<PAGE>
 
                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                   FORM 10-K

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

                    For the fiscal year ended March 31, 1998

                         Commission File No.:  0-25504


                            WEST TOWN BANCORP, INC.
             (exact name of registrant as specified in its charter)


               DELAWARE                              36-3962962
     (State or other jurisdiction of          (I.R.S. Employer Id. No.)
      incorporation or organization)


                 4852 West 30th Street, Cicero, Illinois 60804
                    (Address of principal executive offices)


       Registrant's telephone number, including area code: (708) 652-2000
        Securities registered pursuant to Section 12(b) of the Act: None
          Securities registered pursuant to Section 12(g) of the Act:

                    Common Stock, par value $0.01 per share
                                (Title of class)


     The registrant (1) has filed all reports required to be filed by Section 13
or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the registrant was required to file such
reports), and (2) has been subject to such filing requirements for the past 90
days.
          Yes  X         No 
              ---           ---
   
     Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K.  X
                             ---

     As of May 31, 1998 there were issued and outstanding 224,303 shares of the
Registrant's common stock which is traded over the counter through the National
Daily Quotation System "Pink Sheet" published by the National Quotation Bureau,
Inc.  The aggregate market value of the voting stock held by non-affiliates of
the Registrant based on the estimated value of the stock on May 31, 1998 was
$2,691,636 (224,303 shares at $12 per share).  For purposes of this calculation
directors and officers of the Registrant are considered non-affiliates of the
Registrant.


                      DOCUMENTS INCORPORATED BY REFERENCE

     The Annual Report to Stockholders for the year ended March 31, 1998 is
incorporated by reference into Part II of this Form 10-K.

     The Proxy Statement for the 1998 Annual Meeting of Stockholders is
incorporated by reference into Part III of this Form 10-K.
<PAGE>
 
                                     INDEX

<TABLE>
<CAPTION>
 
PART I                                                                   PAGE
                                                                         ----
<S>       <C>                                                            <C>
 
Item 1.   Business...................................................       1
 
Additional Item.  Executive Officers of the Registrant...............      26
 
Item 2.   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 Registrant's Common Equity and Related
          Stockholder Matters........................................      26

Item 6.   Selected Financial Data....................................      26

Item 7.   Management's Discussion and Analysis of
          Financial Condition and Results of Operations..............      26

Item 8.   Financial Statements and Supplementary Data................      26

Item 9.   Changes in and Disagreements with Accountants
          on Accounting and Financial Disclosure.....................      27
 
 
PART III
 
Item 10.  Directors and Executive Officers of the Registrant.........      27
 
Item 11.  Executive Compensation.....................................      27
 
Item 12.  Security Ownership of Certain Beneficial
          Owners and Management......................................      27
 
Item 13.  Certain Relationships and Related Transactions.............      27
 

PART IV

Item 14.  Exhibits, Financial Statement Schedules and
          Reports on Form 8-K........................................      28

Item 15.  SIGNATURES.................................................      29
</TABLE> 
<PAGE>
 
                                     PART I
Item I. Business.
-----------------

General

     West Town Bancorp, Inc. (also referred to as the "Company") was
incorporated under Delaware law on May 6, 1994.  On March 1, 1995, the
Registrant acquired West Town Savings Bank (the "Bank") as a part of the Bank's
conversion from a mutual to a stock state chartered savings bank.  The
Registrant is a savings bank holding company and is subject to regulation by the
Office of the Illinois Commissioner of Banks and Real Estate (the "OBRE"), the
Federal Deposit Insurance Corporation (the "FDIC") and the Securities and
Exchange Commission (the "SEC").  Currently, the Registrant does not transact
any material business other than through the Bank and West Town Insurance
Agency, the Bank's wholly-owned subsidiary.  The Registrant received conversion
proceeds amounting to $1.9 million, of which $944,000 was utilized to acquire
all of the capital stock of the Bank.  At March 31, 1998, the Company had total
assets of $29.5 million and stockholders' equity of $4.0 million (13.7% of total
assets).

     West Town Savings was originally organized in 1922 as an Illinois-chartered
savings and loan association.  In 1992 it converted to an Illinois chartered
savings bank.  The Bank is a member of the Federal Home Loan Bank (the "FHLB")
System and its deposit accounts are insured up to applicable limits by the FDIC.

     The Bank's principal business has been and continues to be attracting
deposits from the general public and investing those deposits, together with
funds generated from operations, primarily in one- to four-family, owner-
occupied, fixed-rate loans, and to a lesser extent, multi-family residential
mortgage loans, commercial real estate loans, land and construction loans,
mortgage-backed securities and other short-term investments, including U.S.
Government and federal agency securities and other marketable securities. The
Bank's revenues are derived principally from interest on its mortgage loan and
mortgage-backed securities portfolios and interest and dividends on its
investment securities.  The Bank's primary sources of funds are deposits,
principal and interest payments on loans and mortgage-backed securities.

Market Area

     The Bank has been, and continues to be, a community-oriented savings
institution offering a variety of financial sources to meet the needs in the
community it serves.  The Bank's deposit-gathering area is concentrated in the
neighborhoods surrounding its  office which is located in the Chicago suburb of
Cicero, in Cook County.  The Bank's lending base primarily covers the same area.
Management believes that its office is located in a community that can generally
be characterized as a stable, residential neighborhood of predominately one-to-
four family residences, mixed with a commercial segment of a diverse group of
retail service businesses.

Lending Activities

     Loan and Mortgage-Backed Securities Portfolio Compositions.  The loan
portfolio composition consists primarily of conventional fixed-rate, first-
mortgage loans secured by one-to-four family residences and, to a lesser extent,
multi-family residences.  At March 31, 1998, the total loans outstanding were
$19.2 million, of which $17.1 million were one-to-four family residential
mortgage loans, or 89.2% of the loan portfolio.  At that same date, multi-family
residential mortgage loans totaled $440,000, or 2.3% of the loan portfolio.

     The Bank currently is participating in a $2,000,000 construction loan for
the purpose of constructing one-to-four family dwellings in Morton Grove,
Illinois.  It is anticipated that this project will be completed by December 31,
1998.

     The remainder of the mortgage loans, which totaled $89,000, or 0.5% of
total loans outstanding at March 31, 1998, consisted of commercial real estate
loans.  Other loans were $180,000, consisting of loans on deposit accounts and
home improvement loans, or .9% of total loans.  At March 31, 1998, purchased
mortgage loans totaled $13.3 million, or 69.3% of the loan portfolio.  All
purchased mortgage loans were originated in the Chicago metropolitan area.

                                      -1-
<PAGE>
 
     The Company and its subsidiaries also invest in mortgage-backed securities.
At March 31, 1998, the amortized cost of total mortgage-backed securities
aggregated $1.6 million, or 5.5% of total assets, of which 14.4% were backed by
adjustable rate mortgage ("ARM") loans and 85.6% were backed by fixed-rate
loans.  All of the mortgage-backed securities at March 31, 1998 were insured or
guaranteed by either the Government National Mortgage Bank ("GNMA"), the Federal
National Mortgage Bank ("FNMA") or the Federal Home Loan Mortgage Corporation
("FHLMC").

Safe Harbor Provision of the Private Securities Litigation Reform Act of 1995

     Management's Discussion and Analysis of Financial Condition and Results of
Operations and Item 1 - Description of Business that are not historical facts
are forward-looking statements subject to the safe harbor created by the Private
Securities Litigation Reform Act of 1995.  The Company cautions readers of this
Annual Report on form 10-K that a number of important factors could cause the
Company's actual results in 1998 and beyond to differ materially from those
expressed in any such forward-looking statements.  These factors include,
without limitation the general economic and business conditions affecting the
Company's customers; changes in interest rates; the adequacy of the Bank's
allowance for loan losses; competition from, among others, commercial banks,
savings and loan associations, mutual funds, money market funds, finance
companies, credit unions, mortgage companies, and the United States Government;
limited partnership activities; federal and state legislation, regulation and
supervision of the Bank and its subsidiaries; the risk of defaults on loans; and
contractual, statutory and regulatory restrictions on the Bank's ability to pay
dividends to the Company.

                                      -2-
<PAGE>
 
     The following table sets forth the composition of the loan portfolio and
mortgage-backed securities portfolio of the Company and its subsidiaries in
dollar amounts and in percentages of the respective portfolios at the dates
indicated. Mortgage-backed securities are shown at amortized cost and not fair
value.
<TABLE>
<CAPTION>
                                                                    At March 31,
                             ------------------------------------------------------------------------------------------
                                   1998              1997              1996              1995              1994
                             ----------------- ----------------- -----------------  ----------------- -----------------
                                       Percent          Percent           Percent            Percent            Percent
                             Amount   of Total  Amount  of Total  Amount  of Total  Amount   of Total  Amount   of Total
                             ------   --------  ------  --------  ------  --------  ------   --------  ------   --------
                                                              (Dollars in Thousands)
<S>                          <C>      <C>       <C>     <C>       <C>     <C>       <C>      <C>       <C>      <C>
Mortgage loans:
One-to-four family           $17,141    89.20%   14,525   85.45    12,183    93.72   8,165      88.05    9,069     83.78
Multi-family                     440     2.29       524    3.08       620     4.77     721       7.78      906      8.37
Commercial real estate            88      .46        95     .56       138     1.06     337       3.63      794      7.33
Construction                   1,368     7.12     1,700   10.00         -                -                   -         -
                             -------   ------    ------  ------    ------   ------   -----     ------   ------    ------
  Total mortgage loans        19,037    99.07    16,844   99.09    12,941    99.55   9,223      99.46   10,769     99.48
Other loans                      180      .93       154     .91        58      .45      50        .54       56       .52
                             -------   ------    ------  ------    ------   ------   -----     ------   ------    ------
  Total loans receivable      19,217   100.00%   16,998  100.00    12,999   100.00   9,273     100.00   10,825    100.00
                             -------   ======    ------  ======    ------   ======   -----     ======   ------    ======
Less:
Loans in process                 626              1,348                 9                -                   -
Unearned discounts and
 deferred loan fees               88                 57                27               41                  20
Allowance for loan losses         46                 40                30               15                  63
Allowance for
 uncollected interest              5                  -                 -                -                   -
                             -------             ------            ------            -----              ------
Loans receivable, net        $18,452             15,553            12,933            9,217              10,742
                             =======             ======            ======            =====              ======

Mortgage-backed securities:
FHLMC                        $   664    40.46%    1,140   45.54%    1,490    48.11   1,727      48.09    2,020     49.35
FNMA                             636    38.76       916   36.60     1,112    35.96   1,273      35.45    1,418     34.64
GNMA                             341    20.78       447   17.86       490    15.85     591      16.46      655     16.01
                             -------   ------    ------  ------    ------   ------   -----     ------    -----    ------
  Total mortgage-backed
    securities                 1,641   100.00%    2,503  100.00%    3,092   100.00%  3,591     100.00    4,093    100.00
                                       ======            ======             ======             ======             ======
Net premiums (discounts)          (9)                (9)               (6)              (7)                 (5)
                             -------             ------            ------           ------              ------
Net mortgage-backed
 securities                  $ 1,632              2,494             3,086            3,584               4,088
                             =======             ======            ======            =====              ======
</TABLE>

                                      -3-

<PAGE>
 
     The following tables set forth the Company and its subsidiaries' loan
originations and loan and mortgage-backed securities purchases, sales and
principal repayments for periods indicated.

<TABLE>
<CAPTION>
                                                      Year Ended March 31,
                                                --------------------------------
                                                 1998         1997        1996
                                                 ----         ----        ----
                                                         (In Thousands)
<S>                                             <C>          <C>         <C>
Mortgage loans (gross):

  At beginning of period                        $16,844      12,941       9,223
                                                -------      ------      ------
  Mortgage loans originated:
   One-to-four family                               202         398         735
   Multi-family                                       -           -           -
   Commercial real estate                             -           -           -
                                                -------      ------      ------
     Total mortgage loans originated                202         398         735
                                                -------      ------      ------
  Mortgage loans purchased:
   One-to-four family                             5,976       3,639       5,131
   Construction                                       -       2,000           -
                                                -------      ------      ------
     Total mortgage loans purchased               5,976       5,639       5,131
                                                -------      ------      ------
     Total mortgage loans originated and
       purchased                                  6,178       6,037       5,866
                                                -------      ------      ------
  Participation loans sold                       (2,128)       (300)          -
  Transfer of loans to foreclosed real estate         -           -           -
  Principal repayments                           (1,857)     (1,834)     (2,148)
                                                -------      ------      ------
  At end of period                              $19,037      16,844      12,941
                                                =======      ======      ======
Other loans (gross):
  At beginning of period                        $   154          58          50

   Other loans originated                           146         271          34
   Principal repayments                            (120)       (175)        (26)
                                                -------      ------      ------
  At end of period                              $   180         154          58
                                                =======      ======      ======

Mortgage-backed securities (gross):
  At beginning of period                        $ 2,503       3,092       3,591

   Mortgage-backed securities purchased               -           -           -
   Mortgage-backed securities sold                    -           -           -
   Amortization and repayments                     (862)       (589)       (499)
                                                -------      ------      ------
  At end of period                              $ 1,641       2,503       3,092
                                                =======      ======      ======
</TABLE>

                                      -4-
<PAGE>
 
     Loan Maturity and Repricing. The following table shows the maturity or
period to repricing of the Company and its subsidiaries' loan and mortgage-
backed securities portfolios at March 31, 1998. Mortgage-backed securities are
shown at amortized cost, not fair value, and consist of loans with adjustable
rates and fixed rates. Information for a presentation of such adjustable rate
loans based on contractual terms to maturity is unavailable and therefore such
loans are shown as being due in the period during which the interest rates are
next subject to change. The table does not include prepayments or scheduled
principal amortization. Prepayments and scheduled principal amortization on
loans and mortgage-backed securities totaled $6.9 million, $2.6 million and $2.7
million for the years ended March 31, 1998, 1997 and 1996, respectively.

<TABLE>
<CAPTION>
                                                                         At March 31, 1998
                                     ------------------------------------------------------------------------------------------
                                                                                                            Totals
                                                                                               --------------------------------
                                     One-to-                                                      Total     Mortgage-
                                     Four        Multi-     Commercial                  Other     Loans      Backed
                                     Family      Family     Real Estate   Construction  Loans  Receivable   Securities    Total
                                     -------     ------     -----------   ------------  -----  ----------   ----------   -------
                                                                       (In Thousands)
<S>                                  <C>         <C>        <C>           <C>           <C>     <C>          <C>          <C>
Amounts due:
 Within one year                     $  3,762          -           -          1,368        6       5,136      244         5,380
                                       ------      -----       -----          -----     ----      ------    -----        ------
After one year:
    One to three years                     23          -           -              -       30          53    1,040         1,093
    Three to five years                   362        283           -              -       29         674      341         1,015
    Five to ten years                  10,705        157          16              -       44      10,922        -        10,922
    Ten to twenty years                 1,063          -          72              -       71       1,206       16         1,222
   Over twenty years                    1,226          -           -              -        -       1,226        -         1,226
                                       ------      -----       -----           ----     ----      ------   ------        ------
      Total due or
       repricing after one year        13,379        440          88              -      174      14,081    1,397        15,478
                                      -------      -----        ----          -----      ---    --------    -----        ------

      Total amount due or repricing   $17,141        440          88          1,368      180      19,217    1,641        20,858
                                      =======        ===        ====          =====      ===

Less:
  Loans in process                                                                                  (626)       -          (626)
  Unearned discounts, premiums, and
    deferred loan fees, net                                                                          (88)      (9)          (97)
  Allowance for loan losses                                                                          (46)       -           (46)
  Allowance for uncollected interest                                                                  (5)       -            (5)
                                                                                                  -------   -----          ----
     Loans receivable and mortgage-
      backed securities, net                                                                     $18,452    1,632        20,084
                                                                                                 =======    =====        ======
</TABLE>

                                      -5-
<PAGE>
 
     The following table sets forth at March 31, 1998, the dollar amount of all
loans and mortgage-backed securities due or repricing after March 31, 1999, and
whether such loans have fixed interest rates or adjustable interest rates.

<TABLE>
<CAPTION>

                                           Due or Repricing after
                                               March 31, 1999
                                   --------------------------------------
                                     Fixed         Adjustable       Total
                                     -----         ----------       -----
                                               (In Thousands)
<S>                                <C>             <C>             <C>
Mortgage loans:
   One-to-four family              $13,379             -           13,379
   Other                               528             -              528
Other loans                            174             -              174
                                    ------         ----------      ------
Total loans receivable              14,081             -           14,081
Mortgage-backed securities           1,397             -            1,397
                                    ------         ----------      ------
Total loans receivable and
 mortgage-backed securities        $15,478             -           15,478
                                    ======         ==========      ======

</TABLE>

     One-to-Four Family Mortgage Lending. The Bank offers first mortgage loans
secured by one-to-four family residences, including townhouse and condominium
units, in the Bank's primary lending area. Typically, such residences are
single-or-two family homes that serve as the primary residence of the owner.
Loan originations are generally obtained from existing or past customers,
members of the local communities, local real estate agent referrals and
builder/developer referrals within the Bank's area.

