  table sets forth the Bank's loan  delinquencies  by type, by
amount and by percentage of type at March 31, 1999.

<TABLE>
<CAPTION>

                                                   Loans Delinquent For:
                              ----------------------------------------------------------------------
                                         60-89 Days                     90 Days and Over               Total Delinquent Loans
                              ------------------------------- -------------------------------------- -----------------------------
                                                      Percent                              Percent                         Percent
                                                      of Loan                              of Loan                         of Loan
                                Number     Amount    Category     Number      Amount      Category    Number     Amount   Category
                              ----------------------------------------------------------------------------------------------------

Real Estate:
<S>                              <C>     <C>          <C>          <C>      <C>            <C>           <C>   <C>           <C>
  One- to four-family.........   --      $  --          --%         2       $  88          0.83%          2    $    88       0.83%
  Commercial..................    1         47        3.74         --          --            --           1         47       3.74

Consumer......................    7         50        0.78          3          18          0.29          10         68       1.07

     Total....................    8      $  97        0.50%         5       $ 106          0.55%         12    $   203       1.05%
</TABLE>


     The table  below sets forth the amounts and  categories  of  non-performing
assets in the Bank's loan portfolio. Loans are placed on non-accrual status when
the  collection of principal  and/or  interest  become  doubtful.  For all years
presented,  the Bank has had no  troubled  debt  restructurings  (which  involve
forgiving a portion of interest or  principal  on any loans or making loans at a
rate  materially  less than that of market  rates).  Foreclosed  assets  include
assets acquired in settlement of loans. At March 31, 1999 and 1998, the Bank did
not have any accruing loans that were delinquent more than 90 days. The Bank did
have foreclosed assets in the aggregate amount of $119,000.

                                                               March 31,
                                                     ---------------------------
                                                        1999             1998
                                                     ----------       ----------
                                                         (Dollars In Thousands)

Non-accruing loans:
     One- to four-family..........................    $     88        $      99
     Commercial real estate.......................          --               28
     Consumer.....................................          18               17
     Commercial business..........................          --               --
                                                      --------        ---------
         Total....................................         106              144
                                                      --------        ---------
Foreclosed Assets.................................         119               --
                                                      --------        ---------
Total non-performing assets.......................    $    225        $     144
                                                      --------        =========
Total as a percentage of total assets.............        1.00%            0.86%
                                                      ========        =========

     For the year ended March 31, 1999,  gross interest  income which would have
been recorded had the  non-accruing  loans been current in accordance with their
original terms amounted to $5,000.  No amounts were included in interest  income
on such loans for the year ended March 31, 1999.

     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." An asset is
considered  "substandard"  if it is  inadequately  protected  by the current net
worth and paying  capacity of the  obligor or the  collateral  pledged,  if any.
"Substandard"  assets include those characterized by the "distinct  possibility"
that


                                        9

<PAGE>



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" on the basis of
currently  existing  facts,  conditions  and values,  "highly  questionable  and
improbable."  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.

     When an insured institution classifies problem assets as either substandard
or doubtful,  it may 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  either to establish a specific  allowance  for losses
equal to 100% of that portion of the asset so classified  or to charge-off  such
amount.  An institution's  determination as to the  classification of its assets
and  the  amount  of its  valuation  allowances  is  subject  to  review  by the
regulatory authorities, who may order the establishment of additional general or
specific loss allowances.

     In connection  with the filing of its periodic  reports with the OTS and in
accordance with its  classification of assets policy,  the Bank reviews loans in
its portfolio quarterly to determine whether such assets require  classification
in accordance with applicable regulations.

     On the basis of management's  review of its assets,  at March 31, 1999, the
Bank had  classified  a total of  $276,000  of its  loans  and  other  assets as
follows: March 31, 1999 (In Thousands)

         Special Mention....................   $     50
         Substandard........................        120
         Doubtful assets....................        106
         Loss assets........................         --
              Total.........................        276
         General loss allowance.............        191
         Specific loss allowance............         --
         Charge-offs........................         52

     Other Loans of Concern. In addition to the non-performing  assets set forth
in the tables above, as of March 31, 1999, there were no loans classified by the
Bank with respect to which known  information about the possible credit problems
of the  borrowers  or the cash  flows of the  security  properties  have  caused
management to have some doubts as to the ability of the borrowers to comply with
present  loan  repayment  terms and which may result in the future  inclusion of
such items in the non-performing asset categories.

     Allowance for Loan Losses.  The  allowance  for loan losses is  established
through a provision for loan losses based on management's evaluation of the risk
inherent in its loan  portfolio and changes in the nature and volume of its loan
activity,  including  those  loans  which are being  specifically  monitored  by
management.  Such  evaluation,  which  includes a review of loans for which full
collectibility may not be reasonably assured, considers among other matters, the
loan classifications discussed above, the estimated fair value of the underlying
collateral, economic conditions,  historical loan loss experience, the amount of
loans outstanding and other factors that warrant recognition in providing for an
adequate loan loss allowance.

     Real estate  properties  acquired  through  foreclosure are recorded at the
lower of cost or fair value minus  estimated  cost to sell. If fair value at the
date of  foreclosure  is  lower  than  the  balance  of the  related  loan,  the
difference  will be  charged-off to the allowance for loan losses at the time of
transfer.  Valuations  are  periodically  updated by management and if the value
declines,  a specific  provision for losses on such property is established by a
charge to operations.  At March 31, 1999, the Bank had two properties  that were
acquired  through  foreclosure.  Both  properties were sold in April 1999, at no
further loss to the Bank.



                                       10

<PAGE>



     Although management believes that it uses the best information available to
determine  the  allowance,   unforeseen   market   conditions  could  result  in
adjustments and net earnings could be  significantly  affected if  circumstances
differ   substantially   from  the   assumptions   used  in  making   the  final
determination.  Future additions to the Bank's allowance for loan losses will be
the result of periodic loan,  property and collateral reviews and thus cannot be
predicted in advance. In addition,  federal regulatory agencies,  as an integral
part of the examination  process,  periodically  review the Bank's allowance for
loan losses.  Such agencies may require the Bank to increase the allowance based
upon their  judgment of the  information  available to them at the time of their
examination.  At March 31, 1999, the Bank had a total  allowance for loan losses
of $191,000,  representing 69.2% of total non-performing assets and 1.00% of the
Bank's loans receivable, net.

     The  distribution of the Bank's  allowance for losses on loans at the dates
indicated is summarized as follows:

<TABLE>
<CAPTION>

                                                                      March 31,
                               --------------------------------------------------------------------------------------
                                               1999                                          1998
                               ----------------------------------------     -----------------------------------------
                                                               Percent                                      Percent
                                                              of Loans                                      of Loans
                                                Loan          in Each                         Loan           in Each
                               Amount of      Amounts         Category      Amount of        Amounts        Category
                               Loan Loss        by            to Total      Loan Loss          by           to Total
                               Allowance      Category          Loans       Allowance       Category          Loans
                               ---------      ---------       --------      ---------      ----------     ----------
                                                                 (Dollars in Thousands)

<S>                            <C>            <C>               <C>         <C>            <C>                <C>
One- to four-family.......     $    105       $   10,613        54.77%      $     60       $   8,687          63.13%
Commercial real estate....           --            1,256         6.48             --             971           7.06
Consumer..................           67            6,431        33.18             59           3,936          28.59
Commercial business.......           --            1,080         5.57              3             168           1.22
Unallocated...............           19               --           --             --              --             --
                               --------       ----------      -------       --------       ---------       --------
    Total.................     $    191       $   19,380          100%      $    122       $  13,762         100.00%
                               ========       ==========      =======       ========       =========       ========
</TABLE>

     The following table sets forth an analysis of the Bank's allowance for loan
losses.

<TABLE>
<CAPTION>
                                                                                                Years Ended March 31,
                                                                                               ----------------------
                                                                                                  1999        1998
                                                                                               ----------  ----------
                                                                                               (Dollars In Thousands)

<S>                                                                                            <C>          <C>
Balance at beginning of period............................................................     $    122     $    110

Charge-offs:
      One- to four-family.................................................................          (25)          (2)
      Commercial real estate..............................................................           --           --
      Consumer............................................................................          (27)          --
      Commercial business.................................................................           --           --
                                                                                               --------     --------
           Total charge-offs..............................................................          (52)          (2)
                                                                                               --------     --------

Recoveries:
      One- to four-family.................................................................           --           --
      Commercial real estate..............................................................           --           --
      Consumer............................................................................           --           --
      Commercial business.................................................................           --           --
                                                                                               --------     --------
           Total recoveries...............................................................           --           --
                                                                                               --------     --------

Net charge-offs...........................................................................          (52)          (2)
Provision for loan losses.................................................................          121           14
                                                                                               --------     --------
Balance at end of period..................................................................     $    191     $    122
                                                                                               ========     ========

Ratio of net charge-offs during the period to average loans outstanding during the period.          .31%        0.02%
                                                                                               ========     ========

Ratio of net charge-offs during the period to average non-performing assets...............        28.49%        2.09%
</TABLE>




                                       11

<PAGE>



Investment Activities

     General.  The Bank must maintain minimum levels of investments that qualify
as liquid  assets  under OTS  regulations.  Liquidity  may  increase or decrease
depending upon the  availability of funds and comparative  yields on investments
in  relation  to the  return  on  loans.  Historically,  the Bank has  generally
maintained liquid assets at levels above the minimum requirements imposed by the
OTS  regulations  and at levels  believed  adequate to meet the  requirements of
normal operations,  including  repayments of maturing debt and potential deposit
outflows.  Cash flow  projections  are regularly  reviewed and updated to assure
that adequate  liquidity is maintained.  At March 31, 1999, the Bank's liquidity
ratio (liquid assets as a percentage of net  withdrawable  savings  deposits and
current borrowings) was 12.95%.

     Federally  chartered  savings  institutions have the authority to invest in
various types of liquid assets, including U.S. Treasury obligations,  securities
of various federal  agencies,  certain  certificates of deposit of insured banks
and savings institutions,  certain bankers'  acceptances,  repurchase agreements
and federal funds. Subject to various restrictions,  federally chartered savings
institutions may also invest their assets in commercial paper,  investment grade
corporate  debt  securities  and  mutual  funds  whose  assets  conform  to  the
investments  that  a  federally   chartered  savings  institution  is  otherwise
authorized to make directly.

     Generally,  the investment  policy of the Bank, as established by the Board
of Directors,  is to invest funds among various  categories of  investments  and
maturities  based upon the Bank's liquidity  needs,  asset/liability  management
policies, investment quality, marketability and performance objectives.

     Mortgage-backed Securities. The Bank historically purchased mortgage-backed
securities primarily to supplement its lending activities,  to generate positive
interest rate spreads on principal balances with minimal administrative expense,
to lower the credit risk of the Bank as a result of the  guarantees  provided by
Government  National  Mortgage  Administration  ("GNMA")  and  Federal  National
Mortgage  Association  ("FNMA") and to generally assist in managing the interest
rate  risk of the  Bank.  The Bank has  invested  primarily  in  federal  agency
securities,  principally  GNMA  obligations.  At  March  31,  1999,  the  Bank's
investment in mortgage-backed securities totaled $545,000, or 2.43% of its total
assets. At March 31, 1999, $38,000 of the Bank's mortgage-backed securities were
classified as held to maturity.

     The GNMA and FNMA  certificates are modified  pass-through  mortgage-backed
securities that represent undivided interests in underlying pools of fixed-rate,
or certain types of adjustable-rate,  single-family residential mortgages issued
by these  government-sponsored  entities.  As a result,  the interest  rate risk
characteristics  of the  underlying  pool  of  mortgages,  i.e.,  fixed-rate  or
adjustable  rate, as well as prepayment  risk, are passed on to the  certificate
holder.  GNMA's  guarantee  to the holder of timely  payments of  principal  and
interest is backed by the full faith and credit of the United States Government.
All of the Bank's GNMA certificates are fixed-rate  securities,  202,000 of FNMA
certificates are adjustable-rate securities.

     Mortgage-backed  securities  generally  yield  less  than  the  loans  that
underlie such  securities  because of the cost of payment  guarantees and credit
enhancements.  In addition,  mortgage-backed  securities are usually more liquid
than  individual  mortgage  loans  and  may be  used  to  collateralize  certain
liabilities and  obligations of the Bank.  These types of securities also permit
the  Bank to  optimize  its  regulatory  capital  because  they  have  low  risk
weighting.

     All of the Bank's $545,000  mortgage-backed  securities  portfolio at March
31, 1999 had  contractual  maturities  over 10 years.  The actual  maturity of a
mortgage-backed  security  may be less  than  its  contractual  maturity  due to
prepayments  of the  underlying  mortgages.  Prepayments  that are  faster  than
anticipated may shorten the life of the security and may result in a loss of any
premiums  paid and  thereby  reduce the net yield on such  securities.  Although
prepayments of underlying  mortgages depend on many factors,  including the type
of mortgages,  the coupon rate, the age of mortgages,  the geographical location
of the underlying real estate  collateralizing  the mortgages and general levels
of market  interest  rates,  the  difference  between the interest  rates on the
underlying mortgages and the prevailing mortgage interest rates generally is the
most  significant  determinant  of the rate of  prepayments.  During  periods of
declining  mortgage  interest  rates,  if the  coupon  rate  of  the  underlying
mortgages exceeds the prevailing market interest


                                       12

<PAGE>



rates  offered  for  mortgage  loans,   refinancing   generally   increases  and
accelerates the prepayment of the underlying mortgages and the related security.
Under such circumstances,  the Bank may be subject to reinvestment risk because,
to the extent  that the Bank's  mortgage-backed  securities  amortize  or prepay
faster than  anticipated,  the Bank may not be able to reinvest  the proceeds of
such repayments and prepayments at a comparable rate.

     The  guaranteed  portion of a given pool must be all fixed or all  variable
rate. The certificates  purchased by the Bank are both fixed and adjustable rate
mortgage backed securities.

     The   following   table   sets   forth  the   composition   of  the  Bank's
mortgage-backed securities at the dates indicated.

<TABLE>
<CAPTION>
                                                                          March 31,
                                                      ------------------------------------------------
                                                               1999                       1998
                                                      --------------------        --------------------
                                                        Book        % of           Book         % of
                                                        Value       Total          Value        Total
                                                                    (Dollars in Thousands)
Mortgage-backed securities available for sale:
<S>                                                   <C>            <C>          <C>        <C>
     FNMA..........................................   $   198        36.33%       $    --          --%
     GNMA..........................................       300        55.04             67       90.54
                                                      -------    ---------        -------    --------
Mortgage-backed - held to maturity ................        36         6.61             --          --
Unamortized premium (discounts), net...............        11         2.02%             7        9.46%
                                                      -------    ---------        -------    --------
         Total mortgage-backed securities..........   $   545       100.00%       $    74      100.00%
                                                      =======    =========        =======    ========
</TABLE>


     The following table shows  mortgage-backed  securities repayment activities
of the Bank for the  periods  indicated.  The Bank did not  purchase or sell any
mortgage-backed securities during fiscal 1999.

                                               Years Ended March 31,
                                             --------------------------
                                              1999               1998
                                             -------            -------
                                                   (In Thousands)
Purchases:
     Adjustable-rate (1).................    $   300           $     --
     Fixed-rate (1)......................        300                 --
                                             -------           --------
         Total purchases.................        600                 --
                                             -------           --------

Sales         ...........................         --               (136)

Principal Repayments:
     Principal repayments................       (129)               (47)
     Increase in other items, net........         --                 --
                                             -------           --------
         Net increase (decrease).........    $   471           $   (183)
                                             =======           ========
-------------------------
(1)     Consists of pass-through securities.

     Other  Investments.  At March 31, 1999,  the Bank's  investment  securities
other than  mortgage-backed  securities consisted of federal agency obligations,
U.S. Government securities and FHLB stock.

     OTS  regulations   restrict   investments  in  corporate  debt  and  equity
securities  by  the  Bank.  These  restrictions   include  prohibitions  against
investments  in the debt  securities  of any one  issuer in excess of 15% of the
Bank's  unimpaired   capital  and  unimpaired  surplus  as  defined  by  federal
regulations,  plus an  additional  10% if the  investments  are fully secured by
readily  marketable  collateral.  At March 31, 1999,  the Bank was in compliance
with this regulation.




                                       13

<PAGE>



     The following  table sets forth the  composition  of the Bank's  investment
securities at the dates indicated.

<TABLE>
<CAPTION>
                                                                                        At March 31,
                                                                ------------------------------------------------------------
                                                                          1999                                 1998
                                                                -----------------------            -------------------------
                                                                    Book         % of                  Book          % of
                                                                    Value        Total                 Value         Total
                                                                                   (Dollars in Thousands)
Investment securities held to maturity:
<S>                                                             <C>                <C>              <C>                <C>
     Federal agency obligations............................     $       38         1.86%            $       74         5.87%
Investment securities available for sale:
     U.S. government securities............................            400        19.55                    599        47.55
     Federal agency obligations............................          1,507        73.65                    500        39.68
     Equity securities.....................................             --           --                     --           --
                                                                ----------   ----------             ----------    ---------
         Subtotal..........................................          1,945        95.06                  1,173        93.10
                                                                ----------   ----------             ----------    ---------
FHLB stock.................................................            101         4.94                     87         6.90
                                                                ----------   ----------             ----------    ---------
         Total investment securities and FHLB stock........     $    2,046       100.00%            $    1,260       100.00%
                                                                ==========   ==========             ==========    =========
Average remaining life of debt securities..................      2.6 years                           2.3 years

Other interest-earning assets:
     Interest-bearing deposits with banks..................     $       11       100.00%            $    1,490       100.00%
     Federal funds sold....................................             --           --                     --           --
                                                                ----------   ----------             ----------    ---------

         Total.............................................     $       11       100.00%            $    1,490       100.00%
                                                                ==========   ==========             ==========    =========
</TABLE>


     Investment  Portfolio  Maturities.  The  composition  and maturities of the
investment securities portfolio and mortgage-backed  securities are indicated in
the following table.

<TABLE>
<CAPTION>


                                                                       At March 31, 1999
                                     -------------------------------------------------------------------------------------
                                      Less Than      1 to 5           5 to 10        Over
                                       1 Year         Years            Years       10 Years    Total Investment Securities
                                     -------------------------------------------------------------------------------------
                                      Amortized     Amortized        Amortized     Amortized       Amortized        Fair
                                        Cost          Cost             Cost          Cost            Cost           Value
                                      ---------     ---------        ---------     ---------       ---------       -------
                                                                     (Dollars in Thousands)

<S>                                  <C>             <C>              <C>          <C>                <C>         <C>
U.S. government securities........   $     200       $     200        $    --      $    --            $   400     $    401
Federal agency obligations........          --             250            750           --               1000         1000
Mortgage-backed securities........          --              --             --          545                545          538

Total investment securities.......         200             450            750          545               1945         1939

Weighted average yield............        5.94%           5.96%           6.2%         7.06%             6.36%           --
</TABLE>


Sources of Funds

     General.  The  Bank's  primary  sources of funds are  deposits,  receipt of
principal and interest on loans and securities,  FHLB advances,  and other funds
provided from operations.

     FHLB advances are used to support  lending  activities and to assist in the
Bank's  asset/liability  management strategy.  Typically,  the Bank does not use
other forms of borrowings. At March 31, 1999, the Bank had FHLB advances of $1.1
million.

     Deposits. The Bank offers deposit accounts having a range of interest rates
and terms.  The Bank's  deposits  consist of passbook,  checking and certificate
accounts.  The certificate  accounts currently range in terms from 91 days to 10
years.



                                       14

<PAGE>



     The Bank relies primarily on advertising,  competitive pricing policies and
customer service to attract and retain these deposits.  In fiscal 1998, the Bank
began obtaining  brokered jumbo CD deposits from out of market customers.  These
deposits  are a more  volatile  source  of funds  than  transaction  or  savings
accounts,  or certificate of deposit  accounts  obtained from  depositors in the
Bank's  market  area.  At March 31,  1999,  the Bank had $5.8  million in out of
market  certificates of deposit  compared to $6.0 million at March 31, 1998. Out
of market  certificates of deposit  represented  38.41% of total certificates of
deposit at March 31,  1999  compared  to 56.60% at March 31,  1998.  The flow of
deposits is influenced significantly by general economic conditions,  changes in
money market and prevailing interest rates and competition.  During fiscal 1997,
the Bank introduced an interest bearing  checking account product.  At March 31,
1999,  $492,000,  or 1.89% of total deposits were in interest  bearing  checking
accounts.

