Exhibit No. 13



<PAGE>

                                  1996 ANNUAL
                                     REPORT


                    1910 Serving The Community 85 Years 1996

                   FIRST SAVINGS BANCORP OF LITTLE FALLS, INC


<PAGE>




Dear Fellow Stockholder,


In 1996,  the  Savings  Bank  recorded a pre-tax  loss of  $179,110  compared to
pre-tax  earnings of $738,454 in 1995.  The loss is  attributable  to a one-time
payment into the deposit  insurance  fund [SAIF] of $845,000 (or $549,250  after
taxes). The corresponding after-tax earnings are negative $120,071, and $362,886
in 1995. Excluding the special SAIF assessment,  net income would have increased
by $66,000 or 18% from 1995.  Your Board of Directors will determine when to pay
the 5% dividend sometime before June 30,1997.

Net  interest  income  increased  by  $154,000  or 3.7% to $4.3  million in 1996
compared  to $4.1  million in 1995;  provisions  increased  by $142,500 in 1996,
compared to $80,228 in 1995,  resulting  in an increase in net  interest  income
after  provisions for loan losses of $92,000 to $4.1 in 1996 compared to $4.0 in
1995. Non-interest income rose to $180,065 in 1996 compared to $159,700 in 1995,
reflecting  increased loan and deposit transaction volume.  Non-interest expense
increased $1,030,097 to $4.5 in 1996 compared to $3.4 million in 1995, primarily
because of the $845,000  non-recurring special SAIF assessment,  $396,168 in REO
expense  compared to $156,663 in 1995, and $170,763 in legal expense compared to
$123,141 in 1995.

We are  continuing  to work on a stock  offering,  as we  mentioned  in our last
letter.  The offering is either a public offering of common stock if it involves
an  acquisition  of a commercial  bank in New York; or the offering is a private
placement of some kind of preferred  stock. In the case of the public  offering,
your stock  will be liquid,  while in the case of the  private  placement,  each
shareholder  will have a chance to cash out a portion  of their  investment,  or
change some of their common stock to a coupon-paying preferred stock.

In closing,  the loyalty and support of our stockholders and customers is deeply
appreciated by the Board of Directors,  officers and staff. We pledge to you our
diligent  efforts for the  continued  improvement  of First  Savings Bank in the
forthcoming year.

Emanuel M. Kontokosta                      Dr. H.S. Kostakopoulos
Chairman of the Board                      President and Chief Executive Officer



Nikos P. Mouyiaris                         Frederick J. Tedeschi
Vice Chairman                              Vice Chairman




<PAGE>



BUSINESS OF THE COMPANY

First Savings Bancorp of Little Falls, Inc. (the  "Corporation" or "Bancorp") is
a savings and loan holding company  incorporated  under the laws of the State of
New Jersey in March 1993,  for the sole purpose of  acquiring  all of the issued
and  outstanding  Common  Stock of First  Savings Bank of Little  Falls,  S.L.A.
("First Savings" or the "Savings Bank") in connection with the reorganization of
the Bank into the holding company form or organization  (the  "Reorganization").
On January 7, 1994, after receipt of all required approvals,  the Reorganization
was consummated and common and preferred stock of the Savings Bank was exchanged
on a  one-for-one  basis for shares of the  Corporation's  Common and  Preferred
Stock.  On December 31, 1996  Preferred  Stock  shares were  converted to Common
Stock shares on a one-for-ten basis. As of December 31, 1996, the unconsolidated
assets of the Company  consisted of all of the issued and outstanding  shares of
the Savings Bank's Common Stock,  organizational costs of $22,949 and $17,397 in
cash.  Therefore,  the  discussion  regarding  operating  results  refers to the
Savings Bank.