     The Bank offers fixed-rate loans and adjustable-rate loans on one-to-four
family residential properties. The Bank's fixed-rate mortgage loans are made for
terms of 15 to 30 years. Interest rates charged on fixed-rate loans are
competitively priced based on market conditions and the cost of funds.
Origination fees range from zero points to 2.5% depending on the interest rate
charged and other factors. Generally, the Bank's standard underwriting
guidelines conform to FHLMC guidelines with periodic exceptions granted to
customers with long-standing relationships on a case-by-case basis, which are
approved by the President.

     The Bank makes one-to-four family residential mortgage loans in amounts up
to 80% of the appraised value of the secured property. Originated mortgage loans
in the Bank's portfolio generally include due-on-sale clauses which provide the
Bank with the contractual right to deem the loan immediately due and payable in
the event that the borrower transfers ownership of the property without the
Bank's consent. It is the Bank's policy to enforce due-on-sale provisions.

     The Bank also purchases pools of one-to-four family mortgage loans from
area lenders. These purchased loans are subject to the Bank's underwriting
standards. Interest rates on a substantial portion of these loans adjust
annually. Purchased loans totaled $13.3 million at March 31, 1998, representing
69.3% of the loan portfolio. Adjustable rate pools totaled $3.5 million, with
fixed rate pools totaling $9.8 million at March 31, 1998.

     Multi-Family Lending. In the Chicago metropolitan area, the Bank originates
fixed-rate multi-family loans with terms of 15 to 20 years. These loans are
amortized over the term of the loan. These loans are generally made in amounts
up to 75% of the appraised value of the secured property. Most of the Bank's
multi-family loans are not owner-occupied. In making such loans, the Bank bases
its underwriting decision primarily on the net operating income generated by the
real estate to support the debt service, the financial resources and income
level of the borrower, the borrower's experience in owning or managing similar
property, the marketability of the property and the Bank's lending experience
with the borrower. The Bank also receives a personal guarantee from the
borrower. An origination fee of 1% to 2% is usually charged on such loans. The
largest multi-family loan at March 31, 1998 is in the Bank's primary market area
and had an outstanding balance of $125,000. This loan is secured by a six-unit
apartment building located in the Chicago metropolitan area.

                                      -6-
<PAGE>
 
     Commercial Real Estate Lending. All of the Bank's commercial real estate
loans are secured by improved property such as office buildings, retail store
buildings, and other small businesses, all of which are located in the Chicago
metropolitan area. The largest commercial real estate loan at March 31, 1998,
was a $72,000 loan on a three unit commercial office center to a borrower with
whom the Bank has a long-standing business relationship. The underwriting
criteria for commercial real estate is similar to the criteria for multi-family
residential properties, except that loans on commercial real estate are not made
in excess of 70% of the appraised value.

     Construction Lending. The Bank currently is participating in a $2,000,000
construction loan for the purpose of constructing single family residences in
Morton Grove, Illinois. It is anticipated that this project will be completed by
December 31, 1998.

     Other Lending. The Bank also offers home improvement loans, secured by
second mortgages on collateralized single-family residences. Other loans also
include loans made to depositors and are collaterized by the related deposit
accounts. Home improvement and loans against deposit accounts comprised only
 .93% of the Bank's total loans receivable at March 31, 1998.

     Loan Approval Procedures. All loan applications are considered by the
Bank's President, who has the authority to approve all loans, except those in
excess of the FNMA/FHLMC loan limits, which loans may only be approved by the
Bank's Board of Directors. The Bank's Board of Directors ratifies all loans
approved by the Bank's President.

     The Bank's loan originations are subject to its written underwriting
standards and loan origination procedures. The Bank is an equal opportunity
lender. Decisions on loan applications are made on the basis of detailed
applications and property valuations (consistent with the Bank's written
appraisal policy) by qualified independent appraisers. The loan applications are
designed primarily to determine the borrower's ability to repay and the more
significant items on the application are verified through use of credit reports,
financial statements, tax returns and/or confirmations.

     The Bank requires evidence of marketable title and lien position (generally
consisting of a title survey and legal opinion) as well as fire and extended
coverage casualty insurance in amounts at least equal to the principal amount of
the loan or the value of improvements on the property, depending on the type of
loan. The Bank also requires flood insurance to protect the property securing
its interest when the property is located in a flood plain or otherwise deemed
prudent by management.

     Mortgage-Backed Securities. The Company and its subsidiaries had
significant investments in mortgage-backed securities and have, at times,
utilized such investments to complement its mortgage lending activities. At
March 31, 1998, the amortized cost of mortgage-backed securities totaled $1.6
million, or 5.52% of total assets, of which all were designated as held to
maturity and are carried at amortized cost. The fair value of such securities
totaled approximately $1.6 million at March 31, 1998. See Note 3 to the
Consolidated Financial Statements in the 1998 Annual Report to Stockholders. At
March 31, 1998, the Company and its subsidiaries' entire mortgage-backed
securities portfolio was directly insured by the GNMA, the FNMA or the FHLMC.

                                      -7-
<PAGE>
 
Delinquencies and Classified Assets

     Delinquent Loans. When a loan becomes between 30 and 45 days delinquent,
the Bank contacts the borrower either by telephone, in person or by mail. If a
delinquency continues and a loan is delinquent 90 days, several courses of
action are possible including directing the Bank's attorney to send a 30-day
letter advising the borrower of possible legal action or an authorization to
accommodate the special needs of the borrower in the case of hardship. A
physical inspection is ordered to evaluate the condition of the property. When a
loan is four or more months delinquent, arrangements are made to obtain title,
begin foreclosure, or both, unless a written repayment plan has been signed by
both the borrower and the Bank. The Board of Directors reviews a complete list
of all delinquent loans that are 60 days or more delinquent and is apprised of
the action taken to bring the loan current.

     The remedies available to the Bank in the event of a default or delinquency
with respect to certain residential mortgage loans, and the procedures by which
such remedies may be exercised, are governed by the loan documents and Illinois
law. Under the lending documents used by the Bank, the Bank is prohibited from
accelerating the maturity of a residential mortgage loan, commencing any legal
action (including foreclosure proceedings) to the collect on such loan, or
taking possession of any loan collateral until the lender has first provided the
delinquent borrower with at least 30 days' prior written notice specifying the
nature of the delinquency and the borrowers's right to correct such delinquency.
In the event default is not cured on or before the date required in the notice,
the Bank may, at its option, require immediate payment in full of all sums
secured by the mortgage without further demand and may institute foreclosure
proceedings.

     Assuming the foreclosure is uncontested, the Bank can complete the
foreclosure and obtain a deed to the collateral property within eight to ten
months of filing the complaint in Illinois. Under Illinois law, the mortgagor
has a Right of Reinstatement. Specifically, the mortgagor has the right to cure
all defaults that existed had no acceleration occurred provided that such cure
is made prior to the expiration of 90 days from the date the court obtains
jurisdiction over the mortgagor.

     Loans are placed on non-accrual status when, in the judgement of
management, the probability of collection of interest is deemed to be
insufficient to warrant further accrual. When a loan is placed on non-accrual
status, previously accrued but unpaid interest is deducted from interest income.
As a matter of policy, the Bank does not accrue interest on loans past due 90
days or more. All previously accrued but unpaid interest is deducted from
interest income. Consumer loans more than 120 days delinquent are generally
written-off.

     Classified Assets. Regulations of the FDIC and OBRE require that each
insured institution review and classify its assets on a regular basis. The Bank
has adopted a Classification of Assets Policy and has made the
President/Managing Officer of the Bank responsible for approving classifications
and valuation allowances and for making appropriate recommendations as to the
changes in procedures and policies to the Board for approval. In addition, in
connection with examinations of insured institutions, OBRE and FDIC examiners
have authority to identify problem assets and, if appropriate, require them to
be classified. There are three classifications for problem assets: substandard,
doubtful and loss. Substandard assets must have one or more defined weaknesses
and are characterized by the distinct possibility that the insured institution
will sustain some loss if the deficiencies are not corrected. Doubtful assets
have the weaknesses of substandard assets with the additional characteristic
that the weaknesses make collection or liquidation in full on the basis of
currently existing facts, conditions and values questionable, and there is a
high possibility of loss. An asset classified as loss is considered
uncollectible and of such little value that its continuance as an asset of the
institution is not warranted. The Bank's Classification of Assets Policy also
contains a special mention category, described as assets which do not currently
expose the Bank to a sufficient degree of risk to warrant classification but do
possess credit deficiencies or potential weaknesses deserving management's close
attention. Assets classified as substandard or doubtful require the institution
to establish general allowances for loan losses. If an asset or portion thereof
is classified loss, the insured institution must either establish specific
allowances for loan losses in the amount of 100% of the portion of the asset
classified as a loss or charge-off such amount. A portion of general loss
allowances established to cover possible losses related to assets classified
substandard or doubtful may be included in determining an institution's
regulatory capital, while specific valuation allowances for loan losses
generally do not qualify as regulatory capital.

                                      -8-
<PAGE>
 
     Real Estate Owned.  Real estate acquired by the Bank as a result of
foreclosure or by deed-in-lieu of foreclosure is classified as real estate owned
until it is sold. When property is acquired, it is recorded at the lower of cost
or fair value at the date of acquisition and any write-down resulting therefrom
is charged to the allowance for losses on loans. All incidental costs, such as
insurance and real estate taxes, incurred in maintaining the Bank's lien on the
collateral property are capitalized between the date the loan becomes delinquent
and the date of acquisition. After the date of acquisition, all costs incurred
in maintaining the property are expensed and costs incurred for the improvement
or development of such property are capitalized. The Bank had no foreclosed real
estate owned on its books at March 31, 1998.

     Delinquent Loans.  At March 31, 1998, 1997 and 1996, delinquencies in the
Bank's loan portfolio were as follows:

<TABLE>
<CAPTION>
                                                   At March 31, 1998
                                   --------------------------------------------------
                                       60-89 Days                   90 Days or More
                                   -------------------            -------------------
                                   Number    Principal            Number    Principal
                                     of       Balance               of       Balance
                                   Loans     of Loans             Loans      of Loans
                                   ------    ---------            ------    ---------
                                                     (In Thousands)
<S>                                 <C>       <C>                   <C>       <C>
One-to-four family                     1       $102                   1        $  96
Multi-family                           -          -                   -            -
Commercial real estate                 -          -                   -            -
Land and Construction                  -          -                   -            -
                                    ----       ----                 ---        -----
  Total loans                          1       $102                   1        $  96
                                    ====       ====                 ===        =====
                                                                               
Delinquent loans to total loans                 .53%                             .50%
                                               ====                            =====


                                                    At March 31, 1997                     
                                   -----------------------------------------------------  
                                        60-89 Days              90 Days or More           
                                   -------------------   -------------------------------  
                                   Number    Principal       Number          Principal    
                                     of       Balance          of             Balance     
                                   Loans     of Loans        Loans           of Loans     
                                   ------   ----------   -------------   ---------------  
                                                     (In Thousands)                    

One-to-four family                     -      $   -             -             $   -   
Multi-family                           -          -             -                 -   
Commercial real estate                 -          -             -                 -   
Land and Construction                  -          -             -                 -   
                                    ----      -----          ----             -----   
  Total loans                          -      $   -             -             $   -   
                                    ====      =====          ====             =====                     
                                                                                      
Delinquent loans to total loans                   -%                              -%  
                                              =====                           =====    


                                                    At March 31, 1996                     
                                   -----------------------------------------------------  
                                        60-89 Days              90 Days or More           
                                   -------------------   -------------------------------  
                                   Number    Principal       Number          Principal    
                                     of       Balance          of             Balance     
                                   Loans     of Loans        Loans           of Loans     
                                   ------   ----------   -------------   ---------------  
                                                     (In Thousands)                    
One-to-four family                     -      $   -             -             $   -   
Multi-family                           -          -             -                 -   
Commercial real estate                 -          -             -                 -   
Land and Construction                  -          -             -                 -   
                                    ----      -----          ----             -----   
  Total loans                          -      $   -             -             $   -   
                                    ====      =====          ====             =====                     
                                                                                      
Delinquent loans to total loans                   -%                              -%     
                                              =====                           =====    
</TABLE>

                                      -9-
<PAGE>

     Non-performing Assets.  The following table sets forth information
regarding loans which are 90 days or more delinquent. The Bank continues
accruing interest on delinquent loans 90 days or more past due, but reserves
100% of the interest due on such loans, thus effecting a non-accrual status. At
March 31, 1998 there were no other known problem assets except as described
above or as included in the table below.

<TABLE>
<CAPTION>

                                                              At March 31,
                                              --------------------------------------------
                                              1998      1997      1996      1995      1994
                                              ----      ----      ----      ----      ----
<S>                                          <C>        <C>       <C>      <C>        <C>
                                                              (In Thousands)
Non-accrual delinquent mortgage loans        $  96        -         -         -        387
Total real estate owned, net of
 related allowance for losses                   -         -        212       224
                                              ----      ----      ----      ----      ----
 Total non-performing assets                 $  96        -        212       224       387
                                              ====      ====      ====      ====      ====

Non-performing loans to total loans            .50%       -         -         -       3.58
Total non-performing assets to total
 assets                                        .33%       -        .84      1.00      1.61


     Allowance for Loan Losses. The allowance for loan losses is established
through a provision for loan losses based on management's evaluation of the risk
inherent in its loan portfolio and the general economy. Such evaluation, which
includes a review of all loans on 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 Bank's allowance for loan losses at the
dates indicated.
                                                              At March 31,
                                              --------------------------------------------
                                              1998      1997      1996      1995      1994
                                              ----      ----      ----      ----      ----
                                                             (In Thousands)
Balance at beginning of period               $  40        30        15        63        48
Provision for loan losses                        6        10        15        45        15
Allowance transferred from (to)
 real estate owned                               -        -         -        (93)
                                              ----      ----      ----      ----       ---
Balance at end of year                       $  46        40        30        15        63
                                              ====      ====      ====      ====       ===
Ratio of allowance for loan losses
 to net loans receivable at the
 end of period                                 .25%      .26       .23       .16       .59
Ratio of allowance for loan losses
 to total non-performing assets at
 the end of period                           48.05       N/A     14.15      6.70     16.28
Ratio of allowance for loan losses
 to non-performing loans at the end
 of the period                               48.05       N/A       N/A       N/A     16.28

</TABLE>

                                      -10-
<PAGE>
 
Investment Activities

     The investment policy of the Company and its subsidiaries, which is
established by the Board of Directors and implemented by the Asset/Liability
Committee, is designed primarily to provide and maintain liquidity, to generate
a favorable return on investments without incurring undue interest rate and
credit risk, and to complement the Bank's lending activities. State chartered
savings institutions have the authority to invest in various types of liquid
assets, including United States Treasury obligations, securities of various
federal agencies, certain certificates of deposit of insured banks and savings
institutions, certain bankers acceptances, repurchase agreements and loans on
federal funds. Subject to various restrictions, state chartered savings
institutions may also invest a portion of their assets in commercial paper,
corporate debt securities and asset-backed securities. At March 31, 1998, the
Company and its subsidiaries had investment securities in the aggregate amount
of $777,000. The investment portfolio is classified as held to maturity.

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

<TABLE>
<CAPTION>
 

                                                   At March 31,
                                      ---------------------------------------
                                        1998             1997           1996
                                        ----             ----           ----
                                                  (In Thousands)
<S>                                   <C>                <C>            <C>

Interest-bearing deposits:
  Certificates of deposit              $4,447            4,987          5,677
  FHLB daily investment                 2,321            1,437          1,040
  Other                                   107              102              -
                                       ------            -----          -----
   Total interest-bearing deposits     $6,875            6,526          6,717
                                       ======            =====          =====

Investment securities:
  U.S. Government securities
   and obligations (1)                 $  500            1,100          1,102
  FHLB-Chicago stock                      177              121            121
  Other equity investments (2)            100                -              -
                                       ------            -----          -----
   Total investment securities         $  777            1,221          1,223
                                       ======            =====          =====
</TABLE>

---------------
(1)  For a complete description, see Note 2 to the "Notes to Consolidated
     Financial Statements" in the 1998 Annual Report to Stockholders.

(2)  For a complete description, see Note 5 to the "Notes to Consolidated
     Financial Statements" in the 1998 Annual Report to Stockholders.

                                      -11-
<PAGE>
 
     The table below sets forth certain information regarding the carrying
value, weighted average yield and maturities of the Company and its
subsidiaries' investment securities at March 31, 1998.