     The Bank has become more susceptible to short-term  fluctuations in deposit
flows as customers have become more interest-rate  conscious. The Bank endeavors
to  manage  the  pricing  of its  deposits  in  keeping  with its  profitability
objectives   giving    consideration   to   its   asset/liability    management.
Notwithstanding the foregoing,  a significant  percentage of the Bank's deposits
are for terms of less than one year. At March 31, 1999, $9.4 million,  or 62.25%
of the Bank's certificates of deposit were in certificates of deposit with terms
of 12  months  or less.  The Bank  believes  that  upon  maturity  most of these
deposits  will  remain at the  Bank.  The  ability  of the Bank to  attract  and
maintain  savings  accounts and  certificates of deposit,  and the rates paid on
these  deposits,  has been and will  continue  to be  significantly  affected by
market conditions.

Savings Portfolio

     The following table sets forth the dollar amount of savings deposits in the
various types of deposit programs offered by the Bank as of the dates indicated.

<TABLE>
<CAPTION>
                                                                             At March 31,
                                                          -----------------------------------------------
                                                                    1999                     1998
                                                          ----------------------   ----------------------
                                                            Amount      Percent       Amount      Percent
                                                                         (Dollars in Thousands)
Transactions and savings deposits:

<S>                                                       <C>              <C>      <C>              <C>
Non-interest bearing checking accounts.............       $     303        1.57%    $     226        1.54%
Interest-bearing checking accounts 1.75%...........             492        2.55           234        1.60
Passbook accounts 3.00%............................           3,395       17.61         3,584       24.50
                                                          ---------    --------     ---------   ---------

Total transactions and savings deposits............           4,190       21.73         4,044       27.64
                                                          ---------    --------     ---------   ---------

Certificates of deposit:

 0.00 -  3.99%.....................................              --          --            --          --
 4.00 -  5.99%.....................................           7,870       40.83         2,983       20.39
 6.00 -  7.99%.....................................           7,214       37.44         7,602       51.97
                                                          ---------    --------     ---------   ---------

Total certificates of deposit......................          15,084       78.27        10,585       72.36
                                                          ---------    --------     ---------   ---------
Accrued Interest...................................              --          --            --          --
                                                          ---------    --------     ---------   ---------
Total Deposits.....................................       $  19,274      100.00%    $  14,629      100.00%
                                                          =========    ========     =========   =========
</TABLE>



                                       15

<PAGE>



Deposit Activity

     The  following  table sets forth the  savings  flows at the Bank during the
periods indicated.

                                          Years Ended March 31,
                                       ---------------------------
                                          1999            1998
                                       ---------       -----------
                                          (Dollars In Thousands)

Opening balance...................... $   14,629       $   10,237
Deposits.............................     30,553           33,278
Withdrawals..........................    (26,803)         (29,596)
Interest credited....................        895              710
                                      ----------       ----------

Ending balance....................... $   19,274       $   14,629
                                      ==========       ==========

Net increase (decrease).............. $    4,645       $    4,392
                                      ==========       ==========

Percent increase (decrease)..........      31.75%           42.90%
                                      ==========       ==========

Time Deposit Maturity Schedule

     The following  table shows weighted  average rate and maturity  information
for the Bank's certificates of deposit as of March 31, 1999.

                                                            Weighted
      Certificate accounts maturing in           Total      Average  Percent of
      quarter endings:                          Balance      Rate      Total
                                                            (In Thousands)

      June 30, 1999....................        $   2,452     6.26%    16.26%
      September 30, 1999...............            3,832     5.88     25.40
      December 31, 1999................            1,176     5.63      7.80
      March 31, 2000...................            1,964     5.70     13.02
      June 30, 2000....................            1,474     6.08      9.77
      September30, 2000................            1,205     6.17      7.99
      December 31,2000.................              179     5.39      1.19
      March 31, 2001...................            1,296     5.11      8.59
      June 30, 2001....................               48     5.35       .32
      September 30, 2001...............            1,458     6.03      9.66
                                               ---------  -------  --------
      Thereafter.......................
               Total...................          $15,084     5.88%   100.00%



     The  following  table  indicates the amount of the Bank's  certificates  of
deposit and other  deposits  by time  remaining  until  maturity as of March 31,
1999.

<TABLE>
<CAPTION>

                                                                                  Maturity
                                                   ---------------------------------------------------------------------
                                                                        Over         Over
                                                       3 Months        3 to 6       6 to 12       Over
                                                       or Less         Months       Months      12 Months        Total
                                                   --------------- -------------- -------------------------- ------------
                                                                    (In Thousands)

<S>                                                     <C>            <C>          <C>         <C>            <C>
Certificates of deposit less than $100,000........      $ 2,231        $ 3,623      $ 2,126     $ 5,742        $ 13,722

Certificates of deposit of $100,000 or more.......        224            209          314          618           1362
                                                          ---            ---          ---          ---           ----

Total certificates of deposit.....................      $ 2,452        $ 3,832      $ 2,440     $ 6,360        $ 15,084
</TABLE>





                                       16

<PAGE>



     Borrowings. Federal law limits an institution's borrowings from the FHLB to
20 times the amount paid for capital  stock in the FHLB,  subject to  regulatory
collateral  requirements.  At March 31,  1999,  the Bank had an  unused  line of
credit  at the FHLB for up to $1.68  million.  At March 31,  1999,  the Bank had
$1.08 million in advances from the FHLB.

Employees

     At March 31, 1999, the Bank had 9 full-time and one part-time employee. The
Bank's  employees  are  not  represented  by any  collective  bargaining  group.
Management considers its employee relations to be good.

Legal Proceedings

     The Bank is  involved,  from time to time,  as  plaintiff  or  defendant in
various legal actions  arising in the normal course of their  businesses.  While
the ultimate outcome of these proceedings cannot be predicted with certainty, it
is the opinion of management,  after consultation with counsel  representing the
Bank in the  proceedings,  that the resolution of these  proceedings  should not
have a  material  effect on the  Company's  financial  position  or  results  of
operations on a consolidated basis.

Service Corporation Activities

     As a federally chartered savings association,  the Bank is permitted by OTS
regulations to invest up to 2% of its assets, or approximately $200,000 at March
31, 1999, in the stock of, or loans to, service  corporation  subsidiaries.  The
Bank may invest an  additional  1% of its assets in service  corporations  where
such additional funds are used for inner-city or community  development purposes
and up to 50% of its total capital in conforming  loans to service  corporations
in which it owns more than 10% of the capital stock.  In addition to investments
in  service  corporations,  federal  associations  are  permitted  to  invest an
unlimited amount in operating subsidiaries engaged solely in activities in which
a federal association may engage.

REGULATION

General

     The Bank is a federally  chartered  savings  association,  the  deposits of
which are  federally  insured  and  backed by the full  faith and  credit of the
United  States  Government.  Accordingly,  the Bank is subject to broad  federal
regulation and oversight  extending to all its operations.  The Bank is a member
of the FHLB of New York and is  subject  to certain  limited  regulation  by the
Federal  Reserve Board. As the savings and loan holding company of the Bank, the
Company also is subject to federal regulation and oversight.  The purpose of the
regulation of the Company and other holding  companies is to protect  subsidiary
savings and loan associations. The Bank is a member of the SAIF. The deposits of
the Bank are insured by the SAIF of the FDIC. As a result,  the FDIC has certain
regulatory and examination authority over the Bank.

     Certain of these  regulatory  requirements  and  restrictions are discussed
below or elsewhere in this document.

Federal Regulation of Savings Associations

     The  OTS  has   extensive   authority   over  the   operations  of  savings
associations.  As part of this authority,  the Bank is required to file periodic
reports with the OTS and is subject to periodic  examinations by the OTS and the
FDIC.  When  these  examinations  are  conducted  by the OTS and the  FDIC,  the
examiners  may require the Bank to provide for higher  general or specific  loan
loss reserves. All savings associations are subject to a semi-annual assessment,
based upon the savings and loan association's total assets.

     The  OTS  also  has  extensive   enforcement  authority  over  all  savings
institutions  and their holding  companies,  including the Bank and the Company.
This enforcement authority includes, among other things, the ability to assess


                                       17

<PAGE>



civil  money  penalties,  to issue  cease-and-desist  or  removal  orders and to
initiate  injunctive  actions.  In  general,  these  enforcement  actions may be
initiated  for  violations  of  laws  and  regulations  and  unsafe  or  unsound
practices.  Other  actions or  inactions  may provide the basis for  enforcement
action,  including  misleading or untimely  reports  filed with the OTS.  Except
under certain  circumstances,  public disclosure of final enforcement actions by
the OTS is required.

     In addition, the investment, lending and branching authority of the Bank is
prescribed  by federal laws and  regulations,  and the Bank is  prohibited  from
engaging in any  activities  not  permitted  by such laws and  regulations.  For
example,  no savings  institution may invest in  non-investment  grade corporate
debt  securities.  In addition,  the permissible  level of investment by federal
associations  in loans secured by  non-residential  real property may not exceed
400% of  total  capital,  except  with  approval  of the  OTS.  Federal  savings
associations are also generally authorized to branch nationwide.  The Bank is in
compliance with the noted restrictions.

     OTS regulations limit a thrift institution's  loans-to-one  borrower to the
greater of $500,000 or 15% of unimpaired  capital and surplus  (except for loans
fully secured by certain readily marketable collateral, in which case this limit
is increased to 25% of unimpaired  capital and surplus).  At March 31, 1999, the
Bank's lending limit under this restriction was approximately $500,000. The Bank
is in compliance with the loans-to-one borrower limitation.

     The  OTS,  as well as the  other  federal  banking  agencies,  has  adopted
guidelines  establishing  safety and soundness standards on such matters as loan
underwriting and  documentation,  internal controls and audit systems,  interest
rate risk exposure and compensation and other employee benefits. Any institution
which fails to comply  with these  standards  must  submit a capital  compliance
plan. A failure to submit a plan or to comply with an approved plan will subject
the  institution to further  enforcement  action.  The OTS and the other federal
banking  agencies have also adopted  additional  guidelines on asset quality and
earnings standards. The guidelines were designed to enhance early identification
and resolution of problem assets.

Insurance of Accounts and Regulation by the FDIC

     The Bank is a  member  of the  SAIF,  which is  administered  by the  FDIC.
Deposits are insured up to applicable  limits by the FDIC and such  insurance is
backed by the full faith and credit of the U.S. Government. As insurer, the FDIC
imposes deposit insurance premiums and is authorized to conduct  examinations of
and to require reporting by FDIC-insured institutions.  It also may prohibit any
FDIC-insured  institution  from engaging in any activity the FDIC  determines by
regulation  or order to pose a serious  risk to the FDIC.  The FDIC also has the
authority to initiate enforcement actions against savings and loan associations,
after giving the OTS an opportunity  to take such action,  and may terminate the
deposit  insurance  if it  determines  that the  institution  has  engaged or is
engaging  in  unsafe  or  unsound  practices,  or  is in an  unsafe  or  unsound
condition.

Regulatory Capital Requirements

     Federal Savings Associations.  Federally insured savings associations, such
as the Bank, are required to maintain a minimum level of regulatory capital. The
OTS has established capital standards, including a tangible capital requirement,
a  leverage  ratio  (or  core  capital)  requirement  and a  risk-based  capital
requirement applicable to such savings and loan associations.  Generally,  these
capital  requirements  must be generally as stringent as the comparable  capital
requirements  for national  banks.  The OTS is also authorized to impose capital
requirements  in excess  of these  standards  on  individual  associations  on a
case-by-case basis.

     The  capital  regulations  require  tangible  capital  of at least  1.5% of
adjusted total assets (as defined by  regulation).  Tangible  capital  generally
includes  common   stockholders'   equity  and  retained  income,   and  certain
noncumulative  perpetual  preferred stock and related income.  In addition,  all
intangible  assets,  other than a limited amount of purchased mortgage servicing
rights,  must be deducted from tangible capital for calculating  compliance with
the requirement.  Further,  the valuation allowance applicable to the write-down
of investments and mortgage-backed securities in accordance with SFAS No. 115 is
excluded from the regulatory  capital  calculation.  At March 31, 1999, the Bank
had no intangible  assets and an unrealized  loss, net of tax under SFAS No. 115
of $5,403.



                                       18

<PAGE>



Limitation on Capital Distributions.

     Under current OTS  regulations,  a savings  institution  may make a capital
distribution  without notice to the OTS,  unless it is a subsidiary of a holding
company,  provided that it has a regulatory rating in the two top categories, is
not of supervisory concern, and would remain adequately capitalized,  as defined
in  the  OTS  prompt  corrective  action  regulations,  following  the  proposed
distribution.  Savings  institutions  that would remain  adequately  capitalized
following the proposed distribution but do not meet the other noted requirements
must notify the OTS 30 days prior to declaring a capital  distribution.  The OTS
stated  it  will  generally   regard  as  permissible  that  amount  of  capital
distributions  that do not exceed  50% of the  institution's  excess  regulatory
capital plus net income to date during the calendar year. A savings  institution
may not make a capital  distribution  without prior  approval of the OTS and the
FDIC if it is  undercapitalized  before, or as a result of, such a distribution.
The OTS may object to a capital distribution if it would constitute an unsafe or
unsound practice.

Liquidity

     All savings  associations,  including the Bank, are required to maintain an
average daily balance of liquid assets equal to a certain  percentage of the sum
of its average daily balance of net withdrawable deposit accounts and borrowings
payable in one year or less.  This liquid asset ratio  requirement may vary from
time to time (between 4% and 10%) depending upon economic conditions and savings
flows of all savings associations. At the present time, the minimum liquid asset
ratio is 5%.

     In addition,  short-term liquid assets (e.g.,  cash, certain time deposits,
certain bankers acceptances and short-term U.S. Treasury obligations)  currently
must  constitute  at  least  1% of  the  Bank's  average  daily  balance  of net
withdrawable  deposit accounts and current borrowings.  Penalties may be imposed
upon associations for violations of either liquid assets ratio  requirement.  At
March 31, 1999, the Bank was in compliance with both requirements, with a liquid
assets ratio of 12.95% and a short-term liquid assets ratio of 3.80%.

Accounting

     An OTS policy statement  applicable to all savings  associations  clarifies
and re-emphasizes that the investment  activities of a savings  association must
be  in  compliance  with  approved  and  documented   investment   policies  and
strategies,  and must be accounted for in  accordance  with  generally  accepted
accounting principles.  Under the policy statement,  management must support its
classification  of and accounting for loans and securities  (i.e.,  whether held
for investment, sale or trading) with appropriate documentation.

     The OTS has adopted an amendment to its accounting  regulations,  which may
be made more stringent than generally accepted accounting  principles to require
that  transactions  be reported in a manner that best reflects their  underlying
economic substance and inherent risk and that financial reports must incorporate
any other accounting regulations or orders prescribed by the OTS. The Bank is in
compliance with these amended rules.

Qualified Thrift Lender Test

     All  savings  associations,  including  the Bank,  are  required  to meet a
qualified  thrift  lender  ("QTL") test to avoid certain  restrictions  on their
operations. This test requires a savings association to have at least 65% of its
portfolio assets (as defined by regulation) in qualified thrift investments on a
monthly average for nine out of every 12 months on a rolling basis.  Such assets
primarily consist of residential housing related loans and investments. At March
31, 1999, the Bank met the test.

     Any savings  association  that fails to meet the QTL test must convert to a
national bank charter,  unless it requalifies as a QTL and thereafter  remains a
QTL. If an  association  does not  requalify  and  converts  to a national  bank
charter,  it must remain  SAIF-insured  until the FDIC permits it to transfer to
the BIF.  If such an  association  has not yet  requalified  or  converted  to a
national  bank,  its  new  investments  and  activities  are  limited  to  those
permissible  for both a  savings  association  and a  national  bank,  and it is
limited to national bank branching rights in its home state.


                                       19

<PAGE>



In addition,  the savings  association is immediately  ineligible to receive any
new FHLB  borrowings  and is  subject to  national  bank  limits for  payment of
dividends.  If such  association  has not requalified or converted to a national
bank within three years after the failure, it must divest of all investments and
cease all activities not permissible  for a national bank. In addition,  it must
repay promptly any outstanding FHLB  borrowings,  which may result in prepayment
penalties. If any association that fails the QTL test is controlled by a holding
company,  then  within one year after the  failure,  the  holding  company  must
register as a bank holding  company and become  subject to all  restrictions  on
bank holding companies.

Transactions with Affiliates

     Generally,  transactions  between a savings association or its subsidiaries
and its affiliates  are required to be on terms as favorable to the  association
as transactions with non-affiliates. In addition, certain of these transactions,
such  as  loans  to  an  affiliate,  are  restricted  to  a  percentage  of  the
association's  capital.  Affiliates  of the Bank  include  the  Company  and any
company  which is under  common  control with the Bank.  In addition,  a savings
association may not lend to any affiliate  engaged in activities not permissible
for a bank holding company or acquire the securities of most affiliates.

     Certain  transactions with directors,  officers or controlling  persons are
also  subject to  conflict of interest  regulations  enforced by the OTS.  These
conflict of interest  regulations and other statutes also impose restrictions on
loans to such persons and their  related  interests.  Among other  things,  such
loans must be made on terms  substantially the same as for loans to unaffiliated
individuals.

Holding Company Regulation

     The  Company  is a unitary  savings  and loan  holding  company  subject to
regulatory  oversight  by the OTS. As such,  the Company is required to register
and file reports with the OTS and is subject to regulation  and  examination  by
the OTS. In addition, the OTS has enforcement authority over the Company and its
non-savings  association  subsidiaries which also permits the OTS to restrict or
prohibit  activities  that are determined to be a serious risk to the subsidiary
savings association.

     As a unitary savings and loan holding company, the Company generally is not
subject to activity  restrictions.  If the Company  acquires  control of another
savings association as a separate subsidiary, it would become a multiple savings
holding  company,  and the activities of the Company and any of its subsidiaries
(other than the Bank or any other  SAIF-insured  savings  and loan  association)
would become subject to such  restrictions  unless such other  associations each
qualify as a QTL and were acquired in a supervisory acquisition.

     If the Bank fails the QTL test, the Company must obtain the approval of the
OTS prior to  continuing  after such  failure,  directly  or  through  its other
subsidiaries,  any  business  activity  other than those  approved  for multiple
savings and loan holding companies or their  subsidiaries.  In addition,  within
one year of such failure the Company must  register as, and will become  subject
to, the  restrictions  applicable  to bank  holding  companies.  The  activities
authorized  for a bank holding  company are more limited than are the activities
authorized for a unitary or multiple savings and loan holding company.

     The Company must obtain approval from the OTS before  acquiring  control of
any other SAIF-insured  association.  Such acquisitions are generally prohibited
if they  result in a  multiple  savings  and loan  holding  company  controlling
savings and loan associations in more than one state.  However,  such interstate
acquisitions  are  permitted  based  on  specific  state  authorization  or in a
supervisory acquisition of a failing savings and loan association.



                                       20

<PAGE>



Federal Reserve System

     The Federal Reserve Board requires all depository  institutions to maintain
noninterest-bearing  reserves at  specified  levels  against  their  transaction
accounts (primarily checking, NOW and Super NOW checking accounts). At March 31,
1999, the Bank was in compliance with these reserve  requirements.  The balances
maintained to meet the reserve requirements imposed by the Federal Reserve Board
may be used to satisfy liquidity requirements that may be imposed by the OTS.

     Savings associations are authorized to borrow from the Federal Reserve Bank
"discount window," but Federal Reserve Board regulations require associations to
exhaust  other  reasonable   alternative   sources  of  funds,   including  FHLB
borrowings, before borrowing from the Federal Reserve Bank.

Federal Home Loan Bank System

     The Bank is a member of the FHLB of New York,  which is one of 12  regional
FHLBs,   that   administers  the  home  financing  credit  function  of  savings
associations.  Each FHLB  serves as a reserve  or central  bank for its  members
within its assigned  region.  It is funded  primarily from proceeds derived from
the sale of  consolidated  obligations  of the FHLB  System.  It makes  loans to
members (i.e.,  advances) in accordance with policies and procedures established
by the board of directors of the FHLB. These policies and procedures are subject
to the  regulation  and  oversight of the Federal  Housing  Finance  Board.  All
advances from the FHLB are required to be fully secured by sufficient collateral
as determined by the FHLB. In addition,  all long-term  advances are required to
provide funds for residential home financing.

     As a member,  the Bank is required to purchase  and  maintain  stock in the
FHLB of New York.  At March 31, 1999,  the Bank had  $101,000 of FHLB stock.  In
past years,  the Bank has  received  dividends  on its FHLB stock.  The dividend
yield from FHLB stock was 7.25% for fiscal 1999.  No assurance can be given that
such dividends will continue in the future at such levels.

     Under  federal  law,  the  FHLBs  are  required  to  provide  funds for the
resolution  of  troubled  savings  associations  and to  contribute  to low  and
moderately priced housing programs through direct loans or interest subsidies on
advances targeted for community investment and low- and moderate-income  housing
projects.  These  contributions  have  affected  adversely  the  level  of  FHLB
dividends  paid and could continue to do so in the future.  These  contributions
could also have an adverse  effect on the value of FHLB stock in the  future.  A
reduction  in value of the  Bank's  FHLB  stock may  result  in a  corresponding
reduction in the Bank's capital.

