SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                   FORM 10-KSB

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

                     For the fiscal year ended June 30, 1996

                                       OR

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

          For the transition period from __________ to _______________

                          Commission File No.: 0-24350

                             Troy Hill Bancorp, Inc.
                 (Name of Small Business Issuer in its charter)

      Pennsylvania                                            25-0844150
--------------------------------------------------------------------------------
(State or other jurisdiction                              (I.R.S. Employer
of incorporation or organization)                         Identification Number)

                 
 1706 Lowrie Street, Pittsburgh, Pennsylvania                      15212
--------------------------------------------------------------------------------
   (Address of Principal Executive Offices)                     (Zip Code)

         Issuer's telephone number, including area code: (412) 231-8238 
--------------------------------------------------------------------------------

         Securities registered under Section 12(b) of the Exchange Act:
--------------------------------------------------------------------------------
                                 Not Applicable

          Securities registered under Section 12(g) of the Exchange Act

                     Common Stock (par value $.01 per share)
                                (Title of Class)
<PAGE>
Check  whether the issuer (1) filed all reports  required to be filed by Section
13 or 15(d) of the  Exchange  Act during the past 12 months (or for such shorter
period that the Registrant was required to file such reports),  and (2) has been
subject to such filing requirements for the past 90 days. Yes [ X ]  No [  ]

Check if disclosure  of delinquent  filers in response to Item 405 of Regulation
S-B is not contained in this form, and no disclosure  will 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  amendment to
this Form  10-KSB.  Issuer's  revenues  for its most recent  fiscal  year:  $6.7
million.

As of October 7, 1996, the aggregate value of the 926,053 shares of Common Stock
of the Registrant  issued and outstanding on such date,  which excludes  141,864
shares held by all  directors  and  executive  officers of the  Registrant  as a
group, was approximately  $18.4 million.  This figure is based on the last known
trade price of $19.875 per share of the Registrant's  Common Stock on October 7,
1996.

Number of shares of Common Stock outstanding as of October 7, 1996: 1,067,917
Transitional Small Business Disclosure Format: Yes [  ]    No [ X ]

                       DOCUMENTS INCORPORATED BY REFERENCE

         List hereunder the following  documents  incorporated  by reference and
the Part of the Form 10-KSB into which the document is incorporated.

(1) Portions of the Annual  Report to  Stockholders  for the year ended June 30,
1996 are incorporated into Part II, Items 5 through 7 of this Form 10-KSB.

(2) Portions of the  definitive  proxy  statement for the 1996 Annual Meeting of
Stockholders  are  incorporated  into Part III,  Items 9 through 12 of this Form
10-KSB.
<PAGE>
PART I

Item 1.  Description of Business.

General

         Troy Hill Bancorp,  Inc. (the "Company") is a Pennsylvania  corporation
and a unitary thrift holding company registered under the Home Owners' Loan Act,
as amended.  The Company is the parent company of Troy Hill Federal Savings Bank
(the "Savings Bank" or "Troy Hill"). At June 30, 1996, on a consolidated  basis,
the  Company  had total  assets of $92.2  million,  total  liabilities  of $74.1
million,  including deposits of $54.0 million, and stockholders' equity of $18.0
million.

         Troy  Hill is a  federally  chartered  stock  savings  bank  conducting
business  from two  full-service  offices  located  in the Troy Hill  section of
Pittsburgh and Wexford,  Pennsylvania.  In June 1994, the Savings Bank converted
from a mutual form savings and loan  association  to a stock form savings  bank,
reorganized  into the holding company form of  organization  and became a wholly
owned subsidiary of the Company (together, the "Conversion").

         Troy Hill is primarily engaged in attracting  deposits from the general
public through its offices and using such  deposits,  together with other funds,
primarily  to  originate   loans   secured  by  first  liens  on   single-family
(one-to-four  units) and multi-family (over four units) residential  properties,
nonresidential  real  estate,   construction  loans  on  primarily   residential
properties and consumer  loans.  Troy Hill also invests in securities  issued by
the United States Government and agencies thereof, municipal debt securities and
corporate  obligations.  Troy Hill derives its income  principally from interest
earned on loans,  mortgage-backed  securities and  investments  and, to a lesser
extent,  from fees received in connection with the origination and sale of loans
and for other  services.  Troy Hill's primary  expenses are interest  expense on
deposits, FHLB advances and general operating expenses. Funds for activities are
provided  primarily by deposits,  amortization  and  prepayments  of outstanding
loans and mortgage-backed securities, sales of loans and other sources.

           Troy Hill conducts operations out of its home office in the Troy Hill
section of  Pittsburgh,  which is located just north of downtown  Pittsburgh  in
Allegheny  County,  Pennsylvania.  In  addition  to its home  office,  Troy Hill
maintains a branch office in Wexford, Pennsylvania. Troy Hill has benefited from
the large volume of economic activity  historically  associated with Pittsburgh,
which is  Pennsylvania's  second largest  metropolitan area and the 18th largest
market in the  United  States.  The  greater  Pittsburgh  metropolitan  area has
experienced  increasing  diversity over the past decade. The increasing economic
diversity in Allegheny County has led to moderate economic and population growth
in the area.  However,  the large size and increasing  economic stability of the
Allegheny County economy has also supported growth in competition.

         The Company,  as a  registered  savings and loan  holding  company,  is
subject  to  examination  and  regulation  by the  Office of Thrift  Supervision
("OTS")  and is subject  to  various  reporting  and other  requirements  of the
Securities and Exchange Commission ("SEC").  Troy Hill, as a federally chartered
savings bank, is subject to comprehensive regulation and examination by the OTS,
as its chartering  authority and primary  regulator,  and by the Federal Deposit
Insurance  Corporation  ("FDIC"),  which  administers  the  Savings  Association



                                       1
<PAGE>
Insurance  Fund  ("SAIF"),  which  insures  the Savings  Bank's  deposits to the
maximum  extent  permitted  by law.  The Savings Bank is a member of the Federal
Home Loan Bank  ("FHLB") of  Pittsburgh,  which is one of the 12 regional  banks
which  comprise  the  FHLB  System.  The  Savings  Bank is  further  subject  to
regulations  of the Board of Governors of the Federal  Reserve  Board  ("Federal
Reserve Board" or "FRB") governing  reserves  required to be maintained  against
deposits and certain other matters.

          At June 30,  1996,  Troy  Hill's  net  portfolio  of loans  receivable
totalled $74.6 million, representing approximately 80.9% of its $92.2 million of
total assets at that date.  The principal  lending  activity of Troy Hill is the
origination of single-family  residential loans and construction loans primarily
with respect to single-family  residential properties.  To a much lesser extent,
Troy Hill also  originates  multi-family  residential  and  nonresidential  real
estate loans,  consumer loans and, prior to 1992, Troy Hill purchased commercial
leases  from an  investment  consulting  and  loan  servicing  firm  located  in
Monroeville,  Pennsylvania.  Substantially  all of  Troy  Hill's  mortgage  loan
portfolio  consists of  conventional  mortgage  loans,  which are loans that are
neither  insured by the Federal  Housing  Administration  ("FHA") nor  partially
guaranteed by the Department of Veterans Affairs ("VA").

         Historically,  Troy Hill's lending activities have been concentrated in
single-family  residential  loans secured by  properties  located in its primary
market area of northern  Allegheny and southern Butler  counties,  Pennsylvania.
Troy Hill has  increased its emphasis in recent years in  construction  lending,
primarily on  residential  properties,  in its primary market area. As discussed
under  "-  Construction  Loans,"   construction  lending  generally,   including
speculative  lending to builders (where the property has not been pre-sold),  is
generally  considered  to  involve  a  higher  level  of  risk  as  compared  to
single-family residential lending. Troy Hill estimates that approximately 90% of
its  mortgage  loans are secured by  properties  located in Troy Hill's  primary
market area.

         The Financial  Institutions  Reform,  Recovery,  and Enforcement Act of
1989  ("FIRREA")  imposed  limitations  on the aggregate  amount of loans that a
savings institution could make to any one borrower,  including related entities.
Under  FIRREA,  the  permissible  amount of  loans-to-one  borrower  follows the
national  bank  standard  for all  loans  made by  savings  institutions,  which
generally  does not permit  loans-to-one  borrower  to exceed 15% of  unimpaired
capital and surplus. Loans in an amount equal to an additional 10% of unimpaired
capital  and  surplus  also may be made to a  borrower  if the  loans  are fully
secured by readily marketable securities. At June 30, 1996, Troy Hill's limit on
loans-to-one  borrower  under FIRREA was $2.0  million.  At June 30, 1996,  Troy
Hill's five largest loans or groups of loans-to-one borrower,  including related
entities,  ranged from an aggregate of $770,000 to $1.6 million, and are secured
primarily by single-family residential properties located in Troy Hill's primary
market  area.  All of Troy  Hill's  five  largest  loans or groups of loans were
performing in accordance with their original terms at June 30, 1996.










                                       2
<PAGE>
         Loan  Portfolio  Composition.   The  following  table  sets  forth  the
composition  of Troy  Hill's  loan  portfolio  by  type  of  loan  at the  dates
indicated.
<TABLE>
<CAPTION>
                                                                            June 30,
                                     ------------------------     -------------------------        -----------------------
                                                 1996                         1995                           1994
                                       Amount             %          Amount            %             Amount            %
                                     ----------        ------     ----------          -----        ---------         -----    
                                                                    (Dollars in Thousands)

<S>                                  <C>                <C>        <C>                <C>          <C>               <C>
Real estate loans:
  One-to-four family residential     $  50,587          62.38%     $  38,761          66.47%       $  29,389         61.00%
  Multi-family residential               5,297           6.53            530           0.91              567          1.18
  Nonresidential real estate             7,641           9.42          4,186           7.18            1,218          2.53
  Construction(1)                       13,678          16.87         11,629          19.94           14,548         30.20
                                     ---------          -----     ----------          -----        ---------         -----   
        Total real estate loans         77,203          95.20         55,106          94.50           45,722         94.91
        
Consumer loans:
  Loans secured by savings accounts         96           0.12             78           0.13               94          0.20
  Home equity and improvement            3,187           3.93          2,585           4.43            1,284          2.67
  Auto loans                                 8           0.01             17           0.03               34          0.07
                                     ---------          -----     ----------          -----        ---------         -----   
        Total consumer loans             3,291           4.06          2,680           4.59            1,412          2.94
Commercial business loans(2)               597           0.74            525           0.91            1,043          2.15
                                     ---------          -----     ----------          -----        ---------         -----   
        Total Loans                     81,091         100.00%        58,311         100.00%          48,177        100.00%
                                     ---------         ======     ----------         ======        ---------        ======   
                                      
Less:
  Loans in process                       5,224                         3,557                           7,825
  Deferred loan origination fees           655                           635                             578
  Allowance for loan and lease
   losses                                  660                           667                             700
                                     ---------                    ----------                       ---------

        Net loans                    $  74,552                    $   53,452                       $  39,074
                                     =========                    ==========                       ==========
</TABLE>
--------------------

(1)  Consisted solely of loans for the construction of single-family residential
     real estate at June 30, 1996 and 1995.

(2)  Consists  solely  of  commercial   leases   purchased  from  an  investment
     consulting and loan servicing  firm located in  Monroeville,  Pennsylvania.
     Troy Hill ceased  purchasing  such  commercial  leases in June 1992. See "-
     Commercial Business Loans."







                                       3
<PAGE>
         Contractual  Principal  Repayments  and Interest  Rates.  The following
table sets forth  certain  information  at June 30,  1996  regarding  the dollar
amount of loans  maturing in Troy  Hill's  portfolio,  based on the  contractual
terms to maturity, before giving effect to net items. Demand loans, loans having
no stated  schedule of  repayments  and no stated  maturity and  overdrafts  are
reported as due in one year or less.
<TABLE>
<CAPTION>
                                                            Due 1-3       Due 3-5     Due 5-10    Due 10-20     Due 20  
                                                             years         years        years       years      years and          
                                                             after         after        after       after      more after
                                                  1997      6/30/96       6/30/96      6/30/96     6/30/96      6/30/96       Total
                                                  ----      -------       -------      -------     -------      -------       -----
                                                                                  (In Thousands)
<S>                                            <C>          <C>          <C>          <C>          <C>          <C>          <C>
One-to-four family ......................      $   943      $   996      $ 5,740      $ 5,069      $16,640      $21,199      $50,587
residential
Multi-family residential ................         --            109        1,227          238        3,341          382        5,297
Nonresidential real estate...............           44        1,426        1,398        1,185        3,588         --          7,641
Construction ............................        2,046          507        1,339         --          1,640        8,146       13,678
Consumer ................................        1,077          836          217          923          115          123        3,291
Commercial business .....................          232           86          279         --           --           --            597
                                               -------      -------      -------      -------      -------      -------      -------
    Total ...............................      $ 4,342      $ 3,960      $10,200      $ 7,415      $25,324      $29,850      $81,091
                                               =======      =======      =======      =======      =======      =======      =======
</TABLE>
     The following  table sets forth the dollar amount of all loans,  before net
items,  due after one year from June 30, 1996 which have fixed interest rates or
which have floating or adjustable-interest rates.
<TABLE>
<CAPTION>
                                              Fixed       Floating or
                                              Rates    Adjustable-Rates    Total
                                                        (In Thousands)
<S>                                          <C>           <C>           <C>
Single-family residential ............       $39,743       $ 9,901       $49,644
Multi-family residential .............         3,980         1,317         5,297
Nonresidential real estate ...........         7,096           501         7,597
Construction .........................        10,090         1,542        11,632
Consumer .............................         1,312           902         2,214
Commercial business ..................           365          --             365
                                             -------       -------       -------
  Total ..............................       $62,586       $14,163       $76,749
                                             =======       =======       =======
</TABLE>












                                       4
<PAGE>
 
         Scheduled  contractual  principal  repayments do not reflect the actual
maturities of loans. The average  maturity of loans is  substantially  less than
their  average  contractual  terms  because of  prepayments  and, in the case of
conventional mortgage loans, due-on-sale clauses, which generally give Troy Hill
the right to declare a loan  immediately  due and  payable  in the event,  among
other things,  that the borrower sells the real property subject to the mortgage
and the loan is not repaid. The average life of mortgage loans tends to increase
when current mortgage loan rates are substantially higher than rates on existing
mortgage loans and,  conversely,  decrease when rates on existing  mortgages are
substantially  lower than current  mortgage loan rates (due to  refinancings  of
adjustable-rate  and  fixed-rate  loans  at  lower  rates).   Under  the  latter
circumstances,  the weighted average yield on loans decreases as higher yielding
loans are repaid or refinanced at lower rates.