<TABLE>
<CAPTION>
                                                                              At March 31, 1998
                                                   ------------------------------------------------------------------------

                                         One Year or Less    One to Five Years           Total Investment Securities
                                       ------------------    -----------------   ------------------------------------------
                                                                                 Average
                                                   Weighted            Weighted  Remaining            Approximate  Weighted
                                       Carrying    Average   Carrying  Average   Years to   Carrying    Market     Average
                                         Value      Yield     Value     Yield    Maturity    Value       Value      Yield
                                       --------    --------  --------  --------  ---------  --------  -----------  --------
                                                                    (Dollars in Thousands)
<S>                                   <C>          <C>       <C>       <C>        <C>       <C>       <C>          <C> 
U.S. Government securities
  and agency obligations                $  500       4.20%      -         -         .4        500         498        4.20

FHLB-Chicago stock                         177       6.63       -         -          -        177         177        6.63

Other equity investments                   100        N/A       -         -          -        100         100         N/A
                                        --------   --------  --------  --------  ---------  --------  -----------  --------
   Total                                $  777       4.84%      -         -         .4        777         775        4.84
                                        ========   ========  ========  ========  =========  ========  ===========  ========
</TABLE>

                                      -12-
<PAGE>
 
Sources of Funds

     General. Deposits, repayments on loans and mortgage-backed securities and
stockholders' equity are the primary sources of the Bank's funds for use in
lending, investing and for other general purposes.

     Deposits. The Bank offers a variety of deposit accounts having a range of
interest rates and terms. The Bank's deposits consist of passbook savings,
demand deposits, and certificate accounts. The flow of deposits is influenced
significantly by general economic conditions, changes in money market and
prevailing interest rates and competition. The Bank's deposits are obtained
primarily from the area in which its office is located. The Bank relies
primarily on customer service and long-standing relationships with customers to
attract and retain these deposits. Certificate accounts in excess of $100,000
are not actively solicited by the Bank nor does the Bank use brokers to obtain
deposits. Management constantly monitors the Bank's deposit accounts and, based
on historical experience, management believes it will retain a large portion of
such accounts upon maturity.

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

<TABLE>
<CAPTION>
 
                                                Year Ended March 31,
                                        ------------------------------------
                                         1998            1997         1996
                                         ----            ----         ----
                                                   (In Thousands)
<S>                                     <C>             <C>          <C>

Deposits                                $11,431          9,763        9,883
Withdrawals                              (9,752)        (8,756)      (8,757)
                                        -------         ------       ------
Net deposits                              1,679          1,007        1,126
Interest credited on deposits               769            600          584
                                        -------         ------       ------
  Total increase in deposits            $ 2,448          1,607        1,710
                                        =======         ======       ======

</TABLE>

     At March 31, 1998, the Bank had outstanding $5.5 million in deposit
accounts in amounts of $100,000 or more maturing as follows:

               Maturity Period                                Amount
               ---------------                                ------
                                                          (In Thousands)

               Three months or less                          $ 2,014
               Over three through six months                     323
               Over six through twelve months                  2,686
               Over twelve months                                526
                                                               -----
                  Total                                      $ 5,549
                                                               =====

                                      -13-
<PAGE>

     The following table sets forth the distribution of the Bank's deposit
accounts at the dates indicated and the weighted average interest rates on
deposits presented.

<TABLE>
<CAPTION>

                                                                At March 31,
                                       --------------------------------------------------------------
                                              1998                  1997                   1996
                                       ------------------     -----------------      ----------------
                                                 Percent               Percent               Percent
                                                 of Total              of Total              of Total
                                         Amount  Deposits     Amount   Deposits      Amount  Deposits
                                       --------  --------    -------  ---------      ------  --------
<S>                                    <C>       <C>         <C>      <C>            <C>     <C> 
                                                             (Dollars in Thousands)
Passbook accounts                      $  6,317    25.00%      6,992      30.65       7,916     37.32
                                       --------  --------    -------  ---------      ------  --------
Demand deposit accounts                      55      .22       -          -             -       -
                                       --------  --------    -------  ---------      ------  --------
Certificate accounts
 Ninety-one day                             120      .47         104        .46         -         -
 Six month                                1,763     6.98       2,366      10.37       2,602     12.27
 Twelve month                             5,432    21.50       5,953      26.09       5,096     24.03
 Eighteen month                             991     3.92       1,811       7.93       2,096      9.88
 Thirty months                              712     2.82         798       3.50         983      4.63
 Sixty months                             7,450    29.49       2,671      11.70         496      2.34
 IRA and Keogh                            2,420     9.58       2,117       9.28       1,984      9.35
 Other                                        4      .02           4        .02          36       .18
                                       --------   ------       -----     ------       -----     -----
   Total                                 18,892    74.78      15,824      69.35      13,293     62.68
                                       --------   ------      ------     ------      ------     -----

Total deposits                         $ 25,264   100.00%     22,816     100.00      21,209    100.00%
                                       ========   ======      ======     ======      ======    ======

Weighted average rate                               4.97%                  4.56%                 4.27%
                                                    ====                   ====                  ====
</TABLE>

     The following table presents, by various rate categories, the amount of
certificate accounts outstanding at March 31, 1998, 1997, and 1996 and the
periods to maturity of the certificate accounts outstanding at March 31, 1998.

<TABLE>
<CAPTION>
                                                              Period to Maturity
                                                              from March 31, 1998
                                At March 31,             ------------------------------
                          ------------------------        Within      One to
                          1998      1997      1996       One Year  Five Years(1)  Total
                          ----      ----      ----       --------  -------------  -----
                                              (In Thousands)
<S>                   <C>         <C>       <C>           <C>      <C>            <C>
Certificate accounts:
  4.99 or less        $    540     3,281     4,472            398        142         540
  5.00 to 5.99           7,928     6,807     4,968          6,108      1,820       7,928
  6.00 to 6.99          10,424     5,722     3,839          9,874        550      10,424
  7.00 and over            -          14        14            -          -           -
                        ------    ------    ------         ------      -----      ------
   Total              $ 18,892    15,824    13,293         16,380      2,512      18,892
                        ======    ======    ======         ======      =====      ======
</TABLE>
---------------
(1)  The Bank does not offer certificate accounts with a period to maturity
     exceeding five years.

                                      -14-
<PAGE>
 
Borrowings

     Deposits are the primary source of funds of the Bank's lending and
investment activities and for its general business purposes. The Bank may obtain
advances from the FHLB of Chicago to supplement its supply of lendable funds,
although the Bank has not generally utilized this funding source. Advances from
the FHLB of Chicago would typically be secured by a pledge of the Bank's stock
in the FHLB of Chicago and a portion of the Bank's first mortgage loans and
certain other assets. At March 31, 1998 and 1997, the Bank had no advances
outstanding from the FHLB of Chicago or borrowings of any kind.

     In connection with the conversion, the ESOP purchased 8% of the Common
Stock issued in the Conversion (17,755 shares). Such purchase was funded by the
Company thru a 10-year loan to the ESOP in the amount of $177,550. The Bank is
making annual contributions to the ESOP to enable the ESOP to pay principal and
interest.

Subsidiary Activities

     OBRE regulations permit a state-chartered savings bank to invest up to 10%
of its assets in the capital stock, paid-in surplus and unsecured obligations of
subsidiary corporations or service corporations. As of March 31, 1998, the Bank
was authorized to invest approximately $2,871,000 in the capital stock and other
securities of service corporation subsidiaries. As of that date, the Bank had an
equity investment of $4,466 in its wholly-owned service corporation, West Town
Insurance Agency, Inc. This company is a full-service licensed insurance agency.

Competition

     The Bank faces significant competition in attracting deposits. Its most
direct competition for deposits has historically come from commercial banks and
savings institutions located in its market area, many of which are substantially
larger than the Bank. The Bank also faces additional significant competition for
investors' funds from short-term money market mutual funds and issuers of
corporate and government securities. The Bank competes for deposits principally
by offering depositors a variety of deposit programs, a convenient location and
hours and other services. The Bank does not rely upon any individual group or
entity for a material portion of its deposits.

     The Bank's competition for real estate loans comes principally from
mortgage banking companies, commercial banks and savings institutions. The Bank
competes for loan originations primarily through the interest rates and loan
fees it charges, and the efficiency and quality of services it provides
borrowers, real estate brokers and builders. Factors which affect competition
include the general and local economic conditions, current interest rate levels
and volatility in the mortgage markets.

Personnel

     As of March 31, 1998, the Bank had 5 full-time employees and 2 part-time
employees. The employees are not represented by a collective bargaining unit,
and the Bank considers its relationship with its employees to be excellent. Year
2000 Compliance

     The Company utilizes and is dependent upon data processing systems and
software to conduct its business. The data processing systems and software
include those developed and maintained by the Company's third-party data
processing vendor and purchased software which is run on in-house computer
networks. During the current year, the Company initiated a review and assessment
of all hardware and software to confirm that it will function properly in the
year 2000. To date, those vendors which have been contacted have indicated that
their hardware or software is or will be Year 2000 compliant in time frames that
meet regulatory requirements. The costs associated with the compliance efforts
are not expected to have a significant impact on the Company's ongoing results
of operations.

                                     -15-
<PAGE>
 
                     REGULATION OF WEST TOWN BANCORP, INC.

     The Company is a savings bank holding company within the meaning of the
Home Owners' Loan Act of 1933 ("HOLA"), as amended by FIRREA. As such, the
Company is registered with the OBRE, and is subject to Illinois regulation,
examinations, supervision and reporting requirements. Furthermore, the Holding
Company is permitted to engage in activities prescribed by the Commissioner.

     Per Regulation Y, the Company is also registered with the Federal Reserve
as a Bank Holding Company. The principal purposes of Regulation Y are to
regulate the acquisition of control of banks by companies and individuals, to
define and regulate the nonbanking activities in which bank holding companies
and foreign banking organizations with United States operations may engage, and
to set forth the procedures for securing approval for such transactions and
activities. The Company does not anticipate that the regulatory activities of
either the OBRE or the Federal Reserve Board will adversely affect the
activities of the Holding Company.

Affiliate Restrictions

     The affiliate restrictions contained in Sections 23A and 23B of the Federal
Reserve Act apply to all federally insured savings associations and any such
"affiliate". A savings and loan holding company, its subsidiaries and any other
company under common control are considered affiliates of the subsidiary savings
association under HOLA. Generally, Sections 23A and 23B: (i) limit the extent to
which the insured institution or its subsidiaries may engage in certain covered
transactions with an affiliate to an amount equal to ten percent (10%) of such
institution's capital and surplus, and contain an aggregate limit on all such
transactions with all affiliates to an amount equal to twenty percent (20%) of
such capital and surplus, and (ii) require that all such transactions be on
terms substantially the same, or at least as favorable to the institution or
subsidiary, as those provided to a non-affiliate. The term "Covered transaction"
includes the making of loans, purchase of assets, issuance of a guarantee and
similar other types of transactions. Also, a savings institution may not make
any loan to an affiliate unless the affiliate is engaged only in activities
permissible for bank holding companies. Only the Federal Reserve Board may grant
exemptions from the restrictions of Sections 23A and 23B. The Commissioner,
however, may impose more stringent restrictions on savings associations for
reasons of safety and soundness.

Qualified Thrift Lender Test

     The regulations require that any savings bank holding company that controls
a savings institution that fails the qualified thrift lender test, as explained
under "Regulation of West Town Savings Bank - Qualified Thrift Lender Test,"
must, within one year after the date on which the institution ceases to be a
qualified thrift lender, register as and be deemed a bank holding company
subject to all applicable laws and regulations.

                                      -16-
<PAGE>
 
                     REGULATION OF WEST TOWN SAVINGS BANK
     
     As a state-chartered and federally insured savings bank, West Town Savings
Bank is subject to extensive regulation. Lending activities and other
investments must comply with various statutory and regulatory capital
requirements. The Bank is regularly examined by its federal and state regulators
and files periodic reports concerning the Bank's activities and financial
condition. The Bank's relationship with its depositors and borrowers also is
regulated to a great extent by both federal and state laws, especially in such
matters as the ownership of savings accounts and the form and content of the
Bank's mortgage documents.

The Effects of FDICIA

     In December, 1991, the Federal Deposit Insurance Corporation Improvement
Act of 1991 ("FDICIA") was enacted into law. FDICIA provides for, among other
things, the recapitalization of the Bank Insurance Fund; enhanced federal
supervision of depository institutions, including greater authority for the
appointment of a conservator or receiver for undercapitalized institutions; the
adoption of safety and soundness standards by the federal banking regulators, on
matters such as loan underwriting and documentation, interest rate risk exposure
and compensation and other employee benefits; the establishment of risk-based
deposit insurance premiums; liberalization of the qualified thrift lender test;
greater restrictions of the qualified thrift lender test; greater restrictions
on transactions with affiliates; and mandated consumer protection disclosures
with respect to deposit accounts. See "-Insurance of Accounts and Regulation by
the FDIC," "-Regulatory Capital Requirements" and "-Qualified Thrift Lender
Test."

Insurance of Accounts and Regulation by the FDIC
  
     The Bank is a member of the Savings Association Insurance Fund ("SAIF")
which is administered by the FDIC. Savings deposits are insured up to $100,000
per insured member (as defined by law and regulation) by the FDIC and such
insurance is backed by the full faith and credit of the United States
Government. As insurer, the FDIC imposes deposit insurance premiums and is
authorized to conduct examination of and to require reporting by the FDIC-
insured institutions. It also may prohibit any FDIC-insured institution from
engaging in any activity the FDIC determines by regulation or order to pose a
serious risk to the FDIC. The FDIC also has the authority to initiate
enforcement actions against savings associations, after giving the OBRE an
opportunity to take such action, and may terminate the deposit insurance if it
determines that the institution has engaged or is engaging in unsafe or unsound
practices, or is in an unsafe or unsound condition.

     Federal law requires that the FDIC maintain reserves at both the Savings
Association Insurance Fund ("SAIF") and the Bank Insurance Fund ("BIF") of at
least 1.25% of insured deposits. The reserves are funded through the payment of
insurance premiums by the insured institution members of each fund. The BIF
reached this level during 1995. Accordingly, the FDIC reduced insurance
premiums applicable to BIF-insured institutions to a range of 0% to .27% of
deposits with an annual statutory minimum payment of $2,000. As of January 1,
1997, deposit insurance premiums for highly rated institutions insured by SAIF,
such as the Bank, were substantially reduced. The Bank, however, will continue
to be subject to an assessment to fund repayment of the Financing Corporation's
("FICO") obligations. The FICO assessment for SAIF insured institutions will be
6.48 cents per $100 of deposits while BIF insured institutions will be 1.52
cents per $100 of deposits until the year 2000 when the assessment will be
imposed at the same rate on all FDIC insured institutions.

     The legislation required a special one-time assessment of 65.7 cents per
$100 of SAIF insured deposits held by the Bank at March 31, 1995. The one-time
special assessment resulted in a charge to earnings of approximately $128,000
during the year ended March 31, 1997. The after-tax effect of this one-time
charge to earnings totaled approximately $83,000. The legislation was intended
to fully recapitalize the SAIF fund so that commercial bank and thrift deposits
would be charged the same FDIC premiums beginning January 1, 1997.

     Since the Bank is a state-chartered savings bank, the FDIC is its primary
federal regulator.

                                     -17-
<PAGE>
 
Office of Banks and Real Estate

     The OBRE is the Bank's primary state regulator. As regulator, the OBRE has
extensive authority over the operations of the Bank and other state-chartered
savings banks. As part of this authority, the Bank is required to file periodic
reports with the OBRE and is subject to periodic examination by the OBRE.

     The OBRE established regulations affecting the operations of the Bank,
including regulations that affect the Bank's lending and investment activities.
The OBRE also has extensive enforcement authority, including the issuance of
cease-and-desist and removal orders and the initiation of injunctive actions.

     The OBRE assesses quarterly fees based upon asset size and charges its
regulated institutions for periodic examinations.

Federal Home Loan Bank System

     The FHLB System, consisting of twelve FHLBs, is under the jurisdiction of
the Federal Housing Finance Board ("FHFB"). The designated duties of the FHFB
are to: supervise the FHLBs; ensure that the FHLBs carry out their housing
finance missions; ensure that the FHLBs remain adequately capitalized and able
to raise funds in the capital markets; and ensure that the FHLBs operate in a
safe and sound manner.

     While the Bank is no longer required to be a member since its conversion to
a state-chartered savings bank in 1995, the Bank has chosen to remain a member.
Among other benefits, the FHLB provides a central credit facility primarily for
member institutions. It is funded primarily from proceeds derived from the sale
of consolidated obligations of the FHLB System. It makes advances to members in
accordance with policies and procedures established by the FHFB and the Board of
Directors of the FHLB of Chicago. At March 31, 1998, the Bank had no advances
from the FHLB of Chicago. See "Sources of Funds - Borrowings."

Qualified Thrift Lender Test

     Under FIRREA and state savings bank regulations, a state-chartered savings
bank must maintain at least 60% of its total tangible assets in "qualified
thrift investments" on an average basis in three out of every four quarters and
two out of every three years. Under the QTL statutory and regulatory provisions,
all forms of home mortgages, home improvement loans, home equity loans and loans
on the security of other residential real estate and mobile homes, as well as
shares of FHLB stock, investments or deposits in other insured institutions,
securities issued by the FNMA, FHLMC, GNMA and other mortgage-related
securities, are considered qualified thrift investments. Investments in non-
subsidiary corporations or partnerships whose activities include servicing
mortgages or real estate development are also considered qualified thrift
investments in proportion to the amount of primary revenue such entities derive
from housing-related activities. Also included in qualified thrift investments
are mortgage servicing rights, whether such rights are purchased by the insured
institution or created when the institution sells loans and retains the right to
service such loans.