Federal and State Taxation

     Federal Taxation.  Savings  associations such as the Bank that meet certain
definitional  tests relating to the  composition of assets and other  conditions
prescribed by the Code are permitted to establish  reserves for bad debts and to
make annual  additions  thereto which may, within specified  formula limits,  be
taken as a  deduction  in  computing  taxable  income  for  federal  income  tax
purposes.  The  amount of the bad debt  reserve  deduction  for  "non-qualifying
loans" is computed under the experience  method.  For tax years beginning before
December 31, 1995, the amount of the bad debt reserve  deduction for "qualifying
real property  loans"  (generally  loans secured by improved real estate) may be
computed under either the experience  method or the percentage of taxable income
method  (based on an annual  election).  If a savings  association  elected  the
latter method,  it could claim,  each year, a deduction based on a percentage of
taxable income, without regard to actual bad debt experience.

     Under the experience  method,  the bad debt reserve  deduction is an amount
determined under a formula based generally upon the bad debts actually sustained
by the savings and loan association over a period of years.

     Pursuant to certain  legislation  which was enacted and which is  effective
for tax years  beginning  after 1995,  a small thrift  institution  (one with an
adjusted basis of assets of less than $500 million), such as the Bank, no longer
is permitted to make  additions to its tax bad debt reserve under the percentage
of taxable income method. Such


                                       21

<PAGE>



institutions are permitted to use the experience method in lieu of deducting bad
debts  only as  they  occur.  Such  legislation  requires  the  Bank to  realize
increased tax liability over a period of at least six years,  beginning in 1996.
Specifically,  the legislation  requires a small thrift institution to recapture
(i.e.,  take into income)  over a multi-year  period the balance of its bad debt
reserves in excess of the lesser of (i) the  balance of such  reserves as of the
end of its last  taxable  year  ending  before 1988 or (ii) an amount that would
have been the balance of such reserves had the  institution  always computed its
additions to its reserves using the experience method. The recapture requirement
is suspended for each of two successive  taxable years beginning January 1, 1996
in which the Bank  originates  an amount of certain kinds of  residential  loans
which in the aggregate are equal to or greater than the average of the principal
amounts of such loans made by the Bank  during its six taxable  years  preceding
1996.  It is  anticipated  that any  recapture  of the Bank's bad debt  reserves
accumulated  after 1987 would not have a material  adverse  effect on the Bank's
financial condition and results of operations.

     If an association ceases to qualify as a "bank" (as defined in Code Section
581) or converts to a credit union,  the pre-1988  reserves and the supplemental
reserve are restored to income ratably over a six-year period,  beginning in the
tax year the  association  no longer  qualifies  as a bank.  The  balance of the
pre-1988  reserves are also  subject to recapture in the case of certain  excess
distributions to (including  distributions on liquidation and  dissolution),  or
redemptions of, shareholders.

     In addition  to the regular  federal  income tax,  corporations,  including
savings  and loan  associations  such as the Bank,  generally  are  subject to a
minimum tax. An alternative  minimum tax is imposed at a minimum tax rate of 20%
on  alternative  minimum  taxable  income,  which is the sum of a  corporation's
regular taxable income (with certain adjustments) and tax preference items, less
any available exemption. The alternative minimum tax is imposed to the extent it
exceeds the corporation's regular income tax and net operating losses can offset
no more than 90% of  alternative  minimum  taxable  income.  For  taxable  years
beginning after 1986 and before 1996,  corporations,  including savings and loan
associations such as the Bank, are also subject to an environmental tax equal to
0.12% of the excess of alternative  minimum  taxable income for the taxable year
(determined  without  regard to net  operating  losses and the deduction for the
environmental tax) over $2 million.

     The Bank  files its  federal  income tax  returns on a calendar  year basis
using the cash method of accounting.  The Company  intends to file  consolidated
federal income tax returns with the Bank. Savings and loan associations, such as
the Bank,  that file federal income tax returns as part of a consolidated  group
are required by applicable  Treasury  regulations to reduce their taxable income
for  purposes  of  computing  the  percentage  bad  debt  deduction  for  losses
attributable to activities of the non-savings  and loan  association  members of
the consolidated  group that are  functionally  related to the activities of the
savings association member.

     The Bank has not been audited by the IRS with respect to federal income tax
returns  during  the  past  five  years.  In  the  opinion  of  management,  any
examination  of still open returns would not result in a deficiency  which could
have a material adverse effect on the financial condition of the Bank.

     State Taxation.  The Bank is subject to the New York State Franchise Tax on
Banking  Corporations  in an annual amount equal to the greater of (i) 9% of the
Bank's "entire net income"  allocable to New York State during the taxable year,
or (ii) the applicable  alternative  minimum tax. The alternative minimum tax is
generally the greatest of (a) .01% of the value of the taxable assets  allocable
to New York State with certain modifications,  (b) 3% of the Bank's "alternative
entire net income" allocable to New York State or (c) $250. Entire net income is
similar to federal taxable income,  subject to certain modifications  (including
that net  operating  losses  cannot be  carried  back or  carried  forward)  and
alternative  entire net income is equal to entire  net  income  without  certain
adjustments.

     Delaware Taxation.  As a Delaware holding company,  the Company is exempted
from Delaware corporate income tax but is required to file an annual report with
and pay an annual fee to the State of  Delaware.  The Company is also subject to
an annual franchise tax imposed by the State of Delaware.



                                       22

<PAGE>



ITEM 2. Properties
---------------------

     The Bank conducts its business through its main and branch offices, located
in Canajoharie, New York. The following table sets forth information relating to
the  offices  as of March  31,  1999.  The total  net book  value of the  Bank's
premises and equipment (including land, buildings and leasehold improvements and
furniture,  fixtures and  equipment) at March 31, 1999 was  $583,000.


                                                 Total          Net Book Value
                                              Approximate      of Real Estate at
    Location               Date Acquired     Square Footage     March 31, 1999
-----------------         ---------------   ----------------  ------------------
Main Office:                  1998                  3,200          $  290,000
211 Erie Boulevard
Canajoharie, New York

26 Church Street
Canajoharie, New York         1973                  3,600          $  116,000

ITEM 3. Legal Proceedings
-------------------------

     There are various claims and lawsuits to which the Company is  periodically
involved incident to the Company's business. In the opinion of management,  such
claims  and  lawsuits  in  the  aggregate   are   immaterial  to  the  Company's
consolidated financial condition and results of operations.

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

     No  matters  were  submitted  to a vote of  stockholders  during the fourth
quarter of the year under report.


                                     PART II

ITEM 5. Market for Company's Common Stock and Related Security Holder Matters
-----------------------------------------------------------------------------

     The "Market for Common  Stock"  section of the  Company's  Annual Report to
Stockholders is incorporated herein by reference.


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

     The  "Management's  Discussion  and  Analysis of  Financial  Condition  and
Results of Operations" section of the Company's Annual Report to Stockholders is
incorporated herein by reference.


ITEM 7. Financial Statements
----------------------------

     The financial  statements  are contained in the Company's  Annual Report to
Stockholders and is incorporated herein by reference.


ITEM 8.  Changes  in  and  Disagreements  with  Accountants  on  Accounting  and
         Financial Disclosure
--------------------------------------------------------------------------------

     None.



                                       23

<PAGE>



                                    PART III
                                    --------


ITEM 9. Directors and Executive Officers of the Company; Compliance with Section
        16(a) of the Exchange Act
--------------------------------------------------------------------------------

     (a)  Information concerning the directors of the Company is incorporated by
          reference  hereunder in the Company's  Proxy  Materials for the Annual
          Meeting of Stockholders.

     (b)  Set forth below is information concerning the Principal Officer of the
          Company.

       Name               Age                         Title
-----------------         ----   -----------------------------------------------

Gordon E. Coleman          44    President, Chief Executive Officer and Director


ITEM 10. Executive Compensation
-------------------------------

     Information  with  respect  to  management  compensation  and  transactions
required under this item is incorporated by reference hereunder in the Company's
Proxy  Materials  for the  Annual  Meeting  of  Stockholders  under the  caption
"Compensation".

ITEM 11. Security Ownership of Certain Beneficial Owners and Management
-----------------------------------------------------------------------

     The information  contained under the sections captioned "Stock Ownership of
Management" is  incorporated  by reference to the Company's  Proxy Materials for
its Annual Meeting of Stockholders.


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

     The  information  required  by this  item is set forth  under  the  caption
"Certain  Transactions" in the Definitive Proxy Materials for the Annual Meeting
of Stockholders and is incorporated herein by reference.











                                       24

<PAGE>



                                     PART IV
                                     -------

ITEM 13. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
-------------------------------------------------------------------------

     (a)(1) Financial Statements

The  exhibits and  financial  statement  schedules  filed as a part of this Form
10-KSB are as follows:

          (A)  Independent Auditors' Report;

          (B)  Consolidated  Statements of Financial  Condition - March 31, 1999
               and 1998.

          (C)  Consolidated  Statements  of  Operations  - years ended March 31,
               1999 and 1998;

          (D)  Consolidated  Statements  of  Changes in  Stockholders'  Equity -
               years ended March 31, 1999 and 1998;

          (F)  Consolidated  Statements  of Cash Flows - years  ended  March 31,
               1999 and 1998; and

          (G)  Notes to Consolidated Financial Statements.

     (a)(2) Financial Statement Schedules

     All  financial  statement  schedules  have  been  omitted  as the  required
information is inapplicable or has been included
in the Notes to Consolidated Financial Statements.

     (b)  Reports on Form 8-K

     The  Company  has not filed a Current  Report on Form 8-K during the fourth
quarter of the fiscal year ended March 31, 1999.

          (c)  Exhibits

          3.1  Certificate  of   Incorporation   of  Landmark   Financial  Corp.
               Incorporated  herein by reference to the  Company's  registration
               statement on Form SB-2, file No. 333-29793 (the "Form SB-2")

          3.2  Bylaws  of  Landmark  Financial  Corp.  (Incorporated  herein  by
               reference to the Company's Form SB-2

          4    Form  of  Stock   Certificate   of  Landmark   Financial   Corp.,
               incorporated from Form SB-2.

          13   Annual Report to Stockholders

          21   Subsidiaries of Company

          27   Financial Data Schedule




                                       25

<PAGE>



                                   Signatures

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


                                           Landmark Financial Corp.



Date: June 21, 1999                        By:/s/ Gordon E. Coleman
                                           -------------------------------------
                                           Gordon E. Coleman
                                           President and Chief Executive Officer

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



By:/s/ Gordon E. Coleman                            By:/s/ F. Richard Ferraro
   ----------------------------------------            -------------------------
   Gordon E. Coleman                                  F. Richard Ferraro
    President, Chief Executive Officer and            Director
    Director (Principal Executive Officer)

Date: June 21, 1999                                 Date: June 21, 1999



By:/s/ Paul Hofmann                                 By:/s/ Patricia A. Symolon
   ----------------------------------------            -------------------------
   Paul Hofmann                                       Patricia A. Symolon
    Chief Financial Officer (Principal                Director
    Financial and Accounting Officer)

Date: June 21, 1999                                Date: June 21, 1999



By:/s/ John R. Francisco                            By:/s/ Carl J. Rockefeller
   ----------------------------------------            -------------------------
   John R. Francisco                                 Carl J. Rockefeller
    Chairman of the Board                             Vice Chairman of the Board


Date: June 21, 1999                                Date: June 21, 1999



By:/s/ Frederick LaCoppola
   ---------------------------------------
   Frederick LaCoppola
    Director

Date: June 21, 1999


                                       26

<PAGE>















                                   EXHIBIT 13

                          ANNUAL REPORT TO STOCKHOLDERS
















<PAGE>








                           Landmark Financial Corp.



                               1999 Annual Report

























<PAGE>




Table Of Contents
--------------------------------------------------------------------------------



                                                                            Page


Selected Consolidated Financial Information                                  1-2

Management's Discussion and Analysis of Financial Condition
         And Results of Operations                                          3-13

Independent Auditors' Report                                                  14

Consolidated Financial Statements                                          15-18

Notes to Consolidated Financial Statements                                 19-40

Common Stock Information                                                      41

Directors and Officers                                                        42

Corporate Information                                                         43

Annual Meeting                                                                43

























<PAGE>




                            LANDMARK FINANCIAL CORP.


Date:    June 18, 1999

The Board of Directors,  Officers, and Staff of Landmark Financial Corp. and its
wholly owned  subsidiary,  Landmark  Community Bank, are pleased to provide you,
our fellow shareholders, with this year's annual report.

During  this  past  year the Bank  continued  its  metamorphosis  from that of a
traditional  mutual savings and loan  association  into a dynamic,  full-service
financial institution prepared to face the challenges of the 21st century. After
completing the conversion from mutual to stock ownership last year, the Board of
Directors and management  initiated  several  changes in the institution and its
infrastructure to address those obstacles that were preventing us from fully and
effectively  competing  in the  marketplace.  We prepared a "wish list" of those
items that would allow us to compete on an equal basis with other larger  banks.
The list  included  a  modern  banking  facility,  new and  up-to-date  computer
systems,  additions to both our loan and deposit  products and  increased  asset
size.  As many of you know,  the  banking  facility  problem was solved with the
completion  of our newly  constructed  banking  office at 211 Erie Blvd.  in the
Village of  Canajoharie.  The Bank also purchased a modern,  Year 2000 compliant
computer  hardware and software system that is fully  integrated with the Bank's
data processing service provider. In addition,  our new banking facility allowed
us to add a drive-up window,  night  depository and automatic teller machine.  A
merchant  credit  card  program  has also been  added to  facilitate  commercial
deposits. We have also partnered with another financial institution to provide a
Visa charge card program that  includes  the  Landmark  Community  Bank name and
logo. As a result of these improvements and of our continued efforts to increase
the asset size of the Bank,  assets did in fact increase  during the past fiscal
year from $16.81  million on April 1, 1998 to $22.45  million on March 31, 1999,
an increase of 34%.

All these  changes did not come without  significant,  but what we believe short
term  costs  to net  income.  However,  management  believes  that we  have  now
positioned the Bank to effectively compete in the local banking market. Although
this  required  that we take the  long-term  view at the  expense of  short-term
profits,  we  believe  that  this is the  prudent  course  of  action  and  that
profitability  will follow as a by-product of the actions  taken and  sacrifices
made.

The Company  posted an operating  loss of $96,404 for the fiscal year.  Although
net  interest  income  increased  $117,000,   the  continued  growth  in  assets
necessitated a significant  increase in the Bank's  Provision for Loan Loss from
$12,000 in fiscal  year 1998 to $121,000  in this past  fiscal  year.  Increased
non-interest  expenses  -  including  occupancy  and  equipment  costs,  deposit
insurance premiums, data processing costs and expenses related to being a public
company - all contributed to the net loss for the year.

With the addition of our new  technology  and the  continued  dedication  of our
employees,  Senior  Management and the Board of Directors believe the Company is
poised to succeed in an evolving 21st century  marketplace.  As always, our goal
continues  to be the  enhancement  of  shareholder  value  while  simultaneously
providing to our community a financial  institution  that knows and accommodates
it's customers and is proud to serve them in a competent and friendly manner.

Thank you for your continued  confidence in your Company as we look forward to a
prosperous and profitable future.

                                                              Sincerely,

                                                           /s/Gordon E. Coleman

                                                              Gordon E. Coleman
                                                              President and CEO






<PAGE>





          SELECTED CONSOLIDATED FINANCIAL INFORMATION AND OTHER DATA

Set forth  below  are  selected  consolidated  financial  and other  data of the
Company.  The  financial  data is derived  in part  from,  and should be read in
conjunction  with,  the  Consolidated  Financial  Statements  and Notes  thereto
presented elsewhere in this Annual Report.

<TABLE>
<CAPTION>

                                                                                        At March 31,
                                                     ------------------------------------------------------------------------
                                                     1999              1998             1997           1996            1995
                                                     ----              ----             ----           ----            ----
                                                                                  (In Thousands)

Selected Financial Condition Data:

<S>                                           <C>               <C>             <C>             <C>             <C>
Total Assets                                  $       22,453    $     16,811    $     11,326    $      7,606    $      7,628
Cash and cash equivalents                                296           1,530             709           1,351             881
Loans receivable, net                                 19,189          13,640           9,392           5,528           6,267
Trading Account Securities                                 -                 -            69               -               -
Mortgage Backed Securities:
 Held to maturity                                         38              74             257             340             206
Investment Securities
  Held to maturity                                         -               -             200               -               -
Available for sale                                     1,901           1,104             398             241             134
FHLB Stock                                               101              87              59              64              64
 Deposits                                             19,274          14,629          10,237           6,465           6,518
Advances by borrowers for taxes
and insurance                                            108              97             107              95             155
Total stockholders' equity                             1,928           2,059             956             993             907
</TABLE>



<TABLE>
<CAPTION>
                                                                                        At March 31,
                                                     ------------------------------------------------------------------------
                                                     1999              1998             1997           1996            1995
                                                     ----              ----             ----           ----            ----
                                                                                  (In Thousands)

Selected Financial Condition Data:

<S>                                           <C>           <C>                <C>                <C>              <C>
Total interest income                         $    1,596    $         1,293    $           688    $      622       $     565
Total interest expense                             (912)              (726)              (326)         (270)           (225)
Net interest income                                  684                567                362           352             340
Provision for loan losses                          (121)               (12)               (78)             -               -
Net interest income after
provision for loan losses                            563                555                284           352             340

Fees and service charges                              35                 29                 29            10              14
Other non-interest income                             10                 38                 67             -               -

Total non-interest income                             44                 67                 96            10              14

Total non-interest expense                         (731)              (610)              (434)         (239)           (242)

Income (loss) before taxes                         (123)                 12               (54)           123             112
Income tax (provision) benefit                        27                (5)                 18          (38)            (29)

Net income (loss)                             $     (96)    $             7    $          (36)    $       85       $     83

Earnings per common share
Basic                                         $    (.69)    $          0.05    $           N/A           N/A      $      N/A

Fully diluted                                 $    (.69)    $          0.05    $           N/A           N/A      $      N/A

Weighted average common
outstanding                                      140,247            139,975                N/A           N/A             N/A

</TABLE>



<PAGE>



                                        SELECTED RATIOS DATA

<TABLE>
<CAPTION>


                                                                                             Years Ended March 31,
                                                                       ----------------------------------------------------------
                                                                       1999          1998          1997         1996         1995
                                                                       ----          ----          ----         ----         ----
Perfomance Ratios:
Return on assets (ratio of net income to
<S>                                                                    <C>          <C>           <C>          <C>          <C>
average total assets)                                                 -0.48%        0.05%        -0.41%        1.08%        1.07%
Return on retained earnings (ratio of
net income to average equity)                                         -4.85%        0.56%        -3.67%        8.83%        9.55%
Interest rate spread information:
Average during period                                                  3.30%        3.37%         3.77%        4.13%        4.16%
End of period                                                          3.53%        2.81%         3.34%        4.25%        4.18%

Net interest margin (1)                                                3.64%        3.71%         4.23%        4.59%        4.52%
Ratio of operating expense to average total assets                     3.68%        3.83%         4.89%        3.04%        3.11%
Ratio of average interest-earning assets to average
interest-bearing liabilities                                         106.93%      107.16%       111.97%      114.46%      112.28%


Asset Quality Ratios:
Non-performing assets to total assets
at end of period                                                       1.00%        0.86%         0.41%        0.00%        0.00%
Allowance for loan losses to non-performing loans                    179.90%       84.72%       235.32%        0.00%        0.00%
Allowance for loan losses to loans receivable, net                     1.00%        0.89%         1.17%        0.58%        0.51%


Capital Ratios:
Stockholder's equity to total assets at end of period                  8.59%       12.25%         8.43%       13.56%       12.31%
(Previously net worth to total assets 1997-1995)
Average net worth to average assets                                   10.00%        8.31%        11.06%       12.27%       11.17%

Other Data:
Number of full-service offices                                            1            1             1            1            1

(1) Net  interest   income  divided  by  average interest earning assets.
</TABLE>







<PAGE>










Management's Discussion and Analysis of Financial Condition and Results
of Operations



Management's  Discussion  and  Analysis of  Financial  Condition  and Results of
Operations is intended to assist in understanding  the financial  conditions and
results of operations of the Company. The information  contained in this section
should be read in conjunction  with the  consolidated  financial  statements and
accompanying notes thereto.

Certain statements in this annual report and throughout  Management's Discussion
and  Analysis of  Financial  Condition  and Results of  Operations  are "forward
looking  statements"  within the  meaning of the Private  Securities  Litigation
Reform  Act  of  1995.  These   statements   involve  known  and  unknown  risk,
uncertainties  and other  factors that may cause the Company's  actual  results,
performance  or  achievements  to be  materially  different  from  the  results,
performance  or  achievements  expressed  or  implied  by any  "forward  looking
statement."  "Forward looking  statements" are generally  identifiable by use of
the words "believe," "expect," "intend," "anticipate," "estimate," "project," or
similar  expressions.  Factors that may impact such "forward looking statements"
include,  among  others,  changes in  general  economic  conditions,  changes in
interest rates, the legislative and regulatory environment,  monetary and fiscal
policies of the United States government,  the quality and/or composition of the
loan and/or  investment  portfolios,  demand for loan  products,  deposit flows,
changes in accounting principles or policies and changes in competition.


