Exhibit 13

                        Annual Report to Security Holders
<PAGE>








                               1997 ANNUAL REPORT 
















                                 CAPITAL SAVINGS
                                  BANCORP, INC.



<PAGE>





TABLE OF CONTENTS








         President's Message.................................................  1
         Selected Consolidated Financial Information.........................  2
         Management's Discussion and Analysis of Financial
           Condition and Results of Operation................................  5
         Consolidated Financial Statements................................... 20
         Stockholder Information............................................. 55
         Corporate Information............................................... 57




<PAGE>

FROM YOUR PRESIDENT






                                                September 23, 1997



Dear Fellow Shareholders:


         On behalf of the Board of Directors and  management of Capital  Savings
Bancorp,  Inc. and its subsidiary  Capital  Savings Bank, FSB, we are pleased to
share with you the  results of the  Company's  performance  for the fiscal  year
ended June 30, 1997.

         The Company  experienced  significant  increases  in both  earnings and
asset  growth.  Net income for the twelve  months  ended June 30,  1997 was $1.6
million or $.82 per share.  This included the impact of the one-time  assessment
to recapitalize the Savings  Association  Insurance Fund.  Excluding the special
assessment,  net income for the twelve  months  would have been $2.1  million or
$1.13 per  share,  as  compared  to $1.9  million or $.94 per share for the same
period in 1996, a 21.3% increase in earnings per share.

         Total  assets  increased  $24.5  million to $242.5  million at June 30,
1997, an 11.2% increase.  The growth in assets was  attributable  primarily to a
14.2% or $23.6 million increase in the loan portfolio. This growth was funded by
an $18.7  million or 12.3%  increase  in  deposits  and a $4.5  million or 10.7%
increase in Federal Home Loan Bank advances.

         Our totally free checking account program produced  tremendous  results
this past year,  with an increase of over 6,000 new accounts and $5.9 million in
checking  account  deposits.  In April of this year we also  opened  our  second
supermarket branch,  offering convenient banking services to our customers seven
days-a-week.

         Our Board and management team remains committed to the continued growth
of the Company,  the enhancement of banking  services for our customers,  and an
increase in value to you, our shareholder.

         Thank you for your  continued  confidence in Capital  Savings  Bancorp,
Inc.


Sincerely,



/s/Larry V. Schepers
--------------------
Larry V. Schepers
Chairman of the Board and President
<PAGE>
<TABLE>
<CAPTION>
SELECTED CONSOLIDATED FINANCIAL INFORMATION

                                                                                At June 30,
                                                      ---------------------------------------------------------------
                                                        1993          1994          1995         1996          1997
                                                      --------      --------      --------     --------      --------
                                                                                 (In Thousands)
Selected Financial Condition Data:
<S>                                                   <C>           <C>           <C>          <C>           <C>
Total assets......................................... $163,060      $170,235      $186,677     $217,954      $242,518
Loans receivable, net................................  130,735       134,881       151,843      166,623       190,203
Mortgage-backed securities...........................   15,408        12,932        18,863       28,339(1)     23,449(1)
Investment securities................................    4,481        15,219        10,241(2)    16,046(2)     16,715(2)
Deposits.............................................  151,382       143,054       145,688      152,345       171,039
Total borrowings.....................................    1,000         5,200        18,500       42,000        46,500
Stockholders' equity.................................    8,207        19,604        19,697       20,481        21,340

<CAPTION>
                                                                              Year Ended June 30,
                                                      --------------------------------------------------------------
                                                        1993          1994          1995         1996          1997
                                                      -------       -------       -------      -------       -------
                                                                     (In Thousands, Except Per Share Data)
Selected Operations Data:
<S>                                                   <C>           <C>           <C>          <C>           <C>
Total interest income................................ $12,463       $11,138       $12,737      $14,996       $17,727
Total interest expense...............................   7,109         5,673         6,562        8,445        10,365
                                                      -------       -------       -------      -------       -------
  Net interest income................................   5,354         5,465         6,175        6,551         7,362
Provision for loan losses............................      48            40            60          120           120
                                                      -------       -------       -------      -------       -------
  Net interest income after provision
   for loan losses...................................   5,306         5,425         6,115        6,431         7,242
                                                      -------       -------       -------      -------       -------
Loan servicing fees and service charges.............      174           172           177          189           197
Income (Loss) from real estate owned held for sale...     425           140             7           29            (2)
Other noninterest income.............................     481           415           596          611         1,040
                                                      -------       -------       -------      -------       -------
  Total noninterest income...........................   1,080           727           780          829         1,235
                                                      -------       -------       -------      -------       -------
Total noninterest expense and income taxes...........   4,202         4,380         5,113        5,400         6,927
                                                      -------       -------       -------      -------       -------
  Net income......................................... $ 2,184       $ 1,772       $ 1,782      $ 1,860       $ 1,550
                                                      =======       =======       =======      =======       =======

Earnings Per Share...................................     n/a           n/a       $  0.85(3)   $  0.94(3)    $  0.82(3,4)
Dividends Per Share..................................     n/a           n/a       $   .15(3)   $   .17(3)    $   .23(3)









                                     - 2 -
<PAGE>
                                                                                              
     (1) At  June  30,  1996  and  1997,  all  mortgage-backed  securities  were
classified   as   available-for-sale.   For  all  other  dates   presented   all
mortgage-backed  securities were classified as  held-to-maturity.  See Note 2 of
the Notes to Consolidated Financial Statements contained herein.
                                                                                 
     (2) Includes  $5.9  million,  $2.0  million and $4.7 million of  investment
securities  classified as  available-for-sale  at June 30, 1995, 1996, and 1997,
respectively.  For the other dates  presented  all  investment  securities  were
classified  as  held-to-maturity.  See  Note  2 of  the  Notes  to  Consolidated
Financial Statements contained herein.

     (3) Earnings Per Share and Dividends Per Share are presented to reflect the
2-for-1 stock split,  effective in the form of a 100% stock dividend,  completed
November 22, 1996.
                                                                                                            
     (4)  Excluding the one-time  Savings  Association  Insurance  Fund ("SAIF")
assessment,  earnings per share would have been $1.13.  See Note 16 of the Notes
to Consolidated Financial Statements contained herein.
</TABLE>






































                                     - 3 -
<PAGE>
<TABLE>
<CAPTION>
                                                                                           Year Ended June 30,
                                                                     -------------------------------------------------------------
                                                                      1993          1994          1995         1996         1997
                                                                      ----          ----          ----         ----         ----

Selected Financial Ratios and Other Data:
<S>                                                                  <C>           <C>          <C>          <C>          <C>
Performance Ratios:
 Return on assets (ratio of net income
 to average total assets).....................................        1.33%         1.07%         1.00%         .94%         .67%(1)

 Interest rate spread information:
  Average during period.......................................        3.27          3.10          2.96         2.85         2.94
  End of period...............................................        3.24          3.17          2.81         2.89         2.88
 Net interest margin (2)......................................        3.38          3.41          3.55         3.40         3.27
 Return on stockholders' equity (ratio of
   net income to average equity)..............................       30.70         12.74          8.92         9.10         7.61(1)
 Ratio of operating expense (excluding
   gain/loss on sale of real estate owned)
   to average total assets....................................        1.91          2.11          2.27         2.13         2.54(1)

Quality Ratios:
 Non-performing assets to total assets at
  end of period...............................................        1.19           .97           .12          .23          .31
 Allowance for loan losses to non-
  performing loans............................................       23.26         29.63        411.27       136.93       107.41

Equity Ratios:
 Stockholders' equity to total assets
  at end of period............................................        5.03         11.52         10.55         9.40         8.80
 Average stockholders' equity to average
  assets......................................................        4.31          8.40         11.17        10.32         8.74
 Ratio of average interest-earning assets
  to average interest-bearing liabilities.....................        1.03          1.09          1.12         1.12         1.07

Number of full service offices................................           6             6             6            6            8
Number of limited service offices.............................           5             4             4            3            1



--------
                                                                                                                     
     (5)  Includes  impact of the  one-time  SAIF  assessment  of  approximately
$959,000. Excluding the impact of the SAIF assessment the following ratios would
have been as follows:  Return on Assets .92%,  Return on Equity 10.52%,  and the
Ratio of operating  expense to average  total assets  2.12%.  See Note 16 of the
Notes to Consolidated  Financial  Statements  contained herein. 

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






                                     - 4 -
<PAGE>
                MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
                       CONDITION AND RESULTS OF OPERATIONS



         Capital Savings Bancorp, Inc. (and with its subsidiary,  the "Company")
is a Delaware  corporation  organized on  September  22, 1993 for the purpose of
becoming the holding  company of Capital  Savings Bank,  FSB (the  "Bank").  The
principal business of the Company consists primarily of attracting deposits from
the general  public and using such deposits to originate  mortgage loans secured
by one- to four-family  residences and, to a lesser extent,  one- to four-family
residential  construction,  multi-family  and  commercial  real estate loans and
consumer  loans.  The Company also uses these funds to purchase loans secured by
one-  to  four-family  residences  and,  to a  lesser  extent,  multifamily  and
nonresidential   properties.   The  Company   also   purchases   mortgage-backed
securities, U.S. government and federal agency obligations and other permissible
securities.

         The Company's  results of operations  are primarily  dependent upon the
difference   (or   "spread")   between  the  average   yield  earned  on  loans,
mortgage-backed securities and investments and the average rate paid on deposits
and borrowings,  as well as the relative amounts of such assets and liabilities.
The interest  rate spread is affected by  regulatory,  economic and  competitive
factors  that  influence  interest  rates,  loan demand and deposit  flows.  The
Company, like other thrift institutions, is subject to interest-rate risk to the
degree that its interest-earning assets mature or reprice at different times, or
on a different basis, than its interest-bearing liabilities.

         The  Company's  results of operation  are also affected by, among other
things,  provision for loan losses,  loan servicing income, fee income and other
service charges,  subsidiary  income,  operating  expenses and income taxes. The
Company's operating expenses  principally  consist of employee  compensation and
benefits,  occupancy  expenses,  federal  deposit  insurance  premiums and other
general and administrative expenses.

         The Company is significantly affected by prevailing economic conditions
including federal monetary and fiscal policies, as well as by federal regulation
of  financial  institutions.  Deposit  balances  are  influenced  by a number of
factors including interest rates paid on competing personal  investments and the
level of  personal  income and savings  within the  institution's  market  area.
Lending  activities  are  influenced  by consumer  demand for housing as well as
competition  from other lending  institutions.  The primary sources of funds for
lending  activities  include  deposits,  loan  payments,  borrowings  and  funds
provided from operations.

Financial Condition

         June 30, 1997  compared to June 30, 1996.  The  Company's  total assets
increased  $24.5  million,  or 11.2%,  to $242.5  million at June 30,  1997 from
$218.0  million at June 30, 1996. The increase was primarily  attributable  to a
$23.6 million increase in loans receivable  offset by a $4.9 million decrease in
mortgage-backed  securities.  The asset growth was funded through an increase in
deposits of $18.7 million and an increase in advances from the Federal Home Loan
Bank of Des Moines (the "FHLB") of $4.5 million.




                                     - 5 -
<PAGE>

         Net loans  receivable  increased  $23.6  million,  or 14.2%,  to $190.2
million at June 30, 1997 from $166.6  million at June 30, 1996.  Loan growth was
primarily the result of increased originations, which were due to an increase in
marketing  efforts  and  increase  in demand in the  Company's  primary  lending
market. In addition,  the Company purchased  approximately $6.0 million of loans
secured by properties in the state of Missouri.  During fiscal 1997, the Company
originated  and  purchased  $41.7  million  of one- to  four-family  residential
mortgage loans as compared to $53.6 million of such mortgage loans during fiscal
1996.

         Deposits  increased $18.7 million,  or 12.3%, to $171.0 million at June
30, 1997 from $152.3  million at June 30, 1996.  This  increase was comprised of
$7.8 million in time deposits, $5.0 million in savings deposits and $5.9 million
in demand deposits.

         Advances  from the FHLB  increased  $4.5  million,  or 10.7%,  to $46.5
million at June 30, 1997 from $42.0 million at June 30, 1996.  The advances have
terms of up to five years at both  variable  and fixed  interest  rates and were
primarily  used to  finance  growth in loans  receivable.  At June 30,  1997 the
average cost of advances  was .11% higher than the weighted  average cost of the
Company's certificates of deposit.

         June 30, 1996  compared to June 30, 1995.  The  Company's  total assets
increased $31.3 million, or 16.8% to $218.0 million at June 30, 1996 from $186.7
million at June 30, 1995.  The increase was  primarily  attributable  to a $14.8
million increase in loans receivable, a $9.5 million increase in mortgage-backed
securities,  and a $5.4 million increase in investment securities as a result of
the Company's  efforts to leverage its capital and increase net interest income.
The increases  were funded  primarily by FHLB advances and to a lesser extent by
increased deposits.

         Deposits increased $6.7 million, or 4.6%, to $152.3 million at June 30,
1996 from  $145.7  million  at June 30,  1995.  The  increase  in  deposits  was
primarily  attributed to an increase in  certificates of deposit of $4.9 million
and a $1.7 million  increase in demand deposits.  FHLB advances  increased $23.5
million to $42.0  million at June 30, 1996 from $18.5  million at June 30, 1995.
The advances, which have maturities from 1 month to 5 years, were primarily used
to fund loan growth.


Results of Operations

         The Company's  results of operations  depend  primarily on the level of
its net  interest  income and  non-interest  income and its control of operating
expenses. Net interest income depends upon the volume of interest-earning assets
and interest-bearing liabilities and the interest rates earned or paid on them.

         The Company's  noninterest income consists primarily of fees charged on
transaction accounts and the origination of loans which help to offset the costs
associated with  establishing and maintaining  these deposits and loan accounts.
In addition,  noninterest  income is derived from the  activities  of the Bank's
wholly  owned  subsidiary  which  engages in the sale of various  insurance  and
investment products.




                                     - 6 -
<PAGE>
Comparison of Fiscal Years Ended June 30, 1997 and June 30, 1996

         General. The Company's net income decreased $310,000, or 16.7%, to $1.6
million  for the year ended June 30,  1997 from $1.9  million for the year ended
June 30, 1996.  Exclusive of the one-time  SAIF  assessment  of $959,000 and the
related  income tax effect,  net income for fiscal 1997 would have  approximated
$2.2 million,  or an increase of $290,000 from the year ended June 30, 1996. The
Company had an increase in net interest income and non-interest income partially
offset by an increase in non-interest expense.

         Net Interest Income.  Net interest income before the provision for loan
losses  totaled $7.4 million for fiscal 1997 compared to $6.6 million for fiscal
1996,  representing  an increase of 12.4%.  The increase was due primarily to an
increase  in the average  balance of  interest-earning  assets.  The average net
interest  rate spread  increased  to 2.94% for the year ended June 30, 1997 from
2.85% for the year ended June 30, 1996.  This .09%  increase was  attributed  to
assets  repricing at an increased  rate as a result of generally  higher  market
interest rates.

         Interest  income  increased  $2.7 million to $17.7 million for the year
ended June 30,  1997 from $15.0  million for the year ended June 30,  1996.  The
increase in interest  income was  primarily  attributed to a $32.4  million,  or
16.8%, increase in average interest-earning assets, primarily loans receivable.

         Interest expense increased $2.0 million, or 22.7%, to $10.4 million for
the year ended June 30, 1997 from $8.4 million for the year ended June 30, 1996.
The  increase  was due to a $39.0  million  increase in the  average  balance of
interest-bearing liabilities,  primarily FHLB advances. The average rate paid on
interest-bearing  liabilities  remained at 4.93%  during  fiscal  years 1996 and
1997.

         Provision  for Loan Losses.  The provision for loan losses was $120,000
for the years  ended  June  30,1997  and 1996.  The  allowance  for loan  losses
increased  to  $739,000,  or .39% of total loans at June 30,  1997,  compared to
$634,000 or .38% of total loans at June 30, 1996.  The increase in the allowance
for loan losses was primarily  reflective of the $23.6 million or 14.2% increase
in the Company's loan portfolio.