     A savings bank that fails to become or maintain a qualified thrift lender
shall either become a commercial bank (other than a savings bank) or be subject
to restrictions specified in FIRREA. A savings bank that converts to a
commercial bank must pay applicable exit and entrance fees involved in
converting from the SAIF fund to the BIF fund of the FDIC. A savings bank that
fails to meet the QTL test and does not convert to a commercial bank will be:
(1) prohibited from making any new investment or engaging in activities that
would not be permissible for national banks; (2) prohibited from establishing
any new branch office where a national bank located in the savings institutions
home state would not be able to establish a branch office; (3) ineligible to
obtain new advances from any FHLBs; and (4) subject to limitations on the
payment of dividends comparable to the statutory and regulatory dividend
restrictions applicable to a national bank. Also, beginning three years after
the date on which the savings bank ceases to be a qualified thrift lender, the
savings bank would be prohibited from retaining any investment or engaging in
any activity not permissible for a national bank and would be required to repay
any outstanding advances to any FHLB. A savings bank may requalify as a
qualified thrift lender if it thereafter complies with the QTL test.

     As of March 31, 1998, the Bank was in compliance with the QTL test with a
QTL ratio of 88.57%.

                                      -18-
<PAGE>
 
Capital Requirements

     Under OBRE regulations, a savings bank must satisfy two minimum capital
requirements: core capital and risk-based capital. Savings banks must meet both
of the standards in order to comply with the capital requirements.

     The minimum core capital requirement is three percent of adjusted total
assets (the "leverage limit" requirement). Core capital is defined to include
common stockholders' equity, non-cumulative perpetual preferred stock and any
related surplus, and minority interests in equity accounts of consolidated
subsidiaries, less (i) any unidentifiable intangible assets (other than
purchased mortgage servicing rights); (ii) the amount by which purchased
mortgage servicing rights exceed the lower of 90% of determinable fair market
value, 90% of original costs, or current amortized book value; and (iii) equity
and debt investments in subsidiaries that are not "includable subsidiaries,"
which is defined as subsidiaries engaged solely in activities not impermissible
for a national bank, engaged in activities impermissible for a national bank but
only as an agent for its customers, or engaged solely in mortgage-banking
activities.

     In calculating adjusted total assets, adjustments are made to total assets
to give effect to the exclusion of certain assets from capital and to
appropriately account for the investment in and assets of both includable and
nonincludable subsidiaries.

     The FDIC is required to evaluate capital before approving various
applications by depository institutions. The FDIC also must evaluate capital as
an essential component in determining the safety and soundness of state
nonmember banks it insures and supervises and in determining whether depository
institutions are in any unsafe or unsound condition. Generally, all FDIC insured
banks must maintain "core" or "Tier I" capital of at least 3.0% of total assets.
The rule further provides that a bank operating at or near the 3.0% capital
level is expected to have well diversified risks, including no undue interest
rate risk exposure, excellent control systems, good earnings, high asset
quality, high liquidity and well managed on - and off - balance sheet
activities, and in general, be considered a strong banking organization with
composite 1 rating under the CAMEL rating system for banks. For all but the most
highly rated banks meeting the above conditions, the minimum core capital ratio
will be increased to not less than 4.0% of total assets. Under the regulations
of the OBRE, savings banks are required to maintain a core capital ratio of at
least 3.0%.

     Savings banks must also maintain capital equal to at least 8.0% of risk-
weighted assets. Total capital consists of the sum of core and supplementary
capital, provided that supplementary capital cannot exceed core capital, as
previously defined.

     Supplementary capital includes (i) permanent capital instruments such as
cumulative perpetual preferred stock, perpetual subordinated debt, and mandatory
convertible subordinated debt, (ii) maturing capital instruments such as
subordinated debt, intermediate-term preferred stock and mandatory redeemable
preferred stock, subject to an amortization schedule, and (iii) general
valuation loan and lease allowances. Supplementary capital may not exceed the
Bank's core capital for purposes of calculating the Bank's compliance with
regulatory capital requirements.

     The risk-based capital regulation assigns each balance sheet asset held by
a savings institution to one of four risk categories based on the amount of
credit risk associated with that particular class of assets. Assets not included
for purposes of calculating capital are not included in calculating risk-
weighted assets. The categories range from 0% for cash and U.S. Government
securities that are backed by the full faith and credit of the U.S. Government
up to 100%. Qualifying residential mortgage loans (including multi-family
mortgage loans) are assigned a 50% risk weight.

     The book value of assets in each category is multiplied by the weighing
factor (from 0% to 100%) assigned to that category. These products are then
totaled to arrive to total risk-weighted assets. Off-balance sheet items are
included in risk-weighted assets by converting them to an approximate balance
sheet "credit equivalent amount" base on a conversion schedule. These credit
equivalents are then assigned to risk categories in the same manner as balance
sheet assets and are included in risk-weighted assets.

                                     -19-
<PAGE>
 
     The FDIC has been considering adopting a proposed rule for adding an
interest rate risk component to the regulatory capital rule. The proposal would
require, if adopted, that an institution hold capital against interest rate risk
exposure in an amount equal to 50% of the market value of portfolio equity
(i.e., aggregate net market value of assets, liabilities, and off-balance sheet
items) that would result from a immediate 200 basis point increase or decrease
in interest rates. If adopted, this component of the risk-based capital
requirement would require that an institution maintain additional capital
related to the amount of risk attendant to its interest rate position.

     At March 31, 1998 and 1997, the Bank met all of its capital requirements.
See Note 14 to the Consolidated Financial Statements in the 1998 Annual Report
to Stockholders.

Dividend Limitations

     OBRE regulations require the Bank to give the OBRE thirty days advance
notice of any proposed declaration of dividends to the Holding Company, and the
OBRE has the authority under its supervisory powers to prohibit the payment of
dividends to the Holding Company. In addition, a Bank may not declare or pay a
cash dividend on its capital stock if the effect thereof would be to reduce the
regulatory capital of the Bank below the amount required for the liquidation
account established pursuant to the Bank's Plan of Conversion. The OBRE imposes
uniform limitations on the ability of savings banks to engage in various
distributions of capital such as dividends, stock repurchases and cash-out
mergers. The regulations utilize a three-tiered approach which permits various
level of distributions based primarily upon the savings bank's capital level.

     In the first tier, a savings bank that has capital in excess of the capital
requirements (both before and after the proposed capital distribution) and that
has not been notified by the OBRE that it is in need of more than normal
supervision, may make (without application) capital distributions during a
calendar year up to 100% of its net income to date during the calendar year,
plus one-half its surplus capital ratio at the beginning of the calendar year.
Capital distributions in excess of such amount require advance approval from the
OBRE.

     In the second tier, a savings bank that meets or exceeds its minimum
capital requirement (both before and after the proposed capital distribution),
but which has been notified by the OBRE that it shall be treated as a tier 2
bank because it is in need of more than normal supervision, may make (without
application) capital distributions ranging between 25% and 75% of its net income
during the previous four quarters.

     In the third tier, a savings bank with either capital below its minimum
capital requirements (either before and after the proposed capital
distribution), or a savings bank that meets or exceeds its capital requirement
but which has been notified by the OBRE that it shall be treated as a tier 3
bank because it is in need of more than normal supervision, may not make any
capital distributions without prior approval from the OBRE.

     The Bank has met the criteria to be in the first tier, and consequently,
would be able to distribute up to 100% of its net income during any calendar
year, plus 50% of its surplus capital ratio at the beginning of the calendar
year less any distributions previously paid during the year.

Investment Rules, Loans to One Borrower, and Aggregate Loan Limits

     Under OBRE regulations, the permissible amount of loans-to-one borrower for
state-chartered savings banks is 20% of its unimpaired capital and surplus (25%
if the security for such a loan has a "readily ascertainable" value or 30% for
certain residential development loans) or $500,000. At March 31, 1998, the
lending limitations, in essence, imposed a $614,000 limit on the Bank's 
loans-to-one borrower.

     Savings banks and their subsidiaries may not acquire or retain investments
in corporate debt securities that, at the time of acquisition, were not rated in
one of the four highest rating categories by at least one nationally recognized
rating organization. At March 31, 1998, the Bank did not have any corporate debt
securities below investment grade.

                                     -20-
<PAGE>
 
Restrictions on Loans to Insiders

     FIRREA applies Section 22(h) of the Federal Reserve Act to non-member
savings banks and authorizes the FDIC to impose additional loan-to-insider
restrictions upon savings banks on a case-by-case basis. In general, Section
22(h) prohibits a bank from making loans or extending credit: (i) to any of its
executive officers or any person who directly or indirectly controls more than
10% of any class of voting securities of the bank where the loan amount or
extension of credit, when aggregated with other loans to that person and all
related interests of that person, would exceed 15% of a bank's unimpaired
capital and surplus for loans that are not fully secured by "readily marketable
collateral" and an additional 10% of such capital and surplus for loans fully
secured by such collateral; and (ii) to any of its executive officers, directors
or principal shareholders in an amount exceeding the higher of $25,000 or 5% of
the Bank's unimpaired capital and surplus, unless the loan or extension of
credit is preapproved by a majority of the entire board of directors with the
interested party abstaining from participating directly or indirectly in the
voting.

     Section 22(h) also requires that all such insider loans or extensions of
credit be made on substantially the same terms, including interest rates and
collateral, as those prevailing at the time for comparable transactions with
other persons and do not involve more than the normal risk of repayment or
present other unfavorable features. Additionally, with certain exceptions,
Section 22(h) prohibits a member bank from paying an overdraft on an account at
such bank of an executive officer or director. At March 31, 1998, the Bank was
in compliance with restrictions on loans to insiders.

     Regulations issued by the FHLB Board prior to the enactment of FIRREA, in
relevant part, restricted a savings bank's loans to "affiliated persons" to ones
made in the "ordinary course of business" involving not more that the "normal
risks of collectibility" and not exceeding the loan amount that would be
available to members of the general public of similar credit status. According
to former FHLB Board regulations, loans secured by the principal residence of an
affiliated person, home improvement loans for affiliated persons and education,
consumer and credit card loans for affiliated persons must have been pre-
approved by at least a majority of the board of directors of the Bank. The Bank
was authorized, generally, to make such loans (and those secured by the
affiliated person's savings accounts at the Bank) with an interest rate not
below its current cost of funds.

Activities of Savings Bank and Their Subsidiaries

     FDIC and OBRE regulations provide that, when a savings bank establishes or
acquires a subsidiary or elects to conduct any new activity through a subsidiary
that the bank controls, the savings bank shall notify the FDIC and OBRE thirty
days in advance and provide the information each agency may, by regulation,
require. Savings banks also must conduct the activities of subsidiaries in
accordance with existing regulations and orders.

     The FDIC or the OBRE may determine that the continuation by a savings bank
of its ownership control, or its relationship to, the subsidiary constitutes a
serious risk to the safety, soundness, or stability of the bank or is
inconsistent with sound banking practices or with the purposes of the FDIC Act.
Based upon that determination, the FDIC or the OBRE has the authority to order
the savings bank to divest itself of control of the subsidiary. The FDIC also
may determine by regulation or order that any specific activity poses a serious
threat to the SAIF. If so, it may require that no SAIF member engage in that
activity directly. At March 31, 1998, the Bank had West Town Insurance Agency as
a wholly-owned subsidiary.

Brokered Deposits

     FIRREA states that no insured depository institution that fails to meet the
applicable minimum capital requirement may accept funds obtained directly or
indirectly by or through a deposit broker for deposit into one or more deposit
accounts.  The FDIC is authorized to waive this prohibition on a case-by-case
basis, but only upon finding that such use of brokered deposits does not
constitute an unsafe or unsound practice.  At March 31, 1998, the Bank had no
brokered deposits.

                                      -21-
<PAGE>
 
Investment Portfolio Policy

     Under OBRE regulations, savings banks are required to adopt and maintain an
investment policy which demonstrates the exercise of prudence in making
investment decisions. Per regulations and generally accepted accounting
principles, a financial institution is required to classify its securities into
one of three categories: securities purchased or held to maturity, securities
available for sale, and securities held for trading. Securities held in the
investment portfolio may be carried at amortized cost if the bank has documented
the intent and ability to hold the securities until maturity. Those being held
for sale or trading are to be carried at fair value. All of the Bank's
investment securities and mortgage-backed securities (with the exception of
investments in equity securities) are classified as held to maturity, since the
Bank had both the intent and ability to hold these investment securities and
mortgage-backed securities to maturity, in accordance with Statement of
Financial Accounting Standards 115. See "Notes to Consolidated Financial
Statements #1 - Accounting Policies - Investment Securities" in the Annual
Report.

Transactions with Affiliates

     Pursuant to FIRREA, all financial institutions must comply with Section 23A
and 23B of the Federal Reserve Act relative to transactions with affiliates in
the same manner and to the same extent as if all were Federal Reserve member
banks. Generally, Sections 23A and 23B: (i) limit the extent to which the
insured institution or its subsidiaries may engage in certain covered
transactions with an affiliate to an amount equal to 10% of such institution's
capital and surplus and place an aggregate limit on all such transactions with
affiliates to an amount equal to 20%of such capital and surplus, and (ii)
require that all such transactions be on terms substantially the same, or at
least as favorable to the institution or subsidiary, as those provided to a non-
affiliate. The term "covered transaction" includes the making of loan, purchases
of assets, issuance of a guaranty and similar other types of transactions.

                                     -22-
<PAGE>
 
                           FEDERAL AND STATE TAXATION
Federal Taxation

     General. The Company and the Bank report their income on a fiscal year
basis using the accrual method of accounting and are subject to federal income
taxation in the same manner as other corporations with some exceptions,
including particularly the Bank's addition to its 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 taxable year ending March 31,
1998, the Bank was subject to a maximum federal income tax rate of 34%.

     Bad Debt Reserves. For fiscal years beginning prior to December 31, 1995,
savings 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) 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, made significant changes to provisions of the Code
relating to a savings institution's use of bad debt reserves for federal income
tax purposes and requires such 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. Savings institutions that would be treated as small banks
are allowed to utilize the Experience Method applicable to such institutions,
while savings 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 savings institution required to change its method of computing reserves
for bad debts will treat such change as a change in method of accounting
initiated by the taxpayer, and having been made with the consent of the IRS. Any
Section 481(a) adjustment required to be taken into income 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, over the balance of
such reserves as of March 31, 1988. As a result of such recapture, the Bank will
incur an additional income tax liability of approximately $46,000 over the
recapture period.

                                     -23-
<PAGE>
 
     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 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 income.

     The amount of additional taxable income triggered by a non-dividend 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 34% 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.

     Corporate Alternative Minimum Tax. The Internal Revenue Code (the "Code")
imposes a tax on alternative minimum taxable income ("AMTI") at a rate of 20%.
Only 90% of AMTI can be offset by net operating loss carryovers. AMTI is
increased by an amount equal to 75% of the amount by which a corporation's
adjusted current earnings exceeds its AMTI (determined without regard to this
adjustment and prior to reduction for net operating losses). The Company and its
subsidiaries were not subject to this tax for the year ended March 31, 1998.

     Dividends Received Deduction and Other Matters. 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 or the Bank own more than 20% of the stock of a
corporation distributing a dividend 80% of any dividends received may be
deducted.

     Illinois Taxation. The Company and the Bank file Illinois income tax
returns. For Illinois income tax purposes, corporations are presently taxed at a
rate equal to 7.2% of taxable income. For this purpose, "taxable income"
generally means federal taxable income, subject to certain adjustments
(including the addition of interest income on state and municipal obligations
and the exclusion of interest income on United States Treasury obligations). The
exclusion of income on United States Treasury obligations has the effect of
reducing significantly the Illinois taxable income of savings institutions.

                                     -24-
<PAGE>
 
Impact of New Accounting Standards

     The following does not constitute a comprehensive summary of all material
changes or developments affecting the manner in which the Company keeps its
books and records and performs its financial accounting responsibilities. It is
intended only as a summary of sonic of the recent pronouncements made by the
Financial Accounting Standards Board ("FASB") which are of particular interest
to financial institutions.

     In June 1997, the FASB issued Statement of Financial Accounting Standards
No. 130, "Reporting Comprehensive Income" ("SFAS No. 130"). This statement
establishes standards for reporting and display of comprehensive income and its
components (revenues, expenses, gains, losses) in a full set of general-purpose
financial statements. SFAS No. 130 is effective for fiscal years beginning after
December 15, 1997. Management does not believe that adoption of SFAS No. 130
will have a material impact on the Company's consolidated financial statements
or results of operations.

     In June 1997, the FASB issued Statement of Financial Accounting Standards
No. 131, "Disclosures about Segments of an Enterprise and Related Information"
("SFAS No. 131") which becomes effective for fiscal years beginning after
December 15, 1997. SFAS No. 131 establishes standards for the way that public
business enterprises report information about operating segments and requires
enterprises to report selected information about operating segments in interim
financial reports. Management does not believe that adoption of SFAS No. 131
will have a material impact on the Company's consolidated financial statements
or results of operations.

