HOME BANCORP OF ELGIN INC, 10-Q, 1997-11-10

HOME BANCORP OF ELGIN INC
10-Q, 1997-11-10
SAVINGS INSTITUTION, FEDERALLY CHARTERED

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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549

FORM 10-Q

(MARK ONE)

[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934

FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1997

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

FOR THE TRANSITION PERIOD FROM ______ TO ______

COMMISSION FILE NUMBER 0-28696

HOME BANCORP OF ELGIN, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)

DELAWARE 36-4090333
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)

16 NORTH SPRING STREET, ELGIN, ILLINOIS 60120
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
(ZIP CODE)

(847) 742-3800
(REGISTRANT'S TELEPHONE NUMBER INCLUDING AREA CODE)

N/A
----------------------
(FORMER NAME, FORMER ADDRESS AND FORMER FISCAL YEAR,
IF CHANGED FROM LAST REPORT)

INDICATE BY CHECK MARK WHETHER THE REGISTRANT (1) HAS FILED ALL REPORTS
REQUIRED TO BE FILED BY SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF
1934 DURING THE PRECEDING TWELVE MONTHS (OR FOR SUCH SHORTER PERIOD THAT THE
REGISTRANT WAS REQUIRED TO FILE SUCH REPORTS), AND (2) HAS BEEN SUBJECT TO SUCH
FILING REQUIREMENTS FOR THE PAST 90 DAYS. YES /X/ NO / /.

INDICATE THE NUMBER OF SHARES OUTSTANDING OF EACH OF THE ISSUER'S
CLASSES OF COMMON STOCK AS OF THE LATEST PRACTICABLE DATE.

OUTSTANDING AT
CLASS SEPTEMBER 30, 1997
----- ------------------
COMMON STOCK,
PAR VALUE $.01 6,855,799

<PAGE>

TABLE OF CONTENTS

PART I -- FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS OF HOME BANCORP OF ELGIN, INC.

<S> <C>
CONSOLIDATED BALANCE SHEETS (UNAUDITED) -- SEPTEMBER 30, 1997
AND DECEMBER 31, 1996 ................................................................................ 1

CONSOLIDATED STATEMENTS OF EARNINGS (UNAUDITED) -- THREE AND NINE MONTHS ENDED
SEPTEMBER 30, 1997 AND 1996 .......................................................................... 2

CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) -- THREE AND NINE MONTHS ENDED
SEPTEMBER 30, 1997 AND 1996 .......................................................................... 3

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS ................................................. 4

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS ................................................................................ 5

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK............................................. 17

PART II -- OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS .................................................................................... 17

ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS ............................................................ 17

ITEM 3. DEFAULTS UPON SENIOR SECURITIES ...................................................................... 17

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS .................................................. 17

ITEM 5. OTHER INFORMATION .................................................................................... 18

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K ..................................................................... 18

SIGNATURES ..................................................................................................... 19
</TABLE>

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<PAGE>

PART I - FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS -- THE CONSOLIDATED STATEMENTS OF EARNINGS AND CASH
FLOWS FOR THE THREE MONTHS AND NINE MONTHS ENDED SEPTEMBER 30, 1996 ARE
PRIMARILY FOR HOME FEDERAL SAVINGS AND LOAN ASSOCIATION OF ELGIN ("HOME FEDERAL"
OR THE "ASSOCIATION") ONLY, BECAUSE HOME BANCORP OF ELGIN, INC. ("HOME BANCORP"
OR THE "COMPANY"), THE HOLDING COMPANY FOR THE ASSOCIATION, DID NOT COMMENCE
OPERATIONS UNTIL SEPTEMBER 26, 1996 IN CONNECTION WITH THE ASSOCIATION'S
CONVERSION FROM MUTUAL TO STOCK FORM. THE FINANCIAL STATEMENTS FOR 1997 ARE FOR
HOME BANCORP AND ITS CONSOLIDATED SUBSIDIARY.

HOME BANCORP OF ELGIN, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
<TABLE>
<CAPTION>

SEPT 30, DEC. 31,
1997 1996
-------- --------
(IN THOUSANDS, EXCEPT SHARES
AND PER SHARE AMOUNTS)
<S> <C> <C>
ASSETS
CASH AND DUE FROM BANKS..................................................... $ 5,390 $ 5,661
INTEREST-EARNING DEPOSITS................................................... 33,622 22,341
INVESTMENT SECURITIES HELD TO MATURITY...................................... -- 53,786
LOANS RECEIVABLE, NET....................................................... 291,050 261,306
GOVERNMENT NATIONAL MORTGAGE ASSOCIATION
MORTGAGE-BACKED SECURITIES HELD TO MATURITY............................... 100 142
ACCRUED INTEREST RECEIVABLE................................................. 1,511 1,701
REAL ESTATE OWNED AND IN JUDGMENT, AT LOWER OF COST OR FAIR
VALUE..................................................................... 264 550
FEDERAL HOME LOAN BANK OF CHICAGO STOCK, AT COST............................ 2,606 2,678
OFFICE PROPERTIES AND EQUIPMENT, NET........................................ 7,213 7,564
PREPAID EXPENSES AND OTHER ASSETS........................................... 762 606
------------ ------------
TOTAL ASSETS.............................................................. $ 342,518 $ 356,335
============ ============

LIABILITIES AND STOCKHOLDERS' EQUITY
SAVINGS DEPOSITS............................................................ $ 245,017 $ 251,795
ADVANCE PAYMENTS BY BORROWERS FOR TAXES AND INSURANCE....................... 838 2,012
ACCRUED INTEREST PAYABLE AND OTHER LIABILITIES.............................. 2,270 2,647
------------ ------------
TOTAL LIABILITIES......................................................... 248,125 256,454
------------ ------------

STOCKHOLDERS' EQUITY:
PREFERRED STOCK, $.01 PAR VALUE, 3,000,000 SHARES
AUTHORIZED; NONE OUTSTANDING.............................................. -- --
COMMON STOCK, $.01 PAR VALUE; 12,000,000 SHARES AUTHORIZED 7,009,250 SHARES
ISSUED; 6,855,799 SHARES AND 7,009,250 SHARES OUTSTANDING AT SEPTEMBER 30,
1997 AND AT DECEMBER
31, 1996 RESPECTIVELY..................................................... 70 70
ADDITIONAL PAID-IN CAPITAL.................................................. 68,215 67,953
RETAINED EARNINGS, SUBSTANTIALLY RESTRICTED................................. 38,168 37,325
TREASURY STOCK AT COST (153,451 SHARES AT SEPTEMBER 30, 1997)............... (2,470) --
UNEARNED ESOP COMPENSATION.................................................. (5,467) (5,467)
UNEARNED RRP COMPENSATION................................................... (4,123) --
------------ ------------
TOTAL STOCKHOLDERS' EQUITY................................................ 94,393 99,881
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY.................................. $ 342,518 $ 356,335
============ ============
</TABLE>

SEE ACCOMPANYING NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS.

- 1 -

<PAGE>

HOME BANCORP OF ELGIN, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF EARNINGS
(UNAUDITED)

FOR THE THREE FOR THE NINE
MONTHS ENDED MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------------------------ --------------------------------
1997 1996 1997 1996
------------------- --------------- ----------------- --------------
(IN THOUSANDS, EXCEPT
PER SHARE AMOUNTS)
INTEREST INCOME
<S> <C> <C> <C> <C>
LOANS SECURED BY REAL ESTATE.............................. $ 5,545 $ 5,207 $15,928 $15,761
OTHER LOANS............................................... 14 13 44 41
MORTGAGE-BACKED SECURITIES HELD TO MATURITY............... 2 3 7 9
INVESTMENT SECURITIES HELD TO MATURITY.................... 454 90 1,643 270
INTEREST-EARNING DEPOSITS................................. 267 296 1,013 642
FEDERAL HOME LOAN BANK OF CHICAGO STOCK................... 44 46 133 140
------- ------- ------- -------
TOTAL INTEREST INCOME.................................. 6,326 5,655 18,768 16,863
INTEREST EXPENSE
SAVINGS DEPOSITS.......................................... 2,613 2,773 7,789 8,222
BORROWED FUNDS............................................ 117 -- 122 37
------- ------- ------- -------
TOTAL INTEREST EXPENSE................................. 2,730 2,773 7,911 8,259
------- ------- ------- -------
NET INTEREST INCOME BEFORE PROVISION FOR LOAN
LOSSES................................................ 3,596 2,882 10,857 8,604
PROVISION FOR LOAN LOSSES................................. 30 30 90 90
------- ------- ------- -------
NET INTEREST INCOME AFTER PROVISION FOR LOAN
LOSSES................................................ 3,566 2,852 10,767 8,514
------- ------- ------ -------
NON-INTEREST INCOME
SERVICE FEE INCOME........................................ 256 299 751 893
GAIN ON SALE OF REAL ESTATE OWNED......................... -- -- 34 21
GAIN ON SALE OF OFFICE PROPERTIES AND EQUIPMENT........... -- -- -- 1
OTHER INCOME.............................................. 6 6 200 17
------- ------- ------- -------
TOTAL NON-INTEREST INCOME.............................. 262 305 985 932
NON-INTEREST EXPENSE
COMPENSATION AND BENEFITS................................. 1,468 1,027 4,057 3,953
OCCUPANCY EXPENSE......................................... 401 388 1,202 1,138
FEDERAL DEPOSIT INSURANCE PREMIUMS........................ 61 1,951 156 2,290
ADVERTISING AND PROMOTION................................. 107 97 315 270
AUTOMATED TELLER MACHINES................................. 107 106 311 327
DATA PROCESSING........................................... 225 227 685 720
OTHER..................................................... 442 327 1,382 889
------- ------- ------- -------
TOTAL NON-INTEREST EXPENSE............................. 2,811 4,123 8,108 9,587
------- ------- ------- -------
INCOME (LOSS) BEFORE INCOME TAX EXPENSE
(BENEFIT)................................................ 1,017 (966) 3,644 (141)
INCOME TAX EXPENSE (BENEFIT).............................. 394 (375) 1,414 (51)
------- ------- ------- -------
NET INCOME (LOSS)...................................... $ 623 $ (591) $ 2,230 $ (90)
======= ======= ======= =======

EARNINGS (LOSS) PER SHARE:................................. $ 0.10 $ (0.09) $ 0.35 $ (0.01)
======= ======= ======= =======
</TABLE>

SEE ACCOMPANYING NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS.