BUSINESS OF THE BANK

First  Savings  Bank of Little  Falls,  F.S.B.  is a federally  chartered  stock
savings bank located in Little Falls,  New Jersey.  The Bank was founded in 1928
as the Singac Building & Loan Association. In 1940, the Bank changed its name to
The First Savings and Loan  Association  of Little Falls and effective  November
17, 1992, the Savings Bank's name became the First Savings Bank of Little Falls,
S.L.A.  On April 29, 1994,  the Bank became a federal  savings  bank.  On May 6,
1994,  the Bank purchased from the RTC the deposits and other assets of a branch
in Little Ferry,  Bergen County. The Savings Bank's deposits have been federally
insured since 1933 by the Savings  Association  Insurance  Fund ("SAIF") and its
predecessor,  the Federal Savings and Loan Insurance Corporation ("FSLIC").  The
Savings Bank has been a member of the Federal Home Loan Bank System since 1934.

On September  28, 1992,  the Bank  completed  its  conversion  from a New Jersey
chartered  mutual savings and loan  association to a New Jersey  chartered stock
savings association pursuant to the provisions under federal and state law for a
"modified"  conversion from mutual to stock form (the "Conversion").  As part of
the   Conversion,   an  Investor   Group,   consisting  of  Dr.   Haralambos  S.
Kostakopoulos,  President,  Emanuel M.  Kontokosta - Chairman of the Board,  and
Vice Chairmen  Nikos P.  Mouyiaris and Frederick J.  Tedeschi,  along with other
existing  officers and directors of the Bank,  purchased 56% of the Common Stock
issued in the  Conversion.  The Investor  Group also  purchased 100% of the $3.4
million of convertible Preferred Stock issued in the Conversion.  As of December
31, 1996 the  Preferred  Stock was  converted  to Common  Stock at a rate of one
share of Preferred Stock to 10 shares of Common Stock.

                                     Page 1


<PAGE>



The Bank is primarily  engaged in the business of  attracting  deposits from the
general public and using those deposits, together with other funds, to originate
mortgage loans for the purchase or construction of residential properties.  To a
lesser extent,  the Bank also originates home improvement  loans and home equity
lines of credit.

At December 31, 1996,  the Savings Bank had two active  subsidiaries,  The First
Service  Corporation  of Little Falls,  a  wholly-owned  subsidiary  acting as a
general  agent selling  annuities,  and Redeem Inc., a  wholly-owned  subsidiary
serving as a REO subsidiary in connection  with taking title to REO  properties.
As of March 31, 1996,  Redeem Inc. does not hold title to any property,  and has
no loans outstanding from First Savings. Redeem has no assets or liabilities.

MARKET PRICE OF STOCK AND RELATED SECURITY HOLDER MATTERS

The  Bancorp's  Common  Stock is not  listed  on any  stock  exchange  or on the
National   Association  of  Securities   Dealers  Automated   Quotations  System
("NASDAQ").  Approximately  90% of the Common Stock is held by current  officers
and  directors  of the  Savings  Bank and by an  Investor  Group  consisting  of
Haralambos S. Kostakopoulos President of the Savings Bank, Emanuel M. Kontokosta
- Chairman of the Board,  and Vice Chairmen  Nikos P. Mouyiaris and Frederick J.
Tedeschi.  The market for the Common Stock is illiquid,  with few  purchases and
sales of stock.  The last known sale of the Common Stock  involved 500 shares at
$14.00 a share on May 6, 1994.

The ability of the Bancorp to pay  dividends  on its Common  Stock is  dependent
upon the ability of the Savings Bank to pay dividends,  since the Bancorp's main
asset is the stock of the Savings  Bank.  The ability of the Savings Bank to pay
dividends is restricted by the  regulations  of the OTS and tax  considerations.
The Savings Bank may not pay dividends that would reduce the regulatory  capital
of First Savings below the level  required for  institutions  insured by SAIF or
the liquidation account created in connection with the Conversion.. During 1996,
a dividend of $5.00 per share was paid to the owners of the Preferred Stock, and
on December 31, 1996 the Preferred Stock was converted to Common Stock at a rate
of one share of  Preferred  Stock to 10 shares  of  Common  Stock.  There was no
common stock dividends paid in 1996.

There are 42 holders of the Common Stock of the Bancorp as of March 31, 1997.