         The Company maintains  allowances for loan losses based on management's
analysis of its loan portfolio, the amount of non-performing assets, and general
economic  conditions.  The Company continues to monitor and adjust its allowance
for loan losses as  management's  analysis of its loan  portfolio  and  economic
conditions dictate.  Future additions to the Company's allowance for loan losses
and any  change  in the  related  ratio  of the  allowance  for loan  losses  to
non-performing  loans are  dependent  upon the  economy,  changes in real estate
values  and  interest  rates.  In  addition,   federal  regulators  may  require
additional  reserves  as a  result  of their  examination  of the  Company.  The
allowance  for loan losses  reflects what the Company  currently  believes is an
adequate  level of  reserves,  although  there can be no  assurance  that future
losses will not exceed the estimated amounts, thereby adversely affecting future
results  of  operations.  See "Use of  Estimates"  under  Note 1 of the Notes to
Consolidated Financial Statements herein.






                                     - 7 -
<PAGE>
         The Company's  total  nonperforming  assets (which include  non-accrual
loans,  accruing  loans more than 90 days  delinquent,  and real  estate  owned)
increased by $253,000 to  $760,000,  or .31% of total  assets,  at June 30, 1997
from $507,000,  or .23% of total assets, at June 30, 1996. At June 30, 1997, the
Bank's allowance for loan losses to non-performing  loans was 107.4% as compared
to 136.9% at June 30, 1996.

         Noninterest Income.  Noninterest income increased $406,000 or 49.0%, to
$1.2  million for the year ended June 30, 1997 from  $829,000 for the year ended
June 30, 1996. Noninterest income consists primarily of bank service charges and
fees,  loan  servicing  income,   income  from  the  Bank's  financial  services
subsidiary,  and net gain  (loss) on the sales of  securities.  The  increase in
noninterest  income  during  fiscal 1997 was due to  increases  in bank  service
charges,  and from the gain on sale of  securities,  offset by a decrease in the
commission  income of the Bank's  financial  services  subsidiary.  Bank service
charges  increased  $431,000  for the year ended June 30, 1997 to $691,000  from
$260,000 for the previous year. The increase was attributable to the increase in
number of  checking  accounts  added in the past  year.  Management  intends  to
continue marketing of the checking account program.

         Noninterest Expense. Noninterest expense increased $1.7 million to $5.9
million  for the year ended June 30,  1997 from $4.2  million for the year ended
June 30, 1996.  Excluding the SAIF assessment of $959,000,  non-interest expense
increased  $730,000,  or 17.3% to $5.0 million when  compared to the prior year.
See Note 16 of the  Notes  to  Consolidated  Financial  Statements  herein.  The
majority of the increase was  attributable  to an increase in  compensation  and
benefits of $364,000  which  included the cost of employees  hired in connection
with the opening of a  supermarket  branch  during  April  1997.  An increase in
office occupancy,  advertising,  data processing and other non-interest expenses
were due in part to the  marketing of the  checking  account  promotion  and the
opening of a new supermarket branch facility.

         Provision for Income Taxes.  Income tax expenses  decreased by $161,000
to $1.0  million for the year ended June 30, 1997 from $1.2 million for the year
ended June 30, 1996. The decrease was due to the decrease in taxable income.

Comparison of Fiscal Years Ended June 30, 1996 and June 30, 1995

         General.  The Company's net income increased by $78,000 or 4.4% to $1.9
million  for the year ended June 30,  1996 from $1.8  million for the year ended
June 30, 1995.  The  increase  was due to  increases in net interest  income and
noninterest income, offset by increases in noninterest expense and the provision
for income taxes.

         Net Interest  Income.  Net interest  income  before  provision for loan
losses  increased  by $377,000 or 6.1%,  to $6.6 million for the year ended June
30, 1996 from $6.2  million for the year ended June 30,  1995.  The increase was
due primarily to an increase in the average balance of interest-earning  assets.
The average net interest  spread  declined,  however,  from 2.96% for the fiscal
year  ended  June 30,  1995 to 2.85% for the period  ended  June 30,  1996.  The
decline  was  attributable  to deposits  and  borrowings  repricing  upward at a
greater  rate  than  interest-earning  assets  as a  result  of  general  market
increases in interest rates.





                                     - 8 -
<PAGE>
         Interest income increased $2.3 million,  or 17.7%, to $15.0 million for
the year ended June 30, 1996  compared to $12.7  million for the year ended June
30, 1995. The increase in interest income was primarily  attributable to a $16.0
million or 9.1% increase in average interest-earning assets due to the growth in
the one- to four-family  mortgage loans,  commercial loans,  consumer loans, and
the mortgage-backed securities portfolio.

         Interest  expense  increased $1.9 million or 28.7%, to $8.4 million for
the year ended June 30, 1996 from $6.6 million for the year ended June 30, 1995.
The  increase  was  primarily  due to the  average  balance of  interest-bearing
liabilities  increasing  $16.8  million or 10.9% from  $154.5  million to $171.4
million and, to a lesser  extent,  a 68 basis point increase in the average cost
of funds.  The $16.8 million increase was primarily the result of an increase in
the balance of FHLB  advances  and  certificate  accounts.  Interest  expense on
deposits  increased  $1.2  million  while  interest  expense on  borrowed  funds
increased $638,000.

         Provision  for Loan Losses.  The provision for loan losses was $120,000
for the year ended June 30, 1996, as compared to $60,000 in 1995. The provisions
increased  allowance  for loan losses to $634,000 or .38% of total loans at June
30, 1996, compared to $514,000 or .34% of total loans at June 30, 1995.

         The  Company's  total  nonperforming  assets  increased  by $275,000 to
$507,000 or .23% of total assets at June 30, 1996 from  $232,000 or .12% at June
30, 1995.  The net loan  portfolio  increased by $14.8  million  during the same
period.

         Noninterest  Income.  Noninterest  income increased $49,000 or 6.3%, to
$829,000  for the period  ended June 30, 1996 from  $780,000  for the year ended
June 30, 1995. The increase in noninterest  income during fiscal 1996 was due to
increases  in  income  from real  estate  owned  held for sale,  gain on sale of
securities  and service  charges,  offset by a decrease  in the  earnings of the
Bank's financial services subsidiary.

         Noninterest  Expense.  Noninterest  expense increased  $165,000 to $4.2
million for the fiscal year ended June 30, 1996 from $4.1 million for the fiscal
year ended June 30, 1995. The increase in noninterest  expense was due primarily
to  an  increase  in  occupancy  and  equipment  expenses  and  an  increase  in
advertising  expenses,  partially  offset  by a  decrease  in  compensation  and
benefits.  Office occupancy and equipment expenses increased $91,000 to $511,000
for the year ended June 30, 1996 from  $420,000 for the year ended June 30, 1995
due, in part, to relocation  and expansion of the Rolla,  Missouri  facility and
relocation of the Jefferson City mall facility to a supermarket facility.

         Provision for Income Taxes. Income tax expense increased by $122,000 to
$1.2  million for the fiscal year ended June 30, 1996 from $1.1  million for the
fiscal year ended June 30, 1995. The increase was due to the increase in taxable
income  and the  Company's  effective  tax rate in fiscal  1996.  The  Company's
effective tax rate increased to 38.8% in the year ended June 30, 1996 from 37.2%
for the fiscal year ended June 30, 1995.








                                     - 9 -
<PAGE>
Average Balances, Interest Rates and Yields

         The following table presents for the periods indicated the total dollar
amount of interest income from average interest-earning assets and the resultant
yields,  as well as the total  dollar  amount of  interest  expense  on  average
interest-bearing   liabilities  and  the  resultant  rates.  No  tax  equivalent
adjustments  were made.  Non-accruing  loans have been  included in the table as
loans carrying a zero yield.
<TABLE>
<CAPTION>
                                                                                    Year Ended June 30,
                                                    --------------------------------------------------------------------------------
                                                                      1995                                      1996              
                                                    --------------------------------------    --------------------------------------
                                                       Average       Interest                  Average        Interest              
                                                     Outstanding     Earned/        Yield/    Outstanding       Earned/       Yield/
                                                       Balance         Paid          Rate       Balance          Paid          Rate 
                                                       -------         ----          ----       -------          ----          ---- 
                                                                                 (Dollars in Thousands)
<S>                                                   <C>            <C>            <C>       <C>             <C>              <C>
Interest-Earning Assets:
 Loans receivable1................................... $143,429       $10,807        7.53%     $157,222        $ 12,715         8.09%
 Mortgage-backed securities..........................   16,471         1,103        6.70%       22,905           1,602         6.99%
 Investment securities...............................   13,344           603        4.52%        8,344             419         5.02%
 FHLB stock..........................................    1,857           144        7.75%        1,921             136         7.08%
 Other...............................................    1,595            80        5.02%        2,347             124         5.28%
                                                      --------       -------                  --------         -------              

     Total interest-earning
      assets(1)...................................... $176,696        12,737        7.21%     $192,739          14,996         7.78%
                                                      ========        ------                  ========         ------               

Interest-Bearing Liabilities:
 Demand and checking deposits........................ $ 18,270           426        2.33%     $ 17,799             381         2.14%
 Savings deposits....................................   17,336           495        2.86%       16,146             465         2.88%
 Certificate accounts................................  107,415         4,937        4.60%      114,769           6,257         5.45%
 FHLB advances.......................................   11,513           704        3.84%       22,656           1,342         5.92%
                                                      ---------       -------                 --------         --------    

    Total interest-bearing
      liabilities.................................... $154,534          6,562       4.25%     $171,370           8,445         4.93%
                                                      ========        -------                 ========         --------             

Net interest income..................................                 $ 6,175                                 $  6,551              
                                                                      =======                                 ========              
Net interest rate spread.............................                               2.96%                                      2.85%
                                                                                    ====                                       ==== 
Net earning assets................................... $ 22,162                                $ 21,369                              
                                                      ========                                 =======                              
Net yield on average
 interest-earning assets.............................                               3.49%                                      3.40%
                                                                                    ====                                       ==== 
Average interest-earning
 assets to average interest-
 bearing liabilities.................................                    1.14x                                     1.12x            
                                                                         ====                                      ====             
</TABLE>

                                                                - 10-
<PAGE>
<TABLE>
<CAPTION>
                                                                             1997                
                                                         --------------------------------------                
                                                           Average         Interest                
                                                         Outstanding        Earned/      Yield/ 
                                                           Balance          Paid         Rate   
                                                           -------          ----         ---- 
                                                                   (Dollars in Thousands)
<S>                                                       <C>              <C>           <C>  
Interest-Earning Assets:                               
 Loans receivable1...................................     $181,057         $14,719       8.13%       
 Mortgage-backed securities..........................       26,166           1,784       6.82%       
 Investment securities...............................       13,229             927       7.01%       
 FHLB stock..........................................        2,765             198       7.16%       
 Other...............................................        1,962              99       5.05%       
                                                          --------         -------                   
     Total interest-earning                                                                          
      assets().......................................     $225,179          17,727       7.87%       
                                                          ========          ------                   
                                                                                                     
Interest-Bearing Liabilities:                                                                        
 Demand and checking deposits........................     $ 24,362             561       2.30%       
 Savings deposits....................................       17,048             458       2.69%       
 Certificate accounts................................      119,802           6,576       5.49%       
 FHLB advances.......................................       49,125           2,770       5.64%       
                                                          --------         -------                   
                                                                                                     
    Total interest-bearing                                                                           
      liabilities....................................     $210,337          10,365       4.93%       
                                                          ========         -------                   
                                                                                                     
Net interest income..................................                     $  7,362                   
                                                                          ========                     
Net interest rate spread.............................                                    2.94%       
                                                                                         ====    
Net earning assets...................................     $ 14,842                                   
                                                          ========                                   
Net yield on average                                                                                 
 interest-earning assets.............................                                    3.27%       
                                                                                         ====    
Average interest-earning                                                                             
 assets to average interest-                                                                         
 bearing liabilities.................................                         1.07x                   
                                                                          ========                    
--------

     (1) Calculated net of deferred loan fees, loan discounts,  loans in process
and loss reserves.
</TABLE>








                                     - 11 -
<PAGE>
Rate/Volume Analysis

         The following  table  presents the dollar amount of changes in interest
income and interest expense for major components of interest-earning  assets and
interest-bearing  liabilities.  It distinguishes between the increase related to
higher  outstanding  balances  and  that due to the  levels  and  volatility  of
interest   rates.   For   each   category   of   interest-earning   assets   and
interest-bearing liabilities, information is provided on changes attributable to
(i) changes in volume (i.e.,  changes in volume multiplied by old rate) and (ii)
changes in rate (i.e.,  changes in rate multiplied by old volume).  For purposes
of this table,  changes  attributable  to both rate and volume  which  cannot be
segregated have been allocated  proportionately  to the change due to volume and
the change due to rate.
<TABLE>
<CAPTION>

                                                                Year Ended June 30,
                                  --------------------------------------------------------------------------

                                               1995 vs. 1996                          1996 vs. 1997
                                  ----------------------------------     -----------------------------------
                                        Increase                               Increase
                                       (Decrease)            Total            (Decrease)            Total
                                         Due to            Increase             Due to             Increase
                                   Volume       Rate      (Decrease)     Volume         Rate      (Decrease)
                                   ------       ----      ----------     ------         ----      ----------
                                                                (In Thousands)
<S>                               <C>          <C>          <C>          <C>          <C>          <C>
Interest-earning assets:
 Loans receivable ...........     $ 1,115      $   793      $ 1,908      $ 1,938      $    66      $ 2,004
 Mortgage-backed securities .         450           49          499          222          (40)         182
 Investment securities ......        (264)          75         (189)         403          167          570
 Certificates of deposit ....        --             (3)          (3)        --           --           --
 Other ......................          40            4           44          (19)          (6)         (25)
                                  -------      -------      -------      -------      -------      -------

     Total interest-earning
      assets ................     $ 1,341      $   918      $ 2,259      $ 2,544      $   187      $ 2,731
                                  =======      =======      =======      =======      =======      =======

Interest-bearing liabilities:
 Demand and checking
  deposits ..................     $   (10)     $   (35)     $   (45)     $   151      $    29      $   180
 Savings deposits ...........         (34)           4          (30)          24          (31)          (7)
 Certificate accounts .......         401          919        1,320          276           43          319
 FHLB advances ..............         660          (22)         638        1,493          (65)       1,428
                                  -------      -------      -------      -------      -------      -------

     Total interest-bearing
      liabilities ...........     $ 1,017      $   866      $ 1,883      $ 1,944      $   (24)     $ 1,920
                                  =======      =======      =======      =======      =======      =======

Net interest income .........                               $   376                                $   811
                                                            =======                                =======

</TABLE>


                                     - 12 -
<PAGE>
Interest Rate Spread

         The Company's  results of operations  are  determined  primarily by net
interest income and, to a lesser extent,  fee income,  miscellaneous  income and
operating  expenses.  Net interest  income is  determined  by the interest  rate
spread  between the yields earned on its  interest-earning  assets and the rates
paid  on   interest-bearing   liabilities   and  by  the  relative   amounts  of
interest-earning assets and interest-bearing liabilities.

         The  following  table sets forth the weighted  average yield earned and
rate  paid  on  the  Company's   interest-earning  assets  and  interest-bearing
liabilities.
<TABLE>
<CAPTION>
                                                                     At June 30,
                                                           --------------------------------
                                                           1995          1996          1997
                                                           ----          ----          ----
<S>                                                        <C>          <C>           <C>
Weighted average yield on:
 Loans receivable......................................    7.66%        8.02%         8.12%
 Mortgage-backed securities............................    6.50%        7.18%         6.83%
 Investment securities.................................    5.59%        7.10%         6.64%
 Other interest-earning assets.........................    5.62%        4.92%         5.17%
     Combined weighted average yield on
      interest-earning assets..........................    7.43%        7.84%         7.83%
Weighted average rate paid on:
 Savings deposits......................................    2.75%        2.79%         2.70%
 Demand and checking deposits..........................    2.17%        2.14%         2.55%
 Certificates..........................................    5.24%        5.48%         5.57%
 Borrowings............................................    6.50%        5.65%         5.68%
     Combined weighted average rate paid
      on interest-bearing liabilities..................    4.75%        4.93%         4.95%

Spread.................................................    2.68%        2.91%         2.88%
</TABLE>

Asset/Liability Management

         The goal of the  Company's  asset/liability  management  strategy is to
maximize and  stabilize net interest  income for the long term while  protecting
its interest rate spread  against  significant  changes in interest  rates.  The
Company has employed various strategies  intended to minimize the adverse effect
of interest  rate risk on future  operations by attempting to match the interest
rate  sensitivity of its assets and  liabilities and by expanding its activities
which are not directly dependent on interest rate spreads.