         Origination, Purchase and Sale of Loans. The lending activities of Troy
Hill are subject to the written, non-discriminatory,  underwriting standards and
loan  origination  procedures  established by Troy Hill's Board of Directors and
management.  Loan  originations are obtained by a variety of sources,  including
referrals from real estate brokers,  developers,  builders,  existing customers,
newspaper,   radio,   periodical   advertising  and  walk-in   customers.   Loan
applications are taken by lending personnel,  and the loan department supervises
the obtainment of credit reports,  appraisals and other  documentation  involved
with a loan.  Property valuations are generally performed by independent outside
appraisers  approved  by Troy  Hill's  Board  of  Directors.  Title  and  hazard
insurance are required on all security property.

         Loan  applications are taken at either one of Troy Hill's offices.  All
loan  applications  are  required to be  approved by Troy Hill's Loan  Committee
which meets weekly.  In addition,  all loans  committed or approved by Troy Hill
are reported to the full Board of Directors and ratified by such Board.

         Historically,  Troy Hill has originated  substantially all of the loans
in its portfolio  and has held them until  maturity.  Nevertheless,  Troy Hill's
residential  loans are generally  made on terms,  conditions  and  documentation
which permit the sale to the Federal Home Loan Mortgage  Corporation  ("FHLMC"),
the Federal National  Mortgage  Association  ("FNMA"),  the Government  National
Mortgage Association ("GNMA") and other institutional investors in the secondary
market.  Since May 1993, Troy Hill has sold a majority of all long-term (over 15
years), fixed-rate single-family residential loans to institutional investors in
the  secondary  market as a means of  minimizing  interest  rate risk as well as
generating  additional  funds for lending and other purposes.  As of April 1996,
Troy Hill has increased its purchasing of loans with  maturities of less than 30
years  and its  selling  of long term (30  year)  loans.  Sales of loans to date
generally  have been under terms which do not provide any  recourse to Troy Hill
by the purchaser in the event of default on the loan by the borrower.












                                       5
<PAGE>
         At June 30, 1996,  loans purchased and serviced by others totalled $9.5
million.  Such loans  consist  primarily of seasoned  single-family  residential
loans, a substantial  portion of which are secured by properties located outside
of Troy Hill's primary market area.

         The following table shows total loans originated,  purchased,  sold and
repaid during the periods indicated.

<TABLE>
<CAPTION>
                                                       Year Ended June 30,
                                               1996          1995          1994
                                           --------      --------      --------
                                                       (In Thousands)
<S>                                        <C>           <C>           <C>
Loan originations:
  Single-family residential(1) .......     $ 20,660      $ 10,477      $ 12,432
  Multi-family residential ...........        5,368          --             517
  Nonresidential real estate .........        4,835         3,150           450
  Construction .......................       12,029        10,699        14,760
  Consumer ...........................        2,316         2,661         1,263
  Commercial business ................          382          --            --
                                           --------      --------      --------
    Total loans originated ...........       45,590        26,987        29,422
Purchases ............................         --             297          --
                                           --------      --------      --------
    Total loans originated
      and purchased ..................       45,590        27,284        29,422
Sales and loan principal
  reductions:
  Loans sold(2) ......................       (8,902)         (792)       (7,921)
  Loan principal reductions ..........      (15,507)      (11,918)      (24,227)
                                           --------      --------      --------
    Total loans sold and
      principal reductions ...........      (24,409)      (12,710)      (32,148)

Increase (decrease) due to
  other items, net ...................          (81)         (196)          (92)
                                           --------      --------      --------
Net increase (decrease) in
  loan portfolio(1) ..................     $ 21,100      $ 14,378      $ (2,818)
                                           ========      ========      ========
</TABLE>
---------------------
(1)      Includes loans originated for sale in the secondary market.

(2)      Consists solely of loans originated for sale in the secondary market.











                                       6
<PAGE>
         Real Estate Lending Standards.  Effective March 19, 1993, all financial
institutions  were  required to adopt and  maintain  comprehensive  written real
estate  lending  policies  that  are  consistent  with  safe and  sound  banking
practices.  These lending policies must reflect consideration of the Interagency
Guidelines  for Real Estate  Lending  Policies  adopted by the  federal  banking
agencies in December  1992  ("Guidelines").  The  Guidelines  set forth  uniform
regulations  prescribing  standards for real estate lending. Real estate lending
is defined as extension  of credit  secured by liens on interests in real estate
or made for the purpose of  financing  the  construction  of a building or other
improvements to real estate,  regardless of whether a lien has been taken on the
property.

         The policies must address certain lending  considerations  set forth in
the Guidelines,  including  loan-to-value  ("LTV") limits,  loan  administration
procedures,  underwriting standards,  portfolio  diversification  standards, and
documentation,  approval and reporting requirements. These policies must also be
appropriate  to the size of the  institution  and the  nature  and  scope of its
operations,  and must be reviewed  and  approved by the  institution's  board of
directors at least annually. The LTV ratio framework, with a LTV ratio being the
total  amount of credit to be  extended  divided by the  appraised  value of the
property  at the time the credit is  originated,  must be  established  for each
category of real estate loans.  If not a first lien, the lender must combine all
senior liens when calculating  this ratio.  The Guidelines,  among other things,
establish the following supervisory LTV limits: raw land (65%); land development
(75%);  construction   (commercial,   multi-family  and  nonresidential)  (80%);
improved property (85%) and one-to-four  family residential (owner occupied) (no
maximum ratio; however any LTV ratio in excess of 90% should require appropriate
insurance or readily marketable collateral).

         Single-Family  Residential  Real  Estate  Loans.  The  primary  lending
activity of Troy Hill is the  origination  of loans  secured  primarily by first
mortgage liens on existing  single-family  residences.  At June 30, 1996,  $50.6
million or 62.4% of Troy Hill's total loan portfolio  consisted of single-family
residential  real  estate  loans,  substantially  all of which are  conventional
loans.

         Historically,   the   single-family   residential   real  estate  loans
originated by Troy Hill have consisted  primarily of fixed-rate loans.  However,
such loans have  generally  been  originated  only under terms,  conditions  and
documentation which permit the sale thereof in the secondary market. At June 30,
1996,  approximately  $40.7  million  or  80.4% of the  permanent  single-family
residential loans in Troy Hill's loan portfolio consisted of loans which provide
for fixed rates of interest.  Although  these loans  provide for  repayments  of
principal  over a fixed period of up to 30 years,  it is Troy Hill's  experience
that such loans remain  outstanding for a substantially  shorter period of time.
Since May 1993,  Troy Hill has sold a majority of all long-term (over 15 years),
fixed-rate  single-family  residential  loans to institutional  investors in the
secondary market.










                                       7
<PAGE>
         As economic and market  conditions  permit,  Troy Hill has continued to
offer single-family  residential loans which provide for periodic adjustments to
the interest rate. The adjustable-rate  loans currently being originated by Troy
Hill have up to 30-year  terms and an interest  rate which adjusts every year in
accordance  with a designated  index (the weekly average yield on U.S.  Treasury
securities  adjusted  to a constant  comparable  maturity  of one year,  as made
available by the FRB).  There is a cap on the amount of any increase or decrease
in the interest rate per year, and various caps,  depending on when the loan was
originated,  on the amount which the interest rate can increase or decrease over
the life of the loan.  Certain of Troy Hill's  adjustable-rate  loans can,  upon
payment of a fee, be converted into  fixed-rate  loans during certain  specified
periods.  Troy Hill's  adjustable-rate  loans currently being originated are not
assumable and do not contain prepayment penalties.  Troy Hill has not engaged in
the practice of using a cap on the payments that could allow the loan balance to
increase rather than decrease, resulting in negative amortization.

         The demand for adjustable-rate loans in Troy Hill's primary market area
has been a function of several  factors,  including the level of interest rates,
the  expectations  of changes in the level of interest  rates and the difference
between  the  interest  rates and loan fees  offered  for  fixed-rate  loans and
adjustable-rate  loans.  The relative  amount of fixed-rate and  adjustable-rate
residential  loans that can be originated  at any time is largely  determined by
the demand for each in a competitive  environment.  Due to the  generally  lower
rates of interest  prevailing in recent  periods,  Troy Hill's  originations  of
adjustable-rate  loans as a percentage of total loans have decreased as consumer
preference for fixed-rate loans has increased.  At June 30, 1996,  approximately
19.6% of the  permanent  single-family  residential  loans in Troy  Hill's  loan
portfolio had adjustable interest rates.

         Troy Hill is permitted to lend up to 100% of the appraised value of the
real property  securing a  residential  loan  (referred to as the  loan-to-value
ratio);  however,  if the amount of a residential  loan originated or refinanced
exceeds 90% of the appraised value, Troy Hill is required by federal regulations
to obtain private mortgage insurance on the portion of the principal amount that
exceeds  80% of the  appraised  value  of the  security  property.  Pursuant  to
underwriting  guidelines adopted by the Board of Directors,  Troy Hill will lend
up to 95% of the  appraised  value  of the  property  securing  a  single-family
residential  loan, and generally  requires  borrowers to obtain private mortgage
insurance on the portion of the principal amount of the loan that exceeds 80% of
the appraised value of the security property.

         Property  appraisals on the real estate and improvements  securing Troy
Hill's  single-family  residential  loans  are  made by  independent  appraisers
approved  by Troy  Hill's  Board  of  Directors.  Appraisals  are  performed  in
accordance  with federal  regulations  and  policies.  Troy Hill  obtains  title
insurance  policies on the first  mortgage  real estate loans  originated by it.
Borrowers also must obtain hazard  insurance prior to closing and, when required
by the  United  States  Department  of  Housing  and  Urban  Development,  flood
insurance. Borrowers may be required to advance funds, with each monthly payment
of principal and interest,  to a loan escrow  account from which Troy Hill makes
disbursements  for  items  such as real  estate  taxes  and  mortgage  insurance
premiums as they become due.






                                       8
<PAGE>
         Multi-Family  Residential and  Nonresidential  Real Estate Loans.  Troy
Hill  originates  mortgage loans for the acquisition and refinancing of existing
multi-family residential and nonresidential real estate properties.  At June 30,
1996,  $5.3 or 6.5% of Troy  Hill's  total  loan  portfolio  consisted  of loans
secured by existing  multi-family  residential  real estate  properties and $7.6
million or 9.4% of such loan  portfolio  consisted of loans  secured by existing
nonresidential real estate properties. The $5.3 million increase in multi-family
residential  loans is primarily  due to Troy Hill  obtaining  higher  yields and
shorter terms on these loans providing a better investment.

         The majority of Troy Hill's multi-family  residential loans are secured
primarily by five to 20-unit  apartment  buildings,  while  nonresidential  real
estate  loans are  secured  primarily  by  office  buildings  and  small  retail
establishments. These types of properties constitute the majority of Troy Hill's
nonresidential real estate loan portfolio.  Troy Hill's multi-family residential
and  nonresidential  real  estate loan  portfolio  consists  primarily  of loans
secured by properties located in its primary market area.

         Although terms vary,  multi-family  residential and nonresidential real
estate loans  generally are amortized over a period of up to 20 years and mature
in 15 years or less.  Troy Hill will  originate  these  loans  either with fixed
interest  rates  or with  interest  rates  which  adjust  in  accordance  with a
designated  index,  which  generally is negotiated  at the time of  origination.
Loan-to-value ratios on Troy Hill's multi-family  residential and nonresidential
real estate loans are currently limited to 85% or lower. As part of the criteria
for underwriting  multi-family residential and nonresidential real estate loans,
Troy Hill  generally  imposes a specified  debt coverage ratio (the ratio of net
cash from operations before payment of debt service to debt service). It is also
Troy Hill's general  policy to obtain  personal  guarantees on its  multi-family
residential  and  nonresidential  real estate loans from the  principals  of the
borrower  and,  when  this  cannot  be  obtained,   to  impose  more   stringent
loan-to-value, debt service and other underwriting requirements.

         At  June  30,   1996,   Troy  Hill's   multi-family   residential   and
nonresidential  real estate loan portfolio  consisted of  approximately 17 loans
with an average principal balance of $312,000. At June 30, 1996, all but $78,000
of Troy Hill's  multi-family  residential and  nonresidential  real estate loans
were performing in accordance with their terms.

         Multi-family  residential,   and  nonresidential  real  estate  lending
entails   different  and  significant   risks  when  compared  to  single-family
residential  lending because such loans typically involve large loan balances to
single  borrowers and because the payment  experience on such loans is typically
dependent on the successful operation of the project or the borrower's business.
These risks can also be significantly  affected by supply and demand  conditions
in the local market for  apartments,  offices,  warehouses  or other  commercial
space.  Troy Hill  attempts to minimize its risk exposure by limiting the extent
of  the  nonresidential  lending  generally.  In  addition,  Troy  Hill  imposes
stringent  loan-to-value ratios, requires conservative debt coverage ratios, and
continually monitors the operation and physical condition of the collateral.








                                       9
<PAGE>

         Construction  Loans. In recent years,  Troy Hill has been  increasingly
active in originating  loans to construct  primarily  single-family  residences,
and, to a much  lesser  extent,  loans to acquire  and  develop  real estate for
construction of residential  properties.  These construction  lending activities
generally  are limited to Troy Hill's  primary  market  area.  At June 30, 1996,
construction  loans amounted to $13.7 million or 16.9% of Troy Hill's total loan
portfolio.  As of  such  date,  Troy  Hill's  portfolio  of  construction  loans
consisted solely of loans for the construction of single-family residences.

         Construction   loans  are  made  to  individuals  for  the  purpose  of
constructing  a  personal  residence  or  to  local  real  estate  builders  and
developers.  Troy Hill will  underwrite  construction  loans to individuals on a
construction/permanent mortgage loan basis. In addition,  approximately 28.8% of
total  outstanding  construction  loans at June 30, 1996 were made to local real
estate  builders  and  developers  for the  purpose  of  constructing  primarily
single-family  homes for which there were no  contracts  for sale at the time of
origination.  Upon  application,  credit  review and  analysis of  personal  and
corporate financial statements, Troy Hill may in the future grant local builders
with whom it has done business lines of credit up to designated  amounts.  These
credit  lines may be used for the purpose of  construction  of  speculative  (or
unsold) residential properties. Troy Hill will generally limit the dollar amount
of  speculative  construction  loans  made to any one  builder or  developer  to
$750,000. Troy Hill may also, on a case-by-case basis, grant a limited amount of
land acquisition loans.