The Company does not  undertake,  and  specifically  declines any  obligation to
publicly  release the result of any  revisions  which may be made to any forward
looking  statements  to convey  events or  circumstances  after the date of such
statements  or to  reflect  events  or  circumstances  after  the  date  of such
statements or to reflect the occurrence of anticipated or unanticipated events.


GENERAL

Landmark Financial Corp. (the "Company") is a Delaware corporation, which is the
holding  company  for  Landmark  Community  Bank (the  "Bank").  The Company was
organized by the Bank for the purpose of acquiring  all of the capital  stock of
the Bank in  connection  with the  conversion  of the Bank from  mutual to stock
form,  which was  completed  on November 13, 1997 (the  "Conversion").  The only
significant  assets  of the  Company  are the  capital  stock of the  Bank;  the
Company's  loan to the Bank's  Employee  Stock  Ownership  Plan (ESOP),  and the
remaining   net  proceeds  of  the   conversion   retained  by  the  Company  of
approximately  $97,000.  The  business  of the  Company  consists  solely of the
business of the Bank.

The Bank was originally chartered in 1925 as a New York-chartered mutual savings
and  loan  association  under  the  name  Canajoharie  Building  Savings  & Loan
Association, and is headquartered in Canajoharie, New York. The Bank amended its
mutual  charter in 1997 to become a federal  mutual  savings  bank. At March 31,
1999, the Bank had total assets of  $22,648,328,  deposits of  $19,273,876,  and
stockholders' equity of $1,854,862.



<PAGE>



The  Bank  conducts  its  business  through  its  main  office  in  Canajoharie,
Montgomery County, New York. The Bank has been, and intends to continue to be, a
community oriented financial institution offering selected financial services to
meet the needs of the communities it serves. The Bank attracts deposits from the
general public and from deposit brokers and historically has used such deposits,
together with other funds, to originate  one-to-four family residential mortgage
loans,  construction and land loans for  single-family  residential  properties,
commercial  loans and consumer  loans  consisting  primarily of loans secured by
automobiles.  While the Bank's  primary  business has been that of a traditional
thrift institution, originating one-to-four family mortgage loans in its primary
market area for  retention  in its  portfolio,  the Bank also has been an active
participant in the origination of consumer loans,  primarily for the purchase of
automobiles, and of commercial loans for small business and agriculture.


OPERATING STRATEGY

The  Company  conducts no  business  other than to hold the common  stock of the
Bank. The business of the Bank consists  principally of attracting  deposits and
using  those  deposits  to  fund  consumer  loans,  mortgage  loans  secured  by
one-to-four family residences and commercial or agricultural  properties,  small
business loans,  and investment  securities.  The Bank's net income is primarily
dependent on net interest  income,  which is the  difference  between the income
earned on its  interest-earning  assets, such as loans and investments,  and the
cost of its  interest-bearing  liabilities,  which are primarily  deposits.  The
Bank's net income is also  effected by its  provision  for loan losses and other
operating  income and expenses.  Other income is derived from service charges on
deposit  accounts,  late fees on loans,  and the sale of investment  securities.
Other expenses  include  employee  compensation  and benefits,  occupancy costs,
legal, accounting and regulatory costs and deposit insurance premiums.  Earnings
of the Bank are also  affected  by  general  economic  conditions,  particularly
changes in market interest rates, government legislation, monetary policies, and
policies and actions of the regulatory authorities.

Management has  implemented  various  strategies  designed to enhance the Bank's
profitability  while  maintaining  its safety and  soundness.  These  strategies
include  reducing  the Bank's  exposure  to  interest  rate risk by  originating
shorter-term  consumer loans and adjustable rate business loans and by investing
in adjustable rate mortgage backed securities.  Additionally,  the Bank has been
working to extend the maturity of interest bearing liabilities,  including using
FHLB  advances  to fund  assets,  and to  increase  its demand  deposit  base by
offering a variety of checking  account  products.  The Bank maintains the asset
quality  of its  loan  portfolio  by  adhering  to  internal  loan  underwriting
policies.  The Bank also  generally  limits  its  investment  portfolio  and its
investment  in mortgage  backed  securities  to  securities of the United States
government,  and its Agencies  and to  mortgage-backed  securities  issued by or
guaranteed by the United States government or agencies thereof.

It is management's  intention to remain a retail financial institution dedicated
to  financing  home  ownership  and consumer and small  business  needs,  and to
providing  quality service to its customers located in Montgomery County and the
surrounding  counties  in the State of New York.  The Bank is subject to certain
minimum  capital  requirements,  which  are  monitored  by The  Office of Thrift
Supervision.  It is  management's  intention  to continue to surpass the minimum
levels and to maintain its capital  strength.  The Company's  ratio of equity to
assets at March 31, 1999 was 8.59%.






<PAGE>




FINANCIAL CONDITION

Total Assets.  Total assets  increased $5.64 million or 33.6%, to $22.45 million
at March 31, 1999 from $16.81  million at March 31, 1998. The increase in assets
was  primarily  due to increases  in loans  receivable,  investment  securities,
premises and equipment, and foreclosed properties as noted below.

Loans Receivable, Net. Loans receivable, net increased by $5.55 million or 40.7%
to $19.19  million at March 31,  1999 from  $13.64  million  at March 31,  1998,
primarily due to increases in consumer  loans of $2.49  million,  an increase in
commercial loans of $1.20 million,  and an increase in one-to-four  family loans
of $1.93 million.

Mortgage-Backed   Securities.   Mortgage-backed   securities  held  to  maturity
decreased by $36,000 or 48.6% to $38,000 at March 31, 1999 from $74,000 at March
31, 1998. The decrease was due to amortization and prepayments on the loans that
secure the Bank's mortgage-backed securities.

Investment  Securities.   Investment  securities   available-for-sale  increased
$797,000 or 77.2% to $1.9  million at March 31, 1999 from $1.1  million at March
31, 1998.  The increase  was funded  primarily by a portion of the  reduction in
cash from $1.5 million at March 31, 1998 to $296,000 at March 31, 1999.

Premises and  Equipment.  The Bank built and moved to a new facility  during the
year and also invested in new teller equipment, an ATM and new computer hardware
and software. Premises and equipment increased $386,000 or 195.8% to $583,000 at
March 31, 1999 compared to March 31, 1998.

Deposits. Deposits increased $4.64 million, or 31.8%, to $19.27 million at March
31,  1999 from $14.63  million at March 31,  1998.  The  increase in deposits is
primarily  attributable to an increase in local  certificates of deposit of $4.5
million with maturities of one to three years, an increase in checking  deposits
of $334,000 and a decrease in out of market certificates of deposit of $178,000.
The Bank had $5.8 million in out of market  certificates of deposit at March 31,
1999.

Advances from FHLB. The Bank had $1.08 million of outstanding  advances from the
Federal Home Loan Bank at March 31, 1999 compared to no advances  outstanding on
March 31,  1998.  The advances are being used by the Bank to fund both short and
long term cash needs and to help manage interest rate risk.

Equity.  Total stockholders' equity decreased $131,000 or 6.4%, to $1.93 million
at March 31, 1999 from $2.1 million at March 31, 1998, due to the operating loss
of $96,000 and the recognition of $33,000 of unearned stock based  compensation,
a $10,000 reduction in accumulated other comprehensive income (loss) as a result
of the change in unrealized gain (loss) on securities available for sale, and an
increase of $8,000 in the Bank's unearned ESOP shares.















<PAGE>



Comparison of Operating Results for the Years Ended March 31, 1999 and March 31,
1998.

Performance  Summary. Net income decreased $103,871 to a loss of $96,404 for the
year ended March 31,  1999,  compared to net income of $7,467 for the year ended
March 31, 1998. The decrease in earnings was primarily due to an increase in the
provision  for  loan  losses,  increased  general  and  administrative  expenses
associated  with the growth in assets,  the new facilities and equipment,  and a
reduction in  non-interest  income due to gains taken on the sale of  securities
and  commission  income  received in the previous  year compared to no gains and
$16,855 less of commission income in the year ended March 31, 1999.

Net  Interest  Income.  Net  interest  income  increased  $117,271 or 20.7%,  to
$684,189  for the year ended March 31,  1999,  from  $566,918 for the year ended
March 31,  1998.  The increase in net  interest  income  reflects an increase of
$303,442,  to $1,596,348  from $1,292,906 in interest income and a corresponding
increase of $186,171, to $912,159 from $725,988 in interest expense for the year
ended March 31, 1999 as compared to the year ended March 31, 1998.  The increase
in  interest  income  reflects   increased  balances  of  loans  receivable  and
investment securities.  Interest expense increased primarily due to the increase
in deposits, particularly certificates of deposit.

For the year ended March 31, 1999, the average yield on interest-earning  assets
was 8.49%  compared to 8.47% for the year ended March 31, 1998. The average cost
of  interest-bearing  liabilities  was 5.19% for the year ended  March 31,  1999
which was an increase from 5.10% for the year ended March 31, 1998.  The average
balance of  interest-earning  assets  increased $3.5 million or 23.1%,  to $18.8
million for the year ended  March 31, 1999 as compared to $15.3  million for the
year ended  March 31,  1998.  During the same  period,  the  average  balance of
interest-bearing  liabilities  increased $3.4 million or 23.9%, to $17.6 million
from $14.2 million in the year ended March 31, 1998.

Due to higher funding costs,  the average interest rate spread was 3.30% for the
year ended March 31, 1999  compared  to 3.37% for fiscal  1998.  The average net
interest  margin also decreased to 3.64% at March 31, 1999 compared to 3.71% for
the year ended March 31, 1998.

Provision  for Loan  Losses.  During the year  ended  March 31,  1999,  the Bank
charged  $121,000  against earnings as a provision for loan losses compared to a
provision of $12,000 charged against earnings for the year ended March 31, 1998.
During  fiscal  1999,  the Bank's  loan  portfolio  experienced  charge-offs  of
$51,981.  The allowance for loan losses at March 31, 1999 was increased to 1.00%
of loans receivable,  net as compared to 0.89% of loans receivable, net at March
31, 1998. The allowance for loan losses as a percentage of non-performing assets
was 179.90% at March 31, 1999 as  compared  to 84.72% at March 31,  1998.  Total
non-performing  loans  at  March  31,  1999  are  $106,000,  or  0.55%  of loans
receivable,  net, as compared to total non-performing loans at March 31, 1998 of
$144,000 or 1.06% of loans  receivable  net. The increase in the  allowance  for
loan losses as a percentage of loans is due to  management's  recognition of the
increased  risk  associated  with the increased  balances of the  commercial and
consumer loan portfolios as well as the overall  increase in the dollar value of
loans  receivable,  net. The Bank's  allowance for loan losses at March 31, 1999
and March 31, 1998 was $191,019 and $122,000, respectively.


<PAGE>

Management  regularly  reviews the loan portfolio,  including problem loans, and
changes in the relative  makeup of the loan  portfolio to determine  whether any
loans  require  classification  or the  establishment  of  additional  reserves.
Management  will  continue  to monitor  its  allowance  for loan losses and make
future additions to the allowance as economic conditions  dictate.  Although the
Bank maintains its allowance for loan losses at a level which it considers to be
adequate to provide for potential losses,  there can be no assurance that future
losses will not exceed estimated amounts or that additional  provisions for loan
losses will not be required in future  periods.  Based on historical  experience
with loan losses,  the Bank believes that the current  allowance for loan losses
is adequate to cover any potential losses.

Non-interest  Income.  For the year ended March 31,  1999,  non-interest  income
decreased $23,254 or 34.3%, to $44,512 from $67,766 for the year ended March 31,
1998.  The decrease was  primarily due to a gain realized in the sale of trading
account securities in the amount of $12,411 for the year ended March 31, 1998 as
compared no sales or gains for the year ended March 31, 1999, and a reduction in
commission  income for brokering  mortgage  applications  underwritten  at other
financial  institutions from $19,601 for the year ended March 31, 1998 to $2,746
for the year  ended  March 31,  1999.  Loan  fees and  service  fees on  deposit
accounts  increased  $5,721 or 20.0% to $34,280 from $28,559 for the years ended
March 31, 1999 and 1998 respectively.

Non-interest  Expense.  Non-interest  expense  increased  $120,738 or 19.8%,  to
$730,710 for the year ended March 31, 1999 from  $609,972 for the same period in
1998.  During  this  same  period  compensation  and  related  benefits  expense
increased $24,601 or 6.1%, and occupancy and equipment expenses increased $7,533
or 20.0%,  primarily due to increased  depreciation  expense associated with the
new facility and  equipment.  Expenses for data  processing  and FDIC  insurance
increased  commensurably  with the increase in loan and deposit volume.  General
office  and supply  expense  increased  $29,621  or 140.5%  and other  operating
expenses increased $35,231 or 30.1% primarily due to expenses incurred in moving
furniture  and fixtures as well as data  processing  equipment to the Bank's new
facility,  increases  in printing  and supply  costs,  increases in fees paid to
originate  indirect  automobile  loans,  and increases in costs  associated with
being a public company.

Income Taxes.  Income taxes decreased by $31,850 to a benefit of $26,605 for the
year ended  March 31, 1999 from a tax expense of $5,245 for the year ended March
31, 1998. The decrease is due to the decrease in pre-tax  income.  The Company's
effective  tax rate was 34% for the years  ended  March  31,  1999 and March 31,
1998.


Market Risk Analysis

As a holding  company for the Bank,  the Company's  primary  component of market
risk is interest  rate  volatility.  Changes in interest  rates will affect both
income and expenses  associated  with a large  portion of the Bank's  assets and
liabilities,  and the market value of all interest earning assets. Management of
the Bank  measures  and  evaluates  interest  rate risk on a  regular  basis and
actively  strives  to reduce  such  risk.  The Bank is not  subject  to  foreign
currency  exchange risk or commodity  price risk.  The Bank's loan  portfolio is
concentrated  in  Montgomery  County,  New  York and the  immediate  surrounding
counties and is therefore  subject to risks  associated  with the local economy.
The Company and the Bank do not have any hedging  transactions  in place such as
interest rate swaps and caps.






<PAGE>








<TABLE>
<CAPTION>


                              ------------------------------------------------------------------------------------------------------
                                                          AVERAGE YIELDS EARNED AND RATES PAID

                                                                  Years Ended March 31,
                                    1999                                  1998                                   1997
                              ------------------------------------------------------------------------------------------------------
                                Average    Interest               Average      Interest                Average   Interest
                              Outstanding  Earned/              Outstanding    Earned/               Outstanding  Earned/
                                Balance     Paid    Yield/Rate    Balance       Paid     Yield/Rate    Balance     Paid   Yield/Rate
                              ------------------------------------------------------------------------------------------------------

Interest-earning assets:
<S>                           <C>          <C>         <C>        <C>         <C>          <C>         <C>        <C>          <C>
Loans receivable (1)(2)       $  16,515    $ 1,453     8.80%      $ 13,250    $ 1,174      8.86%       $ 6,960    $  585       8.41%
Mortgage-backed securities           52          4     7.69%           117         10      8.55%           290        26       8.97%
Investment securities             1,409         87     6.17%           849         53      6.24%           393        27       6.87%
FHLB stock                           89          6     6.74%            74          7      9.46%            61         4       6.56%
Interest bearing deposits           725         46     6.34%           978         49      5.01%           846        46       5.44%
                              ---------    -------                --------    -------                  -------    ------
Total interest-earning assets $  18,790    $ 1,596     8.49%      $ 15,268    $ 1,293      8.47%       $ 8,550    $  688       8.05%
                              =========    =======                ========    =======                  =======    ======

Interest-bearing liabilities:
Interest-bearing checking      $    816    $     9     1.10%            463   $     3      0.65%       $    63    $    1       1.59%
Passbook accounts                 3,391        102     3.01%          3,965       118      2.98%         3,703       108       2.92%
Certificate accounts             12,913        781     6.05%          9,820       605      6.16%         3,870       217       5.61%
FHLB advances                       452         20     4.42%
                              ---------    -------                --------    -------                  -------    ------
Total interest-bearing
 liabilities                  $  17,572    $   912     5.19%      $  14,248   $  726       5.10%       $ 7,636    $  326       4.27%
                              =========    =======                ========    =======                  =======    ======
Net interest income                        $   684                            $  567                              $  362
                                           =======                            ======                              ======
Net interest rate spread                               3.30%                               3.37%                               3.78%
                                                       ====                                ====                                ====
Net earning assets            $   1,218                           $   1,020                            $   914
                              =========                           =========                            =======
Net yield on average
interest-earning assets                                3.64%                               3.71%                               4.23%
                                                       ====                                ====                                ====
Ratio of average interest-earning assets to
average interest-bearing liabilities        106.93%                          107.16%                               111.97%
                                            ======                           ======                                ======


(1)  Calculated net of deferred loan fees,loan discounts, loans in process and loss reserves.
(2)  In computing average balances and average yield on loans, non-accruing loans have been included.
</TABLE>




<PAGE>




                                SPREAD AND MARGIN


                                                           Years Ended March 31,
                                                           ---------------------
                                                           1999    1998    1997
                                                           ----    ----    ----

Weighted average yield on loans                            8.80%   8.86%   8.41%
Weighted average yield on mortgage-backed securities       7.69%   8.55%   8.97%
Weighted average yield on investment securities            6.17%   6.24%   6.87%
Weighted average yield on FHLB stock                       6.74%   9.46%   6.56%
Weighted average yield on other interest-bearing deposits  6.34%   5.01%   5.44%
Weighted average yield on all interest-earning assets      8.49%   8.47%   8.05%

Weighted average rate paid on interest-bearing checking    1.10%   0.65%   1.59%
Weighted average rate paid on passbook accounts            3.01%   2.98%   2.92%
Weighted average rate paid on certificate accounts         6.05%   6.16%   5.61%
Weighted average rate paid on FHLB advances                4.42%
Weighted average rate paid on all interest-bearing         5.19%   5.10%   4.27%
liabilities

Interest rate spread (spread between weighted average
rate on all interest-earning assets and all interest-
bearing liabilities)                                       3.30%   3.37%   3.78%

Net interest margin (net interest income as a
percentage of average interest-earning assets)             3.64%   3.71%   4.23%





<PAGE>






<TABLE>
<CAPTION>

                                                                  RATE VOLUME ANALYSIS
                                                  1999 Compared to 1998        1998 Compared to 1997
                                                Increase (Decrease) Due to  Increase (Decrease) Due to
                                                ------------------------------------------------------
                                                Volume     Rate       Net      Volume    Rate     Net
                                                                     (In thousands)


Interest-earning assets:
<S>                                              <C>      <C>      <C>         <C>      <C>     <C>
Loans Receivable                                 $ 291    $ (10)   $ 281       $ 529    $ 60    $ 589
Investment Securities                               35       (1)      34          31      (5)      26
Mortgage-backed securities                          (6)      (0)      (6)        (16)     (0)     (16)
Other                                              (15)       9       (6)          8      (2)       6
                                                 -----    -----    -----       -----    ----    -----
Total net change in income on interest-earning   $ 306    $  (3)   $ 303       $ 552    $ 52    $ 605
assets                                           =====    =====    =====       =====    ====    =====


Interest-bearing liabilities:
Passbook accounts                                $ (17)   $   1    $ (16)      $   8    $  2    $  10
Interest-bearing checking                            2        4        6           6      (4)       2
Certificates of deposit                            191      (15)     176         334      54      388
FHLB advances                                        0       20       20
                                                 -----    -----    -----       -----    ----    -----
Total net change in income on interest-bearing   $ 176    $  10    $ 186       $ 348    $ 52    $ 400
liabilities                                      =====    =====    =====       =====    ====    =====


Net change in net interest income                $ 117                                          $ 205
                                                 =====                                          =====
</TABLE>








<PAGE>



Asset and Liability Management

One of  the  Bank's  principal  financial  objectives  is to  achieve  long-term
profitability while reducing its exposure to fluctuations in interest rates. The
Bank has sought to reduce exposure of its earnings to changes in market rates by
managing the mismatch between asset and liability maturities and interest rates.
The principal  elements in achieving  this  objective  have been to increase the
interest-rate  sensitivity  of the Bank's  assets by  originating  consumer  and
business  loans  with  maturities  of five  years and less and by  investing  in
variable  rate  securities.  At the same time the Bank has  sought to extend the
maturities of certain of its  liabilities  by utilizing  FHLB term loans to fund
some of the asset growth and by promoting  longer term  certificates of deposit.
The Bank has also  increased  its core  deposit base by  increasing  DDA account
balances 73% to $794,652 from $459,306 at March 31, 1999 and 1998  respectively.
However,  the Bank  continues  to retain  longer  term  fixed  rate  residential
mortgage  loans in the  portfolio as part of its effort to increase the size and
the yield of its loan portfolio.  During the fiscal year fixed rate  residential
mortgages  increased 57.2% to $6.6 million from $4.2 million,  while  adjustable
rate  residential  mortgages  decreased 30.4% from $3.6 million to $2.5 million.
This  increase  in longer term fixed rate  assets has  exceeded  the pace of the
Bank's  efforts  to extend  maturities  of  liabilities  and  created a negative
interest  sensitivity  gap.  A gap is  considered  negative  when the  amount of
interest  rate  sensitive  liabilities  exceeds  the  amount  of  interest  rate
sensitive assets.  During a period of rising interest rates a negative gap would
tend to adversely  affect interest  income.  During a period of falling interest
rates, a negative gap would tend to positively  affect net interest  income.  At
March 31, 1999, total interest-bearing  liabilities maturing or repricing within
one year exceeded total interest-earning assets maturing or repricing during the
same period by $2,348,220, representing a cumulative one-year gap of (10.46)%.


