UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                   FORM 10-KSB

Annual report pursuant to Section 13 or 15(d) of the Securities  Exchange Act of
1934 for the fiscal year ended March 31, 1997

                         Commission file number 0-20742

                                CB BANCORP, INC.
                 (Name of small business issuer in its charter)

           Delaware                                      35-1866127
(State or other jurisdiction of                      (I.R.S. Employer
incorporation or organization)                       Identification No.)

126 E. Fourth Street, Michigan City, Indiana                 46360
  (Address of principal executive offices)                 (Zip Code)

       Registrant's telephone number, including area code: (219) 873-2800

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

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

                          Common Stock, $.01 Par Value
                                (Title of class)

         Check whether the issuer (1) filed all reports  required to be filed by
Section 13 or 15(d) of the  Securities  Exchange  Act of 1934 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 there is no  disclosure  of  delinquent  filers in response to
item  405 of  Regulation  S-B  contained  herein,  and  no  disclosure  will  be
contained,  to the best of the  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. [ X ]

         The issuer's revenues for its most recent fiscal year were $18,164,000.

         The aggregate  market value of the voting stock held by  non-affiliates
of the registrant,  i.e., persons other than directors and executive officers of
the registrant is  $31,538,093  and is based upon the last sales price as quoted
on the NASDAQ Small-Capital Market for June 4, 1997.

         The number of shares of the Common Stock of the registrant  outstanding
as of March 31, 1997 was 1,161,997.


<PAGE>


                                      INDEX

PART I
         Item 1.      Description of Business.............................     1

         Item 2.      Description of Properties...........................    26

         Item 3.      Legal Proceedings...................................    26

         Item 4.      Submission of Matters to a Vote of Security
                      Holders.............................................    26

PART II
         Item 5.      Market for  Common Equity and
                      Related Stockholder Matters.........................    27

         Item 6.      Management's Discussion and Analysis or
                           Plan of Operation..............................    28

         Item 7.      Financial Statements................................    40

         Item 8.      Changes in and Disagreements with
                      Accountants on Accounting and Financial
                      Disclosure..........................................    75

PART III
         Item 9.      Directors and Executive Officers; Promoters
                      and Control Persons; Compliance with
                      Section 16(a) of the Exchange Act...................    75

         Item 10.     Executive Compensation..............................    77

         Item 11.     Security Ownership of Certain Beneficial
                           Owners and Management..........................    80

         Item 12.     Certain Relationships and Related
                      Transactions........................................    81

         Item 13.     Exhibits and Reports on Form 8 K....................    81

         SIGNATURES.......................................................    84


<PAGE>

PART I

Item 1.  Description of Business
--------------------------------

General
CB  Bancorp,  Inc.  (the  "Company"  or "CB  Bancorp"  or  "CB")  is a  Delaware
corporation  which was  organized in 1992 by Community  Bank, A Federal  Savings
Bank (the "Bank" or "Community  Bank") for the purpose of becoming a savings and
loan holding company.  The Company owns all of the outstanding stock of the Bank
issued on December 23, 1992, in connection with the completion of its conversion
from the  mutual to the  stock  form of  organization  (the  "Conversion").  The
Company issued 1,284,238 shares of Common Stock at a price of $5.00 per share in
the  Conversion  as restated  for the  February  1994 100% stock  dividend.  All
references  to the  Company at or before  December  23,  1992 refer to the Bank.
Currently,  the Company  does not  transact  any  material  business  other than
through its sole subsidiary, the Bank. The Company retained approximately 50% of
the net conversion  proceeds  amounting to approximately  $2.5 million which was
invested in  short-term  investment  grade  securities  and,  from time to time,
purchased mortgage loans.

The Bank was organized in 1926 as an Indiana state  chartered  building and loan
association and later  converted to a federal  charter.  More recently,  in May,
1991,  the Bank  converted to a federal mutual savings bank and changed its name
to Community Bank, A Federal Savings Bank. Pursuant to the conversion,  the Bank
became a federally  chartered  capital  stock savings bank on December 23, 1992.
The Bank is a member of the  Federal  Home Loan Bank  ("FHLB")  System,  and its
deposit  accounts  are  insured to the maximum  allowable  amount by the Federal
Deposit Insurance Corporation  ("FDIC").  The Bank is chartered and regulated by
the Office of Thrift  Supervision  ("OTS"),  and the OTS is the  Bank's  primary
federal  supervisory  agency.  As a  non-diversified  savings  and loan  holding
company,  the  Company  has  registered  with  the  OTS  and is  subject  to OTS
regulations,  supervision  and reporting  requirements.  At March 31, 1997,  the
Company  had  assets  of  $227.1  million,   deposits  of  $149.8  million,  and
shareholders' equity of $20.8 million or 9.18% of total assets.

The Bank is a  community-oriented  financial  institution  offering a variety of
financial  services  to meet the needs of the  local  community.  Its  principal
business  has been and  continues  to be  attracting  retail  deposits  from the
general public and investing those deposits,  together with funds generated from
operations and borrowings, primarily in one- to four-family residential mortgage
loans and, to a lesser  extent,  in commercial  real estate and consumer  loans,
mortgage-backed  securities,  U.S.  Government and federal agency securities and
other marketable securities.  At March 31, 1997 one- to four-family  residential
mortgage loans held for investment totaled $69.6 million or 76.6% of total loans
held  for  investment.   In  addition,  at  March  31,  1997  the  Company  held
approximately  $95.3 million in one- to four-family  residential  mortgage loans
purchased under agreements to resell under its Mortgage Loan Reverse  Repurchase
Program.

The Company  operates  out of the Bank's  main  office  located at 126 E. Fourth
Street,  Michigan City, Indiana.  The Bank also conducts business out of its two
full service branch offices  located at 3710 S. Franklin Street in Michigan City
and 801 Monroe Street,  LaPorte,  Indiana.  The Company also  established a loan
production/mortgage  banking office in  Merrillville,  Indiana located at 701 E.
83rd Avenue, Suite E, Merrillville,  Indiana. The Bank's  deposit-gathering base
is  concentrated  in the  communities  surrounding its offices while its lending
base extends throughout LaPorte and contiguous counties.

Lending Activities
Loan and Mortgage-Backed  Securities Portfolio Compositions.  The Company's loan
portfolio   composition  consists  primarily  of  conventional   fixed-rate  and
adjustable-rate first mortgage loans secured by one- to four-family  residences.
At March 31, 1997, the Company's  gross mortgage  loans  outstanding  were $81.0
million,  of which $69.6 million were one- to four-family  residential  mortgage
loans. Of the mortgage loans outstanding at that date, 34.8% were  variable-rate
loans and 65.2% were fixed-rate loans. At that same date, commercial real estate
and  multi-family   mortgage  loans  totaled  $8.1  million  and  $2.7  million,
respectively.  The remainder of the Company's mortgage loans, which totaled $0.5
million or 0.60% of total gross loans  outstanding at March 31, 1997,  consisted
of construction loans. The Company's construction loans automatically convert to
permanent  loans  upon  completion  of  construction.  Other  loans  held by the
Company,  which primarily consist of consumer and commercial loans, totaled $9.9
million or 10.9% of total gross loans at March 31, 1997.

                                       1

<PAGE>

At March 31, 1997,  mortgage loans purchased under  agreements to resell totaled
$95.3 million or 41.9% of the Company's  total assets.  The mortgage  loans were
purchased  pursuant  to  the  Mortgage  Loan  Reverse  Repurchase  Program  (the
"Program")  and consisted  entirely of one- to  four-family  residential  loans.
These loans are primarily  fixed-rate mortgage loans with terms of 30 years. The
loans are  repurchased by the  participants  in the Program (for transfer to end
investors),  usually within 30 days of  origination.  The Program is designed to
provide financing for the mortgage banking activities of the participants and to
provide the Company with a relatively high yield short-term  investment  vehicle
that allows the Company to increase  profitability  while  managing its interest
rate risk.  There currently are 117 approved  mortgage  companies in the Program
located throughout the United States. The participants sell to the Company loans
originated in their home states as well as in other states in the United States.
The Program is carried out pursuant to agreements with each  participant,  which
provide that the Company,  at its option,  will purchase whole  mortgage  loans,
which are then  resold to the  participant  (for  transfer  to an end  investor)
generally within 90 days. The Company also purchases interim  construction loans
under  this program with subsequent repurchase often  extending  six  months  or
longer which may expose the Company to greater risk due to possible  changes  in
the financial condition  of  the  borrower  or  builder.   At  March  31,  1997,
construction  loan  balances  accounted  for  26.7%   of  the  Company's   total
outstanding  investment  in  the  program.   It  is  the  Company's   policy  to
purchase  loans only upon receipt of specified  documents  evidencing  that each
loan meets secondary market  underwriting  standards.  In addition,  the Company
will  purchase  only those loans for which a commitment  has been received by an
end investor to purchase the loan upon the  Company's  resale of the loan to the
participant  or when  the  Company  has been  provided  with  evidence  that the
participant has a commitment from a recognized  secondary market end investor to
purchase the loans that the participant sells to the Company.

The Company also invests in mortgage-backed  securities.  At March 31, 1997, net
mortgage-backed  securities  aggregated $8.5 million or 3.7% of total assets, of
which  45.9%  were  collateralized  by ARMs and  54.1%  were  collateralized  by
fixed-rate  mortgage  loans.  At  March  31,  1997,  all of the  mortgage-backed
securities in the Company's  portfolio  were insured or guaranteed by either the
Government  National  Mortgage  Association  ("GNMA") or the  Federal  Home Loan
Mortgage  Corporation  ("FHLMC") or the Federal National Mortgage  Association's
("FNMA")  or  consisted  of   collateralized   mortgage   obligations   ("CMOs")
collateralized   by  GNMA  or  FHLMC  insured  or   guaranteed   mortgage-backed
securities.  Mortgage-backed securities  and collateralized mortgage obligations
are subject to prepayment and extension risk depending on the speed at which the
underlying collateral prepays. Under a range of prepayment scenarios, management
is of the opinion that the Company's  portfolio of mortgage  related  securities
will provide  reasonable  returns  without  subjecting  the Company to excessive
prepayment or extension risk.

Source of Funds
General.  The Company's  primary  sources of funds are  deposits,  repayments on
loans and securities,  and, to a lesser extent,  FHLB-Indianapolis  advances and
federal funds.

Deposits.  The Company  offers a variety of deposit  accounts  having a range of
interest rates and terms. Deposit products principally consist of passbook, NOW,
demand, money market and certificate  accounts,  Keogh accounts,  and individual
retirement accounts ("IRA's").  The flow of deposits is influenced significantly
by general  economic  conditions,  the  restructuring  of the  thrift  industry,
changes in prevailing  interest rates and competition.  The Company's  deposits,
while primarily  obtained from LaPorte County,  Indiana,  are also gathered on a
wholesale basis as needed.  The Company relies primarily on customer service and
long-standing relationships with customers to attract and retain these deposits.
The Company  seeks to maintain a high level of stable core deposits by providing
extended  hours of service -- both early and late -- through its branch  offices
and drive-up facilities. When pricing deposits,  consideration is given to local
competition, Treasury offerings and the need for funds. Management's strategy is
to price deposit rates  moderately,  offering neither the highest nor the lowest
rates, and to stratify the pricing system to manage the Company's  interest rate
risk.

Subsidiary
Community  Financial  Services,   Incorporated   ("Community  Financial")  is  a
wholly-owned  subsidiary of the Bank,  incorporated in November 1986.  Community
Financial  originally engaged solely in the sale of tax deferred  annuities.  In
May, 1991,Community Financial expanded its activities to include the preparation
of federal and state income tax returns for individuals and small businesses and
the sale of credit life,  disability  and other  insurance  products.  Community
Financial has a 99% limited

                                       2

<PAGE>

partner  interest in Pedcor  Investments-1994-XX,  L.P. which was formed for the
construction,  ownership and management of an 80 unit apartment  project located
in  LaPorte  County.  Terms of the  partnership  agreement  allocate  99% of the
eligible tax credits and operating losses to the limited  partner.  At March 31,
1997, the Bank's net investment in Community Financial totaled $578,000. For the
year ended March 31, 1997,  Community  Financial  had net income of $57,000.  In
May,  1994,   Community   Financial   directed  the  start-up  of  a  securities
broker-dealer.  From this, Community Brokerage Services, Incorporated was formed
as  a  subsidiary  under  the  Community  Financial  corporate  umbrella.   Full
broker-dealer  securities services were successfully introduced to the Company's
customers as well as the general public in November, 1994.

Competition
The LaPorte County,  Indiana area has a high density of financial  institutions,
many of which are significantly larger and have greater financial resources than
the Company, and all of which are competitors of the Company to varying degrees.
The Company's  competition for loans comes  principally  from commercial  banks,
credit unions,  savings and loan associations,  savings banks,  mortgage banking
companies and insurance companies.  Its most direct competition has historically
come from savings and loan  associations,  savings banks,  commercial banks, and
credit  unions.  The Company  faces  additional  competition  for deposits  from
short-term  money market funds and other  corporate  and  government  securities
funds.  The  Company  also faces  increased  competition  from  other  financial
institutions  such as brokerage  firms and  insurance  companies  for  deposits.
Competition  has and may  continue  to  increase  as a result of the  lifting of
restrictions on the interstate operations of financial institutions.

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

Recent Developments
On March 1, 1997 the Company  announced  that it had entered  into a  Definitive
Agreement  ("Agreement")  to be acquired by and merged into  Pinnacle  Financial
Services,  Inc. ("Pinnacle") subject to regulatory and shareholder approval. The
terms of the  Agreement  provide for a purchase  price of $35.00 per CB Bancorp,
Inc.  ("CB") share payable in Pinnacle common stock.  Under the Agreement,  each
share of CB common  stock will be  exchanged  for a number of shares of Pinnacle
stock determined by dividing $35.00 by Pinnacle's average stock price during the
15 day  period  prior to the five day  period  before  the  merger is  effected.
However,  if Pinnacle's average stock price exceeds $29.00, CB shareholders will
receive 1.2069 Pinnacle  shares per CB share. If Pinnacle's  average stock price
is less than $23.00,  CB shareholders will receive 1.5217 Pinnacle shares per CB
share.

Pinnacle is the parent company of Pinnacle Bank,  which is  headquartered in St.
Joseph,  Michigan.  Pinnacle Bank  presently has 28 banking  centers  located in
southwest  Michigan  and  northwest  Indiana.  In addition,  Pinnacle  Financial
Services,  Inc.  announced in November, 1996 a pending merger between itself and
Indiana Federal  Corporation, parent company of Indiana Federal Bank for Savings
of  Valparaiso,  Indiana.  Indiana  Federal  Bank also has a major  presence  in
northwest Indiana.  The  merging  of Indiana Federal Corporation and CB Bancorp,
Inc.  into  Pinnacle  will  result  in  a  $2.1  billion banking company with 50
banking centers located along the southern tip of Lake Michigan.

Personnel
As of March 31, 1997,  the Company had 60 full-time  employees  and 13 part-time
employees.  The employees are not represented by a collective  bargaining  unit,
and the Company considers its relationship with its employees to be good.

Statistical Disclosure
The following  tables set forth  selected  financial  information  regarding the
business of the Company for the periods shown.


                                       3

<PAGE>

I.  DISTRIBUTION OF ASSETS, LIABILITIES AND SHAREHOLDERS' EQUITY;
    INTEREST RATES AND INTEREST DIFFERENTIAL

A.   The  following  tables  set  forth,  at March 31,  for the  years  ended as
     indicated,  the condensed  average balance of  interest-earning  assets and
     interest-bearing  liabilities, the  interest  earned  or  accrued  on  such
     amounts, and the average interest rates earned or paid thereon.





<TABLE>
<CAPTION>
                                                      1997                                         1996
                                     Average                      Average        Average                        Average
                                     Balance        Interest     Yield/Cost      Balance         Interest      Yield/Cost
                                     ----------------------------------------------------------------------------------------
                                           (Dollars In Thousands)                        (Dollars In Thousands)
<S> <C>
ASSETS
Interest-earning assets:
  Loans, net(1)(2)                   $172,236        $15,125        8.78%        $148,078         $13,030         8.80%
    Mortgage-backed securities          9,458            632        6.68           10,356             689         6.65
    Interest-bearing deposits
      and federal funds sold              997             49        4.91            1,025              67         6.54
    Securities                          9,331            595        6.38            9,036             566         6.26
                                     --------------------------                  ---------------------------

Total interest-earning assets         192,022         16,401        8.54          168,495          14,352         8.52
Noninterest-earning assets             12,289                                      10,650
                                     ----------------------------------------------------------------------------------------
Total assets                         $204,311                                    $179,145
                                     ========================================================================================
LIABILITIES & SHAREHOLDERS' EQUITY
Interest-bearing liabilities:
  NOW accounts                       $ 14,160        $   315        2.22%        $ 13,519         $   301         2.23%
  Money market accounts                 9,530            328        3.44            8,819             303         3.44
  Passbook accounts                    27,113            814        3.00           27,633             836         3.03
  Certificate accounts                 77,460          4,223        5.45           64,885           3,601         5.55
  Borrowed funds                       43,464          2,454        5.65           34,414           2,022         5.88
                                     --------------------------                  ---------------------------
Total interest-bearing liabilities    171,727          8,134        4.74          149,270           7,063         4.73
Other liabilities(3)                   13,017                                      12,297
                                     ----------------------------------------------------------------------------------------
Total liabilities                    $184,744                                    $161,567

Shareholders' equity                   19,567                                      17,578
                                     ----------------------------------------------------------------------------------------

Total liabilities &
  shareholders' equity               $204,311                                    $179,145
                                     ========================================================================================
Net interest income/
  interest rate spread(4)                            $ 8,267        3.80%                           $7,289        3.79%
                                     ========================================================================================
Net interest-earning assets/
  net interest margin(5)             $ 20,295                       4.31%        $ 19,225                         4.33%
                                     ========================================================================================
Ratio of interest-earning assets to
  average interest-bearing liabilities                            111.82%                                       112.88%
                                     ========================================================================================
</TABLE>




<TABLE>
<CAPTION>
                                                       1995
                                     Average                          Average
                                     Balance         Interest        Yield/Cost
                                  ---------------------------------------------
                                             (Dollars In Thousands)
<S> <C>
ASSETS
Interest-earning assets:
  Loans, net(1)(2)                   $ 96,785           $7,801          8.06%
    Mortgage-backed securities         10,833              653          6.03
    Interest-bearing deposits
      and federal funds sold            3,995              177          4.43
    Securities                         10,966              568          5.18
                                     ----------------------------

Total interest-earning assets         122,579            9,199          7.50
Noninterest-earning assets              9,702
                                  ---------------------------------------------
Total assets                         $132,281
                                  =============================================
LIABILITIES & SHAREHOLDERS' EQUITY
Interest-bearing liabilities:
  NOW accounts                       $ 11,556           $  283          2.45%
  Money market accounts                 9,325              285          3.06
  Passbook accounts                    31,202              944          3.03
  Certificate accounts                 52,967            2,450          4.63
  Borrowed funds                        3,251              182          5.60
                                  -------------------------------
Total interest-bearing liabilities    108,301            4,144          3.83
Other liabilities(3)                    7,952
                                  ---------------------------------------------
Total liabilities                    $116,253

Shareholders' equity                   16,028
                                  ---------------------------------------------

Total liabilities &
  shareholders' equity               $132,281
                                  =============================================
Net interest income/
  interest rate spread(4)                                $5,055         3.67%
                                  =============================================
Net interest-earning assets/
  net interest margin(5)             $ 14,278                           4.12%
                                  =============================================
Ratio of interest-earning assets
  to average interest-bearing
  liabilities                                                         113.18%
                                  =============================================
</TABLE>

(1)  Nonaccruing loans have been included in the average loan balance.
(2)  Calculated net of  deferred loan fees, loan discount, loans in  process and
     the allowance for loan losses.
(3)  Includes noninterest-bearing demand deposit accounts.
(4)  Interest rate spread represents  the difference between the average rate on
     interest-earning   assets   and   the  average   cost  of  interest-bearing
     liabilities.
(5)  Net  interest  margin  represents  net  interest income divided  by average
     interest-earning assets.

                                       4

<PAGE>

I.  DISTRIBUTION OF ASSETS, LIABILITIES AND SHAREHOLDERS' EQUITY;
    INTEREST RATES AND INTEREST DIFFERENTIAL (continued)

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


<TABLE>
<CAPTION>
                                                     (Dollars In Thousands)
                                    Year Ended March 31,             Year Ended March 31,
                                   1997 Compared to Year            1996 Compared to Year
                                    Ended March 31, 1996             Ended March 31, 1995
                                    Increase (Decrease)              Increase (Decrease)

                                 Volume      Rate        Net      Volume      Rate        Net
                                 ------      ----        ---      ------      ----        ---
<S> <C>
INTEREST-EARNING ASSETS
Loans, net                       $2,122    $   (27)   $ 2,095    $ 4,458    $   771    $ 5,229
Mortgage-backed securities          (60)         3        (57)       (30)        66         36
Interest-bearing deposits and
  federal funds sold                 (2)       (16)       (18)      (170)        60       (110)
Securities                           19         10         29       (110)       108         (2)
                                ---------------------------------------------------------------
                                  2,079        (30)     2,049      4,148      1,005      5,153

INTEREST-BEARING LIABILITIES
                                ---------------------------------------------------------------
NOW accounts                         14         --         14         45        (27)        18
Money market accounts                24          1         25        (16)        34         18
Passbook accounts                   (16)        (6)       (22)      (108)        --       (108)
Certificate accounts                687        (65)       622        610        541      1,151
Borrowed funds                      514        (82)       432      1,831          9      1,840
                                ---------------------------------------------------------------
    Total                         1,223       (152)     1,071      2,362        557      2,919
                                ---------------------------------------------------------------
Change in net
interest income                  $  856    $   122    $   978    $ 1,786    $   448    $ 2,234
                                ===============================================================
</TABLE>


                                       5


<PAGE>


II.  INVESTMENT PORTFOLIO
        SECURITIES

     A.   The amortized  cost and fair market value of securities as of March 31
          are set forth in the table below (in thousands).

<TABLE>
<CAPTION>
                                                  1997                          1996                          1995
                                          ----------------------        ----------------------       ------------------------
                                          Amortized        Fair         Amortized        Fair        Amortized          Fair
                                             Cost          Value           Cost          Value          Cost            Value
                                              (In Thousands)                (In Thousands)                (In Thousands)
                                          -----------------------------------------------------------------------------------
<S> <C>
       SECURITIES AVAILABLE FOR SALE:
         Marketable equity securities         $572          $672            $578          $621           $578            $581

                                          ===================================================================================
       SECURITIES HELD-TO-MATURITY:
         U.S. Government
           agency securities                $3,000        $2,952          $3,000        $2,970         $2,680          $2,612
         U.S. Treasury
            obligations                                                                                 1,076           1,071
        Corporate notes                      2,789         2,793           2,675         2,674          2,733           2,735
        Mortgage-backed                      8,510         8,603          10,192        10,282         10,740          10,647
                                          -----------------------------------------------------------------------------------

       Total Securities Held-to-
          Maturity                         $14,299       $14,348         $15,867       $15,926        $17,229         $17,065

                                          ===================================================================================

       Other Securities:
       Federal Home Loan Bank
         Stock, net                        $ 2,752       $ 2,752         $ 2,702       $ 2,702        $ 2,350         $ 2,350

                                          ===================================================================================
</TABLE>



          B.   The maturity  distribution and weighted average interest rates of
               securities available for sale at March 31, 1997 are as follows:

               All securities available-for-sale are equity securities.

               The maturity  distribution  and weighted  average  interest rates
               of securities held to maturity at, excluding mortgage-backed
               securities,  March  31,  1997 are set forth in the table below.
<TABLE>
<CAPTION>
                                                                                               After One Year
                                                                    Within                       But Within
                                                                   One Year                      Five Years
                                                            Amount          Rate            Amount          Rate
                                                            ------          ----            ------          ----
                                                        (In Thousands)                  (In Thousands)
<S> <C>
       U.S. Government
         agency securities                                  $    0          0.00%          $3,000           6.01%

       Corporate notes                                       1,778          5.81%           1,011           6.45%
                                                        ---------------------------------------------------------
       Total                                                $1,778          5.81%          $4,011           6.12%
                                                        =========================================================
</TABLE>

                                       6

<PAGE>

         II.  INVESTMENT PORTFOLIO (continued)

          C.  There  were no  securities  available-for-sale  of any one issuer
              which exceeded 10% of the shareholders'  equity of the Company at
              March 31, 1997.


              Excluding  those  holdings  of the  securities  portfolio  in U.S.
              Treasury  securities  and U.S.  Government  agency securities  and
              Federal  Home Loan Bank  Stock,  there were no securities  held to
              maturity of any one issuer which exceeded 10% of the
              shareholders' equity of the Company at March 31, 1997.

                                       7


<PAGE>

III.  LOAN PORTFOLIO
A. The following table sets forth the composition of the Company's  mortgage and
other  loan  portfolios  and  mortgage-backed  securities  portfolios  in dollar
amounts and in percentages at March 31. All dollars are in thousands.


<TABLE>
<CAPTION>
                                         1997                1996                 1995                1994                1993
                                   ----------------    ----------------     ----------------    ----------------    ----------------
                                               % of                % of                % of                % of                % of
                                    Amount    Total     Amount    Total      Amount    Total     Amount    Total     Amount    Total
                                    ------    -----     ------    -----      ------    -----     ------    -----     ------    -----
<S> <C>
Loans Receivable:
   Mortgage loans:
      One-to-four family           $69,602   76.56%    $73,413   78.87%     $74,385   83.90%    $73,354   92.08%    $75,515   92.86%
      Other mortgage loans
   Commercial real estate            8,141    8.95%      8,171    8.78%       6,160    6.95%      3,457    4.34%      3,513    4.32%
       Multi-family                  2,710    2.98%      3,242    3.48%       1,595    1.80%        623    0.78%        692    0.85%
       Land                              0    0.00%          0    0.00%           0    0.00%         10    0.01%         12    0.02%
   Construction                        545    0.60%        591    0.63%       2,428    2.74%        748    0.94%         40    0.05%
                                   -------------------------------------------------------------------------------------------------
         Total  mortgage loans     $80,998   89.09%    $85,417   91.76%     $84,568   95.39%    $78,192   98.15%    $79,772   98.10%
                                   -------------------------------------------------------------------------------------------------

  Consumer & other loans:
     Visa/Mastercard                     0    0.00%        389    0.42%          37    0.04%
     Automobile                        431    0.47%        400    0.43%         362    0.41%        224    0.28%        373    0.46%
     Share                             188    0.21%        242    0.26%         233    0.26%        213    0.27%        303    0.37%
     Home Equity and Second Mtg.     2,853    3.14%      1,789    1.92%       1,273    1.44%        784    0.98%        703    0.86%
  Commercial and other               6,446    7.09%      4,846    5.21%       2,182    2.46%        253    0.32%        169    0.21%
                                   -------------------------------------------------------------------------------------------------
  Total  Consumer & other Loans      9,918   10.91%      7,666    8.24%       4,087    4.61%      1,474    1.85%      1,548    1.90%
                                   -------------------------------------------------------------------------------------------------
         Gross loans receivable    $90,916  100.00%    $93,083  100.00%     $88,655  100.00%    $79,666  100.00%    $81,320  100.00%
                                   -------------------------------------------------------------------------------------------------

Less:
  Loans in process                     236                  48                1,422                 735                   7
  Unearned discounts, premiums
     & deferred loan fees, net         365                 419                  443                 433                 377
                                   -------------------------------------------------------------------------------------------------
  Loans receivable                 $90,315             $92,616              $86,790             $78,498             $80,936
                                   =================================================================================================
Mortgage loans purchased
  under agreements to resell
  One- to four-family              $95,276             $80,031              $25,179             $34,193             $29,240
                                   =================================================================================================
Mortgage Loans
    held for sale                     $914                $513
                                   =================================================================================================

Total Loans                       $186,505            $173,160             $111,969            $112,691            $110,176
                                  ========            ========             ========            ========            ========
Mortgage-backed securities:
  FHLMC certficates                 $4,221              $4,892               $5,956              $4,969              $5,174
  GNMA certificates                  3,199               3,600                2,924               3,249               3,297
  FNMA certificates                    862                 880                  970                  --                  --
  CMOs                                 239                 834                  904               2,041               1,514
                                   -------------------------------------------------------------------------------------------------
       Total mtg-backed securities   8,521              10,206               10,754              10,259               9,985
                                   -------------------------------------------------------------------------------------------------
Net premiums and discounts             (11)                (14)                 (14)                 16                  23
                                   -------------------------------------------------------------------------------------------------
       Net mtg-backed securities    $8,510             $10,192              $10,740             $10,275             $10,008
                                   =================================================================================================

Mortgage loans:
  Adjustable rate                  $28,175   34.78%    $34,362   40.23%     $35,394   41.85%    $27,762   35.50%    $33,505   42.00%
  Fixed rate                        52,823   65.22%     51,055   59.77%      49,174   58.15%     50,430   64.50%     46,267   58.00%
                                   -------------------------------------------------------------------------------------------------
       Total mortgage loans        $80,998  100.00%    $85,417  100.00%     $84,568  100.00%    $78,192  100.00%    $79,772  100.00%
                                   =================================================================================================
</TABLE>


                                       8

<PAGE>

III. LOAN PORTFOLIO (continued)

  B. LOAN MATURITY
         The  following  table  shows the  maturity  of the  Company's  loan and
         mortgage-backed  portfolio at March 31, 1997. Except for mortgage loans
         purchased under  agreements to resell and  mortgage-backed  securities,
         loans  are  shown  as being  due in  accordance  with  the  contractual
         scheduled   principal   repayments.   Mortgage  loans  purchased  under
         agreements  to resell are shown based upon  contractual  resale  terms.
         Mortgage-backed  securities  are shown as being due in accordance  with
         contractual  term to maturity  and do not include  scheduled  principal
         amortization.