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<PAGE>

HOME BANCORP OF ELGIN, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)

<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED FOR THE NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------------------------ ------------------------------
1997 1996 1997 1996
------------------ ----------------- ----------------- ------------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
NET INCOME (LOSS)........................................... $ 623 $ (591) $ 2,230 $ (90)
ADJUSTMENTS TO RECONCILE NET INCOME TO NET
CASH PROVIDED BY OPERATING ACTIVITIES:
DEPRECIATION AND AMORTIZATION .............................. 153 147 472 421
PROVISION FOR LOAN LOSSES................................... 30 30 90 90
PROVISION FOR DEFERRED TAXES................................ 332 -- 332 --
ACCRETION OF DISCOUNTS, NET................................. (113) -- (589) --
MARKET ADJUSTMENT FOR COMMITTED ESOP SHARES................. 110 -- 261 --
COST OF RRP................................................. 225 -- 375 --
DECREASE IN DEFERRED LOAN FEES.............................. (66) (102) (184) (286)
GAIN ON SALE OF REAL ESTATE OWNED........................... -- -- (34) (21)
GAIN ON SALE OF OFFICE PROPERTIES AND EQUIPMENT............. -- -- -- (1)
DECREASE IN ACCRUED INTEREST RECEIVABLE..................... 258 82 190 68
DECREASE (INCREASE) IN PREPAID EXPENSES AND OTHER
ASSETS, NET................................................ (6) 358 (156) (18)
INCREASE (DECREASE) IN ACCRUED INTEREST PAYABLE AND
OTHER LIABILITIES, NET.................................... (341) 1,759 (709) 2,385
-------- ------- -------- -------

NET CASH PROVIDED BY OPERATING ACTIVITIES................ 1,205 1,683 2,278 2,548
------- ------- ------- -------

CASH FLOWS FROM INVESTING ACTIVITIES:
NET DECREASE (INCREASE) IN LOANS RECEIVABLE................. (11,188) 268 (29,689) 3,839
REPAYMENT OF MORTGAGE-BACKED SECURITIES HELD TO
MATURITY.................................................. 14 9 42 36
MATURITIES OF INVESTMENT SECURITIES HELD TO MATURITY........ 34,000 -- 54,374 --
PURCHASE OF OFFICE PROPERTIES AND EQUIPMENT................. (11) (664) (120) (889)
PROCEEDS FROM THE SALE OF REO............................... -- -- 359 --
PROCEEDS FROM THE SALE OF OFFICE PROPERTIES AND
EQUIPMENT.................................................. -- -- -- 1
REDEMPTION OF STOCK IN THE FEDERAL HOME LOAN BANK
OF CHICAGO................................................. -- -- 72 378
------- ------- ------- -------

NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES...... 22,815 (387) 25,038 3,365
------- -------- ------- -------

CASH FLOWS FROM FINANCING ACTIVITIES:
NET PROCEEDS FROM THE SALE OF COMMON STOCK -- 62,367 -- 62,367
DECREASE IN FEDERAL HOME LOAN BANK OF CHICAGO
ADVANCES.................................................. (5,000) -- -- (4,000)
NET INCREASE (DECREASE) IN SAVINGS DEPOSITS................. (4,069) 7,834 (6,778) 6,485
PURCHASE OF RRP STOCK....................................... -- -- (4,498) --
PURCHASE OF TREASURY STOCK.................................. -- -- (2,470) --
DIVIDENDS PAID ON COMMON STOCK.............................. (686) -- (1,387) --
NET DECREASE IN ADVANCE PAYMENTS BY BORROWERS FOR
TAXES AND INSURANCE....................................... (1,252) (1,234) (1,174) (1,135)
------- ------- ------- -------
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES......... (11,007) 68,967 (16,307) 63,717
------- ------- ------- -------
INCREASE IN CASH AND CASH EQUIVALENTS....................... 13,013 70,263 11,009 69,630
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD............ 25,999 17,976 28,003 18,609
------- ------- ------- -------
CASH AND CASH EQUIVALENTS AT END OF PERIOD.................. $39,012 $88,239 $39,012 $88,239
======= ======= ======= =======

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
CASH PAID DURING THE PERIOD FOR:
INTEREST............................................. $ 2,669 $ 2,772 $ 7,848 $ 8,294
INCOME TAXES......................................... 406 -- 902 530

</TABLE>
SEE ACCOMPANYING NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS.

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<PAGE>

HOME BANCORP OF ELGIN, INC. AND SUBSIDIARY

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

(1) BASIS OF PRESENTATION

THE CONSOLIDATED FINANCIAL STATEMENTS INCLUDED HEREIN HAVE BEEN PREPARED
BY THE COMPANY WITHOUT AUDIT. IN THE OPINION OF MANAGEMENT, THE QUARTERLY
UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS INCLUDE ALL ADJUSTMENTS, CONSISTING
OF NORMAL RECURRING ACCRUALS, NECESSARY FOR A FAIR PRESENTATION OF THE FINANCIAL
POSITION AND RESULTS OF OPERATIONS AT AND FOR THE PERIODS PRESENTED. CERTAIN
INFORMATION AND FOOTNOTE DISCLOSURES NORMALLY INCLUDED IN ACCORDANCE WITH
GENERALLY ACCEPTED ACCOUNTING PRINCIPLES HAVE BEEN CONDENSED OR OMITTED PURSUANT
TO THE RULES AND REGULATIONS OF THE SECURITIES AND EXCHANGE COMMISSION. THE
COMPANY BELIEVES THAT THE DISCLOSURES ARE ADEQUATE TO MAKE THE INFORMATION
PRESENTED NOT MISLEADING; HOWEVER, THE RESULTS FOR THE PERIODS PRESENTED ARE NOT
NECESSARILY INDICATIVE OF RESULTS TO BE EXPECTED FOR THE ENTIRE YEAR.

(2) STOCK CONVERSION

ON SEPTEMBER 26, 1996, THE ASSOCIATION COMPLETED ITS CONVERSION FROM A
FEDERALLY CHARTERED MUTUAL SAVINGS AND LOAN ASSOCIATION TO A FEDERALLY CHARTERED
STOCK SAVINGS AND LOAN ASSOCIATION, AND ALL OF THE CAPITAL STOCK OF THE
ASSOCIATION WAS ACQUIRED BY HOME BANCORP. HOME BANCORP ISSUED AND SOLD 7,009,250
SHARES OF ITS COMMON STOCK, $.01 PAR VALUE, AT A PRICE OF $10.00 PER SHARE IN A
SUBSCRIPTION OFFERING (THE "OFFERING") TO CERTAIN DEPOSITORS OF HOME FEDERAL AND
TO THE COMPANY'S EMPLOYEE STOCK OWNERSHIP PLAN. NET PROCEEDS FROM THE OFFERING
WERE $62.4 MILLION.

(3) EARNINGS PER SHARE

EARNINGS PER SHARE OF COMMON STOCK FOR THE THREE MONTHS AND NINE MONTHS
ENDED SEPTEMBER 30, 1997 HAS BEEN DETERMINED BY DIVIDING NET INCOME FOR THE
THREE MONTHS AND NINE MONTHS BY 6,431,369 AND 6,457,099, RESPECTIVELY, THE
WEIGHTED AVERAGE NUMBER OF PRIMARY SHARES OF COMMON STOCK AND COMMON STOCK
EQUIVALENTS. EARNINGS PER SHARE INFORMATION FOR THE THREE MONTHS AND NINE MONTHS
ENDED SEPTEMBER 30, 1996 HAS BEEN DETERMINED BY DIVIDING NET INCOME FOR THE
THREE MONTHS AND NINE MONTHS BY 6,448,510, THE WEIGHTED AVERAGE NUMBER OF
PRIMARY SHARES OF COMMON STOCK. ESOP SHARES ARE ONLY CONSIDERED OUTSTANDING FOR
EARNINGS PER SHARE CALCULATIONS WHEN THEY ARE COMMITTED TO BE RELEASED.

(4) COMMITMENTS AND CONTINGENCIES

AT SEPTEMBER 30, 1997, THE COMPANY HAD OUTSTANDING COMMITMENTS TO
ORIGINATE MORTGAGE LOANS OF $13.7 MILLION, OF WHICH $12.5 MILLION WERE FIXED
RATE COMMITMENTS.

- 4 -

<PAGE>

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS

GENERAL

ON SEPTEMBER 26, 1996, HOME FEDERAL SAVINGS AND LOAN ASSOCIATION OF
ELGIN ("HOME FEDERAL" OR THE "ASSOCIATION") COMPLETED ITS CONVERSION FROM MUTUAL
TO STOCK FORM AND BECAME A WHOLLY-OWNED SUBSIDIARY OF HOME BANCORP OF ELGIN,
INC. ("HOME BANCORP" OR THE "COMPANY"). ON SUCH DATE, THE COMPANY SOLD 7,009,250
SHARES OF ITS COMMON STOCK, PAR VALUE $.01 PER SHARE, TO THE PUBLIC, AT A PER
SHARE PRICE OF $10.00. THE CONVERSION AND OFFERING RAISED $62.4 MILLION IN NET
PROCEEDS. THE COMPANY'S SOLE BUSINESS ACTIVITY CONSISTS OF THE OWNERSHIP OF THE
ASSOCIATION. THE COMPANY ALSO INVESTS IN SHORTTERM INVESTMENT GRADE MARKETABLE
SECURITIES AND OTHER LIQUID INVESTMENTS. THE FINANCIAL DATA FOR THE THREE MONTHS
AND NINE MONTHS ENDED SEPTEMBER 30, 1996 REPRESENTS PRIMARILY THE ACTIVITY OF
THE ASSOCIATION SINCE HOME BANCORP BECAME THE ASSOCIATION'S HOLDING COMPANY ON
SEPTEMBER 26, 1996, AND THE ACTIVITY OF HOME BANCORP AND SUBSIDIARY CONSOLIDATED
FOR THE THREE MONTH AND NINE MONTH PERIODS ENDED SEPTEMBER 30, 1997. THE
ASSOCIATION'S PRINCIPAL BUSINESS CONSISTS OF ATTRACTING DEPOSITS FROM THE PUBLIC
AND INVESTING THOSE DEPOSITS, ALONG WITH FUNDS GENERATED FROM OPERATIONS,
PRIMARILY IN LOANS SECURED BY MORTGAGES ON ONE- TO FOUR-FAMILY RESIDENCES. THE
ASSOCIATION'S RESULTS OF OPERATIONS ARE DEPENDENT PRIMARILY ON NET INTEREST
INCOME, WHICH IS THE DIFFERENCE BETWEEN THE INTEREST INCOME EARNED ON ITS
INTEREST-EARNING ASSETS, SUCH AS LOANS AND SECURITIES, AND THE INTEREST EXPENSE
INCURRED ON ITS INTEREST-BEARING LIABILITIES, SUCH AS SAVINGS DEPOSITS. THE
ASSOCIATION ALSO GENERATES NON-INTEREST INCOME SUCH AS SERVICE CHARGES AND OTHER
FEES. THE ASSOCIATION'S NON-INTEREST EXPENSES PRIMARILY CONSIST OF EMPLOYEE
COMPENSATION AND BENEFITS, OCCUPANCY EXPENSES, FEDERAL DEPOSIT INSURANCE
PREMIUMS, NET COSTS OF REAL ESTATE OWNED, DATA PROCESSING FEES AND OTHER
OPERATING EXPENSES. THE ASSOCIATION'S RESULTS OF OPERATIONS ARE ALSO
SIGNIFICANTLY AFFECTED BY GENERAL ECONOMIC AND COMPETITIVE CONDITIONS
(PARTICULARLY CHANGES IN MARKET INTEREST RATES), GOVERNMENT POLICIES AND ACTIONS
OF REGULATORY AGENCIES.