<TABLE>
<CAPTION>

Interest Rate Gap Analysis                              Cumulatively Repriced Within

                                         3 months        4 to 12 Months       1 to 5 years        After 5 yrs         Total
                                         --------        --------------       ------------        ------------        -----
<S>                                      <C>              <C>                 <C>                 <C>                <C>
Cash and cash equivalents                $         0      $             0     $           0       $    295,827       $   295,827
Securities                                   257,456              300,000           750,000            732,904         2,040,360
Loans                                      2,296,756            5,757,230         3,610,526          7,524,745        19,189,257
Other assets                                                                                           927,879           927,879
                                           ----------           ----------        ---------          ---------        ----------
     Total assets                        $  2,554,212     $     6,057,230     $   4,360,526       $  9,481,355       $22,453,323



Deposits:
   Demand                                     66,800              133,600           200,400            267,200           668,001
   Savings                                   528,269              422,615           176,090          2,394,821         3,521,795
   Time                                    2,451,950            6,971,427         5,623,515             37,188        15,084,080
                                           ---------            ---------         ---------             ------        ----------
     Total deposits                     $  3,047,019     $      7,527,643     $   6,000,005       $  2,699,209       $19,273,876
Borrowing                               $    285,000     $        100,000     $     585,000       $    114,587       $ 1,084,587
Other Liabilities                                                                                      166,926           166,926
Equity                                                                              963,967            963,967         1,927,934
                                          ----------           ----------        ---------          ---------        ----------
     Total liabilities and equity       $  3,332,019     $      7,627,643     $   7,548,972       $  3,944,689       $22,453,323



Periodic gap                            $  (777,807)     $    (1,570,413)     $ (3,188,446)       $  5,536,666
Cumulative gap                          $  (777,807)     $    (2,348,220)     $ (5,536,666)       $          0
Cumulative gap                                -3.46%              -10.46%           -24.66%               0.00%
as % of assets


</TABLE>

<PAGE>


The Company has historically  relied upon retail deposit accounts in the form of
savings  accounts and  certificates  of deposit as its primary  source of funds.
Although  management  believes that these retail deposits may reduce the effects
of interest rate  fluctuations  because  these  deposits  generally  represent a
stable source of funds from within and around the surrounding  communities,  the
Bank has supplemented these deposits with brokered  certificates of deposit from
out of area  customers.  The rapid growth in assets has  necessitated  a similar
growth in  liabilities,  including  local  retail  deposits,  brokered  deposits
and FHLB borrowings. As of March 31, 1999 total deposits and borrowed funds were
$20,358,000,  consisting of retail deposits of $13,443,000, brokered deposits of
$5,830,000, and FHLB borrowings of $1,085,000.

The Bank's Board of  Directors  has  formulated  an Asset  Liability  Management
Policy designed to promote long-term  profitability while managing interest-rate
risk.  The  Company  recognizes  the  inherent  risk in its  interest  rate  gap
position, particularly in periods of fluctuating interest rates.

Liquidity and Capital Resources

The Bank's  principal  sources of funds are  deposits,  principal  and  interest
payments on loans,  and investment  securities.  While scheduled loan repayments
and maturing  investments  are relatively  predictable,  deposit flows and early
loan  prepayments  are more  influenced  by  interest  rates,  general  economic
conditions and competition. Additional sources of funds may be obtained from the
Federal Home Loan Bank of New York by utilizing  numerous  available products to
meet funding  needs.  The Bank has a credit line with the Federal Home Loan Bank
of New York in the amount of $1,681,100, which expires on September 11, 1999. It
is management's intention to renew the credit line prior to its expiration.  The
Bank  also  has  available  collateralized  borrowing  capacity  at the  FHLB of
approximately $5 million. At March 31, 1999, the Bank had borrowings outstanding
to the FHLB of $1,084,587.  The wholesale  funding sources may allow the Bank to
obtain a lower cost of funding and create a more  efficient  liability  match to
the respective assets being funded.

The Bank is required to maintain  minimum  levels of liquid assets as defined by
regulations.  The  required  percentage  is currently  4.0% of net  withdrawable
savings  deposits and  borrowings  payable on demand or in one year or less. The
Bank  has  maintained  its  liquidity  ratio at  levels  exceeding  the  minimum
requirement.  The eligible liquidity ratios at March 31, 1999 and March 31, 1998
were 12.95% and 18.06%, respectively.

The Bank's most liquid assets are cash and cash equivalents. For these purposes,
all  short-term  investments  with a maturity of three months or less at date of
purchase are considered  cash  equivalents.  Cash and cash  equivalents  for the
periods  ended March 31, 1999 and March 31, 1998 were  $295,827  and  $1,530,236
respectively.  The decrease was primarily due to the Bank investing  excess cash
in loans and investments.

At March 31, 1999 the Bank had outstanding  loan  commitments and loans awaiting
disbursement  of  $794,000.  It is  anticipated  that  sufficient  funds will be
available to meet loan commitments  including loan applications  received and in
process.

Certificates  of deposit,  which are  scheduled to mature in one year or less at
March 31, 1999,  were $9.42  million.  Management  believes  that a  significant
portion of such deposits will remain with the Bank.

At March 31, 1999, the Company had tangible  capital of  $2,030,381,  or 9.0% of
total assets, which is approximately $1,693,641 above the minimum requirement of
1.5% of  adjusted  total  assets in effect on that date.  The  Company  had core
capital of $2,030,381, or 9.0% of total adjusted assets, which is


<PAGE>



approximately  $1,132,406  above the minimum leverage ratio of 4.0% in effect on
that date.  The  Company  had total risk based  capital of  $2,221,400  which is
approximately $981,100 above the 8.0% requirement in effect on that date.

Impact of Inflation and Changing Prices

The Consolidated Financial Statements and Notes thereto,  presented herein, have
been prepared in accordance with generally accepted accounting principles, which
generally  requires the measurement of financial  position and operating results
in terms of historical  dollars  without  considering the change in the relative
purchasing power of money over time due to inflation. The impact of inflation is
reflected  in the  increased  cost  of the  Company's  operations.  Unlike  most
industrial  companies,  virtually all 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 do general
levels  of  inflation.  Interest  rates  do not  necessarily  move  in the  same
direction or to the same extent as the prices of goods and services.

Year 2000

Like most financial  institutions,  the Bank relies upon computers for the daily
conduct of business and for data processing. There is concern that on January 1,
2000  computers  will be  unable to  recognize  the new year and  therefore  may
malfunction. The Bank has conducted a review of its computer systems in order to
determine  which  systems  could be  affected  by the  "Year  2000"  issue,  and
developed an implementation plan to resolve any identified problem.  The testing
phase of the  implementation  plan is currently under way.  Management  believes
that with  modifications to existing software and by converting to new hardware,
the "Year 2000" problem will not pose significant  operational  problems for the
Bank. Given the Bank's  interdependence on a third-party  service provider,  the
internal costs related to the Bank's Year 2000 efforts have consisted  primarily
of  accelerating  various  hardware and software  upgrades which generally would
have been  incurred  in the  normal  course of  business,  and  testing  various
information  systems.  The upgrades for hardware and software were substantially
in place as of March 31,  1999.  Management  believes  that the  internal  costs
necessary to address the "Year 2000" issue have been  identified and these costs
have been estimated to be approximately $20,000.  Approximately 75% of the costs
have been expensed to date.

The Bank contracts with a data processing  service  bureau,  Connecticut On Line
Computer Center to provide all direct  processing of the Bank's loan and deposit
transactions, together with calculations of interest income and expense thereon.
The service bureau asserts that it has  substantially  completed  assessment and
testing  and  implementation  procedures  and  that it will  achieve  year  2000
readiness  in the near  future.  The Bank is  participating  in the  testing and
implementation processes with its service provider.

The Bank  has  adopted  and is  testing  various  contingency  plans to  address
policies and procedures in the event of data processing, electrical power supply
and/or phone service failures associated with the year 2000.

As of June 1, 1999 the Company  believes  that the progress it has made to date,
along with the testing  ongoing in 1999, will result in the Company's being well
prepared  to meet the year 2000  issue.  Management  cannot  guarantee  that any
third-party  service  provider  will be  Year  2000  ready  other  than  through
assurances  provided from the third party service  provider to the Company.  All
third party  providers  have been  contacted  and the Company has received  such
assurances.


<PAGE>



                           HARVAZINSKI & MONTANYE, LLP
                          Certified Public Accountants
                                Albany, New York




               REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS


Board of Directors
Landmark Financial Corp. and Subsidiary

         We have audited the accompanying  consolidated  statements of financial
condition of Landmark  Financial  Corp. (the Company) and subsidiary as of March
31,  1999 and 1998,  and the  related  consolidated  statements  of  operations,
changes in stockholders'  equity, and cash flows for the years then ended. 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 our audits  provide a reasonable
basis for our opinion.

         In our opinion, the consolidated financial statements referred to above
present fairly,  in all material  respects,  the financial  position of Landmark
Financial Corp. and subsidiary as of March 31, 1999 and 1998, and the results of
their  operations  and their cash  flows for the years then ended in  conformity
with generally accepted accounting principles.



                              /s/ HARVAZINSKI & MONTANYE, LLP


Albany, New York
May 13, 1999










<PAGE>

<TABLE>
<CAPTION>


                                          LANDMARK FINANCIAL CORP. AND SUBSIDIARY

                                      CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
----------------------------------------------------------------------------------------------



                                                                           March 31,
                                                                      1999           1998
                                                                 ------------    ------------

ASSETS

Cash (including interest bearing deposits
<S>                                                              <C>             <C>
$10,600, 1999; $1,490,000, 1998)                                 $    295,827    $  1,530,236
Mortgage-backed securities, held-to-maturity (fair value
approximates $38,336; 1999; $71,649, 1998)                             38,468          74,080
Investment securities, available-for-sale                           1,900,992       1,103,916
Loans receivable, net of allowance for loan losses of $191,019
in 1999 and $122,000 in 1998                                       19,189,257      13,640,142
Investments required by law - stock in Federal Home Loan
Bank of New York, at cost                                             100,900          87,400
Accrued interest receivable                                           107,805          86,143
Premises and equipment, net of accumulated depreciation               583,401         197,234
Foreclosed real estate                                                118,815            --
Deferred tax asset                                                     39,597           7,100
Other assets                                                           78,261          84,787
                                                                 ------------    ------------

Total Assets                                                     $ 22,453,323    $ 16,811,038
                                                                 ============    ============

LIABILITIES AND STOCKHOLDERS' EQUITY

LIABILITIES
Accounts payable                                                 $      1,853    $      3,851
Deposits, non-interest bearing                                        302,641         225,564
Deposits, interest bearing                                         18,971,236      14,403,292
Advance payments by borrowers for property taxes and
insurance                                                             108,174          97,453
Advances from the Federal Home Loan Bank of New York
Short-term                                                            250,000            --
Long-term                                                             834,586            --
Other liabilities                                                      56,899          21,523
                                                                   ----------      ----------
Total liabilities                                                  20,525,389      14,751,683
                                                                   ----------      ----------


COMMITMENTS AND CONTINGENCIES


STOCKHOLDERS' EQUITY
Preferred stock of $.10 par value; 100,000 shares authorized,
none issued                                                              --              --
Common stock of $.10 par value; 400,000 shares authorized;
152,000 shares issued and outstanding in 1999 and 1998                 15,200          15,200
Additional paid-in capital                                          1,192,833       1,192,833
Retained earnings, substantially restricted                           867,348         963,752
Accumulated other comprehensive income (loss)                          (5,403)          5,036
Unearned stock based compensation                                     (32,604)           --
Unearned ESOP shares                                                 (109,440)       (117,466)
                                                                   ----------      ----------
                                                                    1,927,934       2,059,355
                                                                   ----------      ----------

Total Liabilities and Stockholders' Equity                       $ 22,453,323    $ 16,811,038
                                                                 ============    ============

----------------------------------------------------------------------------------------------
The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.
</TABLE>


<PAGE>
<TABLE>
<CAPTION>



                                          LANDMARK FINANCIAL CORP. AND SUBSIDIARY

                                           CONSOLIDATED STATEMENTS OF OPERATIONS
--------------------------------------------------------------------------------------

                                                                    Years Ended
                                                                      March 31,
                                                              1999           1998
                                                          -----------    -----------
INTEREST INCOME
Loans receivable
<S>                                                       <C>            <C>
First mortgage loans                                      $   742,642    $   742,948
Other loans                                                   700,384        431,341
Investment securities and interest bearing deposits           153,322        118,617
                                                            ---------      ---------
Total interest income                                       1,596,348      1,292,906
                                                            ---------      ---------

INTEREST EXPENSE
Deposits                                                      892,587        725,988
Short-term advances, Federal Home Loan Bank of New York           242           --
Long-term advances, Federal Home Loan Bank of New York         19,330           --
                                                            ---------      ---------
                                                              912,159        725,988
                                                            ---------      ---------

Net interest income                                           684,189        566,918

PROVISION FOR LOAN LOSSES                                     121,000         12,000
                                                            ---------      ---------

Net interest income after provision for loan losses           563,189        554,918
                                                            ---------      ---------

NONINTEREST INCOME

Loan fees and service charges                                  34,280         28,559
Trading account gain on FREDDIE MAC stock                        --           12,411
Other noninterest income                                       10,232         26,796
                                                            ---------      ---------
Total noninterest income                                       44,512         67,766
                                                            ---------      ---------

NONINTEREST EXPENSE
General and administrative expenses
Compensation, payroll taxes and fringe benefits               327,751        303,150
Advertising and business promotion                              7,785          9,156
Building occupancy and equipment expenses,
including depreciation                                         45,228         37,695
Federal insurance premiums                                     14,758          8,121
Data processing expenses                                       45,609         36,804
General office and supply expense                              50,701         21,080
Professional and regulatory fees                               86,518         76,837
Other operating expenses                                      152,360        117,129
                                                            ---------      ---------
Total noninterest expense                                     730,710        609,972
                                                            ---------      ---------

Income (loss) before income taxes                            (123,009)        12,712

PROVISION FOR INCOME TAX BENEFIT (EXPENSE)                     26,605         (5,245)
                                                            ---------      ---------

Net income (loss)                                         $   (96,404)   $     7,467
                                                          ===========    ===========

NET INCOME (LOSS) PER COMMON SHARE
Basic                                                     $      (.69)   $       .05
                                                          ===========    ===========

Diluted                                                   $      (.69)   $       .05
                                                          ===========    ===========

-----------------------------------------------------------------------------------------------------
The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.
</TABLE>

<PAGE>

<TABLE>
<CAPTION>


                                              LANDMARK FINANCIAL CORP. AND SUBSIDIARY

                                                    CONSOLIDATED STATEMENTS OF CHANGES IN
                                                            STOCKHOLDERS' EQUITY
                                                     Years Ended March 31, 1999 and 1998




                                                                                   Accumulated      Unearned
                                                         Additional                   Other          Stock     Unearned   Total
                                    Common Stock           paid-in    Retained    Comprehensive      Based       ESOP  Stockholders'
                                Shares        Amounts      Capital    Earnings    Income (loss)  Compensation   Shares     Equity
                                ------        -------      -------    --------    -------------  ------------   ------     ------
BALANCES AT
<S>                                 <C>       <C>        <C>         <C>           <C>           <C>           <C>        <C>
   March 31, 1997                   --        $ --       $     --    $ 956,285     $  (1,379)    $       --    $   --     $  954,906

Comprehensive Income (loss)
Net income (loss)                   --          --             --        7,467            --             --        --          7,467
Change in unrealized
gain (loss) on
securities available
for-sale, net of tax
effects                             --          --             --          --          6,415             --        --          6,415
                                                                                                                               -----

Total comprehensive
income (loss)                                                                                                                 13,882
                                                                                                                              ------
Sale of common stock,
net of issuance costs           152,000      15,200     1,192,833          --            --              --         --     1,208,033

Unearned ESOP shares                 --          --            --          --            --              --    (121,600)   (121,600)

ESOP shares earned                   --          --                        --            --              --       4,134        4,134
                             -------------------------------------------------------------------------------------------------------

BALANCES AT
  March 31, 1998                152,000      15,200     1,192,833      963,752         5,036             --     (117,466)  2,059,355

Comprehensive Income (loss)
Net income (loss)                    --          --            --     (96,404)           --              --           --    (96,404)
Change in unrealized
   gain (loss) on
   securities available
   for sale, net of tax
   effects                          --           --          --            --       (10,439)             --            --   (10,439)
                                                                                                                            --------

Total comprehensive
income (loss)                                                                                                              (106,843)
                                                                                                                            --------

Unearned stock
 based compensation                  --          --          --            --            --         (32,604)           --   (32,604)

ESOP shares earned                   --          --          --            --            --              --         8,026      8,026
                             -------------------------------------------------------------------------------------------------------



BALANCES AT
  March 31, 1999                152,000     $ 15,200  $1,192,833      $867,348    $(5,403)        $(32,604)    $(109,440) $1,927,934
                                ====================================================================================================


------------------------------------------------------------------------------------------------------------------------------------
The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.
</TABLE>


<PAGE>

<TABLE>
<CAPTION>


                                          LANDMARK FINANCIAL CORP. AND SUBSIDIARY

                                           CONSOLIDATED STATEMENTS OF CASH FLOWS
------------------------------------------------------------------------------------------------------------------------


                                                                                                 Years Ended
                                                                                                   March 31,
                                                                                            1999            1998
                                                                                        -----------     -----------
CASH FLOWS PROVIDED (USED) BY OPERATING ACTIVITIES
<S>                                                                                     <C>             <C>
     Net income (loss)                                                                  $   (96,404)    $     7,467
     Adjustments to reconcile net income to net cash provided by (used in)
      operating activities
         Depreciation                                                                        32,189          18,456
         Amortization (accretion), net                                                        4,134           2,066
         Provision for loan losses                                                          121,000          12,000
         Deferred income taxes                                                              (32,497)           --
         Allocation of ESOP shares                                                            8,026           4,134
         Decrease (increase) in
              Accrued interest receivable                                                   (21,662)        (47,513)
              Trading account securities                                                       --            69,324
              Other assets                                                                    6,526         (44,478)
         Increase (decrease) in
              Accounts payable                                                               (1,998)         (4,069)
              Other liabilities                                                               2,772           3,126
                                                                                         ----------       ---------
                                                                                             22,086          20,513
                                                                                         ----------       ---------

CASH FLOWS PROVIDED (USED) BY INVESTING ACTIVITIES

     Net increase in loans receivable                                                    (5,788,930)     (4,259,930)
     Proceeds from maturities and calls of available-for-sale securities                    600,000            --
     Purchases of available-for-sale securities                                          (1,505,434)       (701,774)
     Proceeds from principal repayments of mortgage-backed securities                       129,397          47,483
     Purchase of premises and equipment                                                    (418,356)        (60,311)
     Purchase of investments required by law, FHLB stock                                    (13,500)        (28,900)
     Proceeds from maturity of held-to-maturity securities                                     --           200,000
     Proceeds from sale of held-to-maturity securities                                         --           135,533
                                                                                         ----------       ---------
                                                                                         (6,996,823)     (4,667,899)
                                                                                         ----------       ---------

CASH FLOWS PROVIDED (USED) BY FINANCING ACTIVITIES
     Net increase in deposits                                                             4,645,021       4,391,555
     Proceeds from issuance of common stock, net of issuance costs                             --         1,086,433
     Net increase (decrease) in short-term advances, FHLB                                   250,000            --
     Proceeds from long-term advances, FHLB                                                 850,000            --
     Payments on long-term advances, FHLB                                                   (15,414)           --
     Increase (decrease) in advances from borrowing taxes and insurance                      10,721          (9,824)
                                                                                         ----------       ---------
                                                                                          5,740,328       5,468,164
                                                                                         ----------       ---------
              Net increase (decrease) in cash                                            (1,234,409)        820,778

CASH, beginning of year                                                                   1,530,236         709,458
                                                                                         ----------       ---------

CASH, end of year                                                                       $   295,827     $ 1,530,236
                                                                                         ==========       =========
SUPPLEMENTAL DISCLOSURES:
     Cash paid for:
         Income taxes                                                                   $       125     $    17,350
                                                                                         ==========       =========
         Interest on deposits and borrowings                                            $   912,159     $   725,988
                                                                                         ==========       =========
     Increase (decrease) on unrealized gain
         on securities available-for-sale                                               $   (10,439)    $     6,415
                                                                                         ==========       =========
     Transfer of loans receivable to foreclosed real estate                             $   118,815     $      --
                                                                                         ==========       =========

------------------------------------------------------------------------------------------------------------------------
The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.
</TABLE>


<PAGE>




                     LANDMARK FINANCIAL CORP. AND SUBSIDIARY

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                             March 31, 1999 and 1998




NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

     1. Organization

     On November 13, 1997,  Landmark  Community Bank (the Bank) converted from a
     federally  chartered  mutual  savings bank to a federally  chartered  stock
     savings bank, at which time all of the capital stock of the converted  bank
     was  acquired  by  Landmark  Financial  Corp.  (the  Company),  a  Delaware
     Corporation.  The Company was  organized to acquire all of the stock issued
     by the Bank upon  consummation of the stock  conversion.  Prior to November
     13, 1997, the Company had no assets or  liabilities  and had not engaged in
     any business other than as necessary to complete its  organization  and the
     conversion.  On November 13, 1997, in connection with the stock conversion,
     the Company issued and sold 152,000 shares of its common stock,  par value,
     $0.10 per share, in a subscription and community  offering to the Company's
     Employee Stock  Ownership  Plan (ESOP),  the Bank's members and the general
     public.  Total net proceeds of the  subscription  and  community  offering,
     after conversion  expenses of approximately  $311,967,  were  approximately
     $1,208,033.  The  transaction  was accounted  for in a manner  similar to a
     pooling-of-interests  method. Accordingly, the accounting basis for assets,
     liabilities  and  equity  accounts  remained  the  same  as  prior  to  the
     conversion.