<TABLE>
<CAPTION>
                                                          AT MARCH 31, 1997
                                ------------------------------------------------------------------------------------------
                                                                        Mortgage
                                                                          Loans       Mortgage
                                             Consumer     Total         Purchased      Loans
                                               and        Loans           Under        Held        Mortgage-
                                Mortgage      Other     Receivable      Agreements     For         Backed
                                 Loans        Loans       Gross         To Resell      Sale        Securities      Total
                                ------------------------------------------------------------------------------------------
                                                           (Dollars In Thousands)
<S> <C>
         Amounts due
         Within 1 year           $ 3,954      $5,462     $ 9,416         $95,276       $914         $2,635        $108,241
                                ------------------------------------------------------------------------------------------
         After 1 year
           1-3 years               9,832       2,171      12,003              --         --            654          12,657
           3-5 years               9,773       1,129      10,902              --         --            852          11,754
           5-10 years             20,077         987      21,064              --         --             63          21,127
           10-15 years            13,172         169      13,341              --         --            441          13,782
           Over 15 years          24,190          --      24,190              --         --          3,865          28,055
                                ------------------------------------------------------------------------------------------
         Total due after 1 year   77,044       4,456      81,500              --         --          5,875          87,375
                                ------------------------------------------------------------------------------------------

         Total Amounts Due       $80,998      $9,918     $90,916         $95,276       $914         $8,510        $195,616
                                ==========================================================================================
</TABLE>


         The following table sets forth, at March 31, 1997, the dollar amount of
         all loans and mortgage-backed  securities due after March 31, 1998, and
         whether such loans and  mortgage-backed  securities have fixed interest
         rates or adjustable interest rates.

<TABLE>
<CAPTION>
                                                LOANS MATURING AFTER MARCH 31, 1998
                                          ------------------------------------------------
                                           Fixed Rate         Adjustable Rate
                                                    (In Thousands)                  Total
                                          ------------------------------------------------
<S> <C>
         Mortgage loans                      $50,278              $26,766          $77,044
         Non-mortgage loans                    3,006                1,450            4,456
                                          ------------------------------------------------
           Total loans receivable             53,284               28,216           81,500

         Mortgage-backed securities            2,165                3,710            5,875
                                          ------------------------------------------------

           Total loans receivable and
           mortgage-backed securities        $55,449              $31,926          $87,375
                                          ================================================
</TABLE>

                                       9

<PAGE>

III.   LOAN PORTFOLIO (continued)

  C.  RISK ELEMENTS
  1.   Non-performing Assets

         The following  table sets forth  information  regarding  non-performing
         assets  (nonperforming  loans  and  real  estate  owned)  at the  dates
         indicated.  Interest income on consumer and other loans is accrued over
         the  term of the  loan  except  when  serious  doubt  exists  as to the
         collectibility  of a loan,  in which case the  accrual of  interest  is
         discontinued. Income is subsequently recognized only to the extent that
         cash  payments  are  received  until,  in  management's  judgment,  the
         borrower has the ability to make  contractual  interest  and  principal
         payments,  in which  case  the  loan is  returned  to  accrual  status.
         Effective for fiscal 1992, the Company  adopted a policy of placing all
         mortgage  loans  delinquent 90 days or more on non-accrual  status.  At
         that time,  all accrued but  uncollected  interest on mortgage loans 90
         days or more  delinquent  was reversed.  Effective for fiscal 1996, the
         Company adopted SFAS 114 and 118 which establish accounting  guidelines
         for impaired  loans. A loan is considered  impaired when it is probable
         that all principal and interest amounts will not be collected according
         to  the  loan  contract.   SFAS  118  requires  that  loss   allowances
         established  on impaired loans shall be determined by using the present
         value of  estimated  future  cash flows of the loan  discounted  at the
         loan's  effective  interest rate or at the fair value of the collateral
         if the loan is collateral dependent.


<TABLE>
<CAPTION>
                                                                                     At March 31,
                                                                1997        1996         1995        1994        1993
                                                                ----        ----         ----        ----        ----
                                                                                            (Dollars In Thousands)
<S> <C>
         Accruing mortgage loans
           delinquent more than 90 days                       $   --      $   --         $ --        $ --        $ --
         Accruing consumer and other
           loans delinquent more than
           90 days                                                --           4           --           6           8
         Non-accruing mortgage
           loans delinquent more than
           90 days                                               229         523          463         394         196
         Non-accruing consumer and
           other loans delinquent
           more than 90 days                                      --          --           --          --           4
                                                              -------------------------------------------------------
         Total loans delinquent
           more than 90 days                                     229         527          463         400         208
         Restructured loans                                      287         306          341         251         351
         Impaired Loans                                        5,920       2,164           --          --          --
                                                              -------------------------------------------------------
         Total non-performing loans                            6,436       2,997          804         651         559
         Total real estate owned,
           net of related reserves                               146          --           --          --          44
                                                              -------------------------------------------------------

         Total non-performing assets                          $6,582      $2,997         $804        $651        $603
                                                              =======================================================
</TABLE>


<TABLE>
<CAPTION>
                                                                                     At March 31,
                                                                1997        1996         1995        1994        1993
                                                                ----        ----         ----        ----        ----
                                                                                            (Dollars In Thousands)
<S> <C>
         Accruing mortgage loans delinquent
           more than 90 days to total loans                     0.00%       0.00%        0.00%       0.00%       0.00%
         Accruing consumer and other loans
            delinquent more than 90 days to total loans         0.00        0.00         0.00        0.01        0.01
         Non-accruing mortgage loans delinquent
           more than 90 days to total loans                     0.12        0.30         0.41        0.35        0.18
         Non-accruing consumer and other loans
           delinquent more than 90 days to total loans             0        0.00         0.00        0.00        0.00
         Non-accrual loans to total loans                       0.12        0.30         0.41        0.35        0.19
         Restructured loans to total loans                      0.15        0.18         0.30        0.22        0.32
         Total non-performing loans to total loans              3.45        1.73         0.71        0.57        0.51
         Total non-performing assets to total assets            2.90        1.46         0.56        0.45        0.44
         Gross interest income that would have been
           recorded if loans had been current in
           accordance with original terms                       $509        $206          $54         $50         $36
         Interest income from non-performing loans
           and restructured loans included in income            $304        $150          $22         $28         $18
</TABLE>


                                       10

<PAGE>

III.   LOAN PORTFOLIO (continued)

  C.  RISK ELEMENTS (continued)

         Of  the  total  balance  of  impaired  loans  as  of  March  31,  1997,
         approximately  $1.2 million relates to amounts  associated with Bennett
         Funding Group Inc. ("Bennett") and Aloha Capital Corporation ("Aloha"),
         an affiliate of Bennett.  The reason for the impairment  classification
         is that Bennett  recently filed for Chapter 11 bankruptcy and Aloha was
         drawn into involuntary  bankruptcy.  The Bank purchased numerous leases
         secured by small business equipment such as copy and facsimile machines
         from Bennett and Aloha. The purchases total approximately $396,000 from
         Bennett and $1.3 million from Aloha.  Both  companies  act as servicing
         agents  to  collect  lease  payments  for the  Bank.  The  Company  has
         negotiated a settlement,  and the anticipated recovery is approximately
         70% of the  original  balance.  The portion of the  allowance  for loan
         losses allocated to the above loans is  approximately  $61,000 which is
         based on the  present  value  of the  anticipated  cash  flows of these
         loans. The amount deemed to  be  uncollectable  was  $433,000  and  was
         charged-off during the year ended March 31, 1997.

         Also  included in the  impaired  loan  balance at March 31, 1997 are 65
         single family  construction  loans, all located in the state of Indiana
         with a total  outstanding  balance of $4.7  million and total  unfunded
         commitments  of $2.1  million.  Eighteen of these loans,  totaling $1.3
         million,  are  outstanding  to one builder.  The Company has  allocated
         $308,000 of the allowance for loan losses to these loans.  Forty one of
         these loans  totaling $2.4 million are  outstanding  to two  affiliated
         companies,  one of which is in  bankruptcy.  The Company has  allocated
         $125,000  of  the  allowance  for  loan  losses  to  these  loans.  The
         remaining  6 loans  totaling  $1.2  million  are  with  three  separate
         builders and the Company has  allocated  $116,000 of the  allowance for
         loan losses to these loans. The Company has performed inspections of
         all of these properties, either internal or through third parties, and
         has utilized this information in determining the adequacy of its loan
         loss reserves.

    2.   Potential Problem Loans

         As of March 31,  1997,  there  were no loans  where  there are  serious
         doubts as to the ability of the  borrower to comply with  present  loan
         repayment   terms  which  are  not   included  in  Section  C.1  above.
         Consideration was given to loans classified for regulatory  purposes as
         loss,  doubtful,  substandard,  or special  mention  that have not been
         disclosed in Section C.1 above.

    3.   Foreign Outstandings
         None

    4.   Loan Concentrations

         The Company grants real estate and consumer loans including  education,
         home  improvement  and other  consumer  loans  primarily in LaPorte and
         Porter  counties  of  Indiana.  Substantially  all loans are secured by
         consumer assets and real estate. Loans secured by real estate mortgages
         make up approximately 89.1% of the loan portfolio at March 31, 1997 and
         are primarily secured by residential  mortgages.  Loans purchased under
         agreements  to  resell  are  residential  mortgages  secured  by one-to
         four-family residences located throughout the United States.

  D.  OTHER INTEREST-EARNING ASSETS

         There are no other  interest-earning  assets as of March 31, 1997 which
         would be required to be disclosed  under Item III,  Section C.1 or 2 of
         Guide 3 if such assets were loans and nonperforming.


                                       11
<PAGE>

IV.  SUMMARY OF LOAN LOSS EXPERIENCE

         The  allowance for loan losses is  established  through a provision for
         loan losses based on  management's  evaluation  of the risk inherent in
         its loan  portfolio and the general  economy.  Such  evaluation,  which
         includes a review of all loans for which full collectibility may not be
         reasonably assured,  considers,  among other matters, the estimated net
         realizable  value of the underlying  collateral,  economic  conditions,
         historical   loan  loss  experience  and  other  factors  that  warrant
         recognition in providing for an adequate loan loss allowance.

         The following table sets forth the Company's  allowance for loan losses
         at or for the dates indicated.

<TABLE>
<CAPTION>
                                                                At or for the Year
                                                                  Ended March 31,
                                               1997         1996      1995         1994        1993
                                             --------------------------------------------------------
                                                              (Dollars in Thousands)
<S> <C>
         Balance at beginning
           of period                         $1,347         $673      $595         $495        $228
         Charge-offs:
           Mortgage loans                       (26)          --        --           --         (11)
           Consumer and other
              loans                            (454)        (125)       --           (4)         (6)
            Mortgage Loans purchased
            under agreements to resell         (501)        (221)       --           --          --
                                             --------------------------------------------------------
                    Total charge offs          (981)        (346)        0           (4)        (17)

         Recoveries:
           Mortgage loans                       251           --        --           --           5
           Consumer and other
              loans                              --           --        --            1           1
                                             --------------------------------------------------------
               Total  recoveries                251           --        --            1           6

         Net charge-offs                       (730)        (346)        0           (3)        (11)

         Provision for loan losses            1,191        1,020        78          103         278
                                             --------------------------------------------------------
         Balance at end of period            $1,808       $1,347      $673         $595        $495
                                             ========================================================
         Ratio of allowance for
           loan losses to net loans
            at end of period                   0.98%        0.79%     0.60%        0.53%       0.45%
         Ratio of allowance for
           loan losses to total
           non-performing loans
           at end of period                   28.09        44.94     83.71        91.40       88.55

         Ratio of net charge-offs
           to average loans outstanding
           during the period                   0.42         0.23      0.00         0.00        0.01
</TABLE>



<TABLE>
<CAPTION>
                                                              March 31,  (Dollars in Thousands)
                                             ---------------------------------------------------------------------
                                                     1997                   1996                     1995
                                             Amount  Percentage(1)  Amount  Percentage(1)    Amount  Percentage(1)
                                             ------  -------------  ------  -------------    ------  -------------
<S> <C>
         Allowance at end of
         period applicable to:
            Mortgage Loans                   $  374           44%   $  500           49%     $  300          75%
            Consumer Loans and other            230            5       447            5         171           3
            Mortgage Loans purchased
            under agreements to resell          981           51       200           46          77          22
            Unallocated                         223            0       200         0.00         125        0.00
                                             ---------------------------------------------------------------------
         TOTAL                               $1,808       100.00%   $1,347       100.00%     $  673      100.00%
                                             =====================================================================

<CAPTION>
                                                  March 31,  (Dollars in Thousands)
                                             --------------------------------------------
         Allowance at end of                         1994                   1993
         period applicable to:               Amount  Percentage(1)  Amount  Percentage(1)
                                             ------  -------------  ------  -------------
<S> <C>
            Mortgage Loans                      300           69%   $  240           72%
            Consumer Loans and other            147            1       106            1
            Mortgage Loans purchased
            under agreements to resell            0           30         0           27
            Unallocated                         148            0       149         0.00
                                             --------------------------------------------
         TOTAL                                  595       100.00%   $  495       100.00%
                                             ============================================
</TABLE>

         (1)  Percent of type of loans in each  category  to total  loans at the
dates indicated.

                                       12

<PAGE>

V.  DEPOSITS

The  following  table  sets  forth the  distribution  of the  Company's  deposit
accounts at the dates indicated and the weighted  average nominal interest rates
on each category of deposits  presented at year end. See Table I Distribution of
Assets,  Liabilities  and  Shareholders'  Equity;  Interest  rates and  Interest
Differential  for  presentation  of average  balances  and average  rate paid on
deposits for the period ended March 31, 1997,  1996 and 1995. All Dollars are in
thousands.

<TABLE>
<CAPTION>
                                                                          At March 31,
                         --------------------------------------------------------------------------------------------------------
                                        1997                                  1996                             1995
                                        ----                                  ----                             ----
                                                    Weighted                           Weighted                          Weighted
                                       Percent       Average                 Percent    Average               Percent     Average
                                      of Total       Nominal                of Total    Nominal              of Total     Nominal
                           Amount     Deposits        Rate      Amount      Deposits     Rate     Amount     Deposits      Rate
                           ------     --------        ----      ------      --------     ----     ------     --------      ----
<S> <C>
Demand accounts (1):
  Money market           $  9,509        6.34%        3.53%   $  9,425         6.82%     3.53%  $  8,944        7.98%      3.34%
  NOW and demand           23,700       15.82         1.32      32,194        23.28      1.03     20,871       18.62       1.42
                         ---------------------                ----------------------            ---------------------
Total demand accounts      33,209       22.16         1.99      41,619        30.10      1.61     29,815       26.60       2.02

Passbook accounts          27,230       18.18         3.01      27,985        20.24      3.01     29,090       25.96       3.01

Certificate accounts:
  Ninety-one days and
     under                  9,941        6.64         5.53       1,047         0.76      4.54        191        0.17       3.90
  Six month                14,861        9.92         5.32      15,082        10.91      5.21     12,055       10.76       5.03
  One year                 10,993        7.33         5.29      11,154         8.07      5.06      8,873        7.92       5.20
  Eighteen months           5,182        3.46         5.41       5,536         4.00      5.70      5,618        5.01       4.63
  Two year                  2,605        1.74         5.69       2,456         1.78      5.40      2,938        2.62       4.80
  Three year                4,999        3.34         5.72       6,180         4.47      5.25      7,184        6.41       5.12
  Four year                 1,499        1.00         5.47       2,022         1.46      5.45      2,551        2.28       5.61
  Five to ten year          4,471        2.98         5.90       4,764         3.45      5.95      3,999        3.56       5.90
  IRA and Keogh accounts    7,395        4.94         5.62       7,320         5.29      5.64      6,971        6.22       5.64
  Jumbo (2)                27,424       18.31         5.63      13,096         9.47      5.42      2,786        2.49       5.65
                         ---------------------                ----------------------            ---------------------
Total certificate
  accounts                 89,370       59.66         5.53      68,657        49.66      5.37     53,166       47.44       5.22
                         ---------------------                ----------------------            ---------------------

Total deposits           $149,809      100.00%        4.30%   $138,261       100.00%     3.78%  $112,071      100.00%      3.81%
                         =======================================================================================================
</TABLE>


(1)  At March 31, 1997,  1996 and 1995,  total demand and NOW accounts  included
     noninterest-bearing  deposits  of $10.0  million,  $17.9  million  and $8.3
     million, respectively.

(2)  Deposit balances greater than $100,000.


At March 31, 1997, the Company had outstanding $36.8 million in deposit accounts
in amounts greater than $100,000 maturing as follows:

                                                         Amount
                                                         ------
           Maturity Period                           (In Thousands)
           ---------------
           Three months or less                         $33,134
           Over three months through six months           1,800
           Over six months through 12 months              1,100
           Over 12 months                                   740
                                                        -------
           TOTAL                                        $36,774
                                                        =======

                                       13

<PAGE>

VI.  RETURN ON EQUITY AND ASSETS

         The ratio of net income to average  equity and average total assets and
certain other ratios are as follows:


<TABLE>
<CAPTION>
                                                         1997         1996         1995
                                                         ----         ----         ----
                                                            (Dollars in Thousands)
<S>  <C>
         Average total assets                         $204,311     $179,145     $132,281

         Average equity                               $ 19,567     $ 17,578     $ 16,028

         Net income                                   $  2,312     $  2,458     $  1,660

         Cash dividends declared                            --     $     --     $     --

         Return on average total assets                   1.13%        1.37%        1.25%

         Return on average equity                        11.82%       13.98%       10.36%

         Dividend payout percentage
           (Dividends declared divided by net income)     0.00%        0.00%        0.00%

         Average equity to average total assets           9.58%        9.81%       12.12%
</TABLE>

VII. SHORT-TERM BORROWINGS

         During the fiscal  year ended  March 31,  1997,  the  Company  utilized
         short-term  borrowings,  primarily  from the Federal  Home Loan Bank of
         Indianapolis   and  overnight   Federal  Funds,  to  meet  the  funding
         requirements   of  the  Mortgage  Loan  Reverse   Repurchase   Program.
         Information  regarding  short term  borrowing  activity  is provided as
         follows:


<TABLE>
<CAPTION>
                                                                          At or for the Year Ended   At or for the Year Ended
                                                                               March 31, 1997             March 31, 1996
                                                                          ------------------------   ------------------------
                                                                           (Dollars in Thousands)     (Dollars in Thousands)
<S> <C>
         FHLB advances and line of credit:
           Average balance outstanding                                           $38,964                    $28,233
           Maximum amount outstanding at any month-end during the period          46,284                     47,230
           Balance outstanding at end of period                                   46,284                     38,124
           Weighted average interest rate during the period                         5.55%                      5.95%
           Weighted average interest rate at end of period                          5.88%                      5.60%

         Federal funds purchased
           Average balance outstanding                                           $ 4,500                    $ 5,475
           Maximum amount outstanding at any month-end during the period           7,000                      7,000
           Balance outstanding at end of period                                    7,000                      7,000
           Weighted average interest rate during the period                         5.84%                      5.81%
           Weighted average interest rate at end of period                          6.50%                      5.63%
</TABLE>




<TABLE>
<CAPTION>
                                                                             At or for the Year Ended
                                                                                  March 31, 1995
                                                                             ------------------------
                                                                              (Dollars in Thousands)
<S> <C>
         FHLB advances and line of credit:
           Average balance outstanding                                               $2,495
           Maximum amount outstanding at any month-end during the period              5,363
           Balance outstanding at end of period                                       5,363
           Weighted average interest rate during the period                            5.05%
           Weighted average interest rate at end of period                             6.55%

         Federal funds purchased
           Average balance outstanding                                               $  752
           Maximum amount outstanding at any month-end during the period              7,000
           Balance outstanding at end of period                                       7,000
           Weighted average interest rate during the period                            5.94%
           Weighted average interest rate at end of period                             6.63%
</TABLE>

         At March 31,  1997, specific  mortgage  loans with a carrying  value of
         approximately $56,180,000 and specific securities with a carrying value
         of approximately  $9,513,000 were pledged to the Federal Home Loan Bank
         of  Indianapolis to secure current and future advances from the Federal
         Home loan Bank. In addition,  the Bank has a line of credit approved up
         to  $5,000,000  with the Federal Home Loan Bank of  Indianapolis.  This
         line is secured by the specific  collateral  listed above. The Bank had
         borrowings of $3,784,000 against this line of credit at March 31, 1997.

         At March 31, 1997, the Bank had  $4,049,000 in  outstanding  letters of
         credit issued through the Federal Home Loan Bank of ndianapolis.  These
         letters of credit are  secured  by the same  collateral  as the line of
         credit mentioned above. The balance of these letters of credit at March
         31, 1997 is $0.


                                       14

<PAGE>


                           REGULATION AND SUPERVISION

General

         The Company, as a savings and loan holding company, is required to file
certain reports with, and otherwise comply with the rules and regulations of the
OTS under the Home Owners' Loan Act, as amended (the "HOLA").  In addition,  the
activities of savings  institutions,  such as the Bank, are governed by the HOLA
and the Federal Deposit Insurance Act ("FDI Act").

         The  Bank  is  subject  to  extensive   regulation,   examination   and
supervision by the OTS, as its primary federal  regulator,  and the FDIC, as the
deposit  insurer.  The Bank is a member of the Federal  Home Loan Bank  ("FHLB")
System and its  deposit  accounts  are  insured up to  applicable  limits by the
Savings  Association  Insurance Fund ("SAIF") managed by the FDIC. The Bank must
file reports with the OTS and the FDIC  concerning  its activities and financial
condition in addition to obtaining  regulatory  approvals prior to entering into
certain  transactions  such as mergers with, or  acquisitions  of, other savings
institutions.  The OTS and/or the FDIC conduct periodic examinations to test the
Bank's  compliance  with various  regulatory  requirements.  This regulation and
supervision  establishes  a  comprehensive  framework of  activities in which an
institution  can engage and is  intended  primarily  for the  protection  of the
insurance  fund  and  depositors.   The  regulatory  structure  also  gives  the
regulatory authorities extensive discretion in connection with their supervisory
and enforcement  activities and examination  policies,  including  policies with
respect to the  classification  of assets and the establishment of adequate loan
loss  reserves  for  regulatory   purposes.   Any  change  in  such   regulatory
requirements  and policies,  whether by the OTS, the FDIC or the Congress  could
have a material adverse impact on the Company,  the Bank, and their  operations.
Certain of the regulatory requirements applicable to the Bank and to the Company
are  referred  to  below or  elsewhere  herein.  The  description  of  statutory
provisions and regulations  applicable to savings institutions and their holding
companies  set forth in this  Form  10-KSB  does not  purport  to be a  complete
description of such statutes and  regulations  and their effects on the Bank and
the Company.

Holding Company Regulation

         The  Company is a non  diversified  unitary  savings  and loan  holding
company  within the meaning of the HOLA.  As a unitary  savings and loan holding
company,  the Company generally will not be restricted under existing laws as to
the types of business activities in which it may engage,  provided that the Bank
continues to be a qualified  thrift  lender  ("QTL").  Upon any  non-supervisory
acquisition by the Company of another savings institution or Bank that meets the
QTL test and is deemed to be a savings institution by the OTS, the Company would
become a multiple savings and loan holding company (if the acquired  institution
is held as a separate subsidiary) and would be subject to extensive  limitations
on the types of business  activities in which it could  engage.  The HOLA limits
the  activities  of  a  multiple  savings  and  loan  holding  company  and  its
non-insured  institution  subsidiaries  primarily to activities  permissible for
bank holding  companies  under Section  4(c)(8) of the Bank Holding  Company Act
("BHC Act"), subject to the prior approval of the OTS, and activities authorized
by OTS regulation.

         The HOLA  prohibits a savings  and loan  holding  company,  directly or
indirectly, or through one or more subsidiaries,  from acquiring more than 5% of
the voting stock of another  savings  institution  or holding  company  thereof,
without prior written approval of the OTS: acquiring or retaining,  with certain
exceptions,  more than 5% of a nonsubsidiary

                                       15

<PAGE>

company  engaged  in  activities  other  than those  permitted  by the HOLA;  or
acquiring or retaining  control of a depository  institution that is not insured
by the FDIC. In evaluating  applications by holding companies to acquire savings
institutions,  the OTS must consider the financial and managerial  resources and
future  prospects  of the company and  institution  involved,  the effect of the
acquisition on the risk to the insurance funds, the convenience and needs of the
community and competitive factors.

         The OTS is prohibited from approving any acquisition  that would result
in a multiple savings and loan holding company controlling savings  institutions
in  more  than  one  state,  subject  to two  exceptions:  (i) the  approval  of
interstate  supervisory  acquisitions by savings and loan holding  companies and
(ii) the  acquisition  of a savings  institution in another state if the laws of
the  state  of  the  target  savings   institution   specifically   permit  such
acquisitions.  The states  vary in the extent to which  they  permit  interstate
savings and loan holding company acquisitions.

         Although savings and loan holding companies are not subject to specific
capital  requirements  or specific  restrictions  on the payment of dividends or
other capital distributions, HOLA does prescribe such restrictions on subsidiary
savings  institutions,  as described below. The Bank must notify the OTS 30 days
before declaring any dividend to the Company. In addition,  the financial impact
of the  holding  company  on its  subsidiary  institution  is a  matter  that is
evaluated  by the OTS  and the  agency  has  authority  to  order  cessation  of
activities or divestiture of subsidiaries  deemed to pose a threat to the safety
and soundness of the institution.

Federal Savings Institution Regulation

         Capital  Requirements.  The OTS  capital  regulations  require  savings
institutions to meet three minimum capital  standards:  a 1.5% tangible  capital
ratio, a 3% leverage (core) capital ratio and an 8% risk-based capital ratio. In
addition, the prompt corrective action standards discussed below also establish,
in effect, a minimum 2% tangible capital standard,  a 4% leverage (core) capital
ratio (3% for  institutions  receiving the highest rating on the CAMEL financial
institution  rating system),  and, together with the risk-based capital standard
itself,  a 4% Tier I  risk-based  capital  standard.  Core capital is defined as
common   stockholder's    equity   (including   retained   earnings),    certain
non-cumulative  perpetual  preferred  stock and related  surplus,  and  minority
interests in equity accounts of consolidated subsidiaries less intangibles other
than certain purchased mortgage servicing rights and credit card  relationships.
The OTS regulations also require that, in meeting the tangible,  leverage (core)
and risk-based capital standards, institutions must generally deduct investments
in and loans to  subsidiaries  engaged in activities  as principal  that are not
permissible for a national bank.

         The risk-based capital standard for savings  institutions  requires the
maintenance of Tier I (core) and total capital (which is defined as core capital
and supplementary  capital) to risk-weighted  assets of 4% and 8%, respectively.
In determining the amount of risk-weighted assets, all assets, including certain
off-balance  sheet assets,  are  multiplied  by a risk-weight  of 0% to 100%, as
assigned  by the OTS  capital  regulation  based on the risks OTS  believes  are
inherent  in the type of asset.  The  components  of Tier I (core)  capital  are
equivalent to those discussed earlier.  The components of supplementary  capital
currently include  cumulative  preferred stock,  long-term  perpetual  preferred
stock,  mandatory  convertible  securities,  subordinated  debt and intermediate
preferred stock and the allowance for loan and lease losses limited to a maximum
of 1.25% of risk-weighted  assets.  Overall, the amount of supplementary capital
included as part of total capital cannot exceed 100% of core capital.

                                       16

<PAGE>

         The OTS regulatory  capital  requirements  also incorporate an interest
rate risk component. Savings institutions with "above normal" interest rate risk
exposure  are  subject  to a  deduction  from  total  capital  for  purposes  of
calculating  their  risk-based  capital  requirements.  A savings  institution's
interest rate risk is measured by the decline in the net portfolio  value of its
assets (i.e., the difference between incoming and outgoing discounted cash flows
from assets, liabilities and off-balance sheet contracts) that would result from
a  hypothetical  200 basis point  increase or decrease in market  interest rates
divided  by the  estimated  economic  value  of  the  institution's  assets.  In
calculating  its total  capital  under the  risk-based  capital  rule, a savings
institution whose measured interest rate risk exposure exceeds 2% must deduct an
amount equal to one-half of the difference  between the  institution's  measured
interest rate risk and 2%,  multiplied by the  estimated  economic  value of the
institution's  assets.  The  Director  of the OTS may  waive or defer a  savings
institution's  interest rate risk component on a  case-by-case  basis. A savings
institution with assets of less than $300 million and risk-based  capital ratios
in excess of 12% is not subject to the interest rate risk component,  unless the
OTS   determines   otherwise.   For  the  present  time  the  OTS  has  deferred
implementation of the interest rate risk component.  At March 31, 1997, the Bank
met each of its capital  requirements  and it is anticipated  that the Bank will
not be subject to the interest rate risk component.

         The following  table presents the Bank's capital  position at March 31,
1997 relative to fully phased-in regulatory requirements.