     In February 1998, the FASB issued Statement of Financial Accounting
Standards No. 132, "Employers' Disclosures about Pensions and Other
Postretirement Benefits" ("SFAS No. 132"). SFAS No. 132 alters current
disclosure requirements regarding pensions and other postretirement benefits in
the financial statements of employers who sponsor such benefit plans. The
revised disclosure requirements are designed to provide additional information
to assist readers in evaluating future costs related to such plans.
Additionally, the revised disclosures are designed to provide changes in the
components of pension and benefit costs in addition to the year end components
of those factors in the resulting asset or liability related to such plans. The
statement is effective for fiscal years beginning after December 15, 1997 with
earlier application available. Management does not believe that adoption of SFAS
No. 132 will have a material impact on the Company's consolidated financial
statements or results of operations.

                                     -25-
<PAGE>
 
Additional Item.  Executive Officers of the Registrant.
-------------------------------------------------------

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

                         Age at      Position with the Company and Bank
Name                     03/31/98    and Past Five Years Experience
----                     --------    ----------------------------------

Jeffrey P. Kosobucki        32       Chief Financial Officer of the Company.
                                     Vice President and Chief Financial
                                     Officer of the Bank.

Item 2.  Properties.

     The Company is located and conducts its business at the Bank's office in
Cicero, located at 4852 West 30th Street, Cicero, Illinois. See Note 7 to the
Notes to Consolidated Financial Statements for the net book value of the Bank's
premises and equipment.

Item 3.  Legal Proceedings.

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

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

     None.

                                    PART II

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

     Information relating to the market for the Registrant's common equity and
related stockholder matters appears in the Registrant's 1998 Annual Report to
Stockholders on page 29 and is incorporated herein by reference. On May 29,
1998, the Company had 91 registered shareholders.

Item 6.  Selected Financial Data.

     The above-captioned information appears under "Selected Consolidated
Financial and Other Data of the Company" in the Registrant's 1998 Annual Report
to Stockholders on pages 10 through 12 and is incorporated herein by reference.

Item 7.  Management's Discussion and Analysis of Financial Condition and Results
         of Operations.

     The above-captioned information appears under "Management's Discussion and
Analysis of Financial Condition and Results of Operations" in the Registrant's
1998 Annual Report to Stockholders on pages 13 through 29 and is incorporated
herein by reference.

Item 8.  Financial Statements and Supplementary Data.

     The Consolidated Financial Statements of West Town Bancorp, Inc. and its
subsidiaries, together with the report thereon by Cobitz, VandenBerg & Fennessy
appear in the Registrant's 1998 Annual Report to Stockholders on pages F-1
through F-24 and are incorporated herein by reference.

                                     -26-
<PAGE>
 
Item 9.  Change in and Disagreements with Accountants on Accounting and
Financial Disclosure.

     None.

                                    PART III

Item 10.  Directors and Executive Officers of the Registrant.

     The information relating to Directors and Executive Officers of the
Registrant is incorporated herein by reference to the Registrant's Proxy
Statement for the Annual Meeting of Stockholders to be held on July 8, 1998, on
pages 3 through 6. Information concerning Executive Officers who are not
directors is contained in Part I of this report pursuant to paragraph (b) of
Item 401 of Regulation S-K in reliance on Instruction G.

Item 11.  Executive Compensation.

     The information relating to director and executive compensation is
incorporated herein by reference to the Registrant's Proxy Statement for the
Annual Meeting of Stockholders to be held on July 8, 1998, on pages 8 and 9
(excluding the Compensation Committee Report and the Stock Performance Graph).

Item 12.  Security Ownership of Certain Beneficial Owners and Management.

     The information relating to security ownership of certain beneficial owners
and management is incorporated herein by reference to the Registrant's Proxy
Statement for the Annual Meeting of Stockholders to be held on July 8, 1998, on
pages 2 through 4.

Item 13.  Certain Relationships and Related Transactions.

     The information relating to certain relationships and related transactions
is incorporated herein by reference to the Registrant's Proxy Statement for the
Annual Meeting of Stockholders to be held on July 8, 1998, on page 14.

                                     -27-
<PAGE>
 
                                    PART IV
                                    -------

Item 14.  Exhibits, Financial Statement Schedules and Reports on Form 8-K.

1.   Independent Auditors' Report*

2.   All Financial Statements*

     (a)  Consolidated Statements of Condition as of March 31, 1998 and 1997.

     (b)  Consolidated Statements of Income for the Years Ended March 31, 1998,
          1997 and 1996.

     (c)  Consolidated Statements of Stockholders' Equity for Years Ended March
          31, 1998, 1997 and 1996.

     (d)  Consolidated Statements of Cash Flows for the Years Ended March 31,
          1998, 1997 and 1996.

     (e)  Notes to Consolidated Financial Statements

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

3.   Exhibits

     (3)(a) Certificate of Incorporation of West Town Bancorp, Inc.**

     (3)(b) Bylaws of West Town Bancorp, Inc.**

     13     1998 Annual Report to Stockholders

     22     Subsidiaries of the Registrant

     24     Consent of Independent Auditors

     *    Incorporated by reference to the Annual Report to Stockholders for the
          fiscal year ended March 31, 1998, attached as an exhibit hereto.

     **   Incorporated by reference to the Registration Statement on Form S-1,
          and amendments thereto, filed with the Securities and Exchange
          Commission.

                                      -28-
<PAGE>
 
                                   SIGNATURES

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

                                    WEST TOWN BANCORP, INC.

                                    By:  /s/ Dennis B. Kosobucki
                                         -------------------------------------
                                         Dennis B. Kosobucki
DATED:   June 5, 1998                    Chairman of the Board,
                                         President and Chief Executive Officer
                                         (Duly Authorized Representative)

     Pursuant to the requirements 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.

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

/s/ Dennis B. Kosobucki       Chairman of the Board                June 5, 1998
--------------------------    President, Chief Executive Officer
Dennis B. Kosobucki           (Principal Executive Officer)


/s/ Jeffrey P. Kosobucki      Vice President and Chief             June 5, 1998
--------------------------    Financial Officer
Jeffrey P. Kosobucki          (Principal Financial Officer
                              and Principal Accounting Officer)


/s/ Edward J. Hradecky        Director                             June 5, 1998
--------------------------                                               
Edward J. Hradecky


/s/ John A. Storcel           Director                             June 5, 1998
--------------------------                                               
John A. Storcel


/s/ James Kucharczyk          Director                             June 5, 1998
--------------------------                                               
James Kucharczyk


/s/ James J. Kemp, Jr.        Director                             June 5, 1998
--------------------------                                               
James J. Kemp, Jr.

                                     -29-

<PAGE>
 
                            WEST TOWN BANCORP, INC.
                               AND SUBSIDIARIES
                               ----------------

                         Audited Financial Statements

                                March 31, 1998
                                --------------
<PAGE>
 
                            WEST TOWN BANCORP, INC.
                               AND SUBSIDIARIES

                                   Contents
                                   --------
                                                                           Page
                                                                           ----
Independent Auditors' Report...............................................  1

Consolidated Statements of Financial Condition, as of
 March 31, 1998 and 1997..................................................   2

Consolidated Statements of Income, years ended
 March 31, 1998, 1997 and 1996............................................   3

Consolidated Statements of Changes in Stockholders' Equity,
 three years ended March 31, 1998.........................................   4

Consolidated Statements of Cash Flows, years ended
 March 31, 1998, 1997 and 1996............................................   5

Notes to Consolidated Financial Statements................................. 6-24
<PAGE>
 
                         COBITZ, VANDENBERG & FENNESSY

                         CERTIFIED PUBLIC ACCOUNTANTS
                      9944 SOUTH ROBERTS ROAD - SUITE 202
                         PALOS HILLS, ILLINOIS  60465

                      (708) 430-4106 - Fax (708) 430-4499



                          INDEPENDENT AUDITORS' REPORT


The Board of Directors
West Town Bancorp, Inc.
Cicero, Illinois

     We have audited the consolidated statements of financial condition of West
Town Bancorp, Inc. and subsidiaries as of March 31, 1998 and 1997 and the
related consolidated statements of income, changes in stockholders' equity and
cash flows for each of the three years in the period ended March 31, 1998. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.

     We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the consolidated financial statements are
free of material misstatements. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the consolidated financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
consolidated 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 West Town
Bancorp, Inc. and subsidiaries at March 31, 1998 and 1997, and the results of
their operations and their cash flows for each of the three years in the period
ending March 31, 1998, in conformity with generally accepted accounting
principles.

                              /s/ Cobitz, VandenBerg & Fennessy
                              ---------------------------------
                              Cobitz, VandenBerg & Fennessy


May 8, 1998
Palos Hills, Illinois


<PAGE>
 
                            WEST TOWN BANCORP, INC.
                               AND SUBSIDIARIES
                               ----------------
                Consolidated Statements of Financial Condition

<TABLE>
<CAPTION>
                                                                       March 31,
                                                               ------------------------
                                                                  1998          1997
                                                               -----------   ----------
<S>                                                            <C>           <C>
Assets
------
Cash and amounts due from depository institutions              $   302,484      718,157
Interest-bearing deposits                                        6,875,094    6,525,626
                                                               -----------   ---------- 
    Total cash and cash equivalents                              7,177,578    7,243,783
U.S. Government and agency obligations, held to maturity
  (fair value: 1998 - $498,000;
  1997 - $1,082,000) (note 2)                                      500,000    1,100,315
Mortgage-backed securities, held to maturity
  (fair value: 1998 - $1,646,000;
  1997 - $2,465,000) (note 3)                                    1,631,621    2,494,292
Loans receivable (net of allowance for loan losses:
  1998 - $46,171; 1997 - $40,171) (note 4)                      18,451,630   15,552,545
Stock in Federal Home Loan Bank of Chicago                         177,400      121,000
Other investments, available for sale,
  at fair value (note 5)                                           100,000         -
Accrued interest receivable (note 6)                               201,047      110,380
Office properties and equipment - net (note 7)                     202,365      199,529
Prepaid expenses and other assets (note 8)                       1,103,875      176,939
                                                               -----------   ---------- 
    Total assets                                                29,545,516   26,998,783
                                                               ===========   ==========
Liabilities and Stockholders' Equity
------------------------------------
Liabilities
-----------
Deposits (note 9)                                               25,263,850   22,816,474
Borrowed money (note 10)                                              -            -
Advance payments by borrowers for taxes
  and insurance                                                     34,550       41,914
Other liabilities (note 11)                                        199,298      176,834
                                                               -----------   ---------- 
    Total liabilities                                           25,497,698   23,035,222
                                                               -----------   ---------- 
Stockholders' Equity
--------------------
Preferred stock, $.01 par value; authorized
  100,000 shares; none outstanding                                    -            -
Common stock, $.01 par value; authorized
  400,000 shares; 231,928 shares issued and 224,303 shares
  outstanding at March 31, 1998 and 231,928
  shares issued and outstanding at March 31, 1997                    2,319        2,319
Additional paid-in capital                                       1,987,127    1,986,077
Retained earnings, substantially restricted                      2,279,662    2,137,485
Treasury stock, at cost (7,625 shares at March 31, 1998)           (81,906)        -
Common stock acquired by Employee Stock Ownership Plan            (139,384)    (153,001)
Common stock awarded by Management Recognition Plan                   -          (9,319)
                                                               -----------   ---------- 
    Total stockholders' equity (notes 14 and 15)                 4,047,818    3,963,561
                                                               -----------   ---------- 
Commitments and contingencies (notes 16 and 17)
    Total liabilities and stockholders' equity                 $29,545,516   26,998,783
                                                               ===========   ==========
</TABLE>

See accompanying notes to consolidated financial statements.

                                      -2-

<PAGE>
 
                            WEST TOWN BANCORP, INC.
                               AND SUBSIDIARIES
                               ----------------

                       Consolidated Statements of Income

<TABLE>
<CAPTION>
                                                          Years Ended March 31,
                                                   -----------------------------------
                                                     1998          1997        1996
                                                   ----------   ---------    ---------
<S>                                                <C>          <C>          <C>
Interest income:                                                          
  Loans                                            $1,393,895   1,084,447      831,579
  Mortgage-backed securities                          126,074     168,400      206,993
  Investment securities                                35,368      59,019       66,647
  Interest-bearing deposits                           347,285     373,258      455,679
  Dividends on FHLB stock                              11,938       8,238        8,915
                                                   ----------   ---------    ---------
    Total interest income                           1,914,560   1,693,362    1,569,813
                                                   ----------   ---------    ---------
Interest expense:                                                         
  Deposits                                          1,168,346     939,598      793,828
                                                   ----------   ---------    ---------
                                                                          
    Net interest income before provision                                  
     for loan losses                                  746,214     753,764      775,985
Provision for loan losses (note 4)                      6,000      10,302       14,604
                                                   ----------   ---------    ---------
    Net interest income after provision                                   
     for loan losses                                  740,214     743,462      761,381
                                                   ----------   ---------    ---------
                                                                          
Non-interest income:                                                      
  Loan fees and service charges                        12,282       5,899       16,731
  Rental income                                         7,810       9,240        9,290
  Gain on sale of investment securities,                                  
   available for sale                                      -        3,178           -
  Loss on sale of real estate owned                        -       (5,282)          -
  Deposit related fees and other income                19,307      15,730       14,590
                                                   ----------   ---------    ---------
    Total non-interest income                          39,399      28,765       40,611
                                                   ----------   ---------    ---------
                                                                          
Non-interest expense:                                                     
  Compensation, employee benefits, and                                    
   related expenses (note 12)                         299,366     298,911      324,117
  Advertising and promotion                            14,786      13,938       11,805
  Occupancy and equipment expenses (note 7)            74,277      77,082       74,649
  Data processing                                      39,458      34,044       34,296
  Federal deposit insurance premiums (note 18)         14,669      26,461       45,331
  SAIF special assessment (note 18)                        -      127,578           -
  Legal, audit, and examination services               58,690      48,865       44,938
  Provision for loss on real estate owned                  -           -        15,000
  Other operating expenses                             51,148      46,079       67,954
                                                   ----------   ---------    ---------
    Total non-interest expense                        552,394     672,958      618,090
                                                   ----------   ---------    ---------
                                                                          
Net income before income taxes                        227,219      99,269      183,902
                                                                          
Provision for income taxes (note 13)                   85,042      25,320       71,194
                                                   ----------   ---------    ---------
                                                                          
    Net income                                     $  142,177      73,949      112,708
                                                   ==========   =========    =========
 
Earnings per share - basic                         $      .67         .34          .53
                                                   ----------   ---------    ---------
 
Earnings per share - diluted                       $      .67         .34          .53
                                                   ----------   ---------    ---------
 
Dividends declared per common share                $       -           -            -
                                                   ----------   ---------    ---------
</TABLE>

See accompanying notes to consolidated financial statements.

                                      -3-

<PAGE>
 

                            WEST TOWN BANCORP, INC.
                               AND SUBSIDIARIES
                               ----------------

          Consolidated Statements of Changes in Stockholders' Equity

                       Three Years Ended March 31, 1998
                               ----------------

<TABLE>
<CAPTION>
                                                                              Common    Common
                                            Additional                        Stock      Stock
                                   Common    Paid-In    Retained   Treasury  Acquired   Awarded
                                    Stock    Capital    Earnings    Stock    by ESOP    by MRP       Total
                                   -------  ----------  ---------  --------  --------   -------      -----
<S>                                <C>      <C>         <C>        <C>       <C>        <C>        <C>
Balance at March 31, 1995          $ 2,219   1,886,297  1,950,828     -      (176,658)     -       3,662,686

Additions for the year ended
  March 31, 1996:

Net income                                                112,708                                    112,708

Common stock issued to MRP              89      88,691                                  (88,780)        -

Amortization of award of MRP                                                             55,341       55,341

Contribution to fund ESOP loan                                                 11,269                 11,269
                                   -------   ---------  ---------  -------   --------   -------    ---------
Balance at March 31, 1996            2,308   1,974,988  2,063,536     -      (165,389)  (33,439)   3,842,004

Additions for the year ended
  March 31, 1997:

Net income                                                 73,949                                     73,949

Exercise of stock options               11      11,089                                                11,100

Amortization of award of MRP                                                             24,120       24,120

Contribution to fund ESOP loan                                                 12,388                 12,388
                                   -------   ---------  ---------  -------   --------   -------    ---------
Balance at March 31, 1997            2,319   1,986,077  2,137,485     -      (153,001)   (9,319)   3,963,561

Additions for the year ended
  March 31, 1998:

Net income                                                142,177                                    142,177

Purchase of treasury stock
  (7,625 shares)                                                   (81,906)                          (81,906)

Amortization of award of MRP                                                              9,319        9,319

Contribution to fund ESOP loan                   1,050                         13,617                 14,667
                                   -------   ---------  ---------  -------   --------   -------    ---------

Balance at March 31, 1998          $ 2,319   1,987,127  2,279,662  (81,906)  (139,384)     -       4,047,818
                                   =======   =========  =========  =======   ========   =======    =========
</TABLE>

See accompanying notes to consolidated financial statements.