     The only  business of the Company is the  ownership  of the Bank.  The Bank
     provides a variety of financial  services to the greater  Canajoharie,  New
     York  area.  The  Bank's  primary  sources  of  revenue  are  single-family
     residential mortgages and consumer loans.

     A summary of the significant  accounting policies  consistently  applied in
     the  preparation  of the  accompanying  consolidated  financial  statements
     follows.

     2.  Basis of Consolidation

     The consolidated  financial statements include the accounts of the Landmark
     Financial  Corp.  (the Company) and its  wholly-owned  subsidiary  Landmark
     Community  Bank (the Bank).  All material  intercompany  balances have been
     eliminated in consolidation.

     3.  Cash and Time Deposits

     Cash is defined to include all  checking  and demand  deposits,  as well as
     certificates  of deposit with an original  maturity when purchased of three
     months or less.  Time  deposits  include  certificates  of deposit  with an
     original maturity in excess of three months.

     The Company maintains cash and time deposits at one financial  institution,
     totaling  $273,023 at March 31,  1999.  These  balances  are insured by the
     Federal Deposit Insurance Corporation up to $100,000.

     4.  Investment Securities

     Trading  Securities:  Securities  that are held for  short-term  resale are
     classified as trading account securities and recorded at their fair values.
     Realized and unrealized gains and losses on trading account  securities are
     included in noninterest income.







<PAGE>




                     LANDMARK FINANCIAL CORP. AND SUBSIDIARY

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                             March 31, 1999 and 1998




NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued

     4.  Investment Securities - continued

     Securities Held-to-Maturity:  Government and Federal agency securities that
     management  has the  positive  intent and ability to hold to  maturity  are
     reported at cost,  adjusted for  amortization  of premiums and accretion of
     discounts that are recognized in interest  income using the interest method
     over  the  period  to  maturity.   Mortgage-backed   securities   represent
     participating   interests  in  pools  of  long-term  first  mortgage  loans
     originated  and  serviced  by  issuers of the  securities.  Mortgage-backed
     securities  are  carried  at  unpaid  principal   balances,   adjusted  for
     unamortized  premiums and unearned  discounts.  Premiums and  discounts are
     amortized  using  the  interest   method  over  the  remaining   period  to
     contractual maturity, adjusted for anticipated prepayments.
     .
     Securities  Available-for-Sale:  Available-for-sale  securities  consist of
     investment   securities  not  classified  as  trading   securities  nor  as
     held-to-maturity  securities.  Unrealized  holding gains and losses, net of
     tax, on  available-for-sale  securities  are  reported as a net amount in a
     separate component of stockholders' equity until realized. Gains and losses
     on the sale of  available-for-sale  securities  are  determined  using  the
     specific-identification  method.  The  amortization  of  premiums  and  the
     accretion of discounts are recognized in interest income using the interest
     method over the period of maturity.

     Declines   in  the  fair   value   of   individual   held-to-maturity   and
     available-for-sale   securities  below  their  cost  that  are  other  than
     temporary result in write-downs of the individual  securities to their fair
     value. The related write-downs are included in earnings as realized losses.
     The Company recognized no write downs in 1999 or 1998.

     5.  Loans Receivable

     Loans are stated at unpaid principal balances,  less the allowance for loan
     losses.

     On April 1, 1995,  the  Company  adopted the  provisions  of  Statement  of
     Financial Accounting Standards (SFAS) No. 114, Accounting for Creditors for
     Impairment of a Loan,  as amended by SFAS No. 118,  Accounting by Creditors
     for  Impairment  of a  Loan  -  Income  Recognition  and  Disclosures.  The
     Statements  provide guidance in defining and measuring loan  impairment.  A
     loan is  considered  impaired  when it is probable that the Company will be
     unable to collect all amounts of principal and interest  under the original
     terms of the agreement.  Accordingly,  the Company  measures all nonaccrual
     and  restricted  commercial  real  estate  and  commercial  loans  (if any)
     individually,  based on the present  value of  expected  future cash flows,
     discounted  at  the  loans  effective  interest  rate  or,  at  the  loan's
     observable market price or the fair value of collateral.  The statements do
     not  apply to large  groups of small  balance,  homogeneous  loans  such as
     residential  real  estate,   installment  and  consumer  loans,   that  are
     collectively  evaluated  for  impairment.  The adoption of SFAS No. 114 and
     No.118  resulted in no  prospective  adjustment  to the  allowance for loan
     losses.

     SFAS No. 91, Accounting for  Non-refundable  Fees and Costs Associated with
     Originating or Acquiring  Loans and Initial Direct Costs of Leases,  states
     that loan fees and  certain  direct  loan  origination  costs are  normally
     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  estimated  prepayments  based  on the  Company's  historical
     prepayment  experience.  Commitment  fees and costs relating to commitments
     whose likelihood of exercise is remote should be recognized
--------------------------------------------------------------------------------



<PAGE>




                     LANDMARK FINANCIAL CORP. AND SUBSIDIARY

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                             March 31, 1999 and 1998




NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued

     5.  Loans Receivable - continued


     over the commitment  period on a straight-line  basis. If the commitment is
     subsequently   exercised  during  the  commitment   period,  the  remaining
     unamortized  commitment  fee at the time of exercise  should be  recognized
     over the life of the loan as an adjustment of yield.  Loan fees and certain
     direct loan origination costs are not deferred at the Company, however, due
     to immateriality.  These fees are recognized in the period  collected.  The
     Company does not charge commitment fees.


     Interest  income  generally is not  recognized on specific  impaired  loans
     unless the likelihood of further loss is remote. Interest payments received
     on such loans are applied as a  reduction  of the loan  principal  balance.
     Interest income on other impaired loans is recognized only to the extent of
     interest payments received.

     The  allowance  for  loan  losses  is  maintained  at  a  level  which,  in
     management's  judgment, is adequate to absorb credit losses inherent in the
     loan  portfolio.  The  amount  of the  allowance  is based on  management's
     evaluation  of the  collectibility  of the loan  portfolio,  including  the
     nature of the portfolio,  credit concentrations,  trends in historical loss
     experience,  specific impaired loans,  economic  conditions and other risks
     inherent in the  portfolio.  Allowances  for impaired  loans are  generally
     determined  based on  collateral  values or the present  value of estimated
     cash flows.  The  allowance is  increased  by a provision  for loan losses,
     which is charged to expense, and reduced by charge-offs, net of recoveries.

     6.  Premises and Equipment

     Premises and equipment are reported at cost, less accumulated depreciation.
     Expenditures for acquisitions,  renewals,  and betterments are capitalized,
     whereas  maintenance  and  repair  costs are  expensed  as  incurred.  When
     equipment is retired or otherwise disposed of, the appropriate accounts are
     relieved of costs and  accumulated  depreciation  and any resultant gain or
     loss is credited or charged to income.

     Depreciation  is provided for in amounts  sufficient  to relate the cost of
     depreciable  assets to operations  over their  estimated  useful lives on a
     straight-line  basis. The estimated lives used in determining  depreciation
     vary from five (5) to thirty-nine (39) years.

     7.  Foreclosed Real Estate

     Foreclosed  real estate  includes  both  formally  foreclosed  property and
     in-substance  foreclosed property.  In-substance  foreclosed properties are
     those  properties for which the institution has taken physical  possession,
     regardless of whether formal foreclosure proceedings have taken place.

     At the time of foreclosure, foreclosed real estate is recorded at the lower
     of the carrying  amount or fair value less cost to sell,  which becomes the
     property's new basis.  Any  write-downs  based on the asset's fair value at
     date of  acquisition  are charged to the allowance  for loan losses.  After
     foreclosure,  these assets are carried at the lower of their new cost basis
     or fair value less cost to sell.  Costs incurred in maintaining  foreclosed
     real  estate  and  subsequent  adjustments  to the  carrying  amount of the
     property are included in income (loss) on foreclosed real estate.

--------------------------------------------------------------------------------




<PAGE>




                     LANDMARK FINANCIAL CORP. AND SUBSIDIARY

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                             March 31, 1999 and 1998




NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued

     8. Income Taxes

     Income taxes are provided for the tax effects of the transactions  reported
     in the  financial  statements  and  consist  of  taxes  currently  due plus
     deferred  taxes  related  primarily  to  differences  between  the basis of
     investments,  allowance  for loan losses,  and the use of the modified cash
     basis for  income  tax  reporting  purposes.  The  deferred  tax assets and
     liabilities   represent  the  future  tax  return   consequences  of  those
     differences, which will either be taxable or deductible when the assets and
     liabilities  are recovered or settled.  Deferred tax assets and liabilities
     are  reflected  at income tax rates  applicable  to the period in which the
     deferred tax assets or liabilities  are expected to be realized or settled.
     As  changes  in tax laws or rates are  enacted,  deferred  tax  assets  and
     liabilities  are  adjusted  through the  provision  for income  taxes.  The
     Company and its  subsidiary  file  consolidated  federal and separate state
     income tax  returns.  Income  taxes are  allocated  to the  Company and its
     Subsidiary as though separate federal tax returns are being filed.

     9.   Use of Estimates

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

     Material estimates that are particularly  susceptible to significant change
     relate to the determination of the estimated losses on loans and foreclosed
     real  estate,  if  any.  Management  obtains  independent   appraisals  for
     significant properties.

     While  management uses available  information to recognize  losses on loans
     and foreclosed real estate,  further  reductions in the carrying amounts of
     loans and  foreclosed  assets  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 estimated losses on
     loans and foreclosed real estate.  Such agencies may require the Company to
     recognize  additional  losses based on their  judgments  about  information
     available  to them at the  time of  their  examination.  Because  of  these
     factors,  it is reasonably  possible that the estimated losses on loans and
     foreclosed real estate may change materially in the near term. However, the
     amount of the change that is reasonably possible cannot be estimated.

     10.  Fair Value of Financial Instruments

     Effective  April 1, 1995 the Company  implemented  Statement  of  Financial
     Accounting  Standards  No. 107,  Disclosures  about Fair Value of Financial
     Instruments,  which  requires  disclosure of fair market value  information
     about financial instruments,  whether or not recognized in the statement of
     financial condition. In cases where quoted market prices are not available,
     fair values are based on estimates  using present value or other  valuation
     techniques.  Those techniques are significantly affected by the assumptions
     used,  including the discount  rate and estimates of future cash flows.  In
     that regard,  the derived fair value estimates  cannot be  substantiated by
     comparison to independent markets and, in many cases, could not be realized
     in immediate  settlement  of the  instruments.  Statement  No. 107 excludes
     certain financial instruments and all nonfinancial instruments from its

--------------------------------------------------------------------------------




<PAGE>




                     LANDMARK FINANCIAL CORP. AND SUBSIDIARY

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                             March 31, 1999 and 1998




NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued

     10.  Fair Value of Financial Instruments - continued

     disclosure  requirements.  Accordingly,  the  aggregate  fair value amounts
     presented do not represent the underlying value of the Company.


     The  following  methods  and  assumptions  were  used  by  the  Company  in
     estimating its fair value disclosures for financial instruments:

         Cash  and  cash  equivalents:  The  carrying  amounts  reported  in the
         statement  of  financial   condition  for  cash  and  cash  equivalents
         approximate those assets' fair values.

         Time  deposits:  Fair values for time  deposits are  estimated  using a
         discounted  cash flow analysis that applies  interest  rates  currently
         being offered on certificates  to a schedule of aggregated  contractual
         maturities on such time deposits.

         Investment securities including trading account securities: Fair values
         for  investment  securities  are based on quoted market  prices,  where
         available.  If quoted market prices are not available,  fair values are
         based on quoted market prices of comparable instruments.

         Loans:  For  variable-rate  loans that reprice  frequently  and with no
         significant  change in credit  risk,  fair values are based on carrying
         amounts. The fair values for other loans (for example,  fixed rate real
         estate) are estimated  using  discounted  cash flow analysis,  based on
         interest rates  currently being offered for loans with similar terms to
         borrowers of similar credit quality.  Loan fair value estimates include
         judgments   regarding   future   expected  loss   experience  and  risk
         characteristics.  Fair values for impaired  loans are  estimated  using
         discounted cash flow analysis or underlying  collateral  values,  where
         applicable.   The  carrying  amount  of  accrued  interest   receivable
         approximates its fair value.

         Deposits:  The fair values  disclosed for demand deposits (for example,
         interest-bearing  passbook  accounts) are, by definition,  equal to the
         amount payable on demand at the reporting date (that is, their carrying
         amounts).  The fair values for  certificates  of deposit are  estimated
         using a discounted cash flow  calculation  that applies  interest rates
         currently  being  offered on  certificates  to a schedule of aggregated
         contractual maturities on such time deposits.

         Advance  payments by borrowers for taxes and insurance  (escrows):  The
         carrying amount of escrow accounts approximate fair value.

         Advances  from the  Federal  Home Loan  Bank:  The fair  value of these
         advances is  estimated  by  discounting  the future cash flows of these
         advances  using the current rates at which similar term advances  could
         be obtained.

          Accrued interest: The carrying amounts of accrued interest approximate
          the fair values.

         Loan commitments: Fees charged for commitments to extend credit are not
         significant  and are offset by  associated  credit risk with respect to
         certain amounts expected to be funded.  Accordingly,  the fair value of
         the financial instruments is immaterial.

--------------------------------------------------------------------------------




<PAGE>




                     LANDMARK FINANCIAL CORP. AND SUBSIDIARY

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                             March 31, 1999 and 1998




NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued

     11.  Statements of Cash Flows

     The Company considers all cash and amounts due from depository institutions
     and  interest-bearing  deposits in other banks to be cash  equivalents  for
     purposes of the statements of cash flows.

     12.  Interest Rate Risk

     The Bank is engaged  principally  in providing  first  mortgage loans (both
     adjustable  rate and fixed  rate  mortgage  loans)  and  consumer  loans to
     individuals  (See Note C for the composition of the loan portfolio at March
     31, 1999 and 1998).  Mortgage and consumer loans and investment  securities
     are funded primarily with short-term  liabilities which have interest rates
     that vary with market rates over time.  Net interest  income and the market
     value of net  interest-earning  assets will  fluctuate  based on changes in
     interest rates and changes in the levels of  interest-sensitive  assets and
     liabilities.   The  actual   duration   of   interest-earning   assets  and
     interest-bearing  liabilities  may  differ  significantly  from the  stated
     duration as a result of prepayment, early withdrawals, and similar factors.

     13.  Employee Stock Ownership Plan

     The cost of  common  shares  issued  to the ESOP but not yet  allocated  to
     participants is presented in the consolidated  balance sheet as a reduction
     of  stockholders'  equity.  Compensation  expense is recorded  based on the
     market  price  of the  shares  as they are  committed  to be  released  for
     allocation to participant accounts. The difference between the market price
     and  the  cost  of  shares  committed  to be  released  is  recorded  as an
     adjustment to paid-in capital.

     Shares are considered  outstanding  for earnings per share  calculations as
     they are committed to be released;  unallocated  shares are not  considered
     outstanding.

     14.  Earnings Per Common Share

     Earnings per common share is computed  under the provisions of Statement of
     Financial  Accounting  Standards  No. 128,  "Earnings  Per Share."  Amounts
     reported  as  earnings  per Common  Share for the year ended March 31, 1999
     reflect earnings available to the common stockholders for the year, divided
     by the weighted  average  number of common  shares  outstanding  during the
     year.  The 1998  Earnings  per Common  Share  amounts  reflect the earnings
     available to common stockholders from the conversion date through March 31,
     1998 divided by the weighted average number of common shares outstanding in
     that  period.  Earnings  for the  period  from  April 1, 1997  through  the
     conversion date were approximately breakeven.

     15.  Comprehensive Income

     The Company has adopted  SFAS No. 130,  "Reporting  Comprehensive  Income,"
     which establishes  standards for the reporting and display of comprehensive
     income and its  components in financial  statements.  Comprehensive  income
     represents the sum of net income and items of "other comprehensive income,"
     which are reported  directly in stockholders'  equity,  net of tax, such as
     the change in the net unrealized  gain or loss on securities  available for
     sale. While SFAS No. 130 does not require a specific  reporting  format, it
     does  require  that an  enterprise  display  an amount  representing  total
     comprehensive income for each period for which an income statement is

--------------------------------------------------------------------------------




<PAGE>




                     LANDMARK FINANCIAL CORP. AND SUBSIDIARY

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                             March 31, 1999 and 1998




NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued

     15.  Comprehensive Income - continued

     presented.  In  accordance  with SFAS No. 130,  the  Company  has  reported
     comprehensive  income  and  its  components  for  1999  and  1998,  in  the
     consolidated  statements of changes in  stockholders'  equity.  Accumulated
     other comprehensive  income, which is included in stockholders' equity, net
     of tax, represents the net unrealized gain or loss on securities  available
     for sale.

     16.  Stock Compensation Plans

      Statement of Financial Accounting Standards (SFAS) No. 123, Accounting for
      Stock-Based  Compensation,  encourages  all entities to adopt a fair value
      based method of accounting for employee stock compensation plans,  whereby
      compensation  cost is measured at the grant date based on the value of the
      award and is  recognized  over the  service  period,  which is usually the
      vesting period.  However,  it also allows an entity to continue to measure
      compensation  cost for those plans using the intrinsic  value based method
      of accounting  prescribed by Accounting  Principles  Board Opinion No. 25,
      Accounting for Stock Issued to Employees, whereby compensation cost is the
      excess,  if any, of the quoted market price of the stock at the grant date
      over the amount an employee must pay to acquire the stock. The Company has
      elected to continue with the accounting methodology in Opinion No. 25 and,
      as a result, has provided pro forma disclosures of net income and earnings
      per share and other  disclosures,  as if the fair  value  based  method of
      accounting had been applied.

     17.  Reclassification

          Certain 1998 accounts have been  reclassified to conform with the 1999
          presentation.