- 5 -

<PAGE>

THE SELECTED FINANCIAL RATIOS AND OTHER DATA OF THE COMPANY SET FORTH
BELOW ARE DERIVED IN PART FROM, AND SHOULD BE READ IN CONJUNCTION WITH, THE
FINANCIAL STATEMENTS OF THE COMPANY PRESENTED ELSEWHERE IN THIS REPORT.

AT OR FOR THE AT OR FOR THE
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
----------------------------------------- ----------------------------------
1997 1996 1997 1996
------------------- -------------------- --------------------- ------------
(DOLLARS IN THOUSANDS, EXCEPT
SHARES AND PER SHARE AMOUNTS)
(UNAUDITED)
<S> <C> <C> <C> <C>
SELECTED FINANCIAL RATIOS(1):
PERFORMANCE RATIOS:
RETURN (LOSS) ON AVERAGE ASSETS(2) ............... 0.70% (0.73)% 0.84% (0.04)%
RETURN (LOSS) ON AVERAGE EQUITY(2) ............... 2.65 (4.08) 3.05 (0.27)
AVERAGE INTEREST RATE SPREAD(3) .................. 3.01 3.19 3.05 3.42
NET INTEREST MARGIN(4) ........................... 4.19 3.89 4.23 3.96
AVERAGE INTEREST-EARNING ASSETS TO AVERAGE
INTEREST-BEARING LIABILITIES ................... 137.14 118.71 138.35 114.12
NON-INTEREST EXPENSE TO AVERAGE ASSETS ........... 3.17 5.11 3.04 4.13
CAPITAL RATIOS(1):
AVERAGE EQUITY TO AVERAGE ASSETS ................. 26.50 17.93 27.45 14.25
CONSOLIDATED EQUITY TO TOTAL ASSETS AT END OF
PERIOD ........................................ 27.56 26.71 27.56 26.71
TANGIBLE CAPITAL(5) .............................. 21.10 18.98 21.10 18.98
CORE CAPITAL(5) .................................. 21.10 18.98 21.10 18.98
TOTAL RISK-BASED CAPITAL(5) ...................... 38.39 38.71 38.39 38.71
ASSET QUALITY RATIOS AND OTHER DATA(1):
TOTAL NON-PERFORMING LOANS(6) .................... $ 940 $ 1,500 $ 940 $ 1,500
REAL ESTATE OWNED, NET ........................... 264 329 264 329
NON-PERFORMING LOANS TO TOTAL LOANS(7) ........... 0.32% 0.57% 0.32% 0.57%
NON-PERFORMING ASSETS TO TOTAL ASSETS ............ 0.35 0.49 0.35 0.49
ALLOWANCE FOR LOAN LOSSES TO:
NON-PERFORMING LOANS .......................... 110.16 60.99 110.16 60.99
TOTAL LOANS(7) ................................ 0.35 0.35 0.35 0.35
NUMBER OF SHARES OUTSTANDING ..................... 6,855,799 7,009,250 6,855,799 7,009,250
BOOK VALUE PER SHARE ............................. $ 13.77 $ 14.12 $ 13.77 $ 14.12
</TABLE>

(1) WITH THE EXCEPTION OF END-OF-PERIOD RATIOS, ALL RATIOS ARE BASED ON AVERAGE
MONTHLY BALANCES DURING THE INDICATED PERIODS AND ARE ANNUALIZED WHERE
APPROPRIATE. CAPITAL RATIOS AND ASSET QUALITY RATIOS AND OTHER DATA ARE
END-OF-PERIOD RATIOS AND DATA.
(2) INCLUDES ONE TIME CHARGE OF $1,777,000 ($1,088,000 NET OF TAX EFFECTS)
ASSOCIATED WITH THE RECAPITALIZATION OF THE SAIF FOR THE THREE MONTH AND
NINE MONTH PERIODS ENDED SEPTEMBER 30, 1996 AND LOSS ON TERMINATION OF
PENSION PLAN OF $837,000 ($512,000 NET OF TAX EFFECTS) FOR THE NINE MONTH
PERIOD ENDED SEPTEMBER 30, 1996. EXCLUDING THE SAIF RECAPITALIZATION
CHARGE, THE RETURN ON AVERAGE ASSETS AND AVERAGE EQUITY WOULD HAVE BEEN
0.62% AND 3.43%, RESPECTIVELY, FOR THE THREE MONTHS ENDED SEPTEMBER 30,
1996 AND FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996 WOULD HAVE BEEN 0.43%
AND 3.02%, RESPECTIVELY. EXCLUDING THE SAIF RECAPITALIZATION CHARGE AND THE
LOSS ON TERMINATION OF THE PENSION PLAN, THE RETURN ON AVERAGE ASSETS AND
AVERAGE EQUITY WOULD HAVE BEEN 0.65% AND 4.57%, RESPECTIVELY, FOR NINE
MONTHS ENDED SEPTEMBER 30, 1996, AND THE RATIO OF NON-INTEREST EXPENSE TO
AVERAGE ASSETS WOULD HAVE BEEN 2.91% AND 3.00%, RESPECTIVELY, FOR THE THREE
MONTHS AND NINE MONTHS ENDED SEPTEMBER 30, 1996.
(3) THE AVERAGE INTEREST RATE SPREAD REPRESENTS THE DIFFERENCE BETWEEN THE
WEIGHTED-AVERAGE YIELD ON INTEREST-EARNING ASSETS AND THE WEIGHTED-AVERAGE
COST OF INTEREST-BEARING LIABILITIES.
(4) THE NET INTEREST MARGIN REPRESENTS NET INTEREST INCOME AS A PERCENTAGE OF
AVERAGE INTEREST-EARNING ASSETS.
(5) THESE REGULATORY CAPITAL RATIOS ARE FOR HOME FEDERAL SAVINGS AND LOAN
ASSOCIATION OF ELGIN ONLY.
(6) NON-PERFORMING LOANS CONSIST OF NON-ACCRUAL LOANS; THE COMPANY DID NOT HAVE
ANY LOANS THAT WERE 90 DAYS OR MORE PAST DUE AND STILL ACCRUING AT ANY OF
THE DATES REFERRED TO IN THE TABLE ABOVE.
(7) TOTAL LOANS REPRESENTS GROSS LOANS LESS DEFERRED LOAN FEES AND LOANS IN
PROCESS.

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<PAGE>

ANALYSIS OF NET INTEREST INCOME

NET INTEREST INCOME REPRESENTS THE DIFFERENCE BETWEEN INCOME ON
INTEREST-EARNING ASSETS AND EXPENSE ON INTEREST-BEARING LIABILITIES. NET
INTEREST INCOME DEPENDS UPON THE RELATIVE AMOUNTS OF INTEREST-EARNING ASSETS AND
INTEREST-BEARING LIABILITIES AND THE INTEREST RATES EARNED OR PAID ON THEM.

THE FOLLOWING TABLES SET FORTH CERTAIN INFORMATION RELATING TO THE
COMPANY'S STATEMENTS OF FINANCIAL CONDITION AND THE STATEMENTS OF OPERATIONS FOR
THE THREE MONTH AND NINE MONTH PERIODS ENDED SEPTEMBER 30, 1997 AND 1996, AND
REFLECT THE AVERAGE YIELD ON ASSETS AND AVERAGE COST OF LIABILITIES FOR THE
PERIODS INDICATED. SUCH YIELDS AND COSTS ARE DERIVED BY DIVIDING INCOME OR
EXPENSE BY THE AVERAGE BALANCE OF ASSETS OR LIABILITIES, RESPECTIVELY, FOR THE
PERIODS SHOWN. AVERAGE BALANCES ARE DERIVED FROM AVERAGE MONTHLY BALANCES. THE
YIELDS AND COSTS INCLUDE FEES WHICH ARE CONSIDERED ADJUSTMENTS TO YIELDS.