                                      -4-
<PAGE>
 
                            WEST TOWN BANCORP, INC.
                               AND SUBSIDIARIES
                               ----------------

                     Consolidated Statements of Cash Flows

<TABLE>
<CAPTION>
 
                                                                          Years Ended March 31,
                                                                ----------------------------------------- 
                                                                     1998           1997          1996
                                                                     ----           ----          ----   
<S>                                                               <C>            <C>          <C>
Cash flows from operating activities:
  Net income                                                    $    42,177         73,949       112,708
   Adjustments to reconcile net income to net cash                            
    from operating activities:                                                
     Depreciation                                                    24,188         24,316        23,144
     Amortization of cost of stock benefit plans                     23,986         36,508        66,610
     Amortization of investment premiums and discounts                  315          1,425         1,425
     Gain on sale of investment securities,                                   
       available for sale                                                 -         (3,178)            -
     Loss on sale of real estate owned                                    -          5,282             -
     Provision for loan losses                                        6,000         10,302        14,604
     Provision for loss on real estate owned                              -              -        15,000
     Increase (decrease) in deferred income                          30,979         29,308       (13,531)
     (Increase) decrease in current and deferred federal                      
       and state income taxes                                           625        (25,899)       38,148
     (Increase) decrease in accrued interest receivable             (90,667)        33,682       (56,130)
     Increase in accrued interest payable                            38,820         17,278        34,286
     Change in prepaid and accrued items, net                      (943,917)       (22,707)      (50,935)
                                                                -----------      ---------    ----------
 
Net cash provided by (for) operating activities                    (767,494)       180,266       185,329
                                                                -----------      ---------    ----------
Cash flows from investing activities:
     Purchase of investment securities, available for sale         (100,000)       (47,790)            -
     Proceeds from maturities of investment securities,                       
       held to maturity                                             600,000              -       300,000
     Proceeds from repayments of mortgage-backed securities,                  
       held to maturity                                             862,671        591,968       497,732
     Purchase of Federal Home Loan Bank stock                       (56,400)             -             -
     Proceeds from Federal Home Loan Bank stock redemption                -              -        12,300
     Proceeds from sale of investment securities,                             
       available for sale                                                 -         50,968             -
     Disbursements for loans originated or purchased            (11,065,754)    (4,967,597)   (5,918,457)
     Loan repayments                                              6,001,999      2,008,974     2,200,744
     Participation loans sold                                     2,127,691        299,608             -
     Property and equipment expenditures                            (27,024)        (5,837)       (6,124)
     Real estate owned expenditures                                       -              -        (2,876)
     Proceeds from sale of real estate owned                              -        206,594             -
                                                                -----------      ---------    ----------

 Net cash provided for investing activities                      (1,656,817)    (1,863,112)   (2,916,681)
                                                                -----------      ---------    ----------
 
Cash flows from financing activities:
     Proceeds from exercise of stock options                              -         11,100             -
     Purchase of treasury stock                                     (81,906)             -             -
     Deposit receipts                                            11,430,518      9,762,829     9,882,824
     Deposit withdrawals                                         (9,752,245)    (8,755,715)   (8,757,271)
     Interest credited to deposit accounts                          769,103        600,641       583,881
     Decrease in advance payments by                                          
      borrowers for taxes and insurance                              (7,364)        (6,119)      (32,337)
                                                                -----------      ---------    ----------

Net cash provided by financing activities                         2,358,106      1,612,736     1,677,097
                                                                -----------      ---------    ----------

Decrease in cash and cash equivalents                               (66,205)       (70,110)   (1,054,255)
Cash and cash equivalents at beginning of year                    7,243,783      7,313,893     8,368,148
                                                                -----------      ---------    ----------
                                                                             
Cash and cash equivalents at end of year                        $ 7,177,578      7,243,783     7,313,893
                                                                ===========      =========    ==========
 
Cash paid during the year for:
     Interest                                                   $ 1,129,526        922,320       759,542
     Income taxes                                                    83,827         51,219        33,046
                                                                ===========      =========    ==========
</TABLE>

See accompanying notes to consolidated financial statements.

                                      -5-
<PAGE>
 
                            WEST TOWN BANCORP, INC.
                               AND SUBSIDIARIES
                               ----------------

                  Notes to Consolidated Financial Statements


1)   Summary of Significant Accounting Policies

     West Town Bancorp, Inc. (the "Company") is a Delaware corporation
     incorporated on May 6, 1994 for the purpose of becoming the savings bank
     holding company for West Town Savings Bank (the "Bank"). On March 1, 1995,
     the Bank converted from a mutual to a stock form of ownership, and the
     Company completed its initial public offering, and with a portion of the
     net proceeds acquired all of the issued and outstanding capital stock of
     the Bank.

     The accounting and reporting policies of the Company and its subsidiaries
     conform to generally accepted accounting principles and to general practice
     within the thrift industry. The preparation of financial statements in
     conformity with generally accepted accounting principles requires
     management to make estimates and assumptions that affect the reported
     amounts of assets and liabilities and disclosures of contingent assets and
     liabilities at the date of the financial statements and the reported
     amounts of revenues and expenses during the reporting period. Actual
     results could differ from those estimates. The following is a description
     of the more significant policies which the Company follows in preparing and
     presenting its consolidated financial statements.

     Principles of Consolidation
                                
     The accompanying consolidated financial statements include the accounts of
     the Company, and its wholly owned subsidiary, West Town Savings Bank and
     the Bank's wholly owned subsidiary, West Town Insurance Agency, Inc.
     Significant intercompany balances and transactions have been eliminated in
     consolidation.

     United States Government and Agency Obligations, Held to Maturity
                                                                      
     These securities are carried at cost, and adjusted for amortization of
     premiums and accretion of discounts. Premiums and discounts are amortized
     and accreted into income using the level yield method. These securities are
     not carried at fair value because the Company has both the ability and the
     intent to hold them to maturity.

     Mortgage Backed Securities, Held to Maturity
                                                 
     Mortgage backed securities are carried at cost, and adjusted for
     amortization of premiums and accretion of discounts. Premiums and discounts
     are amortized and accreted into income using the level yield method. These
     securities are not carried at fair value because the Company has both the
     ability and the intent to hold them to maturity.

                                     -6- 
<PAGE>
 
1)   Summary of Significant Accounting Policies (continued)

     Other Investments, Available for Sale

     Investment securities are recorded in accordance with Statement of
     Financial Accounting Standards ("SFAS") No. 115 "Accounting for Certain
     Investments in Debt and Equity Securities". SFAS 115 requires the use of
     fair value accounting for securities available for sale or trading and
     retains the use of the amortized cost method for investments the Company
     has the positive intent and ability to hold to maturity.

     SFAS 115 requires the classification of debt and equity securities into one
     of three categories: held to maturity, available for sale, or trading. Held
     to maturity securities are measured at amortized cost. Unrealized gains and
     losses on trading securities are included in income. Unrealized gains and
     losses on available for sale securities are excluded from income and
     reported net of taxes as a separate component of stockholders' equity.

     The Company has designated certain equity investments as available for
     sale, and has recorded these investments at their current fair values.
     Unrealized gains and losses are recorded in a valuation account which is
     included, net of income taxes, as a separate component of stockholders'
     equity. Gains and losses on the sale of securities are determined using the
     specific identification method.

     Loans Receivable and Related Fees

     Loans are stated at the principal amount outstanding, net of loans in
     process, deferred fees and the allowance for losses. Interest on loans is
     credited to income as earned and accrued only if deemed collectible. Loans
     are placed on non-accrual status when, in the opinion of management, the
     full timely collection of principal or interest is in doubt. As a general
     rule, the accrual of interest is discontinued when principal or interest
     payments become 90 days past due or earlier if conditions warrant. When a
     loan is placed on nonaccrual status, previously accrued but unpaid interest
     is charged against current income.

     Loan origination fees are being deferred in accordance with SFAS No. 91,
     "Accounting for Nonrefundable Fees and Costs Associated with Originating or
     Acquiring Loans and Initial Direct Costs of Leases". This statement
     requires that loan origination fees and direct loan origination costs for a
     completed loan be netted and then deferred and amortized into interest
     income as an adjustment of yield over the contractual life of the loan.

     The Company has adopted the provisions of SFAS No. 114 "Accounting by
     Creditors for Impairment of a Loan" and SFAS No. 118 "Accounting by
     Creditors for Impairment of a Loan - Income Recognition and Disclosures".
     These statements apply to all loans that are identified for evaluation
     except for large groups of smaller-balance homogeneous loans that are
     collectively evaluated for impairment. These loans include, but are not
     limited to, credit card, residential mortgage and consumer installment
     loans. Substantially all of the Company's lending is excluded from the
     provisions of SFAS 114 and SFAS 118.

     Under these statements, of the remaining loans which are evaluated for
     impairment (a loan is considered impaired when, based on current
     information and events, it is probable that a creditor will be unable to
     collect all amounts due according to the contractual terms of the loan
     agreement), there were no material amounts of loans which met the
     definition of an impaired loan during the year ended March 31, 1998 and no
     loans to be evaluated for impairment at March 31, 1998.

                                      -7-
<PAGE>
 
1)   Summary of Significant Accounting Policies (continued)

     Allowance for Loan Losses

     The determination of the allowance for loan losses involves material
     estimates that are susceptible to significant change in the near term. The
     allowance for loan losses is maintained at a level adequate to provide for
     losses through charges to operating expense. The allowance is based upon
     past loss experience and other factors which, in management's judgement,
     deserve current recognition in estimating losses. Such other factors
     considered by management include growth and composition of the loan
     portfolio, the relationship of the allowance for losses to outstanding
     loans, and economic conditions.

     Management believes that the allowance is adequate. While management uses
     available information to recognize losses on loans, future additions to the
     allowance may be necessary based on changes in economic conditions. In
     addition, various regulatory agencies, as an integral part of their
     examination process, periodically review the Company's allowance for
     losses. Such agencies may require the Company to recognize additions to the
     allowance based on their judgements about information available to them at
     the time of their examination.

     Real Estate Owned

     Real estate acquired through foreclosure or deed in lieu of foreclosure is
     carried at the lower of fair value minus estimated costs to sell or the
     acquisition cost. Valuations are periodically performed by management and
     an allowance for loss is established by a charge to operations if the
     carrying value of a property exceeds its fair value minus estimated costs
     to sell.

     Depreciation

     Depreciation of office properties and equipment are accumulated on the
     straight-line basis over estimated lives of the various assets. Estimated
     lives are 15 to 30 years for office buildings, 30 years for parking lot
     improvements, and 5 to 7 years for furniture, fixtures and equipment.

     Income Taxes

     The Company files a consolidated federal income tax return with its
     subsidiaries. The provision for federal and state taxes on income is based
     on earnings reported in the financial statements. Deferred income taxes
     arise from the recognition of certain items of income and expense for tax
     purposes in years different from those in which they are recognized in the
     consolidated financial statements. Deferred tax assets and liabilities are
     recognized for the estimated future tax consequences attributable to
     differences between the financial statement carrying amount of existing
     assets and liabilities and their respective tax bases. Deferred tax assets
     and liabilities are measured using enacted tax rates in effect for the year
     in which those temporary differences are expected to be recovered or
     settled. The effect on deferred tax assets and liabilities of a change in
     tax rates is recognized in income for the period that includes the
     enactment date.

     Consolidated Statements of Cash Flows

     For the purposes of reporting cash flows, the Company has defined cash and
     cash equivalents to include cash on hand, amounts due from depository
     institutions, and interest-bearing deposits in other financial
     institutions.

     Reclassification

     Certain 1997 and 1996 amounts have been reclassified to conform with the
     1998 presentation.

                                      -8-
<PAGE>
 
1)   Summary of Significant Accounting Policies (continued)
     ------------------------------------------------------
     Earnings per Share
     ------------------

     The Company computes its earnings per share (EPS) in accordance with SFAS
     No. 128 "Earnings per Share". This statement simplifies the standards for
     computing EPS previously found in Accounting Principles Board Opinion No. 5
     "Earnings per Share" and makes them comparable to international EPS
     standards. It replaces the presentation of primary EPS with a presentation
     of basic EPS and fully diluted EPS with diluted EPS. 

     Basic EPS, unlike primary EPS, excludes dilution and is computed by
     dividing income available to common stockholders by the weighted-average
     number of common shares outstanding for the period. Diluted EPS reflects
     the potential dilution that could occur if securities or other contracts to
     issue common stock were exercised or converted into common stock or
     resulted in the issuance of common stock that then shared in the earnings
     of the entity.

     The following presentation illustrates basic and diluted EPS in accordance
     with the provisions of SFAS 128:

<TABLE>
<CAPTION>
 
                                              Years Ended March 31,
                                            --------------------------
                                              1998     1997     1996
                                            --------  -------  -------
      <S>                                   <C>       <C>      <C>
      Weighted average number of
        common shares outstanding used
        in basic EPS calculation             212,602  215,491  211,210
      Add common stock equivalents
        for shares issuable under
        Stock Option Plans                     1,026        -        -
                                            --------  -------  -------
      Weighted average number of shares
        outstanding adjusted for common
        stock equivalents                    213,628  215,491  211,210
                                            ========  =======  =======

      Net income                            $142,177   73,949  112,708
      Basic earnings per share              $    .67      .34      .53
      Diluted earnings per share            $    .67      .34      .53
</TABLE>

     EPS for prior periods has been restated to comply with the provisions of
     SFAS 128.

                                      -9-
<PAGE>
 
2)   United States Government and Agency Obligations, Held to Maturity
     -----------------------------------------------------------------

     These securities are summarized as follows:

<TABLE>
<CAPTION>
                                                       Gross          Gross
                                     Amortized      Unrealized     Unrealized      Fair
                                        Cost          Gains          Losses        Value
                                     ---------      ----------     ----------    ---------
     <S>                             <C>                <C>           <C>         <C>
     March 31, 1998
     --------------
     FHLB Note                       $   500,000         -            2,000        498,000
                                     ===========      ======         ======      =========

     Weighted average interest rate         4.20%
                                            ====
     March 31, 1997
     --------------
     FHLB Notes                      $   699,933         724         19,545        681,112
     U.S. Treasury Note                  400,382         506            -          400,888
                                     -----------      ------         ------      ---------
                                     $ 1,100,315       1,230         19,545      1,082,000
                                     ===========      ======         ======      =========

     Weighted average interest rate         5.44%
                                            ====
</TABLE>

     The contractual maturity of the above investments are summarized as
     follows:

<TABLE>
<CAPTION>

                                           March 31, 1998        March 31, 1997
                                         -------------------  --------------------
                                         Amortized    Fair    Amortized    Fair
     Term to Maturity                       Cost      Value     Cost       Value
     ----------------                    ----------  -------  ---------  ---------
     <S>                                   <C>       <C>        <C>      <C>

     Due in one year or less               $500,000  498,000    600,315    601,545
     Due after one year through
       five years                              -        -       500,000    480,455
                                           --------  -------  ---------  ---------

                                           $500,000  498,000  1,100,315  1,082,000
                                           ========  =======  =========  =========
</TABLE>

                                      -10-
<PAGE>
 
3)   Mortgage-Backed Securities, Held to Maturity
     --------------------------------------------
     Mortgage-backed securities are summarized as follows:

<TABLE>
<CAPTION>
 
                                                           Gross       Gross
                                            Amortized   Unrealized   Unrealized      Fair
                                               Cost        Gains       Losses       Value
                                           ----------   ----------   ----------   ---------
     <S>                                   <C>          <C>          <C>          <C>
     March 31, 1998
     --------------
        Participation Certificates:
           FHLMC                           $  665,996        3,017        4,713     664,300
           GNMA                               329,595       24,705         -        354,300
           FNMA                               636,030         -           8,630     627,400
                                           ----------   ----------   ----------   ---------
                                           $1,631,621       27,722       13,343   1,646,000
                                           ==========   ==========   ==========   =========
     Weighted average interest rate              6.35%
                                                 ====
     March 31, 1997
     --------------
        Participation Certificates:
           FHLMC                           $1,145,089        3,475       21,764   1,126,800
           GNMA                               433,356       26,244         -        459,600
           FNMA                               915,847         -          37,247     878,600
                                           ----------   ----------   ----------   ---------
                                           $2,494,292       29,719       59,011   2,465,000
                                           ==========   ==========   ==========   =========
     Weighted average interest rate              6.33%
                                                 ====
</TABLE>
                                     -11-
<PAGE>
 
4)   Loans Receivable
     ----------------

     Loans receivable are summarized as follows:

<TABLE>
<CAPTION>
                                                   March 31,                
                                           -------------------------
                                              1998           1997          
                                           -----------    ----------    
     <S>                                   <C>            <C>           
     Mortgage loans:                                                    
       One-to-four family                  $17,140,686    14,525,099    
       Multi-family                            439,859       523,713    
       Nonresidential                           88,514        95,429    
       Construction                          1,367,965     1,700,392    
                                           -----------    ----------    
                                                                        
     Total mortgage loans                   19,037,024    16,844,633    
                                           -----------    ----------    
                                                                        
     Other loans:                                                       
       Loans on deposit accounts                22,759        21,277    
       Consumer                                157,289       132,358    
                                           -----------    ----------    
                                                                        
     Total other loans                         180,048       153,635    
                                           -----------    ----------    
                                                                        
     Total loans receivable                 19,217,072    16,998,268    
                                           -----------    ----------    
                                                                        
     Less:                                                              
       Loans in process                        626,010     1,348,677    
       Deferred loan fees and discounts,       
        net of premiums                         87,854        56,875            
       Allowance for loan losses                46,171        40,171    
       Allowance for uncollected interest        5,407            -     
                                           -----------    ----------    
                                                                        
     Loans receivable, net                 $18,451,630    15,552,545    
                                           ===========    ==========    
                                                                        
     Weighted average interest rate               7.78%         7.74%   
                                                  ====          ====     
</TABLE>

     There was one loan delinquent three months or more and non-accruing
     totaling approximately $96,100, or .5% of total loans in force at March 31,
     1998. There were no loans delinquent three months or more at March 31,
     1997. The Bank has established a loan loss reserve of $46,171 as required
     by its internal policies.