         In managing its asset/liability  mix, the Company, at times,  depending
on  the  relationship   between  long-and   short-term  interest  rates,  market
conditions  and consumer  preference,  may place  somewhat  greater  emphasis on
maximizing its net interest  margin than on strictly  matching the interest rate
sensitivity  of  its  assets  and  liabilities.  Management  believes  that  the
increased net income which may result from an acceptable  mismatch in the actual





                                     - 13 -
<PAGE>
maturity or repricing of its assets and liability portfolios can, during periods
of declining or stable interest rates, provide sufficient returns to justify the
increased  exposure to sudden and  unexpected  increases in interest rates which
may result from such a mismatch.  The Company has established limits,  which may
change from time to time, on the level of acceptable  interest-rate  risk. There
can be no  assurances,  however,  that in the  event  of an  adverse  change  in
interest  rates  the  Company's  efforts  to limit  interest  rate  risk will be
successful.

         The primary elements of the Company's  asset/liability strategy include
(i) retaining all adjustable-rate,  and a limited amount of fixed-rate loans for
portfolio depending upon the current interest rate environment,  (ii) purchasing
fixed-rate mortgage-backed securities with short- to intermediate-term effective
lives and adjustable-rate  mortgage-backed  securities and (iii) emphasizing the
solicitation of savings,  checking and longer term deposits. In this regard, the
Company  focuses  its  lending  efforts  toward  offering  competitively  priced
adjustable-rate  and fixed-rate loan products.  The Company's  mortgage  lending
strategy has been to retain all one-, three- and five-year adjustable-rate loans
and retain fixed-rate loans of 20 years or less in term. In addition,  depending
upon  the  Company's  desired  ratio of  fixed-rate  to  adjustable-rate  loans,
consistent with its asset liability objectives,  the Company retains or sells in
the secondary market all the remaining fixed rate loans with servicing retained,
without recourse. There were no loans held for sale as of June 30, 1997.

         Generally,  the  investment  policy of the  Company is to invest  funds
among various  categories of investments and maturities based upon the Company's
need for liquidity, to achieve the proper balance between its desire to minimize
risk and maximize  yield, to provide  collateral for borrowings,  and to fulfill
the  Company's  asset/  liability  management  policies.  Investments  generally
include U.S. government, federal agency and mortgage-backed securities.

         The Company's  cost of funds  responds to changes in interest rates due
to the relatively short-term nature of its deposit portfolio.  Consequently, the
results of operations are influenced by the levels of short-term interest rates.
The Company offers a range of maturities on its deposit  products at competitive
rates and monitors the maturities on an ongoing basis.

         The Company emphasizes and promotes its statement savings, money market
and checking accounts and, subject to market conditions, certificates of deposit
with maturities of six months through five years,  principally  from its primary
market area.  The Company has continued its  aggressive  marketing  campaign for
checking  accounts  during the fiscal  year 1997 and as a result has added 6,000
new accounts and $5.9 million in deposits.  The passbook,  statement savings and
checking accounts tend to be less susceptible to rapid changes in interest rates
than certificates of deposits.

Net Portfolio Value

         Management   utilizes  a  report  provided  by  the  Office  of  Thrift
Supervision  ("OTS") as one of the  analytical  tools to ascertain  the interest
rate   sensitivity  of  the  Bank's  portfolio  and  therefore  the  effects  of
fluctuating  interest  rates on net  interest  income.  The OTS  provides  a Net
Portfolio Value ("NPV")  approach to the  quantification  of interest rate risk.
This approach  calculates the  difference  between the present value of expected
cash  flows  from  assets  and the  present  value of  expected  cash flows from
liabilities, as well as cash flows from off-balance sheet contracts.


                                     - 14 -
<PAGE>
         Under OTS regulations, an institution's "normal" level of interest rate
risk in the event of an assumed  change in  interest  rates is a decrease in the
institution's  NPV in an amount not  exceeding  2% of the  present  value of its
assets.  Thrift  institutions  with greater than "normal" interest rate exposure
must take a deduction  from their  total  capital  available  to meet their risk
based  capital  requirement.  The amount of that  deduction  is  one-half of the
difference  between (a) the institution's  actual  calculated  exposure to a 200
basis point interest rate increase or decrease (whichever results in the greater
pro forma decrease in NPV) and (b) its "normal" level of exposure which is 2% of
the  present  value of its  assets.  The  regulation,  however,  will not become
effective until the OTS evaluates the process by which savings  associations may
appeal an interest rate risk deduction determination. It is uncertain as to when
this  evaluation  may be completed.  The Bank due to its asset size and level of
risk-based  capital  is  exempt  from  this  requirement.   Notwithstanding  the
foregoing,  utilizing this measuring  concept,  as of June 30, 1997, a change in
interest  rates of  positive  200 basis  points  would have  resulted in a 2.08%
decrease (as a percentage of the net present value of the Bank's  assets) in the
Bank's NPV while a change in interest  rates of negative  200 basis points would
have  resulted in a .31%  increase (as a percentage  of the net present value of
the Bank's  assets) in the Bank's NPV.  Accordingly,  a deduction to  risk-based
capital would have been required as of June 30, 1997 if the  regulation  applied
to the Bank. However,  even if such deduction was applied,  the Bank would still
be considered "well capitalized" under current regulatory guidelines.

         Presented  below,  as of June 30,  1997,  is an  analysis of the Bank's
interest rate risk as measured by changes in NPV for instantaneous and sustained
parallel shifts in the yield curve, in 100 basis point  increments,  up and down
400 basis points in  accordance  with OTS  regulations.  As  illustrated  in the
table, NPV is more sensitive to rising rates than declining  rates.  This occurs
principally  because,  as rates  rise,  the  market  value of  fixed-rate  loans
declines  due to both the rate  increase  and  slowing  prepayments.  When rates
decline,  the Bank generally  does not  experience a significant  rise in market
value for these loans because  borrowers  presumably  prepay the higher interest
rate loans.
<TABLE>
<CAPTION>

                               Net Portfolio Value 

Change in
Interest Rates    Estimated     Estimated NPV as       Amount of    Percentage
(Basis Points)       NPV      Percentage of Assets      Change        Change
--------------       ---      --------------------      ------        ------
                             (Dollars in Thousands)
<S>                <C>              <C>               <C>              <C>
     +400          $13,496           5.88%            $(14,335)        (52)%  
     +300           17,826           7.58              (10,005)        (36)   
     +200           21,849           9.09               (5,982)        (21)   
     +100           25,278          10.31               (2,553)         (9)   
      ---           27,831          11.17                  ---          ---    
     -100           29,020          11.52                1,189           4    
     -200           29,082          11.47                1,251           4    
     -300           29,531          11.56                1,700           6    
     -400           30,652          11.87                2,821          10    
                                               
</TABLE>


                                     - 15 -
<PAGE>
         Management  reviews  the OTS  measurements  on a  quarterly  basis.  In
addition to  monitoring  selected  measures  on NPV,  management  also  monitors
effects on net interest  income  resulting from increases or decreases in rates.
This  measure is used in  conjunction  with NPV  measures to identify  excessive
interest rate risk.

         Certain  shortcomings are inherent in the method of analysis  presented
in the foregoing  tables.  For example,  although certain assets and liabilities
may have similar maturities or periods to repricing, they may react in different
degrees to changes in market interest rates. Also, the interest rates on certain
types of assets and  liabilities  may  fluctuate in advance of changes in market
interest  rates,  while  interest rates on other types may lag behind changes in
market rates.  Additionally,  certain assets,  such as adjustable-rate  mortgage
loans,  have features which  restrict  changes in interest rates on a short-term
basis  and over the life of the  asset.  Further,  in the  event of a change  in
interest  rates,  prepayments and early  withdrawal  levels would likely deviate
significantly from those assumed in calculating the tables. Finally, the ability
of many borrowers to service their debt may decrease in the event of an interest
rate increase.

Liquidity and Capital Resources

         The Company's principal sources of funds are deposits, amortization and
prepayment of loan principal (including  mortgage-backed  securities),  sales or
maturities of investment securities,  mortgage-backed  securities and short-term
investments  and  operations.  While  scheduled  loan  repayments  and  maturing
investments are relatively predictable,  deposit flows and early loan repayments
are  more  influenced  by  interest  rates,   general  economic  conditions  and
competition.  The Company  has been  selective  with regard to deposit  rates on
certain savings  products and, when necessary,  has  supplemented  deposits with
longer term and/or less  expensive  alternative  sources of funds,  such as FHLB
advances.

         Federal  regulations  historically  have  required the Bank to maintain
minimum levels of liquid assets. The required percentage has varied from time to
time based upon economic conditions and savings flows and is currently 5% of net
withdrawable  savings deposits plus borrowings  payable on demand or in one year
or less, during the preceding calendar month. Liquid assets for purposes of this
ratio include cash, certain time deposits,  U.S.  Government,  government agency
and  corporate  securities  and other  obligations  generally  having  remaining
maturities of less than five years.  The Bank has  historically  maintained  its
liquidity  ratio at levels in excess  of those  required.  At June 30,  1997 the
Bank's liquidity ratio was 7.1%.

         The  Company's  primary  sources  of funds  consist  of  deposits,  and
amortization  of principal  and interest  payments on loans and  mortgage-backed
securities.  Other  potential  sources of funds available to the Company include
borrowings from the FHLB of Des Moines and reverse  repurchase  agreements.  The
Company uses its liquid resources principally to meet on-going  commitments,  to
fund maturing  certificates of deposit and deposit  withdrawals,  to invest,  to
fund  existing and future loan  commitments,  to maintain  liquidity and to meet
operating  expenses.  The Company anticipates that it will have sufficient funds
available  to meet current  loan  commitments.  At June 30, 1997 the Company had
outstanding  commitments to extend credit totaling $6.7 million  (including $4.7
million in available lines of credit).  Management believes that loan repayments
and other  sources of funds will be adequate to meet the  Company's  foreseeable
liquidity needs.

                                     - 16 -
<PAGE>
         The primary  investing  activity of the Company is the  origination  of
loans and, when loan demand is down, the purchase of mortgage-backed securities.
During the years ended June 30, 1995,  1996 and 1997 the Company  originated and
purchased  loans  totalling  $47.1 million,  $69.1  million,  and $57.3 million,
respectively.  Purchases of loans  totaled $2.7  million,  $8.3 million and $6.0
million  in fiscal  years  1995,  1996 and  1997,  respectively.  To  supplement
adjustable-rate loan products,  adjustable-rate  mortgage-backed  securities are
utilized  from time to time as a  secondary  investing  activity.  Purchases  of
mortgage-backed  securities  during the years ended June 30, 1995, 1996 and 1997
totaled $8.3 million, $14.6 million and $1.4 million, respectively.

         The primary source of funding for the Company is deposits. For the year
ended June 30, 1997 the Company had a net increase of $18.7  million as compared
to a net  increase of $6.7  million  for fiscal 1996 and a net  increase of $2.6
million for fiscal  1995.  Management  attributes  the  substantial  increase in
deposits to the Company's aggressive marketing campaign. Another source of funds
is borrowing  from the FHLB.  At June 30, 1997 the Company had $46.5  million of
FHLB advances.

         Liquidity  management is both a daily and long-term  responsibility  of
management.  The Company  adjusts its  investments  in liquid  assets based upon
management's  assessment of (i) expected loan demand,  (ii) the projected amount
of loans held for sale by the Company, (iii) expected deposit flows, (iv) yields
available  on  interest-earning  deposits,  and (v) the  objective of its asset/
liability  management  program.   Excess  liquidity  is  invested  generally  in
interest-earning  overnight deposits and other short-term  government and agency
obligations.  If the Company  requires funds beyond its ability to generate them
internally, it has significant borrowing capacity with the FHLB.

         Certificates of deposit scheduled to mature in one year or less at June
30, 1997 totaled  approximately  $93.0 million,  or 54.4% of the Company's total
deposits,  reflecting consumer preference for short-term investments as a result
of the  relatively  low  interest  rate  environment.  Based  on the  levels  of
retention  of such  deposits  in the recent  past,  management  believes  that a
significant portion of such deposits will remain with the Company.

         At June 30, 1997  stockholders'  equity was $21.3  million,  or 8.8% of
assets.  The Company has acquired a total of 273,589  shares of its  outstanding
common stock through its previously announced stock repurchase plans. During the
year ended June 30, 1997,  15,800 shares were issued for the  Company's  RRP. At
June 30, 1997, the Company held 257,789 common shares in treasury.

Regulatory Capital

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






                                     - 17 -
<PAGE>
         At June  30,  1997  the Bank had  tangible  and core  capital  of $19.0
million  and  $19.0  million,  or  7.9%  and  7.9%  of  adjusted  total  assets,
respectively, which were approximately $15.4 million and $11.8 million above the
minimum  requirements  of 1.5% and 3.0%,  respectively,  of the  adjusted  total
assets in effect on that date. On June 30, 1997 the Bank had risk-based  capital
of  $19.8  million  (including  $19.0  million  in core  capital),  or  16.6% of
risk-weighted assets of $119.1 million.  This amount was $10.3 million above the
8.0% requirement in effect on that date. Under current regulatory guidelines the
Bank was classified as well-capitalized.

Impact of Inflation and Changing Prices

         The  Consolidated  Financial  Statements  and Notes  thereto  presented
herein have been  prepared in  accordance  with  generally  accepted  accounting
principles,  which require the  measurement of financial  position and operating
results in terms of historical  dollars  without  considering  the change in the
relative  purchasing  power of money over time due to  inflation.  The impact of
inflation is reflected in the increased cost of the Company's operations. Unlike
most industrial companies, however, nearly all the assets and liabilities of the
Company  are  monetary  in nature.  As a result,  interest  rates have a greater
impact on the  Company's  performance  than do the effects of general  levels of
inflation.  Interest rates do not  necessarily  move in the same direction or to
the same extent as the prices of goods and services.

Impact of New Accounting Standards

         In February 1997 the Financial  Accounting Standards Board (the "FASB")
issued Statement of Financial  Accounting  Standards ("SFAS") No. 128, "Earnings
Per Share." This  Statement  establishes  standards for computing and presenting
earnings per share  ("EPS") and applies to entities  with  publicly  held common
stock.  This  statement  simplifies  the standards for computing EPS  previously
found in APB Opinion No. 15 "Earnings  Per Share," and makes them  comparable to
international EPS standards.  It replaces the presentation of primary EPS with a
presentation  of basic EPS.  It also  requires  dual  presentation  of basic and
diluted EPS on the face of the income  statement  for all entities  with complex
capital  structures.  This  Statement is effective for financial  statements for
both interim and annual periods ending after December 15, 1997.

         In June 1997 the FASB  issued  SFAS No.  130  "Reporting  Comprehensive
Income."  This  Statement  establishes  standards  for  reporting and display of
comprehensive income and its components (revenues,  expenses,  gains and losses)
in a full set of general purpose financial  statements.  This Statement requires
that an enterprise  (a) classify  items of other  comprehensive  income by their
nature in a financial statement and (b) display the accumulated balance of other
comprehensive  income separately from retained  earnings and additional  paid-in
capital in the  equity  section  of a  statement  of  financial  position.  This
Statement  is  effective  for fiscal years  beginning  after  December 15, 1997.
Reclassification  of  financial  statements  for earlier  periods  provided  for
comparative purposes is required.









                                     - 18 -
<PAGE>
Forward-Looking Statements

         When used in this Annual Report to  Stockholders  or future  filings by
the Company with the Securities and Exchange Commission (the  "Commission"),  in
the Company's press releases or other public or shareholder  communications,  or
in oral  statements made with the approval of an authorized  executive  officer,
the words or phrases "will likely result",  "are expected to", "will  continue",
"is anticipated",  "estimate",  "project",  "believe" or similar expressions are
intended  to  identify  "forward-looking  statements"  within the meaning of the
Private Securities  Litigation Reform Act of 1995. The Company wishes to caution
readers not to place  undue  reliance  on any such  forward-looking  statements,
which  speak  only as of the date  made,  and to  advise  readers  that  various
factors-including  regional and national economic conditions,  changes in levels
of market interest rates, credit risks of lending activities,  acceptance of new
products,  and  competitive  and regulatory  factors-could  affect the Company's
financial  performance  and could cause the Company's  actual results for future
periods to differ  materially  from those  anticipated or projected.  Additional
risks and factors are detailed from time to time in the Company's  reports filed
with the Commission, including the report on Form 10-KSB for the year ended June
30, 1997.