                                             Excess
                    Actual      Required  (Deficiency)    Actual    Required
                    Capital     Capital      Amount       Percent   Percent
                    --------------------------------------------------------
                                      (Dollars in Millions)

Tangible             $18.4        $ 3.4       $15.0        8.18%      1.50%

Core (Leverage)      $18.4        $ 6.8       $11.6        8.18%      3.00%

Risk-based           $20.0        $10.8       $ 9.2       14.8%       8.00%

_________________
(1) Although the OTS capital regulations require savings  institutions to meet a
1.5% tangible  capital ratio and a 3% leverage (core) capital ratio,  the prompt
corrective action standards discussed below also establish, in effect, a minimum
2%  tangible  capital  standard,  a 4%  leverage  (core)  capital  ratio (3% for
institutions  receiving the highest  rating on the CAMEL  financial  institution
rating system),  and, together with the risk-based capital standard itself, a 4%
Tier I risk-based capital standard.

                                       17

<PAGE>


         Prompt Corrective  Regulatory  Action.  Under the OTS prompt corrective
action  regulations,  the OTS is required to take  certain  supervisory  actions
against  undercapitalized  institutions,  the severity of which depends upon the
institution's degree of undercapitalization. Generally, a savings institution is
considered  "well  capitalized"  if its ratio of total capital to  risk-weighted
assets is at least  10%,  its ratio of Tier I (core)  capital  to  risk-weighted
assets is at least 6%, its ratio of core capital to total assets is at least 5%,
and it is not  subject to any order or  directive  by the OTS to meet a specific
capital  level.  A  savings  institution  generally  is  considered  "adequately
capitalized" if its ratio of total capital to  risk-weighted  assets is at least
8%, its ratio of Tier I (core) capital to  risk-weighted  assets is at least 4%,
and its  ratio  of core  capital  to  total  assets  is at  least  4% (3% if the
institution receives the highest CAMEL rating). A savings institution that has a
ratio of total  capital  to  weighted  assets of less than 8%, a ratio of Tier I
(core)  capital  to  risk-weighted  assets  of less  than 4% or a ratio  of core
capital to total  assets of less than 4% (3% or less for  institutions  with the
highest  examination rating) is considered to be  "undercapitalized."  A savings
institution  that has a total  risk-based  capital  ratio less than 6%, a Tier 1
capital  ratio  of less  than 3% or a  leverage  ratio  that is less  than 3% is
considered to be "significantly undercapitalized" and a savings institution that
has a tangible  capital to assets ratio equal to or less than 2% is deemed to be
"critically  undercapitalized."  Subject  to a  narrow  exception,  the  banking
regulator is required to appoint a receiver or  conservator  for an  institution
that is  "critically  undercapitalized."  The  regulation  also  provides that a
capital restoration plan must be filed with the OTS within 45 days of the date a
savings   institution   receives   notice   that   it   is   "undercapitalized,"
"significantly  undercapitalized" or "critically  undercapitalized."  Compliance
with the plan must be guaranteed  by any parent  holding  company.  In addition,
numerous  mandatory  supervisory  actions  become  immediately  applicable to an
undercapitalized   institution,   including,   but  not  limited  to,  increased
monitoring by regulators and restrictions on growth,  capital  distributions and
expansion.  The OTS  could  also  take  any  one of a  number  of  discretionary
supervisory  actions,  including  the  issuance of a capital  directive  and the
replacement of senior executive officers and directors.

         Insurance  of  Deposit  Accounts.  Deposits  of the Bank are  presently
insured by the SAIF.  Both the SAIF and the Bank  Insurance  Fund  ("BIF"),  the
deposit   insurance  fund  that  covers  most  commercial  bank  deposits,   are
statutorily  required to be recapitalized to a 1.25% of insured reserve deposits
ratio.  Until recently,  members of the SAIF and BIF were paying average deposit
insurance  premiums of between 24 and 25 basis points.  The BIF presently  meets
the  required  reserve in 1995,  whereas  the SAIF was not  expected  to meet or
exceed the required  level until 2002 at the  earliest.  This was  situation was
primarily  due to the statutory  requirement  that SAIF members make payments on
bonds  issued  in the  late  1980s  by the  Financing  Corporation  ("FICO")  to
recapitalize the predecessor to the SAIF.

         In view of the BIF's  achieving  the 1.25% ratio,  the FDIC  ultimately
adopted a new  assessment  rate schedule of 0 to 27 basis points under which 92%
of BIF  members  paid an annual  premium of only  $2,000.  With  respect to SAIF
member  institutions,  the FDIC adopted a final rule  retaining  the  previously
existing  assessment rate schedule  applicable to SAIF member institutions of 23
to 31 basis points. As long as the premium differential  continued,  it may have
had adverse  consequences  for SAIF members,  including  reduced earnings and an
impaired  ability to raise  funds in the  capital  markets.  In  addition,  SAIF
members,   such  as  the  Bank  were  placed  at  the  substantial   competitive
disadvantage  to BIF members  with  respect to pricing of loans and deposits and
the ability to achieve lower operating costs.

                                       18

<PAGE>

         On  September  30,  1996,  the  President  signed  into law the Deposit
Insurance Funds Act of 1996 (the "Funds Act") which, among other things, imposed
a special one-time assessment on SAIF member  institutions,  including the Bank,
to  recapitalize  the SAIF.  As  required by the Funds Act,  the FDIC  imposed a
special  assessment of 65.7 basis points on SAIF assessable  deposits held as of
March 31, 1995, payable November 27, 1996 (the "SAIF Special  Assessment").  The
SAIF Special  Assessment was recognized by the Bank as an expense in the quarter
ended  September  30, 1996 and is  generally  tax  deductible.  The SAIF Special
Assessment  recorded by the Bank  amounted  to  $723,000 on a pre-tax  basis and
$437,000 on an after-tax basis.

         The Funds Act also  spreads  the  obligations  for  payment of the FICO
bonds  across all SAIF and BIF  members.  Beginning  on  January  1,  1997,  BIF
deposits  will be assessed  for a FICO payment of 1.3 basis  points,  while SAIF
deposits will pay 6.48 basis points.  Full pro rata sharing of the FICO payments
between BIF and SAIF members will occur on the earlier of January 1, 2000 or the
date the BIF and SAIF are merged.  The Funds Act specifies that the BIF and SAIF
will be merged on January 1, 1999, provided no savings associations remain as of
that time.

         As a result of the Funds Act, the FDIC  recently  voted to  effectively
lower SAIF  assessments  to 0 to 27 basis  points as of January 1, 1997, a range
comparable  to that of BIF members.  SAIF members will also continue to make the
FICO  payments  described  above.  The FDIC  also  lowered  the SAIF  assessment
schedule  for the  third  quarter  of 1997 to 18 to 27 basis  pints.  Management
cannot  predict the level of FDIC insurance  assessments  on an on-going  basis,
whether the savings  association  charter will be  eliminated or whether the BIF
and SAIF will eventually be merged.

         The Bank's  assessment  rate for the fiscal 1997 ranged from 23 to 6.48
basis  points and the premium paid for this period was  $225,000. At fiscal year
end March 31, 1997,  the  assessment  rate was 6.48 basis points.  A significant
increase in SAIF  insurance  premiums would likely have an adverse effect on the
operating expenses and results of operations of the Bank.

         Under the FDI Act,  insurance of deposits may be terminated by the FDIC
upon a finding that the institution has engaged in unsafe or unsound  practices,
is in an unsafe or unsound condition to continue  operations or has violated any
applicable law, regulation,  rule, order or condition imposed by the FDIC or the
OTS.  The  management  of the Bank does not know of any  practice,  condition or
violation that might lead to termination of deposit insurance.

         Thrift  Rechartering  Legislation.  The Funds Act provides that the BIF
and SAIF will merge on January 1, 1999 if there are no more savings associations
as of that date. That  legislation also requires that the Department of Treasury
submit a report  to  Congress  by March  31,  1997  that  makes  recommendations
regarding  a  common  financial  institutions  charter,  including  whether  the
separate  charters for thrifts and banks should be abolished.  Various proposals
to eliminate the federal thrift charter, create a uniform financial institutions
charter and abolish the OTS have been  introduced  in Congress.  The bills would
require federal savings  associations  convert to national banks or some type of
state charter by a specified date (January 1, 1998 in one bill, June 30, 1998 in
the other) or they would automatically become national banks.  Converted federal
thrifts  would  generally  be  required  to conform  their  activities  to those
permitted for the charter selected and divestiture of nonconforming assets would
be required over a two year period, subject to two possible one year extensions.
State chartered  thrifts would become subject to the same federal  regulation as
applies to state commercial banks.  Holding  companies for savings

                                       19


<PAGE>


institutions  would become subject to the same  regulation as holding  companies
that control commercial banks, with a limited grandfather  provision for unitary
savings  and loan  holding  company  activities.  The Bank is unable to  predict
whether such legislation would be enacted or the extent to which the legislation
would restrict or disrupt its operations.

         Loans  to One  Borrower.  Under  the  HOLA,  savings  institutions  are
generally subject to the limits on loans to one borrower  applicable to national
banks. Generally, savings institutions may not make a loan or extend credit to a
single or related group of borrowers in excess of 15% of its unimpaired  capital
and  surplus.  An  additional  amount  may be lent,  equal to 10% of  unimpaired
capital and surplus, if such loan is secured by  readily-marketable  collateral,
which is defined to include certain financial  instruments and bullion. At March
31, 1997,  the Bank's limit on loans to one borrower was $3.1 million.  At March
31,  1997,  the Bank's  largest  aggregate  outstanding  balance of loans to one
borrower totaled $2.4 million.

         QTL Test. The HOLA requires  savings  institutions  to meet a QTL test.
Under the QTL test,  a savings and loan  association  is required to maintain at
least 65% of its  "portfolio  assets"  (total assets less (i)  specified  liquid
assets up to 20% of total assets;  (ii)  intangibles,  including  goodwill;  and
(iii) the value of  property  used to conduct  business)  in certain  "qualified
thrift investments"  (primarily  residential  mortgages and related investments,
including certain  mortgage-backed  securities) in at least 9 months out of each
12 month period.

         A savings  institution  that  fails the QTL test is  subject to certain
operating  restrictions and may be required to convert to a bank charter.  As of
March 31, 1997, the Bank maintained  91.6% of its portfolio  assets in qualified
thrift  investments and,  therefore,  met the QTL test.  Recent  legislation has
expanded  the  extent to which  education  loans,  credit  card  loans and small
business loans may be considered "qualified thrift investments."

         Limitation on Capital Distributions. OTS regulations impose limitations
upon all capital distributions by savings institutions,  such as cash dividends,
payments to repurchase or otherwise acquire its shares, payments to shareholders
of another  institution  in a cash-out  merger and other  distributions  charged
against  capital.  The rule establishes  three tiers of institutions,  which are
based primarily on an  institution's  capital level. An institution that exceeds
all fully phased-in  capital  requirements  before and after a proposed  capital
distribution  ("Tier 1 Bank") and has not been  advised by the OTS that it is in
need of more than normal  supervision,  could,  after  prior  notice but without
obtaining approval of the OTS, make capital distributions during a calendar year
equal to the greater of (i) 100% of its net earnings to date during the calendar
year plus the amount that would reduce by one-half its "surplus  capital  ratio"
(the  excess  capital  over its fully  phased-in  capital  requirements)  at the
beginning  of the  calendar  year or (ii) 75% of its net income for the previous
four  quarters.   Any  additional  capital  distributions  would  require  prior
regulatory  approval.  In the event the Bank's capital fell below its regulatory
requirements  or the OTS  notified  it that it was in need of more  than  normal
supervision,   the  Bank's  ability  to  make  capital  distributions  could  be
restricted.  In addition, the OTS could prohibit a proposed capital distribution
by any institution, which would otherwise be permitted by the regulation, if the
OTS  determines  that such  distribution  would  constitute an unsafe or unsound
practice.  In  December  1994,  the  OTS  proposed  amendments  to  its  capital
distribution  regulation that would  generally  authorize the payment of capital
distributions  without  OTS  approval  provided  the  payment  does not make the
institution  undercapitalized within the meaning of the prompt corrective action
regulation.  However,  institutions in a holding  company  structure would still
have a prior notice requirement. At March 31, 1997, the Bank was a Tier 1 Bank.

                                       20

<PAGE>

         Liquidity. The Bank is required to maintain an average daily balance of
specified  liquid assets equal to a monthly average of not less than a specified
percentage of its net withdrawable deposit accounts plus short-term  borrowings.
This liquidity  requirement is currently 5% but may be changed from time to time
by the OTS to any amount within the range of 4% to 10%  depending  upon economic
conditions and the savings flows of member  institutions.  OTS regulations  also
require each member savings  institution to maintain an average daily balance of
short-term liquid assets at a specified  percentage  (currently 1%) of the total
of its net withdrawable  deposit accounts and borrowings  payable in one year or
less.  Monetary  penalties  may be imposed for  failure to meet these  liquidity
requirements. The Bank's liquidity and short-term liquidity ratios for March 31,
1997  were  5.6% and  2.7%  respectively,  which  exceeded  the then  applicable
requirements.  The Bank has never been subject to monetary penalties for failure
to meet its liquidity requirements.

         Assessments.  Savings  institutions  are required to pay assessments to
the OTS to fund the  agency's  operations.  The  general  assessment,  paid on a
semi-annual  basis,  is computed  upon the savings  institution's  total assets,
including consolidated subsidiaries,  as reported in the Bank's latest quarterly
thrift  financial  report.  The assessments paid by the Bank for the fiscal year
ended March 31, 1997 totaled $59,000.

         Branching.  OTS regulations  permit  nationwide  branching by federally
chartered  savings  institutions to the extent allowed by federal statute.  This
permits federal savings  institutions  to establish  interstate  networks and to
geographically  diversify their loan  portfolios and lines of business.  The OTS
authority  preempts any state law  purporting  to regulate  branching by federal
savings institutions.

         Transactions  with Related  Parties.  The Bank's authority to engage in
transactions  with  related  parties or  "affiliates"  (e.g.,  any company  that
controls or is under common control with an  institution,  including the Company
and its non-savings institution subsidiaries) is limited by Sections 23A and 23B
of the Federal Reserve Act ("FRA").  Section 23A limits the aggregate  amount of
covered  transactions  with any  individual  affiliate to 10% of the capital and
surplus of the savings institution. The aggregate amount of covered transactions
with all affiliates is limited to 20% of the savings  institution's  capital and
surplus.  Certain  transactions  with  affiliates  are required to be secured by
collateral in an amount and of a type  described in Section 23A and the purchase
of low quality  assets from  affiliates  is  generally  prohibited.  Section 23B
generally  provides that certain  transactions with affiliates,  including loans
and assets purchases, must be on terms and under circumstances, including credit
standards,  that are  substantially  the same or at  least as  favorable  to the
institution  as those  prevailing at the time for comparable  transactions  with
non-affiliated companies. In addition,  savings institutions are prohibited from
lending to any affiliate that is engaged in activities  that are not permissible
for  bank  holding  companies  and  no  savings  institution  may  purchase  the
securities of any affiliate other than a subsidiary.

         The Bank's authority to extend credit to executive officers,  directors
and 10% shareholders ("insiders"),  as well as entities such persons control, is
governed by Sections  22(g) and 22(h) of the FRA and  Regulation  O  thereunder.
Among other  things,  such loans are required to be made on terms  substantially
the same as those offered to  unaffiliated  individuals  and to not involve more
than the normal risk of repayment.  Recent legislation  created an exception for
loans  made  pursuant  to a  benefit  or  compensation  program  that is  widely
available to all employees of the  institution  and does not give  preference to
insiders over other employees. Regulation O also places individual and aggregate
limits on the amount of loans the Bank may make to such persons based,  in part,
on the Bank's  capital  position and requires  board  approval  procedures to be
followed.

                                       21


<PAGE>

         Enforcement.  Under  the  FDI  Act,  the OTS  has  primary  enforcement
responsibility over savings  institutions and has the authority to bring actions
against  the  institution  and  all  institution-affiliated  parties,  including
stockholders,  and any attorneys,  appraisers and  accountants  who knowingly or
recklessly participate in wrongful action likely to have an adverse effect on an
insured institution.  Formal enforcement action may range from the issuance of a
capital  directive  or cease and  desist  order to removal  of  officers  and/or
directors to  institution  of  receivership,  conservatorship  or termination of
deposit  insurance.  Civil penalties cover a wide range of violations and amount
to $25,000 per day, or even $1 million per day in  especially  egregious  cases.
Under the FDI Act,  the FDIC has the  authority  to recommend to the Director of
the OTS  enforcement  action to be taken with  respect to a  particular  savings
institution.  If action is not taken by the Director,  the FDIC has authority to
take such action under certain  circumstances.  Federal law establishes criminal
penalties for certain violations.

         Standards for Safety and Soundness.  The federal banking  agencies have
adopted Interagency  Guidelines  Prescribing  Standards for Safety and Soundness
("Guidelines")  and a final rule to  implement  safety and  soundness  standards
required  under the FDI Act. The  Guidelines  set forth the safety and soundness
standards that the federal banking agencies use to identify and address problems
at  insured  depository   institutions  before  capital  becomes  impaired.  The
standards set forth in the Guidelines  address internal controls and information
systems;  internal  audit  system;  credit  underwriting;   loan  documentation;
interest  rate  risk  exposure;  asset  growth;  asset  quality;  earnings;  and
compensation,  fees and benefits.  If the  appropriate  federal  banking  agency
determines  that an  institution  fails to meet any standard  prescribed  by the
Guidelines,  the agency may require the  institution  to submit to the agency an
acceptable plan to achieve compliance with the standard,  as required by the FDI
Act. The final rule establishes  deadlines for the submission and review of such
safety and soundness compliance plans when such plans are required.

Federal Home Loan Bank System

         The Bank is a member of the FHLB System,  which consists of 12 regional
FHLBs.  The FHLB  provides  a  central  credit  facility  primarily  for  member
institutions.  The Bank,  as a member of the  FHLB-Indianapolis,  is required to
acquire  and hold  shares  of  capital  stock in that FHLB in an amount at least
equal to 1% of the aggregate principal amount of its unpaid residential mortgage
loans and similar  obligations  at the  beginning  of each year,  or 1/20 of its
advances (borrowings) from the FHLB-Indianapolis, whichever is greater. The Bank
was in compliance with this requirement, with an investment in FHLB-Indianapolis
stock  at March  31,  1997 of  $2,752,000.  FHLB  advances  must be  secured  by
specified  types of collateral and may be obtained  primarily for the purpose of
providing funds for residential housing finance.

         The FHLBs are required to provide funds to cover certain obligations on
bonds issued to fund the resolution of insolvent thrifts and to contribute funds
for affordable  housing programs.  These requirements could reduce the amount of
dividends that the FHLBs pay to their members and could also result in the FHLBs
imposing a higher rate of interest on advances to their  members.  For the years
ended March 31, 1997, 1996, and 1995 dividends from the FHLB-Indianapolis to the
Bank amounted to $211,000, $194,000, and $151,000. If dividends were reduced, or
interest on future FHLB advances increased, the Bank's net interest income might
also be reduced.

                                       22


<PAGE>

Federal Reserve System

         The Federal Reserve Board regulations  require savings  institutions to
maintain  non-interest  earning  reserves  against  their  transaction  accounts
(primarily  NOW and  regular  checking  accounts).  The  Federal  Reserve  Board
regulations  generally  require that  reserves be maintained  against  aggregate
transaction  accounts as follows: for accounts aggregating $49.3 million or less
(subject to adjustment by the Federal Reserve Board) the reserve  requirement is
3%; and for  accounts  aggregating  greater  that  $49.3  million,  the  reserve
requirement  is $1.48  million  plus 10% (subject to  adjustment  by the Federal
Reserve  Board  between 8% and 14%) against  that  portion of total  transaction
accounts  in excess  or $49.3  million.  The first  $4.4  million  of  otherwise
reservable  balances  (subject to adjustments by the Federal  Reserve Board) are
exempted  from the  reserve  requirements.  The Bank is in  compliance  with the
foregoing requirements. The balances maintained to meet the reserve requirements
imposed  by  the  Federal  Reserve  Board  may  be  used  to  satisfy  liquidity
requirements imposed by the OTS.


                           Federal and State Taxation

Federal Taxation

         GENERAL The Company and the Bank report their income on a  consolidated
basis using the accrual method of accounting,  and are subject to federal income
taxation  in the  same  manner  as  other  corporations  with  some  exceptions,
including  particularly  the Bank's reserve for bad debts discussed  below.  The
following  discussion  of tax matters is intended only as a summary and does not
purport to be a  comprehensive  description  of the tax rules  applicable to the
Bank or the Company. For its 1997 taxable year, the Bank is subject to a maximum
federal income tax rate of 34%.


Bad Debt Reserves

         For  fiscal  years  beginning  prior  to  December  31,  1995,   thrift
institutions  which  qualified  under  certain   definitional  tests  and  other
conditions of the Internal  Revenue code of 1986 (the "Code") were  permitted to
use certain  favorable  provisions to calculate  their  deductions  from taxable
income  for  annual  additions  to their bad debt  reserve.  A reserve  could be
established for bad debts on qualifying real property loans  (generally  secured
by  interests  in  real  property  improved  or to be  improved)  under  (i) the
Percentage  of Taxable Income  Method (the "PTI Method") or (ii) the  Experience
Method.  The reserve for  nonqualifying  loans was computed using the Experience
Method.

         The Small Business Job  Protection Act of 1996 (the "1996 Act"),  which
was enacted on August 20,  1996,  requires  savings  institutions  to  recapture
(i.e.,  take  into  income)  certain  portions  of  their  accumulated  bad debt
reserves.  The 1996 Act repeals the reserve  method of accounting  for bad debts
effective for tax years beginning after 1995. Thrift  institutions that would be
treated as small banks are allowed to utilize the Experience  Method  applicable
to such institutions,  while thrift institutions that are treated as large banks
(those generally  exceeding $500 million in assets) are required to use only the
specific charge-off method.  Thus, the PTI Method of accounting for bad debts is
no longer available for any financial institution.

         A thrift  institution  required  to  change  its  method  of  computing
reserves for bad debts will treat such change in method of accounting, initiated
by the  taxpayer,  as having been made with the consent of the IRS.  Any Section
481(a)  adjustment  required to be taken into income

                                       23


<PAGE>

with respect to such change  generally  will be taken into income ratably over a
six-taxable  year period,  beginning with the first taxable year beginning after
1995, subject to the residential loan requirement.

         Under  the  residential  loan  requirement  provision,   the  recapture
required by the 1996 Act will be suspended  for each of two  successive  taxable
years,  beginning  with the  Bank's  current  taxable  year,  in which  the Bank
originates a minimum of certain  residential loans based upon the average of the
principal  amounts of such loans made by the Bank during its six  taxable  years
preceding its current taxable year.

         Under the 1996 Act, for its current and future taxable years,  the Bank
is not permitted to make  additions to its tax bad debt  reserves.  In addition,
the Bank is required  to  recapture  (i.e.,  take into  income)  over a six year
period the excess of the  balance of its tax bad debt  reserves  as of March 31,
1996 [other than its supplemental  reserve for losses on loans, if any] over the
balance of such  reserves as of March 31, 1988.  As a result of such  recapture,
the Bank will be  required  to pay  approximately  $270,000  which is  generally
expected to be taken into income beginning in 1998 over a 6 year period.

Distributions

         Under the 1996 Act, if the Bank makes  "non-dividend  distributions" to
the Company,  such  distributions  will be considered to have been made from the
Bank's unrecaptured tax bad debt reserves (including the balance of its reserves
as of  March  31,  1988)  to the  extent  thereof,  and  then  from  the  Bank's
supplemental  reserve for losses on loans, to the extent thereof,  and an amount
based  on the  amount  distributed  (but not in  excess  of the  amount  of such
reserves)  will  be  included  in  the  Bank's  taxable   income.   Non-dividend
distributions  include  distributions  in  excess  of  the  Bank's  current  and
accumulated earnings and profits, as calculated for federal income tax purposes,
distributions in redemption of stock,  and  distributions in partial or complete
liquidation.  Dividends paid out of the Bank's  current or accumulated  earnings
and profits will not be so included in the Bank's taxable income.

         The amount of additional  taxable  income  triggered by a  non-dividend
distribution  is an amount  that,  when reduced by the tax  attributable  to the
income,  is equal to the amount of the  distribution.  Thus, if the Bank makes a
non-dividend  distribution to the Company,  approximately one and one-half times
the  amount  of such  distribution  (but not in  excess  of the  amount  of such
reserves)  would be  includable  in income  for  federal  income  tax  purposes,
assuming a 35% federal  corporate  income tax rate.  The Bank does not intend to
pay  dividends  that would  result in a recapture of any portion of its bad debt
reserves.


SAIF Recapitalization Assessment

         The Funds Act Levied a 65.7-cent  fee on every $100 of thrift  deposits
held on March 31, 1995. For financial  statement  purposes,  this assessment was
reported as an expense for the quarter ended  September 30, 1996.  The Funds Act
includes a provision which states that the amount of any special assessment paid
to capitalize SAIF under this legislation is deductible under Section 162 of the
Code in the year of payment.

                                       24


<PAGE>

Corporate Alternative Minimum Tax

         For taxable years beginning after December 31, 1986, the code imposes a
tax on alternative  minimum taxable income ("AMTI") at a rate of 20%. The excess
of the bad debt reserve  deduction using the percentage of taxable income method
over the deduction that would have been allowable under an experience  method is
treated as a preference  item for purposes of  computing  the AMTI.  Only 90% of
AMTI can be offset by net operating  losses.  For taxable years  beginning after
December 31, 1989, the adjustment to AMTI based on book income will be an amount
equal to 75% of the amount by which a corporation's  adjusted  current  earnings
exceeds its AMTI  (determined  without  regard to this  preference  and prior to
reduction for net operating  losses).  In addition,  for taxable years beginning
after  December 31, 1986, and before  January 1, 1996, an  environmental  tax of
 .12% of the  excess  AMTI  (with  certain  modifications)  over $2.0  million is
imposed on  corporations  whether or not an  Alternative  Minimum Tax ("AMT") is
paid.  The Company was not subject to the AMT liability for the year ended March
31, 1997 or 1996.

Dividends Received Deduction

         The Company may exclude from its income 100% of dividends received from
the Bank as a member of the same affiliated group of corporations. The corporate
dividends  received deduction is generally 70% in the case of dividends received
from unaffiliated corporations with which the Company and the Bank will not file
a consolidated tax return, except that if the Company and the Bank own more than
20% of the stock of a corporation  distributing a dividend,  80% of any dividend
received may be deducted.


                            State and Local Taxation

Indiana Taxation

         The State of Indiana imposes an 8.5% franchise tax on the net income of
financial  institutions  (including thrifts),  exempting them from gross income,
supplemental  net income and  intangible  taxes.  For  franchise  tax  purposes,
"taxable  income"  generally means federal  taxable  income,  subject to certain
adjustments   including  the  addition  of  property  taxes,  income  taxes  and
charitable contributions, and the exclusion of actual bad debts incurred, net of
federal bad debt deduction.  Other  applicable  Indiana taxes include sales, use
and property taxes.

Delaware Taxation

         As a Delaware  holding  company not  earning  income in  Delaware,  the
Company is exempted from Delaware  corporate  income tax but is required to file
an annual  report  with and pay an  annual  fee to the  State of  Delaware.  The
Company  is also  subject  to an annual  franchise  tax  imposed by the State of
Delaware.

                                       25


<PAGE>

Item 2.  Description of Properties
----------------------------------

         The Company  conducts its  business  through its main office and branch
facility  located in Michigan  City,  Indiana,  and a branch  office in LaPorte,
Indiana, all of which are owned by the Company.

<TABLE>
<CAPTION>
                                                              Date              Net Book Value at
         Location                                             Acquired          March 31, 1997
         --------                                             --------          --------------
<S> <C>
         Executive & Main Office
         126 E. Fourth Street, Michigan City, IN  46360       1979 (1)          $1,565,055.76

         Branch Offices
         3710 S. Franklin Street, Michigan City, IN  46360    1974                 164,171.60

         801 Monroe Street, LaPorte, IN  46350                1966 (2)             822,929.55
                                                                                -------------

         TOTAL                                                                  $2,552,156.91
                                                                                =============
</TABLE>


(1) Construction completed during 1981.
(2) Renovated during 1996.

         In addition,  the Bank leases office space at 701 E. 83rd Avenue, Suite
E in Merrillville,  Indiana for the operation of a mortgage  banking/origination
office.



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

         The Company is involved in various legal actions  arising in the normal
course of its business.  In the opinion of management,  the resolutions of these
legal  actions are, in the  aggregate,  not expected to have a material  adverse
effect  on  the  Company's   consolidated   financial  position  or  results  of
operations.



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

         None.

         Additional Item.  Executive Officers of the Company

         The  following  table  sets forth  certain  information  regarding  the
executive officers of the Company who are not also Directors.

                                          Positions Held With the Company
         Name                   Age(1)    and/or the Bank
         ----                   ------    ---------------

         Daniel R. Buresh        38       Vice President and Controller

         George L. Koehm         34       Vice President, Treasurer and Chief
                                              Financial Officer

         Allen E. Jones          51       Assistant Vice President and Secretary

         (1) At March 31, 1997

                                       26


<PAGE>

                                     PART II

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

CB Bancorp,  Inc., common stock is listed and traded on the National Association
of Securities  Dealers Automated  Quotation System  ("NASDAQ")  Small-Cap Market
under the symbol CBCO.  Stock price quotations are published in daily newspapers
including the Wall Street  Journal.  As of March 31, 1997, CB Bancorp,  Inc. had
approximately 264 holders of record of the Company's shares, not including those
investors holding the Company's stock in street name.