- 7 -

<PAGE>

FOR THE THREE MONTHS ENDED SEPTEMBER 30,
---------------------------------------------------------------------
1997 1996
----------------------------------- --------------------------------
AVERAGE AVERAGE
AVERAGE YIELD/ AVERAGE YIELD/
BALANCE INTEREST COST BALANCE INTEREST COST
------- -------- ---- ------- -------- ----
(DOLLARS IN THOUSANDS)

ASSETS:
INTEREST-EARNING ASSETS:
<S> <C> <C> <C> <C> <C> <C>
REAL ESTATE LOANS(1).................................. $ 287,378 $ 5,545 7.72% $ 264,441 $ 5,207 7.88%
OTHER LOANS........................................... 599 14 9.35 578 13 9.00
MORTGAGE-BACKED SECURITIES............................ 103 2 7.77 154 3 7.79
INVESTMENT SECURITIES................................. 32,258 454 5.63 5,968 90 6.03
INTEREST-EARNING DEPOSITS............................. 20,416 267 5.23 22,757 296 5.20
FHLB OF CHICAGO STOCK................................. 2,606 44 6.75 2,678 46 6.87
--------- -------- ---- --------- ------- ----

TOTAL INTEREST-EARNING ASSETS...................... 343,360 6,326 7.37% 296,576 5,655 7.63%
--------- -------- ---- --------- ------- ----

ALLOWANCE FOR LOAN LOSSES................................ (1,025) (905)

NONINTEREST-EARNING ASSETS............................... 12,581 27,287
--------- ---------

TOTAL ASSETS....................................... $ 354,916 $ 322,958
========= =========

LIABILITIES AND STOCKHOLDERS' EQUITY:
INTEREST-BEARING LIABILITIES:
NOW/SUPER NOW ACCOUNTS................................ $ 41,759 $ 222 2.13% $ 41,515 $ 226 2.18%
MONEY MARKET ACCOUNTS................................. 16,243 132 3.25 17,094 141 3.30
PASSBOOK ACCOUNTS..................................... 61,134 476 3.11 64,421 510 3.17
CERTIFICATES OF DEPOSIT............................... 123,349 1,783 5.78 126,809 1,896 5.98
BORROWED FUNDS........................................ 7,880 117 5.94 -- -- --
--------- -------- ---- --------- ------- ----

TOTAL INTEREST-BEARING LIABILITIES................. 250,365 2,730 4.36% 249,839 2,773 4.44%
--------- -------- ---- --------- ------- ----

NONINTEREST-BEARING NOW ACCOUNTS......................... 5,693 10,514
OTHER NONINTEREST-BEARING LIABILITIES.................... 4,792 4,684
--------- ---------

TOTAL LIABILITIES.................................. 260,850 265,037
--------- ---------

STOCKHOLDERS' EQUITY................................... 94,066 57,921
--------- ---------

TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY......... $ 354,916 $ 322,958
========= =========

NET INTEREST INCOME...................................... $ 3,596 $ 2,882
======== =======
INTEREST RATE SPREAD(2).................................. 3.01% 3.19%
==== ====
NET INTEREST MARGIN(3)................................... 4.19% 3.89%
==== ====

RATIO OF INTEREST-EARNING ASSETS TO
INTEREST-BEARING LIABILITIES........................... 137.14% 118.71%
====== ======
</TABLE>

- ----------------
(1) IN COMPUTING THE AVERAGE BALANCE OF LOANS, NON-ACCRUAL LOANS HAVE BEEN
INCLUDED.
(2) INTEREST RATE SPREAD REPRESENTS THE DIFFERENCE BETWEEN THE AVERAGE YIELD
EARNED ON INTEREST-EARNING ASSETS AND THE AVERAGE COST OF INTEREST-BEARING
LIABILITIES.
(3) NET INTEREST MARGIN REPRESENTS NET INTEREST INCOME AS A PERCENTAGE OF
AVERAGE INTEREST-EARNING ASSETS.

- 8 -

<PAGE>

<TABLE>
<CAPTION>
FOR THE NINE MONTHS ENDED SEPTEMBER 30,
-------------------------------------------------------------------
1997 1996
-------------------------------- ---------------------------------
AVERAGE AVERAGE
AVERAGE YIELD/ AVERAGE YIELD/
BALANCE INTEREST COST BALANCE INTEREST COST
------- -------- ---- ------- -------- ----
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
ASSETS:
INTEREST-EARNING ASSETS:
REAL ESTATE LOANS(1)................................... $ 274,121 $15,928 7.75% $ 264,658 $15,761 7.94%
OTHER LOANS............................................ 634 44 9.25 571 41 9.57
MORTGAGE-BACKED SECURITIES............................. 120 7 7.78 165 9 7.27
INVESTMENT SECURITIES.................................. 38,905 1,643 5.63 5,960 270 6.04
INTEREST-EARNING DEPOSITS.............................. 25,921 1,013 5.21 15,685 642 5.46
FHLB OF CHICAGO STOCK.................................. 2,630 133 6.74 2,762 140 6.71
--------- ------- ----- --------- ------- ----

TOTAL INTEREST-EARNING ASSETS....................... 342,331 18,768 7.31% 289,801 16,863 7.76%
--------- ------- ----- --------- ------- ----

ALLOWANCE FOR LOAN LOSSES................................. (995) (876)
NONINTEREST-EARNING ASSETS................................ 14,372 20,505
--------- ---------

TOTAL ASSETS........................................ $ 355,708 $ 309,430
========= =========

LIABILITIES AND STOCKHOLDERS' EQUITY:
INTEREST-BEARING LIABILITIES:
NOW/SUPER NOW ACCOUNTS................................. $ 42,118 $ 674 2.13% $ 42,275 $ 685 2.16%
MONEY MARKET ACCOUNTS.................................. 16,512 394 3.18 17,378 424 3.25
PASSBOOK ACCOUNTS...................................... 62,400 1,439 3.07 65,345 1,529 3.12
CERTIFICATES OF DEPOSIT................................ 123,653 5,282 5.70 128,073 5,584 5.81
BORROWED FUNDS......................................... 2,755 122 5.90 867 37 5.69
--------- ------- ----- --------- ------- ----

TOTAL INTEREST-BEARING LIABILITIES................... 247,438 7,911 4.26% 253,938 8,259 4.34%
--------- ------- ----- --------- ------- ----

NONINTEREST-BEARING NOW ACCOUNTS.......................... 5,698 6,541
OTHER NONINTEREST-BEARING LIABILITIES..................... 4,923 4,852
--------- --------

TOTAL LIABILITIES................................... 258,059 265,331
--------- --------

STOCKHOLDERS' EQUITY.................................... 97,649 44,099
--------- --------

TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY.......... $ 355,708 $ 309,430
========= =========

NET INTEREST INCOME....................................... $10,857 $ 8,604
======= =======
INTEREST RATE SPREAD(2)................................... 3.05% 3.42%
==== ====
NET INTEREST MARGIN(3).................................... 4.23% 3.96%
==== ====

RATIO OF INTEREST-EARNING ASSETS TO
INTEREST-BEARING LIABILITIES............................ 138.35% 114.12%
====== ======

</TABLE>

- ----------------
(1) IN COMPUTING THE AVERAGE BALANCE OF LOANS, NON-ACCRUAL LOANS HAVE BEEN
INCLUDED.

(2) INTEREST RATE SPREAD REPRESENTS THE DIFFERENCE BETWEEN THE AVERAGE YIELD
EARNED ON INTEREST-EARNING ASSETS AND THE AVERAGE COST OF INTEREST-BEARING
LIABILITIES.

(3) NET INTEREST MARGIN REPRESENTS NET INTEREST INCOME AS A PERCENTAGE OF
AVERAGE INTEREST-EARNING ASSETS.

- 9 -

<PAGE>

COMPARISON OF FINANCIAL CONDITION AT SEPTEMBER 30, 1997 AND DECEMBER 31, 1996

TOTAL ASSETS DECREASED $13.8 MILLION OR 3.9% FROM $356.3 MILLION AT
DECEMBER 31, 1996 TO $342.5 MILLION AT SEPTEMBER 30, 1997. THE DECREASE IN TOTAL
ASSETS WAS PRIMARILY DUE TO THE DISBURSEMENT OF FUNDS FOR THE $6.8 MILLION
DECREASE IN SAVINGS DEPOSITS, $1.2 MILLION DECREASE IN ADVANCE PAYMENTS BY
BORROWERS FOR TAXES AND INSURANCE, $2.5 MILLION PURCHASE OF TREASURY STOCK AND
$4.1 MILLION PURCHASE OF STOCK FOR THE COMPANY'S RECOGNITION AND RETENTION PLAN
("RRP").

CASH AND DUE FROM BANKS DECREASED $271,000 OR 4.8% FROM $5,661,000 AT
DECEMBER 31, 1996 TO $5,390,000 AT SEPTEMBER 30, 1997. THIS DECREASE WAS
PRIMARILY DUE TO THE TRANSFER OF FUNDS TO INTEREST-EARNING DEPOSITS.

INTEREST-EARNING DEPOSITS INCREASED $11.3 MILLION OR 50.5% FROM $22.3
MILLION AT DECEMBER 31, 1996 TO $33.6 MILLION AT SEPTEMBER 30, 1997. THIS
INCREASE WAS PRIMARILY DUE TO $271,000 TRANSFERRED FROM CASH AND DUE FROM BANKS,
A PORTION OF THE FUNDS RECEIVED FROM THE REPAYMENT AND MATURITY OF $53.8 MILLION
IN INVESTMENT SECURITIES HELD TO MATURITY THAT WERE NOT REINVESTED IN LOANS,
$190,000 FROM THE DECREASE IN ACCRUED INTEREST RECEIVABLE, THE DECREASE OF
$286,000 IN REAL ESTATE OWNED AND IN JUDGMENT, AND A $843,000 INCREASE IN
RETAINED EARNINGS WHICH WAS THE NET INCOME FOR THE NINE MONTHS ENDED SEPTEMBER
30, 1997 LESS THE DIVIDENDS PAID ON COMMON STOCK. THESE INCREASES WERE PARTIALLY
OFFSET BY THE DISBURSEMENT OF FUNDS FOR THE $6.8 MILLION DECREASE IN SAVINGS
DEPOSITS, THE $1.2 MILLION DECREASE IN ADVANCE PAYMENTS BY BORROWERS FOR TAXES
AND INSURANCE, THE $29.7 MILLION INCREASE IN LOANS RECEIVABLE, $2.5 MILLION FOR
THE PURCHASE OF TREASURY STOCK AND $4.1 MILLION FOR THE PURCHASE OF THE
COMPANY'S COMMON STOCK FOR THE RRP.

INVESTMENT SECURITIES HELD TO MATURITY DECREASED $53.8 MILLION OR
100.0%. ALL THE SECURITIES MATURED AND THE FUNDS WERE TRANSFERRED TO
INTEREST-EARNING DEPOSITS.

LOANS RECEIVABLE INCREASED $29,744,000 OR 11.4% FROM $261,306,000 AT
DECEMBER 31, 1996 TO $291,050,000 AT SEPTEMBER 30, 1997. THIS INCREASE WAS
PRIMARILY THE RESULT OF MORE AGGRESSIVE ADVERTISING OF THE ASSOCIATION'S LOAN
PRODUCTS.