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

































                                     - 19 -
<PAGE>


                         INDEPENDENT ACCOUNTANTS' REPORT 


To the Board of Directors of
Capital Savings Bancorp, Inc. and Subsidiary

We have audited the accompanying  consolidated statements of financial condition
of Capital Savings  Bancorp,  Inc.  (Company) and subsidiary as of June 30, 1996
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 June 30, 1997. These financial  statements are the  responsibility  of the
Company's  management.  Our  responsibility  is to  express  an opinion on these
financial statements based on our audits.

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

In our opinion,  the consolidated  financial statements referred to in the first
paragraph present fairly, in all material respects,  the consolidated  financial
position of Capital  Savings  Bancorp,  Inc., and subsidiary as of June 30, 1996
and 1997,  and the results of their  operations and their cash flows for each of
the three years in the period ended June 30, 1997, in conformity  with generally
accepted accounting principles.

As  discussed in the Notes to  Consolidated  Financial  Statements,  the Company
changed its method of accounting for compensation expense for the employee stock
ownership plan in 1995 and for impaired loans in 1996.



                                                  /s/Williams-Keepers
                                                  -------------------
                                                  Williams-Keepers


August 1, 1997



















                                     - 20 -
<PAGE>
<TABLE>
<CAPTION>
                                 CAPITAL SAVINGS BANCORP, INC. AND SUBSIDIARY

                                CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
                                            June 30, 1996 and 1997


                                                                                   1996               1997
                                                                            --------------     --------------
                                       ASSETS
<S>                                                                         <C>                <C>
Cash and due from depository institutions ..............................    $    2,973,489     $    7,953,414
Securities available-for-sale  (Note 2) ................................        30,306,297         28,154,190
Securities held-to-maturity (Note 2) ...................................        11,979,383          8,984,323
Stock in Federal Home Loan Bank (Note 2) ...............................         2,100,000          3,025,000
Loans receivable, net  (Note 3) ........................................       166,623,231        190,202,685
Accrued interest receivable  (Note 4) ..................................         1,401,109          1,465,221
Real estate owned held-for-sale, net  (Note 5) .........................            31,554             68,898
Premises and equipment, net  (Note 6) ..................................         1,990,741          2,231,146
Other assets ...........................................................           547,931            433,019
                                                                            --------------     --------------

                  Total assets .........................................    $  217,953,735     $  242,517,896
                                                                            ==============     ==============
                        LIABILITIES AND STOCKHOLDERS' EQUITY

Deposits  (Note 7) .....................................................    $  152,344,791     $  171,038,959
Borrowed funds  (Note 8) ...............................................        42,000,000         46,500,000
Advances from borrowers for taxes and insurance ........................         1,420,059          1,335,474
Accrued expenses and other liabilities .................................         1,359,913          1,352,868
Income taxes payable  (Note 9) .........................................           348,046            950,407
                                                                            --------------     --------------

                  Total liabilities ....................................       197,472,809        221,177,708
                                                                            --------------     --------------
Stockholders' equity
Common stock, $.01 par value:
     Authorized, 5,200,000 shares; 1,211,593 and 2,149,597 shares
         issued, respectively ..........................................            12,116             21,496
Additional paid-in-capital .............................................        11,728,171         11,910,849
Retained earnings, restricted  (Notes 10, 15) ..........................        12,983,429         14,122,506
                                                                            --------------     --------------
                                                                                24,723,716         26,054,851
Deferred compensation - Recognition and Retention Plan (RRP)  (Note 11)            (31,110)          (171,176)
Deferred compensation - Employee Stock Ownership
     Plan (ESOP) (Note 11) .............................................          (583,259)          (461,805)
Treasury stock  (Note 12) ..............................................        (3,550,170)        (4,271,136)
Unrealized (loss) gain on securities available-for-sale, net of deferred
     taxes (Note 2) ....................................................           (78,251)           189,454
                                                                            --------------     --------------
                  Total stockholders' equity ...........................        20,480,926         21,340,188
                                                                            --------------     --------------
                  Total liabilities and stockholders' equity ...........    $  217,953,735     $  242,517,896
                                                                            ==============     ==============

                  The notes to financial statements are an integral part of these statements. 
</TABLE>
                                     - 21 -
<PAGE>
<TABLE>
<CAPTION>
                                    CAPITAL SAVINGS BANCORP, INC. AND SUBSIDIARY

                                         CONSOLIDATED STATEMENTS OF INCOME
                                     Years Ended June 30, 1995, 1996, and 1997

                                                                          1995             1996            1997
                                                                     ------------     ------------    ------------
<S>                                                                  <C>              <C>             <C>
INTEREST INCOME Loans receivable:
         Mortgage loans .........................................    $ 10,090,912     $ 11,705,699    $ 13,441,561
         Consumer and other loans ...............................         716,301        1,009,967       1,278,322
     Investment securities ......................................         743,628          554,688       1,124,587
     Mortgage-backed securities .................................       1,102,694        1,602,268       1,784,025
     Other interest - earning assets ............................          82,982          123,668          98,557
                                                                     ------------     ------------    ------------
              Total interest income .............................      12,736,517       14,996,290      17,727,052
                                                                     ------------     ------------    ------------
INTEREST EXPENSE
     Deposits ...................................................       5,858,009        7,103,060       7,594,956
     Borrowed funds .............................................         703,686        1,341,871       2,769,628
                                                                     ------------     ------------    ------------
              Total interest expense ............................       6,561,695        8,444,931      10,364,584
                                                                     ------------     ------------    ------------
              Net interest income ...............................       6,174,822        6,551,359       7,362,468
PROVISION FOR LOAN LOSSES  (Note 3) .............................          60,000          120,000         120,000
                                                                     ------------     ------------    ------------
              Net interest income after provision for loan losses       6,114,822        6,431,359       7,242,468
                                                                     ------------     ------------    ------------
NON-INTEREST INCOME
     Bank service charges and fees ..............................         181,461          260,145         691,158
     Commission income ..........................................         446,214          286,767         190,677
     Loan servicing fees ........................................         177,320          188,391         196,933
     Net (loss) gain on the sale of securities (Note 2) .........         (67,178)          23,971          83,422
     Other  (Note 13) ...........................................          42,112           69,362          72,707
                                                                     ------------     ------------    ------------
              Total non-interest income .........................         779,929          828,636       1,234,897
                                                                     ------------     ------------    ------------
NON-INTEREST EXPENSE
     Compensation and benefits ..................................       2,097,333        2,078,560       2,442,125
     Occupancy and equipment ....................................         420,053          511,253         575,530
     Federal insurance premiums (Note 16) .......................         332,508          340,994       1,166,656
     Other  (Note 13) ...........................................       1,207,546        1,292,098       1,727,071
                                                                     ------------     ------------    ------------
              Total non-interest expense ........................       4,057,440        4,222,905       5,911,382
                                                                     ------------     ------------    ------------
              Income before provision for income taxes ..........       2,837,311        3,037,090       2,565,983
PROVISION FOR INCOME TAXES  (Note 9) ............................       1,055,772        1,177,403       1,016,047
                                                                     ------------     ------------    ------------
              Net income ........................................    $  1,781,539     $  1,859,687    $  1,549,936
                                                                     ============     ============    ============
              Net income per share of common stock  (Note 1) ....    $       0.85     $       0.94    $       0.82
                                                                     ============     ============    ============
              Weighted average shares outstanding (Note 1) ......       2,102,458        1,976,324       1,896,676
                                                                     ============     ============    ============
                    The notes to financial statements are an integral part of these statements. 
</TABLE>
                                     -22 -
<PAGE>
<TABLE>
<CAPTION>
                                            CAPITAL SAVINGS BANCORP, INC. AND SUBSIDIARY

                                     CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
                                              Years Ended June 30, 1995, 1996 and 1997

                                               Common
                                               Stock                                                   Deferred          Deferred
                                       ----------------------      Additional        Retained        Compensation      Compensation
                                       Shares          Amount    Paid-in Capital     Earnings            RRP              ESOP
                                       ------          ------    ---------------     --------            ---              ----
<S>                                 <C>               <C>          <C>             <C>                <C>              <C>
Balance, June 30, 1994 .......       1,211,593        $ 12,116     $11,564,124     $ 9,979,100        $(209,676)       $(850,425)

Compensation expense
  recognized for RRP .........            --              --              --              --            134,742             --   

Compensation expense
 recognized for ESOP .........            --              --            59,757            --               --            136,794

Acquisition of treasury stock             --              --              --              --               --               --   

Net change in unrealized loss
 on securities available-for-
 sale, net of deferred taxes .            --              --              --              --               --               --   

Dividends ....................            --              --              --          (309,556)            --               --   

Net income ...................            --              --              --         1,781,539             --               --   
                                    ----------        --------     -----------     -----------        ---------        ---------
Balance, June 30, 1995 .......       1,211,593          12,116      11,623,881      11,451,083          (74,934)        (713,631)

Compensation expense
  recognized for RRP .........            --              --              --              --             43,824             --   

Compensation expense .........                                                                                                 .
  recognized for ESOP ........            --              --           104,290            --               --            130,372

Acquisition of treasury stock             --              --              --              --               --               --   

Net change in unrealized loss
  on securities available-for-
  sale, net of deferred taxes             --              --              --              --               --               --   

Dividends ....................            --              --              --          (327,341)            --               --   

Net income ...................            --              --              --         1,859,687             --               --   
                                    ----------        --------     -----------     -----------        ---------        ---------
Balance, June 30, 1996 .......       1,211,593          12,116      11,728,171      12,983,429          (31,110)        (583,259)
</TABLE>







                                     - 23 -
<PAGE>
<TABLE>
<CAPTION>
                  CAPITAL SAVINGS BANCORP, INC. AND SUBSIDIARY

           CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
                    Years Ended June 30, 1995, 1996 and 1997
                                  (continued)



                                                       Unrealized
                                                      (Loss) Gain
                                                      on Securities
                                                      Available-for-
                                   Treasury Stock       Sale, Net         Total
                                   --------------       ---------         -----
<S>                                <C>                 <C>           <C>
Balance, June 30, 1994 .......     $  (811,906)        $(79,435)     $ 19,603,898

Compensation expense
  recognized for RRP .........            --               --            134,742

Compensation expense
 recognized for ESOP .........            --               --            196,551

Acquisition of treasury stock       (1,770,004)            --         (1,770,004)

Net change in unrealized loss
 on securities available-for-
 sale, net of deferred taxes .            --             59,857           59,857

Dividends ....................            --               --           (309,556)

Net income ...................            --               --          1,781,539
                                   -----------         --------      -----------
Balance, June 30, 1995 .......      (2,581,910)         (19,578)      19,697,027

Compensation expense
  recognized for RRP .........            --               --             43,824

Compensation expense
  recognized for ESOP ........            --               --            234,662

Acquisition of treasury stock         (968,260)            --           (968,260)

Net change in unrealized loss
  on securities available-for-
  sale, net of deferred taxes             --            (58,673)         (58,673)

Dividends ....................            --               --           (327,341)

Net income ...................            --               --          1,859,687
                                   -----------         --------      -----------
Balance, June 30, 1996 .......      (3,550,170)         (78,251)      20,480,926

   The notes to financial statements are an integral part of these statements. 

</TABLE>
                                     - 24 -
<PAGE>
<TABLE>
<CAPTION>
                                            CAPITAL SAVINGS BANCORP, INC. AND SUBSIDIARY

                                     CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
                                              Years Ended June 30, 1995, 1996 and 1997

                                               Common
                                               Stock                                                    Deferred          Deferred
                                       ----------------------       Additional        Retained        Compensation      Compensation
                                       Shares          Amount     Paid-in Capital     Earnings            RRP              ESOP
                                       ------          ------     ---------------     --------            ---              ----
<S>                                 <C>               <C>           <C>              <C>              <C>                <C>
Treasury stock issued
  for RRP .....................            --              --            (7,205)            --           (212,352)            --   

Compensation expense
  recognized for RRP ..........            --              --              --               --             72,286             --   

Compensation expense
  recognized for ESOP .........            --              --           189,883             --               --            121,454

Acquisition of treasury stock .            --              --              --               --               --               --   

Stock split effected in the
form of a stock dividend ......         938,004           9,380            --             (9,380)            --               --   

Net change in unrealized (loss)
gain  on securities available-
for-sale, net of deferred taxes            --              --              --               --               --               --   

Dividends .....................            --              --              --           (401,479)            --               --   

Net income ....................            --              --              --          1,549,936             --               --   
                                    -----------       ---------     -----------      -----------      -----------        ---------
Balance, June 30, 1997 ........       2,149,597       $  21,496     $11,910,849      $14,122,506      $  (171,176)       $(461,805)
                                    ===========       =========     ===========      ===========      ===========        ========= 

</TABLE>



















                                     - 25 -
<PAGE>
<TABLE>
<CAPTION>
                  CAPITAL SAVINGS BANCORP, INC. AND SUBSIDIARY

           CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
                    Years Ended June 30, 1995, 1996 and 1997
                                  (continued)

                                                       Unrealized
                                                      (Loss) Gain
                                                      on Securities
                                                      Available-for-
                                   Treasury Stock       Sale, Net         Total
                                   --------------       ---------         -----
<S>                                 <C>                 <C>          <C>
Treasury stock issued
  for RRP .....................         219,557             --              --   

Compensation expense
  recognized for RRP ..........            --               --            72,286

Compensation expense
  recognized for ESOP .........            --               --           311,337

Acquisition of treasury stock .        (940,523)            --          (940,523)

Stock split effected in the
form of a stock dividend ......            --               --              --   

Net change in unrealized (loss)
gain  on securities available-
for-sale, net of deferred taxes            --            267,705         267,705

Dividends .....................            --               --          (401,479)

Net income ....................            --               --         1,549,936
                                    -----------        ---------     -----------
Balance, June 30, 1997 ........     $(4,271,136)       $ 189,454     $21,340,188
                                    ===========        =========     ===========


   The notes to financial statements are an integral part of these statements. 


</TABLE>













                                     - 26 -
<PAGE>
<TABLE>
<CAPTION>
                                     CAPITAL SAVINGS BANCORP, INC. AND SUBSIDIARY

                                        CONSOLIDATED STATEMENTS OF CASH FLOWS
                                      Years Ended June 30, 1995, 1996, and 1997


                                                                           1995             1996             1997
                                                                       -----------      -----------      -----------
<S>                                                                    <C>              <C>              <C>
OPERATING ACTIVITIES
     Net income ..................................................       1,781,539        1,859,687        1,549,936
     Adjustments to reconcile net income to net cash provided by
       operating activities:
         Federal Home Loan Bank stock dividends ..................            --            (37,400)            --
         Amortization of deferred loan origination fees ..........         (37,203)         (75,244)         (49,203)
         Amortization of premiums and accretion of discounts on
           securities held-to-maturity and
           securities available-for-sale .........................        (129,475)         (63,790)          57,393
         Depreciation ............................................         223,565          260,692          312,489
         Provision for loan losses ...............................          60,000          120,000          120,000
         Gain on sale of real estate owned held-for-sale .........            --            (32,701)          (1,150)
         Loss (gain) on sale of securities .......................          67,178          (23,971)         (83,422)
         Gain on sale of premises and equipment ..................            --               --            (13,057)
         Compensation expense - RRP ..............................         134,742           43,824           72,286
         Compensation expense - ESOP .............................         196,551          234,662          311,337
         Loans receivable originated for sale to
           Federal Home Loan Mortgage Corporation (FHLMC) ........      (3,466,010)     (12,286,702)            --
         Proceeds from loans receivable originated for sale
           to FHLMC ..............................................       3,466,010       12,286,702             --
     Adjustments for (increases) decreases in operating assets and
       increases (decreases) in operating liabilities:
         Accrued interest and other assets .......................        (554,920)        (396,826)          50,800
         Accrued expenses and other liabilities ..................         356,377          359,018           (7,045)
         Income taxes payable ....................................         (46,067)         145,296          433,922
                                                                       -----------      -----------      -----------
              Net cash provided by operating activities ..........       2,052,287        2,393,247        2,754,286
                                                                       -----------      -----------      -----------
INVESTING ACTIVITIES
         (Loan origination) and principal payment on loans
              receivable, net ....................................     (16,984,728)     (14,946,200)     (23,746,650)
         Purchases of:
              Securities available-for-sale ......................      (1,992,713)     (16,609,565)      (4,618,784)
              Securities held-to-maturity ........................      (9,441,218)     (14,357,959)      (3,604,940)
         Proceeds from maturity of:
              Securities available-for-sale ......................           9,783       11,412,394        6,758,227
              Securities held-to-maturity ........................       3,625,387        3,484,601        6,600,000
         Sales of securities available-for-sale ..................       6,996,162        1,023,971          474,837
         Purchase of Federal Home Loan Bank stock ................            --           (205,600)        (925,000)
         Decrease in certificates of deposit, net ................       1,290,000             --               --
         Proceeds from sale of real estate owned held-for-sale ...          13,686          217,193           60,205
         Purchase of premises and equipment ......................        (232,284)        (907,483)        (583,896)
         Proceeds from sale of premises and equipment ............            --               --             44,059
                                                                       -----------      -----------      -----------
              Net cash (used) by investing activities ............     (16,715,925)     (30,888,648)     (19,541,942)
                                                                       -----------      -----------      -----------
</TABLE>
                                     - 27 -
<PAGE>
<TABLE>
<CAPTION>
                                        CAPITAL SAVINGS BANCORP, INC. AND SUBSIDIARY