Stock Prices
The following table sets forth the common share sale prices and number of shares
traded during the 8 quarters ended March 31, 1997.

         Quarter Ended           High        Low      Number of Shares Traded
         --------------------------------------------------------------------
         June 30, 1995          13 1/2     12 3/4               90,493
         September 30, 1995     15 3/4     12 3/4              302,837
         December 31, 1995      18 1/2     15 1/2              188,720
         March 31, 1996         19 3/4     17 1/4              153,347
         June 30, 1996          18 1/4     16 1/4              199,525
         September 30, 1996     20 3/4     17                  238,300
         December 31, 1996      25 1/2     19 3/4              203,878
         March 31, 1997         34 1/4     23 3/4              575,888

No dividends were paid during the above stated periods.

NASDAQ Market Makers
As of March 31, 1997 the  following  firms were market  makers in the  Company's
shares:
         Howe, Barnes & Johnson, Inc.                Sandler O'Neill & Partners
         Stifel Nicolaus & Co.                       Natcity Investments, Inc.
         Herzog, Heine, Geduld, Inc.                 Sherwood Securities Corp.
         The Ohio Company


                                       27


<PAGE>

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

The following discussion provides  information  regarding CB Bancorp's financial
condition and results of operations  for each of the years ended March 31, 1997,
1996  and  1995.  This  discussion  should  be  read  in  conjunction  with  the
consolidated  financial  statements of CB Bancorp,  Inc. and the notes  thereto,
which appear elsewhere herein.

Overview
--------

CB  Bancorp,   Inc.,  ("The  Company")  is  a  unitary  thrift  holding  company
headquartered in Michigan City, Indiana. Its wholly owned subsidiary,  Community
Bank, A Federal  Savings Bank,  ("The Bank") has been and continues to be in the
business of  attracting  deposits from the general  public and  investing  these
deposits,   together  with  funds  generated  from  operations  and  borrowings,
primarily in one-to four-family  residential  mortgage loans and loans purchased
under  agreements  to resell and, to a lesser  extent,  commercial  and consumer
loans,  mortgage-backed  securities,  U.S.  Government and agency securities and
other marketable securities.

The Bank also operates a wholly owned subsidiary,  Community Financial Services,
Inc.,  ("Community  Financial") which offers tax return preparation  services to
individuals  and small  businesses  as well as  tax-deferred  annuities and life
insurance  products to customers of the Bank and the general  public.  Community
Financial has a 99% limited partner interest in Pedcor Investments-1994-XX, L.P.
which was formed for the  construction,  ownership and  management of an 80 unit
apartment project located in LaPorte County. Terms of the partnership  agreement
allocate  99% of the eligible  tax credits and  operating  losses to the limited
partner.  Community  Financial  is also the 100%  owner of  Community  Brokerage
Services, Inc., a fully registered securities  broker-dealer,  which offers full
service brokerage services to the general public.

The Company's  results are  primarily  based on the Bank's  results.  The Bank's
operating results are dependent primarily on net interest income, the difference
between interest income earned on loans, securities, mortgage-backed and related
securities and the Company's cost of funds  (interest paid to its depositors and
interest paid for borrowed funds).

Operating   results  are  also  affected  by  the  provision  for  loan  losses,
noninterest  income,  and expense items.  Noninterest  income primarily includes
earnings of the Bank's wholly owned subsidiary,  Community Financial,  gains and
losses from sale of interest-earning and other assets, and fee income, including
fees  earned  under  the  Bank's  Mortgage  Loan  Reverse   Repurchase   Program
("Program").  Noninterest expenses principally consist of employee  compensation
and benefits,  occupancy  and  equipment  expenses,  federal  deposit  insurance
premiums and other  administrative  expenses.  Factors that significantly impact
operating   results  include  general   economic  and  competitive   conditions,
particularly  changes in market interest rates,  government policies and actions
of regulatory authorities.

Other than those discussed in this document, management is unaware of any trends
or uncertainties that will have or that are reasonably likely to have a material
effect on the liquidity,  capital  resources,  or operations of the Company.  In
addition, management is unaware of any recommendations by regulatory authorities
which, if implemented, would have such an effect.

The Company  operates  out of the Bank's  main  office  located at 126 E. Fourth
Street,  Michigan City, Indiana.  The Bank also conducts business out of its two
full service branch offices  located at 3710 S. Franklin Street in Michigan City
and 801 Monroe Street,  LaPorte,  Indiana.  The Bank has also established a loan
production/mortgage  banking office in  Merrillville,  Indiana located at 701 E.
83rd Avenue, Suite E, Merrillville, Indiana. The Bank's retail deposit-gathering
base is  concentrated  in the  communities  surrounding  its  offices  while its
lending base extends throughout LaPorte and contiguous  counties.  Also, through
its  Program,  the Bank funds and  temporarily

                                       28


<PAGE>

invests in one- to four-family mortgages originated in various states throughout
the United States by the Program's participants.


Mortgage Loan Reverse Repurchase Program
----------------------------------------

In the fiscal year 1991,  the  Company  instituted  the  Mortgage  Loan  Reverse
Repurchase Program.  The Company held loans that were purchased under agreements
to resell from 66 of the 117 approved  mortgage  companies as of March 31, 1997.
The Program is carried out pursuant to agreements  with each  participant  which
provide for the purchase at par (less  certain fees paid to the  participant  by
the borrower) of whole  mortgage  loans by the Company,  at its option,  and the
subsequent  resale of such  loans to the  Participant  (for  transfer  to an end
investor).  Purchase  money and refinance  mortgage  loans are generally held no
more  than 90 days by the  Company  and  typically  are  resold  within 30 days.
Construction  loan mortgages  acquired via the Program are held for the duration
of the construction  loan period,  typically for six months or longer.  At March
31, 1997,  construction  loan  balances  totaled $25.4 million and accounted for
26.7% of the Company's total outstanding  investment in the Program. The Company
records  interest income on the loans based on a stated rate of interest tied to
the  prime  rate  (as  established  from  time to time by a major  Chicago-based
financial  institution)  during  the  funding  period,  and  not  the  rates  on
individual  loans,  plus a fee (recorded as non-interest  income) collected from
the  Participant  for each  loan  when  resold.  It is the  Company's  policy to
purchase under the Program only those loans that comply with accepted  secondary
market   underwriting  standards  or  Community  Bank's  portfolio  underwriting
criteria.  The  Company had  recently  modified  the  agreements  with  mortgage
companies participating in the Program such that the guaranty of loans purchased
from the  mortgage  company  will be a lower  amount;  the Company  continues to
primarily look to the individual borrowers as the primary source  of  repayment.
Management believes that the change in these guaranty arrangements will have  no
impact on the Program.


Based upon the current interest rate environment,  management  projects that the
Company's net interest  margin will decline over the  foreseeable  future as the
Company's  liabilities  continue  to  reprice  upwards.  Management  can make no
assurances with respect to the interest rate environment. The Company's Mortgage
Loan  Reverse  Repurchase  Program  has  been  and is a key  contributor  to the
Company's efforts to maintain a strong net interest margin.  Management is aware
that a decline  in  Program  activity  would  negatively  impact  the  Company's
profitability.

Financial Condition
-------------------

         Total Assets at March 31,

                           1997 - $227.1 million     1996 - $205.4 million
                           (represents an increase of $21.7 million or 10.6%)
                           The  year to  year  increase  in  total  assets,  was
                           primarily  attributable  to growth  in the  Company's
                           Mortgage Loan Repurchase Program.

         Mortgage Loan Reverse Repurchase
         Program Loans Outstanding at March 31,

                           1997 - $95.3 million      1996 - $80.0 million
                           (represents an increase of $15.3 million or 19.1%)
                           Increase is  attributed  to an increase in the number
                           of mortgage  companies  participating in the Program.
                           Since its inception, the Program has caused the level
                           of the Company's  assets and liabilities to fluctuate
                           between periods.

                                       29


<PAGE>


         Loans Receivable at March 31,

                           1997 - $90.3 million      1996 - $92.6 million
                           (represents a decrease of $2.3 million or 2.5%)
                           Decrease primarily attributable to an increase in the
                           sales  of  the  Company's  single-family  fixed  rate
                           loans.


         Securities Portfolio at March 31,

                           1997 - $17.7 million      1996 - $19.2 million
                           (represents a decrease of $1.5 million or 7.8%)
                           Decrease primarily  attributable to the allocation of
                           a  portion  of  the  cash  flows  received  from  the
                           maturities and repayments of the securities portfolio
                           into the Program.

                           The primary  objective  of the  Company's  securities
                           portfolio  is  to  contribute  to  profitability,  by
                           providing a stable cash flow of  dependable  earnings
                           and  available-for-sale  securities  which  provide a
                           store of liquidity. The securities portfolio consists
                           of  U.S.  Government  Agency  Securities,  short-term
                           investment grade corporate notes,  marketable  equity
                           securities  and  Federal  Home Loan Bank  Stock.  The
                           Company  also has  investments  in both  variable and
                           fixed  rate U.S.  Government  Agency  mortgage-backed
                           securities.

Cash and Cash Equivalents at March 31,

                           1997 - $14.7 million             1996 - $6.1 million
                           (represents an increase of $8.6 million or 141.0%)
                           Increase  primarily  due to a  substantial  inflow of
                           funds resulting from activity in the Program.  Due to
                           the volatile day to day funding  requirements  of the
                           Program,  the  Company's  cash position is subject to
                           significant fluctuations.

Premises and Equipment at March 31,

                           1997 - $2.9 million       1996 - $2.4 million
                           (represents an increase of $0.5 million or 20.8%)
                           Increase   primarily   attributable   to   the  major
                           renovation of  the Company's  La Porte branch  office
                           facility.

Other Assets at March 31,

                           1997 - $4.3 million  1996 - $3.1 million
                           (represents an increase of  $1.2  million  or  38.7%)
                           Increase primarily  attributable to  an  increase  in
                           deferred taxes  receivable,  foreclosed real  estate,
                           and increases  in the cash  surrender  value  of life
                           insurance policies.

                                       30


<PAGE>


Non-performing Assets at March 31,

                           1997 - $6.6 million  1996 - $3.0 million
                           (represents an  increase of $3.6  million  or 120.0%)
                           Increase  primarily  attributable to  a $3.7  million
                           increase  in  impaired  loans  from  $2.2 million  at
                           March 31, 1996  to  $5.9  million  at March 31, 1997.
                           Loan loss  reserves at  March 31, 1997  totaled  $1.8
                           million,  an increase of  $461,000 or  34.2% over the
                           prior fiscal year.


At March 31, 1997,  impaired assets include 65 single family construction loans,
all  located in the state of Indiana  with a total  outstanding  balance of $4.7
million and total unfunded commitments of $2.1 million. Eighteen of these loans,
totaling  $1.3  million,  are  outstanding  to  one  builder  with  the  current
outstanding  balance  reflecting a chargeoff  of $141,000  during the year ended
March 31, 1997.  The Company has  allocated  $308,000 of the  allowance for loan
losses to these  loans.  Forty one of these  loans  totaling  $2.4  million  are
outstanding to two  affiliated  companies,  one of which is in  bankruptcy.  The
Company has allocated  $125,000 of the allowance for loan losses to these loans.
The remaining 6 loans totaling $1.2 million are with three separate builders and
the Company has  allocated  $116,000 of the  allowance  for loan losses to these
loans.

Also included in impaired assets is $1.2 million in principal due the Company on
four pools of small business  equipment leases that the Company acquired through
contractual  relationships entered into with Bennett Funding Group, Inc. and its
affiliate Aloha Capital Corporation (f.k.a.  Bennett Leasing  Corporation).  Per
the terms of the contractual arrangements, Bennett Funding Group, Inc. and Aloha
Capital  Corporation,  act as the servicing  agents for the respective  pools of
leases  sold to the  Company.  Bennett  Funding  Group  Inc.  sought  Chapter 11
Bankruptcy  protection  on March 29, 1996.  Several  weeks later,  Aloha Capital
Corporation was placed into  involuntary  bankruptcy at the request of the court
appointed  Bankruptcy  Trustee for Bennett Funding Group,  Inc.  The outstanding
balance reflects a charge-off of $433,000 during the year ended March 31,1997 on
the original balance of $1.7 million.  The Company has allocated  $61,000 of the
allowance  for loan  losses  to these  leases.  The  Company  has  negotiated  a
settlement and the  anticipated  recovery is  approximately  70% of the original
balance.


Total Liabilities at March 31,

                           1997 - $206.3 million     1996 - $186.6 million
                           (represents an increase of $19.7 million or 10.6%)
                           This increase is primarily  attributable  to an $11.5
                           million  or 8.4%  increase  in  total  deposits  from
                           $138.3 million at March 31, 1996 to $149.8 million at
                           March 31, 1997 and $8.2 million or 18.2%  increase in
                           borrowed  funds from $45.1  million at March 31, 1996
                           to $53.3  million  at March 31,  1997.  The growth in
                           liabilities   was  primarily  due  to  the  increased
                           funding needs of the Program.

The increase in total deposits was  concentrated  in  certificates  of deposits.
Certificate balances increased $20.7 million or 30.2%, primarily attributable to
management's  decision  to utilize  the public  fund and  institutional  deposit
markets to meet the Company's funding needs.  Management has found these markets
to be reliable and attractively priced funding sources and will continue to take
advantage  of these  funding  sources as market  conditions  warrant.  Partially
offsetting the increase in certificates of deposits was an $8.4 million or 20.2%
decrease  in demand  deposit  accounts.  More than 90% of the  Company's  demand
deposit  balances are held by mortgage

                                       31

<PAGE>

companies that are participating in the Company's Program. The level of balances
maintained in demand  deposits,  by these  companies,  fluctuates  significantly
between periods.


Total borrowed funds at March 31, 1996, consist of $7.0 million in federal funds
purchased and $46.3 million in Federal Home Loan Bank  advances,  of which $45.3
million will mature in less than one year.

Comparison of Operating Results for the Years Ended March 31, 1997 and 1996

GENERAL: Net income for the year ended March 31, 1997 was $2,312,000 compared to
$2,458,000 in the prior year. This $146,000  decrease in net income is primarily
attributable to a $723,000 nonrecurring pretax charge resulting from legislation
signed into law on  September  30, 1996,  to  recapitalize  the Federal  Deposit
Insurance  Corporation's  Savings Association Insurance Fund. Earnings were also
negatively impacted by an increase in non-interest expenses related to the start
up of a newly  established  mortgage  banking division and to the pending merger
with Pinnacle.


         Interest Income for year ended March 31,

                           1997 - $16.4 million      1996 - $14.4 million
                           (represents an increase of $2.0 million or 13.9%)
                           This increase is attributable  to increased  activity
                           in the  Company's  Mortgage  Loan Reverse  Repurchase
                           Program  which  was  the  primary  factor  in a $23.5
                           million or 13.9% increase in average interest-earning
                           assets  outstanding  from $168.5 million for the year
                           ending March 31, 1996 to $192.0  million for the year
                           ending March 31, 1997.

         Interest  income  earned  under the Program  increased  $2.2 million or
         39.6% over the prior fiscal year. The average outstanding investment in
         the Program  increased  from $58.3  million for the twelve months ended
         March 31, 1996 to $82.1  million for the twelve  months ended March 31,
         1997. The increase in outstandings in the Program is attributable to an
         increase  in the  number of  mortgage  companies  participating  in the
         Program.  Although  management  is  committed  to continue  growing the
         Program by increasing the number of  participants,  no assurance can be
         given that the level of  outstandings  held under the  Program  for the
         fiscal year March 31, 1997 will be maintained.  Interest  income on the
         loans receivable  portfolio,  securities and mortgage backed securities
         portfolio and other interest earning assets decreased $67,000,  $28,000
         and  $18,000,  respectively.  Fewer  assets  were  allocated  to  these
         categories by  management  over the course of the year because of asset
         allocations to the Program.


         Interest Expense for year ended March 31,

                           1997 - $8.1 million       1996 - $7.1 million
                           (represents an increase of $1.0 million or 14.1%)
                           This  increase is primarily  attributable  to a $22.5
                           million or 15.0% increase in average interest-bearing
                           liabilities over the prior fiscal year. This increase
                           resulted  from  the  increased  funding  needs of the
                           Program.  In  the  course  of  funding  this  Program
                           management  considers the relevant  costs of deposits
                           and   borrowings   and   acquires  the  needed  funds
                           accordingly.

                                       32

<PAGE>

         Net Interest Income for year ended March 31,

                           1997 - $8.3 million       1996 - $7.3 million
                           (represents an increase of $1.0 million or 13.7%)
                           Increase   resulted   from    substantially    higher
                           outstandings  in the Company's  Mortgage Loan Reverse
                           Repurchase Program. The Company`s net interest margin
                           ratio for the twelve  months ended March 31, 1997 was
                           4.31% as compared to the prior fiscal year's ratio of
                           4.33%.

         Provision for Loan Losses for year ended March 31,

                           1997 - $1.2      million  1996 - $1.0 million
                           (represents an increase of $200,000 or 20.0%)
                           The 1997  provision  for loan  losses  resulted  from
                           management's   continued   evaluation   of  the  loan
                           portfolio, national and regional economic indicators,
                           and the determination of specific allowances for loan
                           loss  allocations   needed  for  impaired  loans  and
                           increases needed to replenish net charge-offs.

         The Company's  allowance  for loan losses  increased to $1.8 million at
         March 31,  1997  from $1.3  million  at March  31,  1996.  Management's
         decision to add to loan loss  reserves was  primarily  attributable  to
         several factors:  1.) To replenish  $730,000 of net chargeoffs  against
         the loan reserves recorded in fiscal 1997, 2.) To build up the level of
         reserves  to  properly  reflect  the  Company's  increased  activity in
         construction lending,  commercial lending and consumer lending, and 3.)
         To set-up  specific  reserves  for  impaired  loans.  The Company  will
         continue to monitor its  allowance for loan losses and make future loan
         loss  provisions in  consideration  of the amount and types of loans in
         its portfolio and as economic conditions dictate.

         Noninterest Income for year ended March 31,

                           1997 - $1.8 million       1996 - $1.2 million
                           (represents an increase of $600,000 or 50.0%)
                           Increase  is  primarily  attributable  to a  $320,000
                           increase in fees related to the Mortgage Loan Reverse
                           Repurchase  Program,  a $268,000 increase in gains on
                           the sale of mortgage loans sold through the Company's
                           mortgage  banking  division and a $52,000 increase in
                           service  charges,   fees  and  late  charges.   These
                           increases were partially offset by a $11,000 decrease
                           in commission income received by Community  Financial
                           Services,   Inc.   from  the  sale  of   tax-deferred
                           annuities and a $43,000 decrease in other income.


         Noninterest Expense for year ended March 31,

                           1997 - $5.3 million       1996 - $3.6 million
                           (represents an increase of $1.7 million or 47.2%)
                           Increase is primarily  attributable to an increase of
                           $684,000 in deposit insurance premiums resulting from
                           the  one-time   assessment  cited  above,   increased
                           personnel, occupancy and promotion expense related to
                           the  Company's  newly  established  mortgage  banking
                           division,  and higher professional fees related to an
                           increase

                                       33


<PAGE>

                           in legal and accounting  fees related to the  pending
                           merger with Pinnacle.

         Income Tax Expense for year ended March 31,

                           1997 - $1.2 million       1996 - $1.4 million
                           (represents a decrease of $200,000 or 14.3%)
                           Income  taxes  decreased  primarily as a result of an
                           increase of $90,000 in tax  credits  that the Company
                           recorded   from  its   investment   in  the   limited
                           partnership,  Pedcor Investments-  1994-XX,  L.P., in
                           the  current  fiscal  year as  compared  to the prior
                           fiscal  year and  decreased  earnings  before  income
                           taxes.


Comparison of Operating Results for the Years Ended March 31, 1996 and 1995
---------------------------------------------------------------------------

         GENERAL:  Net income for the year ended March 31,  1996 was  $2,458,000
         compared to $1,660,000 in the prior year. This $798,000 increase in net
         income was primarily  attributable  to increases in net interest income
         of $2,234,000 or 44.2% and noninterest income of $183,000 or 18.4%.


         Interest Income for year ended March 31,

                           1996 - $14.4 million      1995 - $9.2 million
                           (represents an increase of $5.2 million or 56.5%)
                           This increase was attributable to increased  activity
                           in the  Company's  Mortgage  Loan Reverse  Repurchase
                           Program and other  lending  activities  which was the
                           primary  factor in a $45.9 million or 37.5%  increase
                           in average  interest  earning  assets  from the prior
                           fiscal  year to $168.5  million  for the year  ending
                           March  31,  1996.   In  addition,   interest   income
                           generated by the Company's  interest  earning  assets
                           also  benefited  from higher year over year yields on
                           these assets.

         Interest  income  earned  under the Program  increased  $4.1 million or
         303.3% over the prior fiscal year. The average  outstanding  investment
         in the Program increased from $16.0 million for the twelve months ended
         March 31, 1995 to $58.3  million for the twelve  months ended March 31,
         1996. The increase in outstandings  in the Program was  attributable to
         increased  mortgage  refinancing  and purchase  money  mortgages due to
         lower mortgage interest rates,  increased  construction  lending within
         the Program, and an expanded number of mortgage companies participating
         in the Program.

         The increase in interest income was also  attributable to growth in the
         Company's  loans  receivable  portfolio.  Interest  income on the loans
         receivable  portfolio  increased  $1.1  million or 17.5% over the prior
         fiscal year. The average outstanding investment in the loans receivable
         portfolio  increased  from  $80.8  million  at March 31,  1995 to $89.8
         million at March 31, 1996. Growth in the loan receivable  portfolio was
         attributable  to  the   origination   and  purchase  of   multi-family,
         construction, commercial mortgage and non-mortgage loans.

         Interest income on interest bearing assets decreased  $110,000 or 62.3%
         as fewer assets were allocated to this category by management  over the
         course of the year  because  of asset  allocations  to loans  including
         loans in the Program.

                                       34

<PAGE>

         Interest Expense for year ended March 31,

                           1996 - $7.1 million       1995 - $4.1 million
                           (represents an increase of $3.0 million or 73.2%)
                           Increase is primarily attributable to a $41.0 million
                           or  37.8%   increase   in  average   interest-bearing
                           liabilities over the prior fiscal year. This increase
                           resulted  from  the  increased  funding  needs of the
                           Program and loans receivable portfolio. In the course
                           of funding this  Program  management  considered  the
                           relevant   costs  of  deposits  and   borrowings  and
                           acquired the needed funds accordingly.


         Net Interest Income for year ended March 31,

                           1996 - $7.3 million       1995 - $5.1 million
                           (represents an increase of $2.2 million or 43.1%)
                           Increase   resulted   from    substantially    higher
                           outstandings  in the Company's  Mortgage Loan Reverse
                           Repurchase Program and growth in the loans receivable
                           portfolio.  In  addition,   management's  efforts  to
                           profitably  increase  the  level of  interest-earning
                           assets also  contributed to a 21 basis point increase
                           in the Company's  net interest  margin ratio to 4.33%
                           for the twelve months ended March 31, 1996 from 4.12%
                           for the twelve months ended March 31, 1995.

         Provision for Loan Losses for year ended March 31,

                           1996 - $1,020,000         1995 - $78,000
                           (represents an increase of $942,000 or 1,207.7%)
                           The 1996  provision  for loan  losses  resulted  from
                           management's   continued   evaluation   of  the  loan
                           portfolio, national and regional economic indicators,
                           and the determination of specific allowances for loan
                           loss  allocations   needed  for  impaired  loans  and
                           increases needed to replenish net charge-offs.

         The  Company's  allowance  for loan losses  increased to  $1,347,000 at
         March 31, 1996 from $673,000 at March 31, 1995.  Management's  decision
         to  substantially  increase  the  level  of loan  loss  provisions  was
         primarily attributable to several factors: 1.) To replenish $346,000 of
         chargeoffs  against the loan reserves  recorded in fiscal 1996,  2.) To
         build up the  level of  reserves  to  properly  reflect  the  Company's
         increased  activity in  construction  lending,  commercial  lending and
         consumer  lending,  and 3.) To set-up  specific  reserves for the lease
         paper purchased from Bennett Funding Group and Aloha Capital Corp.

         Noninterest Income for year ended March 31,

                           1996 - $1.2 million       1995 - $1.0 million
                           (represents an increase of $200,000 or 20.0%)
                           Increase  was  primarily  attributable  to a $205,000
                           increase in fees related to the Mortgage Loan Reverse
                           Repurchase  Program  and a $23,000  increase in other
                           income.  These  increases were partially  offset by a
                           $13,000  decrease in  commission  income  received by
                           Community Financial  Services,  Inc. from the sale of
                           tax-deferred  annuities  and a  $33,000  decrease  in
                           other service  charges and fees due to the absence of
                           a one time  consulting fee of $92,000 relative to

                                       35

<PAGE>

                           an  affordable  housing   project  that  the  Company
                           recorded in the prior fiscal year.


         Noninterest Expense for year ended March 31,

                           1996 - $3.6 million       1995 - $3.3 million
                           (represents   an   increase  of  $300,000  or  9.09%)
                           Increase was  attributable to: 1.) the start up costs
                           of  a  mortgage  banking  division  in  Merrillville,
                           Indiana,  which began operations in February of 1996,
                           2.)  expenses  incurred  related  to the  acquisition
                           efforts  of a  mortgage  banking  company  which were
                           later terminated  without the consummation of a deal,
                           and 3.)  higher  legal  costs than those of the prior
                           year.

         Income Tax Expense for year ended March 31,

                           1996 - $1.4 million       1995 - $1.0 million
                           (represents an increase of $400,000 or 40.0%)
                           Income  taxes  increased  primarily  as a  result  of
                           increased  earnings  before  income taxes,  which was
                           only partially  offset by a $70,000 tax credit in the
                           year ended March 31, 1996  related to  the  Company's
                           investment   in  the  limited   partnership,   Pedcor
                           Investments-1994-XX-LP.


Liquidity and Capital Resources
-------------------------------

The Company's primary sources of funds are deposits, proceeds from principal and
interest payments on loans, securities,  mortgage-backed  securities,  advances,
and lines of credit from the Federal Home Loan Bank ("FHLB") of Indianapolis and
federal funds purchased.  While  maturities and scheduled  amortization of loans
and mortgage-backed  securities are a predictable source of funds, deposit flows
and mortgage  prepayments  are greatly  influenced  by general  interest  rates,
economic conditions, competition and other factors.

The Bank is required to maintain  minimum  levels of liquid assets as defined by
the Office of Thrift Supervision ("OTS") regulations.  This requirement is based
upon a percentage of deposits and short-term  borrowings,  which may vary at the
direction of the OTS depending upon economic  conditions and deposit flows.  The
required ratio is currently 5.0%. The Bank's liquidity ratios were 5.6% and 7.7%
at March 31, 1997 and 1996,  respectively.  Liquidity management for the Company
is both a daily and  long-term  function of the Company's  management  strategy.
Excess  funds  are  generally  invested  in  short-term  investments,  including
deposits in financial institutions. In the event that the Company should require
funds  beyond its ability to generate  them  internally,  additional  sources of
funds are  available via FHLB of  Indianapolis  advances,  lines of  credit  and
reverse repurchase agreements.

Management  structures the liquid asset portfolio and borrowing  capacity of the
Company  to meet the cash  flow  needs of  operating,  investing  and  financing
activities.  The Company's  liquid assets are cash and cash  equivalents,  which
include investments in highly liquid, short-term investments.  At March 31, 1997
and 1996,  cash and cash  equivalents  totaled  $14.7  million and $6.1 million,
respectively.  In addition,  the Company maintains a $5.0 million line of credit
with the FHLB of  Indianapolis to meet short term liquidity  needs.  The line of
credit had an outstanding balance of $3.8 million at March 31, 1997.

                                       36

<PAGE>

Cash flows  resulting  from  operating  activities  consisted  primarily  of net
income,  activity  under the  Program and the  origination  and sale of mortgage
loans held for sale. Cash flows from operating  activities were ($13.0) million,
($51.5)  million and $11.1 million for the years ended March 31, 1997,  1996 and
1995,  respectively.  The Company's primary  investing  activities have been the
purchase  and  repayment  of  securities;  mortgage-backed  securities;  and the
purchase,  origination,  and repayment of loans.  Net cash flows from  investing
activities  were $2.3 million,  ($4.5)  million and ($9.3) million for the years
ended  March 31,  1997,  1996 and 1995,  respectively.  Net cash from  financing
activities,  primarily  the  borrowing  and repayment of funds and net deposits,
were $19.3  million,  $58.5 million and ($3.4) million for the years ended March
31, 1997, 1996 and 1995, respectively.

For the years ended March 31, 1997,  1996 and 1995 the  Company's  single family
mortgage loan purchases  through the Program totaled  $1,112.0  million,  $795.9
million  and $453.3  million,  respectively.  Sales of these loans over the same
respective  time periods  totaled  $1,096.7  million,  $741.0 million and $462.4
million.  During the fiscal  year ended  March 31,  1997,  the  activity  in the
Program  increased  significantly  due to an  increase in the number of mortgage
companies  participating in the Program.  Management  utilized FHLB advances and
institutional  and public fund deposits to meet the Company's funding needs. The
Company  maintains  borrowing  capacity with the  FHLB-Indianapolis  to meet the
funding  requirements  of the Program as well as the general  liquidity needs of
Company operations.