--------------------------------------------------------------------------------

<PAGE>




                     LANDMARK FINANCIAL CORP. AND SUBSIDIARY

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                             March 31, 1999 and 1998




NOTE B - INVESTMENT AND MORTGAGED-BACKED SECURITIES

     Investment and mortgage-backed securities have been classified according to
     management's intent. The amortized cost of securities and their approximate
     fair values are as follows:

     Securities available-for-sale
     -----------------------------
<TABLE>
<CAPTION>

                                     March 31, 1999                                    March 31, 1998
                      ------------------------------------------        ------------------------------------------
                                         Gross      Gross                                  Gross      Gross
                           Amortized Unrealized  Unrealized   Fair            Amortized Unrealized Unrealized   Fair
                             Cost       Gains      Losses     Value             Cost       Gains     Losses     Value
                             ----       -----      ------     -----             ----       -----     ------     -----

         U.S.
         government
         and federal
<S>                       <C>           <C>      <C>       <C>                <C>       <C>        <C>        <C>
         agencies         $  1,399,476  $ 2,137  $     --  $1,401,613         $1,098,88 $  5,036   $     --   $ 1,103,916


         Mortgage-
         backed
         securities           506,919      --      (7,540)    499,379               --        --         --            --
                            ---------    ----     --------   --------           ------      ----       ----         -----

                           $1,906,395  $2,137    $  (7,540) $1,900,992      $1,098,880   $ 5,036  $     --     $1,103,916
                           ==========  ======     ========= ==========       =========    ======  ========     ==========



     Securities held-to-maturity
     ---------------------------

                                     March 31, 1999                                     March 31, 1998
                      ------------------------------------------       --------------------------------------------
                                        Gross       Gross                                  Gross      Gross
                           Amortized Unrealized  Unrealized   Fair            Amortized Unrealized Unrealized   Fair
                             Cost       Gains      Losses     Value             Cost       Gains     Losses     Value
                             ----       -----      ------     -----             ----       -----     ------     -----

         Mortgage-
         backed
         securities       $  38,468  $  --      $  (132)    $        38,336   $  74,080   $  --  $  (2,431) $71,649
                          =========  =====      =======     ===============   =========   =====  =========  =======

     The following is a summary of maturities of securities held-to-maturity and
     available-for-sale as of March 31, 1999:


                                                  Securities held-to-maturity       Securities available-for-sale
                                                  ---------------------------       -----------------------------
         Amounts maturing in:                     Amortized                         Amortized
                                                    Cost           Fair Value         Cost             Fair Value
                                                    ----           ----------         ----             ----------

         One year or less                      $       --          $      --       $ 199,854           $   201,105
         After one year through five years             --                 --         450,047               455,438
         After five years through ten years            --                 --         749,576               745,070
         After ten years                           38,468             38,336         506,918               499,379
                                               -----------      ------------       ---------           -----------
                                               $    38,468        $   38,336       $1,906,395           $1,900,992
                                              ============      ============       ==========           ==========


------------------------------------------------------------------------------------------------------------------------------------
</TABLE>



<PAGE>




                     LANDMARK FINANCIAL CORP. AND SUBSIDIARY

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                             March 31, 1999 and 1998




NOTE B - INVESTMENT AND MORTGAGED-BACKED SECURITIES - Continued

     The  amortized  cost  and  fair  value of  mortgage-backed  securities  are
     presented in the  held-to-maturity  category by contractual maturity in the
     preceding   table.   Expected   maturities  will  differ  from  contractual
     maturities  because  borrowers  may  have  the  right  to  call  or  prepay
     obligations without call or prepayment penalties.

     For the years  ended  March  31,  1999 and 1998  proceeds  from the sale of
     securities  held-to-maturity  amounted to $-0- and $135,533,  respectively.
     Gross  realized gain (loss)  amounted to $-0- for each year.  There were no
     sales of  securities  available-for-sale  during the years  ended March 31,
     1999 and 1998.


NOTE C - LOANS RECEIVABLE, NET

     The Company's loans receivable are summarized as follows:
<TABLE>
<CAPTION>
                                                                             March 31,
                                                                    1999                  1998
                                                                    ----                  ----

<S>                                                             <C>                  <C>
Conventional first mortgages on real estate (1-4 family)        $  9,481,327         $  8,140,758
Property improvement loans                                           112,782               15,566
Home equity loans                                                    911,501              546,157
Construction loans                                                   219,992                 --
Loans to depositors, secured by savings                               74,098              101,744
Consumer loans                                                     6,242,686            3,818,123
Commercial                                                         2,337,890            1,139,794
                                                              --------------         ------------
                                                                $ 19,380,276         $ 13,762,142

Allowance for loan losses                                           (191,019)            (122,000)
         Loans in process                                                 --                   --
                                                              --------------         ------------
           Total loans receivable, net                       $    19,189,257         $ 13,640,142
                                                              ==============         ============




     An analysis of the allowance for loan losses is as follows:
                                                                             March 31,
                                                                    1999                  1998
                                                                    ----                  ----

Balance, beginning of year                                        $ 122,000             $110,000
Loans charged off                                                   (51,981)                  --
Recoveries                                                               --                   --
Provision for losses                                                121,000               12,000
                                                              -------------         ------------
Balance, end of year                                              $ 191,019             $122,000
                                                                ===========             ========
</TABLE>


At March 31, 1999 and 1998, the total recorded investment in impaired loans, all
of which had allowances  determined in accordance  with SFAS No. 114 and No. 118
amounted  to  approximately  $59,000  and  $28,000,  respectively.  The  average
recorded  investment in impaired  loans  amounted to  approximately  $34,000 and
$28,000 for the years ended March 31, 1999 and 1998, respectively. The allowance
for loan losses related to impaired loans amounted to $-0- at March 31, 1999 and
1998,  respectively.  Interest  income on impaired  loans of $2,050 and $-0- was
recognized for cash payments received in 1999 and 1998, respectively.
--------------------------------------------------------------------------------





<PAGE>




                     LANDMARK FINANCIAL CORP. AND SUBSIDIARY

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                             March 31, 1999 and 1998




NOTE C - LOANS RECEIVABLE, NET - Continued

     The Company has no  commitments to loan  additional  funds to the borrowers
     whose loans have been modified.

     In the ordinary course of business, the Company has and expects to continue
     to have transactions,  including borrowings, with its employees,  officers,
     directors,  and  their  affiliates.  In the  opinion  of  management,  such
     transactions were on substantially the same terms, including interest rates
     and collateral,  as those prevailing at the time of comparable transactions
     with  other  persons  and  did  not  involve  more  than a  normal  risk of
     collectibility  or present any other  unfavorable  features to the Company.
     Loans to such borrowers are summarized as follows:

         Balance, beginning of year                              $      152,795
         Additions                                                      504,613
         Payments                                                      (194,557)
         Change in status                                                (2,816)
                                                                 --------------

         Balance, end of year                                    $      460,035
                                                                 ==============

     Loans  with  carrying  amounts of  $118,815  and $-0- were  transferred  to
     foreclosed real estate in 1999 and 1998, respectively.



NOTE D - STOCK IN FEDERAL HOME LOAN BANK OF NEW YORK

     The Company has its savings shares insured by the Federal  Savings and Loan
     Insurance   Corporation.   The  Federal   Home  Loan  Bank   requires   all
     participating  savings and loan  associations to purchase Federal Home Loan
     Bank stock in an amount  equal to one  percent  (1%) of  outstanding  first
     mortgage loans.


NOTE E - ACCRUED INTEREST RECEIVABLE

     Accrued interest receivable is summarized as follows:
                                           March 31,
                                      1999          1998
                                      ----          ----

Loans                             $ 87,836        $74,919
Mortgage-backed securities           3,173            507
Investments and other               16,796         10,717
                                  --------        -------

                                  $107,805        $86,143
                                  ========        =======



--------------------------------------------------------------------------------
<PAGE>




                     LANDMARK FINANCIAL CORP. AND SUBSIDIARY

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                             March 31, 1999 and 1998




NOTE F - PREMISES AND EQUIPMENT

     A summary of the Company's premises and equipment is as follows:

                                                   March 31,
                                              1999             1998
                                              ----             ----

Land and building                           $307,917        $ 58,405
Improvements                                 130,294         128,721
Equipment                                    285,666         118,628
                                             -------         -------
                                             723,877         305,754
Less accumulated depreciation                140,476         108,520
                                             -------         -------

                                            $583,401        $197,234
                                            ========        ========

Depreciation expense for 1999 and 1998 was $32,189 and $18,456, respectively.


NOTE G - FORECLOSED REAL ESTATE

     At March 31, 1999 and 1998, the Company had foreclosed real estate expected
     to be disposed of in the near term of $118,815 and $-0-,  respectively.  In
     1999 and 1998,  foreclosure  losses  in the  amount  of  $30,000  and $-0-,
     respectively, were charged off to the allowance for loan losses.


NOTE H - DEPOSITS

     Deposit  account  balances at March 31, 1999 and 1998,  are  summarized  as
follows:
<TABLE>
<CAPTION>

                                                                           March 31,
                                                            1999                                1998
                                              ------------------------------      -------------------------------
                                                  Amount                 %           Amount                 %
                                                  ------                ---          ------                ---
Balance by interest rate:
<S>                                           <C>                       <C>       <C>                       <C>
Interest-bearing checking accounts            $   492,011               2.55%     $   233,742               1.60%
Non-interest bearing checking accounts            302,641               1.57%         225,564               1.54%
Passbook accounts                               3,395,145              17.62%       3,583,967              24.50%
Certificates of deposit                        15,084,080              78.26%      10,585,583              72.36%
                                               ----------              -----       ----------              -----

                                              $19,273,877             100.00%     $14,628,856             100.00%
                                               ==========             ======      ===========             ======
</TABLE>

The aggregate amount of short-term jumbo  certificates of deposit with a minimum
denomination of $100,000 was approximately  $1,362,000 and $725,000 at March 31,
1999 and 1998,  respectively.  Deposit  amounts  in excess of  $100,000  are not
Federally insured.



--------------------------------------------------------------------------------



<PAGE>




                     LANDMARK FINANCIAL CORP. AND SUBSIDIARY

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                             March 31, 1999 and 1998




NOTE H - DEPOSITS - Continued

     At March 31, 1999 scheduled  maturities of  certificates  of deposit are as
follows:

                      March 31,    2000           $      9,423,377
                                   2001                  4,154,361
                                   2002                  1,227,947
                                   2003                     67,164
                                   2004                     75,043
                                   Thereafter              136,188
                                                   ---------------

                                                  $     15,084,080
                                                  ================

Interest  expense  for 1999 and 1998 was $7,352  and  $2,782,  respectively  for
interest-bearing  checking  accounts,  $101,707 and $117,855,  respectively  for
passbook accounts,  and $783,528 and $605,351,  respectively for certificates of
deposit.


NOTE I - ADVANCES FROM THE FEDERAL HOME LOAN BANK

     Short-term Advances

          The Bank has  short-term  advances  outstanding  from the Federal Home
          Loan  Bank as of  March  31,  1999  and  1998 of  $250,000  and  $-0-,
          respectively.  The advance is due on June 21, 1999 and bears  interest
          at a rate of 4.98%.

     Long-term Advances

          The Bank has long-term advances outstanding from the Federal Home Loan
          Bank as of March 31, 1999 and 1998 of $834,586 and $-0-, respectively.
          The advances  bear  interest  ranging from 5.08% to 5.22% and have due
          dates  ranging  from  December  12,  2000 to  October  29,  2008.  The
          long-term advances at March 31, 1999 are repayable as follows:



         Years ending March 31, 2000           $        131,069
                                2001                    388,028
                                2002                    134,839
                                2003                     23,265
                                2004                     24,509
                                2005 - 2008             132,876
                                                ---------------

                                               $        834,586
                                               ================

     The  advances are  collateralized  by  qualifying  one to four family first
mortgage loans (see note C).


NOTE J - INCOME TAXES

     The Company  files  federal and state income tax returns on a calendar year
     basis. If certain  conditions are met in determining  taxable  income,  the
     Company is allowed a special bad debt



--------------------------------------------------------------------------------


<PAGE>




                     LANDMARK FINANCIAL CORP. AND SUBSIDIARY

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                             March 31, 1999 and 1998




NOTE J - INCOME TAXES - Continued

     deduction  based on  specified  experience  formulas.  The Company used the
     experience formula in 1998 and anticipates using the same method in 1999.

     Income tax expense (benefit) is summarized as follows:


                                             Years Ended
                                               March 31,
                                            1999       1998
                                            ----       ----
Federal
     Current                            $ (2,206)   $ 6,000
     Deferred                            (18,960)      --
                                         -------     ------
                                         (21,166)     6,000
                                         -------     ------

State
     Current                            $  8,098    $  (755)
     Deferred                            (13,537)      --
                                         -------     ------
                                          (5,439)      (755)
                                         -------     ------

                                        $(26,605)   $ 5,245
                                         =======     ======


     Taxes paid during the years  ended  March 31, 1999 and 1998,  were $125 and
$17,350, respectively.

     The  provision  for income taxes  (benefit)  differs from that  computed by
     applying  federal  statutory  rates to  income  (loss)  before  income  tax
     expense, as indicated in the following analysis:

                                                       Years Ended
                                                         March 31,
                                                      1999      1998
                                                      ----      ----

Expected tax provision (benefit) at 34%           $(41,823)   $2,500
State franchise tax, net of federal tax benefit      7,307      --
Other, net                                           7,911     2,745
                                                   -------    ------

                                                  $(26,605)   $5,245
                                                  ========    ======


     Effective tax rate (benefit) for 1999 and 1998 was 34%.

     Deferred  tax  liabilities   have  been  provided  for  taxable   temporary
     differences  related to unrealized gains on trading account  securities and
     accrued  interest  receivable.  Deferred tax assets have been  provided for
     deductible temporary  differences related to the allowance for loan losses,
     interest





--------------------------------------------------------------------------------
<PAGE>




                     LANDMARK FINANCIAL CORP. AND SUBSIDIARY

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                             March 31, 1999 and 1998




NOTE J - INCOME TAXES - Continued

     receivable,  other liabilities and a net operating loss  carryforward.  The
     components of the net deferred tax asset is as follows:

                                                 March 31,
                                              1999        1998
                                              ----        ----

Deferred tax asset
    Net operating loss                     $ 25,067    $  8,000
    Allowance for loan losses                45,845      28,300
                                           --------    --------
                                             70,912      36,300
                                           --------    --------

Deferred tax liabilities
    Interest receivable                     (25,873)    (29,200)
    Other                                    (5,442)       --
                                           --------    --------

                                            (31,315)    (29,200)
                                           --------    --------

     Net deferred tax asset                $ 39,597    $  7,100
                                           ========    ========



     Included in retained  earnings at March 31, 1999 and 1998 is  approximately
     $141,000  in bad debt  reserves  for which no deferred  federal  income tax
     liability has been recorded.  These amounts represent allocations of income
     to bad debt  deductions for tax purposes only.  Reduction of these reserves
     for purposes  other than tax  bad-debt  losses or  adjustment  arising from
     carryback of net  operating  losses would create  income for tax  purposes,
     which would be subject to the  then-current  corporate income tax rate. The
     unrecorded deferred liability on these amounts was approximately $48,000 at
     March 31, 1999 and 1998, respectively.

NOTE K - REGULATORY MATTERS

     The  Company  and the  Bank  are  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  Company  and the  consolidated  financial
     statements.  Under  the  regulatory  capital  adequacy  guidelines  and the
     regulatory framework for prompt corrective action, the Company and the Bank
     must meet specific capital guidelines  involving  quantitative  measures of
     the   Company   and   the   Bank's   assets,   liabilities,   and   certain
     off-balance-sheet   items  as  calculated   under   regulatory   accounting
     practices.  The Company and the Bank's capital  amounts and  classification
     under  the  prompt   corrective  action  guidelines  are  also  subject  to
     qualitative  judgments by the regulators and components,  risk  weightings,
     and other factors.

     Quantitative  measures established by regulation to ensure capital adequacy
     require the Company and the Bank to maintain minimum amounts and ratios of:
     total  risk-based  capital and Tier I capital to  risk-weighted  assets (as
     defined in the  regulations),  Tier I capital to adjusted  total assets (as
     defined),  and  tangible  capital to adjusted  total  assets (as  defined).
     Management  believes,  as of March 31, 1999,  that the Company and the Bank
     meets all capital adequacy requirements to which they are subject.



--------------------------------------------------------------------------------


<PAGE>




                     LANDMARK FINANCIAL CORP. AND SUBSIDIARY

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                             March 31, 1999 and 1998




NOTE K - REGULATORY MATTERS - Continued

     As of March  31,  1999,  the most  recent  notification  from the OTS,  the
     Company  and the  Bank  was  categorized  as  well  capitalized  under  the
     regulatory framework for prompt corrective action. To remain categorized as
     well  capitalized,   the  Company  will  have  to  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 Company and the
     Bank's prompt corrective action category.
<TABLE>
<CAPTION>

                                                                                                 To Be Well Capitalized
                                                                         For Capital             Under Prompt Corrective
                                             Actual                  Adequacy Purposes              Action Provisions
                                         ----------------            ------------------          -----------------------
                                         Amount     Ratio            Amount       Ratio             Amount        Ratio
                                         ----------------            ------------------          -----------------------

As of March 31, 1999:
   Total Risk-Based Capital
<S>                                    <C>            <C>          <C>               <C>        <C>                 <C>
     (to Risk-Weighted Assets)         $  2,221,400   14.3%      >=$1,240,300      >=8.0%     >=$1,550,400        >=10.0%
   Tier I Capital
     (to Risk-Weighted Assets)         $  2,030,381   13.1%      >=$  620,200      >=4.0%     >=$  930,300         >=6.0%
   Tier I Capital
     (to Adjusted Total Assets)        $  2,030,381    9.0%      >=$  906,800      >=4.0%     >=$1,133,500         >=5.0%
   Tangible Capital
     (to Adjusted Total Assets)        $  2,030,381    9.0%      >=$  453,400      >=2.0%     >=$  453,400         >=2.0%
</TABLE>

<TABLE>
<CAPTION>

                                                                                                 To Be Well Capitalized
                                                                         For Capital             Under Prompt Corrective
                                             Actual                  Adequacy Purposes              Action Provisions
                                         ----------------            ------------------          -----------------------
                                         Amount     Ratio            Amount       Ratio             Amount        Ratio
                                         ----------------            ------------------          -----------------------

As of March 31, 1998:
   Total Risk-Based Capital
<S>                                    <C>            <C>          <C>            <C>              <C>              <C>
     (to Risk-Weighted Assets)         $  2,286,685   23.6%      >=$ 776,300    >=8.0%           >=$  970,500     >=10.0%
   Tier I Capital
     (to Risk-Weighted Assets)         $  2,166,749   22.3%      >=$ 388,200    >=4.0%           >=$  582,300      >=6.0%
   Tier I Capital
     (to Adjusted Total Assets)        $  2,166,749   12.9%      >=$ 672,400    >=4.0%           >=$  840,600      >=5.0%
   Tangible Capital
     (to Adjusted Total Assets)        $  2,166,749   12.9%      >=$ 252,200    >=1.5%           >=$  252,200      >=1.5%
</TABLE>


     On  November  13,  1997,  the  date  of the  Bank's  conversion  to a stock
     institution,  the Bank established a liquidation account totaling $956,000.
     The  liquidation   account  is  maintained  for  the  benefit  of  eligible
     depositors  who continue to maintain  their  accounts at the Bank after the
     conversion.  The liquidation account will be reduced annually to the extent
     that eligible depositors have reduced their qualifying deposits. Subsequent
     increases  will not restore an eligible  account  holder's  interest in the
     liquidation account. In the event of a complete liquidation,  each eligible
     depositor will be entitled to receive a distribution  from the  liquidation
     account  in an  amount proportionate to  the  current  adjusted  qualifying
     balances for accounts then held.  The  liquidation  account  balance is not
     available for payment of dividends.

--------------------------------------------------------------------------------



<PAGE>




                     LANDMARK FINANCIAL CORP. AND SUBSIDIARY

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                             March 31, 1999 and 1998




NOTE K - REGULATORY MATTERS - Continued

     During August 1997, OTS conducted a routine  safety and soundness  on-sight
     examination of the Bank. During the course of its examination OTS examiners
     raised a number of concerns and noted  certain  deficiencies  in the Bank's
     operations. As a result of the examination the Bank voluntarily agreed with
     OTS not to  originate  any new  consumer or  commercial  loans and to limit
     one-to-four  family  residential loan originations to no more than $200,000
     per  month,  until the Bank  corrected  the noted  deficiencies.  Effective
     February 10, 1998, OTS rescinded these lending restrictions.


NOTE L - FINANCIAL INSTRUMENTS WITH OFF-BALANCE-SHEET RISK

     The Company 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. These instruments  involve, to varying degrees,  elements of credit
     and  interest  rate  risk  in  excess  of  the  amounts  recognized  in the
     statements of financial condition.

     The Company's exposure to credit loss in the event of nonperformance by the
     other party to the financial  instruments  for commitments to extend credit
     is represented by the contractual notional amount of those instruments (see
     Note N). The Company  uses the same credit  policies in making  commitments
     and conditional obligations as it does for on-balance-sheet instruments.

     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 of the commitments may
     expire  without  being  drawn  upon,  the total  commitment  amounts do not
     necessarily represent future cash requirements.  The Company evaluates each
     customer's creditworthiness on a case-by-case basis. The amount and type of
     collateral  obtained,  if deemed necessary by the Company upon extension of
     credit,  varies  and is  based on  management's  credit  evaluation  of the
     counterparty.

     The Company has not  incurred  any losses on its  commitments  in the years
     ended March 31, 1999 and 1998.