         Troy  Hill  intends  to  continue  to  increase  its   involvement   in
construction lending within its primary market area. Such loans afford Troy Hill
the opportunity to increase the interest rate sensitivity of its loan portfolio.
Construction  lending is generally  considered to involve a higher level of risk
as compared to single-family  residential  lending,  due to the concentration of
principal in a limited  number of loans and borrowers and the effects of general
economic  conditions  on  real  estate  developers  and  managers.  Moreover,  a
construction  loan  can  involve   additional  risks  because  of  the  inherent
difficulty  in estimating  both a property's  value at completion of the project
and the estimated cost (including  interest) of the project. The nature of these
loans is such that they are generally more difficult to evaluate and monitor. In
addition,  speculative  construction  loans  to a  builder  are not  necessarily
pre-sold and thus pose a greater  potential risk to Troy Hill than  construction
loans to individuals on their personal residences.

         Troy Hill has attempted to minimize the foregoing risks by, among other
things,  limiting its construction lending primarily to residential  properties.
In  addition,  Troy  Hill  has  adopted  underwriting  guidelines  which  impose
stringent  loan-to-value  (85% with respect to  single-family  residential  real
estate and 80% with respect to multi-family  residential and nonresidential real
estate),  debt  service and other  requirements  for loans which are believed to
involve higher elements of credit risk, by limiting the geographic area in which
Troy  Hill  will do  business  and by  working  with  builders  with whom it has
established relationships.








                                       10
<PAGE>
         Consumer Loans. Troy Hill offers consumer loans,  although such lending
activity has not historically  been a large part of its business.  Troy Hill has
been originating consumer loans in recent years in order to provide a full range
of financial  services to its  customers and because such loans  generally  have
shorter terms and higher  interest rates than mortgage  loans. At June 30, 1996,
$3.3 million or 4.1% of Troy Hill's total loan  portfolio  consisted of consumer
loans.  The  consumer  loans  offered  by Troy  Hill  include  home  equity  and
improvement  loans,  deposit account secured loans and, to a much lesser extent,
automobile  loans.  Most of Troy  Hill's  consumer  loans  are  secured  and are
primarily obtained through existing and walk-in customers.

         In recent years, Troy Hill has placed increased emphasis on home equity
and improvement  loans,  which have increased from $1.3 million or 2.7% of total
loans  receivable  at June  30,  1994 to $3.2  million  or 3.9% of  total  loans
receivable  at June 30,  1996.  Troy Hill  intends to continue  to increase  its
origination of consumer loans, primarily home equity and improvement loans.
 
         Commercial  Business Loans.  At June 30, 1996,  $597,000 or .7% of Troy
Hill's total loan portfolio  consisted of commercial  lease  financings.  During
fiscal  1990,  Troy Hill began to purchase  participation  interests in pools of
leases of general  commercial  chattel from an  investment  consulting  and loan
servicing firm located in  Monroeville,  Pennsylvania.  Such  commercial  leases
consisted  generally of furniture and equipment financing loans. Such commercial
leases  generally had shorter terms and higher  interest rates than  traditional
mortgage  loans but also  involved a higher  level of credit risk because of the
type and  nature of the  collateral  and,  in  certain  cases,  the  absence  of
collateral. In most cases, any repossessed collateral for a defaulted commercial
lease will not  provide an  adequate  source of  repayment  because of  improper
repair and maintenance of the underlying  security.  Troy Hill ceased purchasing
such   participation   interests   in  fiscal  1992  based  on  an  increase  in
delinquencies  with  respect  to  some  of the  pools  and  because  some of the
participation  interests in pools it had acquired  began to sustain some losses.
At June 30, 1996,  $147,000 of such commercial  lease financings were delinquent
60 days or more.  As of the third  quarter  1996,  Troy Hill began  granting and
underwriting its own commercial lease loans.

         Loan Fee Income.  In addition  to interest  earned on loans,  Troy Hill
receives   income  from  fees  in  connection  with  loan   originations,   loan
modifications, late payments, prepayments and for miscellaneous services related
to its loans. Income from these activities varies from period to period with the
volume and type of loans made and competitive conditions.

         Troy Hill  charges  loan  origination  fees which are  calculated  as a
percentage of the amount borrowed.  Loan origination and commitment fees and all
incremental  direct loan origination  costs are deferred and recognized over the
contractual  remaining  lives  of the  related  loans  on a level  yield  basis.
Discounts and premiums on loans  purchased are accrued and amortized in the same
manner.  In  accordance  with SFAS No. 91,  Troy Hill has  recognized  $141,000,
$169,000 and $250,000 of amortized deferred loan fees in income during the years
ended June 30, 1996, 1995 and 1994, respectively.







                                        
                                       11
<PAGE>
Asset Quality

         General.  When a borrower  fails to make a required  payment on a loan,
Troy Hill attempts to cure the deficiency by contacting the borrower and seeking
payment.  Contacts are  generally  made on the  twentieth day after a payment is
due. In most cases,  deficiencies are cured promptly.  If a delinquency  extends
beyond 20 days, the loan and payment history is reviewed and efforts are made to
collect the loan.  While Troy Hill  generally  prefers to work with borrowers to
resolve such problems,  when the account becomes 90 days  delinquent,  Troy Hill
does institute foreclosure or other proceedings,  as necessary,  to minimize any
potential loss.

         Loans  are  placed on  non-accrual  status  when,  in the  judgment  of
management,   the  probability  of  collection  of  interest  is  deemed  to  be
insufficient  to warrant further  accrual.  When a loan is placed on non-accrual
status, previously accrued but unpaid interest is deducted from interest income.
As a matter of policy,  Troy Hill does not accrue  interest on loans past due 90
days or more except when the estimated  value of the  collateral  and collection
efforts are deemed sufficient to ensure full recovery.
 
         Real  estate  acquired  by Troy Hill as a result of  foreclosure  or by
deed-in-lieu  of  foreclosure  are  classified  as real estate owned until sold.
Pursuant  to a  statement  of  position  ("SOP  92-3")  issued  by the  American
Institute of Certified Public Accountants in April 1992, which provides guidance
on  determining  the balance  sheet  treatment  of  foreclosed  assets in annual
financial  statements for periods ending on or after December 15, 1992, there is
a  rebuttable  presumption  that  foreclosed  assets  are held for sale and such
assets are  recommended to be carried at the lower of fair value minus estimated
costs to sell the property,  or cost  (generally  the balance of the loan on the
property at the date of acquisition).  After the date of acquisition,  all costs
incurred in  maintaining  the property  are expenses and costs  incurred for the
improvement or development of such property are  capitalized up to the extent of
fair value.  Troy Hill's  accounting for its real estate owned complies with the
guidance set forth in SOP 92-3.
























                                       12
<PAGE>
     Delinquent  Loans.  The following table sets forth  information  concerning
delinquent  loans at June 30, 1996 in dollar  amount and as a percentage of Troy
Hill's  total  loan  portfolio.   The  amounts  presented  represent  the  total
outstanding  principal  balances  of the related  loans,  rather than the actual
payment amounts which are past due.

<TABLE>
<CAPTION>
                                   Single-family               Multi-family                Nonresidential             
                                    Residential                 Residential                 Real Estate              Construction   
                               --------------------         --------------------        -------------------     --------------------
                               Amount    Percentage         Amount    Percentage        Amount   Percentage     Amount    Percentage
                               ------    ----------         ------    ----------        ------   ----------     ------    ----------
                                                                 (Dollars in Thousands)
<S>                          <C>              <C>           <C>          <C>           <C>         <C>          <C>            <C>  
Loans delinquent for:

  30-59 days                 $   1,278        1.58%         $    --        -- %        $   --         -- %      $    --         --% 
  60-89 days                        61         .08               --        --              --         --            184        .23  
  90 days and over                 714         .88              105       .13              --         --             --             
                             ---------       -----          -------      ----          -------      -----            --        ---  
    Total delinquent loans   $   2,053        2.54%         $   105       .13%         $    --        -- %      $   184        .23% 
                             =========       =====          =======      ====          =======      =====       =======        ===  

                                                           Commercial                        
                                    Consumer                Business                  Total                                 
                                -------------------    -------------------      --------------------   
                                                       (Dollars in Thousands)
                                Amount   Percentage    Amount   Percentage      Amount    Percentage  
                                ------   ----------    ------   ----------      ------    ----------
<S>                              <C>      <C>         <C>          <C>        <C>            <C>                                  
Loans delinquent for:       
                          
  30-59 days                     $20       .02%       $    4       .01%       $  1,302       1.61%         
  60-89 days                      35       .04            29       .04             309        .39      
  90 days and over                24       .03           146       .18             989       1.22      
                                 ---       ----       ------       ----       --------       ----      
    Total delinquent loans       $79       .09%       $  179       .23%       $  2,600       3.22%     
                                 ===     =====        ======       ===        ========       ====      
</TABLE>


















                                       13
<PAGE>
     Non-Performing  Assets.  The  following  table sets forth the  amounts  and
categories of Troy Hill's  non-performing  assets at the dates  indicated.  Troy
Hill  did  not  have  any  troubled  debt  restructurings  at any  of the  dates
presented.
<TABLE>
<CAPTION>
                                                               June 30,
                                                     1996        1995     1994
                                                     ----        ----     ----
                                                        (Dollars in Thousands)
<S>                                                  <C>       <C>       <C>
Non-accruing loans:
  Single-family residential ......................   $ --      $  110    $ --
  Multi-family residential .......................     --          --      --
  Nonresidential real estate .....................     --          --      104
  Construction ...................................     --          --      --
  Consumer .......................................     24          --      --
  Commercial business ............................    146         224      461
                                                     ----      ------    -----
      Total non-accruing loans ...................    170         334      565

Accruing loans greater than 90 days delinquent:
  Single-family residential ......................    714       1,541      708
  Multi-family residential .......................    105         112      --
  Nonresidential real estate .....................     --          --      --
  Construction ...................................     --          --      --
  Consumer .......................................     --           1      14
  Commercial business ............................     --          --      --
                                                     ----      ------   -----
    Total accruing loans greater
      than 90 days delinquent ....................    819       1,654     722

    Total non-performing loans ...................    989       1,988   1,287

Real estate owned ................................    462         329      16
                                                     ----      ------   -----
    Total non-performing assets .................  $1,451      $2,317  $1,303
                                                   ======      ======  ======

    Total non-performing loans as a
      percentage of total loans (1) ..............   1.22%       3.39%   2.67%
                                                     ====        ====    ==== 
    Total non-performing assets as a
      percentage of total assets .................   1.57%       3.09%   2.18%
                                                     ====        ====    ====
</TABLE>

(1)      Includes loans classified as held for sale.










                                       14
<PAGE>
     During the years ended June 30, 1996, 1995 and 1994 approximately  $23,000,
$41,000 and $54,000, respectively, of interest would have been recorded on loans
accounted for on a non-accrual basis if such loans had been current according to
the original  loan  agreements  for the entire  period.  These  amounts were not
included in Troy Hill's interest income for the respective  periods.  The amount
of  interest  income on loans  accounted  for on a  non-accrual  basis and loans
greater  than 90 days past due and still  accruing  that was  included in income
during the same periods amounted to approximately  $52,000,  $6,000 and $13,000,
respectively.

         Classified  Assets.  Federal  regulations  require  that  each  insured
savings  association  classify its assets on a regular  basis.  In addition,  in
connection with  examinations of insured  institutions,  federal  examiners have
authority to identify  problem assets and, if appropriate,  classify them. There
are three  classifications  for problem  assets:  "substandard,"  "doubtful" and
"loss."  Substandard  assets  have  one  or  more  defined  weaknesses  and  are
characterized  by the distinct  possibility  that the insured  institution  will
sustain some loss if the  deficiencies  are not corrected.  Doubtful assets have
the weaknesses of substandard assets with the additional characteristic that the
weaknesses  make  collection or  liquidation  in full, on the basis of currently
existing  facts,  conditions,  and  values,  questionable,  and  there is a high
possibility of loss. An asset classified loss is considered uncollectible and of
such  little  value  that  continuance  as an  asset of the  institution  is not
warranted.   Another  category   designated   "special  mention"  also  must  be
established  and maintained for assets which do not currently  expose an insured
institution  to a  sufficient  degree  of  risk  to  warrant  classification  as
substandard, doubtful or loss.

         At  June  30,  1996,  Troy  Hill  had  $988,000  of  assets  classified
substandard,  no assets  classified  doubtful,  $177,000 of assets classified as
loss and no assets classified special mention.

         Allowance for Loan and Lease Losses. Troy Hill's policy is to establish
reserves for estimated  losses on delinquent loans and leases when it determines
that losses are expected to be incurred on such loans and leases.  The allowance
for losses on loans and leases is  maintained  at a level  believed  adequate by
management  to  absorb   potential   losses  in  the   portfolio.   Management's
determination  of the adequacy of the allowance is based on an evaluation of the
portfolio, past loss experience, current economic conditions, volume, growth and
composition  of the  portfolio,  and other  relevant  factors.  The allowance is
increased by  provisions  for loan and lease  losses  which are charged  against
income.

         Effective December 21, 1993, the OTS, in conjunction with the Office of
the  Comptroller  of the Currency,  the FDIC and the FRB,  issued an Interagency
Policy   Statement  on  the  Allowance  for  Loan  and  Lease  Losses   ("Policy
Statement").  The Policy Statement,  which  effectively  superseded the proposed
guidance   issued  on   September  1,  1992,   includes   guidance  (i)  on  the
responsibilities  of  management  for the  assessment  and  establishment  of an
adequate allowance and (ii) for the agencies' examiners to use in evaluating the
adequacy  of  such  allowance  and  the  policies  utilized  to  determine  such
allowance.  The Policy Statement also sets forth  quantitative  measures for the
allowance with respect to assets  classified  substandard  and doubtful and with
respect  to  the  remaining   portion  of  an   institution's   loan  portfolio.
Specifically,  the  Policy  Statement  sets  forth  the  following  quantitative



                                       15
<PAGE>
measures  which  examiners  may  use  to  determine  the  reasonableness  of  an
allowance: (i) 50% of the portfolio that is classified doubtful; (ii) 15% of the
portfolio  that is  classified  substandard;  and (iii) for the  portions of the
portfolio that have not been  classified  (including  loans  designated  special
mention), estimated credit losses over the upcoming twelve months based on facts
and  circumstances  available on the evaluation date. While the Policy Statement
sets forth this quantitative measure, such guidance is not intended as a "floor"
or "ceiling."