At March 31, 1997, the Company had  outstanding  commitments to originate  loans
and fund unused  lines of credit of $2.8  million,  unused  letters of credit of
$4.1 million and $12.4 million in commitments to fund the  undisbursed  balances
of Program construction loans. Management anticipates that sufficient funds will
be  available  to  finance,  on a timely  basis,  its  short  and long term loan
commitments.  Certificates  of deposit which are scheduled to mature in one year
or less at March 31,  1997,  totaled  $73.8  million.  Management's  pricing  of
certificate  offerings  reflect the Bank's funding needs and the availability of
other sources of funds (i.e. FHLB advances, etc.).

Shareholders'  equity at March 31, 1997 was $20.8  million,  an increase of $2.0
million or 10.7% over March 31, 1996, which represents net income for the twelve
months ended March 31, 1997 and the effects of treasury stock transactions, ESOP
loan repayment,  the  amortization  of Recognition and Retention  Program Shares
(RRP)  acquisition  costs, tax benefit related to stock plans and the net change
in unrealized appreciation on securities available-for-sale, net of tax.


Under OTS capital requirements, at March 31, 1997, the Bank had:

---      Tangible  capital  (shareholders'  equity) of $18.4  million or 8.1% of
         adjusted  total assets thereby  exceeding the 1.5%  requirement of $3.4
         million by $15.0 million.

---      Core capital (tangible capital plus certain intangible assets) of $18.4
         million or 8.1% of adjusted  total assets  thereby  exceeding  the 3.0%
         requirement of $6.8 million by $11.6 million.

---      Risk-weighted  capital (core capital plus general valuation allowances)
         of $20.0 million or 14.8% of risk-weighted assets thereby exceeding the
         8.0% requirement of $10.8 million by $9.2 million.


At March 31, 1997, the Bank's capital  exceeded all of the capital  requirements
of the OTS.

                                       37

<PAGE>


Asset/Liability Management
--------------------------

Asset/Liability  Management is a daily function of the Company's  management and
is continually changing in response to interest rate fluctuations.  The matching
of assets and  liabilities may be analyzed by examining the extent to which such
assets and  liabilities  are interest  rate  sensitive,  and by  monitoring  the
Company's  interest rate risk ("IRR") measures  produced by the Office of Thrift
Supervision  from the Bank's  quarterly  Thrift  Financial  Reports.  Management
regularly  measures the Bank's interest rate risk by monitoring the effect a 200
basis point  instantaneous  increase or decrease in market  interest rates would
have on its net portfolio value ("NPV").

In 1990, the regulators  adopted the interest-rate  sensitivity  approach as one
measure of interest-rate  risk. This approach  measures the projected changes in
NPV that would result if interest rates were to increase; instantaneously across
the yield curve;  by 100,  200, 300 and 400 basis points;  or if interest  rates
were to decline by 100,  200, 300 and 400 basis points.  Net portfolio  value is
defined as the market value of interest  earning assets less the market value of
interest  bearing  liabilities.  According to the  "Interest  Rate Risk Report,"
prepared  by the Office of Thrift  Supervision  as of March 31,  1997,  after an
adverse  rate  shock  of + 200  points,  the  Bank's  NPV of $24.1  million  was
projected to decline $1.1 million or 4.5%,  to $23.0  million.  According to the
OTS report,  only 15% of thrifts  nationwide would have experienced a decline of
5.2% or less.  Presented  below,  as of March 31,  1997,  is an  analysis of the
Bank's  interest rate risk as measured by changes in NPV for  instantaneous  and
substantial parallel shifts of 100 basis points in market interest rates.


             Interest Rate Sensitivity of Net Portfolio Value (NPV)

                               Net Portfolio Value
                               -------------------
             Change
             in Rates        $ Amount       $ Change      % Change
             --------        --------       --------      --------
             +400 bp          21,502         -2,556          -11%
             +300 bp          22,259         -1,799          - 7%
             +200 bp          22,980         -1,078          - 4%
             +100 bp          23,599         -  459          - 2%
                0 bp          24,058
             -100 bp          24,205         +  147          + 1%
             -200 bp          23,697         -  361          - 2%
             -300 bp          23,449         -  609          - 3%
             -400 bp          23,544         -  514          - 2%

The Company's primary strategy for controlling  interest rate risk exposure,  is
to maintain a high level of the  Company's  asset  portfolios  in interest  rate
sensitive  assets.  Management  has  accomplished  this  objective  through  its
investment in the Mortgage Loan Reverse Repurchase  Program.  Under the Program,
the Company  purchases single family mortgage loans from select mortgage banking
firms on a short-term  basis under  agreements to resell and earns an adjustable
prime rate based return during the holding period.  The Program has complemented
the Company's  portfolio of adjustable  rate mortgage  loans held for investment
which account for 34.8% of mortgage  loans  receivable,  excluding  loans in the
Program.  In  addition,  the Company has sought to lengthen  the maturity of its
interest-bearing liabilities by emphasizing longer term certificates of deposit.
The Company also has the ability to obtain  long-term  advances from the FHLB of
Indianapolis if such  borrowings  appear  favorable under a particular  interest
rate environment.

                                       38


<PAGE>

Impact of Inflation and Changing Prices
---------------------------------------

The consolidated  financial  statements and notes thereto  presented herein have
been  prepared in  accordance  with  generally  accepted  accounting  principles
("GAAP")  which  require the  measurement  of financial  position and  operating
results   in   terms   of   historical    dollars    (except   for    securities
available-for-sale)  without  considering the changes in the relative purchasing
power of money over time due to inflation.  The impact of inflation is reflected
in the  increased  cost of the  Company's  operations.  Unlike  most  industrial
companies,  nearly all the assets and liabilities of the Company are monetary in
nature.  As a result,  interest  rates  have a greater  impact on the  Company's
performance  than do the effects of general levels of inflation.  Interest rates
do not necessarily move in the same direction or to the same extent as the price
of goods and services.


Impact of New Accounting Standards
----------------------------------

Statement of Financial  Accounting  Standards No. 125, "Accounting for Transfers
and  Servicing of Financial  Assets and  Extinguishments  of  Liabilities,"  was
issued by the  Financial  Accounting  Standards  Board in 1996.  It revises  the
accounting for transfers of financial assets, such as loans and securities,  and
for  distinguishing  between sales and secured  borrowings.  It is effective for
some  transactions  in 1997 and others in 1998.  The  anticipated  effect on the
consolidated financial statements has not yet been determined.

Also, in March, 1997, the accounting  requirements for calculating  earnings per
share were revised.  Basic earnings per share for the quarter ended December 31,
1997 and later will be calculated  solely on average common shares  outstanding.
Diluted earnings per share will reflect the potential  dilution of stock options
and other common stock  equivalents.  All prior calculations will be restated to
be compatible to the new methods.  As the Company has significant  dilution from
stock options,  the new calculation  methods will increase future basic earnings
per share over what  otherwise  would have been  reported,  while  there will be
little effect on diluted earnings per share.

                                       39


<PAGE>

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

                         CB BANCORP, INC. AND SUBSIDIARY
                             Michigan City, Indiana

                     1997 CONSOLIDATED FINANCIAL STATEMENTS



                                TABLE OF CONTENTS




REPORT OF INDEPENDENT AUDITORS ............................................  41


CONSOLIDATED FINANCIAL STATEMENTS

     CONSOLIDATED BALANCE SHEETS...........................................  42

     CONSOLIDATED STATEMENTS OF INCOME ....................................  43

     CONSOLIDATED STATEMENTS OF CHANGES
       IN SHAREHOLDERS' EQUITY.............................................  44

     CONSOLIDATED STATEMENTS OF CASH FLOWS.................................  45

     NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ...........................  47

                                       40


<PAGE>

                         REPORT OF INDEPENDENT AUDITORS



Board of Directors and Shareholders
CB Bancorp, Inc. and Subsidiary
Michigan City, Indiana


We have audited the accompanying consolidated balance sheets of CB Bancorp, Inc.
and  Subsidiary  as of March  31,  1997 and  1996 and the  related  consolidated
statements  of income,  changes in  shareholders'  equity and cash flows for the
years  ended  March  31,  1997,  1996 and  1995.  These  consolidated  financial
statements   are  the   responsibility   of  the   Company's   management.   Our
responsibility  is to express an opinion on these financial  statements based on
our audits.

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

In our opinion, the consolidated  financial statements referred to above present
fairly, in all material respects, the financial position of CB Bancorp, Inc. and
Subsidiary as of March 31, 1997 and 1996 and the results of their operations and
their  cash  flows  for the  years  ended  March 31,  1997,  1996 and  1995,  in
conformity with generally accepted accounting principles.

As  discussed  in Note 1, the Company  adopted the  provisions  of  Statement of
Financial  Accounting  Standards No. 115, "Accounting for Certain Investments in
Debt and Equity Securities," as of April 1, 1994.



                                             Crowe, Chizek and Company LLP

South Bend, Indiana
May 23, 1997
--------------------------------------------------------------------------------
                                       41

<PAGE>

                        CB BANCORP, INC. AND SUBISIDIARY
                           CONSOLIDATED BALANCE SHEETS
                             March 31, 1997 and 1996

--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
                                                                                  1997            1996
                                                                                  ----            ----
<S>  <C>
ASSETS
Cash and due from financial institutions                                     $  4,847,106    $  4,754,811
Interest-bearing deposits in other financial institutions -
  short term                                                                    9,882,031       1,308,112
                                                                             ------------    ------------
     Cash and cash equivalents                                                 14,729,137       6,062,923
                                                                             ------------    ------------
Securities available for sale                                                     672,059         620,948
Securities held to maturity (Fair value:  $14,348,000 - 1997;
  $15,926,000 - 1996)                                                          14,298,913      15,866,904
Federal Home Loan Bank stock at cost                                            2,751,700       2,702,000
Loans
     Loans purchased under agreements to resell                                95,275,680      80,031,250
     Loans receivable                                                          90,315,402      92,616,450
     Less:  Allowance for loan losses                                          (1,807,660)     (1,346,328)
                                                                             ------------    ------------
                                                                              183,783,422     171,301,372
Mortgage loans held for sale                                                      914,050         512,750
Accrued interest receivable                                                     1,219,432       1,183,259
Premises and equipment, net                                                     2,920,274       2,387,382
Investment in limited partnership                                               1,566,215       1,678,573
Other assets                                                                    4,280,206       3,068,825
                                                                             ------------    ------------

                                                                             $227,135,408    $205,384,936
                                                                             ============    ============

LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities
     Deposits
         Interest-bearing                                                    $139,806,192    $120,408,041
         Non-interest bearing                                                  10,003,301      17,852,856
                                                                             ------------    ------------
              Total deposits                                                  149,809,493     138,260,897
     Borrowed funds                                                            53,283,553      45,124,355
     Obligation due to limited partnership                                      1,467,877       1,450,000
     Accrued expenses and other liabilities                                     1,731,552       1,717,500
                                                                             ------------    ------------
                                                                              206,292,475     186,552,752

Shareholders' equity
     Serial preferred stock, no par value, 500,000 shares
       authorized; none outstanding                                                     -               -
     Common stock, par value $.01 per share;
       shares authorized: 1,500,000;  shares issued: 1,284,238;
       shares outstanding: 1997-1,161,997 and 1996-1,188,226                       12,842          12,842
     Additional paid-in capital                                                 5,865,528       5,813,358
     Retained earnings - substantially restricted                              16,635,085      14,323,484
     Less:
         Treasury stock, 122,241 and 96,012 shares at cost at
           March 31, 1997 and 1996, respectively                               (1,550,290)     (1,081,744)
         Unearned common stock acquired by:
              Employee stock ownership plan                                      (176,583)       (240,794)
              Recognition and retention plans                                      (4,233)        (20,708)
     Net unrealized appreciation on securities available for sale,
       net of tax of $39,738 in 1997 and $16,887 in 1996                           60,584          25,746
                                                                             ------------    ------------
                                                                               20,842,933      18,832,184
                                                                             ------------    ------------

                                                                             $227,135,408    $205,384,936
                                                                             ============    ============
</TABLE>

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

          See accompanying notes to consolidated financial statements.

                                       42



<PAGE>

                         CB BANCORP, INC. AND SUBSIDIARY
                        CONSOLIDATED STATEMENTS OF INCOME
                    Years ended March 31, 1997, 1996 and 1995

--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
                                                                     1997          1996         1995
                                                                     ----          ----         ----
<S> <C>
Interest income
     Loans receivable
         First mortgage loans                                    $ 6,884,405   $ 6,949,705   $6,189,013
         Consumer and other loans                                    627,028       628,236      260,463
     Loans purchased under agreements to resell                    7,613,007     5,452,138    1,351,924
     Securities - taxable                                            594,933       565,940      567,883
     Mortgage-backed and related securities - taxable                632,276       689,120      653,029
     Other interest-bearing assets - taxable                          48,946        66,742      177,064
                                                                 -----------   -----------   ----------
                                                                  16,400,595    14,351,881    9,199,376
Interest expense
     Deposits                                                      5,680,771     5,040,273    3,961,171
     Borrowed funds                                                2,453,616     2,022,405      182,559
                                                                 -----------   -----------   ----------
                                                                   8,134,387     7,062,678    4,143,730
                                                                 -----------   -----------   ----------

Net interest income                                                8,266,208     7,289,203    5,055,646

Provision for loan losses                                          1,191,000     1,020,000       78,000
                                                                 -----------   -----------   ----------

Net interest income after provision
  for loan losses                                                  7,075,208     6,269,203    4,977,646

Noninterest income
     Gain (loss) on sales of mortgage loans
       held for sale                                                 269,739         1,478            -
     Other                                                         1,493,603     1,176,542      995,084
                                                                 -----------   -----------   ----------
                                                                   1,763,342     1,178,020      995,084

Noninterest expense
     Salaries and employee benefits                                1,941,387     1,561,595    1,493,024
     Occupancy and equipment                                         593,536       512,476      512,394
     SAIF deposit insurance premium                                  947,628       263,397      261,206
     Other                                                         1,863,085     1,271,616    1,075,585
                                                                 -----------   -----------   ----------
                                                                   5,345,636     3,609,084    3,342,209
                                                                 -----------   -----------   ----------

Income before income taxes                                         3,492,914     3,838,139    2,630,521

Income tax expense                                                 1,181,313     1,379,929      970,274
                                                                 -----------   -----------   ----------

Net income                                                       $ 2,311,601   $ 2,458,210   $1,660,247
                                                                 ===========   ===========   ==========


Primary earnings per share                                       $      1.86   $      1.95   $     1.29
Fully dilutive earnings per share                                       1.85          1.94         1.29
</TABLE>

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

          See accompanying notes to consolidated financial statements.

                                       43


<PAGE>

                         CB BANCORP, INC. AND SUBSIDIARY
           CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
                    Years ended March 31, 1997, 1996 and 1995

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



<TABLE>
<CAPTION>
                                                                                                           Unearned
                                                                                                            Common
                                                             Additional                                      Stock
                                               Common         Paid-in        Retained       Treasury       Acquired
                                                Stock         Capital        Earnings         Stock         By ESOP
                                                -----         -------        --------         -----         -------

<S> <C>
Balance - April 1, 1994                     $    12,842    $  5,862,898   $ 10,205,027   $   (522,899)   $   (369,216)

Adoption of SFAS No. 115 net of tax of $63            -               -              -              -               -
Purchase of 22,000 shares of treasury stock           -               -              -       (243,875)              -
Issuance of 10,916 shares of treasury stock           -         (41,038)             -         95,618               -
Contribution to fund ESOP                             -               -              -              -          64,211
Amortization of RRP contribution                      -               -              -              -               -
Net change in unrealized appreciation
  on securities available for sale, net
  of tax of $1,131                                    -               -              -              -               -
Net income for the year
  ended March 31, 1995                                -               -      1,660,247              -               -
                                            -----------    ------------   ------------   ------------    ------------

Balance - March 31, 1995                         12,842       5,821,860     11,865,274       (671,156)       (305,005)

Purchase of 38,495 shares of treasury stock           -               -              -       (557,427)              -
Issuance of 13,583 shares of treasury stock           -         (78,923)             -        146,839               -
Contribution to fund ESOP                             -               -              -              -          64,211
Amortization of RRP contribution                      -               -              -              -               -
Tax benefit related to stock plans                    -          70,421              -              -               -
Net change in unrealized appreciation
  on securities available for sale,
  net of tax of $15,693                               -               -              -              -               -
Net income for the year ended
  March 31, 1996                                      -               -      2,458,210              -               -
                                            -----------    ------------   ------------   ------------    ------------

Balance - March 31, 1996                         12,842       5,813,358     14,323,484     (1,081,744)       (240,794)

Purchase of 27,873 shares of treasury stock           -               -              -       (487,572)              -
Issuance of 1,644 shares of treasury stock            -         (10,805)             -         19,026               -
Contribution to fund ESOP                             -               -              -              -          64,211
Amortization of RRP contribution                      -               -              -              -               -
Tax benefit related to stock plans                    -          62,975              -              -               -
Net change in unrealized appreciation
  on securities available for sale,
  net of tax of $22,851                               -               -              -              -               -
Net income for the year ended
  March 31, 1997                                      -               -      2,311,601              -               -
                                            -----------    ------------   ------------   ------------    ------------

Balance - March 31, 1997                    $    12,842    $  5,865,528   $ 16,635,085   $ (1,550,290)   $   (176,583)
                                            ===========    ============   ============   ============    ============
</TABLE>



<TABLE>
<CAPTION>
                                                                Net Unrealized
                                                   Unearned      Appreciation
                                                    Common      on Securities
                                                     Stock         Available          Total
                                                   Acquired        for Sale,      Shareholders'
                                                    By RRP        Net of Tax         Equity
                                                    ------        ----------         ------

<S> <C>
Balance - April 1, 1994                          $    (89,675)  $           -   $   15,098,977

Adoption of SFAS No. 115 net of tax of $63                  -              96               96
Purchase of 22,000 shares of treasury stock                 -               -         (243,875)
Issuance of 10,916 shares of treasury stock                 -               -           54,580
Contribution to fund ESOP                                   -               -           64,211
Amortization of RRP contribution                       41,999               -           41,999
Net change in unrealized appreciation
  on securities available for sale, net
  of tax of $1,131                                          -           1,726            1,726
Net income for the year
  ended March 31, 1995                                      -               -        1,660,247
                                                 ------------   -------------   --------------

Balance - March 31, 1995                              (47,676)          1,822       16,677,961

Purchase of 38,495 shares of treasury stock                 -               -         (557,427)
Issuance of 13,583 shares of treasury stock                 -               -           67,916
Contribution to fund ESOP                                   -               -           64,211
Amortization of RRP contribution                       26,968               -           26,968
Tax benefit related to stock plans                          -               -           70,421
Net change in unrealized appreciation
  on securities available for sale,
  net of tax of $15,693                                     -          23,924           23,924
Net income for the year ended
  March 31, 1996                                            -               -        2,458,210
                                                 ------------   -------------   --------------

Balance - March 31, 1996                              (20,708)         25,746       18,832,184

Purchase of 27,873 shares of treasury stock                 -               -         (487,572)
Issuance of 1,644 shares of treasury stock                  -               -            8,221
Contribution to fund ESOP                                   -               -           64,211
Amortization of RRP contribution                       16,475               -           16,475
Tax benefit related to stock plans                          -               -           62,975
Net change in unrealized appreciation
  on securities available for sale,
  net of tax of $22,851                                     -          34,838           34,838
Net income for the year ended
  March 31, 1997                                            -               -        2,311,601
                                                 ------------   -------------   --------------

Balance - March 31, 1997                         $     (4,233)  $      60,584   $   20,842,933
                                                 ============   =============   ==============
</TABLE>

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

          See accompanying notes to consolidated financial statements.

                                       44

<PAGE>

                         CB BANCORP, INC. AND SUBSIDIARY
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                    Years ended March 31, 1997, 1996 and 1995

--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
                                                                      1997             1996              1995
                                                                      ----             ----              ----
<S> <C>
Cash flows from operating activities
     Net income                                                  $   2,311,601     $   2,458,210    $     1,660,247
     Adjustments to reconcile net income to
       net cash from operating activities
         Depreciation and amortization                                 219,997           187,104            342,215
         Provision for loan losses                                   1,191,000         1,020,000             78,000
         (Gain) loss on sales of:
              Mortgage loans held for sale                            (269,739)           (1,478)                 -
              Securities available for sale                                  -                 -                650
              Foreclosed real estate                                       755           (16,731)           (16,240)
         Loans purchased under agreements to resell             (1,111,965,098)     (795,862,263)      (453,339,372)
         Sale of loans purchased under agreements
           to resell                                             1,096,720,668       741,010,220        462,353,515
         Mortgage loans originated for sale                        (15,669,346)         (585,786)                 -
         Proceeds from sales of mortgage loans
            held for sale                                           15,537,785            74,514                  -
         Amortization of RRP contribution                               16,475            26,968             41,999
         Change in:
              Accrued interest receivable                              (36,173)         (396,855)          (138,011)
              Other assets                                          (1,024,828)         (370,009)           (30,532)
              Accrued expenses and other liabilities                    14,052           911,471            114,610
                                                                 -------------     -------------    ---------------
                  Net cash from operating activities               (12,952,851)      (51,544,635)        11,067,081

Cash flows from investing activities
     Net change in long term interest-bearing deposits
       in other financial institutions                                       -           983,475           (885,276)
     Net change in loans receivable                                  1,095,951        (6,223,912)        (5,717,413)
     Proceeds from:
         Sale of securities available for sale                               -                 -             49,200
         Maturities of securities held to maturity                   3,420,782         9,161,482          6,300,000
         Principal collected on mortgage-backed securities           2,381,737         2,311,441          3,215,365
         Sale of foreclosed real estate                                328,245            92,210             58,937
     Purchase of:
         Securities and mortgage-backed securities
           available for sale                                                -                 -            (53,324)
         Securities and mortgage-backed securities
           held to maturity                                         (4,236,862)      (10,104,120)        (9,424,682)
         Federal Home Loan Bank stock                                  (49,700)         (351,600)                 -
         Loans receivable                                                    -                 -         (2,627,077)
         Premises and equipment, net                                  (743,977)         (176,519)          (134,506)
     Investment in limited partnership                                 112,358          (153,573)           (75,000)
                                                                 -------------     -------------    ---------------
         Net cash from investing activities                          2,308,534        (4,461,116)        (9,293,776)
</TABLE>

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

                                  (Continued)

                                       45

<PAGE>

                         CB BANCORP, INC. AND SUBSIDIARY
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                    Years ended March 31, 1997, 1996 and 1995

--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
                                                                     1997             1996               1995
                                                                     ----             ----               ----
<S> <C>
Cash flows from financing activities
      Net change in deposits                                  $     11,548,596    $   26,189,663   $     (2,934,877)
      Proceeds from borrowed funds                                 326,879,583     1,709,466,300        238,718,275
      Repayment of borrowed funds                                 (318,720,385)   (1,676,704,749)      (239,100,610)
      Net change in obligation due to limited
        partnership                                                     17,877                 -                  -
      Purchase of treasury stock                                      (487,572)         (557,427)          (243,875)
      Issuance of shares of treasury stock                               8,221            67,916             54,580
      Contribution to fund ESOP                                         64,211            64,211             64,211
                                                              ----------------    --------------   ----------------
         Net cash from financing activities                         19,310,531        58,525,914         (3,442,296)
                                                              ----------------    --------------   ----------------

Net change in cash and cash equivalents                              8,666,214         2,520,163         (1,668,991)

Cash and cash equivalents at beginning of year                       6,062,923         3,542,760          5,211,751
                                                              ----------------    --------------   ----------------

Cash and cash equivalents at end of year                      $     14,729,137    $    6,062,923   $      3,542,760
                                                              ================    ==============   ================

Supplemental disclosures of cash flow information

      Cash paid during the year for
         Interest                                             $      8,029,751    $    6,870,582   $      4,147,503
         Income taxes                                                1,810,000         1,618,449            885,250

      Noncash investing activities
         Transfer from:
             Securities held for sale to securities
               available for sale                             $              -    $            -   $        574,841
             Mortgage-backed and related securities to
               mortgage-backed and related securities
               held to maturity                                              -                 -         10,275,366
         Transfer from investment securities to securities
           held to maturity                                                  -                 -          7,170,481
         Investment in/obligation due to limited
            partnership (Note 16)                                            -                 -          1,450,000
         Real estate acquired in settlement of loans                   475,429            75,479             42,697
</TABLE>

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

          See accompanying notes to consolidated financial statements.

                                       46


<PAGE>


                         CB BANCORP, INC. AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                          March 31, 1997, 1996 and 1995
--------------------------------------------------------------------------------

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Principles of Consolidation:  The accompanying consolidated financial statements
include the accounts of CB Bancorp,  Inc. and its  wholly-owned  subsidiary.  CB
Bancorp,  Inc. is a holding company  located in Michigan City,  Indiana and owns
all the outstanding stock of Community Bank, A Federal Savings Bank ("the Bank")
which  owns all the  outstanding  stock of  Community  Financial  Services  Inc.
("Community  Financial"),  (together  referred to as "the  Company").  Community
Financial has a 99% limited partner interest in Pedcor Investments-1994-XX, L.P.
Community  Financial  also  owns  100% of  Community  Brokerage  Services,  Inc.
("Community Brokerage"). All significant inter-company balances and transactions
are eliminated in consolidation.

Nature of Operations and Industry Segment Information:  The Bank operates in the
single  industry of banking,  including  granting loans  (primarily  real estate
loans),  accepting deposits,  and other banking activities.  Community Financial
offers  various  annuity  and  insurance  programs  and tax  return  preparation
services to Bank  customers  and others.  Pedcor  Investments-1994-XX,  L.P. was
formed for the construction,  ownership, and management of an 80 unit affordable
housing  project in  LaPorte  County,  Indiana.  Community  Brokerage  is a full
service discount  brokerage firm and is a member of the National  Association of
Securities Dealers. The Company operates primarily in the banking industry which
accounts for more than 90% of its revenues, operating income and assets.

Use of Estimates:  To prepare  consolidated  financial  statements in conformity
with generally accepted  accounting  principles,  management makes estimates and
assumptions  based on available  information.  These  estimates and  assumptions
affect the amounts  reported in the  consolidated  financial  statements and the
disclosures  provided,  and future results could differ.  The  collectibility of
loans,  allowance  for loan losses,  the  determination  and  carrying  value of
impaired loans, fair values of financial instruments, securities valuations, the
carrying value of loans purchased under agreements to resell, the carrying value
of loans held for sale,  the  realization  of deferred  tax assets and status of
contingencies are particularly subject to change in the near term.

Securities: On April 1, 1994, the Company adopted the provisions of Statement of
Financial   Accounting   Standards  (SFAS)  No.  115,  "Accounting  for  Certain
Investments  in  Debt  and  Equity   Securities."  The  Company  now  classifies
securities  into held to maturity,  available  for sale and trading  categories.
Held to maturity  securities are those which the Company has the positive intent
and ability to hold to maturity,  and are reported at amortized cost.  Available
for sale  securities  are those the  Company  may  decide to sell if needed  for
liquidity,  asset-liability  management  or other  reasons.  Available  for sale
securities are reported at fair value, with unrealized gains and losses included
as a separate component of shareholders'  equity, net of tax. Trading securities
are bought principally for sale in the near term, and are reported at fair value
with unrealized  gains and losses  included in earnings.  Securities are written
down to fair value when a decline in fair value is not  temporary.  Adoption  of
SFAS No. 115 on April 1, 1994 increased  shareholders' equity by $96, net of $63
tax effect.

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

                                  (Continued)

                                       47


<PAGE>

                         CB BANCORP, INC. AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                          March 31, 1997, 1996 and 1995
--------------------------------------------------------------------------------


NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

Realized gains and losses  resulting from the sale of securities are computed by
the specific  identification method.  Interest and dividend income,  adjusted by
amortization  of purchase  premium or discount using the level yield method,  is
included in earnings.

Loans Purchased Under Agreements to Resell:  The Company  purchases  residential
mortgage loans from various  mortgage  companies prior to sale of these loans by
the mortgage companies in the secondary market. The Company held loans that were
purchased  under  agreements  to  resell  from 66 of the 117  approved  mortgage
companies as of March 31, 1997.  The Company  purchases such loans from mortgage
companies at par, net of certain fees, and later sells them back to the mortgage
companies at the same amount and without recourse  provisions.  As a result,  no
gains and  losses  are  recorded  at the resale of loans.  The  Company  records
interest  income on the loans during the funding period and the Company  records
fee income  received  from the  mortgage  company for each loan when the loan is
sold.  The Company  uses the stated  interest  rate in the  agreement  with each
mortgage company for interest income recognition,  and not the interest rates on
individual  loans.  The Company does not retain servicing of the loans when they
are resold.  Purchase  money and refinance  mortgage loans are generally held no
more  than 90 days by the  Company  and  typically  are  resold  within 30 days.
Construction  loan  mortgages   acquired  are  held  for  the  duration  of  the
construction loan period, which is typically six months or longer.

Mortgage  Loans Held for Sale:  Mortgage  loans intended for sale are carried at
the lower of cost or estimated  market value in the  aggregate.  Net  unrealized
losses are recognized in a valuation allowance by charges to income.