REAL ESTATE OWNED AND IN JUDGMENT DECREASED $286,000 OR 52.0% FROM
$550,000 AT DECEMBER 31, 1996 TO $264,000 AT SEPTEMBER 30, 1997. THIS DECREASE
WAS PRIMARILY DUE TO THE SALE OF TWO PROPERTIES OF REAL ESTATE OWNED. NO NEW
PROPERTIES WERE ADDED TO REAL ESTATE OWNED AND IN JUDGMENT DURING THE NINE
MONTHS ENDED SEPTEMBER 30, 1997.

SAVINGS DEPOSITS DECREASED $6.8 MILLION OR 2.7% FROM $251.8 MILLION AT
DECEMBER 31, 1996 TO $245.0 MILLION AT SEPTEMBER 30, 1997. THIS DECREASE WAS
PRIMARILY THE RESULT OF WITHDRAWALS EXCEEDING DEPOSITS AND INTEREST CREDITS.

STOCKHOLDERS' EQUITY DECREASED BY $5.5 MILLION FROM $99.9 MILLION AT
DECEMBER 31, 1996 TO $94.4 MILLION AT SEPTEMBER 30, 1997. RETAINED EARNINGS
INCREASED $843,000 OR 2.3% FROM $37,325,000 AT DECEMBER 31, 1996 TO $38,168,000
AT SEPTEMBER 30, 1997. THIS INCREASE IS THE NET INCOME OF $2,230,000 FOR THE
NINE MONTHS ENDED SEPTEMBER 30, 1997 WHICH WAS PARTIALLY OFFSET BY THE PAYMENT
OF $1,387,000 IN DIVIDENDS ON THE COMPANY'S COMMON STOCK. TREASURY STOCK
INCREASED $2.5 MILLION FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997. THIS
INCREASE IS DUE TO THE IMPLEMENTATION OF THE COMPANY'S 5% STOCK REPURCHASE
PROGRAM ("REPURCHASE PROGRAM") WITH THE PURCHASE OF 153,451 SHARES OF COMMON
STOCK IN THE OPEN MARKET FOR AN AGGREGATE OF $2.5 MILLION. PURSUANT TO THE
APPROVAL OF THE OFFICE OF THRIFT SUPERVISION ("OTS"), THE ASSOCIATION'S PRIMARY
FEDERAL REGULATOR, AN ADDITIONAL 197,011 SHARES OF COMMON STOCK MAY BE
REPURCHASED BY THE COMPANY UNDER THE REPURCHASE PROGRAM.

UNEARNED RRP COMPENSATION INCREASED $4.1 MILLION FOR THE NINE MONTHS
ENDED SEPTEMBER 30, 1997. THIS INCREASE IS PRIMARILY DUE TO THE PURCHASE OF
280,370 SHARES OF THE COMPANY'S COMMON STOCK FOR THE COMPANY'S RRP. THE COST OF
THE STOCK PURCHASED FOR THE RRP WAS $4.5 MILLION, WHICH WAS PARTIALLY OFFSET BY
RRP EXPENSE OF $375,000.

- 10 -

<PAGE>

COMPARISON OF OPERATING RESULTS FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1997
AND 1996

GENERAL. NET INCOME FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1997
INCREASED $1,214,000 FROM A $591,000 NET LOSS FOR THE THREE MONTHS ENDED
SEPTEMBER 30, 1996 TO NET INCOME OF $623,000 FOR THE THREE MONTHS ENDED
SEPTEMBER 30, 1997 OR $0.10 PER SHARE. THE $1,214,000 INCREASE WAS PRIMARILY DUE
TO AN INCREASE OF $714,000 IN NET INTEREST INCOME BEFORE PROVISION FOR LOAN
LOSSES AND A DECREASE OF $1,312,000 IN NON-INTEREST EXPENSE, WHICH WERE OFFSET,
IN PART, BY A DECREASE OF $43,000 IN NON-INTEREST INCOME AND AN INCREASE OF
$769,000 IN INCOME TAX EXPENSE.

INTEREST INCOME. INTEREST INCOME INCREASED $671,000 OR 11.9% FROM
$5,655,000 FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1996 TO $6,326,000 FOR THE
THREE MONTHS ENDED SEPTEMBER 30, 1997. THIS WAS DUE PRIMARILY TO AN INCREASE IN
THE AVERAGE BALANCE OF INTEREST-EARNING ASSETS OF $46.8 MILLION OR 15.8% FROM
$296.6 MILLION FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1996 TO $343.4 MILLION
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1997. THIS INCREASE WAS PARTIALLY
OFFSET BY A DECREASE IN THE AVERAGE YIELD EARNED ON AVERAGE INTEREST-EARNING
ASSETS OF 26 BASIS POINTS FROM 7.63% FOR THE THREE MONTHS ENDED SEPTEMBER 30,
1996 TO 7.37% FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1997. THE INCREASE IN THE
AVERAGE BALANCE OF INTEREST-EARNING ASSETS WAS PRIMARILY DUE TO RECEIPT OF THE
NET PROCEEDS FROM THE OFFERING, WHICH WAS PARTIALLY OFFSET BY THE DECREASE IN
INTEREST-EARNING ASSETS DUE TO MARKET CONDITIONS. THE AVERAGE YIELD EARNED ON
INTEREST-EARNING ASSETS DECREASED PRIMARILY AS A RESULT OF THE CHANGE IN THE
COMPOSITION OF INTEREST-EARNING ASSETS AND LOWER AVERAGE YIELDS ON REAL ESTATE
LOANS AND INVESTMENT SECURITIES. THE AVERAGE BALANCE OF INVESTMENT SECURITIES
INCREASED $26.3 MILLION FROM $6.0 MILLION FOR THE THREE MONTHS ENDED SEPTEMBER
30, 1996 TO $32.3 MILLION FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1997.
INVESTMENT SECURITIES IS ONE OF THE LOWER YIELDING COMPONENTS OF
INTEREST-EARNING ASSETS, AND, AS A RESULT OF THE LARGE INCREASE IN INVESTMENT
SECURITIES, THE AVERAGE YIELD WAS REDUCED. THE AVERAGE YIELD ON REAL ESTATE
LOANS DECREASED AS A RESULT OF THE RATES ON NEW LOAN ORIGINATIONS BEING LOWER
THAN THE RATES ON LOANS REPAID. THE YIELD EARNED ON INTEREST-EARNING DEPOSITS
INCREASED DUE TO MARKET CONDITIONS.

INTEREST EXPENSE. INTEREST EXPENSE DECREASED $43,000 OR 1.6% FROM
$2,773,000 FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1996 TO $2,730,000 FOR THE
THREE MONTHS ENDED SEPTEMBER 30, 1997. THIS DECREASE WAS PRIMARILY DUE TO THE
DECREASE IN THE AVERAGE RATE PAID ON AVERAGE INTEREST-BEARING LIABILITIES OF 8
BASIS POINTS FROM 4.44% FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1996 TO 4.36%
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1997. THIS DECREASE WAS PARTIALLY
OFFSET BY A $526,000 INCREASE IN THE AVERAGE BALANCE OF INTEREST-BEARING
LIABILITIES FROM $249,839,000 FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1996 TO
$250,365,000 FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1997.

NET INTEREST INCOME BEFORE PROVISION FOR LOAN LOSSES. NET INTEREST
INCOME BEFORE PROVISION FOR LOAN LOSSES INCREASED $714,000 OR 24.8% FROM $2.9
MILLION FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1996 TO $3.6 MILLION FOR THE
THREE MONTHS ENDED SEPTEMBER 30, 1997. THIS INCREASE WAS PRIMARILY DUE TO AN
INCREASE IN THE RATIO OF AVERAGE INTEREST-EARNING ASSETS TO AVERAGE
INTEREST-BEARING LIABILITIES FROM 118.71% FOR THE THREE MONTHS ENDED SEPTEMBER
30, 1996 TO 137.14% FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1997, WHICH WAS
OFFSET IN PART BY AN 18 BASIS POINT DECREASE IN THE INTEREST RATE SPREAD FROM
3.19% FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1996 TO 3.01% FOR THE THREE
MONTHS ENDED SEPTEMBER 30, 1997. THE NET INTEREST MARGIN INCREASED BY 30 BASIS
POINTS FROM 3.89% FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1996 TO 4.19% FOR THE
THREE MONTHS ENDED SEPTEMBER 30, 1997.

PROVISION FOR LOAN LOSSES. THE PROVISION FOR LOAN LOSSES WAS $30,000
FOR EACH PERIOD. MANAGEMENT DETERMINED THAT KEEPING THE PROVISION FOR LOAN
LOSSES AT THE SAME LEVEL WAS APPROPRIATE IN LIGHT OF ITS CURRENT REVIEW OF THE
ASSOCIATION'S LOAN PORTFOLIO, ASSET QUALITY, DELINQUENT AND NON-PERFORMING
LOANS, THE HISTORICALLY LOW LOAN LOSS EXPERIENCE AND THE NATIONAL AND REGIONAL
ECONOMIES. THE RATIO OF THE ALLOWANCE FOR LOAN LOSSES TO NON-PERFORMING LOANS
WAS 110.16% AND 60.99% AT SEPTEMBER 30, 1997 AND SEPTEMBER 30, 1996,
RESPECTIVELY, AND THE RATIO OF THE ALLOWANCE FOR LOAN LOSSES TO TOTAL LOANS WAS
0.35% AT BOTH RESPECTIVE DATES. MANAGEMENT BELIEVES THAT THE PROVISION FOR LOAN
LOSSES AND THE ALLOWANCE FOR LOAN LOSSES ARE REASONABLE AND ADEQUATE TO COVER
ANY KNOWN LOSSES AND ANY LOSSES REASONABLY EXPECTED IN THE EXISTING LOAN
PORTFOLIO. WHILE

- 11 -

<PAGE>

MANAGEMENT ESTIMATES LOAN LOSSES USING THE BEST AVAILABLE INFORMATION, SUCH AS
INDEPENDENT APPRAISALS FOR SIGNIFICANT COLLATERAL PROPERTIES, NO ASSURANCE CAN
BE GIVEN THAT FUTURE ADDITIONS TO THE ALLOWANCE WILL NOT BE NECESSARY BASED ON
CHANGES IN ECONOMIC AND REAL ESTATE MARKET CONDITIONS, FURTHER INFORMATION
OBTAINED REGARDING KNOWN PROBLEM LOANS, IDENTIFICATION OF ADDITIONAL PROBLEM
LOANS, REGULATORY EXAMINATIONS AND OTHER FACTORS, BOTH WITHIN AND OUTSIDE OF
MANAGEMENT'S CONTROL.