                                     Page 2


<PAGE>



                      MANAGEMENT'S DISCUSSION AND ANALYSIS
                OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

         Management's discussion and analysis of financial condition and results
of operations is intended to assist you in understanding our financial condition
and results of operations.  The  information in this section should also be read
with  our  Consolidated  Financial  Statements  and  Notes  to the  Consolidated
Financial Statements elsewhere in this document.


         Our results of  operations  depend  primarily on net  interest  income,
which is determined by (i) the  difference  between rates of interest we earn on
our interest-earning assets and the rates we pay on interest-bearing liabilities
(interest rate spread), and (ii) the relative amounts of interest-earning assets
and interest-bearing liabilities. Our results of operations are also affected by
non-interest income, including,  primarily, income from customer deposit account
service  charges,  gains and  losses  from  calls and  sales of  securities  and
non-interest  expense,  including,  primarily,  salaries and employee  benefits,
federal deposit insurance premiums,  office occupancy costs, equipment, and loss
on  foreclosed  real  estate.  Our  results  of  operations  also  are  affected
significantly by general and economic and competitive  conditions,  particularly
changes in market interest rates,  government policies and actions of regulatory
authorities, which events are beyond our control.

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

         We seek to  reduce  our  exposure  to  changes  in  interest  rates  by
maintaining a balance  between assets and  liabilities  maturing within a one to
three-year  time span. Our assets and  liabilities  may be analyzed by examining
the extent to which our assets and  liabilities  are interest rate sensitive and
by monitoring the expected effects of interest rate changes on our net portfolio
value.

         An asset or liability is interest rate sensitive within a specific time
period,  if it will  mature or reprice  within that time  period.  If our assets
mature or reprice more quickly or to a greater extent than our liabilities,  our
net  portfolio  value and net  interest  income  would tend to  increase  during
periods of rising interest rates but decrease during periods of falling interest
rates.  Conversely,  if our assets  mature or reprice more slowly or to a lesser
extent than our  liabilities,  our net portfolio  value and net interest  income
would tend to decrease  during  periods of rising  interest  rates but  increase
during periods of falling  interest  rates.  Our policy has been to mitigate the
interest rate risk inherent in the historical  savings  institution  business of
originating  long-term loans funded by short-term  deposits by pursuing  certain
strategies  designed to decrease the  vulnerability  of our earnings to material
and prolonged changes in interest rates.




                                     Page 3


<PAGE>



Net Portfolio Value
-------------------

         In recent  years,  we have measured our interest  rate  sensitivity  by
computing  the "gap" between the assets and  liabilities  which were expected to
mature or reprice  within certain time periods,  based on assumptions  regarding
loan prepayment and deposit decay rates formerly  provided by the OTS.  However,
the OTS now requires the  computation  of amounts by which the net present value
of an  institution's  cash flow from assets,  liabilities  and off balance sheet
items (the institution's net portfolio value or "NPV") would change in the event
of a range of  assumed  changes in market  interest  rates.  These  computations
estimate the effect on an institution's NPV from  instantaneous and permanent 1%
to 4% increases and decreases in market interest  rates.  Our Board of Directors
has adopted an interest rate risk policy which establishes  maximum decreases in
our  estimated  NPV of 5%,  10%,  17% and 25% in the event of 1%,  2%, 3% and 4%
increases and decreases in market interest rates, respectively.  At December 31,
1996,  based on  information  provided by the OTS, it was estimated that our NPV
would decrease 9%, 21%, 36% and 52% and increase 5%, 6%, 7% and 12% in the event
of 1%, 2%, 3%, and 4% increases  and  decreases in market  rates,  respectively.
These  calculations  indicate  that our net  portfolio  value could be adversely
affected by  increases  in  interest  rates but could be  favorably  affected by
decreases in interest  rates.  Changes in interest rates also may affect our net
interest  income,  while  increases  in rates  expected to  decrease  income and
decreases in rates expected to increase income, our interest-bearing liabilities
would be expected to mature or reprice more  quickly  than our  interest-earning
assets.  In  addition,  we would be deemed  to have more than a normal  level of
interest rate risk under applicable regulatory capital requirements.