Interest  Income on Loans:  Interest  on loans is  accrued  over the term of the
loans based upon the principal outstanding.  Management reviews loans delinquent
90 days or more to  determine if the interest  accrual  should be  discontinued.
When serious  doubt exists as to the  collectibility  of a loan,  the accrual of
interest is  discontinued.  Under SFAS No. 114,  "Accounting  by  Creditors  for
Impairment  of a Loan,"  as  amended  by SFAS No.  118,  the  carrying  value of
impaired  loans is  periodically  adjusted  to reflect  cash  payments,  revised
estimates of future cash flows,  and  increases in the present value of expected
cash  flows due to the  passage of time.  Cash  payments  representing  interest
income are reported as such and other cash  payments are reported as  reductions
in carrying  value.  Increases or decreases in carrying  value due to changes in
estimates of future  payments or the passage of time are reported as a component
of the provision for loan losses.

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

                                  (Continued)

                                       48


<PAGE>

                         CB BANCORP, INC. AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                          March 31, 1997, 1996 and 1995
--------------------------------------------------------------------------------


NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

Loans: Loans are reported at the principal balance outstanding,  net of deferred
loan fees and costs, the allowance for loan losses,  and  charge-offs.  Interest
income is reported  on the  interest  method and  includes  amortization  of net
deferred loan fees and costs over the loan term.

Allowance  for Loan  Losses:  The  allowance  for  loan  losses  is a  valuation
allowance,  increased  by  the  provision  for  loan  losses  and  decreased  by
charge-offs less recoveries. Management estimates the allowance balance required
based on past loan loss  experience,  known and inherent risks in the portfolio,
information about specific borrower situations and estimated  collateral values,
economic  conditions,   and  other  factors.  In  addition,  various  regulatory
agencies, as an integral part of their examination process,  periodically review
the Company's  allowances for losses on loans and foreclosed  real estate.  Such
agencies may require the Company to recognize  additions to the allowances based
on  their  judgments  of  information  available  to them at the  time of  their
examination.  Allocations of the allowance may be made for specific  loans,  but
the entire  allowance is available for any loan that, in management's  judgment,
should be charged-off.

SFAS No.  114 and No.  118 were  adopted  effective  April 1,  1995 and  require
recognition of loan impairment.  Loans are considered impaired if full principal
or interest payments are not anticipated in accordance with the contractual loan
terms.  Impaired loans are carried at the present value of expected  future cash
flows discounted at the loan's  effective  interest rate or at the fair value of
the collateral if the loan is collateral  dependent.  A portion of the allowance
for loan losses is allocated to impaired loans. If these  allocations  cause the
allowance  for loan losses to require  increase,  such increase is reported as a
component  of the  provision  for loan  losses.  The  effect of  adopting  these
standards was not material.

Smaller-balance  homogeneous  loans are evaluated for impairment in total.  Such
loans include  residential  first mortgage  loans secured by one-to-four  family
residences,  residential  construction  loans,  and automobile,  home equity and
second  mortgage  loans.  Commercial  loans and mortgage  loans secured by other
properties  are  evaluated  individually  for  impairment.  When  analysis  of a
borrower's  operating results and financial  condition indicates that underlying
cash flows of the borrower's  business are not adequate to meet its debt service
requirements,  the loan is evaluated  for  impairment.  Often this is associated
with a delay  or  shortfall  in  payments  of 90 days or  more.  Commercial  and
mortgage  loans  placed on  nonaccrual  are  often  considered  for  impairment.
Impaired loans, or portions thereof, are charged off when deemed  uncollectible.
The nature of disclosures for impaired loans is considered  generally comparable
to prior nonaccrual and renegotiated loans and non-performing and past-due asset
disclosures.

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

                                  (Continued)

                                       49

<PAGE>

                         CB BANCORP, INC. AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                          March 31, 1997, 1996 and 1995
--------------------------------------------------------------------------------


NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

Premises and Equipment: Premises and equipment of the Company are stated at cost
less accumulated depreciation.  Premises are depreciated using the straight-line
method with useful lives  ranging from twelve to fifty years,  and  equipment is
depreciated using the  straight-line  method with useful lives ranging from four
to twelve  years.  Land is  carried  at cost.  These  assets  are  reviewed  for
impairment  under SFAS No. 121 when events  indicate the carrying amount may not
be  recoverable.  Maintenance  and repairs are  expensed  and  improvements  are
capitalized.

Foreclosed Real Estate:  Real estate properties acquired through, or in lieu of,
loan foreclosure are initially recorded at fair value at the date of acquisition
establishing  a new cost basis.  Any  reduction  to fair value from the carrying
value of the related loan at the time of  acquisition is accounted for as a loan
loss and charged  against the allowance for loan losses.  After  acquisition,  a
valuation  allowance  is  recorded  through a charge to income for the amount of
estimated  selling costs.  Valuations are periodically  performed by management,
and valuation  allowances are adjusted through a charge to income for changes in
fair value or  estimated  selling  costs.  Foreclosed  real  estate  amounted to
approximately  $146,000  and $0 at March 31,  1997 and 1996,  and is included in
other assets in the consolidated balance sheets.

Servicing  Rights:  Prior to adopting  SFAS No. 122 on April 1, 1996,  servicing
right assets were recorded only for purchased  rights to service mortgage loans.
Subsequent to adopting this standard,  servicing rights represent both purchased
rights and the allocated value of servicing  rights retained on loans originated
in-house and sold.  Servicing rights are expensed in proportion to, and over the
period of,  estimated net servicing  revenues.  Impairment is evaluated based on
the fair value of the rights,  using  groupings  of the  underlying  loans as to
interest  rates  and  then,   secondarily,   as  to  geographic  and  prepayment
characteristics.  Any  impairment  of a  grouping  is  reported  as a  valuation
allowance. The impact of the adoption of SFAS No. 122 was not material.

Excess  servicing  fees  receivable  is  reported  when a loan sale  results  in
servicing  in excess of normal  amounts,  and is  expensed  over the life of the
servicing on the interest method.

Income  Taxes:  Income tax expense is the sum of the current year income tax due
or refundable  and the change in deferred tax assets and  liabilities.  Deferred
tax assets and liabilities are the expected future tax consequences of temporary
differences   between  the  carrying   amounts  and  tax  bases  of  assets  and
liabilities, computed using enacted tax rates. A valuation allowance, if needed,
reduces deferred tax assets to the amount expected to be realized.

Stock Compensation:  Expense for employee  compensation under stock option plans
is based on Opinion 25, with expense  reported only if options are granted below
market price at grant date. If  applicable,  proforma  disclosures of net income
and  earnings  per share are  provided as if the fair value  method of Financial
Accounting Standard No. 123 was used for stock-based compensation.

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

                                  (Continued)

                                       50

<PAGE>

                         CB BANCORP, INC. AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                          March 31, 1997, 1996 and 1995
--------------------------------------------------------------------------------


NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

Fair Values of Financial  Instruments:  Fair values of financial instruments are
estimated using relevant market information and other assumptions, as more fully
disclosed separately.  Fair value estimates involve uncertainties and matters of
significant  judgment regarding interest rates,  credit risk,  prepayments,  and
other factors,  especially in the absence of broad markets for particular items.
Changes in assumptions or in market  conditions could  significantly  affect the
estimates.

Financial  Instruments With  Off-Balance-Sheet  Risk: The Company, in the normal
course of business,  makes  commitments to extend credit which are not reflected
in the  consolidated  financial  statements.  A summary of these  commitments is
disclosed separately.

Statement of Cash Flows:  For purposes of  reporting  cash flows,  cash and cash
equivalents is defined as cash and due from financial  institutions  and federal
funds sold, as well as investments  with original  maturities under 90 days. Net
cash  flows are  reported  for  long-term  interest  bearing  deposits  in other
financial  institutions,  customer loan and deposit  transactions and obligation
due to limited partnership.

Earnings Per Share and Treasury Stock:  Earnings per common share is computed by
dividing net income by the weighted average number of common shares  outstanding
and common share equivalents  which would arise from considering  dilutive stock
options.  The weighted  average  number of shares for  calculating  earnings per
common share for the years ended March 31 is:

                                1997              1996             1995
                                ----              ----             ----

         Primary              1,242,382        1,261,062         1,289,998
         Fully diluted        1,250,781        1,264,728         1,291,301

Reclassifications:  Some items in the prior  consolidated  financial  statements
have been reclassified to conform with the current presentation.

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

                                   (Continued)

                                       51

<PAGE>

                         CB BANCORP, INC. AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                          March 31, 1997, 1996 and 1995
--------------------------------------------------------------------------------


NOTE 2 - SECURITIES

The  amortized  cost and  fair  value of  securities  available  for sale are as
follows:

<TABLE>
<CAPTION>
                                             -----------------------------March 31, 1997---------------------------
                                                                      Gross             Gross
                                                 Amortized         Unrealized        Unrealized            Fair
                                                   Cost               Gains            Losses              Value
                                                   ----               -----            ------              -----
<S> <C>           
Marketable equity securities                 $       571,737    $      101,188     $         (866)   $      672,059
                                             ===============    ==============     ==============    ==============
</TABLE>


<TABLE>
<CAPTION>
                                             -----------------------------March 31, 1996---------------------------
                                                                      Gross            Gross
                                                Amortized          Unrealized       Unrealized            Fair
                                                  Cost                Gains           Losses              Value
                                                  ----                -----           ------              -----
<S> <C>           
Marketable equity securities                 $       578,315    $       43,956     $       (1,323)   $      620,948
                                             ===============    ==============     ==============    ==============
</TABLE>


The amortized cost and fair value of securities held to maturity are as follows:

<TABLE>
<CAPTION>
                                             -----------------------------March 31, 1997---------------------------
                                                                      Gross           Gross
                                                  Amortized        Unrealized      Unrealized            Fair
Debt securities                                     Cost             Gains            Losses             Value
---------------                                     ----             -----            ------             -----
<S> <C>
U.S. Government and
  federal agencies                             $     3,000,000   $          -     $      (48,000)  $      2,952,000
Corporate notes                                      2,789,297          5,988             (2,285)         2,793,000
Mortgage-backed                                      8,509,616        102,517             (9,133)         8,603,000
                                               ---------------   ------------     --------------   ----------------

                                               $    14,298,913   $    108,505     $      (59,418)  $     14,348,000
                                               ===============   ============     ==============   ================
</TABLE>


<TABLE>
<CAPTION>
                                             -----------------------------March 31, 1996---------------------------
                                                                      Gross           Gross
                                                  Amortized        Unrealized      Unrealized             Fair
Debt securities                                     Cost              Gains          Losses              Value
---------------                                     ----              -----          ------              -----
<S> <C>
U.S. Government and
  federal agencies                             $     3,000,000   $          -     $      (30,000)  $      2,970,000
Corporate notes                                      2,674,726          5,296             (6,022)         2,674,000
Mortgage-backed                                     10,192,178        143,374            (53,552)        10,282,000
                                               ---------------   ------------     --------------   ----------------

                                               $    15,866,904   $    148,670     $      (89,574)  $     15,926,000
                                               ===============   ============     ==============   ================
</TABLE>

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

                                  (Continued)

                                       52

<PAGE>

                         CB BANCORP, INC. AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                          March 31, 1997, 1996 and 1995
--------------------------------------------------------------------------------


NOTE 2 - SECURITIES (Continued)

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

                                            ---------March 31, 1997-----------
                                               Amortized              Fair
                                                 Cost                 Value
                                                 ----                 -----

    Due in one year or less                 $    1,778,276      $    1,777,000
    Due after one year through five years        4,011,021           3,968,000
    Mortgage-backed securities                   8,509,616           8,603,000
                                            --------------      --------------

                                            $   14,298,913      $   14,348,000
                                            ==============      ==============

There were no sales of  securities  during the years  ended  March 31,  1997 and
1996.  Sales of  securities  available  for sale during the year ended March 31,
1995 resulted in gross proceeds of $49,200 and gross losses of $650.


NOTE 3 - LOANS

The Company has entered into  agreements  with  mortgage  companies in which the
Company purchases, at its discretion, mortgage loans from the mortgage companies
at par, net of certain fees, and later sells them back to the mortgage companies
at the same amount and without recourse provisions. The Company records interest
income on the loans during the funding period and the Company records fee income
(recorded as  noninterest  income)  received from the mortgage  company for each
loan when resold.  The interest  income  recorded is based on a rate of interest
tied  to  the  prime  rate  (as  established  from  time  to  time  by  a  major
Chicago-based  financial  institution)  during the funding  period,  and not the
rates on  individual  loans.  Such loans are  reviewed,  prior to purchase,  for
evidence  that the loans are of secondary  market  quality or meet the Company's
internal underwriting  guidelines.  An assignment of the mortgage to the Company
is required.  In addition,  the Company either takes  possession of the original
note and  forwards  such note to the end  investor  or the  Company  receives  a
certified copy of the note and subsequently receives acknowledgment from the end
investor of receiving  the original  note. A commitment  to purchase from an end
investor is required prior to purchase by the Company. In the event that the end
investor would not honor this commitment and the mortgage companies would not be
able to honor their repurchase obligations,  the Company would then need to sell
these loans in the secondary  market at the fair value of these loans.  Purchase
money and refinance loans are generally held no more than 90 days by the Company
and are typically  resold  within 30 days.  The Company also  purchases  interim
construction  loans under this program and holds these loans for the duration of
the  construction  loan period  which is  typically  six months or longer.  With
regard to the interim construction loans in the pipeline, the Company recognizes
that  there  may be  additional  credit  risk  due  to  possible  change  in the
borrower's  financial  condition  during the interim  construction  period.  The
Company had  approximately  $25,407,000 and $29,416,000 of interim  construction
loans purchased under agreements to resell at March 31, 1997 and 1996.

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

                                  (Continued)

                                       53

<PAGE>

                         CB BANCORP, INC. AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                          March 31, 1997, 1996 and 1995
--------------------------------------------------------------------------------


NOTE 3 - LOANS (Continued)

The mortgage companies from which individual  mortgage loans have been purchased
under agreements to resell and the related amounts of such loans outstanding are
as follows at March 31:

<TABLE>
<CAPTION>
                                Company                                  1997                1996
                                -------                                  ----                ----

<S> <C>         
        Company A                                                  $      5,172,843    $    12,792,251
        Company B                                                         8,611,206          8,614,313
        Company C                                                        13,677,480          6,791,723
        Company D                                                         8,336,445          5,023,314
        Company E                                                         5,646,301                  -
        Company F                                                         5,619,318          3,058,493
        Companies with balances between $1,000,000 and
          $5,000,000 (1997 - 16 companies; 1996 - 11 companies)          35,126,513         30,195,670
        Other companies with balances less than $1,000,000               13,085,574         13,555,486
                                                                   ----------------    ---------------

                                                                   $     95,275,680    $    80,031,250
                                                                   ================    ===============
</TABLE>

Loans receivable at March 31 are summarized as follows:

<TABLE>
<CAPTION>
                                                                          1997               1996
                                                                          ----               ----
<S> <C>
       First mortgage loans (principally conventional)
           Principal balances
                Secured by one-to-four family residences           $     69,601,991    $    73,413,053
                Secured by other properties                              10,850,459         11,412,555
                Construction loans                                          544,995            591,450
                                                                   ----------------    ---------------
                                                                         80,997,445         85,417,058
           Loans in process                                                (236,431)           (47,836)
           Unearned discounts                                                (1,966)              (993)
           Net deferred loan origination fees                              (361,912)          (417,599)
                                                                   ----------------    ---------------
                                                                         80,397,136         84,950,630

       Consumer and other loans
           Principal balances
                VISA/Master cards                                                 -            388,685
                Automobile                                                  431,142            400,132
                Home equity and second mortgage                           2,852,797          1,789,185
                Commercial                                                6,092,907          4,532,775
                Other                                                       541,420            555,043
                                                                   ----------------    ---------------
                                                                          9,918,266          7,665,820
                                                                   ----------------    ---------------

                                                                   $     90,315,402    $    92,616,450
                                                                   ================    ===============
</TABLE>

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

                                  (Continued)

                                       54


<PAGE>

                         CB BANCORP, INC. AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                          March 31, 1997, 1996 and 1995
--------------------------------------------------------------------------------


NOTE 3 - LOANS (Continued)

Activity  in the  allowance  for loan  losses  for the years  ended  March 31 is
summarized as follows:

<TABLE>
<CAPTION>
                                                                 1997              1996             1995
                                                                 ----              ----             ----

<S> <C>           
        Balance at beginning of year                        $   1,346,328    $     672,276     $      594,453
        Provision charged to income                             1,191,000        1,020,000             78,000
        Recoveries                                                251,906                -                  -
        Charge-offs                                              (981,574)        (345,948)              (177)
                                                            -------------    -------------     --------------

        Balance at end of year                              $   1,807,660    $   1,346,328     $      672,276
                                                            =============    =============     ==============
</TABLE>

Impaired loans were as follows:

<TABLE>
<CAPTION>
                                                                                   1997              1996
                                                                                   ----              ----

<S> <C>         
Year end loans with no allowance for loan losses allocated                   $           -       $    500,942
Year end loans with allowance for loan losses allocated                          5,920,000          1,663,477
Amount of the allowance allocated                                                  610,000            166,348
Average of impaired loans during the year                                        3,459,000            333,020
Interest income recognized during impairment                                       289,132            144,320
Cash-basis interest income recognized                                              224,887            128,339
</TABLE>

Nonaccrual and  renegotiated  loans for which interest has been reduced  totaled
approximately  $804,000 at March 31, 1995.  Interest income that would have been
recorded under the original terms of such loans and the interest income actually
recognized at March 31, 1995 is summarized as follows:

<TABLE>
<CAPTION>
                                                                                     1995
                                                                                     ----

<S> <C>         
           Interest income that would have been recorded                         $      54,000
           Interest income recognized                                                  (22,000)
                                                                                  ------------

           Interest income forgone                                                $     32,000
                                                                                  ============
</TABLE>


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

Of the  total  balance  of  impaired  loans  as of  March  31,  1997  and  1996,
approximately  $1.2 million and $1.7 million relates to amounts  associated with
Bennett Funding Group Inc. ("Bennett") and Aloha Capital Corporation  ("Aloha"),
an affiliate  of Bennett.  The  outstanding  balance  reflects a  charge-off  of
$433,000  during the year ended March 31, 1997 on the  original  balance of $1.7
million.  The reason for the impairment  classification is that Bennett recently
filed for Chapter 11 bankruptcy and Aloha was drawn into involuntary bankruptcy.
The Bank purchased  numerous leases secured by small business  equipment such as
copy and  facsimile  machines  from  Bennett  and  Aloha.  The  purchases  total
approximately  $396,000 from Bennett and $1.3 million from Aloha. Both companies
act as servicing  agents to collect lease payments for the Bank. The Company has
negotiated a settlement,  and the anticipated  recovery is approximately  70% of
the original balance. The amount deemed to be uncollectible was $433,000 and was
charged off as discussed  above.  The portion of the  allowance  for loan losses
allocated  to the above loans was  approximately  $61,000 at March 31,  1997 and
$166,000  at  March  31,  1996,  which  is  based  on the  present  value of the
anticipated cash flows of these loans.

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

                                  (Continued)
  
                                       55


<PAGE>

                         CB BANCORP, INC. AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                          March 31, 1997, 1996 and 1995
--------------------------------------------------------------------------------


NOTE 3 - LOANS (Continued)

Also  included  in the  impaired  loan  balance at March 31,  1997 are 65 single
family  construction  loans,  all located in the state of Indiana,  with a total
outstanding  balance of $4.7  million  and total  unfunded  commitments  of $2.1
million.  Eighteen of these loans, totaling $1.3 million, are outstanding to one
builder.  The Company has allocated $308,000 of the allowance for loan losses to
these loans.  Forty-one of these loans totaling $2.4 million are  outstanding to
two  affiliated  companies,  one of  which is in  bankruptcy.  The  Company  has
allocated  $125,000  of the  allowance  for  loan  losses  to these  loans.  The
remaining 6 loans totaling $1.2 million are with three separate builders and the
Company has allocated  $116,000 of the allowance for loan losses to these loans.
The Company  continues to monitor the remaining  construction loan portfolio for
credit risk as a part of its loan classification procedures.


NOTE 4 - LOAN SERVICING

Mortgage  loans  serviced  for  others  are  not  included  in the  accompanying
consolidated  balance sheets.  The unpaid  principal  balances of these loans at
March 31 is summarized as follows:

                                                     1997              1996
                                                     ----              ----
     Mortgage loan portfolios serviced for the
       Federal Home Loan Mortgage Corporation    $   1,265,900   $    1,483,584
                                                 =============   ==============

Custodial  escrow  balances  maintained  in connection  with the foregoing  loan
servicing were approximately $30,000 and $35,000 at March 31, 1997 and 1996.


NOTE 5 - PREMISES AND EQUIPMENT, NET

Premises and equipment are stated at cost, less  accumulated  depreciation,  and
consist of the following at March 31:

                                                          1997          1996
                                                          ----          ----

           Land and land improvements                 $   388,485   $   378,897
           Buildings                                    3,654,467     3,065,759
           Furniture, fixtures, and equipment           1,501,995     1,376,963
           Construction in progress                        25,000        20,022
                                                      -----------   -----------
                                                        5,569,947     4,841,641
           Accumulated depreciation and amortization   (2,649,673)   (2,454,259)
                                                      -----------   -----------

                                                      $ 2,920,274   $ 2,387,382
                                                      ===========   ===========

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

                                  (Continued)

                                       56

<PAGE>

                         CB BANCORP, INC. AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                          March 31, 1997, 1996 and 1995
--------------------------------------------------------------------------------


NOTE 6 - DEPOSITS

The  aggregate  amount of  deposits  greater  than  $100,000  was  approximately
$36,774,000 and $32,078,000 at March 31, 1997 and 1996.

At March 31,  1997,  scheduled  maturities  of  certificates  of deposit  are as
follows:

              1998                         $73,768,000
              1999                           8,334,000
              2000                           4,122,000
              2001                           1,917,000
              2002 and thereafter            1,229,000
                                           -----------
                                           $89,370,000
                                           ===========

NOTE 7 - BORROWED FUNDS

Borrowed funds at March 31 are summarized as follows:
                                                     1997             1996
                                                     ----             ----

     Federal funds purchased                      $ 7,000,000     $ 7,000,000
     Advances from the Federal Home Loan Bank      42,500,000      38,000,000
     Line of credit with Federal Home Loan Bank     3,783,553         124,355
                                                  -----------     -----------

                                                  $53,283,553     $45,124,355
                                                  ===========     ===========

Fixed rate and variable  rate  advances from the Federal Home Loan Bank at March
31, 1997 amount to $2 million and $40.5 million.

Advances from the Federal Home Loan Bank consist of the following:

                ------------------March 31, 1997----------------------
                                 Weighted Average
                 Maturity          Interest Rate              Amount
                 --------          -------------              ------

                     1998              5.85%               $41,500,000
                     1999              5.67%                 1,000,000
                                                           -----------
                                                  
                                                           $42,500,000
                                                           ===========

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

                                  (Continued)

                                       57


<PAGE>

                         CB BANCORP, INC. AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                          March 31, 1997, 1996 and 1995
--------------------------------------------------------------------------------


NOTE 7 - BORROWED FUNDS (Continued)

Federal  funds  purchased  represent  overnight  purchase of federal  funds from
American National Bank, Chicago, Illinois.

At March 31, 1997 specific mortgage loans with a carrying value of approximately
$56,180,000  and specific  mortgage-backed  securities  with a carrying value of
approximately  $9,513,000  were  pledged  to  the  Federal  Home  Loan  Bank  of
Indianapolis  to secure  current and future  advances from the Federal Home Loan
Bank. In addition,  the Bank has a line of credit approved up to $5,000,000 with
the Federal Home Loan Bank of Indianapolis. This line is secured by the specific
collateral listed above. The Bank had borrowings of $3,783,553 against this line
of credit at March 31,  1997.  The line  expires on October  31,  1997 and has a
variable rate of interest of 7.10% as of March 31, 1997.

The Federal Home Loan Bank of Indianapolis  has issued four  irrevocable  direct
pay letters of credit on behalf of the Bank totaling  approximately  $4,049,000.
These letters of credit are secured by the same  collateral  listed  above.  The
balance of these letters of credit at March 31, 1997 is $0.

Interest expense on borrowed funds for the years ended March 31 is summarized as
follows:

                                 1997              1996              1995
                                 ----              ----              ----

   Advances from the FHLB   $    2,005,621     $   1,501,121    $      64,876
   Other                           447,995           521,284          117,683
                            --------------     -------------    -------------

                            $    2,453,616     $   2,022,405    $     182,559
                            ==============     =============    =============


NOTE 8 - EMPLOYEE BENEFITS

Employee  Pension Plan:  The Bank is part of a  multi-employer  defined  benefit
pension plan covering  substantially all employees.  The plan is administered by
the  directors  of the  Financial  Institutions  Retirement  Fund.  There  is no
separate  actuarial  valuation of plan benefits nor  segregation  of plan assets
specifically for the Bank. As of June 30, 1996, the latest actuarial  valuation,
the total plan assets exceeded the actuarially  determined value of total vested
benefits.  There was no pension plan expense or contribution for the years ended
March 31, 1997, 1996 and 1995. The administrative cost of the plan is charged to
expense and amounted to $1,052,  $4,815 and $3,294 for the years ended March 31,
1997, 1996 and 1995.

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

                                  (Continued)

                                       58

<PAGE>

                         CB BANCORP, INC. AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                          March 31, 1997, 1996 and 1995
--------------------------------------------------------------------------------


NOTE 8 - EMPLOYEE BENEFITS (Continued)

Deferred Compensation Plan: The Company implemented a deferred compensation plan
for its Board of Directors.  Under the terms of the plan, directors may elect to
defer a portion  of their fees  which  would be  retained  by the  Company  with
interest being credited to the participant's  deferred balance. Upon retirement,
the participant  would be entitled to receive the accumulated  deferred balance,
paid over a  specified  number of years.  The Company  has  purchased  insurance
contracts on the lives of the participants in the deferred compensation plan and
has named the Bank as  beneficiary.  While no direct contract exists between the
deferred compensation plan and the life insurance contracts,  it is management's
current intent that the proceeds from the insurance  contracts will be used as a
funding source for the deferred  compensation  plan. The cash surrender value of
the life insurance was approximately $1,474,000 and $1,426,000 at March 31, 1997
and  1996,  and is  included  in  other  assets.  The  income  derived  from the
investment in life insurance included in other income was approximately $48,000,
$75,000 and $68,000 for the years ended March 31, 1997,  1996 and 1995. At March
31, 1997 and 1996,  the accrued  liability for deferred  fees was  approximately
$241,000 and $152,000.

Supplemental  Retirement Plan: The Bank maintains a supplemental retirement plan
for  executive  officers  of the Bank for  which  the  payment  of  benefits  is
accelerated  upon  change of  control  of the  Company.  The Bank has  purchased
insurance  contracts  on the  lives  of  the  participants  in the  supplemental
retirement plan and has named the Bank as beneficiary.  While no direct contract
exists  between  the  supplemental   retirement  plan  and  the  life  insurance
contracts,  it is  management's  current  intent  that  the  proceeds  from  the
insurance  contracts  will be  used as a  funding  source  for the  supplemental
retirement plan. For the years ended March 31, 1996 and 1995 the Bank recorded a
liability equal to the projected  present value of the payment due at retirement
based on the  projected  remaining  years of service  using the  projected  unit
credit  method.  During  the year  ending  March 31,  1997 the Bank  funded  the
liability to a secular trust.  This trust is not under the Bank's  control.  The
cash  surrender  value of the life  insurance  was  approximately  $995,000  and
$938,000 at March 31, 1997 and 1996, and is included in other assets. The income
derived  from the  investment  in life  insurance  included in other  income was
approximately  $57,000,  $59,000 and $52,000 for the years ended March 31, 1997,
1996 and  1995.  The cost of the  plan  charged  to  expense  was  approximately
$39,000,  $44,000 and $40,000 for the years ended March 31, 1997, 1996 and 1995,
respectively.  The  accrued  liability  to the  Bank  was  approximately  $0 and
$203,000 at March 31, 1997 and 1996.

Stock Option Plan for Outside  Directors:  The Board of Directors of the Company
has adopted the CB Bancorp,  Inc.  1992 Stock Option Plan for outside  directors
(the  "Directors'  Plan") of the Company.  Options for the purchase of shares of
common stock are authorized under the Directors' Plan. The option exercise price
must be at least 100% of the fair market  value of the common  stock on the date
of the grant, and the option term cannot exceed 10 years. Eligible directors may
exercise 100% of the options awarded to them.