NON-INTEREST INCOME. NON-INTEREST INCOME DECREASED $43,000 OR 14.1%
FROM $305,000 FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1996 TO $262,000 FOR THE
THREE MONTHS ENDED SEPTEMBER 30, 1997. THE DECREASE WAS DUE TO THE DECREASE IN
SERVICE FEE INCOME OF $43,000 FROM $299,000 FOR THE THREE MONTHS ENDED SEPTEMBER
30, 1996 TO $256,000 FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1997. THIS
DECREASE WAS PRIMARILY DUE TO THE CHANGES MADE TO THE ACCOUNT PRICING STRUCTURES
FOR NOW ACCOUNTS AND ATM FEES FOR COMPETITIVE PURPOSES IN 1997.

NON-INTEREST EXPENSE. NON-INTEREST EXPENSE DECREASED $1.3 MILLION OR
31.8% FROM $4.1 MILLION FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1996 TO $2.8
MILLION FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1997. THIS DECREASE WAS
PRIMARILY DUE TO A DECREASE IN FEDERAL DEPOSIT INSURANCE PREMIUMS WHICH WAS
OFFSET, IN PART, BY INCREASES IN COMPENSATION AND BENEFITS, OCCUPANCY,
ADVERTISING AND PROMOTION AND OTHER EXPENSES. FEDERAL DEPOSIT INSURANCE PREMIUM
EXPENSE DECREASED $1.9 MILLION OR 96.9% FROM $2.0 MILLION FOR THE THREE MONTHS
ENDED SEPTEMBER 30, 1996 TO $61,000 FOR THE THREE MONTHS ENDED SEPTEMBER 30,
1997. THIS DECREASE WAS PRIMARILY DUE TO A ONE TIME SAIF ASSESSMENT OF $1.8
MILLION IN THE THREE MONTH PERIOD ENDED SEPTEMBER 30, 1996. COMPENSATION AND
BENEFITS EXPENSE INCREASED $441,000 OR 42.9% FROM $1,027,000 FOR THE THREE
MONTHS ENDED SEPTEMBER 30, 1996 TO $1,468,000 FOR THE THREE MONTHS ENDED
SEPTEMBER 30, 1997. THIS INCREASE IS PRIMARILY DUE TO $251,000 OF EMPLOYEE STOCK
OWNERSHIP PLAN ("ESOP") EXPENSE AND $225,000 OF RECOGNITION AND RETENTION PLAN
("RRP") EXPENSE FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1997, WHICH PLANS WERE
NOT IN EFFECT DURING THE PERIOD ENDED SEPTEMBER 30, 1996, WHICH WERE OFFSET BY
DECREASES IN SALARY EXPENSES DUE TO REDUCTIONS IN STAFF SIZE. THE INCREASE IN
OCCUPANCY EXPENSE OF $13,000 OR 3.4% FROM $388,000 FOR THE THREE MONTHS ENDED
SEPTEMBER 30, 1996 TO $401,000 FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1997 WAS
PRIMARILY DUE TO INCREASED BUILDING REPAIRS AND MAINTENANCE EXPENSE, REAL ESTATE
TAXES AND ADDITIONAL EXPENSES AS A RESULT OF THE OPENING AND OPERATING OF THE
NEW SOUTH ELGIN OFFICE. ADVERTISING AND PROMOTION EXPENSE INCREASED $10,000 OR
10.3% FROM $97,000 FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1996 TO $107,000 FOR
THE THREE MONTHS ENDED SEPTEMBER 30, 1997 PRIMARILY AS A RESULT OF MORE
AGGRESSIVE ADVERTISING IN 1997. OTHER NON-INTEREST EXPENSE INCREASED $115,000 OR
35.2% FROM $327,000 FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1996 TO $442,000
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1997 PRIMARILY DUE TO INCREASES IN
PROFESSIONAL FEES, TRANSFER AGENT FEES AND FRANCHISE TAXES RESULTING FROM
OPERATIONS AS A PUBLIC COMPANY.

INCOME TAX EXPENSE. INCOME TAX EXPENSE INCREASED $769,000 FROM A
$375,000 TAX BENEFIT FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1996 TO A $394,000
TAX EXPENSE FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1997. THIS INCREASE WAS
PRIMARILY DUE TO MORE TAXABLE INCOME. THE EFFECTIVE TAX RATE WAS 38.7% FOR THE
THREE MONTHS ENDED SEPTEMBER 30, 1997 AND 38.8% FOR THE THREE MONTHS ENDED
SEPTEMBER 30, 1996.

- 12 -

<PAGE>

COMPARISON OF OPERATING RESULTS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997 AND
1996

GENERAL. NET INCOME FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997
INCREASED $2.3 MILLION FROM A $90,000 NET LOSS FOR THE NINE MONTHS ENDED
SEPTEMBER 30, 1996 TO NET INCOME OF $2.2 MILLION, OR $0.35 PER SHARE, FOR THE
NINE MONTHS ENDED SEPTEMBER 30, 1997. THE $2.3 MILLION INCREASE WAS PRIMARILY
DUE TO AN INCREASE OF $2.3 MILLION IN NET INTEREST INCOME BEFORE PROVISION FOR
LOAN LOSSES, A $53,000 INCREASE IN NON-INTEREST INCOME AND A $1.5 MILLION
DECREASE IN NON-INTEREST EXPENSE. THESE WERE PARTIALLY OFFSET BY AN INCREASE OF
$1.5 MILLION IN INCOME TAX EXPENSE.

INTEREST INCOME. INTEREST INCOME INCREASED $1.9 MILLION OR 11.3% FROM
$16.9 MILLION FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996 TO $18.8 MILLION FOR
THE NINE MONTHS ENDED SEPTEMBER 30, 1997. THIS WAS DUE PRIMARILY TO AN INCREASE
IN THE AVERAGE BALANCE OF INTEREST-EARNING ASSETS OF $52.5 MILLION OR 18.1% FROM
$289.8 MILLION FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996 TO $342.3 MILLION
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997. THIS INCREASE WAS PARTIALLY OFFSET
BY A DECREASE IN THE AVERAGE YIELD EARNED ON AVERAGE INTEREST-EARNING ASSETS OF
45 BASIS POINTS FROM 7.76% FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996 TO 7.31%
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997. THE INCREASE IN THE AVERAGE
BALANCE OF INTEREST-EARNING ASSETS WAS PRIMARILY DUE TO RECEIPT OF THE NET
PROCEEDS FROM THE OFFERING, WHICH WAS PARTIALLY OFFSET BY THE DECREASE IN
INTEREST-EARNING ASSETS DUE TO MARKET CONDITIONS. THE AVERAGE YIELD EARNED ON
INTEREST-EARNING ASSETS DECREASED PRIMARILY AS A RESULT OF THE CHANGE IN THE
COMPOSITION OF INTEREST-EARNING ASSETS AND LOWER AVERAGE YIELDS ON REAL ESTATE
LOANS, INVESTMENT SECURITIES AND INTEREST-EARNING DEPOSITS. THE AVERAGE BALANCE
OF INVESTMENT SECURITIES AND INTEREST-EARNING DEPOSITS INCREASED $43.2 MILLION
FROM $21.6 MILLION FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996 TO $64.8 MILLION
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997. THESE ASSETS ARE THE LOWEST
YIELDING COMPONENTS OF INTEREST-EARNING ASSETS, AND, AS A RESULT OF THE LARGE
INCREASE IN THESE ASSETS, THE AVERAGE YIELD WAS REDUCED. THE AVERAGE YIELD ON
REAL ESTATE LOANS DECREASED AS A RESULT OF THE RATES ON NEW LOAN ORIGINATIONS
BEING LOWER THAN THE RATES ON LOANS REPAID. THE YIELD EARNED ON INVESTMENT
SECURITIES AND INTEREST-EARNING DEPOSITS DECLINED DUE TO MARKET CONDITIONS.

INTEREST EXPENSE. INTEREST EXPENSE DECREASED $348,000 OR 4.2% FROM
$8,259,000 FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996 TO $7,911,000 FOR THE
NINE MONTHS ENDED SEPTEMBER 30, 1997. THIS DECREASE WAS PRIMARILY DUE TO THE
DECREASE IN THE AVERAGE BALANCE OF INTEREST-BEARING LIABILITIES OF $6.5 MILLION
OR 2.6% FROM $253.9 MILLION FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996 TO
$247.4 MILLION FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997. INTEREST EXPENSE
ALSO DECREASED AS A RESULT OF THE 8 BASIS POINT DECREASE IN THE AVERAGE RATE
PAID ON INTEREST-BEARING LIABILITIES FROM 4.34% FOR THE NINE MONTHS ENDED
SEPTEMBER 30, 1996 TO 4.26% FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997. THE
DECREASE IN THE AVERAGE BALANCE OF INTEREST-BEARING LIABILITIES WAS DUE TO
COMPETITIVE MARKET CONDITIONS AND THE ASSOCIATION'S DECISION NOT TO OFFER
ABOVE-MARKET INTEREST RATES ON ITS SAVINGS DEPOSITS.

NET INTEREST INCOME BEFORE PROVISION FOR LOAN LOSSES. NET INTEREST
INCOME BEFORE PROVISION FOR LOAN LOSSES INCREASED $2.3 MILLION OR 26.2% FROM
$8.6 MILLION FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996 TO $10.9 MILLION FOR
THE NINE MONTHS ENDED SEPTEMBER 30, 1997. THIS INCREASE WAS PRIMARILY DUE TO AN
INCREASE IN THE RATIO OF AVERAGE INTEREST-EARNING ASSETS TO AVERAGE
INTEREST-BEARING LIABILITIES FROM 114.12% FOR THE NINE MONTHS ENDED SEPTEMBER
30, 1996 TO 138.35% FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997, WHICH WAS
OFFSET IN PART BY A 37 BASIS POINT DECREASE IN THE INTEREST RATE SPREAD FROM
3.42% FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996 TO 3.05% FOR THE NINE MONTHS
ENDED SEPTEMBER 30, 1997. THE NET INTEREST MARGIN INCREASED BY 27 BASIS POINTS
FROM 3.96% FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996 TO 4.23% FOR THE NINE
MONTHS ENDED SEPTEMBER 30, 1997.