         The following table sets forth an analysis of Troy Hill's allowance for
loan and lease losses during the periods indicated.
<TABLE>
<CAPTION>

                                                      Year Ended June 30,
                                               1996          1995        1994
                                               ----          ----        ----
                                                    (Dollars in Thousands)
<S>                                         <C>          <C>          <C>

Total loans outstanding .................   $ 81,091     $ 58,311     $ 48,177
                                            ========     ========     ========

Average net loans outstanding ...........   $ 61,934     $ 46,194     $ 39,489
                                            ========     ========     ========

Balance at beginning of period ..........   $    667     $    700     $    629

Charge-offs .............................       (227)         (43)          (9)

Recoveries ..............................       --           --           --
                                            --------     --------     --------

Net charge-offs .........................       (227)         (43)          (9)

Provision for loan and lease losses .....        220           10           80
                                            --------     --------     --------

Balance at end of period ................   $    660     $    667     $    700
                                            ========     ========     ========

Allowance for loan and lease losses as a
  percent of total loans outstanding ....       0.81%        1.14%        1.45%
                                            ========     ========     ========

Ratio of net charge-offs to average loans
  outstanding ...........................       0.37%        0.09%        0.02%
                                            ========     ========     ========
</TABLE>









                                       16
<PAGE>
         The following table sets forth information concerning the allocation of
Troy Hill's  allowance  for loan and lease losses by loan  category at the dates
indicated.
<TABLE>
<CAPTION>

                                                                        June 30,
                                              1996                       1995                        1994
                                       -----------------------   -----------------------    ---------------------------
                                                   Percent of                Percent of                   Percent of
                                                     Loan to                   Loan to                   Loans to Total
                                       Amount      Total Loans    Amount     Total Loans     Amount          Loans
                                       ------      -----------    ------     -----------     ------          -----
                                                                 (Dollars in Thousands)
<S>                                  <C>             <C>         <C>           <C>            <C>            <C>

Single-family residential            $   315          62.38%     $  278         66.47%        $168            61.00%
Multi-family residential                  10           6.53          --          0.91           --             1.18
Nonresidential real estate                20           9.42          --          7.18           --             2.53
Construction                             150          16.87         158         19.94          119            30.20
Consumer                                  20           4.06          15          4.59            5             2.94
Commercial business                      145           0.74         216          0.91          408             2.15
                                     -------         ------      -------       ------         ----           ------     
        Total                        $   660         100.00%     $  667        100.00%        $700           100.00%
                                     =======         ======      ======        ======         ====           ======
</TABLE>

         Management of Troy Hill  believes that the reserves it has  established
are  adequate  to cover any  potential  losses in the  Company's  loan and lease
portfolio.  However, future adjustments to these reserves may be necessary,  and
the Company's results of operations could be adversely affected if circumstances
differ  substantially  from the  assumptions  used by  management  in making its
determinations in this regard.

Mortgage-Backed Securities

         Troy Hill invests in a portfolio of  mortgage-backed  securities  which
are insured or guaranteed by the FHLMC, the FNMA and/or the GNMA. To a much more
limited extent,  Troy Hill also invests in collateralized  mortgage  obligations
("CMOs"), which are securities  collateralized by FNMA and FHLMC mortgage-backed
securities.  Mortgage-backed  securities  and CMOs  increase the quality of Troy
Hill's assets by virtue of the  guarantees  that back them, are more liquid than
individual  mortgage loans and may be used to collateralize  borrowings or other
obligations of Troy Hill.

         Mortgage-backed  securities  typically are issued with stated principal
amounts,  and the  securities  are backed by pools of mortgages  that have loans
with  interest  rates that are within a range and have varying  maturities.  The
underlying pool of mortgages,  i.e., fixed- rate or adjustable-rate,  as well as
prepayment  risk,  are  passed  on to the  certificate  holder.  The  life  of a
mortgage-backed   pass-through  security  thus  approximates  the  life  of  the
underlying mortgages.






                                       17
<PAGE>
         As discussed  above,  Troy Hill's  mortgage-backed  securities  include
CMOs, which include securities issued by entities which have qualified under the
Internal  Revenue Code of 1986,  as amended  ("Code"),  as Real Estate  Mortgage
Investment Conduits  ("REMICs").  CMOs and REMICs  (collectively CMOs) have been
developed in response to investor  concerns  regarding the  uncertainty  of cash
flows associated with the prepayment option of the underlying  mortgagor and are
typically issued by governmental agencies,  government sponsored enterprises and
special  purpose  entities,  such  as  trusts,   corporations  or  partnerships,
established by financial  institutions or other similar institutions.  A CMO can
be  collateralized by loans or securities which are insured or guaranteed by the
FNMA,  the  FHLMC or the  GNMA.  In  contrast  to  pass-through  mortgage-backed
securities, in which cash flow is received pro rata by all security holders, the
cash  flow  from  the  mortgages  underlying  a CMO is  segmented  and  paid  in
accordance  with a  predetermined  priority  to  investors  holding  various CMO
classes. By allocating the principal and interest cash flows from the underlying
collateral  among the  separate  CMO  classes,  different  classes  of bonds are
created, each with its own stated maturity,  estimated average life, coupon rate
and prepayment characteristics.

         At June 30,  1996,  the carrying  value of Troy Hill's  mortgage-backed
securities amounted to $5.2 million, which represented 5.6% of Troy Hill's $92.2
million  of total  assets at that  date.  All of Troy  Hill's  $5.2  million  of
mortgage-backed  securities at June 30, 1996 was directly or indirectly  insured
or  guaranteed  by  federal  agencies,  and $1.3  million  or 25.0% of the total
portfolio  had fixed  rates of interest  and $3.9  million or 75.0% of the total
portfolio had adjustable rates of interest.

         The   following   table  sets  forth  the   activity   in  Troy  Hill's
mortgage-backed securities portfolio during the periods indicated.

<TABLE>
<CAPTION>
                                               At or For the Year Ended June 30,
                                               ---------------------------------
                                                 1996        1995        1994
                                                 ----        ----        ----
                                                      (Dollars in Thousands)
<S>                                            <C>         <C>         <C>
Mortgage-backed securities at beginning
  of period ................................   $ 7,069     $ 5,902     $ 3,254
Purchases ..................................      --         3,357       4,345
Sales ......................................      (937)     (1,615)       (250)
Repayments .................................    (1,014)       (691)     (1,442)
Amortization of premiums ...................        (5)         (2)         (5)
Market value adjustment ....................        42         118        --
                                               -------     -------     -------
Mortgage-backed securities at end of
  period(1) ................................   $ 5,155     $ 7,069     $ 5,902
                                               =======     =======     =======

Weighted average yield at end of period ....      6.98%       6.85%       5.86%

</TABLE>
     (1) At June 30, 1996, 1995 and 1994, included $5,155,  $7,069 and $5,902 of
mortgage-backed securities classified as available for sale.



                                       18
<PAGE>
     As of June 30,  1996,  all of Troy Hill's $5.2  million of  mortgage-backed
securities  with a weighted  average  yield of 6.98% are  scheduled to mature in
over  ten  years.  Due  to  prepayments  of the  underlying  loans,  the  actual
maturities  of  mortgage-backed  securities  are  substantially  less  than  the
scheduled maturities.

Investment Securities

         Troy Hill  invests  in  various  types of  securities,  including  U.S.
Government  and agency  securities,  securities  of various  state and municipal
agencies and corporate obligations.

         Troy Hill's investment securities portfolio is managed by the Treasurer
of  Troy  Hill  in  accordance  with a  comprehensive  investment  policy  which
addresses  strategies,  types and levels of allowable  investments  and which is
reviewed  and  approved  by the  Board of  Directors  on an  annual  basis.  The
management of the  investment  securities  portfolio is set in  accordance  with
strategies developed by Troy Hill's Asset and Liability Committee.
 
     The following table sets forth certain information  relating to Troy Hill's
investment securities portfolio at the dates indicated.
<TABLE>
<CAPTION>

                                                                                          June 30,
                                                      ------------------------------------------------------------------------------
                                                               1996                         1995                        1994
                                                      ---------------------        ---------------------       ---------------------
                                                      Carrying       Market        Carrying       Market       Carrying       Market
                                                        Value         Value          Value         Value         Value        Value
                                                        -----         -----          -----         -----         -----        -----
                                                                                      (In Thousands)
<S>                                                     <C>           <C>           <C>           <C>           <C>           <C>
Held-to-Maturity:

U.S. agency securities .........................        $ --          $ --          $2,843        $2,737        $6,017        $5,861
Obligations of state and political
  subdivisions .................................          --            --           4,200         4,161         3,700         3,583
Corporate bonds ................................          --            --             258           236           258           244
                                                        ------        ------        ------        ------        ------        ------
Available-for-Sale: ............................          --            --           7,301         7,134         9,975         9,688
                                                        ------        ------        ------        ------        ------        ------
U.S. agency securities .........................         2,452         2,452         1,012         1,012          --            --
                                                        ------        ------        ------        ------        ------        ------
  Total investment securities ..................        $2,452        $2,452        $8,313        $8,146        $9,975        $9,688
                                                        ======        ======        ======        ======        ======        ======
</TABLE>











                                       19
<PAGE>
        Information  regarding the carrying values,  contractual  maturities and
weighted average yield of Troy Hill's  investment  securities  portfolio at June
30, 1996 is presented below.
<TABLE>
<CAPTION>

                                                                                       At June 30, 1996
                                                            ----------------------------------------------------------------------
                                                            One Year     After One to     After Five to      Over 10
                                                            or Less       Five Years        10 Years          Years          Total
                                                            -------       ----------        --------          -----          -----
                                                                                     (Dollars in Thousands)

<S>                                                        <C>              <C>             <C>             <C>             <C>
U.S. agency securities ............................        $   --           $ 1,247         $ 1,205         $  --           $ 2,452
Collateralized mortgage obligations ...............            --              --              --               489             489
Mortgage-backed securities ........................            --              --              --             4,666           4,666
Corporate equity securities .......................            --              --               258           3,866           4,124
                                                           --------         -------         -------         -------         -------
    Total .........................................        $   --           $ 1,247         $ 1,463         $ 9,021         $11,731
                                                           ========         =======         =======         =======         =======
Weighted average yield ............................            0.00%           4.51%           6.33%           7.29%           6.92%
                                                           ========         =======         =======         =======         =======
</TABLE>
Sources of Funds

        General.  Troy Hill's  principal  source of funds for use in lending and
for other  general  business  purposes  has  traditionally  come  from  deposits
obtained  through  Troy  Hill's  office.  Troy  Hill  also  derives  funds  from
amortization   and   prepayments  of  outstanding   loans  and   mortgage-backed
securities,  from sales of loans, from maturing  investment  securities and from
advances from the FHLB of Pittsburgh.  Loan  repayments are a relatively  stable
source  of  funds,   while  deposits  inflows  and  outflows  are  significantly
influenced by general interest rates and money market conditions. Borrowings may
be used on a short-term  basis to compensate for reductions in the  availability
of funds from other  sources.  They may also be used on a longer  term basis for
general business purposes.

        Deposits.   Troy  Hill's  current  deposit   products  include  passbook
accounts,  negotiable order of withdrawal ("NOW") accounts, money market deposit
accounts,  and  certificates  of  deposit  ranging in terms from 180 days to ten
years. Included among these deposit products are $1.9 million of certificates of
deposit with balances of $100,000 or more, which amounted to 3.5% of Troy Hill's
total  deposits at June 30,  1996.  Troy Hill's  deposit  products  also include
Individual Retirement Account certificates ("IRA certificates").

        Troy Hill's  deposits are obtained  primarily from residents of northern
Allegheny County, Pennsylvania.  Troy Hill attracts deposit accounts by offering
a wide variety of accounts,  competitive  interest rates, and convenient service
hours. Troy Hill utilizes traditional marketing methods to attract new customers
and savings  deposits,  including print media  advertising and direct  mailings.
Troy Hill does not  advertise  for deposits  outside of its local market area or
utilize  the  services  of deposit  brokers,  and  management  believes  that an
insignificant   number  of  deposit  accounts  were  held  by  non-residents  of
Pennsylvania at June 30, 1996.



                                       20
<PAGE>
        Troy Hill has been  competitive in the types of accounts and in interest
rates it has offered on its deposit  products but does not  necessarily  seek to
match the highest  rates paid by competing  institutions.  With the  significant
decline in interest rates paid on deposit  products,  Troy Hill has  experienced
disintermediation  of deposits into  competing  investment  products.  Troy Hill
intends to  continue  its efforts to attract  deposits as a principal  source of
funds for  supporting  its lending and investment  activities.  Although  market
demand generally dictates which deposit maturities and rates will be accepted by
the public, Troy Hill intends to continue to promote longer term deposits to the
extent possible and consistent with its asset and liability management goals.

        The  following  tables  sets forth the dollar  amount of deposits in the
various types of deposit programs offered by Troy Hill at the dates indicated.
<TABLE>
<CAPTION>


                                                                       June 30,
                                     ------------------------------------------------------------------------------
                                             1996                        1995                        1994
                                      ----------------------      ----------------------     ----------------------
                                      Amount      Percentage      Amount      Percentage     Amount      Percentage
                                      ------      ----------      ------      ----------     ------      ----------
                                                              (  Dollars in Thousands)
<S>                                 <C>              <C>         <C>             <C>         <C>              <C>
Certificate accounts:
2.00 - 4.00%                        $     16          0.03%      $ 1,162          2.30%      $11,180          26.36%
4.01 - 6.00%                          25,614         47.47        14,724         29.09         7,572          17.85
6.01 - 8.00%                           9,464         17.54        15,214         30.06         1,897           4.47
8.01 - 10.00%                             30          0.05           610          1.21           918           2.16
Greater than 10.00%                       --            --            43          0.08           145           0.34
                                    --------         -----       -------         -----       -------          -----

Total certificate accounts            35,124         65.09        31,753         62.74        21,712          51.18

Transaction accounts:

Passbook accounts                     12,276         22.75        12,629         24.95        14,710          34.69
Money market accounts                  2,359          4.37         3,542          5.31         3,105           7.32
NOW accounts                           4,201          7.79         2,686          7.00         2,883           6.81
                                    --------         -----       -------         -----       -------          -----

Total transaction accounts            18,836         34.91        18,857         37.26        20,698          48.82
                                    --------         -----       -------         -----       -------          -----

Total deposits                       $53,960       100.00%       $50,610        100.00%      $42,410        100.00%
                                     =======       ======        =======        ======       =======        ======
</TABLE>










                                       21
<PAGE>
        The  following  table sets  forth the  savings  activities  of Troy Hill
during the periods indicated.