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

                                  (Continued)

                                       59


<PAGE>

                         CB BANCORP, INC. AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                          March 31, 1997, 1996 and 1995
--------------------------------------------------------------------------------


NOTE 8 - EMPLOYEE BENEFITS (Continued)

Activity  in the  Directors'  Plan for years  ended  March 31 is  summarized  as
follows:

                                                         Number of Options
                                           Option        ----------------- 
                                       Exercise Price    1997         1996
                                       --------------    ----         ----

        Balance at beginning of year     $   5.00         19,264      26,896
        Options exercised                    5.00              -      (7,632)
                                         --------      ---------    --------

        Balance at end of year           $   5.00         19,264      19,264
                                         ========      =========    ========

Recognition  and  Retention  Plans  (RRP):   The  Company  has  established  the
Recognition and Retention Plans as a method of providing directors, officers and
other key employees of the Bank with a proprietary  interest in the Company in a
manner  designed to encourage such persons to remain with the Bank. The terms of
each RRP will be  identical,  only the  participants  and the  number  of shares
awarded to each participant  vary.  Eligible  directors,  officers and other key
employees  of the Company  will earn (i.e.,  become  vested in) shares of common
stock covered by the award at a rate of 20% per year. The Bank contributed funds
to the RRP to enable  the Plans to  acquire in the  aggregate  38,528  shares of
common stock. An expense of $16,475,  $26,968 and $41,999 was recorded for these
Plans for the years ended March 31, 1997, 1996 and 1995.

Employee Stock  Ownership  Plan (ESOP):  The Bank maintains an ESOP for eligible
employees.  Employees with 1,000 hours of employment  with the Bank and who have
attained age 21 are eligible to  participate.  The ESOP borrowed  funds from the
Company to purchase  89,896 shares of common stock.  Collateral  for the loan is
the common  stock  purchased by the ESOP.  The loan is being repaid  principally
from the Bank's discretionary contributions to the ESOP over a seven year period
ending in 1999, at a variable  interest rate. The current  interest rate for the
loan is 9.00%.  Shares  purchased by the ESOP will be held in a suspense account
for allocation among participants as the loan is repaid.

Contributions  to the ESOP and shares  released from the suspense  account in an
amount  proportional  to the repayment of the ESOP loan are allocated among ESOP
participants on the basis of  compensation  in the year of allocation.  Benefits
generally become 100% vested after five years of credited service.  Prior to the
completion  of five years of credited  service,  a  participant  who  terminates
employment for reasons other than death,  retirement (or early  retirement),  or
disability  will not  receive any benefit  under the ESOP.  Forfeitures  will be
reallocated among remaining  participating  employees, in the same proportion as
contributions.  Benefits  may be  payable  in the  form of  stock  or cash  upon
termination of employment.  The Bank's  contributions to the ESOP are not fixed,
so benefits payable under the ESOP cannot be estimated.

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

                                  (Continued)

                                       60


<PAGE>

                         CB BANCORP, INC. AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                          March 31, 1997, 1996 and 1995
--------------------------------------------------------------------------------


NOTE 8 - EMPLOYEE BENEFITS (Continued)

The ESOP compensation  expense was $64,211 for each of the years ended March 31,
1997, 1996 and 1995. The ESOP shares as of March 31 were as follows:

                                             1997           1996
                                             ----           ----

        Allocated shares                       51,476        37,604
        Shares released for allocation              -           684
        Unreleased shares                      38,420        51,608
                                           ----------    ----------

                                               89,896        89,896
                                           ==========    ==========

On April 1, 1994,  the Bank adopted  AICPA's  Statement  of Position  93-6 ("SOP
93-6")  Employers'  Accounting  for Employee  Stock  Ownership  Plans.  SOP 93-6
relates only to shares  purchased by the ESOP after  December 31, 1992. SOP 93-6
requires that the employer record compensation expense in an amount equal to the
fair value of shares  committed to be released to employees  from the ESOP,  and
these shares become outstanding for earnings per share  computations.  Dividends
on  allocated  ESOP shares are  recorded as a  reduction  of retained  earnings;
dividends on unallocated  shares are recorded as a reduction of debt and accrued
interest. SOP 93-6 did not affect the Bank's recognition of compensation expense
as all shares currently held by the Bank's ESOP were purchased prior to December
31, 1992.  Therefore,  for the shares  currently held by the ESOP, the Bank will
continue  to  recognize  compensation  expense  equal  to  the  amount  of  cash
contributed to the ESOP. All shares held by the ESOP are considered  outstanding
for  earnings  per share  computations,  and all  dividends  on ESOP  shares are
recorded as a reduction of retained earnings.

Stock Option Plan: The Board of Directors of the Company adopted the CB Bancorp,
Inc.  1992  Incentive  Stock  Option Plan (the "Option  Plan").  Options for the
purchase  of shares  of  common  stock are  authorized  under the  Option  Plan.
Officers  and  employees  of the  Company  and its  subsidiary  are  eligible to
participate in the Option Plan. The option  exercise price must be at least 100%
of the fair market value of the common  stock on the date of the grant,  and the
option term cannot  exceed 10 years.  Eligible  officers  and  employees  of the
Company can exercise options awarded to them at a rate of 20% per year.

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

                                  (Continued)

                                       61


<PAGE>

                         CB BANCORP, INC. AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                          March 31, 1997, 1996 and 1995
--------------------------------------------------------------------------------


NOTE 8 - EMPLOYEE BENEFITS (Continued)

Activity in the Option Plan for years ended March 31 is summarized as follows:

                                                             Number of Options
                                        Range of Option   ----------------------
                                        Exercise Price       1997         1996
                                        --------------       ----         ----

        Balance at beginning of year    $5.00 - $8.50        80,473      86,424
        Options exercised                   $5.00            (1,644)     (5,951)
        Options forfeited                   $5.00            (3,210)          -
                                                          ---------    --------

        Balance at end of year          $5.00 - $8.50        75,619      80,473
                                                          =========    ========

Outside  Directors'  Consultation  and  Retirement  Plan: The Board of Directors
adopted the Outside Directors' Consultation and Retirement Plan (the "Directors'
Consultation  Plan").  The  purpose of the  Directors'  Consultation  Plan is to
provide  possible  retirement  benefits  to  directors  who are not  officers or
employees  of the Company to ensure that the Company  will have their  continued
service and assistance,  if annually contracted for by the Board of Directors in
the conduct of the Company's  business in the future.  Effective  April 1, 1996,
the Board of Directors of the Bank approved the Outside Directors' Emeritus Plan
(the "Directors' Emeritus Plan") to replace the Outside Directors'  Consultation
and Retirement  Plan.  The purpose of the Directors'  Emeritus Plan is to ensure
that the Bank may,  if the Board so  desires,  have the  continued  service  and
assistance  of  directors  who are not  officers or employees of the Bank in the
conduct of the Bank's  business  in the future.  The  Directors'  Emeritus  Plan
provides  that  a  participant  will  be  eligible,   upon  termination  due  to
retirement,  resignation,  discharge, death, disability or otherwise, to receive
an amount  equal to the most  recently  received  monthly  board fee paid to the
outside  director prior to his termination for a period of 48 months.  Directors
eligible to participate in the Directors' Emeritus Plan consist of directors who
are not active  officers or employees of the Bank, who have served as a director
for at least three  consecutive  years and have attained the age of 55. However,
an outside director with three years of continuous  service whose termination is
due to retirement  and is prior to his attaining age 55 will become  eligible to
receive  benefits under the Directors'  Emeritus Plan when he reaches age 55. In
addition,  if an outside director with three years of continuous service becomes
disabled  or dies prior to  reaching  age 55 or prior to his  electing  director
emeritus  status,  he or  his  beneficiary  shall  receive  benefits  under  the
Directors'  Emeritus Plan. The resulting  liability from the Directors' Emeritus
Plan approximates the liability accrued under the Directors'  Consultation Plan.
An expense of approximately $33,000,  $37,000 and $80,000 was recorded for these
plans for the years ended March 31, 1997, 1996 and 1995. The resulting liability
to the Company was  approximately  $244,000  and  $211,000 at March 31, 1997 and
1996.

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

                                  (Continued)

                                       62


<PAGE>

                         CB BANCORP, INC. AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                          March 31, 1997, 1996 and 1995
--------------------------------------------------------------------------------


NOTE 8 - EMPLOYEE BENEFITS (Continued)

During the year ending March 31, 1997, the Company purchased insurance contracts
on the lives of the  participants in the Directors'  Emeritus Plan and has named
the Bank as beneficiary.  While no direct contract exists between the Directors'
Emeritus  Plan and the life  insurance  contracts,  it is  management's  current
intent that the proceeds from the insurance  contracts will be used as a funding
source for the Directors'  Emeritus  Plan. The cash surrender  value of the life
insurance was approximately $250,000 at March 31, 1997, and is included in other
assets.  There was no income  derived from the  investment in life insurance for
the year ending March 31, 1997.


NOTE 9 - INCOME TAXES

The Company files  consolidated  income tax returns.  Prior to April 1, 1996, if
certain conditions were met in determining  taxable income, the Bank was allowed
a special bad debt deduction based on a percentage of taxable income (previously
8%)   or   on    specified    experience    formulas.    The   Bank   used   the
percentage-of-taxable-income  method for the tax years  ended March 31, 1996 and
1995. Tax  legislation  passed in August 1996 now requires the Company to deduct
bad debts for tax purposes  based on actual loss  experience  and  recapture the
excess  bad debt  reserve  accumulated.  The  related  amount  of  deferred  tax
liability which must be recaptured is approximately $270,000 and is payable over
a six year period beginning no later than 1998.

Income tax expense for the years ended March 31 is summarized as follows:

                             1997                 1996                1995
                             ----                 ----                ----
           Federal
              Current   $       977,293     $     1,218,694      $     754,847
              Deferred          (92,946)           (146,818)                41
                        ---------------     ---------------      -------------
                                884,347           1,071,876            754,888
                        ---------------     ---------------      -------------
           State
              Current           302,253             363,345            236,603
              Deferred           (5,287)            (55,292)           (21,217)
                        ---------------     ---------------      -------------
                                296,966             308,053            215,386
                        ---------------     ---------------      -------------

                        $     1,181,313     $     1,379,929      $     970,274
                        ===============     ===============      =============

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

                                  (Continued)

                                       63



<PAGE>

                         CB BANCORP, INC. AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                          March 31, 1997, 1996 and 1995
--------------------------------------------------------------------------------


NOTE 9 - INCOME TAXES (Continued)

Total  income tax expense  differed  from the amounts  computed by applying  the
federal income tax rate of 34% in all periods  presented to income before income
taxes as a result of the following for the years ended March 31:

                                           1997           1996           1995
                                           ----           ----           ----

Income taxes at statutory rate          $1,187,591     $1,304,967      $894,377
Tax effect of:
    Non-taxable income                      (6,570)        (8,722)      (10,828)
    Increase in cash surrender value of
      life insurance                       (35,846)       (45,656)      (40,798)
    State tax, net of federal income tax
      effect                               195,998        203,315       142,155
    Tax credits                           (160,047)       (70,000)            -
    Other items, net                           187         (3,975)      (14,632)
                                        ----------     ----------      --------

                                        $1,181,313     $1,379,929      $970,274
                                         =========     ==========      ========

The  components  of the net  deferred  tax asset  recorded  in the  consolidated
balance sheets as of March 31 are as follows:

                                              1997              1996
                                              ----              ----
Deferred tax assets
      Accumulated depreciation            $      48,574    $      41,359
      Bad debts                                 446,952          265,804
      Deferred compensation                           -           80,384
      Deferred loan fees                        124,397          147,439
      Other                                      40,321            4,130
                                          -------------    -------------
                                                660,244          539,116
Deferred tax liabilities
      FHLB stock dividend                       (25,865)         (25,865)
      Affordable housing partnership            (88,413)         (48,745)
      Other                                     (39,737)         (33,659)
                                          -------------    -------------
                                               (154,015)        (108,269)

Valuation allowance                                   -                -
                                          -------------    -------------

                                          $     506,229    $     430,847
                                          =============    =============

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

                                  (Continued)

                                       64


<PAGE>

                         CB BANCORP, INC. AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                          March 31, 1997, 1996 and 1995
--------------------------------------------------------------------------------


NOTE 9 - INCOME TAXES (Continued)

Shareholders'  equity at March 31, 1997 includes  approximately  $1,308,000  for
which no deferred federal income tax liability has been recognized.  This amount
represents an allocation of income to bad debt deductions for tax purposes only.
Reduction of amounts so allocated for purposes other than tax bad debt losses or
adjustments  arising from carry back of net operating losses would create income
for tax  purposes  only,  which would be subject to the  then-current  corporate
income tax rate.  The  unrecorded  deferred  income tax  liability  on the above
amount was approximately $445,000 at March 31, 1997.


NOTE 10 - REGULATORY MATTERS

The Bank is subject to regulatory capital  requirements  administered by federal
regulatory  agencies.  Capital adequacy  guidelines and prompt corrective action
regulations involve quantitative  measures of assets,  liabilities,  and certain
off-balance-sheet   items  calculated  under  regulatory  accounting  practices.
Capital amounts and classifications are also subject to qualitative judgments by
regulators  about  components,  risk  weightings,  and  other  factors,  and the
regulators can lower  classifications in certain cases.  Failure to meet various
capital  requirements  can initiate  regulatory  action that could have a direct
material effect on the financial statements.

The prompt corrective action regulations provide five classifications, including
well  capitalized,  adequately  capitalized,   undercapitalized,   significantly
undercapitalized, and critically undercapitalized,  although these terms are not
used to represent overall financial condition.  If only adequately  capitalized,
regulatory   approval   is   required   to   accept   brokered   deposits.    If
undercapitalized,  capital  distributions  are  limited,  as is asset growth and
expansion,   and  plans  for  capital  restoration  are  required.  The  minimum
requirements are:

                                   Capital to Risk -        Tier 1 Capital To
                                    Weighted Assets             Adjusted
                                 Total           Tier 1       Total Assets
                                 -----           ------       ------------

         Well capitalized          10%                6%            5%
         Adequately capitalized     8%                4%            3%
         Under capitalized          6%                3%            3%

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

                                  (Continued)

                                       65


<PAGE>

                         CB BANCORP, INC. AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                          March 31, 1997, 1996 and 1995
--------------------------------------------------------------------------------


NOTE 10 - REGULATORY MATTERS (Continued)

At March 31, the Bank's actual capital levels (in millions) and minimum required
levels were:


<TABLE>
<CAPTION>
                                                                                                Minimum Required
                                                                                                   To Be Well   
                                                                     Minimum Required              Capitalized
                                                                        For Capital          Under Prompt Corrective
                                                Actual               Adequacy Purposes         Action Regulations
                                                ------               -----------------         ------------------
                                          Amount      Ratio          Amount      Ratio         Amount     Ratio
                                          ------      -----          ------      -----         ------     -----
<S> <C>
1997

Total capital (to risk weighted assets)   $  20.0    14.8%           $ 10.8      8.0%          $ 13.5     10.0%
Tier 1 (core) capital (to risk weighted
   assets)                                $  18.4    13.6%           $  5.4      4.0%          $  8.1      6.0%
Tier 1 (core) capital (to adjusted total
   assets)                                $  18.4     8.1%           $  6.8      3.0%          $ 11.4      5.0%
Tangible capital (to adjusted total
   assets)                                $  18.4     8.1%           $  3.4      1.5%             N/A      N/A

1996

Total capital (to risk weighted assets)   $  17.2    15.2%           $  9.0      8.0%          $ 11.3     10.0%
Tier 1 (core) capital (to risk weighted
   assets)                                $  16.0    14.2%           $  4.5      4.0%          $  6.8      6.0%
Tier 1 (core) capital (to adjusted total
   assets)                                $  16.0     7.8%           $  6.1      3.0%          $ 10.2      5.0%
Tangible capital (to adjusted total
   assets)                                $  16.0     7.8%           $  3.1      1.5%           N/A        N/A
</TABLE>

At March 31, 1997 and 1996 the Bank was categorized as well capitalized.

Regulations  of the Office of Thrift  Supervision  limit the amount of dividends
and  other  capital  distributions  that  may be paid by a  savings  institution
without  prior  approval of the Office of Thrift  Supervision.  This  regulatory
restriction  is based on a  three-tiered  system with the  greatest  flexibility
being afforded to well-capitalized (Tier 1) institutions.  The Bank is currently
a Tier 1 institution.  Accordingly,  the Bank can make, without prior regulatory
approval,  distributions  during a calendar year up to 100% of its net income to
date during the  calendar  year plus an amount that would reduce by one-half its
"surplus   capital  ratio"  (the  excess  over  its  Fully   Phased-in   Capital
Requirements) at the beginning of the calendar year.  Accordingly,  at March 31,
1997  approximately  $4.8 million of the Bank's retained earnings is potentially
available for distribution.

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

                                  (Continued)

                                       66

<PAGE>

                         CB BANCORP, INC. AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                          March 31, 1997, 1996 and 1995
--------------------------------------------------------------------------------


NOTE 11 - OTHER NONINTEREST INCOME AND EXPENSE

Other  noninterest  income and expense  amounts for the years ended March 31 are
summarized as follows:


<TABLE>
<CAPTION>
                                                    1997             1996              1995
                                                    ----             ----              ----
<S> <C>
     Other noninterest income
         Commission income                    $     104,161     $     115,426    $     127,968
         Service charges and fees                   550,535           506,034          539,137
         Fees related to loans purchased
           under agreements to resell               689,030           369,410          163,984
         Late charges                                28,530            21,510           23,126
         Other                                      121,347           164,162          140,869
                                              -------------     -------------    -------------

                                              $   1,493,603     $   1,176,542    $     995,084
                                              =============     =============    =============

     Other noninterest expense
         Advertising and promotion            $     125,139     $      97,203    $      93,048
         Data processing                            244,790           247,017          243,144
         Insurance                                   20,132            20,348           23,500
         Professional fees                          368,008           174,265          159,707
         Telephone, postage, and supplies           262,736           204,903          183,116
         Employee expenses                          293,671           195,216          145,113
         Other                                      548,609           332,664          227,957
                                              -------------     -------------    -------------

                                              $   1,863,085     $   1,271,616    $   1,075,585
                                              =============     =============    =============
</TABLE>


NOTE 12 - COMMITMENTS AND CONTINGENCIES

As of March 1,  1996,  the  Company  leased a  branch  office  in  Merrillville,
Indiana.  Rent  expense  for the  years  ended  March  31,  1997  and  1996  was
approximately $35,000 and $3,000. In accordance with the terms of the lease, the
Company provides liability  insurance and pays repairs and maintenance costs. As
of March 31, 1997,  the future annual rental  commitments  under  non-cancelable
leases for four years total  approximately  $148,000,  which includes $35,000 in
1998, $36,000 in 1999, $38,000 in 2000 and $39,000 in 2001.

The Company is a party to financial instruments with  off-balance-sheet  risk in
the normal course of business to meet financing  needs of its  customers.  These
financial  instruments  include  commitments  to make loans and unused  lines of
credit.  The Company's exposure to credit loss in the event of nonperformance by
the other party to the financial  instrument  for  commitments to make loans and
unused  lines of  credit  is  represented  by the  contractual  amount  of those
instruments. The Company follows the same credit policy to make such commitments
as it follows for those loans recorded in the financial statements.

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

                                  (Continued)

                                       67

<PAGE>
                         CB BANCORP, INC. AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                          March 31, 1997, 1996 and 1995
--------------------------------------------------------------------------------


NOTE 12 - COMMITMENTS AND CONTINGENCIES (Continued)

At March 31, the Company had outstanding commitments as follows:

                                                         1997          1996
                                                         ----          ----

           Fixed rate loans                          $   210,000   $   137,000
           Fixed rate unused lines of credit             626,000       107,000
           Variable rate unused lines of credit        1,950,000     1,188,000
           Unused letters of credit                    4,149,000     4,074,000
           Undisbursed construction loans in
             repurchase program (variable rate)       12,419,000    12,412,000

Since certain commitments to make loans, lines of credit and commitments to fund
loans in process  expire  without  being used,  the  amounts do not  necessarily
represent future cash commitments. In addition, commitments to extend credit are
agreements  to  lend to a  customer  as long as  there  is no  violation  of any
condition established in the contract.

The Bank is required to have approximately  $1,313,000 and $1,407,000 of cash on
hand or on deposit with the Federal  Reserve Bank of Chicago to meet  regulatory
reserve requirements at March 31, 1997 and 1996.

The Company is involved in various legal actions  arising in the ordinary course
of business. In the opinion of management, the outcome of these matters will not
have  material  effect on the  Company's  consolidated  financial  condition  or
results of operations.

Community   Financial   has  a  99%   limited   partner   interest   in   Pedcor
Investments-1994-XX,  L.P. which was formed for the construction, ownership, and
management of an 80 unit apartment  project located in LaPorte County,  Indiana.
Financing  consists of a $2,550,000  first  mortgage loan funded with tax exempt
bonds.  The Bank is the lead lender in the debt  financing  arrangement  and has
guaranteed  through letters of credit  $1,450,000 of the debt  financing,  which
represents  the Bank's share of the mortgage  loan funded with tax exempt bonds.
The remaining  portion of the debt financing with tax exempt bonds is guaranteed
by  participating  lenders through letters of credit in amounts  proportional to
their share of the mortgage loan. The Bank and other lending  institutions  have
as their security a first mortgage lien and an assignment of rents and leases on
the apartment complex.  As of March 31, 1997,  Community  Financial has invested
$1,566,215,  net of recording  equity in the operating  loss of $182,616 for the
fiscal  year  ended  March  31,  1997,  in the  limited  partnership.  Community
Financial  contributed  $298,831 in cash to the partnership,  including  $70,258
contributed  during the fiscal year ended March 31,  1997,  while the  remaining
$1,450,000  was  funded by  short-term  tax-exempt  notes  backed by a letter of
credit  issued by the Bank.  At March 31, 1997,  the  obligation  due to limited
partnership was $1,467,877  which represents the amount of principal and accrued
interest  guaranteed  through  letters  of  credit.  Terms  of  the  partnership
agreement  allocate 99% of the eligible tax credits to the limited partner.  For
the  years  ended  March  31,  1997  and  1996,  the  limited  partner  received
approximately $160,000 and $70,000 in tax credits from the limited partnership.

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

                                  (Continued)

                                       68

<PAGE>

                         CB BANCORP, INC. AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                          March 31, 1997, 1996 and 1995
--------------------------------------------------------------------------------


NOTE 12 - COMMITMENTS AND CONTINGENCIES (Continued)

Under  employment  agreements with certain  executive  officers,  certain events
leading to separation from the Company or the Bank could result in cash payments
totaling  approximately  $723,000  as of March 31,  1997.  The  agreements  also
include provisions to continue to provide life, health and disability  insurance
coverage for a period of two to three years.


NOTE 13 - SIGNIFICANT GROUP CONCENTRATIONS OF CREDIT RISK

The Company grants real estate,  commercial and consumer  loans,  including home
improvement and other consumer  loans,  primarily in LaPorte and Porter counties
of Indiana.  Substantially  all loans are  secured by  consumer  assets and real
estate.  Loans secured by real estate mortgages make up approximately 89% of the
loan  portfolio  at March 31,  1997 and are  primarily  secured  by  residential
mortgages.  Loans  purchased  under  agreements  to resell  are all  residential
mortgage loans secured by one-to-four  family residences  located throughout the
United States.


NOTE 14 - RELATED PARTY TRANSACTIONS

Certain  directors and executive  officers of the Company are loan  customers of
the Company.  A summary of the  aggregate  amount of related party loan activity
for those  directors,  executive  officers and their  affiliates  who have loans
aggregating $60,000 or more are as follows:

        Balance - April 1, 1996                              $     361,113
           New loans                                                20,000
           Repayments                                              (15,566)
                                                             -------------
        Balance - March 31, 1997                             $     365,547
                                                             =============

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

                                  (Continued)

                                       69

<PAGE>

                         CB BANCORP, INC. AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                          March 31, 1997, 1996 and 1995
--------------------------------------------------------------------------------


NOTE 15 - PARENT COMPANY FINANCIAL STATEMENTS

Presented below are the condensed  financial  statements for the Parent Company,
CB Bancorp, Inc.


                            CONDENSED BALANCE SHEETS
                             March 31, 1997 and 1996

                                                  1997              1996
                                                  ----              ----
ASSETS
Cash and cash equivalents                   $     1,781,930   $      2,779,683
Securities available for sale                       216,907            165,682
Investment in subsidiary                         18,384,812         16,024,973
Loans purchased under agreements to resell          500,000                  -
Other assets                                         54,605                  -
                                            ---------------   ----------------

                                            $    20,938,254   $     18,970,338
                                            ===============   ================

LIABILITIES                                 $        95,321   $        138,154

SHAREHOLDERS' EQUITY                             20,842,933         18,832,184
                                            ---------------   ----------------

                                            $    20,938,254   $     18,970,338
                                            ===============   ================

                         CONDENSED STATEMENTS OF INCOME
                    Years ended March 31, 1997, 1996 and 1995

<TABLE>
<CAPTION>
                                                   1997               1996                1995
                                                   ----               ----                ----
<S> <C>
Income
      Interest income                         $      86,483       $     109,375      $      91,677
      Dividends from the Bank                             -             600,000            600,000
      Other income                                        -                   -              1,900
                                              -------------       -------------      -------------
                                                     86,483             709,375            693,577
Expenses
      Compensation                                   31,750              29,962             28,156
      Other expenses                                109,496              62,478             68,771
                                              -------------       -------------      -------------
                                                    141,246              92,440             96,927
                                              -------------       -------------      -------------

Income(loss) before income tax expense              (54,763)            616,935            596,650

Income tax expense (benefit)                        (23,276)              7,198             (1,424)
                                              -------------       -------------      -------------

Income(loss) before equity in income of Bank        (31,487)            609,737            598,074

Equity in income of Bank                          2,343,088           1,848,473          1,062,173
                                              -------------       -------------      -------------

Net income                                    $   2,311,601       $   2,458,210      $   1,660,247
                                              =============       =============      =============
</TABLE>

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

                                  (Continued)

                                       70

<PAGE>

                         CB BANCORP, INC. AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                          March 31, 1997, 1996 and 1995
--------------------------------------------------------------------------------


NOTE 15 - PARENT COMPANY FINANCIAL STATEMENTS (Continued)

                       CONDENSED STATEMENTS OF CASH FLOWS
                    Years ended March 31, 1997, 1996 and 1995

<TABLE>
<CAPTION>
                                                        1997              1996               1995
                                                        ----              ----               ----
<S> <C>
Cash flows from operating activities
      Net income                                   $   2,311,601      $   2,458,210     $   1,660,247
      Adjustments to reconcile net income to net
        cash from operating activities
         Loans purchased under agreements to
           resell                                       (500,000)                 -        (4,568,273)
         Sale of loans purchased under agreements
           to resell                                           -                  -         5,123,647
         Equity in income of Bank                     (2,343,088)        (1,848,473)       (1,062,173)
         Change in other assets                           (8,293)            56,517            76,217
         Change in other liabilities                     (42,833)           135,572            35,766
                                                   -------------      -------------     -------------
             Net cash from operating activities         (582,613)           801,826         1,265,431

Cash flows from investing activities
      Change in interest-earning deposits in
        financial institutions                                 -            390,763          (390,763)
      Purchase of securities available for sale                -            (35,386)         (125,466)
                                                   -------------      -------------     -------------
         Net cash from investing activities                    -            355,377          (516,229)

Cash flows from financing activities
      Purchase of treasury stock                        (487,572)          (557,427)         (243,875)
      Issuance of shares of treasury stock                 8,221             67,916            54,580
      Contribution to fund ESOP                           64,211             64,211            64,211
                                                   -------------      -------------     -------------
         Net cash from financing activities             (415,140)          (425,300)         (125,084)
                                                   -------------      -------------     -------------

Net change in cash and cash equivalents                 (997,753)           731,903           624,118

Cash and cash equivalents at beginning of period       2,779,683          2,047,780         1,423,662
                                                   -------------      -------------     -------------

Cash and cash equivalents at end of period         $   1,781,930      $   2,779,683     $   2,047,780
                                                   =============      =============     =============
</TABLE>

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

                                  (Continued)

                                       71

<PAGE>

                         CB BANCORP, INC. AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                          March 31, 1997, 1996 and 1995
--------------------------------------------------------------------------------


NOTE 16 - FAIR VALUES OF FINANCIAL INSTRUMENTS

The  following  table shows the estimated  fair values and the related  carrying
amounts of the Company's financial instruments at March 31, 1997 and 1996. Items
which are not financial instruments are not included.

<TABLE>
<CAPTION>
                                                            1997                               1996
                                               -----------------------------       -----------------------------
                                                Carrying          Estimated         Carrying          Estimated
                                                 Amount          Fair Value          Amount          Fair Value
                                                 ------          ----------          ------          ----------
<S> <C>
     Financial Assets
     Cash and equivalents                   $    14,729,000   $   14,729,000    $     6,063,000  $     6,063,000
     Securities available for sale                  672,000          672,000            621,000          621,000
     Securities held to maturity                 14,299,000       14,348,000         15,867,000       15,926,000
     Federal Home Loan Bank stock                 2,752,000        2,752,000          2,702,000        2,702,000
     Loans, net of allowance for loan
        losses                                  183,783,000      184,245,000        171,301,000      171,967,000
     Mortgage loans held for sale                   914,000          914,000            513,000          513,000
     Accrued interest receivable                  1,219,000        1,219,000          1,183,000        1,183,000
     Cash surrender value of life
        insurance                                 2,719,000        2,719,000          2,364,000        2,364,000

     Financial Liabilities
     Demand and savings deposits                (60,439,000)     (60,439,000)       (69,604,000)     (69,604,000)
     Time deposits                              (89,370,000)     (89,188,000)       (68,657,000)     (68,804,000)
     Borrowed funds                             (53,284,000)     (53,270,000)       (45,124,000)     (45,114,000)
</TABLE>

For purposes of the above  disclosures  of estimated  fair value,  the following
assumptions  were used as of March 31, 1997 and 1996.  The estimated  fair value
for cash and cash equivalents, Federal Home Loan Bank stock and accrued interest
receivable is  considered  to  approximate  cost.  The estimated  fair value for
securities is based on quoted market values for the individual securities or for
equivalent  securities.  The estimated  fair value for loans and mortgage  loans
held for sale is based on  estimates  of the rate the Company  would  charge for
similar such loans at March 31, 1997 and 1996,  applied for the same time period
until  estimated  payment.  The estimated fair value of cash surrender  value of
life  insurance is based on the proceeds that would be received upon  redemption
of the policies at March 31, 1997 and 1996.  The estimated fair value for demand
and savings  deposits is based on their carrying value. The estimated fair value
for time  deposits is based on  estimates  of the rate the Company  would pay on
such deposits at March 31, 1997 and 1996, applied for the same time period until
maturity.  The estimated  fair value of borrowed  funds is based on estimates of
the rate the Company  would be charged for similar  borrowings at March 31, 1997
and 1996,  applied for the same payment  schedule.  The estimated  fair value of
accrued interest payable and other financial  instruments and  off-balance-sheet
loan commitments  approximate  cost and are not considered  significant for this
presentation.