NOTE M - COMMITMENTS, CONTINGENCIES AND RELATED PARTY TRANSACTION

     In the  ordinary  course of business,  the Company has various  outstanding
     commitments  and  contingent  liabilities  that  are not  reflected  in the
     accompanying financial statements.  In addition, the Company is a defendant
     in certain  claims and legal  actions  arising  in the  ordinary  course of
     business.  In the  opinion of  management,  after  consultation  with legal
     counsel,  the ultimate disposition of these matters is not expected to have
     a material adverse effect on the financial position of the Company.

     The Company had outstanding commitments to originate loans as follows:
<TABLE>
<CAPTION>

                              March 31, 1999                             March 31, 1998
                              --------------                             --------------
                   Fixed-Rate   Variable-Rate    Total     Fixed Rate    Variable-Rate    Total
                   ----------   -------------    -----     ----------    -------------    -----

<S>                <C>           <C>           <C>         <C>            <C>            <C>
First-mortgage     $  794,303    $       --    $ 794,303   $       --     $   --         $ --
                   ==========   ============   =========   ==========     ========       ======
</TABLE>


--------------------------------------------------------------------------------




<PAGE>




                     LANDMARK FINANCIAL CORP. AND SUBSIDIARY

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                             March 31, 1999 and 1998




NOTE M - COMMITMENTS, CONTINGENCIES AND RELATED PARTY TRANSACTION - Continued


     The interest rate on outstanding  fixed-rate commitments at March 31, 1999,
     ranges between 7.7% and 9.7%.

     At March  31,  1999,  the  Company  had an unused  line of credit  with the
     Federal Home Loan Bank as follows:

      Companion (DRA) Commitment                               $    840,550
      Overnight line of credit                                      840,550
                                                                  ---------
                                                               $  1,681,100
                                                                  =========

     The  Company's  line of credit with the Federal  Home Loan Bank  expires on
September 11, 1999.

     Related Party Transaction

     Customers  (borrowers)  of the Bank  have  obtained  title  insurance  from
     Landmark  Title  Company.  The Company's  Chairman of the Board is the sole
     owner of Landmark Title Company.  During the years ended March 31, 1999 and
     1998,  Landmark Title Company received $15,162 and $17,079  respectively in
     title insurance premiums as a result of mortgage closings at the Bank.


NOTE N - FAIR VALUES OF FINANCIAL INSTRUMENTS

     The  estimated  fair values of the  Company  financial  instruments  are as
follows:
<TABLE>
<CAPTION>

                                                                      March 31,
                                                         1999                         1998
                                               ----------------------        ---------------------
                                               Carrying          Fair        Carrying        Fair
                                                 Amount          Value        Amount         Value

     Financial assets:


<S>                                            <C>           <C>           <C>           <C>
      Cash                                     $   295,827   $   295,827   $ 1,530,236   $ 1,530,236
      Mortgage-backed securities                    38,468        38,336        74,080        71,649
      Investment securities                      1,900,992     1,900,992     1,103,916     1,103,916
      Loans receivable, net                     19,189,257    19,284,000    13,640,142    13,974,000
      Accrued interest receivable                  107,805       107,805        86,143        86,143

Financial liabilities:
      Deposits                                  19,273,877    19,552,000    14,628,856    14,725,000
       Advance payments by
        borrowers for taxes
        and insurance                              108,174       108,174        97,453        97,453
       Advances from the
        Federal Home Loan Bank                   1,084,586     1,066,000          --            --
</TABLE>


     The carrying  amounts in the preceding  table are included in the statement
     of  financial  condition  under the  applicable  captions.  The contract or
     notional   amounts   of   the   Company's   financial    instruments   with
     off-balance-sheet  risk are  disclosed in Notes L and M and their  carrying
     values

--------------------------------------------------------------------------------





<PAGE>




                     LANDMARK FINANCIAL CORP. AND SUBSIDIARY

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                             March 31, 1999 and 1998




NOTE N - FAIR VALUES OF FINANCIAL INSTRUMENTS - Continued


     represent fair value..  No derivatives were held by the Company for trading
     purposes.  It is not practicable to estimate the fair value of Federal Home
     Loan Bank (FHLB) stock because it is not marketable. The carrying amount of
     that investment is reported in the statements of financial condition.



NOTE O - CONCENTRATION OF CREDIT

     The majority of the  Company's  loans have been granted to customers in the
     Company's   market  area,  which  is  primarily   Canajoharie,   New  York.
     Canajoharie is a largely rural area and relies heavily on the  agricultural
     industry and a certain  manufacturer.  The concentrations of credit by type
     of loan are set forth in the note on loans  receivable  (see  Note C).  The
     Company,  as a matter of policy, does not extend credit to any borrowers in
     excess of its legal lending limit.


NOTE P- EMPLOYEE STOCK OWNERSHIP PLAN

     Qualified  employees  of the  Company and Bank  participate  in an Employee
     Stock  Ownership  Plan  (the  ESOP).  In  connection  with  the  conversion
     described in Note A1, the ESOP has borrowed from the Company,  the proceeds
     of which were used to acquire 12,160 shares of the Company's  common stock.
     The  outstanding  loan  balance at March 31, 1999 and 1998 was $109,440 and
     $117,466, respectively. Interest charged on the loan is at the Bank's prime
     lending  rate (7.75% at March 31,  1999).  Contributions  from the Bank are
     used by the ESOP to make  payments of  principal  and interest on the loan.
     Under the terms of the ESOP,  contributions  are allocated to  participants
     using a formula  based upon  compensation.  Employees  of the  Company  are
     eligible  to  participate  in the  ESOP  after  one  year  of  service  and
     attainment of twenty-one  (21) years of age providing  they worked at least
     1,000 hours during the prior  twelve (12) month  period.  Participants  are
     fully vested after five years.  Because the Company has provided the ESOP's
     borrowing,  the  unearned  compensation  is  presented  as a  reduction  of
     stockholders'  equity in the accompanying  consolidated  balance sheets. On
     March 31,  1999 and 1998,  808 shares and 205  shares,  respectively,  were
     allocated to participants. ESOP contributions to the Bank, representing the
     fair value of  allocated  shares,  charged  to  compensation  and  benefits
     expense  in  1999  and  1998  were   approximately   $8,026   and   $4,134,
     respectively.  The fair value of the remaining  unallocated shares at March
     31, 1999 aggregated approximately $84,000.

     Dividends,  if any, will be allocated among the participant's  accounts and
     the  unallocated  shares in accordance  with their holdings of the stock on
     which the  dividends  were paid.  If  dividends  are used to repay the ESOP
     borrowings  then stock with a fair market value equal to the dividends will
     be allocated to the Participant's Accounts in lieu of the dividends.


NOTE Q - EMPLOYEE BENEFIT PLAN

     The Bank has a 401(k) Plan whereby  substantially all employees participate
     in  the  Plan.   Employees  may  contribute  up  to  15  percent  of  their
     compensation  subject to certain  limits  based on  federal  tax laws.  The
     Company makes  matching  contributions  equal to 100 percent of the first 3
     percent of an employee's  compensation  contributed  to the Plan.  Matching
     contributions vest to the employee

--------------------------------------------------------------------------------



<PAGE>




                     LANDMARK FINANCIAL CORP. AND SUBSIDIARY

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                             March 31, 1999 and 1998




NOTE Q - EMPLOYEE BENEFIT PLAN - Continued

     equally  over a  five-year  period.  For the years ended March 31, 1999 and
     1998,  expense  attributable  to the Plan  amounted  to $5,011 and  $2,751,
     respectively.


NOTE R - IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS

     In February 1998, the FASB issued Statement No. 132, Employer's Disclosures
     about  Pensions  and Other  Postretirement  Benefits,  an amendment of FASB
     Statements  No.  87,  88  and  106  ("SFAS  132").  The  statement  revises
     employers' disclosures about pensions and other postretirement benefits. It
     does  not  change  the  measurement  or  recognition  of  those  plans.  It
     standardizes   the   disclosure   requirements   for   pensions  and  other
     postretirement  benefits  to the extent  practicable,  requires  additional
     information on changes in the benefit  obligations  and fair values of plan
     assets that will  facilitate  financial  analysis,  and eliminates  certain
     disclosures  that are no longer as useful as they were when FASB Statements
     No. 87, No. 88 and No. 106 were issued.  The  Statement  suggests  combined
     formats  for  presentation  of  pension  and other  postretirement  benefit
     disclosures.  This Statement is effective for fiscal years  beginning after
     December 15, 1997. The adoption of SFAS 132 did not have a material  effect
     on the Company's consolidated financial statements.

     In June,  1998,  the FASB issued SFAS No. 133  "Accounting  for  Derivative
     Instruments  and  Hedging  Activities"  which  establishes  accounting  and
     reporting standards for derivative  instruments and for hedging activities.
     The Statement  requires that an entity  recognize all derivatives as either
     assets or  liabilities  in the  balance  sheet at fair  value.  If  certain
     conditions are met, a derivative may be  specifically  designated as a fair
     value hedge, a cash flow hedge, or a foreign  currency hedge.  Entities may
     reclassify   securities   from  the   held-to-maturity   category   to  the
     available-for-sale  category at the time adopting SFAS No. 133 is effective
     for all fiscal  quarters of fiscal years beginning after June 15, 1999 and,
     accordingly,  would apply to the Company  beginning  on April 1, 2000.  The
     Company  plans to adopt the  standard  at that time and does not  presently
     intend to reclassify  securities  between  categories.  The Company has not
     engaged in derivatives and hedging  activities covered by the new standard,
     and does not expect to do so in the foreseeable future.  Accordingly,  SFAS
     No.  133  is not  expected  to  have a  material  impact  on the  Company's
     financial statements.

     In  October,  1998 the FASB  issued  SFAS No. 134 which  amends SFAS No. 65
     "Accounting for Certain Mortgage Banking Activities".  Statement No. 65, as
     amended by Statement  No. 115 and  Statement  No. 125,  required that after
     securitization  of a  mortgage  loan  held for  sale,  a  mortgage  banking
     enterprise classify the resulting security as a trading security. Statement
     No. 134 amends this  section to require  that after the  securitization  of
     mortgage   loans  held  for  sale,   the  entity   classify  the  resulting
     mortgage-backed  security or other  retained  interest based on its ability
     and intent to sell or hold those investments. SFAS 134 is effective for the
     first quarter beginning after December 15, 1998 and has been adopted by the
     Company for the year ended March 31,  1999.  The Company has not engaged in
     retaining  securities after the  securitization  of its mortgage loans held
     for  sale  and  does  not  expect  to  do  so in  the  foreseeable  future.
     Accordingly,  SFAS No. 134 is not expected to have a material impact on the
     Company's financial statements.

--------------------------------------------------------------------------------



<PAGE>




                     LANDMARK FINANCIAL CORP. AND SUBSIDIARY

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                             March 31, 1999 and 1998




NOTE S - EARNINGS PER COMMON SHARE

     A reconciliation of the numerators and denominators for earnings per common
     share  computations  for the  years  ended  March  31,  1999 and 1998 is as
     follows:
<TABLE>
<CAPTION>

                                                                                   Years Ended March 31,
                                                                                      1999              1998
                                                                                      ----              ----
     Basic Earnings Per Share
<S>                                                                          <C>               <C>
         Net income (loss) available to common shareholders                  $    (96,404)     $      7,467
                                                                             ============      ============

         Weighted average common shares outstanding                               140,247           139,975
                                                                             ============      ============

              Basic Earnings Per Share                                       $      (.69)      $        .05
                                                                             ===========       ============

     Earnings Per Share Assuming Dilution
         Net income (loss) available to common shareholders                  $    (96,404)     $      7,467
                                                                             ============      ============

         Weighted average common and dilutive
          potential common shares outstanding                                     140,247           139,975
                                                                             ============      ============

              Diluted Earnings Per Share                                     $      (.69)      $        .05
                                                                             ===========       ============
</TABLE>


NOTE T - STOCK COMPENSATION PLANS

     During the year ended March 31, 1999,  shareholders approved a Stock Option
     Plan and a Recognition  and Retention Plan for directors and key employees.
     Under the Stock Option Plan, the Company may grant options for up to 15,200
     shares of authorized but currently  unissued  common stock.  Both incentive
     stock and  non-qualified  stock options may be granted under the Plan.  All
     options  have a ten (10) year term and vest and became  exercisable  over a
     five (5) year  period.  Activity in the Stock Option Plan for 1999 and 1998
     is as follows:
<TABLE>
<CAPTION>

                                                        Options            Option Price             Shares
                                                      Outstanding            Per Share            Exercisable
                                                      -----------          ------------           ------------

<S>                                                  <C>                    <C>                   <C>
         Outstanding at March 31, 1998                         --           $        --                     --
            Granted (July 22, 1998)                         6,860                 13.00                     --
            Exercised                                          --                    --                     --
            Forfeited                                          --                    --                     --
                                                      -----------           -----------           ------------
         Outstanding at March 31, 1999                      6,860           $     13.00                     --
                                                       ==========           ===========           ============
</TABLE>

     In July 1998,  the  Shareholders  approved  an option plan with an exercise
     price  equal to the  market  value of the  Company's  shares at the date of
     grant.  The excess of market value over exercise price for approved options
     approximated $-0-.  Compensation expense for the years ended March 31, 1999
     and 1998 was $-0-.

--------------------------------------------------------------------------------






<PAGE>



                     LANDMARK FINANCIAL CORP. AND SUBSIDIARY

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                             March 31, 1999 and 1998




NOTE T - STOCK COMPENSATION PLANS - Continued

     During  1999,  the Company  awarded  2,508  shares  (6,080  authorized)  of
     restricted stock under the Recognition and Retention Plan. The market value
     of shares  awarded at the date of grant  approximated  $32,604 and has been
     recognized  in the  accompanying  statement of condition as unearned  stock
     based compensation. Compensation expense for the years ended March 31, 1999
     and 1998 was $-0-. The market value of shares awarded will be recognized as
     compensation expense ratably over the 5-year restriction period,  beginning
     one year after the grant date (July 22, 1998) as defined within the Plan.

     The Company has elected to account for its stock-based  compensation  plans
     in accordance  with  Accounting  Principles  Board Opinion No. 25. Proforma
     amounts of net income and earnings  per share under  Statement of Financial
     Accounting Standards No. 123 are as follows:

                                                     Years Ended March 31,
                                                        1999              1998
                                                        ----              ----

         Net income (loss)      As reported    $      (96,404)   $     7,467
                                Pro forma      $     (100,548)   $       N/A

         Net income (loss)      As reported
           per share            Pro forma      $     (.69)       $     .05
                                               $     (.72)       $     N/A

         Net income (loss)
           per share -          As reported    $     (.69)       $     .05
           assuming dilution    Pro forma      $     (.72)             N/A

     The fair value of these  options was estimated on the date of grant using a
     Black-Scholes  option-pricing  model  with the  following  weighted-average
     assumptions:

                                            Years Ended March 31,
                                                1999            1998
                                                ----            ----

         Dividend yield                          --%             N/A
         Expected life                       5 years             N/A
         Expected volatility                  24.57%             N/A
         Risk-free interest rate               5.79%             N/A

     For the purposes of pro forma disclosures,  the estimated fair value of the
     options is amortized to expense over the options vesting period. Therefore,
     the  foregoing  pro forma  results are not likely to be  representative  of
     reported net income  (loss) of future  periods due to  additional  years of
     vesting.  The  weighted-average  fair  value per share of  options  granted
     during 1999 is $4.03.

--------------------------------------------------------------------------------




<PAGE>




                     LANDMARK FINANCIAL CORP. AND SUBSIDIARY

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                             March 31, 1999 and 1998




NOTE U - CONDENSED PARENT COMPANY ONLY FINANCIAL STATEMENTS

     The following  condensed  statements of financial condition as of March 31,
     1999 and 1998 and the condensed  statement of  operations  and statement of
     cash flows for the two years then ended should be read in conjunction  with
     the Consolidated Financial Statements and related notes.
<TABLE>
<CAPTION>

                                                                             March 31,
                                                                         1999         1998
                                                                      ----------   ----------
STATEMENT OF FINANCIAL CONDITION
Assets:
<S>                                                                   <C>          <C>
    Cash                                                              $   12,359   $    4,134
    Investment in and advances to Bank                                 1,939,139    2,055,221
    Other assets                                                           9,987         --
                                                                      ----------   ----------
     Total assets                                                     $1,961,485   $2,059,355
                                                                      ==========   ==========
Liabilities                                                           $   33,551   $     --
Stockholders' Equity                                                   1,927,934    2,059,355
                                                                      ----------   ----------

         Total liabilities and stockholders' equity                   $1,961,485   $2,059,355
                                                                      ==========   ==========


                                                                        Years Ended March 31,
                                                                       1999               1998
                                                                       ----               ----
     STATEMENT OF OPERATIONS
         Income:
         Income, including dividend from bank subsidiary of
             $120,000 in 1999 and $-0- in 1998                       $   132,903    $      --
         Expenses                                                         46,444           --
                                                                      ----------   ----------
         Income before income taxes and equity in earnings of Bank        86,459           --
         Provision for income tax benefit (expense)                        7,056           --
                                                                      ----------   ----------
         Income before equity in earnings of Bank                         93,515           --
         Equity in earnings (loss) of Bank                               (69,922)       7,467
                                                                      ----------   ----------

             Net income                                              $    23,593    $   7,467
                                                                      ==========   ==========

STATEMENT OF CASH FLOWS
    Cash flows provided (used) by operating activities:
         Net income                                                  $    23,593    $   7,467
         Adjustments to reconcile net income (loss) to
             net cash used for operating activities
         Equity in (earnings) loss of Bank                                69,922       (7,467)
         Other assets                                                     (9,987)          --
         Liabilities                                                         947           --
                                                                      ----------   ----------
                                                                          84,475           --
                                                                      ----------   ----------
    Cash flows provided (used) by investing activities:
         Investment in and advances to Bank                              (84,276)  (1,086,433)
         Principal payments on ESOP loan                                   8,026        4,134
                                                                      ----------   ----------
                                                                         (76,250)  (1,082,299)
                                                                      ----------   ----------
    Cash flows provided (used) by financing activities:
         Proceeds from the sale of stock, net of issuance cost              --             --
                                                                                    1,086,433

             Net increase in cash                                          8,225        4,134

    Cash, beginning of year                                                4,134           --
                                                                      ----------   ----------

    Cash, end of year                                                $    12,359    $   4,134
                                                                      ==========   ==========
</TABLE>

--------------------------------------------------------------------------------




<PAGE>






Common Stock Information

The Common  Stock of Landmark  Financial  Corp.  is traded on the "pink  sheets"
under the  symbol  "LMFC."  At March  31,  1999  there  were  approximately  125
stockholders of record,  including  brokers,  and 152,000 shares  outstanding of
which 12,160 are held by the Landmark  Community Bank Employee  Stock  ownership
Plan.


The following  table sets forth the market price of the  Company's  Common Stock
for the year ended  March 31,  1999.  At the  current  time the  Company  has no
intention to pay dividends.


Fiscal 1999                              High                               Low
-----------                              ----                               ---

First Quarter                            $13.37                           $12.50

Second Quarter                           $13.00                           $ 8.00

Third Quarter                            $12.00                           $ 8.25

Fourth Quarter                           $ 9.37                           $ 7.00




















<PAGE>



Directors and Officers



Directors                            Officers



John Francisco                       Gordon E. Coleman
Chairman of the Board                 President & Chief Executive Officer

Gordon E. Coleman                    Paul S. Hofmann
                                     Vice President & Chief Financial Officer

Carl Rockefeller                     H. Stuart Larson
                                     Vice President - Consumer Lending

Patricia Symolon


Richard Ferraro


Frederick LaCoppola


Carl Salmon, III












<PAGE>




Corporate Information


Corporate Headquarters                              Transfer Agent

Landmark Financial Corp.                            Registrar & Transfer Company
211 Erie Blvd.                                      10 Commerce Drive
Canajoharie, New York 13317                         Cranford, New Jersey 07016
(518) 673-2012                                      (800) 456-0596


Special Counsel                                     Independent Auditors

Luse Lehman Gorman Pomerenk & Schick, P.C.          Harvazinski & Montanye, LLP
5335 Wisconsin Avenue, N.W.                         21 Everett Road Extension
Suite 400                                           Albany, New York  12205
Washington, D.C.  20015                             (518) 453-0636
(202) 274-2000


Annual Meeting

The Annual Meeting of the Stockholders  will be held July 29, 1999 at 10:30 a.m.
at the Fort Rennselaer Club at 4 Moyer Street in Canajoharie, New York.


General Inquiries

A copy of the  Company's  Annual  Report to the SEC on Form 10-K may be obtained
without  charge by written  request of  stockholders  to Gordon E. Coleman or by
calling the Company at (518) 673-2012.


SEC Disclaimer

This Annual  Report has not been reviewed or confirmed for accuracy or relevance
by the SEC.
































<PAGE>


                                   EXHIBIT 21

                           SUBSIDIARIES OF THE COMPANY


Company                            Percent Owned
-------------------                -------------

Landmark Community Bank             100%