<TABLE>
<CAPTION>
                                                       Year Ended June 30,
                                               --------------------------------
                                                 1996        1995        1994
                                               --------    --------    --------
                                                          (In Thousands)
<S>                                            <C>         <C>         <C>
Deposits ...................................   $ 69,788    $ 57,230    $ 69,303

Withdrawals ................................    (68,468)    (50,583)    (74,912)
                                               --------    --------    --------

  Net increase (decrease) before
    interest credited ......................      1,320       6,647      (5,609)

Interest credited ..........................      2,030       1,553       1,294
                                               --------    --------    --------

  Net increase (decrease) in deposits ......   $  3,350    $  8,200    $ (4,315)
                                               ========    ========    ========
</TABLE>
        The following table shows the interest rate and maturity information for
Troy Hill's certificates of deposit at June 30, 1996.
<TABLE>
<CAPTION>
                                                             Maturity Date
                              ---------------------------------------------------------------------------
                              One Year          Over             Over             Over
                               or Less        1-2 Years        2-3 Years         3 Years           Total
                               -------        ---------        ---------         -------           -----
                                                              (In Thousands)
<S>                           <C>             <C>               <C>              <C>             <C>
 2.00 -  4.00%                $    16         $    --           $   --           $   --          $     16
 4.01 -  6.00%                 19,544           3,034            2,850              186            25,614
 6.01 -  8.00%                  2,039           5,639               --             1786             9,464
 8.01 - 10.00%                     --              --               30               --                30
 Greater than 10.00%               --              --               --               --                --
                              -------         -------            -----            -----          --------        
  Total                       $21,599         $ 8,673            2,880            1,972          $ 35,124
                              =======         =======           ======           ======          ========
</TABLE>













                                       22
<PAGE>
        The   following   table  sets  forth  the   maturities  of  Troy  Hill's
certificates of deposit having principal amounts of $100,000 or more at June 30,
1996.
<TABLE>
<CAPTION>

Certificates of deposit maturing in quarter ending:
                                                                (In Thousands)
<S>                                                                <C>
      September 30, 1996 .....................................     $  501
      December 31, 1996 ......................................        200
      March 31, 1997 .........................................        --
      June 30, 1997 ..........................................        --
      After June 30, 1997 ....................................      1,157
                                                                   ------

Total certificates of deposit with
  balances of $100,000 or more ...............................     $1,858
                                                                   ======
</TABLE>
        Borrowings.  Troy Hill may obtain  advances  from the FHLB of Pittsburgh
upon the  security  of the common  stock it owns in that bank and certain of its
residential  mortgage  loans,  provided  certain  standards  related  to  credit
worthiness  have been met.  Such  advances are made  pursuant to several  credit
programs, each of which has its own interest rate and range of maturities.  Such
advances are  generally  available to meet  seasonal  and other  withdrawals  of
deposit  accounts and to permit increased  lending.  At June 30, 1996, Troy Hill
had $18.6 million of advances from the FHLB of Pittsburgh.

        The following table sets forth the maximum month-end balance and average
balance of Troy Hill's FHLB advances during the periods indicated.
<TABLE>
<CAPTION>
                                                       Year Ended June 30,
                                                1996          1995        1994
                                                ----          ----        ----
                                                     (Dollars in Thousands)
<S>                                           <C>          <C>          <C>
Maximum Balance .........................     $18,583      $ 7,500      $ 4,000
Average Balance .........................       9,695        3,978        3,083
Weighted average interest rate
  of FHLB advances during period ........        6.06%        6.20%        6.00%

</TABLE>
        The  following  table sets forth certain  information  as to Troy Hill's
FHLB advances at the dates indicated.
<TABLE>
<CAPTION>
                                                           June 30,
                                             ----------------------------------
                                               1996          1995         1994
                                               ----          ----         ----
                                                    (Dollars in Thousands)
<S>                                      <C>            <C>           <C>
FHLB Advances .......................    $   18,583     $   5,750     $   3,000
Interest rate on FHLB advances ......          5.78%         6.05%         6.17%
</TABLE>

                                       23
<PAGE>
Competition

        Troy Hill faces significant competition in attracting deposits. Its most
direct  competition for deposits has historically come from commercial banks and
other  savings  institutions  located  in  its  market  area.  Troy  Hill  faces
additional  significant  competition  for investors'  funds from other financial
intermediaries.   Troy  Hill  competes  for  deposits  principally  by  offering
depositors a variety of deposit  programs,  convenient hours and other services.
Troy Hill  does not rely upon any  individual  group or  entity  for a  material
portion of its deposits.

        Troy Hill's  competition  for real estate loans comes  principally  from
mortgage banking  companies,  other savings  institutions,  commercial banks and
credit unions.  Troy Hill competes for loan  originations  primarily through the
interest rates and loan fees it charges,  the efficiency and quality of services
it provides borrowers,  referrals from real estate brokers and builders, and the
variety of its products.  Factors which affect  competition  include the general
and local economic  conditions,  current  interest rate levels and volatility in
the mortgage markets.  Troy Hill holds only a small portion of the large deposit
and lending  market it shares with many other  financial  institutions,  many of
whom are much  larger,  offer a wider array of products  and  services  and have
substantially greater resources available as compared to Troy Hill.

        FIRREA eliminated many of the distinctions  between commercial banks and
savings institutions and holding companies and allowed bank holding companies to
acquire savings  institutions.  FIRREA has generally  resulted in an increase in
the  competition  encountered  by savings  institutions  and has  resulted  in a
decrease in both the number of savings  institutions  and the aggregate  size of
the savings industry.

Employees

        Troy Hill had 18 full-time  employees and two part-time  employees as of
June 30, 1996. None of these employees is represented by a collective bargaining
agent. Troy Hill believes that it enjoys good relations with its personnel.

Subsidiaries

        As of June 30, 1996, Troy Hill had one subsidiary,  THF, Inc.,  which is
currently inactive. At June 30, 1996, THF, Inc.'s sole asset was $6,000 in cash.

Recent Accounting Pronouncements

        In  March  1995,  the FASB  issued  SFAS No.  121,  "Accounting  for the
Impairment of Long-Lived  Assets and for  Long-Lived  Assets to Be Disposed of."
SFAS No. 121 establishes  accounting  standards for the impairment of long-lived
assets, certain identifiable intangibles and goodwill related to those assets to
be held and used and for long-lived assets and certain identifiable  intangibles
to be disposed of. The standard  requires an  impairment  loss to be  recognized
when the carrying  amount of the asset exceeds the fair value of the asset.  The
fair value of an asset is the amount at which the asset could be brought or sold
in a current  transaction  between  willing  parties,  that is,  other than in a
forced  liquidation  sale. An entity that  recognizes  an impairment  loss shall
disclose  additional  information  in th  financial  statements  related  to the
impaired asset. All long-lived assets and certain identifiable intangibles to be



                                       24
<PAGE>
disposed of and for which  management  has committed to a plan to dispose of the
assets,  whether by sale or  abandonment,  shall be reported at the lower of the
carrying  amount  or fair  value  less  cost to sell.  Subsequent  revisions  in
estimates  of fair value less cost to sell shall be reported as  adjustments  to
the  carrying  amount of assets to be disposed  of,  provided  that the carrying
amount of the asset does not exceed the  carrying  amount of the asset before an
adjustment  was made to reflect  the  decision  to  dispose  of the  asset.  The
statement requires additional disclosure in the footnotes regarding assets to be
disposed of.

        In  October  1995,  the  FASB  issued  SFAS  No.  123,  "Accounting  for
Stock-Based  Compensation,"  establishing  financial  accounting  and  reporting
standards for stock-based employee compensation plans. This statement encourages
all entities to adopt a new method of accounting to measure compensation cost of
all employee stock  compensation  plans based on the estimated fair value of the
award at the date it is granted.  Companies are, however, allowed to continue to
measure compensation cost for those plans using the intrinsic value based method
of  accounting,   which  generally  does  not  result  in  compensation  expense
recognition  for most plans.  Companies  that elect to remain with the  existing
accounting  are required to disclose in a footnote to the  financial  statements
pro forma net income and, if presented, earnings per share, as if this Statement
had been adopted.  The accounting  requirements  of this Statement are effective
for  transactions  entered into fiscal years that begin after December 15, 1995;
however,  companies are required to disclose  information  for awards granted in
their first fiscal year  beginning  after  December 15, 1994.  Management of the
Savings  Bank has not  completed  an analysis of the  potential  effects of this
Statement on the Savings Bank's financial condition or results of operations.

        In June 1996,  the FASB issued SFAS No. 125,  "Accounting  for Transfers
and Servicing of Financial Assets and  Extinguishment of Liabilities."  Pursuant
to SFAS No.  125,  after a transfer  of  financial  assets,  an entity  would be
required to  recognize  all  financial  assets and  servicing  it  controls  and
liabilities it has incurred and, conversely,  would not be required to recognize
financial  assets  when  control  has  been  surrendered  and  liabilities  when
extinguished.  SFAS No. 125 provides standards for  distinguishing  transfers of
financial assets that are sales from transfers that are secured borrowings. SFAS
No.  125 will be  effective  with  respect  to the  transfer  and  servicing  of
financial assets and the extinguishement of liabilities  occuring after December
31,  1996,  with  earlier  application  prohibited.  The  Savings  Bank  has not
completed an analysis of the potential  effects of this Statement on the Savings
Bank's financial condition or results of operations.

                           REGULATION AND SUPERVISION

        Set forth below is a brief  description of certain laws and  regulations
which relate to the regulation of the Company and Troy Hill. The  description of
these laws and  regulations,  as well as  descriptions  of laws and  regulations
contained  elsewhere herein, does not purport to be complete and is qualified in
its entirety by reference to applicable laws and regulations.

The Company

        General.  The Company,  as a savings and loan holding company within the
meaning of the HOLA, is subject to OTS  regulations,  examinations,  supervision
and  reporting  requirements.  As a  subsidiary  of a savings  and loan  holding
company,  Troy Hill is subject to certain  restrictions in its dealings with the
Company and affiliates thereof.

                                       25
<PAGE>
        Activities  Restrictions.  There are  generally no  restrictions  on the
activities of a savings and loan holding company which holds only one subsidiary
savings  association.  However, if the Director of the OTS determines that there
is  reasonable  cause to believe  that the  continuation  by a savings  and loan
holding  company of an  activity  constitutes  a serious  risk to the  financial
safety,  soundness or  stability  of its  subsidiary  savings  association,  the
Director may impose such  restrictions as deemed necessary to address such risk,
including  limiting (i) payment of dividends  by the savings  association;  (ii)
transactions  between the savings association and its affiliates;  and (iii) any
activities of the savings  association that might create a serious risk that the
liabilities  of the  holding  company and its  affiliates  may be imposed on the
savings association.  Notwithstanding the above rules as to permissible business
activities  of  unitary  savings  and loan  holding  companies,  if the  savings
association  subsidiary of such a holding company fails to meet a QTL test, then
such  unitary  holding  company  also shall  become  subject  to the  activities
restrictions  applicable  to multiple  savings and loan holding  companies  and,
unless the savings association  requalifies as a QTL within one year thereafter,
shall register as, and become subject to the restrictions  applicable to, a bank
holding company. See "- Troy Hill - Qualified Thrift Lender Test."

        If the Company were to acquire control of another  savings  association,
other than through  merger or other  business  combination  with Troy Hill,  the
Company  would  thereupon  become a multiple  savings and loan holding  company.
Except where such acquisition is pursuant to the authority to approve  emergency
thrift  acquisitions and where each subsidiary savings association meets the QTL
test,  as set  forth  below,  the  activities  of  the  Company  and  any of its
subsidiaries  (other than Troy Hill or other  subsidiary  savings  associations)
would  thereafter be subject to further  restrictions.  Among other  things,  no
multiple  savings and loan holding company or subsidiary  thereof which is not a
savings  association  shall  commence or continue  for a limited  period of time
after becoming a multiple savings and loan holding company or subsidiary thereof
any business activity,  upon prior notice to, and no objection by the OTS, other
than: (i) furnishing or performing  management services for a subsidiary savings
association;  (ii)  conducting  an insurance  agency or escrow  business;  (iii)
holding,  managing, or liquidating assets owned by or acquired from a subsidiary
savings  association;  (iv) holding or managing properties used or occupied by a
subsidiary savings association; (v) acting as trustee under deeds of trust; (vi)
those  activities  authorized by regulation as of March 5, 1987 to be engaged in
by multiple savings and loan holding companies;  or (vii) unless the Director of
the OTS by regulation  prohibits or limits such  activities for savings and loan
holding  companies,  those  activities  authorized by the FRB as permissible for
bank holding companies.  Those activities  described in (vii) above also must be
approved  by the  Director  of the OTS prior to being  engaged  in by a multiple
savings and loan holding company.

        Limitations  on  Transactions  with  Affiliates.   Transactions  between
savings  associations  and any affiliate are governed by Sections 23A and 23B of
the Federal Reserve Act. An affiliate of a savings association is any company or
entity which  controls,  is  controlled  by or is under common  control with the
savings association. In a holding company context, the parent holding company of
a  savings  association  (such  as the  Company)  and any  companies  which  are
controlled  by  such  parent  holding  company  are  affiliates  of the  savings
association.  Generally,  Sections 23A and 23B (i) limit the extent to which the
savings  association or its  subsidiaries  may engage in "covered  transactions"
with any one affiliate to an amount equal to 10% of such  association's  capital
stock and surplus,  and contain an aggregate limit on all such transactions with
all  affiliates  to an amount equal to 20% of such capital stock and surplus and

                                       26
<PAGE>
(ii) require that all such  transactions be on terms  substantially the same, or
at least as favorable,  to the  association or subsidiary as those provided to a
non-affiliate.  The term  "covered  transaction"  includes  the making of loans,
purchase  of  assets,  issuance  of a  guarantee  and  similar  other  types  of
transactions.  In addition to the restrictions  imposed by Sections 23A and 23B,
no savings  association may (i) loan or otherwise extend credit to an affiliate,
except for any affiliate which engages only in activities  which are permissible
for bank holding  companies,  or (ii)  purchase or invest in any stocks,  bonds,
debentures, notes or similar obligations of any affiliate, except for affiliates
which are subsidiaries of the savings association.

        In addition,  Sections  22(h) and (g) of the Federal  Reserve Act places
restrictions   on  loans  to  executive   officers,   directors   and  principal
stockholders. Under Section 22(h), loans to a director, an executive officer and
to a  greater  than  10%  stockholder  of a  savings  association,  and  certain
affiliated  interests  of  either,  may not  exceed,  together  with  all  other
outstanding  loans to such person and affiliated  interests,  the  association's
loans  to one  borrower  limit  (generally  equal  to  15% of the  institution's
unimpaired  capital and  surplus).  Section  22(h) also  requires  that loans to
directors,  executive  officers  and  principal  stockholders  be made on  terms
substantially  the same as offered in comparable  transactions  to other persons
and also  requires  prior board  approval for certain  loans.  In addition,  the
aggregate  amount  of  extensions  of credit  by a  savings  association  to all
insiders  cannot  exceed  the  association's  unimpaired  capital  and  surplus.
Furthermore,  Section 22(g) places additional restrictions on loans to executive
officers.  At June  30,  1996,  Troy  Hill  was in  compliance  with  the  above
restrictions.