While these  estimates of fair value are based on  management's  judgment of the
most  appropriate  factors,  there is no assurance that were the Company to have
disposed of such items at March 31,  1997 and 1996,  the  estimated  fair values
would  necessarily  have been  achieved at these dates,  since market values may
differ  depending on various  circumstances.  The estimated fair values at March
31, 1997 and 1996 should not  necessarily  be  considered to apply at subsequent
dates.

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

                                  (Continued)

                                       72

<PAGE>

                         CB BANCORP, INC. AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                          March 31, 1997, 1996 and 1995
--------------------------------------------------------------------------------


NOTE 16 - FAIR VALUES OF FINANCIAL INSTRUMENTS (Continued)

In addition, other assets and liabilities of the Company that are not defined as
financial  instruments  are  not  included  in the  above  disclosures,  such as
property and equipment. Also, non-financial instruments typically not recognized
in financial statements  nevertheless may have value but are not included in the
above  disclosures.  These include,  among other items,  the estimated  earnings
power of core deposit accounts, the earnings potential of loan servicing rights,
the trained work force, customer goodwill, and similar items.


NOTE 17 - SAIF DEPOSIT INSURANCE PREMIUM

The deposits of the Bank are insured by the Savings  Association  Insurance Fund
("SAIF"). A recapitalization plan signed into law on September 30, 1996 provided
for a one-time  assessment of 65.7 basis points  applied to all SAIF deposits as
of March 31,  1995.  Based on the Bank's  deposits  as of this date,  a one-time
assessment  of  approximately  $723,000  was paid and  recorded as SAIF  deposit
insurance premium expense for the fiscal year ended March 31, 1997.


NOTE 18 - IMPACT OF NEW ACCOUNTING STANDARDS

SFAS No. 125,  "Accounting  for Transfers and Servicing of Financial  Assets and
Extinguishment of Liabilities," was issued by the Financial Accounting Standards
Board in 1996. It revises the accounting for transfers of financial assets, such
as loans and  securities,  and for  distinguishing  between  sales  and  secured
borrowings.  It is effective for some  transactions  in 1997 and others in 1998.
The anticipated effect on the consolidated financial statements has not yet been
determined.

Also, in March 1997, the accounting  requirements  for calculating  earnings per
share were revised. Basic earnings per share for the quarter ending December 31,
1997 and later will be calculated  solely on average common shares  outstanding.
Diluted earnings per share will reflect the potential  dilution of stock options
and other common stock  equivalents.  All prior calculations will be restated to
be compatible to the new methods.  As the Company has significant  dilution from
stock options,  the new calculation  methods will increase future basic earnings
per share over what  otherwise  would have been  reported,  while  there will be
little effect on diluted earnings per share.


NOTE 19 - PROPOSED MERGER

Pursuant to the  Agreement  and Plan of Merger  dated March 1, 1997  between the
Company  and  Pinnacle  Financial  Services,   Inc.  ("Pinnacle"),   a  Michigan
Corporation  headquartered in St. Joseph, Michigan, the Company is to merge with
and into Pinnacle.  The  transaction is subject to the approval of the Company's
and Pinnacle's shareholders and various regulatory agencies.

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

                                       73

<PAGE>

                         CB BANCORP, INC. AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                          March 31, 1997, 1996 and 1995
--------------------------------------------------------------------------------


NOTE 19 - PROPOSED MERGER (Continued)

The  terms of the  agreement  provide  for a  purchase  price of  $35.00  per CB
Bancorp, Inc. ("Company") share, payable in Pinnacle common stock. If Pinnacle's
average stock price exceeds  $29.00,  the  Company's  shareholders  will receive
1.20690 Pinnacle shares per Company share. If Pinnacle's  average stock price is
less than $23.00,  the  Company's  shareholders  will receive  1.52174  Pinnacle
shares per Company  share.  The agreement also provides that each option granted
by the Company to purchase shares of the Company's stock  (including any options
that have been awarded,  but have not yet been vested) which is outstanding  and
unexercised  immediately prior thereto shall be converted automatically into the
right to receive  shares of Pinnacle  common  stock in an amount  determined  by
dividing the  difference  between the exchange  value and the exercise  price of
such option by the average price. At consummation,  stock held by the Company in
treasury  will be  canceled.  The  agreement  also  provides  that the shares of
Pinnacle  common  stock to be  received  by  "affiliates"  of the Company in the
Merger shall not be sold, pledged, transferred or, otherwise,  disposed of for a
period  commencing  thirty  days  prior to the  Merger and ending at the time of
publication  of  financial  results  covering  at least  thirty days of combined
operations of Pinnacle and the Company.  The  Agreement  also limits the Company
from  entering  into  agreements  or  operating  in a manner  other  than in the
ordinary course of business.

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

                                       74

<PAGE>







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

         None.

                                    Part III

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

CERTAIN INFORMATION REGARDING CB

Directors of CB

         The Board of  Directors of CB  presently  consists of seven  directors.
Each of the seven members of the Board of Directors of CB also presently  serves
as a director of CB.  Directors are elected for  staggered  terms of three years
each,  with a term of  office  of only one of the  three  classes  of  directors
expiring each year.  Directors  serve  until their  successors  are elected  and
qualified.

         The  following  table sets  forth,  as of the date of this Joint  Proxy
Statement/Prospectus,  the names of the  directors  of CB,  their ages,  a brief
description of their recent business  experience,  including present occupations
and  employment,  certain  directorships  held by each,  the year in which  each
became a director  of  Community  Bank and the year in which their terms (or, in
the case of  nominees,  their  proposed  terms) as director of CB expire and the
amount of CB Common Stock and the percent thereof beneficially owned by each and
all directors and executive officers as a group.


<TABLE>
<CAPTION>
                                                                                                 Shares of       Ownership
                                                                                Expiration    CB Common Stock       as
Name and Principal Occupation at Present                              Director  of Term As     Beneficially      Percent
and for the Past Five Years                                     Age   Since(1)   Director       Owned(2)(3)      of Class
---------------------------                                     ---   --------   --------       -----------      --------
<S> <C>
Joseph F. Heffernan                                              61     1989       1999        60,587(4)(5)(6)     5.14%
     Chairman of the Board,  President  and CEO of CB;  served
     as President of Community Bank since 1989.

Robert V. Ott                                                    69     1973       1999        12,408(7)           1.07
     Realtor and Real Estate Appraiser  and Owner of Ott
     Realty  and  Appraisal  Co., LaPorte, Indiana

James J. Broad                                                   57     1992       1999        10,300               *
     President  and  Chairman of the Board of  Imperial  Steel
     Tank  Company,  Chicago,  Illinois.  Part Owner of Vessel
     Services, LLC, Highland,  Indiana and Pal's Ford-Mercury,
     Inc., Knox, Indiana.

Marvin L. Kominiarek, Jr.                                        59     1971       1998        27,921(4)(5)(6)     2.38%
     Divisional  President-Financial  Services,  Incorporated.
     Prior to joining Financial Services,  Incorporated,
     Mr. Kominiarek was part owner of Kominiarek and Greing
     Insurance,  an insurance  brokerage firm in Michigan City,
     Indiana.

Jon R. Bausback                                                  57     1979       1998        20,040(7)(8)        1.71
     Optometrist practicing in Michigan City, Indiana.

Ken O. Fryar                                                     72     1969       1997        12,081(7)           1.04
     Architect   and  owner  of  Ken  Fryar   Associates,
     an architectural  firm and Ken Fryar  Builders,  Inc.,
     a construction  firm in Michigan City, Indiana.

J. Patrick Smith                                                 65     1974       1997        12,040(7)(8)        1.03
     Attorney in private practice in LaPorte, Indiana

All Directors and executive officers as a group                                               207,965(9)          16.92%
(10 persons)
---------------------------------------------------------------
</TABLE>


                                       75



<PAGE>

*Less than 1.0% of CB's voting stock.

(1)  Includes years of service as a director of Community Bank.
(2)  Each  person  effectively  exercises  sole (or shares  with spouse or other
     immediate family member) voting or dispositive power as to shares reported.
(3)  All  shares  and  percentage  amounts  reflect a  two-for-one  stock  split
     effected in the form of a stock dividend in February 1994.
(4)  Includes 1,926 and 963 shares awarded to Messrs.  Heffernan and Kominiarek,
     respectively,  under the Community Bank, A Federal Savings Bank Recognition
     and Retention Plans and Trusts for Officers and Employees  ("MRPs"),  which
     vest at an annual  rate of 20% of the  original  number  of shares  awarded
     commencing  on December  23,  1993,  as to which  voting may be directed by
     Messrs. Heffernan and Kominiarek.
(5)  Includes 16,438,  8,733 and 2,568 shares, which may be acquired through the
     exercise of stock options granted to Messrs Heffernan and Kominiarek and to
     Mr.  Kominiarek's  wife,  respectively,  under the CB  Bancorp,  Inc.  1992
     Incentive  Stock  Option  Plan ("CB  Option  Plan"),  which  are  currently
     exercisable.  Does not  include  4,110 and 2,183 and 642 shares  awarded to
     Messrs Heffernan and Kominiarek and to Mr Kominiarek's wife,  respectively,
     under the CB Option Plan,  which are not presently  exercisable and vest at
     an annual rate of 20% of the original amount granted beginning December 23,
     1993.
(6)  Includes 6,919 and 1,368 shares allocated under the CB ESOP to the accounts
     of Messrs. Heffernan and Kominiarek, respectively.
(7)  Includes 481 shares  granted to each outside  director of CB with a minimum
     of ten years of service as a director of Community Bank under the Community
     Bank, A Federal Savings Bank Recognition and Retention Plans and Trusts for
     Outside  Directors  ("DRPs")  which  vest at an  annual  rate of 20% of the
     original  number  granted  commencing on the  date of  grant  (December 23,
     1992), as to which each participant presently has voting power.
(8)  Includes  9,632  shares  subject  to options  granted to Messrs.  Smith and
     Bausback  under the CB  Bancorp,  Inc.  1992 Stock  Option Plan for Outside
     Directors ("CB Directors' Option Plan"), which are currently exercisable.
(9)  Includes 8,665 shares  (including 4,813 shares set forth in footnotes 4 and
     7 above)  subject to Awards under the MRPs  and DRPs and as to which voting
     may be directed;  67,294 shares subject to options under the CB Option Plan
     and CB Directors  Option Plan which are  currently  exercisable  (including
     47,003 shares set forth in footnotes 5 and 8 above); and 19,421 shares held
     for executive officers in the aggregate under the CB ESOP.

                                       76

<PAGE>

Compliance with Section 16 (a)
------------------------------

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

         To the Company's  knowledge,  based solely on a review of the copies of
such reports furnished to the Company and written  representations that no other
reports were required during the fiscal year ended March 31, 1997 all Section 16
(a) filing requirements  applicable to its officers,  directors and greater than
10 percent beneficial owners were complied with.

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

Director Compensation
         Each Director of the Company  receives  $250 per quarter in Fees.  Each
Director of the Bank  receives  $1,000 a month in fees and each  Director who is
also a member of the Bank's executive  committee receives an additional $375 per
month.

The Company has a Deferred  Compensation Plan for its Board of Directors.  Under
the terms of the plan,  Directors  may  elect to defer a portion  of their  fees
which  is  retained  by  the  Company  with  interest   being  credited  to  the
participant's deferred balance.  Interest is credited at a rate equal to a three
year moving average of the Company's  return on equity ratio.  Upon  retirement,
the  participant  will be entitled to receive the accumulated  deferred  balance
over a specified number of years.

The Company also has a  Director Emeritus Plan for its outside Directors.  Under
this plan,  each outside  Director,  upon retirement will be eligible to receive
Directors fees for a period of four years commencing at the date of retirement.

Executive Compensation
         Summary  Compensation  Table. The following table shows, for the fiscal
years  ended  March 31,  1997,  1996 and  1995,  the cash  compensation  paid by
Community Bank, as well as certain other  compensation paid or accrued for those
years, to the Chief Executive Officer (the "Named Executive Officer").  No other
executive officer of CB or Community Bank received an amount in salary and bonus
in excess of $100,000 in fiscal 1997. Other than certain directors' fees, CB did
not pay any cash compensation to any individual during fiscal 1997.

                                       77


<PAGE>






<TABLE>
<CAPTION>
                                                                        Long Term
                                                                        Compensation
                                                                        ------------

                                      Annual Compensation                       Awards           Payouts
                          -------------------------------------------           ------           -------

                                                                                   Securities
                                                                                   Underlying
                                                                        Restricted  Exercised
                                                         Other Annual     Stock     Options/     All LTIP      Other
Name and                  Fiscal     Salary     Bonus    Compensation   Award(s)      SARs       Payouts   Compensation
Principal Position         Year      ($)(1)     ($)(2)       ($)(3)      ($)(4)      (#)(5)        ($)        ($)(6)
------------------        ------     ------     ------   --- -------     ------   -----------    --------  ------------

<S> <C>
Joseph F. Heffernan        1997     138,850        --          --           --          --          --       305,358
   Chairman of the
   Board, President and
   CEO
                           1996     131,401        --          --           --          --          --        33,705
                           1995     121,684        --          --           --          --          --        21,669
------------------------------------------
</TABLE>

(1)  Includes director's fees for CB and Community Bank.
(2)  No bonus was paid or accrued in fiscal 1997, 1996 or 1995.
(3)  For fiscal  years ended March 31,  1997,  1996 and 1995,  there were no (a)
     perquisites  over the lesser of $50,000  or 10% of the  individual's  total
     salary and bonus for the years;  (b)  payments of earnings  with respect to
     long term  incentive  plans  prior to  settlement  or  maturation;  (c) tax
     payment reimbursements; or (d) preferential discounts on stock.
(4)  The  dollar  value of  shares  awarded  to Mr.  Heffernan  pursuant  to the
     Community Bank, A Federal Savings Bank  Recognition and Retention Plans and
     Trusts for Officers and  Employees  ("MRP") is based on the initial  public
     offering  price of the common  stock of 5.00 per share (as adjusted for the
     2-for-1 stock split).  Such awards vest in equal  installments at a rate of
     20% per year commencing on December 23, 1993. When shares become vested and
     are  distributed,  the  recipient  will also  receive  an  amount  equal to
     accumulated  dividends and earnings  thereon (if any). 7,704 shares granted
     under the MRP to Mr. Heffernan have vested.
(5)  The Company  maintains  the CB Option Plan for the benefit of officers  and
     key  employees.  Options  granted  pursuant to the CB Option Plan vest at a
     rate of 20% per year  beginning  one year from the date of grant  (December
     23, 1992).  At the Record Date,  16,438  options  granted to Mr.  Heffernan
     under  the CB Option  Plan had  vested.  Options  granted  include  limited
     rights.
(6)  Includes  $259,672 placed in a secular trust fund established in connection
     with Mr. Heffernan's Restated Supplemental  Executive Retirement Agreement;
     $206,315 of which represents  cumulative  accruals  recorded in prior years
     under terms of the Agreement,  the remaining $53,357  represents the fiscal
     1997 contributions to the trust as required by the Agreement. Also included
     in this figure is the $45,586  market value of the Community  Bank Employee
     Stock  Ownership  Plan  allocated to Mr.  Heffernan's  account  therein  on
     December 31, 1996.

                                       78

<PAGE>

         Employment  Agreements.   CB  and  Community  Bank  have  entered  into
employment agreements with Mr. Heffernan, who is sometimes referred to herein as
the "executive." These employment  agreements are intended to ensure that CB and
Community Bank will be able to maintain a stable and competent  management base.
The  employment  agreements  with CB and Community Bank provide for a three-year
term.  Commencing on the first  anniversary date and continuing each anniversary
date  thereafter,  the respective  Boards of Directors may extend the agreements
for an  additional  year so that the remaining  terms shall be three years.  The
agreements  provide that the executive's base salary will be reviewed  annually.
In addition to the base salary,  the agreements provide for, among other things,
disability pay,  participation  in stock benefit plans and other fringe benefits
applicable to executive personnel.  The agreements provide for termination by CB
and Community  Bank for cause at any time.  In the event CB and  Community  Bank
choose to terminate the executive's employment for reasons other than for cause,
or in the event of the executive's  resignation  from CB and Community Bank upon
(i) a material change in the executive's functions,  duties or responsibilities,
or  relocation  of his  principal  place  of  employment,  (ii)  liquidation  or
dissolution  of CB and Community  Bank, or (iii) a breach of the agreement by CB
and Community Bank, the executive,  or in the event of death,  his  beneficiary,
would be entitled to severance pay or  liquidated  damages in an amount equal to
the  salary  to  which  he  would  be  entitled  for the  remaining  term of the
agreement.  The agreements provide that the failure to re-elect the executive to
his current offices or to nominate the executive to the board of directors shall
constitute an event of termination.

         If termination as described above follows a change in control of CB and
Community  Bank,  the executive or, in the event of death prior to payment,  his
beneficiary,  would be entitled to a severance  payment equal to three times his
average annual  compensation over the past three years of employment with CB and
Community Bank. CB and Community Bank would also continue the executive's  life,
health  and  disability  coverage  for  the  remaining  unexpired  term  of  the
agreements.  Payments to the  executive  under  Community  Bank's  agreement are
guaranteed by the Company in the event that payments or benefits are not paid by
Community Bank.

         For purposes of the employment and change in control agreements and the
stock option plans described  herein, a "change in control"  generally means the
acquisition  by any  person  or  group  of  persons  of 25% or  more  of CB's or
Community  Bank's  outstanding  securities,  a change in the incumbent boards of
directors  such that  incumbent  members  (which  includes  members  approved by
incumbent members) cease to constitute a majority of the respective boards, or a
transaction in which Community Bank or CB is not the surviving institution.

         Stock Option Plan.  The Company  maintains  the CB Bancorp,  Inc.  1992
Incentive Stock Option Plan (the "CB Option Plan").  There were no grants to the
Named Executive Officer under the Option Plan during the fiscal year ended March
31, 1997.

         Restated  Supplemental  Executive  Retirement  Agreement. The  Restated
Supplemental   Executive   Retirement  Agreement  entered  into  between  Joseph
Heffernan  and the  Company on April  1,1996,  amends and  restates  the amended
Supplemental Executive Retirement Agreement entered into on March 17, 1992.

         Upon the establishment of the Restated Agreement, the Company's accrued
liability under the prior  agreement was funded into a  trust  to  be  held  for
the  benefit  of the  executive.  This trust is not under the Company's control.
The  Restated  Agreement  provides  for annual contributions  to be made  to the
trust until the  executive reaches retirement age, upon which time the executive
will be paid an annual  benefit  payments of $33,838 for fifteen years.

                                       79

<PAGE>

         The following table provides  certain  information  with respect to the
number of shares of CB Common Stock  represented  by  outstanding  stock options
held by the Named Executive  Officer as of March 31, 1997. Also reported are the
values for  "in-the-money"  options which  represent the positive spread between
the exercise price of existing stock options and the fiscal year-end price of CB
Common Stock.  No options were exercised by the Named  Executive  Officer during
fiscal 1997.

                        FISCAL YEAR-END OPTION/SAR VALUES
                        ---------------------------------

<TABLE>
<CAPTION>
                        Number of Securities             Value of Unexercised
                           Options/SARs at                   in-the-Money
                       Fiscal Year-End (#)(1)    Options/SARs at Fiscal Year-End($)(2)
Name                  Exercisable/Unexercisable          Exercisable/Unexercisable
----                  -------------------------          -------------------------
<S> <C>
Joseph F. Heffernan         16,438/4,110                   $472,593/$118,163
</TABLE>
-----------------------------------------------

(1)      Based upon $ 33.75,  the last quoted  sales price of CB Common Stock as
         reported on the NASDAQ  Small-Cap  Market for the fiscal year end March
         31, 1997. The exercise price of the options is $5.00.

(2)      Options  are  subject to limited  rights  (SARs)  pursuant to which the
         options,  to the extent  outstanding  for at least six  months,  may be
         exercised in the event of a change in control of CB or Community  Bank.
         Upon the exercise of limited  rights,  the optionee  would receive cash
         payments  equal to the  difference  between the  exercise  price of the
         related  option on the date of grant and the fair  market  value of the
         underlying  shares of CB Common Stock on the date the limited rights is
         exercised.


Item  11.  Security  Ownership  of  Certain  Beneficial  Owners  and  Management
--------------------------------------------------------------------------------
           Beneficial Ownership of CB Bancorp Common Stock
           -----------------------------------------------

         The  following  table sets forth  information  provided  by the persons
indicated with respect to the beneficial  ownership (as defined under applicable
rules of the Commission) of shares of CB Common Stock as of April 1, 1997 by (i)
each  person  known by CB who is the  owner of more  than 5% of the  outstanding
shares of CB Common  Stock,  (ii) each person who is a director or an  executive
officer of CB, and (iii) all persons who are directors or executive  officers of
CB as a group.
                                                   
<TABLE>
<CAPTION>
Name and Address                                   Amount and Nature of
of Beneficial Owner                                Beneficial Ownership         Percent of Class
-------------------                                --------------------         ----------------
<S> <C>
Community Bank, A Federal Savings Bank, Employee
Stock Ownership Plan and Trust                          89,896(1)                    7.74%
126 E. Fourth Street
Michigan City, Indiana 46360

First Manhattan Co.                                     93,500(2)                     8.05
437 Madison Avenue
New York, New York 10022

John Hancock Advisers, Inc.                             107,870(3)                   9.28%
c/o John Hancock Mutual Life
Insurance Company
P.O. Box 111
Boston, MA 02117
</TABLE>

                                       80


<PAGE>

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

 (1)     The CB ESOP holds  89,896  shares,  of which  51,476  shares  have been
         allocated to employees with the remaining shares unallocated. Directors
         administer the CB ESOP as a committee (the "CB ESOP Committee").  Craig
         Braje, Esq., an unaffiliated  person, has been appointed as the trustee
         for the CB ESOP ("CB ESOP  Trustee").  The CB ESOP Trustee,  subject to
         his fiduciary duty, must vote all allocated  shares held in the ESOP in
         accordance with the instructions of the participating employees.  Under
         the CB ESOP,  unallocated  shares held in the suspense  account will be
         voted by the CB ESOP Trustee in a manner  calculated to most accurately
         reflect the  instructions  received from  participants  so long as such
         vote is in accordance with the provisions of Employee Retirement Income
         Security Act of 1974.

(2)      Information  is based on the  February  5, 1997  Schedule  13G filed by
         First Manhattan Co.

(3)      Information is based on the February 3, 1997 Schedule 13G filed by John
         Hancock Advisors, Inc.



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

Indebtedness of Management

         The FIRREA requires that all loans or extensions of credit to executive
officers and directors must be made on substantially  the same terms,  including
interest rates and  collateral,  as those  prevailing at the time for comparable
transactions  with the general  public and must not involve more than the normal
risk of repayment or present other unfavorable features. In addition, loans made
to a director or executive  officer in excess of the greater of $25,000 or 5% of
Community  Bank's  capital or  surplus  (up to a maximum  of  $500,000)  must be
approved in advance by a majority of the  disinterested  members of the Board of
Directors.  Community  Bank's policy  regarding loans to directors and executive
officers is in  accordance  with the  requirements  of the FIRREA.  At March 31,
1997,  all  outstanding  loans made by Community Bank to directors and executive
officers and members of their  immediate  families had been made in the ordinary
course of business,  on substantially the same terms,  including  interest rates
and collateral, as those prevailing at the time for comparable transactions with
other persons and did not involve more than the normal risk of collectibility or
present other unfavorable features.


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

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

         (1)  Financial  Statements:   The  following   Consolidated   Financial
Statements are filed under Item 7 hereof:

Report of Independent Auditors

Consolidated Balance Sheets as of March 31, 1997 and 1996

Consolidated  Statements of Income for the years ended March 31, 1997,  1996 and
1995

                                       81


<PAGE>

Consolidated  Statements of Changes in Shareholders'  Equity for the years ended
March 31, 1997, 1996 and 1995

Consolidated  Statements of Cash Flows for the years ended March 31, 1997,  1996
and 1995.

Notes to Consolidated Financial Statements


         (2) Financial  Statements:  All schedules are omitted  because they are
not  required  or  applicable,  or the  required  information  is  shown  in the
consolidated financial statements or the notes thereto.

         (3)  Exhibits

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

3.1      Certificate of incorporation *

3.2      Bylaws *

10.1     Form of Amended Employment Agreement between the Bank and Executive****

10.2     Form of Change in Control Agreement  between the  Company and  the Bank
         and Executive*

10.3     Community Bank,  A Federal Savings  Bank Employee  Stock Ownership Plan
         and Trust *

10.5     Community Bank,  A Federal  Savings Bank Recognition and Retention Plan
         and Trust for Outside Directors **

10.6     Community Bank,  A Federal Savings  Bank Recognition Plan and Trust for
         Officers and Employees **

10.7     Form of Employment 1992 Stock Option Plan **

10.8     Form of CB Bancorp, Inc. 1992 Stock Option Plan for Outside Directors**

10.9     Community Bank, A Federal Savings Bank Employee Retirement Plan *

10.10    Form  of  Community  Bank,  A Federal  Savings Bank  Outside Directors'
         Consultation and Retirement Plan *

10.11    CB Bancorp, Inc. Directors' Deferred Compensation Plan ***

11.0     Statement re: Computation of per share earnings (See Note 1 of Notes to
         Consolidated Financial Statements)

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

27.0     Financial Data Schedule

                                       82

<PAGE>

         (b) Reports on Form 8-K

                  Form 8-K filed on March 12, 1997 announcing  merger  agreement
         with Pinnacle Financial Services, Inc.

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

*        Incorporated  herein by reference  into this document from the Exhibits
         to Form S-1, Registration Statement and any amendments thereto filed on
         September 17, 1992, Registration No. 33-51882.

**       Incorporated  herein by  reference  into this  document  from the Proxy
         Statement for the Annual Meeting of Shareholders held on July 28, 1993,
         and filed in definitive form on June 17, 1993.

***      Incorporated into Fiscal 1994 10-KSB filed on June 27, 1994.

****     Incorporated  herein  by  reference  into this  document  from the Form
         10-QSB filed with the SEC on February 14, 1997.

                                       83



                                   SIGNATURES

         Pursuant to the  requirements of Section 13 or 15 (d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this Report to be signed on
its behalf by the undersigned, thereunto duly authorized.

                                            CB BANCORP, INC.



                                            By:  /s/ Joseph F. Heffernan
                                                ------------------------
                                                Joseph F. Heffernan
                                                Chief Executive Officer
                                                President and Director


DATED:   6/10/97

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


/s/ Joseph F. Heffernan           Chief Executive Officer,        6/10/97
---------------------------       President and Director          -------
Joseph F. Heffernan

/s/ Jon R. Bausback               Director                        6/10/97
---------------------------                                       -------
Jon R. Bausback

/s/ Ken O. Fryar                  Director                        6/10/97
---------------------------                                       -------
Ken O. Fryar

/s/ Marvin Kominiarek, Jr.        Director                        6/10/97
---------------------------                                       -------
Marvin Kominiarek, Jr.

/s/ Robert Ott                    Director                        6/10/97
---------------------------                                       -------
Robert Ott

/s/ J. Patrick Smith              Director                        6/10/97
---------------------------                                       -------
J. Patrick Smith

/s/ James Broad                   Director                        6/10/97
---------------------------                                       -------
James Broad

/s/ Allen Jones                   Secretary                       6/10/97
---------------------------                                       -------
Allen Jones

                                       84



<PAGE>

                                   SIGNATURES

         Pursuant to the  requirements of Section 13 or 15 (d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this Report to be signed on
its behalf by the undersigned, thereunto duly authorized.

                                      CB BANCORP, INC.



                                      By: _____________________________
                                          Joseph F. Heffernan
                                          Chief Executive Officer
                                          President and Director


DATED:         6/10/97
               -------

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


                                 Chief Executive Officer,
------------------------         President and Director           --------
Joseph F. Heffernan

                                 Director
------------------------                                          --------
Jon Bausback

                                 Director
------------------------                                          --------
Ken O. Fryar

                                 Director
------------------------                                          --------
Marvin Kominiarek, Jr.

                                 Director
------------------------                                          --------
Robert Ott

                                 Director
------------------------                                          --------
J. Patrick Smith

                                 Director
------------------------                                          --------
James Broad

                                 Secretary
------------------------                                          --------
Allen Jones

                                       85