     Activity in the allowance for loan losses is summarized as follows:

<TABLE>
<CAPTION>
                                  Years Ended March 31, 
                                 -----------------------   
                                  1998     1997    1996    
                                 -------  ------  ------   
     <S>                         <C>      <C>     <C>      
                                                           
     Balance, beginning of year  $40,171  29,869  15,265   
                                                           
     Provision for loan losses     6,000  10,302  14,604   
                                                           
     Charge-offs                      -       -       -    
                                 -------  ------  ------   
                                                           
     Balance, end of year        $46,171  40,171  29,869   
                                 =======  ======  ======    
</TABLE>

     The Bank has pledged $547,804 in single-family mortgage loans as collateral
     to secure deposits in excess of Federal Deposit Insurance Corporation
     insurance limitations. The balances of these loans are at least 110% of the
     non-insured deposits at March 31, 1998, in accordance with the terms of the
     executed collateralization agreements with various depositors.

                                     -12-

<PAGE>
 
5)   Other Investments, Available for Sale
     -------------------------------------

     During the current period, the Company invested $100,000 in 10,000 common
     shares of FBA Bancorp, Inc. This investment has been designated as
     available for sale and is recorded at its fair value of $100,000 in
     accordance with SFAS 115.

6)   Accrued Interest Receivable
     ---------------------------
     Accrued interest receivable is summarized as follows:

<TABLE>
<CAPTION>
                                                      March 31,
                                                 -------------------
                                                   1998       1997
                                                 --------    -------
     <S>                                         <C>         <C>
     Interest-bearing deposits                   $ 16,755     11,669
     U.S. Government and agency obligations         1,687     12,265
     Mortgage-backed securities                    12,148     19,081
     Loans receivable                             167,559     65,351
     Other                                          2,898      2,014
                                                 --------    -------
                                                 $201,047    110,380
                                                 ========    =======
</TABLE> 
 
7)   Office Properties and Equipment
     -------------------------------
 
     Office properties and equipment are summarized as follows:

<TABLE> 
<CAPTION> 
                                                      March 31,
                                                 -------------------
                                                   1998       1997
                                                 --------    -------
     <S>                                         <C>         <C>
     Cost:
       Land                                      $ 25,532     25,532
       Office Building                            360,689    360,689
       Parking lot                                 65,942     65,942
       Furniture, fixtures and equipment          124,851    115,684
       Automobile                                  17,858     16,865
                                                 --------    -------
                                                  594,872    584,712
 
      Less accumulated depreciation               392,507    385,183
                                                 --------    -------
                                                 $202,365    199,529
                                                 ========    =======
</TABLE>
 
     Depreciation of office properties and equipment for the years ended March
     31, 1998, 1997 and 1996 amounted to $24,188, $24,316, and $23,144
     respectively.

8)   Prepaid Expenses and Other Assets
     ---------------------------------

     Prepaid expenses and other assets consist of the following:

<TABLE> 
<CAPTION> 
                                                       March 31,
                                                 ---------------------
                                                    1998        1997
                                                 ----------    -------
     <S>                                         <C>           <C>
 
     Prepaid insurance                           $   17,828     18,058
     Other prepaid expenses                           6,175      6,214
     Cash surrender value of corporate-owned
      life insurance                                 32,881     21,338
     Amounts due on loans serviced by others      1,033,012    113,335
     Current federal and state income tax
      overpayment - net                              13,979     12,589
     Other                                                -      5,405
                                                 ----------    -------
                                                 $1,103,875    176,939
                                                 ==========    =======
</TABLE> 

                                     -13-
<PAGE>
 
9)   Deposits
     --------

     Deposit accounts are summarized as follows:

<TABLE>
<CAPTION>
                                                         March 31,
                                                 ------------------------
                                                    1998          1997
                                                 -----------   ----------
     <S>                                         <C>           <C>
     Passbook accounts                           $ 6,317,284    6,992,005
     Certificates                                 18,892,253   15,824,469
     Demand deposit accounts                          54,313            -
                                                 -----------   ----------
       Total                                     $25,263,850   22,816,474
                                                 ===========   ==========
</TABLE>

     The composition of deposit accounts by interest rate is as follows:

<TABLE>
<CAPTION>
                                                         March 31,
                                                 ------------------------
                                                    1998          1997
                                                 -----------   ----------
     <S>                                         <C>           <C>
     Non-interest bearing                        $    28,693          920
     2.00 - 2.99%                                  6,342,904    6,991,085
     3.00 - 3.99                                      43,755       54,291
     4.00 - 4.99                                     496,339    3,227,071
     5.00 - 5.99                                   7,927,752    6,807,620
     6.00 - 6.99                                  10,424,407    5,721,704
     7.00 - 8.00                                           -       13,783
                                                 -----------   ----------
       Total                                     $25,263,850   22,816,474
                                                 ===========   ==========
</TABLE>

     The weighted average interest rate on deposit accounts at March 31, 1998
     and 1997 was 4.97% and 4.56% respectively.

     A summary of certificates of deposit that mature during the twelve-month
     periods indicated is as follows:

<TABLE>
<CAPTION>
                                                         March 31,
                                                 ------------------------
                                                    1998          1997
                                                 -----------   ----------
     <S>                                         <C>           <C>
     Twelve month period ended March 31, 1998    $         -   13,457,530
     Twelve month period ended March 31, 1999     16,380,302    1,695,293
     Twelve month period ended March 31, 2000      2,036,082      415,516
     Twelve month period ended March 31, 2001        141,385       53,770
     Twelve month period ended March 31, 2002        165,163      201,848
     Twelve month period ended March 31, 2003
      and thereafter                                 169,321          512
                                                 -----------   ----------
      Total                                      $18,892,253   15,824,469
                                                 ===========   ==========
</TABLE>

     Interest expense on deposits consists of the following:

<TABLE> 
<CAPTION> 
                                                 Years Ended March 31,
                                             ----------------------------
                                                1998      1997     1996
                                             ----------  -------  -------
     <S>                                     <C>         <C>      <C>
     Passbooks                               $  172,313  191,399  214,908
     Certificates                               995,956  748,199  578,920
     Demand deposit accounts                         77        -        -
                                             ----------  -------  -------
      Total                                  $1,168,346  939,598  793,828
                                             ==========  =======  =======
</TABLE>

     The aggregate amount of deposit accounts with a balance of $100,000 or
     greater was approximately $5,549,000 and $4,306,000 at March 31, 1998 and
     1997 respectively. Deposits in excess of $100,000 are not insured by the
     Federal Deposit Insurance Corporation.

                                     -14-
<PAGE>
 
10)  Borrowed Money
     --------------

     In connection with the Company's initial public offering, the Bank
     established an Employee Stock Ownership Plan (ESOP). The ESOP was funded by
     the proceeds from a $177,550 loan from the Company. The loan carries an
     interest rate of nine and one-half percent and matures in the year 2005.
     The loan is secured by the shares of the Company purchased with the loan
     proceeds. The Bank has committed to make contributions to the ESOP
     sufficient to allow the ESOP to fund the debt service requirements of the
     loan.

11)  Other Liabilities
     -----------------
 
     Other liabilities include the following:

<TABLE> 
<CAPTION> 
                                                       March 31,
                                                  -------------------
                                                    1998       1997
                                                  --------    -------
     <S>                                          <C>          <C>  
     Accrued interest on deposits                 $134,541     95,721
     Accrued real estate taxes                      14,430     16,487
     Accrued audit fees                              7,755     18,255
     Deferred income tax liability (a)              21,824     19,809
     Other accounts payable                         20,748     26,562
                                                  --------    -------
                                                  $199,298    176,834
                                                  ========    =======
</TABLE> 

     (a)  The approximate tax effect of temporary differences that give rise to
          the Bank's net deferred tax liability at March 31, 1998 and 1997 under
          SFAS 109 is as follows:

<TABLE>
<CAPTION>
                                                    Assets     Liabilities      Net
                                                    -------    -----------    -------
          <S>                                       <C>          <C>          <C>
          March 31, 1998
          --------------
          Loan fees deferred for
           financial reporting purposes             $ 2,980            -        2,980
          Accelerated depreciation for
           tax purposes                                   -       (5,339)      (5,339)
          Bad debt reserves established
           for financial reporting purposes          16,600            -       16,600
          Increases to tax bad debt reserves
           since April 1, 1988                            -      (46,395)     (46,395)
          Nondeductible incentive plan expenses      10,330            -       10,330
                                                    -------      -------      -------
             Total                                  $29,910      (51,734)     (21,824)
                                                    =======      =======      =======
 
          March 31, 1997
          --------------
          Loan fees deferred for
           financial reporting purposes             $ 3,118            -        3,118
          Accelerated depreciation for
           tax purposes                                   -       (4,261)      (4,261)
          Bad debt reserves established
           for financial reporting purposes          14,443            -       14,443
          Increases to tax bad debt reserves
           since April 1, 1988                            -      (46,395)     (46,395)
          Nondeductible incentive plan expenses      13,286            -       13,286
                                                    -------      -------      -------
             Total                                  $30,847      (50,656)     (19,809)
                                                    =======      =======      =======
</TABLE>

                                     -15-
<PAGE>
 
12)  Officer, Director and Employee Plans
     ------------------------------------

     Stock Option Plan
     -----------------

     On July 12, 1995, the stockholders of the Company approved the West Town
     Bancorp, Inc. Stock Option Plan. This is an incentive stock option plan for
     the benefit of the officers and employees of the Company and its affiliates
     and a directors' stock option plan for the benefit of outside directors of
     the Company. The number of shares authorized under the Plan is 22,194,
     equal to 10.0% of the total number of shares issued in the Conversion. As
     of March 31, 1998, 17,281 options had been granted, which are exercisable
     at a rate of 20% per year and expire ten years from the date of grant. The
     following is an analysis of the stock option activity for each of the years
     in the three year period ended March 31, 1998 and the stock options
     outstanding at the end of the respective periods:

<TABLE>
<CAPTION>
                                                       Exercise Price
                                                   -----------------------
                                        Number
     Options                           of Shares    Per Share      Total
     -------                           ---------   ------------   --------
     <S>                                 <C>       <C>            <C>
     Outstanding at April 1, 1995             -    $      -       $    -
     Granted                             14,875           10.00    148,750
     Exercised                                0
     Forfeited                                0
                                         ------    ------------   -------- 
     Outstanding at March 31, 1996       14,875           10.00    148,750
     Granted                              1,758           10.00     17,580
     Exercised                           (1,110)          10.00    (11,100)
     Forfeited                                0
                                         ------    ------------   -------- 
     Outstanding at March 31, 1997       15,523           10.00    155,230
     Granted                                648           11.00      7,128
     Exercised                                -
     Forfeited                                                           -
                                         ------    ------------   -------- 
     Outstanding at March 31, 1998       16,171    $10.00-11.00   $162,358
                                         ======    ============   ========
     Exercisable at March 31, 1998        6,209    $      10.00   $ 62,090
                                         ======    ============   ========
     Options available for future
      grants at March 31, 1998            4,913
                                         ======
</TABLE> 

     The weighted average fair value of options granted during the years ended
     March 31, 1998, 1997 and 1996 was $11.00, $10.00 and $10.00, respectively.
     As of March 31, 1998, the weighted average exercise price for options
     outstanding was $10.04 with a weighted average remaining contractual life
     of 8.2 years.

     The Company has elected to follow Accounting Principles Board Opinion No.
     25 "Accounting for Stock Issued to Employees" ("APB 25") and related
     interpretations in accounting for its employee stock options. Under APB 25,
     because the exercise price of the Company's employee stock options equals
     the market price of the underlying stock on the date of grant, no
     compensation expense is recognized.

     The Company implemented SFAS No. 123 "Accounting for Stock-Based
     Compensation" during the year ended March 31, 1997. The Company will retain
     its current accounting method for its stock based compensation plans. This
     statement will only result in additional disclosures for the Company, and
     as such, its adoption did not, nor is it expected to have, a material
     impact on the Company's financial condition or its results of operations.

                                     -16-
<PAGE>
 
12)  Officer, Director and Employee Plans (continued)
     ------------------------------------------------

     The following summarizes the pro forma net income as if the fair value
     method of accounting for stock-based compensation plan had been utilized:

<TABLE>
<CAPTION>
                                                      Years Ended March 31,
                                                    -------------------------
                                                      1998     1997    1996
                                                    --------  ------  -------
     <S>                                            <C>       <C>     <C>
     Net income (as reported)                       $142,177  73,949  112,708
     Pro forma net income                            139,387  73,949  112,708
 
     Earnings per share - diluted (as reported)     $    .67     .34      .53
     Pro forma diluted earnings per share                .65     .34      .53
</TABLE>

     The pro forma results presented above may not be representative of the
     effects reported in pro form net income for future years.

     The fair value of the option grants for the years ended March 31, 1998,
     1997 and 1996 was estimated using the Black Scholes Method, using the
     following assumptions: expected volatility of 10.0%, risk free interest
     rate of 6.33%, and an expected life of approximately 10 years during all
     periods.

     Employee Stock Ownership Plan
     -----------------------------

     In conjunction with the Conversion, the Bank formed an Employee Stock
     Ownership Plan ("ESOP"). The ESOP covers substantially all employees with
     more than one year of employment and who have attained the age of 21. The
     ESOP borrowed $177,550 from the Company and purchased 17,755 common shares
     issued in the Conversion. The Bank will make scheduled discretionary cash
     contributions to the ESOP sufficient to service the amount borrowed. In
     accordance with generally accepted accounting principles, the unpaid
     balance of the ESOP loan, which is comparable to unearned compensation, is
     reported as a reduction of stockholders' equity. Total contributions by the
     Bank to the ESOP which were used to fund principal and interest payments on
     the ESOP debt totaled $27,569, $27,569 and $27,569 for the years ended
     March 31, 1998, 1997 and 1996, respectively.

     On November 22, 1993, the AICPA issued Statement of Position No. 93-6,
     "Employers' Accounting for Employee Stock Ownership Plans" ("SOP No. 93-
     6"). SOP No. 93-6 provides guidance for accounting for all ESOPs. SOP No.
     93-6 requires that the issuance or sale of treasury shares to the ESOP be
     reported when the issuance or sale occurs and that compensation expense be
     recognized for shares committed to be released to directly compensate
     employees equal to the fair value of the shares committed. In addition, SOP
     No. 93-6 requires that leveraged ESOP debt and related interest expense be
     reflected in the employer's financial statements. Prior practice was to
     recognize compensation expenses based on the amount of the employer's
     contributions to the ESOP. SOP No. 93-6 is effective for fiscal years
     beginning after December 31, 1992. The application of SOP No. 93-6 results
     in fluctuations in compensation expense as a result of changes in the fair
     value of the Company's common stock; however, any such compensation expense
     fluctuations will result in an offsetting adjustment to additional paid-in
     capital. Additional compensation expense, recognized as a result of the
     implementation of this accounting principle, was $1,050, -0-, and -0- for
     the years ended March 31, 1998, 1997 and 1996 respectively.

                                     -17-
<PAGE>
 
12)  Officer, Director and Employee Plans (continued)
     ------------------------------------------------

     Management Recognition Plan
     ---------------------------

     In conjunction with the Conversion, the Company formed a Management
     Recognition Plan ("MRP"), which was authorized to issue 4% of the total
     number of shares of common stock issued in the Conversion. Such additional
     shares, totaling 8,878, were issued from authorized but previously unissued
     shares. The MRP was established to award shares to directors and to
     employees in key management positions in order to provide them with a
     proprietary interest in the Company in a manner designed to encourage such
     employees to remain with the Company. On July 12, 1995, 6,149 shares were
     awarded, and vested at a rate of 33.3% per year, while 2,729 shares were
     reserved for future awards.