PROVISION FOR LOAN LOSSES. THE PROVISION FOR LOAN LOSSES WAS $90,000
FOR EACH PERIOD. MANAGEMENT DETERMINED THAT KEEPING THE PROVISION FOR LOAN
LOSSES AT THE SAME LEVEL WAS APPROPRIATE IN LIGHT OF ITS CURRENT REVIEW OF THE
ASSOCIATION'S LOAN PORTFOLIO, ASSET QUALITY, DELINQUENT AND NON-PERFORMING
LOANS, THE HISTORICALLY LOW LOAN LOSS EXPERIENCE AND THE NATIONAL AND REGIONAL
ECONOMIES. THE RATIO OF THE ALLOWANCE FOR LOAN LOSSES TO NON-PERFORMING LOANS
WAS 110.16% AND 60.99% AT SEPTEMBER 30, 1997 AND SEPTEMBER 30, 1996,
RESPECTIVELY, AND THE RATIO OF THE ALLOWANCE FOR LOAN LOSSES TO TOTAL LOANS WAS
0.35% AT BOTH RESPECTIVE DATES. MANAGEMENT BELIEVES THAT THE PROVISION FOR LOAN
LOSSES AND THE ALLOWANCE FOR LOAN LOSSES ARE REASONABLE AND

- 13 -

<PAGE>

ADEQUATE TO COVER ANY KNOWN LOSSES AND ANY LOSSES REASONABLY EXPECTED IN THE
EXISTING LOAN PORTFOLIO. WHILE MANAGEMENT ESTIMATES LOAN LOSSES USING THE BEST
AVAILABLE INFORMATION, SUCH AS INDEPENDENT APPRAISALS FOR SIGNIFICANT COLLATERAL
PROPERTIES, NO ASSURANCE CAN BE GIVEN THAT FUTURE ADDITIONS TO THE ALLOWANCE
WILL NOT BE NECESSARY BASED ON CHANGES IN ECONOMIC AND REAL ESTATE MARKET
CONDITIONS, FURTHER INFORMATION OBTAINED REGARDING KNOWN PROBLEM LOANS,
IDENTIFICATION OF ADDITIONAL PROBLEM LOANS, REGULATORY EXAMINATIONS AND OTHER
FACTORS, BOTH WITHIN AND OUTSIDE OF MANAGEMENT'S CONTROL.

NON-INTEREST INCOME. NON-INTEREST INCOME INCREASED $53,000 OR 5.7% FROM
$932,000 FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996 TO $985,000 FOR THE NINE
MONTHS ENDED SEPTEMBER 30, 1997. THE INCREASE WAS PRIMARILY DUE TO AN INCREASE
IN OTHER INCOME OF $183,000 FROM $17,000 FOR THE NINE MONTHS ENDED SEPTEMBER 30,
1996 TO $200,000 FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997, WHICH WAS DUE
PRIMARILY TO THE RECEIPT OF $182,000 IN EXCESS FUNDS FROM THE LIQUIDATION OF THE
ASSOCIATION'S PENSION PLAN IN CONNECTION WITH THE CONVERSION. IN ADDITION, GAIN
ON SALE OF REAL ESTATE OWNED INCREASED $13,000 OR 61.9% FROM $21,000 FOR THE
NINE MONTHS ENDED SEPTEMBER 30, 1996 TO $34,000 FOR THE NINE MONTHS ENDED
SEPTEMBER 30, 1997 PRIMARILY DUE TO THE SALE OF MORE PROPERTIES IN 1997 THAN IN
1996. THESE INCREASES WERE PARTIALLY OFFSET BY THE $142,000 DECREASE IN SERVICE
FEE INCOME FROM $893,000 FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996 TO
$751,000 FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997. THE DECREASE IN SERVICE
FEE INCOME WAS PRIMARILY DUE TO THE CHANGES MADE TO THE ACCOUNT PRICING
STRUCTURES FOR NOW ACCOUNTS AND ATM TRANSACTION FEES FOR COMPETITIVE PURPOSES.

NON-INTEREST EXPENSE. NON-INTEREST EXPENSE DECREASED $1.5 MILLION OR
15.4% FROM $9.6 MILLION FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996 TO $8.1
MILLION FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997. THIS DECREASE WAS
PRIMARILY DUE TO DECREASES IN FEDERAL DEPOSIT INSURANCE PREMIUMS, AUTOMATED
TELLER MACHINES EXPENSE AND DATA PROCESSING EXPENSE, WHICH WERE OFFSET, IN PART,
BY INCREASES IN COMPENSATION AND BENEFITS, OCCUPANCY EXPENSE, ADVERTISING AND
PROMOTION EXPENSE AND OTHER EXPENSE. FEDERAL DEPOSIT INSURANCE PREMIUM EXPENSE
DECREASED $2,134,000 OR 93.2% FROM $2,290,000 FOR THE NINE MONTHS ENDED
SEPTEMBER 30, 1996 TO $156,000 FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997. THE
DECREASE WAS PRIMARILY DUE TO THE ONE TIME SAIF ASSESSMENT OF $1.8 MILLION IN
THE NINE MONTH PERIOD ENDED SEPTEMBER 30, 1996. COMPENSATION AND BENEFITS
EXPENSE INCREASED BY $104,000 OR 2.6% FROM $4.0 MILLION FOR THE NINE MONTHS
ENDED SEPTEMBER 30, 1996 TO $4.1 MILLION FOR THE NINE MONTHS ENDED SEPTEMBER 30,
1997. THIS INCREASE IS PRIMARILY DUE TO $682,000 OF ESOP EXPENSE AND $339,000 OF
RRP EXPENSE FOR THE NINE MONTH PERIOD ENDED SEPTEMBER 30, 1997, WHICH PLANS WERE
NOT IN EFFECT AS OF SEPTEMBER 30, 1996. FOR THE NINE MONTHS ENDED SEPTEMBER 30,
1996, THE COMPANY RECORDED PENSION EXPENSE OF $993,000, WHICH INCLUDED $837,000
FOR THE TERMINATION OF THE ASSOCIATION'S PENSION PLAN IN CONNECTION WITH THE
CONVERSION. THERE WAS NO PENSION EXPENSE FOR THE NINE MONTHS ENDED SEPTEMBER 30,
1997. THE REMAINDER OF THE INCREASE IN COMPENSATION AND BENEFITS EXPENSE WAS DUE
TO NORMAL SALARY INCREASES. AUTOMATED TELLER MACHINE EXPENSES DECREASED $16,000
OR 4.9% FROM $327,000 FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996 TO $311,000
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997. THIS DECREASE WAS PRIMARILY DUE TO
ADDITIONAL EXPENSE IN 1996 OF $17,000 ASSOCIATED WITH THE CHANGE IN THE
ASSOCIATION'S ATM PROCESSORS. DATA PROCESSING EXPENSE DECREASED $35,000 OR 4.9%
FROM $720,000 FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996 TO $685,000 FOR THE
NINE MONTHS ENDED SEPTEMBER 30, 1997. THIS DECREASE WAS PRIMARILY DUE TO A
$30,000 CHARGE FOR NONRECURRING PROCESSING COSTS WHICH OCCURRED IN MARCH AND
APRIL OF 1996. OCCUPANCY EXPENSE INCREASED $64,000 OR 5.6% FROM $1,138,000 FOR
THE NINE MONTHS ENDED SEPTEMBER 30, 1996 TO $1,202,000 FOR THE NINE MONTHS ENDED
SEPTEMBER 30, 1997. THIS INCREASE WAS PRIMARILY DUE TO INCREASED REAL ESTATE
TAXES AND ADDITIONAL EXPENSE AS A RESULT OF OPENING AND OPERATING THE NEW SOUTH
ELGIN OFFICE. ADVERTISING AND PROMOTION EXPENSE INCREASED $45,000 OR 16.7% FROM
$270,000 FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996 TO $315,000 FOR THE NINE
MONTHS ENDED SEPTEMBER 30, 1997. THIS INCREASE WAS PRIMARILY THE RESULT OF MORE
AGGRESSIVE ADVERTISING IN 1997. OTHER NON-INTEREST EXPENSE INCREASED $493,000 OR
55.5% FROM $889,000 FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996 TO $1,382,000
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997. THIS INCREASE WAS PRIMARILY DUE TO
INCREASES IN PROFESSIONAL FEES, STATIONERY, PRINTING AND OFFICE SUPPLIES,
TRANSFER AGENT FEES AND FRANCHISE TAXES RESULTING FROM OPERATIONS AS A PUBLIC
COMPANY.

INCOME TAX EXPENSE. INCOME TAX EXPENSE INCREASED $1.5 MILLION FROM A
$51,000 TAX BENEFIT FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996 TO A $1.4
MILLION TAX EXPENSE FOR THE NINE MONTHS ENDED SEPTEMBER

- 14 -

<PAGE>

30, 1997. THIS INCREASE WAS PRIMARILY DUE TO MORE TAXABLE INCOME. THE EFFECTIVE
TAX RATE WAS 38.8% FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997 AND 36.2% FOR
THE NINE MONTHS ENDED SEPTEMBER 30, 1996.

LIQUIDITY AND CAPITAL RESOURCES

THE COMPANY'S PRIMARY SOURCES OF FUNDS ARE SAVINGS DEPOSITS, PRINCIPAL
AND INTEREST PAYMENTS ON LOANS AND SECURITIES AND, TO A LIMITED EXTENT,
BORROWINGS FROM THE FHLB OF CHICAGO. WHILE MATURITIES AND SCHEDULED AMORTIZATION
OF LOANS AND SECURITIES PROVIDE AN INDICATION OF THE TIMING OF THE RECEIPT OF
FUNDS, CHANGES IN INTEREST RATES, ECONOMIC CONDITIONS AND COMPETITION STRONGLY
INFLUENCE MORTGAGE PREPAYMENT RATES AND SAVINGS DEPOSIT FLOWS, REDUCING THE
PREDICTABILITY OF THE TIMING OF SOURCES OF FUNDS.