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

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






                                       27
<PAGE>
        FIRREA  amended  provisions  of the Bank Holding  Company Act of 1956 to
specifically  authorize  the FRB to approve  an  application  by a bank  holding
company to acquire  control of a savings  association.  FIRREA also authorized a
bank holding company that controls a savings association to merge or consolidate
the assets and liabilities of the savings  association  with, or transfer assets
and  liabilities to, any subsidiary bank which is a member of the Bank Insurance
Fund ("BIF") with the approval of the appropriate federal banking agency and the
FRB. As a result of these  provisions,  there have been a number of acquisitions
of savings associations by bank holding companies in recent years.

Troy Hill

        General.  The OTS has extensive authority over the operations of savings
associations.  As part of this authority,  savings  associations are required to
file periodic  reports with the OTS and are subject to periodic  examinations by
the  OTS  and  the  FDIC.  The  investment  and  lending  authority  of  savings
associations  are  prescribed  by  federal  laws  and  regulations  and they are
prohibited  from  engaging  in any  activities  not  permitted  by such laws and
regulations.  Those  laws  and  regulations  generally  are  applicable  to  all
federally  chartered savings  associations and may also apply to state-chartered
savings associations.  Such regulation and supervision is primarily intended for
the protection of depositors.

        FIRREA  imposed  limitations  on the  aggregate  amount of loans  that a
savings association could make to any one borrower,  including related entities.
See  "Business of Troy Hill - Lending  Activities - General" for a discussion of
such limitations.

        The OTS' enforcement  authority over all savings  associations and their
holding  companies  was  substantially  enhanced  by  FIRREA.  This  enforcement
authority  includes,  among  other  things,  the  ability to assess  civil money
penalties,  to  issue  cease  and  desist  or  removal  orders  and to  initiate
injunctive actions.  In general,  these enforcement actions may be initiated for
violations  of laws and  regulations  and  unsafe or  unsound  practices.  Other
actions or inactions  may provide the basis for  enforcement  action,  including
misleading  or  untimely  reports  filed  with  the  OTS.  FIRREA  significantly
increased the amount of and grounds for civil money penalties.  FIRREA requires,
except under  certain  circumstances,  public  disclosure  of final  enforcement
actions by the OTS.

        Insurance  of  Accounts.  The  deposits  of Troy Hill are  insured up to
$100,000  per  insured  member (as  defined by law and  regulation)  by the SAIF
administered  by the FDIC and are  backed by the full  faith  and  credit of the
United  States  Government.  As  insurer,  the  FDIC is  authorized  to  conduct
examinations of, and to require reporting by, FDIC-insured institutions. It also
may prohibit any FDIC-insured institution from engaging in any activity the FDIC
determines by regulation or order to pose a serious threat to the FDIC. The FDIC
also  has  the  authority  to  initiate   enforcement  actions  against  savings
associations, after giving the OTS an opportunity to take such action.

        The FDIC may terminate the deposit  insurance of any insured  depository
institution,  including  Troy Hill,  if it  determines  after a hearing that the
institution has engaged or is engaging in unsafe or unsound practices,  is in an
unsafe  or  unsound  condition  to  continue  operations,  or has  violated  any
applicable law, regulation,  order or any condition imposed by an agreement with



                                       28
<PAGE>
the FDIC. It also may suspend deposit insurance  temporarily  during the hearing
process for the permanent  termination of insurance,  if the  institution has no
tangible  capital.  If insurance of accounts is terminated,  the accounts at the
institution at the time of the termination,  less subsequent withdrawals,  shall
continue to be insured for a period of six months to two years, as determined by
the FDIC. Management is aware of no existing circumstances which could result in
termination of Troy Hill's deposit insurance.

        The FDIC is  authorized  to  establish  separate  assessment  rates  for
deposit  insurance  for members of the BIF and the SAIF.  The FDIC may  increase
assessment  rates for either  fund to restore  the fund's  ratio of  reserves to
insured  deposits to its statutorily set target level within a reasonable  time,
and may decrease such assessment  rates if such target level has been met. Until
the SAIF fund meets its target level,  savings  associations may not transfer to
the BIF fund. Furthermore,  any such transfers, when permitted, would be subject
to exit and entrance  fees.  Under current FDIC  regulations,  institutions  are
assigned to one of three  capital  groups which are based solely on the level of
an institution's  capital- "well  capitalized,"  "adequately  capitalized,"  and
"undercapitalized"  - which are  defined in the same  manner as the  regulations
establishing the prompt corrective action system under Section 38 of the Federal
Deposit  Insurance Act ("FDIA") as discussed below.  These three groups are then
divided  into  three  subgroups  which  reflect  varying  levels of  supervisory
concern,  from those  which are  considered  to be  healthy  to those  which are
considered  to be of  substantial  supervisory  concern.  The  matrix so created
results in nine  assessment risk  classifications,  with rates ranging from .23%
for  well  capitalized,   healthy  institutions  to  .31%  for  undercapitalized
institutions with substantial  supervisory concerns.  The insurance premiums for
Troy Hill for the first semi-annual period in calendar 1996 was .23%.

        The BIF fund met its target  reserve  level in September  1995,  but the
SAIF is not  expected  to meet its target  reserve  level  until at least  2002.
Consequently,  in late 1995,  the FDIC approved a final rule  regarding  deposit
insurance  premiums  which,  effective  with respect to the  semiannual  premium
assessment beginning January 1, 1996, reduced deposit insurance premiums for BIF
member  institutions  to zero  basis  points  (subject  to an annual  minimum of
$2,000) for institutions in the lowest risk category. Deposit insurance premiums
for SAIF members were  maintained at their existing  levels (23 basis points for
institutions  in the  lowest  risk  category).  Accordingly,  in the  absence of
further legislative action, SAIF members such as Troy Hill will be competitively
disadvantaged  as  compared  to  commercial  banks  by  the  resulting   premium
differential.  It is anticipated that, under present  conditions,  it will be at
least  several years before the SAIF reaches a reserve ratio of 1.25% of insured
deposits.

        On September 30, 1996,  President  Clinton  signed into law  legislation
which will eliminate the premium differential between SAIF-insured  institutions
and  BIF-insured  institutions  by  recapitalizing  the SAIF's  reserves  to the
required ratio. The legislation provides that all SAIF member institutions pay a
special  one-time  assessment to recapitalize  the SAIF,  which in the aggregate
will be  sufficient  to bring the reserve  ratio in the SAIF to 1.25% of insured
deposits.  Based on the current level of reserves  maintained by the SAIF, it is







                                       29
<PAGE>
anticipated that the amount of the special  assessment  required to recapitalize
the SAIF will be approximately 65.7 basis points of SAIF-assessable  deposits as
of March 31, 1995.  It is  anticipated  that after the  recapitalization  of the
SAIF, premiums paid by SAIF-insured  institutions will be reduced to match those
currently being assessed  BIF-insured  commercial  banks.  The legislation  also
provides  for the  merger  of the  BIF and the  SAIF,  with  such  merger  being
conditioned upon the prior elimination of the thrift charter.

        Pursuant  to the  legislation,  Troy  Hill will be  required  to pay the
one-time special  assessment,  which is estimated to amount to $214,000,  net of
related tax  benefits,  based upon its total SAIF deposits as of March 31, 1995,
on November 27, 1996. In addition,  the payment of such special  assessment will
have the effect of  immediately  reducing Troy Hill's capital by such an amount.
Nevertheless,  management does not believe that this one-time special assessment
will have a material  adverse  effect on the  Company's  consolidated  financial
condition  or  cause   non-compliance   with  Troy  Hill's  regulatory   capital
requirements.

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

        Current OTS capital  standards  require savings  associations to satisfy
three  different   capital   requirements.   Under  these   standards,   savings
associations must maintain "tangible" capital equal to at least 1.5% of adjusted
total assets,  "core"  capital equal to at least 3% of adjusted total assets and
"total" capital (a combination of core and "supplementary"  capital) equal to at
least 8.0% of  "risk-weighted"  assets.  For  purposes of the  regulation,  core
capital generally consists of common  stockholders'  equity (including  retained
earnings), noncumulative perpetual preferred stock and related surplus, minority
interests in the equity  accounts of fully  consolidated  subsidiaries,  certain
nonwithdrawable  accounts  and  pledged  deposits  and  "qualifying  supervisory
goodwill."  Tangible  capital is given the same  definition  as core capital but
does not include qualifying supervisory goodwill and is reduced by the amount of
all the savings  association's  intangible assets, with only a limited exception
for purchased  mortgage  servicing  rights.  Both core and tangible  capital are
further  reduced by an amount equal to a savings  association's  debt and equity
investments in  subsidiaries  engaged in activities not  permissible to national
banks (other than  subsidiaries  engaged in  activities  undertaken as agent for
customers  or  in  mortgage   banking   activities  and  subsidiary   depository
institutions or their holding  companies).  A savings  association is allowed to
include both core capital and  supplementary  capital in the  calculation of its
total capital for purposes of the risk-based capital requirement,  provided that
the amount of  supplementary  capital does not exceed the savings  association's
core  capital.  Supplementary  capital  generally  consists  of  hybrid  capital
instruments;  perpetual  preferred stock which is not eligible to be included as
core capital;  subordinated  debt and  intermediate-term  preferred stock;  and,
subject to limitations,  general allowances for loan losses. Assets are adjusted
under  the   risk-based   guidelines  to  take  into  account   different   risk
characteristics,  with the  categories  ranging from 0% (requiring no additional




                                       30
<PAGE>
capital)  for assets such as cash to 100% for  repossessed  assets or loans more
than 90 days past due. Single-family residential real estate loans which are not
past-due or  non-performing  and which have been made in accordance with prudent
underwriting standards are assigned a 50% level in the risk-weighting system, as
are certain  privately-issued  mortgage-backed  securities representing indirect
ownership of such loans.  Off-balance sheet items also are adjusted to take into
account certain risk characteristics.

        In  August  1993,  the  OTS  adopted  a  final  rule   incorporating  an
interest-rate risk component into the risk-based capital  regulation.  Under the
rule, an  institution  with a greater than "normal"  level of interest rate risk
will be subject to a deduction of its interest  rate risk  component  from total
capital for purposes of calculating  its risk-based  capital  requirement.  As a
result,  such an institution will be required to maintain  additional capital in
order to comply with the risk-based  capital  requirement.  An institution  with
greater than "normal" interest rate risk is defined as an institution that would
suffer a loss of net portfolio  value  exceeding  2.0% of the  estimated  market
value of its assets in the event of a 200 basis point increase or decrease (with
certain minor  exceptions) in interest  rates.  The interest rate risk component
will be calculated,  on a quarterly basis, as one-half of the difference between
an institution's  measured interest rate risk and 2.0%, multiplied by the market
value of its assets.  The rule also  authorizes  the Director of the OTS, or his
designee,  to waive or defer an institution's  interest rate risk component on a
case-by-case  basis.  The final rule was  originally  effective as of January 1,
1994,  subject  however to a three quarter "lag" time between the reporting date
of the data  used to  calculate  an  institution's  interest  rate  risk and the
effective  date of each  quarter's  interest rate risk  component.  However,  in
October 1994 the Director of the OTS  indicated  that it would waive the capital
deductions  for  associations  with a greater than  "normal"  risk until the OTS
publishes an appeals  process.  The OTS has recently  indicated  that no savings
association  will be required to deduct  capital  for  interest  rate risk until
further notice.

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
















                                       31
<PAGE>

        The  following  table  sets forth  certain  information  concerning  the
Savings Bank's regulatory capital at June 30, 1996.
<TABLE>
<CAPTION>
                                         Required                      Actual                       Excess
                                    ------------------          ---------------------        ----------------------
                                      %         Amount            %            Amount          %             Amount
                                    ----        ------          -----         -------        -----          -------
                                                               (Dollars in Thousands)
<S>                                 <C>         <C>             <C>           <C>            <C>            <C>
Tangible (1)                        1.50%       $1,322          15.89%        $14,010        14.39%         $12,688
Core (1)(2)                         3.00         2,646          15.89          14,010        12.89           11,364
Risk-based (3)                      8.00         4,775          24.30          14,506        16.30            9,731
-----------------
</TABLE>
(1)  Tangible and core capital are  computed as a percentage  of adjusted  total
     assets of $88.1 million.  Risk-based capital is computed as a percentage of
     total risk-weighted assets of $59.7 million.
(2)  Does not reflect the 4.0% requirement to be met in order for an institution
     to be "adequately  capitalized," under applicable  regulations as discussed
     below. See "- Prompt Corrective Action."
(3)  Does not  reflect  the  interest-rate  risk  component  risk-based  capital
     requirement,  the effective date of which has been postponed,  as discussed
     above.
 
        Prompt Corrective Action.  Under Section 38 of the FDIA, as added by the
Federal Deposit Insurance Corporation  Improvement Act of 1991 ("FDICIA"),  each
federal  banking  agency is required to implement a system of prompt  corrective
action for institutions which it regulates. In early September 1992, the federal
banking agencies,  including the OTS, adopted  substantially similar regulations
which are intended to implement Section 38 of the FDIA. These regulations became
effective  December 19, 1992.  Under the  regulations,  an institution  shall be
deemed to be (i) "well  capitalized" if it has total risk-based capital of 10.0%
or more,  has a Tier I risk-based  capital  ratio of 6.0% or more,  has a Tier I
leverage  capital ratio of 5.0% or more and is not subject to any order or final
capital  directive to meet and maintain a specific capital level for any capital
measure,  (ii)  "adequately  capitalized" if it has a total  risk-based  capital
ratio of 8.0% or more, a Tier I risk-based  capital  ratio of 4.0% or more and a
Tier I leverage capital ratio of 4.0% or more (3.0% under certain circumstances)
and does not meet the definition of "well capitalized," (iii) "undercapitalized"
if it has a total  risk-based  capital  ratio that is less than  8.0%,  a Tier I
risk-based  capital  ratio that is less than 4.0% or a Tier I  leverage  capital
ratio  that  is  less  than  4.0%  (3.0%  under  certain  circumstances),   (iv)
"significantly undercapitalized" if it has a total risk-based capital ratio that
is less than 6.0%, a Tier I risk-based capital ratio that is less than 3.0% or a
Tier I  leverage  capital  ratio  that is less than  3.0%,  and (v)  "critically
undercapitalized"  if it has a ratio of tangible  equity to total assets that is
equal  to or  less  than  2.0%.  Section  38 of the  FDIA  and  the  regulations
promulgated  thereunder also specify circumstances under which a federal banking
agency may reclassify a well capitalized  institution as adequately  capitalized
and may require an adequately  capitalized  institution  or an  undercapitalized
institution to comply with  supervisory  actions as if it were in the next lower
category   (except   that   the  FDIC  may  not   reclassify   a   significantly
undercapitalized institution as critically undercapitalized).  At June 30, 1996,
Troy Hill was in the "well capitalized" category.