                                     CONSOLIDATED STATEMENTS OF CASH FLOWS - Continued
                                         Years Ended June 30, 1995, 1996, and 1997

                                                                    
                                                                               1995              1996              1997
                                                                          ------------      ------------      ------------
<S>                                                                       <C>               <C>               <C> 
FINANCING ACTIVITIES
         Net increases in deposits ..................................        2,634,203         6,656,705        18,694,168
         Net increases in borrowed funds ............................       13,300,000        23,500,000         4,500,000
         Net increase (decrease) in advances from borrowers for
           taxes and insurance ......................................           76,248          (131,510)          (84,585)
         Acquisition of treasury stock ..............................       (1,770,004)         (968,260)         (940,523)
         Dividends ..................................................         (309,556)         (327,341)         (401,479)
                                                                          ------------      ------------      ------------
              Net cash provided by financing activities .............       13,930,891        28,729,594        21,767,581
                                                                          ------------      ------------      ------------
              Net increase (decrease) in cash and cash equivalents ..         (732,747)          234,193         4,979,925
         Cash and cash equivalents, beginning of year ...............        3,472,043         2,739,296         2,973,489
                                                                          ------------      ------------      ------------
         Cash and cash equivalents, end of year .....................     $  2,739,296      $  2,973,489      $  7,953,414
                                                                          ============      ============      ============
SUPPLEMENTAL DISCLOSURES Cash paid during the year for:
              Interest ..............................................     $  6,316,101      $  8,307,454      $ 10,362,053
              Income taxes ..........................................     $  1,044,645      $  1,105,931      $    582,125
         Non-cash transactions:
              Transfers from loans receivable to real estate owned
                held for sale .......................................     $       --        $    121,003      $     96,399
              Treasury stock issued as deferred
                compensation - RRP ..................................     $       --        $       --        $    219,557
              Par value of common stock issued due to stock split ...     $       --        $       --        $      9,380
              Transfer from securities held-to-maturity to securities
                available-for-sale ..................................     $       --        $ 20,288,431      $       --   

</TABLE>


















                                     - 28 -
<PAGE>
                  CAPITAL SAVINGS BANCORP, INC. AND SUBSIDIARY

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


1.   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Nature of Operations:  Capital  Savings  Bancorp,  Inc.  (Company) is a Delaware
corporation  incorporated on September 22, 1993, for the purpose of becoming the
holding company of Capital Savings Bank, FSB (Bank). The Bank was formerly known
as  Capital  Savings  and  Loan  Association,  prior  to its  conversion  from a
state-chartered  mutual  savings  association  to  a  federally-chartered  stock
savings bank. On December 28, 1993,  the Bank converted from a mutual to a stock
form of ownership,  and the Company  completed its initial public  offering with
one-half of the net proceeds  used to acquire all of the issued and  outstanding
capital stock of the Bank.

The Bank provides a variety of financial  services to individuals  and corporate
customers  through its home office in Jefferson  City,  Missouri and its various
branch  locations  in the central  Missouri  area.  The Bank's  primary  deposit
products are interest-bearing  checking and savings accounts and certificates of
deposit.  Its primary lending products are one- to four- family  residential and
consumer loans.

Principles of Consolidation:  The accompanying consolidated financial statements
include the  accounts of Capital  Savings  Bancorp,  Inc.,  and its wholly owned
subsidiary  Capital  Savings Bank,  FSB, and the Bank's wholly owned  subsidiary
Capital  Savings   Financial   Services,   Inc.  All  significant   intercompany
transactions and balances are eliminated in the consolidation.

Regulation:  The Bank is subject to examination  and regulation by the Office of
Thrift Supervision (OTS) and the Federal Deposit Insurance Corporation (FDIC).

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

Material  estimates that are  particularly  susceptible  to  significant  change
relate to the  determination of the allowance for losses on loans. In connection
with the determination of the allowances for losses on loans, management obtains
independent appraisals for significant properties.

A  majority  of the  Bank's  loan  portfolio  consists  of one- to four-  family
residential  and  consumer  loans in the  Central  Missouri  area.  The  Central
Missouri  economy is  dependent  upon  state  government,  light  manufacturing,
agriculture, education, medical, insurance and retail. Accordingly, the ultimate
collectibility  of a substantial  portion of the Bank's portfolio is susceptible
to changes in local market conditions.

While management uses available information to recognize losses on loans, future
changes to the  allowance  may be necessary  based on changes in local  economic
conditions.  In  addition,  regulatory  agencies,  as an integral  part of their
examination  process,  periodically  review the Bank's  allowance  for losses on
loans. Such agencies may require the Bank to make changes to the allowance based
on their  judgments  about  information  available  to them at the time of their
examination.
                                     - 29 -
<PAGE>
Cash  and Cash  Equivalents:  Cash and cash  equivalents  are  defined  as those
amounts in the consolidated  statements of financial condition caption "Cash and
due from depository  institutions."  Cash and cash equivalents  include cash and
other highly liquid  instruments  having an original maturity of three months or
less.  For purposes of the  consolidated  statements of cash flows,  the Company
does not include  liquid debt  instruments  or  certificates  of deposit as cash
equivalents.  Cash and due from depository institutions include interest-bearing
accounts  totaling  approximately  $309,000 and  $4,468,000 at June 30, 1996 and
1997, respectively.

Investment  in  Securities:  Investments  in  debt  and  equity  securities  are
classified as follows:

-      Trading Securities.  Investment securities held principally for resale in
       the near term and mortgage-backed securities held for sale in conjunction
       with the Company's  mortgage banking activities are classified as trading
       securities and recorded at their fair values. Unrealized gains and losses
       on trading securities are included in other income. There were no trading
       securities held at June 30, 1996 or 1997.

-      Securities held-to-maturity.  Investment securities for which the Company
       has the  positive  intent and ability to hold to maturity are reported at
       cost,  adjusted for  amortization  of premiums and accretion of discounts
       which are  recognized in interest  income using the interest  method over
       the period to maturity.

-      Securities  available-for-sale.  Securities available for sale consist of
       investment   securities  not  classified  as  trading  securities  or  as
       securities  held-to-maturity,  and are recorded at fair value. Unrealized
       holding gains and losses,  net of tax, on  securities  available-for-sale
       are  reported as a net amount in a separate  component  of  stockholders'
       equity until realized.

Any   declines   in  the  fair   value  of   individual   held-to-maturity   and
available-for-sale  securities  below  their cost that are other than  temporary
result in  write-downs  of the  individual  securities to their fair value.  The
related  write-downs  are  included in earnings  as realized  losses.  Gains and
losses    on   the   sale   of    securities    are    determined    using   the
specific-identification method.

Loans Receivable: Loans receivable that management has the intent and ability to
hold until  maturity or pay-off  are  reported  at their  outstanding  principal
balances  adjusted for any  charge-offs,  the  allowance  for loan  losses,  any
deferred fees or costs on originated loans and unamortized premiums or discounts
on purchased loans.

Loan origination fees and certain direct  origination  costs are capitalized and
recognized  as an  adjustment  of the yield of the related  loan.  Discounts and
premiums on purchased  loans are  amortized to income using the interest  method
over the remaining  period to  contractual  maturity,  adjusted for  anticipated
prepayments.  Commitment fees and costs relating to commitments,  the likelihood
of exercise of which is remote,  are recognized over the commitment  period on a
straight-line  basis.  If the commitment is  subsequently  exercised  during the
commitment  period,  the  remaining  unamortized  commitment  fee at the time of
exercise is recognized over the life of the loan as an adjustment of yield.



                                     - 30 -
<PAGE>
Uncollectible  interest on loans is charged off or an allowance  is  established
based on  management's  periodic  evaluation.  The allowance is established by a
charge  to  interest  income  equal  to  all  interest  previously  accrued  and
outstanding.  Income is  subsequently  recognized  only to the extent  that cash
payments are received until, in management's judgment, the borrower's ability to
make periodic  interest and principal  payments is back to normal, in which case
the loan is returned to accrual status.

The allowance for loan losses is increased by charges to income and decreased by
charge-offs (net of recoveries).  Management  utilizes a systematic,  documented
approach in determining the appropriate  level of the allowance for loan losses.
Management's  approach,  which provides for general and specific allowances,  is
based,  among  other  factors,  on the  Bank's  past  loan  loss and  collection
experience,  known and inherent risks in the portfolio,  adverse situations that
may  affect  the  borrower's  ability  to  repay,  the  estimated  value  of any
underlying collateral, and current economic conditions.

On July 1, 1995 the Bank  adopted  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 (an amendment of SFAS No. 114).
The adoption of these  statements  did not have a material  effect on the Bank's
financial condition or operating results for 1996. These pronouncements consider
a loan to be impaired  when it is probable a creditor  will be unable to collect
all amounts due-both principal and  interest-according  to the contractual terms
of the loan agreement.  Such  pronouncements also require that impaired loans be
measured  based on the  present  value of  expected  future cash flows or at the
loan's  observable  market price or the fair value of the collateral if the loan
is collateral  dependent.  If the value computed is less than the recorded value
of the loan, a valuation  allowance is recorded for the  difference.  The entire
change in valuation  allowance is reported as a component of the  provision  for
loan losses expense.

Management  applies its normal loan review procedures in determining when a loan
is impaired.  Management  considers impaired loans to be all loans classified as
substandard,  doubtful,  or loss except for smaller  balance  homogeneous  loans
which are collectively evaluated for impairment.  Impaired loans are charged off
when deemed to be uncollectible by management.

Management  has elected to continue to use its existing  nonaccrual  methods for
recognizing interest income on impaired loans.

Real Estate Owned Held-for-Sale:  Real estate properties acquired through, or in
lieu of, loan foreclosure and held-for-sale are initially recorded at fair value
at the date of  foreclosure  establishing a new cost basis.  After  foreclosure,
valuations  are  periodically  performed  by  management  and the real estate is
carried at the lower of carrying amount or fair value less cost to sell. Revenue
and expenses from operations and changes in the valuation allowance are included
in gain or loss on foreclosed real estate.

Premises  and  Equipment:  Land is carried  at cost.  Buildings  and  furniture,
fixtures,  and equipment are carried at cost, less accumulated  depreciation and
amortization.  Buildings and furniture,  fixtures and equipment are  depreciated
using the  straight-line  method over the estimated  useful lives of the assets.
The costs of leasehold improvements are amortized using the straight-line method
over the terms of the related leases.



                                     - 31 -
<PAGE>
Employee Stock Ownership Plan: Stock acquired for the Company's ESOP is recorded
as deferred  compensation,  which is a reduction to stockholders'  equity.  ESOP
shares are  considered  uncommitted  until  such time the  shares  are  released
(committed) to the ESOP trustee for distribution to the plan's participants.  As
the committed  shares are released,  compensation  expense is recognized for the
then fair value of the stock and deferred  compensation for the committed shares
is reduced by the amount of the shares' acquisition cost. Any difference between
the  acquisition  cost and the  then  fair  value  is  credited  or  charged  to
additional  paid-in  capital.  Dividends  paid on  uncommitted  ESOP  shares are
recognized as compensation  expense,  and dividends paid on allocated shares are
recognized as a reduction of retained earnings.
 
Only  committed  shares  are  considered  outstanding  for  earnings  per  share
calculations.

Earnings per share: Earnings per share of common stock have been computed on the
basis of the  weighted  average  number of shares of common  stock  outstanding,
including  committed ESOP shares and granted stock  options.  Treasury stock and
uncommitted  ESOP shares are excluded from the weighted average number of common
shares  outstanding.  Because the  Company  issued a stock  split  during  1997,
earnings per share and the weighted average number of common shares  outstanding
during 1995 and 1996 have been restated to reflect the stock split.

Income  Taxes:  Deferred tax assets and  liabilities  are reflected at currently
enacted  income tax rates  applicable  to the period in which the  deferred  tax
assets or liabilities are expected to be realized or settled.  As changes in tax
laws or rates are  enacted,  deferred  tax assets and  liabilities  are adjusted
through the provision for income taxes.

Advertising:  The  Company  expenses  the  production  costs of  advertising  as
incurred.



























                                     - 32 -
<PAGE>
2.   INVESTMENT SECURITIES

The amortized  cost and fair values of  investment  securities at June 30 are as
follows:
<TABLE>
<CAPTION>
                                                            Gross             Gross
                  1996                   Amortized       Unrealized        Unrealized
                                            Cost            Gains             Losses       Fair Value
                                        -----------      -----------      -----------      -----------
<S>                                     <C>              <C>              <C>              <C>
Held-to-Maturity .................      $11,979,383      $      --        $   103,364      $11,876,019
                                        ===========      ===========      ===========      ===========
Available-for-Sale
       U.S. government and federal
          agencies ...............      $ 1,800,000      $       600      $    12,869      $ 1,787,731
       Mortgage-backed securities        28,454,657          152,984          268,201       28,339,440
       Equity securities .........          179,126             --               --            179,126
                                        -----------      -----------      -----------      -----------
                                        $30,433,783      $   153,584      $   281,070      $30,306,297
                                        ===========      ===========      ===========      ===========


<CAPTION>
                                                            Gross            Gross
                  1997                   Amortized       Unrealized        Unrealized
                                            Cost            Gains            Losses        Fair Value
                                        -----------      -----------      -----------      -----------
<S>                                     <C>              <C>              <C>             <C>
Held-to-Maturity
       U.S. government and federal                                             
       agency                           $ 8,984,323      $    26,849      $  7,652        $ 9,003,520
                                        ===========      ===========      ========        =========== 
Available-for-Sale
       U.S. government and federal                                         
          agencies                      $ 3,460,094      $    33,617      $  3,220        $ 3,490,491
       Mortgage-backed securities        23,338,732          233,406       123,368         23,448,770
       Equity securities                  1,046,706          168,233            10          1,214,929
                                        -----------      -----------      --------        -----------
                                        $27,845,532      $   435,256      $126,598        $28,154,190
                                        ===========      ===========      ========        =========== 
</TABLE>

On December 28, 1995,  pursuant to a transfer  grace period allowed by Financial
Accounting  Standards Board, the Bank  transferred  securities  held-to-maturity
with  a  book  value  of  $20,288,431   to  the  securities   available-for-sale
classification.  Such  transfer  resulted  in an  increase  of  $171,614  in the
unrealized  gain  on  securities   available-for-sale  reported  as  a  separate
component of equity.