THE ASSOCIATION IS REQUIRED TO MAINTAIN AN AVERAGE DAILY BALANCE OF
LIQUID ASSETS AND SHORT-TERM LIQUID ASSETS AS A PERCENTAGE OF NET WITHDRAWABLE
SAVINGS DEPOSIT ACCOUNTS PLUS SHORT-TERM BORROWINGS, AS DEFINED BY THE
REGULATIONS OF THE OTS. THE MINIMUM REQUIRED LIQUIDITY AND SHORT-TERM LIQUIDITY
RATIOS ARE CURRENTLY 5.0% AND 1.0%, RESPECTIVELY. AT SEPTEMBER 30, 1997, THE
ASSOCIATION'S LIQUIDITY RATIO WAS 7.44%, AND ITS SHORT-TERM LIQUIDITY RATIO WAS
7.44%. THE LEVELS OF THE ASSOCIATION'S SHORT-TERM LIQUID ASSETS ARE DEPENDENT ON
THE ASSOCIATION'S OPERATING, FINANCING AND INVESTING ACTIVITIES DURING ANY GIVEN
PERIOD. MANAGEMENT BELIEVES IT WILL HAVE ADEQUATE RESOURCES TO FUND ALL
COMMITMENTS ON A SHORT-TERM AND LONG-TERM BASIS IN ACCORDANCE WITH ITS BUSINESS
STRATEGY.

THE PRIMARY INVESTING ACTIVITIES OF THE COMPANY ARE THE ORIGINATION OF
MORTGAGE AND OTHER LOANS AND THE PURCHASE OF U. S. GOVERNMENT OR U. S.
GOVERNMENT AGENCY SECURITIES. SEE THE "CONSOLIDATED STATEMENTS OF CASH FLOWS" IN
THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS INCLUDED IN THIS FORM 10-Q FOR
THE SOURCES AND USES OF CASH FLOWS FOR OPERATING ACTIVITIES, INVESTING
ACTIVITIES AND FINANCING ACTIVITIES FOR THE THREE AND NINE MONTHS ENDED
SEPTEMBER 30, 1997 AND 1996.

THE COMPANY HAS OTHER SOURCES OF LIQUIDITY IF A NEED FOR ADDITIONAL
FUNDS ARISES, INCLUDING THE ABILITY TO OBTAIN FHLB OF CHICAGO ADVANCES OF UP TO
$52.1 MILLION BASED ON THE ASSOCIATION'S CURRENT INVESTMENT IN FHLB OF CHICAGO
STOCK. THERE WERE NO SUCH ADVANCES OUTSTANDING AT SEPTEMBER 30, 1997.

AT SEPTEMBER 30, 1997, THE ASSOCIATION HAD OUTSTANDING LOAN ORIGINATION
COMMITMENTS OF $13.7 MILLION, UNDISBURSED LOANS IN PROCESS OF $847,000 AND
UNUSED LINES OF CONSUMER CREDIT OF $251,000. THE ASSOCIATION ANTICIPATES THAT IT
WILL HAVE SUFFICIENT FUNDS AVAILABLE TO MEET ITS CURRENT ORIGINATION AND OTHER
LENDING COMMITMENTS. CERTIFICATES OF DEPOSIT SCHEDULED TO MATURE IN ONE YEAR OR
LESS FROM SEPTEMBER 30, 1997 TOTALLED $72.5 MILLION. BASED UPON THE
ASSOCIATION'S MOST RECENT EXPERIENCE AND PRICING STRATEGY, MANAGEMENT BELIEVES
THAT A SIGNIFICANT PORTION OF SUCH DEPOSITS WILL REMAIN WITH THE ASSOCIATION.

AT SEPTEMBER 30, 1997, THE ASSOCIATION EXCEEDED ALL OF ITS REGULATORY
CAPITAL REQUIREMENTS WITH A TANGIBLE CAPITAL LEVEL OF $67.9 MILLION, OR 21.10%
OF TOTAL ADJUSTED ASSETS, WHICH IS ABOVE THE REQUIRED LEVEL OF $4.8 MILLION OR
1.5%; CORE CAPITAL OF $67.9 MILLION, OR 21.10% OF TOTAL ADJUSTED ASSETS, WHICH
IS ABOVE THE REQUIRED LEVEL OF $9.7 MILLION OR 3.0%; AND TOTAL RISK-BASED
CAPITAL OF $68.9 MILLION, OR 38.39% OF RISK-WEIGHTED ASSETS, WHICH IS ABOVE THE
REQUIRED LEVEL OF $14.4 MILLION, OR 8.0%.

AT SEPTEMBER 30, 1997, THE TOTAL STOCKHOLDERS' EQUITY OF HOME BANCORP
WAS $94.4 MILLION. THE RATIO OF TOTAL STOCKHOLDERS' EQUITY TO TOTAL ASSETS AT
SEPTEMBER 30, 1997 WAS 27.56%.

OTHER

ON APRIL 18, 1997, THE COMPANY'S RECOGNITION AND RETENTION PLAN WAS
APPROVED BY THE COMPANY'S STOCKHOLDERS AT ITS ANNUAL MEETING. THE RRP WAS
AUTHORIZED TO PURCHASE 280,370 SHARES OF THE COMPANY'S COMMON STOCK IN THE OPEN
MARKET. ALL OF THE SHARES WERE PURCHASED IN THE THREE MONTH PERIOD ENDED
SEPTEMBER 30, 1997.

- 15 -

<PAGE>

ON MAY 1, 1997, THE COMPANY ADOPTED A STOCK REPURCHASE PROGRAM
("REPURCHASE PROGRAM"), WHICH AUTHORIZED THE COMPANY TO REPURCHASE UP TO 350,462
SHARES, OR FIVE PERCENT, OF ITS 7,009,250 OUTSTANDING COMMON SHARES ON THAT
DATE. THE REPURCHASE PROGRAM RECEIVED APPROVAL FROM THE OTS, AND AS OF SEPTEMBER
30, 1997, 153,451 SHARES OF STOCK HAD BEEN PURCHASED IN THE OPEN MARKET BY THE
COMPANY. AN ADDITIONAL 197,011 SHARES OF COMMON STOCK MAY BE REPURCHASED BY THE
COMPANY UNDER THE REPURCHASE PROGRAM AT THE DISCRETION OF MANAGEMENT.

- 16 -

<PAGE>

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK

NOT APPLICABLE

PART II -- OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

NONE

ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS

NONE

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

NONE

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

THE COMPANY HELD A SPECIAL MEETING OF STOCKHOLDERS (THE "MEETING") ON
SEPTEMBER 29, 1997. THE PURPOSE OF THE MEETING WAS TO VOTE ON THE FOLLOWING
PROPOSALS:

1. THE APPROVAL OF AMENDMENTS TO THE HOME BANCORP OF ELGIN, INC.
1997 STOCK OPTION PLAN; AND

2. THE APPROVAL OF AMENDMENTS TO THE HOME BANCORP OF ELGIN, INC.
1997 RECOGNITION AND RETENTION PLAN.

EACH PROPOSAL WAS APPROVED AT THE MEETING. THE VOTING RESULTS FOR THE PROPOSALS
WERE AS FOLLOWS:

PROPOSAL 1: AMENDMENTS TO THE HOME BANCORP OF ELGIN, INC. 1997 STOCK
OPTION PLAN
FOR 4,712,185
AGAINST 765,469
ABSTAIN 81,191

BROKER NON-VOTES 110,131

PROPOSAL 2: AMENDMENTS TO THE HOME BANCORP OF ELGIN, INC. 1997
RECOGNITION AND RETENTION PLAN
FOR 4,859,770
AGAINST 660,339
ABSTAIN 75,927

BROKER NON-VOTES 72,939

ITEM 5. OTHER INFORMATION

NONE

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

- 17 -

<PAGE>

(A) EXHIBIT 27 -- FINANCIAL DATA SCHEDULE*

(B) REPORTS ON FORM 8-K
NONE

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

*SUBMITTED ONLY WITH FILING IN ELECTRONIC FORMAT.

- 18 -

<PAGE>

SIGNATURES

PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934, THE
REGISTRANT HAS DULY CAUSED THIS REPORT TO BE SIGNED ON ITS BEHALF BY THE
UNDERSIGNED THEREUNTO DULY AUTHORIZED.

HOME BANCORP OF ELGIN, INC.
(REGISTRANT)

BY: /s/ LYLE N. DOLAN
----------------------------------
LYLE N. DOLAN
EXECUTIVE VICE PRESIDENT AND CHIEF
FINANCIAL AND ACCOUNTING OFFICER

NOVEMBER 10, 1997

- 19 -

<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEETS AND THE STATEMENTS OF INCOME OF HOME BANCORP OF
ELGIN, INC. AND SUBSIDIARY AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.

</LEGEND>
<CIK> 0001016325
<NAME> HOME BANCORP OF ELGIN, INC.

<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> SEP-30-1997
<CASH> 5,389,861
<INT-BEARING-DEPOSITS> 33,622,245
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 0
<INVESTMENTS-CARRYING> 100,330
<INVESTMENTS-MARKET> 103,150
<LOANS> 294,264,114
<ALLOWANCE> 1,034,932
<TOTAL-ASSETS> 342,517,670
<DEPOSITS> 245,016,921
<SHORT-TERM> 0
<LIABILITIES-OTHER> 3,107,730
<LONG-TERM> 0
0
0
<COMMON> 70,093
<OTHER-SE> 94,322,926
<TOTAL-LIABILITIES-AND-EQUITY> 342,517,670
<INTEREST-LOAN> 15,971,911
<INTEREST-INVEST> 2,795,584
<INTEREST-OTHER> 0
<INTEREST-TOTAL> 18,767,495
<INTEREST-DEPOSIT> 7,788,659
<INTEREST-EXPENSE> 7,910,553
<INTEREST-INCOME-NET> 10,856,942
<LOAN-LOSSES> 90,000
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 8,107,879
<INCOME-PRETAX> 3,644,220
<INCOME-PRE-EXTRAORDINARY> 2,230,274
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,230,274
<EPS-PRIMARY> 0.35
<EPS-DILUTED> 0.34
<YIELD-ACTUAL> 4.23
<LOANS-NON> 939,501
<LOANS-PAST> 0
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 580,925
<ALLOWANCE-OPEN> 944,799
<CHARGE-OFFS> 435
<RECOVERIES> 568
<ALLOWANCE-CLOSE> 1,034,932
<ALLOWANCE-DOMESTIC> 1,034,932
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0

</TABLE>