                                       32
<PAGE>
        Safety and Soundness.  FDICIA requires each federal  banking  regulatory
agency to  prescribe,  by  regulation  or  guideline,  standards for all insured
depository institutions and depository institution holding companies relating to
(i)  internal  controls,  information  systems  and  audit  systems;  (ii)  loan
documentation; (iii) credit underwriting; (iv) interests rate risk exposure; (v)
asset  growth;  (vi)  compensation,  fees and  benefits;  and (vii)  such  other
operational and managerial standards as the agency determines to be appropriate.
The  compensation   standards  would  prohibit  employment  contracts  or  other
compensatory arrangements that provide excess compensation,  fees or benefits or
could lead to  material  financial  loss.  In  addition,  each  federal  banking
regulatory agency must prescribe, by regulation or guideline, standards relating
to asset quality,  earnings and stock  valuation as the agency  determines to be
appropriate. On July 10, 1995, the federal banking agencies,  including the OTS,
adopted final rules and proposed guidelines  concerning standards for safety and
soundness required to be prescribed by regulation  pursuant to Section 39 of the
FDIA.  In  general,  the  standards  relate to (1)  operational  and  managerial
matters; (2) asset quality and earnings;  and (3) compensation.  The operational
and managerial  standards cover (a) internal  controls and information  systems,
(b) internal audit system, (c) loan documentation,  (d) credit underwriting, (e)
interest  rate  exposure,  (f)  asset  growth,  and (g)  compensation,  fees and
benefits.  Under the proposed  asset quality and earnings  standards,  Troy Hill
would be required to  establish  and maintain  systems to (i)  identify  problem
assets and prevent  deterioration in those assets, and (ii) evaluate and monitor
earnings and ensure that earnings are  sufficient to maintain  adequate  capital
reserves.  Finally, the proposed  compensation standard states that compensation
will be considered  excessive if it is unreasonable or  disproportionate  to the
services actually  performed by the individual being  compensated.  If a savings
association fails to meet any of the standards  promulgated by regulation,  then
such  institution  will be  required  to submit a plan within 30 days to the OTS
specifying the steps it will take to correct the deficiency. In the event that a
savings  association  fails  to  submit  or  fails in any  material  respect  to
implement  a  compliance  plan within the time  allowed by the  federal  banking
agency,  Section 39 of the FDIA provides that the OTS must order the institution
to correct the  deficiency  and may (1) restrict  asset growth;  (2) require the
savings  association  to increase  its ratio of tangible  equity to assets;  (3)
restrict the rates of interest that the savings association may pay; or (4) take
any other action that would  better  carry out the purpose of prompt  corrective
action.  Troy  Hill  believes  that  it has  been  and  will  continue  to be in
compliance with each of the standards as they have been adopted by the OTS.

        Liquidity  Requirements.   All  savings  associations  are  required  to
maintain an average daily balance of liquid assets equal to a certain percentage
of the sum of its average daily balance of net withdrawable deposit accounts and
borrowings payable in one year or less. The liquidity  requirement may vary from
time to time (between 4% and 10%) depending upon economic conditions and savings
flows of all savings  associations.  At the present time,  the required  minimum
liquid asset ratio is 5%. Troy Hill has  consistently  exceeded such  regulatory
liquidity requirement and, at June 30, 1996, had a liquidity ratio of 8.67%.










                                       33
<PAGE>
        Qualified  Thrift Lender Test. A savings  association that does not meet
the QTL Test set  forth in the HOLA and  implementing  regulations  must  either
convert  to a bank  charter or comply  with the  following  restrictions  on its
operations:  (i) the  association may not engage in any new activity or make any
new  investment,  directly or indirectly,  unless such activity or investment is
permissible  for a national bank;  (ii) the branching  powers of the association
shall be restricted to those of a national bank; (iii) the association shall not
be eligible to obtain any advances from its FHLB;  and (iv) payment of dividends
by the association  shall be subject to the rules regarding payment of dividends
by a  national  bank.  Upon  the  expiration  of three  years  from the date the
association  ceases to be a QTL, it must cease any  activity  and not retain any
investment  not  permissible  for a  national  bank and  immediately  repay  any
outstanding FHLB advances (subject to safety and soundness considerations).

        Effective   December  19,  1991,  the  definition  of  Qualified  Thrift
Investments ("QTIs") was amended in its entirety and the QTL Test was amended to
require that QTIs represent 65% of portfolio assets,  rather than 60% and 70% of
tangible  assets  as  previously   required  before  and  after  July  1,  1991,
respectively.  Portfolio  assets are defined as total  assets less  intangibles,
property used by a savings association in its business and liquidity investments
in an amount  not  exceeding  20% of  assets.  Generally,  QTIs are  residential
housing related assets.  At June 30, 1996,  approximately  88.19% of Troy Hill's
assets were invested in QTIs, which was in excess of the percentage  required to
qualify Troy Hill under the QTL Test in effect at that time.

        Restrictions on Capital  Distributions.  OTS regulations  govern capital
distributions  by savings  associations,  which  include cash  dividends,  stock
redemptions  or  repurchases,  cash-out  mergers,  interest  payments on certain
convertible  debt and other  transactions  charged to the  capital  account of a
savings  association to make capital  distributions.  Generally,  the regulation
creates a safe  harbor  for  specified  levels  of  capital  distributions  from
associations  meeting at least their minimum  capital  requirements,  so long as
such  associations  notify the OTS and receive no objection to the  distribution
from the OTS. Savings institutions and distributions that do not qualify for the
safe harbor are required to obtain prior OTS approval  before making any capital
distributions.
 
        Generally,  savings  associations  that  before  and after the  proposed
distribution meet or exceed their fully phased-in capital requirements,  or Tier
1 associations, may make capital distributions during any calendar year equal to
the higher of (i) 100% of net income for the calendar  year-to-date  plus 50% of
its "surplus capital ratio" at the beginning of the calendar year or (ii) 75% of
net income over the most recent four-quarter period. The "surplus capital ratio"
is  defined to mean the  percentage  by which the  association's  ratio of total
capital to assets exceeds the ratio of its fully phased-in  capital  requirement
to  assets.  "Fully  phased-in  capital  requirement"  is  defined  to  mean  an
association's  capital requirement under the statutory and regulatory  standards
to be  applicable  on December 31, 1994,  as modified to reflect any  applicable
individual minimum capital requirement imposed upon the association.

        Tier 2 associations,  which are  associations  that before and after the
proposed  distribution  meet or exceed their minimum capital  requirements,  may
make capital distributions during any calendar year up to 75% of net income over
the most recent four-quarter period.




                                       34
<PAGE>
        In order to make distributions under these safe harbors, Tier 1 and Tier
2 associations must submit written notice to the OTS 30 days prior to making the
distribution.  The OTS may object to the distribution  during that 30-day period
based on safety and soundness concerns. In addition, a Tier 1 association deemed
to be in need of more than normal  supervision by the OTS may be downgraded to a
Tier 2 or Tier 3 association (a Tier 3 association  is an association  that does
not meet current  minimum  capital  requirements or has been notified by the OTS
that it will be  treated as a Tier 3  association  because it is in need of more
than normal supervision and, consequently,  a Tier 3 association cannot make any
capital distribution without obtaining prior OTS approval) as a result of such a
determination.  Troy Hill currently is a Tier 1 institution  for purposes of the
regulation dealing with capital distributions.

        On December 5, 1994,  the OTS published a notice of proposed rule making
to amend its capital distribution regulation.  Under the proposal,  associations
would be permitted to only make capital  distributions  that would not result in
their  capital  being  reduced  below the level  required to remain  "adequately
capitalized."  An  association  is  adequately  capitalized  if it  has a  total
risk-based  capital ratio of 8.0% or more, a Tier 1 risk-based  capital ratio of
4.0% or more and a Tier 1  leverage  capital  ratio of 4.0% or more and does not
meet the  definition of well  capitalized.  Because Troy Hill is a subsidiary of
the Company,  the proposal  would require Troy Hill to provide notice to the OTS
of its intent to make a capital  distribution.  Troy Hill does not believe  that
the proposal will adversely affect its ability to make capital  distributions if
it is adopted substantially as proposed.

        OTS  regulations  also prohibit  Troy Hill from  declaring or paying any
dividends or from repurchasing any of its stock if, as a result,  the regulatory
(or total) capital of Troy Hill would be reduced below the amount required to be
maintained for the liquidation  account established by it for certain depositors
in connection with the Conversion.  In addition,  such regulations prohibit Troy
Hill from  repurchasing  any of its stock for a period of at least one year from
the date of the Conversion.

        Policy  Statement on Nationwide  Branching.  Effective May 11, 1992, the
OTS amended its policy  statement on branching  by federally  chartered  savings
associations to delete  then-existing  regulatory  restrictions on the branching
authority of such associations and to permit nationwide  branching to the extent
allowed by federal  statute.  (Prior OTS policy generally  permitted  interstate
branching  for  federally  chartered  savings  associations  only to the  extent
allowed   state-chartered   savings   associations   in  the  states  where  the
association's  home office was located and where the branch was sought or if the
branching resulted from OTS approval of a supervisory  interstate acquisition of
a troubled  institution.)  Current  OTS  policy  generally  permits a  federally
chartered  savings  association to establish  branch offices outside of its home
state if the  association  meets the domestic  building and loan test in Section
7701(a)(19) of the Code or the asset  composition  test of  subparagraph  (c) of
that section, and if, with respect to each state outside of its home state where
the  association  has  established  branches,  the branches,  taken alone,  also
satisfy one of the two tax tests.  An  association  seeking to take advantage of
this authority would have to have a branching  application  approved by the OTS,
which would consider the regulatory  capital of the  association  and its record
under the Community Reinvestment Act of 1977, as amended, among other things.





                                       35
<PAGE>
        Federal  Home  Loan  Bank  System.  Troy Hill is a member of the FHLB of
Pittsburgh,  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.

        As a member, Troy Hill is required to purchase and maintain stock in the
FHLB of  Pittsburgh  in an amount equal to at least 1% of its  aggregate  unpaid
residential  mortgage loans, home purchase  contracts or similar  obligations at
the  beginning of each year.  At June 30,  1996,  Troy Hill had $929,000 in FHLB
stock, which was in compliance with this requirement.

        As a result of FIRREA,  the FHLBs are required to provide  funds for the
resolution  of troubled  savings  associations  and to  contribute to affordable
housing programs through direct loans or interest subsidies on advances targeted
for community  investment and low- and moderate-income  housing projects.  These
contributions have adversely affected the level of FHLB dividends paid and could
continue to do so in the future.  These contributions also could have an adverse
effect on the value of FHLB stock in the  future.  For the years  ended June 30,
1996,  1995  and 1994  dividends  paid by the FHLB of  Pittsburgh  to Troy  Hill
totalled approximately $32,000, $20,000 and $22,000, respectively.

        Federal Reserve System. The FRB requires all depository  institutions to
maintain  reserves against their transaction  accounts  (primarily NOW and Super
NOW checking  accounts) and non-personal  time deposits.  At June 30, 1996, Troy
Hill was in compliance with applicable  requirements.  However, because required
reserves must be  maintained in the form of vault cash or a  noninterest-bearing
account at a Federal Reserve Bank, the effect of this reserve  requirement is to
reduce an institution's earning assets.

                           FEDERAL AND STATE TAXATION 

        General.  The  Company  and  Troy  Hill  are  subject  to the  generally
applicable  corporate tax  provisions  of the Internal  Revenue Code of 1986, as
amended  ("Code"),  as well as certain  additional  provisions of the Code which
apply to  thrifts  and other  types of  financial  institutions.  The  following
discussion  of tax matters is intended only as a summary and does not purport to
be a  comprehensive  description of the tax rules  applicable to the Company and
Troy Hill.
 
         Fiscal Year.  The Company and Troy Hill file federal income tax returns
on the basis of a June 30 fiscal year.

        Method of  Accounting.  Troy Hill  maintains  its books and  records for
federal income tax purposes using the accrual method of accounting.  The accrual
method of accounting  generally requires that items of income be recognized when
all events have occurred that  establish the right to receive the income and the
amount of income can be determined with reasonable  accuracy,  and that items of
expense be deducted  at the later of (i) the time when all events have  occurred
that establish the liability to pay the expense and the amount of such liability
can be  determined  with  reasonable  accuracy  or (ii) the time  when  economic
performance with respect to the item of expense has occurred.




                                       36
<PAGE>
        Bad Debt  Reserves.  Under  applicable  provisions of the Code,  savings
institutions such as Troy Hill are permitted to establish reserves for bad debts
and to make annual  additions  thereto which qualify as deductions  from taxable
income.  The bad debt  deduction is generally  based on a savings  institution's
actual loss experience (the  "Experience  Method").  In addition,  provided that
certain  definitional tests relating to the composition of assets and the nature
of its business are met, a savings  institution  through tax years  beginning in
1995 could  elect  annually to compute  its  allowable  addition to its bad debt
reserves for qualifying real property loans (generally loans secured by improved
real estate) by reference to a percentage of its taxable income (the "Percentage
Method").

        Under the  Experience  Method,  the  deductible  annual  addition is the
amount  necessary  to  increase  the  balance of the reserve at the close of the
taxable  year to the  greater  of (i) the amount  which  bears the same ratio to
loans  outstanding  at the close of the taxable  year as the total net bad debts
sustained during the current and five preceding taxable years bear to the sum of
the loans outstanding at the close of those six years or (ii) the balance in the
reserve  account at the close of Troy Hill's "base year," which was its tax year
ended December 31, 1987.

        Under the  Percentage  Method,  the bad debt  deduction  with respect to
qualifying  real  property  loans was  computed as a  percentage  of Troy Hill's
taxable  income  before such  deduction,  as adjusted for certain items (such as
capital  gains and the  dividends  received  deduction).  Under this  method,  a
qualifying  institution  such as Troy  Hill  generally  could  deduct  8% of its
taxable income.