                                     - 33 -
<PAGE>
Gross  realized gains and losses on sales of securities  available-for-sale  for
the year ended June 30 were as follows:
<TABLE>
<CAPTION>

                                               1995                1996                 1997
                                               ----                ----                 ----
<S>                                         <C>                <C>                 <C>
Gross realized gains                        $  3,261           $  28,876           $   83,422
Gross realized losses                        (70,439)             (4,905)                  -
                                            --------           ---------           ----------
Net realized (losses) gains                 $(67,178)          $  23,971           $   83,422
                                            ========           =========             ========


Gross unrealized gains                                         $ 153,584           $  435,256
Gross unrealized losses                                         (281,070)            (126,598)
                                                               ---------           ----------
Net unrealized (losses) gains                                   (127,486)             308,658
Deferred tax asset (liability)  (Note 9)                          49,235             (119,204)
                                                               ---------           ----------
Unrealized (loss) gain on securities
  available-for-sale, net of deferred
  taxes                                                        $ (78,251)          $  189,454
                                                               =========           ==========
</TABLE>
The amortized cost and fair value of investment securities  held-to-maturity and
available-for-sale  at June 30, 1997, by  contractual  maturity are shown below.
Expected  maturities will differ from contractual  maturities because securities
may be called or prepaid with or without call or prepayment penalties.
<TABLE>
<CAPTION>
                                    Securities held-to-maturity           Securities available-for-sale
Amounts maturing in:               Amortized Cost       Fair Value       Amortized Cost        Fair Value
                                   --------------       ----------       --------------        ---------- 
<S>                                 <C>                <C>                <C>                <C>
One year or less ...........        $      --          $      --          $   500,000        $   496,781
After one through five years          4,987,110          4,991,830               --                 --
After five through ten years          3,997,213          4,011,690          2,960,094          2,993,711
                                    -----------        -----------        -----------        -----------
                                      8,984,323          9,003,520          3,460,094          3,490,492
Mortgage-backed securities .               --                 --           23,338,732         23,448,769
Other stock, at cost .......               --                 --            1,046,706          1,214,929
                                    -----------        -----------        -----------        -----------
                                    $ 8,984,323        $ 9,003,520        $27,845,532        $28,154,190
                                    ===========        ===========        ===========        ===========
</TABLE>
The  investment in FHLB stock of $2,100,000  and $3,025,000 at June 30, 1996 and
1997,  respectively,  is recorded at cost,  considered a restricted  asset,  and
pledged as collateral security for indebtedness to the Federal Home Loan Bank of
Des Moines (FHLB).

The Company has pledged  government  and  mortgage-backed  securities  to secure
deposits of certain  customers which exceeded the maximum insurance or those not
covered by the Savings Association  Insurance Fund (SAIF) and to secure advances
from the FHLB. At June 30, 1996 and 1997,  these  pledged  assets had a carrying
value of $26,428,446 and $25,466,173, respectively.

                                     - 34 -
<PAGE>
3.   LOANS

Loans receivable at June 30 are summarized as follows:
<TABLE>
<CAPTION>
                                                         1996            1997
                                                   -------------   ------------- 
<S>                                                <C>             <C>
Mortgage loans (principally conventional):
       One- to four-family residences ..........   $ 146,475,588   $ 163,585,999
       Multi-family ............................       1,767,511       6,174,708
       Commercial ..............................       5,618,792       5,992,921
       Construction ............................       2,939,526       1,472,620
                                                   -------------   ------------- 
                                                     156,801,417     177,226,248
       Less:
          Loans in process .....................       1,484,711         800,519
          Net deferred loan-origination fees ...         191,446         194,255
                                                   -------------   ------------- 

                Net mortgage loans .............     155,125,260     176,231,474
                                                   -------------   ------------- 
Consumer and other loans:
       Automobile ..............................       4,070,933       4,799,107
       Loan on savings .........................         973,150         917,077
       Home equity and second mortgage .........       5,774,683       7,254,621
       Student .................................         366,377         326,367
       Unsecured ...............................         441,073         695,740
       Other ...................................         505,842         717,668
                                                   -------------   ------------- 
                Total consumer and other loans .      12,132,058      14,710,580
                                                   -------------   ------------- 
                Total loans receivable .........     167,257,318     190,942,054
Less allowance for loan losses .................         634,087         739,369
                                                   -------------   ------------- 

                Loans receivable, net ..........   $ 166,623,231   $ 190,202,685
                                                   =============   =============
</TABLE>

Activity in the allowance for loan losses is summarized as follows for the years
ended June 30:
<TABLE>
<CAPTION>
                                    1995          1996           1997
                                ----------     ---------     ----------
<S>                             <C>            <C>           <C>
Balance, beginning of year      $  454,087     $ 514,087     $  634,087
Provision charged to income         60,000       120,000        120,000
Charge-offs                              -             -        (17,419)
Recoveries                               -             -          2,701
                                ----------     ---------     ----------
Balance, end of year            $  514,087     $ 634,087     $  739,369
                                ==========     =========     ==========
</TABLE>



                                     - 35 -
<PAGE>
The  following  information  relates to impaired  loans as of, and for the years
ended, June 30:
<TABLE>
<CAPTION>
                                                                                        1996            1997
                                                                                    -----------     -----------  
<S>                                                                                 <C>             <C>
Recorded investment in impaired loans for which there is no need for
  a valuation allowance, based upon the measure of the loan's fair value of
  underlying collateral                                                             $   299,971     $   673,550
                                                                                    ===========     ===========
Average recorded investment in impaired loans during the year                       $   196,383     $   690,740
                                                                                    ===========     ===========
Interest income recognized for cash payments received on impaired loans             
  during the year                                                                   $    21,239     $    45,203
                                                                                    ===========     ===========
</TABLE>

Loans to officers and directors  approximated  $256,000 and $272,000 at June 30,
1996 and 1997, respectively.

Mortgage loans serviced for the Federal Home Loan Mortgage  Corporation  (FHLMC)
are not  included  in the  accompanying  consolidated  statements  of  financial
condition.  The  unpaid  principal  balances  of  these  loans  at  June  30 are
summarized as follows:
<TABLE>
<CAPTION>
                                                    1996                 1997
                                               ------------         ------------ 
<S>                                            <C>                  <C> 
Mortgage loan portfolio serviced for FHLMC     $ 47,147,792         $ 41,015,652
                                               ============         ============ 
</TABLE>

Custodial  escrow  balances  maintained  in connection  with the foregoing  loan
servicing  were  approximately  $175,000 and $307,000 at June 30, 1996 and 1997,
respectively.


4.   ACCRUED INTEREST RECEIVABLE

Accrued interest receivable at June 30 is summarized as follows:
<TABLE>
<CAPTION>
                                                     1996                 1997
                                                 ----------           ---------- 
<S>                                              <C>                  <C>
Investment securities ................           $  443,980           $  412,579
Loans receivable .....................              957,129            1,052,642
                                                 ----------           ----------
                                                 $1,401,109           $1,465,221
                                                 ==========           ==========
</TABLE>





                                     - 36 -
<PAGE>
5.   REAL ESTATE OWNED HELD-FOR-SALE

Real estate owned held-for-sale at June 30 is summarized as follows:
<TABLE>
<CAPTION>

                                                     1996             1997
                                                  ---------        --------- 
<S>                                               <C>              <C>
Real estate owned held-for-sale, acquired by                           
  foreclosure                                     $  43,618        $  80,962
Allowance for losses                                (12,064)         (12,064)
                                                  ---------        ---------
Real estate owned held-for-sale, net              $  31,554        $  68,898
                                                  =========        =========

</TABLE>
Income from real estate  owned  held-for-sale  for the years ended June 30 is as
follows:
<TABLE>
<CAPTION>
                                                            1995         1996          1997
                                                         --------     --------      --------
<S>                                                      <C>          <C>           <C>
Income (expenses) of real estate owned held-for-sale     $  6,573     $ (3,716)     $ (2,856)
Gain on sale of real estate owned held-for-sale ....         --         32,701         1,150
                                                         --------     --------      --------
                                                         $  6,573     $ 28,985      $ (1,706)
                                                         ========     ========      ========
</TABLE>

There  was no  activity  in the  allowance  for  losses  for real  estate  owned
held-for-sale for each of the three years in the period ended June 30, 1997.


6.   PREMISES AND EQUIPMENT

Premises and equipment at June 30 are summarized as follows:
<TABLE>
<CAPTION>

                                                          1996           1997
                                                       ----------     ----------
<S>                                                    <C>            <C>
Land .............................................     $  395,187     $  364,186
Buildings ........................................      1,859,725      1,900,845
Leasehold improvements ...........................        158,147        502,125
Furniture, fixtures and equipment ................        753,788        770,164
Automobiles ......................................         15,614         45,601
                                                       ----------     ----------
                                                        3,182,461      3,582,921
Less accumulated depreciation and amortization ...      1,191,720      1,351,775
                                                       ----------     ----------
                                                       $1,990,741     $2,231,146
                                                       ==========     ==========
</TABLE>


                                     - 37 -
<PAGE>
Depreciation  expense for the years ended June 30, 1995,  1996, and 1997 totaled
$223,565, $260,692 and $312,489, respectively.

The Bank is obligated  under operating  leases on real and personal  property at
several of its locations.  Rental expense for all operating leases for the years
ended June 30, 1995, 1996, and 1997 approximated  $36,000,  $51,000 and $78,000,
respectively.

Future minimum rental commitments under noncancellable leases are as follows:
<TABLE>
<CAPTION>

<S>                                                        <C>
       1998                                                $      59,600
       1999                                                       56,850
       2000                                                       58,850
       2001                                                       60,850
       2002                                                       67,850
       Thereafter                                                720,650
                                                           -------------
                                                           $   1,024,650
                                                           =============
</TABLE>
7.   DEPOSITS

Deposits at June 30 are summarized as follows:
<TABLE>
<CAPTION>
                                                  1996                   1997
                                             ------------           ------------ 
<S>                                          <C>                    <C>
Demand deposits ..................           $ 11,803,558           $ 17,718,981
Savings deposits .................             24,226,441             29,246,156
Time deposits ....................            116,314,792            124,073,822
                                             ------------           ------------
                                             $152,344,791           $171,038,959
                                             ============           ============
</TABLE>

The aggregate amount of short-term jumbo  certificates of deposit with a minimum
denomination  of $100,000 was  approximately  $8,358,000 and $13,520,469 at June
30, 1996 and 1997, respectively.

At June 30, 1997, scheduled maturities of time deposits were as follows:
<TABLE>
<CAPTION>
                                                                Amount
                                                           ------------- 
<S>                                                        <C>
       1998                                                $  93,021,339
       1999                                                   19,378,130
       2000                                                    7,354,667
       2001                                                    3,258,618
       2002 and thereafter                                     1,061,068
                                                           -------------
                                                           $ 124,073,822
                                                           =============
</TABLE>
                                     - 38 -
<PAGE>
8.   BORROWED FUNDS

Borrowed funds at June 30 are summarized as follows:
<TABLE>
<CAPTION>


                                                        1996            1997
                                                   ------------    ------------- 
<S>                                                <C>             <C>
Advances from FHLB                                 $ 42,000,000    $ 46,500,000
                                                   ============    ============= 
</TABLE>

Information concerning advances from FHLB is summarized as follows:
<TABLE>
<CAPTION>


                                                       1996             1997
                                                   -----------      ------------ 
<S>                                                <C>              <C>
Average balance during the year ..............     $22,655,800      $49,125,000
Average interest rate at year end ............            5.65%            5.68%
Maximum month end balance during the year ....     $42,000,000      $53,000,000
                                                   ===========      ===========

Mortgage-backed securities pledged for the
agreement at year end:
       Carrying value ........................     $23,110,216      $ 5,965,879
       Estimated fair value ..................     $23,048,009      $ 6,159,455
</TABLE>

At June  30,  1997,  advances  from  the FHLB are  scheduled  to  mature  in the
following fiscal years:
<TABLE>
<CAPTION>
<S>                                         <C>

                         1998               $34,500,000
                         1999                 3,000,000
                         2000                 6,000,000
                         2001                 3,000,000
                                            -----------
                                            $46,500,000
                                            ===========
</TABLE>

The Bank has signed a blanket pledge  agreement with the FHLB under which it can
draw  advances  of  unspecified  amounts  from the  FHLB.  The Bank must hold an
unencumbered  portfolio of eligible one- to  four-family  residential  mortgages
with a book value of not less than 150% of the indebtedness.






                                     - 39 -
<PAGE>
9.   INCOME TAXES

The  Company  and  its  subsidiary  file  consolidated  federal  income  tax and
individual state tax returns on a fiscal year basis. Historically,  the Bank was
allowed a special bad-debt  deduction based on a percentage of taxable income (8
percent for 1995 and 1996) or on specified  experience  formulas.  The Bank used
the  percentage  method  in 1995  and  1996.  Recent  legislation  repealed  the
percentage of taxable  income method of computing  bad debt  deductions  for tax
years beginning after December 31, 1995.  Effective for fiscal 1997, the Bank is
required  to  compute  its bad  debt  deduction  based on  specified  experience
formulas.

Generally  accepted  accounting  principles  allow an exception  for providing a
deferred tax liability on bad debt reserves for tax purposes of qualified thrift
lenders  such as the Bank that arose in fiscal years  beginning  before June 30,
1988. Such bad debt reserve for the Bank amounted to approximately $624,000 with
an income tax effect of $243,000 at June 30, 1997.  This bad debt reserve  would
become  taxable  if the Bank  does not  maintain  certain  qualifying  assets as
defined,  if the  reserve is charged for other than bad debt  losses,  or if the
Bank does not maintain its thrift charter.

Recent  legislation  will require the Bank to be subject to tax of approximately
$230,000 on post - 1987 bad debt  reserves.  Such tax will be payable over a six
to seven year period  beginning  in fiscal 1997 and is included in deferred  tax
liabilities in the accompanying consolidated statements of financial condition.

Federal income taxes payable at June 30 is summarized as follows:
<TABLE>
<CAPTION>
                                                         1996              1997
                                                      --------          -------- 
<S>                                                   <C>               <C>
Current ....................................          $124,030          $569,216
Deferred ...................................           224,016           381,191
                                                      --------          --------
Federal income taxes payable ...............          $348,046          $950,407
                                                      ========          ========
</TABLE>

The consolidated provision (benefit) for income taxes consisted of the following
for the years ended June 30:
<TABLE>
<CAPTION>
                                1995            1996             1997
                            -----------     -----------      ----------- 
<S>                         <C>             <C>              <C>
Federal:
       Current              $   884,690     $ 1,087,128      $   886,107
       Deferred                  38,519         (74,209)         (11,265)
State:
       Current                  132,563         164,484          141,205
                            -----------     -----------      ----------- 
                            $ 1,055,772     $ 1,177,403      $ 1,016,047
                            ===========     ===========      ===========
</TABLE>



                                     - 40 -
<PAGE>
The reasons for the differences  between the statutory  federal income tax rates
and the effective tax rates are summarized as follows:
<TABLE>
<CAPTION>


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

<S>                                                <C>          <C>          <C>
Statutory federal income tax rates .......         34.0%        34.0%        34.0%
Increase (decrease) resulting from:
       State income taxes ................          4.7%         5.4%         5.5%
       Other .............................         (1.5)%       (0.6)%        0.1%
                                                   ----         ----         ----
                                                   37.2%        38.8%        39.6%
                                                   ====         ====         ====
</TABLE>

The tax effects of temporary  differences  between the financial reporting basis
and income  tax basis of assets and  liabilities  that are  included  in the net
deferred tax liability at June 30 relate to the following:
<TABLE>
<CAPTION>
                                                               1996          1997
                                                           ----------    ---------- 
<S>                                                        <C>           <C>
Deferred tax assets:
     Cash/accrual differences                              $  302,445    $  311,897
     Interest and fees on loans                                74,474        75,759
     Unrealized loss on securities available-for-sale          49,235             -
     Other                                                      5,535         1,489
                                                           ----------    ----------
              Total deferred tax assets                       431,689       389,145
                                                           ----------    ----------
Deferred tax liabilities:
     Allowance for losses on loans and real estate
       owned held-for-sale                                    437,911       353,104
     FHLB stock dividends                                     207,252       207,252
     Unrealized gain on securities available-for-sale               -       119,204
     Compensation programs                                     10,542        90,776
                                                           ----------    ----------
              Total deferred tax liabilities                  655,705       770,336
                                                           ----------    ----------
              Net deferred tax liability                   $(224,016)     $(381,191)
                                                           ==========    ==========
</TABLE>











                                     - 41 -
<PAGE>
10.  REGULATORY CAPITAL

The Bank is subject to various regulatory capital  requirements  administered by
the federal banking agencies.  Failure to meet minimum capital  requirements can
initiate certain mandatory - and possibly additional  discretionary - actions by
regulators  that,  if  undertaken,  could have a direct  material  effect on the
Bank's financial  statements.  The regulations require the Bank to meet specific
capital  adequacy  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 classifications
are also subject to qualitative  judgements by the regulators about  components,
risk weightings, and other factors.

Quantitative  measures  established  by  regulation to ensure  capital  adequacy
require the Bank to maintain  minimum amounts and ratios (set forth in the table
below)  of  Tangible,  Tier  I,  and  Risk-based  capital  (as  defined  in  the
regulations).  Management  believes,  as of June 30,  1997,  the Bank  meets all
capital adequacy requirements to which it is subject.

As of June 30, 1997, the most recent  notification  from the OTS categorized the
Bank as  well-capitalized  under the regulatory  framework for prompt corrective
action.  A  well-capitalized  institution  significantly  exceeds  the  required
minimum  level for each  relevant  capital  measure.  There are no conditions or
events  since that  notification  that  management  believes  have  changed  the
institution's category.