     The fair value of the shares issued to the MRP in July of 1995 totaled
     $88,780. Such amount is being amortized to compensation expense as the plan
     participants become vested in those shares. For the years ended March 31,
     1998, 1997 and 1996, $9,319, $24,120 and $55,341 was amortized to expense
     respectively. The unamortized amount, which is comparable to deferred
     compensation, is reflected as a reduction of stockholders' equity.

                                     -18-
<PAGE>
 
13)  Income Taxes

     The Company has adopted SFAS No. 109 which requires a change from the
     deferred method to the liability method of accounting for income taxes.
     Under the liability method, deferred income taxes are recognized for the
     tax consequences of "temporary differences" by applying statutory tax rates
     applicable to future years to differences between the financial statement
     carrying amounts and tax bases of existing assets and liabilities.

     Among the provisions of SFAS 109 which impact the Company is the tax
     treatment of bad debt reserves. SFAS 109 provides that a deferred tax asset
     is to be recognized for the bad debt reserve established for financial
     reporting purposes and requires a deferred tax liability to be recorded for
     increases in the tax bad debt reserve for years beginning after January 1,
     1988, the effective date of certain changes made by the Tax Reform Act of
     1986 to the calculation of savings institutions' bad debt deduction.
     Accordingly, retained earnings at March 31, 1998 includes approximately
     $412,000 for which no deferred federal income tax liability has been
     recognized.

     The provision for income taxes consists of the following:

<TABLE>
<CAPTION>
 
                                                Years Ended March 31,
                                             --------------------------
                                              1998      1997     1996
                                             -------   ------   -------
     <S>                                     <C>       <C>      <C>
     Current                                 $83,027   28,893    79,028
     Deferred (benefit)                        2,015   (3,573)   (7,834)
                                             -------   ------   -------
                                             $85,042   25,320    71,194
                                             =======   ======   =======
</TABLE>

     A reconciliation of the statutory federal income tax rate to effective
     income tax rate is as follows:

<TABLE>
<CAPTION>
                                                Years Ended March 31,
                                             --------------------------
                                              1998      1997     1996
                                             -------   ------   -------
     <S>                                     <C>       <C>      <C> 
     Statutory federal income tax rate          34.0%    34.0      34.0
     Surtax exemption                           (2.8)   (11.2)     (3.0)
     State income tax                            4.3      2.4       3.9
     Other                                       1.9       .3       3.8
                                             -------   ------   -------
     Effective income tax rate                  37.4%    25.5      38.7
                                             =======   ======   =======  
</TABLE>

     Deferred income tax expense (benefit) consists of the following tax effects
     of timing differences:

<TABLE>
<CAPTION>
                                                Years Ended March 31,
                                             --------------------------
                                              1998      1997     1996
                                             -------   ------   -------
     <S>                                     <C>       <C>      <C> 
     Loan fees                               $   138    1,478     4,441
     Book loan loss provision in excess
        of tax bad debt deduction             (2,157)  (3,704)   (1,569)
     Compensation related expenses             2,956     (763)  (12,523)
     Other                                     1,078     (584)    1,817
                                             -------   ------   -------
                                             $ 2,015   (3,573)   (7,834)
                                             =======   ======   =======
</TABLE>

                                     -19-
<PAGE>
 
14)  Stockholders' Equity and Capital Requirements

     The Bank is subject to various regulatory capital requirements administered
     by the federal banking agencies.  Failure to meet minimum total
     requirements can initiate certain mandatory and possible additional
     discretionary actions by regulators that, if undertaken, could have a
     direct material effect on the Bank's financial statements.  Under capital
     adequacy guidelines and the regulatory framework for prompt correction
     action, the Bank must meet specific capital guidelines that involve
     quantitative measures of the Bank's assets, liabilities, and certain off-
     balance-sheet items as calculated under regulatory accounting practices.
     The Bank's capital amounts and classification are also subject to
     quantitative judgments by the regulators about components, risk weightings,
     and other factors.

     Quantitative measures established by regulation to ensure capital adequacy
     require the Bank to maintain minimum amounts and ratios, set forth in the
     table below, of the total risk-based and core capital, as defined in the
     regulations.  Management believes, as of March 31, 1998, that the Bank
     meets all capital adequacy requirements to which it is subject.

     The Bank, according to federal regulatory standards, is well-capitalized
     under the regulatory framework for prompt corrective action.  To be
     categorized as adequately capitalized, the Bank must maintain minimum total
     risk-based and core ratios as set forth in the table.  There are no
     conditions or events since that notification that management believes have
     changed the institution's category.

     At March 31, 1998 and 1997, the Bank's regulatory equity capital was as
     follows:

<TABLE>
<CAPTION>
                                                                 To Be Well-
                                                              Capitalized Under
                                              For Capital     Prompt Corrective
                            Actual        Adequacy Purposes   Action Provisions
                     ----------------------------------------------------------
                       Amount    Ratio      Amount    Ratio     Amount    Ratio
                     ----------------------------------------------------------
<S>                  <C>         <C>      <C>         <C>     <C>         <C> 
March 31, 1998
--------------
Risk-based           $3,115,725  24.38%   $1,022,640  8.00%   $1,278,300  10.00%
Core                  3,069,554  10.69       861,270  3.00     1,435,450   5.00

March 31, 1997
--------------
Risk-based           $2,964,500  28.15%   $  842,480  8.00%   $1,053,100  10.00%
Core                  2,924,329  11.20       783,580  3.00     1,305,970   5.00
</TABLE>

15)  Stockholders' Equity

     As part of the Conversion, the Bank established a liquidation account for
     the benefit of all eligible depositors who continue to maintain their
     deposit accounts in the Bank after conversion.  In the unlikely event of a
     complete liquidation of the Bank, each eligible depositor will be entitled
     to receive a liquidation distribution from the liquidation account, in the
     proportionate amount of the then current adjusted balance for deposit
     accounts held, before distribution may be made with respect to the Bank's
     capital stock.  The Bank may not declare or pay a cash dividend to the
     Company on, or repurchase any of, its capital stock if the effect thereof
     would cause the retained earnings of the Bank to be reduced below the
     amount required for the liquidation account.  Except for such restrictions,
     the existence of the liquidation account does not restrict the use or
     application of retained earnings.

     In addition the Bank may not declare or pay cash dividends on or repurchase
     any of its shares of common stock if the effect thereof would cause
     stockholder's equity to be reduced below applicable regulatory capital
     maintenance requirements or if such declaration and payment would otherwise
     violate regulatory requirements.

     Unlike the Bank, the Company is not subject to these regulatory
     restrictions on the payment of dividends to its stockholders.  However, the
     Company's source of funds for future dividends may depend upon dividends
     received by the Company from the Bank.

                                      -20-
<PAGE>
 
16)  Financial Instruments with Off-Balance Sheet Risk

     The Company is a party to various transactions with off-balance sheet risk
     in the normal course of business.  These transactions are primarily
     commitments to originate and to purchase loans.  These financial
     instruments carry varying degrees of credit and interest-rate risk in
     excess of amounts recorded in the consolidated financial statements.

     Outstanding commitments to originate or purchase mortgage loans amounted to
     $1,591,000 at March 31, 1998 at fixed rates ranging from 6.75% to 9.50%.
     Because the credit worthiness of each customer is reviewed prior to
     extension of a commitment, the Bank adequately controls their credit risk
     on their commitments, as it does for loans recorded on the balance sheet.
     The Bank conducts all of its lending activities in the Chicagoland area.
     Management believes the Bank has a diversified loan portfolio and the
     concentration of lending activities in these local communities does not
     result in an acute dependency upon economic conditions of the lending
     region.

     The Federal Home Loan Bank of Chicago has issued an irrevocable letter of
     credit for $510,000 to the State of Illinois on behalf of the Bank in order
     to secure deposits totaling $502,502.

17)  Contingencies

     The Bank is, from time to time, a party to certain lawsuits arising in the
     ordinary course of its business, wherein it enforces its security interest.
     Management, based upon discussions with legal counsel, believes that the
     Company and the Bank are not engaged in any legal proceedings of a material
     nature at the present time.

18)  SAIF Special Assessment and its Impact on SAIF Insurance Premiums

     The deposits of West Town Savings Bank are presently insured by the Savings
     Association Insurance Fund ("SAIF"), which together with the Bank Insurance
     Fund ("BIF"), are the two insurance funds administered by the Federal
     Deposit Insurance Corporation ("FDIC").  Financial institutions which are
     members of the BIF were experiencing substantially lower deposit insurance
     premiums because the BIF had achieved its required level of reserves while
     the SAIF had not yet achieved its required reserves.  In order to help
     eliminate this disparity and any competitive disadvantage due to disparate
     deposit insurance premium schedules, legislation to recapitalize the SAIF
     was enacted in September, 1996.

     The legislation required a special one-time assessment of 65.7 cents per
     $100 of SAIF insured deposits held by the Bank at March 31, 1995.  The one-
     time special assessment resulted in a charge to earnings of approximately
     $128,000 during the year ended March 31, 1997.  The after-tax effect of
     this one-time charge to earnings totaled approximately $83,000.  The
     legislation was intended to fully recapitalize the SAIF fund so that
     commercial bank and thrift deposits would be charged the same FDIC premiums
     beginning January 1, 1997.  As of such date, deposit insurance premiums for
     highly rated institutions, such as the Bank, have been substantially
     reduced.

     The Bank, however, will continue to be subject to an assessment to fund
     repayment of the Financing Corporation's ("FICO") obligations.  The FICO
     assessment for SAIF insured institutions will be 6.48 cents per $100 of
     deposits while BIF insured institutions will pay 1.52 cents per $100 of
     deposits until the year 2000 when the assessment will be imposed at the
     same rate on all FDIC insured institutions.

                                      -21-

<PAGE>
 
19)  Disclosures About the Fair Value of Financial Instruments

     The following methods and assumptions were used to estimate the fair value
     of each class of financial instruments for which it is practicable to
     estimate that value:

     Cash and cash equivalents:  For cash and interest-bearing deposits, the
     carrying amount is a reasonable estimate of fair value.

     U.S. Government and agency obligations:  Fair values for securities are
     based on quoted market prices as published in financial publications.

     Mortgage-backed securities:  Fair values for mortgage-backed securities are
     based on average quotes received from a third-party broker.

     Loans receivable:  The fair values of mortgage loans are estimated using
     discounted cash flow analyses, using interest rates currently being offered
     for loans with similar terms and collateral to borrowers of similar credit
     quality.

     Other investments:  Fair values for other investments are based on quoted
     market prices received from third-party sources.

     Deposit liabilities:  The fair value of savings accounts is the amount
     payable on demand at the reporting date.  The fair value of fixed maturity
     certificates of deposit is estimated by discounting the future cash flows
     using the rates currently offered for deposits of similar original
     maturities.

     Financial instruments with off-balance sheet risk:  Fair values of the
     Company's off-balance sheet financial instruments, which consist of loan
     commitments, are based on fees charged to enter into these agreements.  As
     the Company currently charges no fees on these instruments, no estimate of
     fair value has been made.

     The fair value of the Company's off-balance-sheet instruments is nominal.

     The estimated fair values of the Company's financial instruments as of
     March 31, 1998 and 1997 are as follows:

<TABLE>
<CAPTION>
                                                            March 31, 1998
                                                        -----------------------
                                                         Carrying      Fair
                                                          Amount       Value
                                                        -----------  ----------
<S>                                                     <C>          <C>
Financial assets:
  Cash and cash equivalents                             $ 7,177,578   7,177,578
  U.S. Government and agency obligations                    500,000     498,000
  Mortgage-backed securities                              1,631,621   1,646,000
  Loans receivable, gross                                19,217,072  19,381,500
  Other investments, available for sale                     100,000     100,000
 
Financial liabilities:
  Deposits                                               25,263,850  25,547,200
</TABLE>

<TABLE>
<CAPTION>
                                                            March 31, 1998
                                                        -----------------------
                                                         Carrying      Fair
                                                          Amount       Value
                                                        -----------  ----------
<S>                                                     <C>          <C>
Financial assets:
  Cash and cash equivalents                             $ 7,243,783   7,243,783
  U.S. Government and agency obligations                  1,100,315   1,082,000
  Mortgage-backed securities                              2,494,292   2,465,000
  Loans receivable, gross                                16,998,268  17,103,000
 
Financial liabilities:
  Deposits                                               22,816,474  22,879,000
</TABLE>

                                      -22-
<PAGE>
 

20)  Condensed Parent Company Only Financial Statements

     The following condensed statements of financial condition, as of March 31,
     1998 and 1997, and condensed statements of income and cash flows for the
     years ended March 31, 1998, 1997 and 1996 for West Town Bancorp, Inc.
     should be read in conjunction with the consolidated financial statements
     and the notes thereto.

                       Statements of Financial Condition
                              ------------------

<TABLE>
<CAPTION>
                                                              March 31,
                                                      -------------------------
                                                         1998           1997
                                                         ----           ----
<S>                                                   <C>             <C>
Assets
------

Cash and cash equivalents                             $  552,282        805,037
Loans receivable                                         297,393        227,903
Other investments, available for sale                    100,000              -
Accrued interest receivable                               17,414          1,079
Equity investment in subsidiaries                      3,212,354      3,081,825
Other assets                                              19,134         13,286
                                                      ----------      ---------
                                                       4,198,577      4,129,130
                                                      ==========      =========

Liabilities and Stockholders' Equity
------------------------------------

Accrued taxes and other liabilities                       12,425         12,568
Common stock                                               2,319          2,319
Additional paid-in capital                             1,986,077      1,986,077
Retained earnings                                      2,279,662      2,137,485
Treasury stock, at cost                                  (81,906)          -
Common stock awarded by Management
  Recognition Plan                                          -            (9,319)
                                                      ----------      ---------
                                                      $4,198,577      4,129,130
                                                      ==========      =========
</TABLE>

                             Statements of Income
                             --------------------
<TABLE>
<CAPTION>
                                                   Years Ended March 31,
                                             ----------------------------------
                                               1998         1997         1996
                                               ----         ----         ----
<S>                                          <C>           <C>          <C>
Interest income                              $ 63,746       60,081       62,359
Loan fees and service charges                   1,208         -            -
Gain on sale of investment securities,
  available for sale                             -           3,178         -
Non-interest expense                          (43,498)     (45,341)     (85,990)
                                             --------      -------      -------

Net income (loss) before income taxes
  and equity in earnings of subsidiaries       21,456       17,918      (23,631)
Benefit of (provision for) income taxes        (9,808)      (9,384)       7,915
                                             --------      -------      -------

Net income (loss) before equity
  in earnings of subsidiaries                  11,648        8,534      (15,716)
Equity in earnings of subsidiaries            130,529       65,415      128,424
                                             --------      -------      -------
Net income                                   $142,177       73,949      112,708
                                             ========      =======      =======
</TABLE>

                                     -23-
<PAGE>
 
20)  Condensed Parent Company Only Financial Statements (continued)

                           Statements of Cash Flows
                              -------------      

<TABLE>
<CAPTION>
 
                                                                 Years Ended March 31,
                                                        -------------------------------------
                                                           1998          1997         1996
                                                           ----          ----         ----
<S>                                                     <C>            <C>          <C>           
     Operating activities:                                                                        
       Net income                                       $ 142,177       73,949       112,708      
       Equity in earnings of subsidiaries                (130,529)     (65,415)     (128,424)     
       Gain on sale of investment securities,                                                     
         available for sale                                     -       (3,178)            -      
       (Increase) decrease in accrued                                                             
         interest receivable                              (16,335)       3,002        (4,081)     
       Change in prepaid and accrued items, net            (5,991)      (1,947)      (12,571)     
       Cost of stock benefit plan                           9,319       24,120        55,341      
                                                        ---------      -------      --------      
                                                                                                  
     Net cash provided by (for)                                                                   
        operating activities                               (1,359)      30,531        22,973      
                                                        ---------      -------      --------      
                                                                                                  
     Investing activities:                                                                        
       Purchase of investment securities,                                                         
         available for sale                              (100,000)     (47,790)            -      
       Proceeds from sale of investment                                                           
         securities, available for sale                         -       50,968             -      
       Loan disbursements                                (531,923)     (74,902)            -      
       Loan repayments                                    462,433       12,388        11,269      
                                                        ---------      -------      --------      
                                                                                                  
     Net cash provided by (for)                                                                   
        investing activities                             (169,490)     (59,336)       11,269      
                                                         --------      -------      --------      
                                                                                                  
     Financing activities:                                                                        
       Proceeds from exercise of stock options                  -       11,100             -      
       Purchase of treasury stock                         (81,906)           -             -      
                                                        ---------      -------      --------      
                                                                                                  
     Net cash provided by (for)                                                                   
        financing activities                              (81,906)      11,100             -      
                                                        ---------      -------      --------      
                                                                                                  
     (Decrease) increase in cash and                                                              
        cash equivalents                                 (252,755)     (17,705)       34,242      
                                                                                                  
     Cash and cash equivalents at                                                                 
        beginning of period                               805,037      822,742       788,500      
                                                        ---------      -------      --------      
                                                                                                  
     Cash and cash equivalents at                                                                 
        end of period                                   $ 552,282      805,037       822,742      
                                                        =========      =======      ========       
</TABLE>

                                     -24-