        The  Percentage  Method  deduction  was  limited to the excess of 12% of
savings  accounts  at year end over the sum of  surplus,  undivided  profits and
reserves at the  beginning  of the year.  For  taxable  years ended on or before
December 31, 1993, Troy Hill generally  elected to use the Percentage  Method to
compute the amount of its bad debt deduction with respect to its qualifying real
property loans.

        The income of the Company would not be subject to the bad debt deduction
allowed Troy Hill,  whether or not consolidated tax returns are filed;  however,
losses of the  Company or its  subsidiaries  included  in the  consolidated  tax
returns may reduce the bad debt  deduction  allowed  Troy Hill if a deduction is
claimed under the Percentage Method.
 
        On August 20, 1996,  President  Clinton  signed  legislation  which will
eliminate  the  percentage  of  taxable  income  bad debt  deduction  for thrift
institutions   for  tax  years  beginning  after  December  31,  1995.  The  new
legislation  also  requires a thrift to  generally  recapture  the excess of its
current  tax  reserves  over its 1987 base year  reserves.  As the  Company  has
previously  provided  deferred  taxes on this amount,  no  additional  financial
statement  tax expense  should result from this new  legislation.  The recapture
amount may be  suspended  for two years if Troy Hill meets  certain  residential
lending origination requirements.








                                       37
<PAGE>
        Distributions.  If Troy Hill were to distribute  cash or property to its
sole  stockholder  having a total fair market value in excess of its accumulated
tax-paid  earnings and profits,  or were to  distribute  cash or property to its
stockholder in redemption of its stock, Troy Hill would generally be required to
recognize  as income an amount  which,  when  reduced  by the  amount of federal
income tax that would be attributable to the inclusion of such amount in income,
is equal to the lesser of: (i) the amount of the distribution or (ii) the sum of
(a) the amount of the  accumulated bad debt reserve of Troy Hill with respect to
qualifying  real  property  loans (to the extent that  additions to such reserve
exceed the additions that would be permitted  under the  experience  method) and
(b) the amount of Troy Hill's supplemental bad debt reserve.

        As of June 30,  1996,  Troy  Hill's  accumulated  bad debt  reserve  for
qualifying real property loans and its  supplemental  bad debt reserve  balances
were approximately $1.7 million and $300,000,  respectively.  Troy Hill believes
it has approximately $16 million of accumulated  earnings and profits as of June
30,  1996,  which  would  be  available  for  dividend  distributions,  provided
regulatory restrictions applicable to the payment of dividends are met.

        Minimum Tax. The Code  imposes an  alternative  minimum tax at a rate of
20%  on  a  base  of  regular   taxable  income  plus  certain  tax  preferences
("alternative minimum taxable income" or "AMTI"). The alternative minimum tax is
payable to the extent such AMTI is in excess of an  exemption  amount.  The Code
provides that an item of tax  preference is the excess of the bad debt deduction
allowable for a taxable year pursuant to the percentage of taxable income method
over the amount  allowable under the experience  method.  The other items of tax
preference  that constitute AMTI include (a) tax exempt interest on newly-issued
(generally, issued on or after August 8, 1986) private activity bonds other than
certain  qualified  bonds and (b) for taxable years beginning after 1989, 75% of
the excess (if any) of (i)  adjusted  current  earnings  as defined in the Code,
over (ii)  AMTI  (determined  without  regard  to this  preference  and prior to
reduction by net operating losses). Net operating losses can offset no more than
90% of AMTI. Certain payments of alternative  minimum tax may be used as credits
against regular tax liabilities in future years.

         Audit by IRS. Troy Hill's  federal income tax returns for taxable years
through December 31, 1993 have been closed for the purpose of examination by the
Internal Revenue Service.

        State Taxation. The Company is subject to the Pennsylvania Corporate Net
Income Tax and Capital  Stock and  Franchise  Tax. The  Corporate Net Income Tax
rate is currently 11.99% and is imposed on the Company's  unconsolidated taxable
income for federal purposes with certain  adjustments.  In general,  the Capital
Stock  Tax is a  property  tax  imposed  at the rate of 1.3% of a  corporation's
capital stock value,  which is  determined  in  accordance  with a fixed formula
based upon average net income and net worth.












                                       38
<PAGE>
         Troy Hill is taxed under the  Pennsylvania  Mutual Thrift  Institutions
Tax Act (enacted on December 13, 1988 and amended in July 1989) (the "MTIT"), as
amended to include thrift  institutions  having  capital stock.  Pursuant to the
MTIT,  Troy Hill's tax rate is 11.5%.  The MTIT exempts Troy Hill from all other
taxes imposed by the  Commonwealth of Pennsylvania for state income tax purposes
and from all local taxation imposed by political  subdivisions,  except taxes on
real  estate and real  estate  transfers.  The MTIT is a tax upon net  earnings,
determined  in  accordance  with GAAP with  certain  adjustments.  The MTIT,  in
computing GAAP income,  allows for the deduction of interest earned on state and
federal  securities,  while  disallowing  a  percentage  of a thrift's  interest
expense  deduction  in  the  proportion  of  those  securities  to  the  overall
investment  portfolio.  Net operating losses, if any,  thereafter can be carried
forward three years for MTIT purposes.

Item 2. Description of Property.

        At June 30, 1996, Troy Hill conducted its business from its headquarters
and main office at 1706 Lowrie Street, Pittsburgh, Pennsylvania 15212. Troy Hill
owns its office,  which had a net book value at June 30, 1996,  of $375,069.  In
September  1993,  Troy Hill leased an additional  office  located at 11279 Perry
Highway, Wexford, Pennsylvania 15090, which had leasehold improvements amounting
to $4,000 at June 30, 1996. The estimated net book value of the electronic  data
processing equipment owned by Troy Hill was $44,000 at June 30, 1996.
 
Item 3. Legal Proceedings.

         There are no material legal  proceedings to which the Company or any of
its subsidiaries is a party or to which any of their property is subject.

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

         Not applicable.

PART II

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

         The information  required herein is incorporated by reference from page
36 of the  Company's  1996  Annual  Report to  Stockholders  attached  hereto as
Exhibit 13 (the "1996 Annual Report").


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

         The information required herein is incorporated by reference from pages
6 to 13 of the Company's 1996 Annual Report.

Item 7. Financial Statements.

         The information required herein is incorporated by reference from pages
4 and 5 and 14 to 35 of the Company's 1996 Annual Report.






                                       39
<PAGE>
Item 8. Changes in and Disagreements with Accountants on Accounting and
        Financial Disclosure.
 
        On April 10, 1996, by letter of same date, the Board of Directors of the
Company  terminated the services of Grant Thornton LLP ("Grant Thornton") as the
Company's  independent  auditors.  In connection  with the  termination of Grant
Thornton's  services as  independent  auditors,  the Board of  Directors  of the
Company  selected  the  accounting  firm of KPMG  Peat  Marwick  LLP to serve as
independent auditors for the Company beginning during the fiscal year ended June
30, 1996.

        In connection  with their audit for the two most recent fiscal years and
during  subsequent  interim periods  preceding the replacement of Grant Thornton
there have been no disagreements with Grant Thornton on any matter of accounting
principles or practices,  financial statement disclosures,  or auditing scope or
procedure.

        Grant  Thornton's  report on the financial  statements  for the two most
preceding  fiscal  years did not  contain an adverse  opinion or  disclaimer  of
opinion and was not  qualified  or modified  as to  uncertainty,  audit scope or
accounting principles.

        During the  Company's  two most recent  fiscal years and the  subsequent
interim periods preceding Grant Thornton's  replacement,  Grant Thornton did not
advise,  and has not indicated to the Company that it had reason to advise,  the
Company of any of the following:

         (a)   that the internal  controls  necessary for the Company to develop
               reliable financial statements did not exist;

         (b)   that information had come to Grant Thornton's  attention that had
               led  it  to  no   longer   be  able   to  rely  on   management's
               representations,  or that made it unwilling to be associated with
               the financial statements prepared by management;

         (c)   (1)  of  the  need  to  expand  significantly  the  scope  of the
               Company's audit, or that information had come to Grant Thornton's
               attention  during such time  period that if further  investigated
               might (i)  materially  impact  the  fairness  or  reliability  of
               either:  a  previously  issued  audit  report  or the  underlying
               financial statements, or the financial statements issued or to be
               issued covering the fiscal periods  subsequent to the date of the
               most  recent  financial  statements  covered  by an audit  report
               (including  information  that may  prevent it from  rendering  an
               unqualified audit report on those financial statements),  or (ii)
               cause it to be unwilling to rely on  management's  representation
               or to be associated with the Company's financial statements,  and
               (2) that  due to  Grant  Thornton's  replacement  or for  another
               reason,  the  issue  has not been  resolved  to Grant  Thornton's
               satisfaction prior to its replacement.








                                       40
<PAGE>
         (d)   (1) that information had come to Grant Thornton's  attention that
               it had concluded  materially impacted the fairness or reliability
               of either (i) a previously  issued audit report or the underlying
               financial statements,  or (ii) the financial statements issued or
               to be issued  covering the fiscal periods  subsequent to the date
               of the then most recent financial  statements covered by an audit
               report  (including  information  that,  unless  resolved to Grant
               Thornton's  satisfaction,  would  prevent  it from  rendering  an
               unqualified audit report on those financial  statements,  and (2)
               due to Grant Thornton's replacement, or for any other reason, the
               issue was not resolved to Grant Thornton's  satisfaction prior to
               its replacement.

        During the  Company's  two most recent  fiscal years and the  subsequent
interim  periods  preceding  the selection of KPMG Peat Marwick LLP, the Company
has not consulted KPMG Peat Marwick LLP regarding the  application of accounting
principles,  either  contemplated  or proposed,  the type of audit  opinion that
might be rendered on the Company's financial statement or any other matters that
would be required to be reported herein.

PART III

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

        The information  required herein is incorporated by reference from pages
2 to 7 of the definitive proxy statement of the Company ("Proxy Statement").

Item 10. Executive Compensation.

        The information  required herein is incorporated by reference from pages
11 to 14 of the Company's Proxy Statement.

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

        The information  required herein is incorporated by reference from pages
7 to 10 of the Company's Proxy Statement.

Item 12.  Certain Relationships and Related Transactions.

        The  information  required herein is incorporated by reference from page
14 of the Company's Proxy Statement.
















                                       41
<PAGE>
Item 13. Exhibits, List and Reports on Form 8-K.

        (a)    Document Filed as Part of this Report

        (1)    The following  consolidated financial statements are incorporated
               by reference from Item 7 hereof (See Exhibit 13 attached hereto):

        Independent Auditors' Report

        Consolidated  Statements of Financial  Condition as of June 30, 1996 and
               1995

        Consolidated  Statements  of Earnings for the Years Ended June 30, 1996,
               1995 and 1994

        Consolidated Statements of Stockholders' Equity for the Years Ended June
               30, 1996, 1995 and 1994

        Consolidated Statements of Cash Flows for the Years Ended June 30, 1996,
               1995 and 1994

        Notes  to Consolidated Financial Statements

        (2)    All  schedules  for  which  provision  is made in the  applicable
               accounting  regulation  of the SEC  are  omitted  because  of the
               absence of  conditions  under which they are  required or because
               the  required   information  is  included  in  the   Consolidated
               Financial Statements and related notes thereto.

        Report of predecessor accountant is attached as Exhibit 99.




























                                       42
<PAGE>
        (3)    The following exhibits are filed as part of this Form 10-KSB, and
               this list includes the Exhibit Index.


        No.                 Exhibits
        ---                 --------

        3(i)         Articles of Incorporation *
        3(ii)        Bylaws *
        4            Specimen Common Stock Certificate *
       10(a)         Employee Stock Ownership Plan *1
       10(b)         1994 Stock Option Plan **1
       10(c)         Recognition and Retention Plan and Trust **1
       13            1996 Annual Report to Stockholders
       21            Subsidiaries of the Registrant - Reference is made to Item
                     1.  "Business - Subsidiaries" for the required information
       23.1          Consent of KPMG Peat Marwick LLP
       23.2          Consent of Grant Thornton LLP
       27            Financial Data Schedule
       99            Report of Grant Thornton LLP


*    Incorporated  by  reference  from the  Registration  Statement  on Form S-1
     (Registration  No.  33-77350) filed by the Company with the SEC on April 5,
     1994, as amended.

**   Incorporated  by reference  to the Annual  Report on Form 10-K for the year
     ended June 30,  1995 filed by the  Company  with the SEC on  September  28,
     1995.

1    Management contract or compensatory plan or arrangement.

        (b)    On April  17,  1996,  the  Registrant  filed a Form 8-K to report
               that,  by letter of same  date,  the  Board of  Directors  of the
               Registrant  terminated  the  services  of Grant  Thornton  as the
               Registrant's   independent   auditors,   and  had   selected  the
               accounting  firm of KPMG Peat Marwick LLP to serve as independent
               auditors for the  Registrant  for the fiscal year ending June 30,
               1996. On April 25, 1996, the Registrant  filed a Form 8-K/A which
               included a letter of Grant Thornton as an exhibit.

        (c)    See (a) (3) above for all exhibits filed herewith and the exhibit
               index.

        (d)    There are no other financial  statements and financial  statement
               schedules  which were  excluded  from the Annual Report which are
               required to be included herein.











                                       43
<PAGE>
                                   SIGNATURES


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

                                                TROY HILL BANCORP, INC.



October 9, 1996                                 By:/s/ Ellry N. Davis
                                                   ------------------
                                                   Ellry N. Davis
                                                   President and Chief Executive
                                                   Officer

         In accordance  with the Exchange Act, this report has been signed below
by the following  persons on behalf of the  Registrant and in the capacities and
on the dates indicated.



/s/ Ellry N. Davis                                               October 9, 1996
------------------ 
Ellry N. Davis  
President and Chief Executive Officer
(Principal Executive Officer)

/s/ Harry B. Thaner                                              October 9, 1996
------------------- 
Harry B. Thaner
Chairman of the Board

/s/ Lawrence C. Kerr                                             October 9, 1996
--------------------
Lawrence C. Kerr 
Treasurer (Principal
Financial and Accounting Officer)

/s/ Joseph W. Snyder                                             October 9, 1996
-------------------- 
Joseph W. Snyder 
 Director

/s/ Raymond K. Aiken                                             October 9, 1996
-------------------- 
Raymond K. Aiken 
Director

/s/ Edwin A. Thaner                                              October 9, 1996
------------------- 
Edwin A. Thaner 
Director





                                       44