During fiscal 1997,  the Bank received OTS approval to distribute to the Company
on a quarterly basis dividends equal to one-half of the Bank's net income.






























                                     - 42 -
<PAGE>
<TABLE>
<CAPTION>
                                                                       (dollars in thousands) 

                                                                                                To Be Well Capitalized
                                                                       Minimum For Capital      For Prompt Corrective
                                                     Actual             Adequacy Purposes         Action Provisions
                                                ----------------       -------------------      --------------------- 
                                                Ratio     Amount       Ratio      Amount        Ratio       Amount
                                                -----     ------       -----      ------        -----       ------
<S>                                             <C>      <C>           <C>      <C>             <C>       <C>
As of June 30, 1996:
     Stockholders' equity, and ratio to
        total assets ......................      8.7%    $ 18,838
                                                ====
     Unrealized loss on securities
        available-for-sale ................                    78
                                                         --------
     Tangible capital, and ratio to
        adjusted total assets .............      8.7%    $ 18,916       1.5%    $  3,266
                                                ====     ========      ====     ========
     Tier 1 (core) capital, and ratio to
        adjusted total assets .............      8.7%    $ 18,916       3.0%    $  6,533         5.0%     $ 10,888
                                                ====     ========      ====     ========        ====      ========
     Tier 1 capital, and ratio to risk-
        weighted assets ...................     17.9%    $ 18,916                                6.0%     $  6,349
                                                ====                                            ====      ========
     Allowance for loan and lease losses ..                   646
                                                         --------
     Total risk-based capital, and ratio to
        risk-weighted assets ..............     18.5%    $ 19,562       8.0%    $  8,465        10.0%     $ 10,581
                                                ====     ========      ====     ========        ====      ========
     Total assets .........................              $217,684
                                                         ========
     Adjusted total assets ................              $217,763
                                                         ========
     Risk-weighted assets .................              $105,809
                                                         ========

</TABLE>


















                                     - 43 -
<PAGE>
<TABLE>
<CAPTION>
                                                                      (Dollars in thousands) 

                                                                                                To Be Well Capitalized
                                                                       Minimum For Capital      For Prompt Corrective
                                                     Actual             Adequacy Purposes         Action Provisions
                                                ----------------       -------------------      --------------------- 
                                                Ratio     Amount       Ratio      Amount        Ratio       Amount
                                                -----     ------       -----      ------        -----       ------
<S>                                             <C>      <C>            <C>     <C>            <C>        <C>
As of June 30, 1997:
     Stockholders' equity, and ratio to
     total assets .........................      7.9%    $  19,127
                                                ==== 
     Unrealized gain on securities
     available-for-sale ...................                    (86)
                                                         ---------
     Tangible capital, and ratio to
     adjusted total assets ................      7.9%    $  19,041       1.5%   $   3,618
                                                ====     =========      ====    =========
     Tier 1 (core) capital, and ratio to
     adjusted total assets ................      7.9%    $  19,041       3.0%   $   7,236        5.0%     $  12,060
                                                ====     =========      ====    =========       ====      =========
     Tier 1 capital, and ratio to risk-
     weighted assets ......................     16.0%    $  19,041                               6.0%     $   7,148
                                                ====     =========                             =====      =========
     Allowance for loan and lease losses ..                    739
                                                         ---------
     Total risk-based capital, and ratio to
     risk-weighted assets .................     16.6%    $  19,780       8.0%   $   9,530       10.0%     $  11,913
                                                ====     =========      ====    =========      =====      =========
     Total assets .........................              $ 241,283
                                                         =========
     Adjusted total assets ................              $ 241,197
                                                         =========
     Risk-weighted assets .................              $ 119,125
                                                         =========

</TABLE>

11.     EMPLOYEE BENEFITS

Pension Plan:  All Company  employees who are  twenty-one  years of age and have
been employees for at least one year are included in a trusteed, defined benefit
pension plan. The benefits  contemplated by the plan are funded through payments
to  the  Financial   Institutions   Retirement   Fund,   which   operates  as  a
multi-employer  plan and does not report  relative  plan  assets  and  actuarial
liabilities of the individual participating institutions. The cost of funding is
charged to current  operations.  Net pension  cost totaled $ -0- for each of the
years ended June 30, 1995,  1996 and 1997. As of July 1, 1987 the plan was fully
funded and all employer  contributions  were suspended until further notice from
the plan administrator.  Administrative fees are still paid while the plan is in
full funding.




                                     - 44 -
<PAGE>
Employee Stock Ownership Plan: In conjunction  with the Bank's  conversion,  the
Company formed an ESOP which covers  substantially  all employees with more than
one year of  employment,  have  completed  1,000 hours of service,  and who have
attained  the age of 21.  The  ESOP  borrowed  $938,400  from  the  Company  and
purchased  common shares equal to 8% of the total number of shares issued in the
conversion.  The ESOP debt is  secured by shares of the  Company.  The Bank will
make scheduled discretionary contributions to the ESOP sufficient to service the
debt.  At June 30,  1996 and  1997,  the  balance  outstanding  on this debt was
$615,825  and  $498,525.  As the debt is paid  down,  the number of shares to be
released  from  serving as  collateral  is  computed as the ratio of the current
principal  plus  interest to the total  original  principal  plus interest to be
paid.  Deferred  compensation  relating to the ESOP was $583,259 and $461,805 at
June 30,  1996  and  1997,  respectively,  and is  reported  as a  reduction  of
stockholders' equity. Compensation expense totaled $256,958 and $337,334 in 1996
and 1997, respectively, which included dividends paid on uncommitted ESOP shares
totaling $22,296 and $25,997 in 1996 and 1997, respectively.

The following is a summary of ESOP shares at June 30. Amounts for 1996 have been
restated to reflect the stock split issued in 1997.
<TABLE>
<CAPTION>
                                                      1996              1997
                                                  -----------        ---------- 
<S>                                               <C>                <C>
Allocated shares                                       46,224            75,080
Committed-to-be-released shares                        26,074            24,749
Uncommitted shares                                    115,382            90,633
                                                  -----------        ----------
        Total ESOP shares                             187,680           190,462
                                                  ===========        ========== 
        Fair value of uncommitted shares          $ 2,076,876        $3,260,940
                                                  ===========        ========== 
</TABLE>

ESOP  participants  entitled  to a  distribution  have the right to demand  such
distribution  in the form of the Company's  common stock.  In the event that the
Company's  common  stock is not  readily  tradeable  on an  established  market,
participants  are  entitled to require  that the Company  repurchase  the common
stock under a fair valuation formula, as provided by governmental regulations.

Recognition and Retention Plan: In conjunction with the Bank's  conversion,  the
Company  formed an RRP which was  authorized  to award 4% of the total shares of
common stock issued in the conversion. As of June 30, 1996 and 1997, the Company
has awarded a total of 77,168 and 92,986 shares of common  stock,  respectively,
to directors and 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.  As of June 30, 1997, a total of 854
common shares remain available to be awarded under the Plan.

Deferred compensation, representing the shares' fair market value at the date of
award,  is charged to income on an accelerated  basis over the five year vesting
period  as the  Bank's  directors  and  employees  perform  the  related  future
services.  The  unamortized  balance of $31,110 and $171,176 as of June 30, 1996
and 1997, respectively, is reflected as a reduction of stockholders' equity. The
Company  recognized  $43,824 and $72,286 as  compensation  and benefits  expense
relating to this plan for the years ended June 30, 1996 and 1997, respectively.


                                     - 45 -
<PAGE>
Stock Option and Incentive Plan: In conjunction with the Bank's conversion,  the
Company  established  a stock  option  and  incentive  plan for the  benefit  of
directors and employees of the Company and Bank. The plan became  effective upon
its  adoption by the Board of  Directors of the Company and approval of the plan
by the  stockholders' of the Company in October,  1994. The number of authorized
but unissued  shares  reserved under the plan is 234,600.  Granted stock options
are  regarded as common stock  equivalents  and are  considered  in earnings per
share  calculations.  At June 30, 1996 and 1997, no options have been  exercised
nor stock issued for this plan.

The stock options may be either  incentive stock options or  nonqualified  stock
options.  Incentive  stock options can be granted only to  participants  who are
employees of the Company or its subsidiaries. The exercise price of an incentive
stock  option must not be less than the market value of the  Company's  stock on
the date of the grant.  All options  expire no later than 10 years from the date
of grant.  The  options  vest at the rate of 33 1/3% per year over a  three-year
period.

A summary  of the  status of the plan at June 30,  1996 and  1997,  and  changes
during the years then ended is presented below:
<TABLE>
<CAPTION>

                                                       1996                               1997
                                            -------------------------------     ------------------------------- 
                                                           Weighted Average                    Weighted Average
                                              Shares        Exercise Price        Shares        Exercise Price
                                            ---------      ----------------     --------       ---------------- 
<S>                                         <C>              <C>                <C>             <C>
Outstanding, beginning of year                163,046        $     5.00          163,046        $     5.00
     Granted                                        -                 -           47,300             13.44
     Exercised                                      -                 -                -                 -
     Forfeited                                      -                 -                -                 -
                                            ---------                           --------
Outstanding, end of year                      163,046              5.00          210,346              6.90
                                            =========                           ======== 
Options exercisable, end of year              108,697                            163,046
                                            =========                           ======== 

</TABLE>
The fair  value of each  option  granted is  estimated  on the date of the grant
using  the Black  Scholes  pricing  model  with the  following  weighted-average
assumptions:
<TABLE>
<CAPTION>
                                                        1996           1997
                                                     ---------      ---------- 
<S>                                                  <C>            <C>
     Dividends per share                             $   0.170      $    0.225
     Risk-free interest rate                             6.60%           6.36%
     Expected life of options                          5 years         5 years
     Weighted-average fair value of options              
        granted during the year                            -        $     4.00
</TABLE>




                                     - 46 -
<PAGE>
The following table  summarizes  information  about stock options under the plan
outstanding at June 30, 1997:
<TABLE>
<CAPTION>
                           Options Outstanding                  Options Exercisable
                   ---------------------------------       ---------------------------- 
    Range of          Number            Remaining             Number           Exercise
 Exercise Prices   Outstanding      Contractual Life       Exercisable           Price
 ---------------   -----------      ----------------       -----------           -----
<S>                  <C>               <C>                   <C>              <C>  
$     5.00           163,046           6.50 years            163,046          $   5.00
$    13.44            47,300           9.50 years               -                  -
</TABLE>

The Company applies APB Opinion 25 and related Interpretations in accounting for
its  plans,  and no  compensation  cost has been  recognized  for the plan.  Had
compensation cost for the Company's plan been determined based on the fair value
at the grant dates using  Statement of Financial  Accounting  Standards No. 123,
the Company's net income would have decreased by approximately  $26,000 for 1996
and $31,000 for 1997,  and earnings  per share would have  decreased by $.02 for
1996 and 1997,  respectively.  The effects of applying this statement for either
recognizing  compensation cost or providing pro forma disclosures are not likely
to be  representative  of the  effects on reported  net income for future  years
because options vest over several years.

Executive  Employment and Salary  Continuation  Agreements:  Under an employment
agreement with the President and Chief  Executive  Officer,  the Company and the
Bank will provide severance payments in the event of an involuntary  termination
of employment in connection with a change in control of the Company,  as defined
in the contract.  If the employment of the President and Chief Executive Officer
were to be terminated  as of June 30, 1997  pursuant to a change in control,  he
would be entitled  to receive a severance  payment  amounting  to  approximately
$391,000.

On November 1, 1994, the Bank executed a salary continuation  agreement with the
President  and  Chief  Executive  Officer  to  provide  monthly  post-retirement
payments  under terms defined in the  agreement.  The agreement  also  specifies
provisions for benefits in the events of death, disability, or termination prior
to retirement.  The Bank recognized  approximately  $28,000 as compensation  and
benefits expense relating to this agreement for each of the years ended June 30,
1996 and 1997, respectively.

12.  TREASURY STOCK

The Company  acquired  114,050  shares,  51,900  shares and 49,179 shares of its
common  stock on the open market to be held in  treasury  during the years ended
June 30, 1995, 1996, and 1997, respectively. The Company paid $13.625 to $19.625
per common  stock  share to  acquire  the stock and  carries  the stock at cost.
During the year ended June 30,  1997,  15,800  shares  were  issued  pursuant to
awards  under the  Company's  RRP. At June 30, 1996 and 1997,  the Company  held
224,410 and 257,789 common shares in treasury, respectively.







                                     - 47 -
<PAGE>
13.  OTHER NONINTEREST INCOME AND EXPENSE

Other  noninterest  income and expense amounts are summarized as follows for the
years ended June 30:
<TABLE>
<CAPTION>
                                                         1995            1996            1997
                                                     -----------     -----------     ----------- 
<S>                                                  <C>             <C>             <C>
Other noninterest income:
     Loan late charges .........................     $    31,796     $    33,923     $    46,609
     Net income (loss) from real estate owned
        held-for-sale (Note 5) .................           6,573          28,985          (1,706)
     Other miscellaneous .......................           3,743           6,454          27,804
                                                     -----------     -----------     -----------
                                                     $    42,112     $    69,362     $    72,707
                                                     ===========     ===========     ===========
Other noninterest expense:
     Printing, postage, stationery, and supplies     $   202,722     $   240,339     $   367,273
     Telephone .................................          52,545          56,998          64,195
     Insurance and surety bond .................          56,666          44,760          62,042
     Supervisory examinations ..................          53,627          55,147          65,086
     Professional fees .........................         142,418         107,984          90,008
     Data processing ...........................         209,658         233,202         297,483
     Advertising expense .......................         222,927         304,340         493,983
     Other operating expense ...................         266,983         249,328         287,001
                                                     -----------     -----------     -----------
                                                     $ 1,207,546     $ 1,292,098     $ 1,727,071
                                                     ===========     ===========     ===========

</TABLE>

14.  FINANCIAL INSTRUMENTS AND CONCENTRATIONS OF CREDIT RISK

The Company is a party to financial instruments with  off-balance-sheet  risk in
the normal course of business to meet the  financing  needs of its customers and
to reduce its own exposure to fluctuations  in interest  rates.  These financial
instruments include commitments to extend credit.  Those instruments involve, to
varying  degrees,  elements of credit and interest  risk in excess of the amount
recognized  in  the  Consolidated   Statements  of  Financial   Condition.   The
contractual  amounts of those instruments  reflect the extent of involvement the
Company has in particular classes of financial instruments.

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

Commitments  to  extend  credit  are  agreements  to lend  funds for a loan to a
customer as long as there is no violation of any  condition  established  in the
contract.  Commitments  generally  have  fixed  expiration  dates.  The  Company
evaluates  each  customer's   creditworthiness   and  related  collateral  on  a
case-by-case basis.




                                     - 48 -
<PAGE>
The Company's  exposure to market loss in the event of future  changes in market
prices rendering these financial instruments less valuable is represented by the
contractual amount of the instruments.

The Company's  exposure to accounting loss on these  financial  instruments is a
combination of the credit and market risk described above.

The Company does not require  collateral or other security to support  financial
instruments with credit risk.

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

At June 30,  1997,  the  Company  had  approximate  outstanding  commitments  to
originate  loans of $1,997,000.  Fixed-rate  loan  commitments  were $808,000 in
first mortgage loans  committed at interest rates ranging from 7.625% to 8.375%.
Variable-rate  loan  commitments  were  $1,189,000 in first  mortgage loans with
interest rates ranging from 6.25% to 8%.

The Company also offers home equity and other lines of credit for its customers.
At  June  30,  1997,  the  outstanding   lines  of  credit   available   totaled
approximately $4,726,000.

Fair value  estimates,  methods  and  assumptions  for the  Company's  financial
instruments are set forth below, as of June 30:
<TABLE>
<CAPTION>
                                                                    (Dollars in thousands)
                                                             1996                          1997
                                                   -----------------------       -----------------------   
                                                   Carrying         Fair         Carrying         Fair
                        ASSETS                      Amount          Value         Amount         Value
                                                   --------       --------       --------       -------- 
<S>                                                <C>            <C>            <C>            <C>
Cash and due from depository institutions ..       $  2,973       $  2,973       $  7,953       $  7,953
Securities available-for-sale ..............         30,306         30,306         28,154         28,154
Securities held-to-maturity ................         11,979         11,876          8,984          9,004
Stock in FHLB ..............................          2,100          2,100          3,025          3,025
Mortgage loans .............................        155,125        156,707        176,231        178,114
Consumer loans .............................         12,132         12,169         14,711         14,714
Accrued interest receivable ................          1,401          1,401          1,465          1,465
                     LIABILITIES
Savings and transaction accounts ...........         36,030         36,030         46,965         46,965
Certificates of deposit ....................        116,315        116,566        124,074        124,099
Borrowed funds .............................         42,000         41,787         46,500         46,345
All other liabilities ......................          3,128          3,128          3,639          3,639
</TABLE>

Cash and Due from Depository Institutions:  The carrying amounts of cash and due
from depository institutions approximate their fair value.

Securities  Available-for-Sale and Securities Held-to-Maturity:  Fair values for
securities  are based on market prices from  published  sources or dealer quotes
for like or similar securities.




                                     - 49 -
<PAGE>
Stock in FHLB:  This stock is  considered  a  restricted  asset and its carrying
value is a reasonable estimate of fair value.

Mortgage  Loans:  The  fair  value of  mortgage  loans  is  calculated  by using
discounted  cash flow  analysis with  discount  rates based on secondary  market
sources.  The majority of real estate loans are residential.  Mortgage loans are
segregated  by fixed and  adjustable  interest  terms.  Fair values for impaired
loans are estimated using discounted cash flow analysis.

Consumer  Loans:  The  fair  value of  consumer  loans  is  calculated  by using
discounted   cash  flow  analysis   based  upon  the  current  market  for  like
instruments.

Accrued Interest Receivable:  The carrying value approximates fair value.

Savings and Transaction Accounts:  Savings and transaction deposits,  payable on
demand or with  maturities  of 90 days or less,  have a fair value equal to book
value.

Certificates  of  Deposit:  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 maturities.

Borrowed Funds: The carrying value of short term borrowings  maturing in 90 days
or less  approximates fair value. The fair value of borrowings having a maturity
greater  than 90 days is estimated  by  discounting  the future cash flows using
rates currently offered for other similar maturities.

All Other Liabilities:  The carrying value approximates fair value.

Off-Balance-Sheet  Instruments: The fair value of a loan commitment and a letter
of  credit is  determined  based on the fees  currently  charged  to enter  into
similar agreements, taking into account the remaining terms of the agreement and
the present  creditworthiness  of the counter  parties.  Neither the fees earned
during the year on these instruments nor their value at year-end are significant
to the Company's consolidated financial position.

Limitations: Fair value estimates are made at a specific point in time, based on
relevant market information and information about the financial instrument.  The
valuation  techniques  employed above involve  uncertainties and are affected by
assumptions used and judgements  regarding  prepayments,  credit risk,  discount
rates, cash flows and other factors.  Changes in assumptions could significantly
affect the reported fair value.

In addition,  the fair value  estimates are based on existing on and off-balance
sheet  financial  instruments  without  attempting  to  estimate  the  value  of
anticipated future business and the value of assets and liabilities that are not
considered  financial  instruments.  For  example,  the  Company  has a mortgage
servicing  portfolio  that  contributes  net fee income  annually.  The mortgage
servicing  portfolio is not considered a financial  instrument and its value has
not been  incorporated  into the fair  value  estimates.  Also,  the fair  value
estimates do not include the benefit  that  results  from the  low-cost  funding
provided by the deposit  liabilities  compared to the cost of borrowing funds in
the market.




                                     - 50 -
<PAGE>
15.  CONVERSION TO STOCK OWNERSHIP

On June  24,  1993,  the  Board  of  Directors  of the  Bank  adopted  a plan of
conversion  pursuant to which the Bank converted from a  state-chartered  mutual
association  to  a  federal-chartered  stock  institution  with  the  concurrent
formation of the holding  company which  acquired all of the common stock of the
Bank.  In addition to common  stock,  the Company was also  authorized  to issue
800,000 shares of $.01 par value preferred  stock. At June 30, 1996 and 1997, no
shares of preferred stock have been issued.

As part of the conversion,  the Bank  established a liquidation  account for the
benefit of eligible  depositors who continued to maintain their deposit accounts
in  the  Bank  after  the  conversion.  In  the  unlikely  event  of a  complete
liquidation of the Bank, and only in such event, 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.

The Bank's  capital  exceeds  all of the fully  phased-in  capital  requirements
imposed by OTS. OTS  regulations  provide that an  institution  that exceeds all
fully  phased-in  capital  requirements  before  and  after a  proposed  capital
distribution  and, like the Bank,  has not been notified of a need for more than
normal  supervision  could,  after prior notice but without approval by the OTS,
make capital  distributions  during the  calendar  year of up to 100% of its net
income to date during the  calendar  year plus the amount  that would  reduce by
one-half  its  "surplus  capital  ratio"  (the  excess  capital  over its  fully
phased-in  capital  requirements)  at the  beginning of the calendar  year.  Any
additional capital distributions would require prior regulatory approval.

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

16.  RECAPITALIZATION OF THE SAVINGS ASSOCIATION INSURANCE FUND (SAIF)

On September 30, 1996,  legislation was enacted to  recapitalize  the SAIF which
required  savings  institutions  with SAIF  insured  deposits  to pay a one time
special  assessment  of 65.7 cents per $100 of deposits at March 31,  1995.  The
Bank's special assessment amounted to approximately  $959,000 and is included in
non-interest expense in the consolidated  statement of income for the year ended
June 30, 1997. Subsequent to the special assessment,  the Bank's SAIF assessment
rate on deposits  decreased from 23 cents to approximately 6.5 cents per $100 of
deposits.









                                     - 51 -
<PAGE>
17.  PARENT COMPANY FINANCIAL INFORMATION

The following  tables  present  condensed  financial  information  of the parent
company, Capital Savings Bancorp, Inc.
<TABLE>
<CAPTION>

Condensed Statements of Financial Condition
June 30, 1996 and 1997

                             (Dollars in thousands)
                                                               1996       1997
                                                             -------     ------- 
<S>                                                          <C>         <C>
                             ASSETS
Cash and due from depository institutions ..............     $   647     $   361
Securities available-for-sale ..........................         179       1,215
Investment in subsidiary ...............................      18,838      19,127
Other assets ...........................................         849         707
                                                             -------     -------
        Total assets ...................................     $20,513     $21,410
                                                             =======     =======
                 LIABILITIES AND STOCKHOLDERS' EQUITY
Accrued liabilities ....................................     $    32     $    70
Stockholders' equity ...................................      20,481      21,340
                                                             -------     -------
        Total liabilities and stockholders' equity .....     $20,513     $21,410
                                                             =======     =======
<CAPTION>
Condensed Statements of Income
For the years ended June 30, 1995, 1996 and 1997

                                                                 (Dollars in thousands)
                                                             1995         1996         1997
                                                           -------      --------     ------- 
<S>                                                        <C>          <C>          <C>
Income
     Income from securities available-for-sale .......     $   112      $    54      $    14
     Other interest ..................................          61           64           55
     Gain on sale of securities available-for-sale ...          --           --           76
                                                           -------      -------      -------
                                                               173          118          145
                                                           -------      -------      -------
Expenses
     Compensation and benefits .......................         135           44           72
     Other ...........................................         155           87          123
                                                           -------      -------      -------
                                                               290          131          195
                                                           -------      -------      -------
(Loss) before income taxes and equity in undistributed
  earnings of subsidiary .............................        (117)         (13)         (50)
Benefit from income taxes ............................          38            3           16
Equity in undistributed earnings of subsidiary .......       1,861        1,870        1,584
                                                           -------      -------      -------
Net income ...........................................     $ 1,782      $ 1,860      $ 1,550
                                                           =======      =======      =======
</TABLE>

                                     - 52 -
<PAGE>
<TABLE>
<CAPTION>
Condensed Statements of Cash Flows
For the years ended June 30, 1995, 1996 and 1997


                                                                             (Dollars in thousands)
                                                                         1995         1996         1997
                                                                       -------      -------      ------- 
<S>                                                                    <C>          <C>          <C>
Cash Flows From Operating Activities
     Net income ..................................................     $ 1,782      $ 1,860      $ 1,550
     Adjustments to reconcile net income to net cash provided
       by operating activities:
        Equity in undistributed earnings of subsidiary ...........      (1,861)      (1,870)      (1,584)
        Loss (gain) on sale of securities ........................          23         --            (76)
        Compensation expense - RRP ...............................         135           44           72
        Change in other assets ...................................         (70)         (54)         (40)
        Change in other liabilities ..............................          28            4           38
                                                                       -------      -------      -------
              Net cash provided (used) by operating activities ...          37          (16)         (40)
                                                                       -------      -------      -------
Cash Flows From Investing Activities
     Dividends from Capital Savings Bank, FSB ....................        --           --          1,770
     Purchases of securities available-for-sale ..................        --         (1,379)        (960)
     Sale / maturity of securities available-for-sale ............       1,960        2,692          169
     (Increase) decrease in certificates of deposit ..............         300         --           --
                                                                       -------      -------      -------
              Net cash provided by investing activities ..........       2,260        1,313          979
                                                                       -------      -------      -------
Cash Flows From Financing Activities
     Acquisition of treasury stock ...............................      (1,770)        (968)        (941)
     Payment received on loan to ESOP (other asset) ..............         138          117          117
     Dividends paid ..............................................        (310)        (327)        (401)
                                                                       -------      -------      -------
              Net cash (used) by financing activities ............      (1,942)      (1,178)      (1,225)
                                                                       -------      -------      -------
              Net increase (decrease) in cash and cash equivalents         355          119         (286)
     Cash and cash equivalents, beginning of period ..............         173          528          647
                                                                       -------      -------      -------
     Cash and cash equivalents, end of period ....................     $   528      $   647      $   361
                                                                       =======      =======      =======
Supplemental Disclosure of Non-Cash Transactions
     Treasury stock issued as deferred ...........................     
        compensation - RRP .......................................     $  --        $  --        $   220
     Par value of common stock issued due to stock split .........     $  --        $  --        $     9

</TABLE>










                                     - 53 -
<PAGE>
18.  SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)

Selected quarterly data for fiscal year 1997 are presented below:
<TABLE>
<CAPTION>
                                                         (Dollars in thousands, except per share data)

                                                       September    December 31,  March 31,    June 30,
                                                        30, 1996       1996         1997        1997
                                                        -------      -------      -------      -------
<S>                                                     <C>          <C>          <C>          <C>
Total interest income .............................     $ 4,289      $ 4,445      $ 4,433      $ 4,560
Total interest expense ............................      (2,508)      (2,600)      (2,578)      (2,679)
                                                        -------      -------      -------      -------
Net interest income ...............................       1,781        1,845        1,855        1,881
Provision for loan losses .........................         (30)         (30)         (30)         (30)
                                                        -------      -------      -------      -------
Net interest income after provision for loan losses       1,751        1,815        1,825        1,851
Total noninterest income ..........................         237          274          355          370
Total noninterest expense .........................      (2,186)      (1,215)      (1,264)      (1,248)
                                                        -------      -------      -------      -------
Income (loss) before income taxes .................        (198)         874          916          973
(Provision) benefit for income taxes ..............          73         (337)        (363)        (388)
                                                        -------      -------      -------      -------
Net income (loss) .................................     $  (125)     $   537      $   553      $   585
                                                        =======      =======      =======      =======
Earnings (loss) per share .........................     $ (0.07)     $  0.29      $  0.29      $  0.31
                                                        =======      =======      =======      =======
</TABLE>





























                                     - 54 -
<PAGE>
                          CAPITAL SAVINGS BANCORP, INC.
                             STOCKHOLDER INFORMATION

ANNUAL MEETING

The annual meeting of stockholders will be held at 9:00 a.m., Thursday,  October
30, 1997, at the Capitol Plaza Hotel located at 415 W. McCarty Street, Jefferson
City, Missouri.

STOCK LISTING

The  Company's  stock is traded on the Nasdaq  National  Market under the symbol
"CAPS".

PRICE RANGE OF COMMON STOCK

The table below shows the price range of common stock for each quarter of fiscal
years 1997 and 1996. This  information,  provided by the Nasdaq, is presented to
reflect the 2-for-1 stock split completed November 22, 1996. These prices do not
represent actual transactions and do not include retail mark-ups,  mark-downs or
commissions.

FISCAL 1997                  High        Low      Dividends
-----------                                                   

First Quarter               $11.25      $ 9.00       $0.045
Second Quarter              $14.75      $11.13       $0.06
Third Quarter               $14.75      $12.75       $0.06
Fourth Quarter              $18.75      $12.75       $0.06

FISCAL 1996

First Quarter               $ 9.13      $ 8.25       $0.04
Second Quarter              $ 9.38      $ 8.63       $0.04
Third Quarter               $ 9.50      $ 8.88       $0.045
Fourth Quarter              $ 9.75      $ 8.88       $0.045


Dividend  payment  decisions  are made based on a variety  of factors  including
earnings,    financial   condition,   market   considerations   and   regulatory
restrictions. Restrictions on dividend payments are described in Notes 10 and 15
of the Notes to Consolidated Financial Statements included in this report.

As of September 10, 1997,  the Company had  approximately  950  stockholders  of
record(including  approximately 315 persons or entities holding stock in nominee
or street name through various brokerage firms) and 1,891,800 outstanding shares
of common stock.

SHAREHOLDERS AND GENERAL INQUIRIES                 TRANSFER AGENT

         David V. Meyer                            Register and Transfer Company
         Capital Savings Bancorp, Inc.             10 Commerce Drive
         425 Madison Street                        Cranford, New Jersey  07016
         Jefferson City, Missouri  65101           (908) 272-8511
         (573) 635-4151



                                     - 55 -
<PAGE>
ANNUAL AND OTHER REPORTS

The Company is  required to file an annual  report on Form 10-KSB for its fiscal
year ended June 30, 1997 with the Securities and Exchange Commission.  Copies of
the Company's  annual and quarterly  reports may be obtained  without  charge by
contacting:

         David V. Meyer
         Capital Savings Bancorp, Inc.
         425 Madison Street
         Jefferson City, Missouri  65101
         (573) 635-4151

                                                         












































                                     - 56 -
<PAGE>
                          CAPITAL SAVINGS BANCORP, INC.
                              CORPORATE INFORMATION

COMPANY AND BANK ADDRESS

         425 Madison Street                  Telephone:        (573) 635-4151
         Jefferson City, Missouri  65101     Fax:              (573) 636-4122


DIRECTORS OF THE BOARD


Larry V. Schepers
         Chairman of the Board, President and Chief
         Executive Officer of Capital Savings
         Bancorp, Inc. and Capital Savings Bank, FSB
         Jefferson City, Missouri

Ralph J. Kalberloh
         Retired Executive Vice President of the Missouri
         Automobile Dealer's Association
         Consultant for Northwood University of
         Midland, Michigan

Frank A. Sloan
         Active Emeritus Agent associated with Bankers
         Life and Casualty
         Jefferson City, Missouri

Wayne R. Walquist
         Chairman of the Board, President and
         founder of the Family Benefit Life Insurance
         Jefferson City, Missouri

Arthur F. Wankum
         Executive Vice President and Chief Financial
         Officer of Capital Savings Bancorp, Inc. and
         Capital Savings Bank, FSB
         Jefferson City, Missouri

Joseph E. Forck
         Senior Vice President of Capital Savings
         Bank, FSB
         Jefferson City, Missouri

CAPITAL SAVINGS BANCORP, INC. OFFICERS

Larry V. Schepers
         Chairman of the Board, President and
         Chief Executive Officer

Marilyn Curtit
         Corporate Secretary

Arthur F. Wankum
         Executive Vice President and
         Chief Financial Officer

                                     - 57 -
<PAGE>

CAPITAL SAVINGS BANK, FSB OFFICERS


Larry V. Schepers
         Chairman of the Board, President and
         Chief Executive Officer

Joseph E. Forck
         Senior Vice President

Shannon C. Britt
         Vice President - Lending Operations
Arthur F. Wankum
         Executive Vice President and
         Chief Financial Officer

Charles Wm. Clark
         Senior Vice President

Marilyn Curtit
         Corporate Secretary


INDEPENDENT AUDITORS

Williams-Keepers LLP
107 Adams Street
Jefferson City, Missouri  65101

SPECIAL COUNSEL

Silver, Freedman & Taff, L.L.P.
1100 New York Avenue, N.W.
Washington, D.C.  20005
























                                     - 58 -