         While we cannot predict  future  interest rates or their effects on our
NPV or net interest  income,  we do not expect current  interest rates to have a
material  adverse  effect  on our  NPV or net  interest  income  in the  future.
Computations of prospective  effects of  hypothetical  interest rate changes are
based on numerous  assumptions,  including  relative  levels of market  interest
rates,  prepayments  and  deposit  run-offs  and  should  not be relied  upon as
indicative  of  actual  results.  Certain  shortcomings  are  inherent  in  such
computations.  Although certain assets and liabilities may have similar maturity
or periods  of  repricing  they may react at  different  times and in  different
degrees to changes in the market interest  rates.  The interest rates on certain
types of assets and  liabilities  may  fluctuate in advance of changes in market
interest  rates,  while rates on other types of assets and  liabilities  may lag
behind changes in market interest rates. Certain assets, such as adjustable rate
mortgages, generally have features which restrict changes in interest rates on a
short  term  basis and over the life of the  asset.  In the event of a change in
interest  rates,   prepayments  and  early   withdrawal   levels  could  deviate
significantly  from  those  assumed  in making  calculations  set  forth  above.
Additionally,  an  increased  credit  risk may  result  as the  ability  of many
borrowers to service  their debt may  decrease in the event of an interest  rate
increase.

         The board of  directors  is  responsible  for  reviewing  our asset and
liability  policies.  The Board of Directors  meets quarterly to review interest
rate risk and trends,  as well as liquidity and capital ratios and requirements.
Management is responsible for administering  the policies and  determinations of
the  Board of  Directors  with  respect  to our asset  and  liability  goals and
strategies.  Management  expects  that our  asset  and  liability  policies  and
strategies  will  continue  as  described  above  so  long  as  competitive  and
regulatory  conditions in the financial institution industry and market interest
rates continue as they have in recent years.


                                     Page 4

<PAGE>

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

         Our total  consolidated  assets increased by $12.1 million or 7.8% from
$154.6  million at December 31, 1995 to $166.7 million at December 31, 1996. Our
total  liabilities  increased  $12.4 million or 8.5% from $145.0 at December 31,
1995 as compared to $157.4  million at December 31, 1996. The increase in assets
primarily reflects the Company deployment of proceeds of the calls of investment
securities held to maturity and deposit growth into our loan portfolio, mortgage
backed  securities,  and  interest-bearing  deposits.  Comparing  balances  from
December 31, 1996 to 1995,  we increased our loan  receivables  by $8.9 million,
mortgage-backed  securities  increased by $10.3  million,  our  interest-bearing
deposits in banks increased by $9.1, and investment  securities held to maturity
decreased by $17 million. Our total liabilities increased $12.4 million or 8.5%,
from $145.0 million at December 31, 1995 to $157.4 million at December 31, 1996.
Deposits  increased  $25 million and our  borrowed  funds  decreased  $12.6.  At
December 31, 1996, we had no borrowed funds outstanding.

Results Of Operations for the Years Ending December 31, 1996 and 1995
---------------------------------------------------------------------

         Net  Income(Loss).  Net  income(loss)  decreased  $483,000 or 133% from
$363,000 for 1995 to a loss of $120,000 for 1996. The decrease was primarily the
result of the recognition of the one-time SAIF special  insurance  assessment in
the amount of $541,000(after taxes). Excluding the SAIF special assessment,  net
income would have increased $58,000 or 16% from 1995.

         Net income decreased $136,000 or 27% from $499,000 for 1994 to $363,000
for  1995.  The  decrease  was  primarily  attributable  to an  increase  in the
provision for loan loss of $226,000.

         Net  Interest  Income.  Net  interest  income  is the most  significant
component of our income from  operations.  Net interest income is the difference
between interest we receive on our  interest-earning  assets  (primarily  loans,
investment  and   mortgage-backed   securities)  and  interest  we  pay  on  our
interest-bearing  liabilities  (primarily  deposits  and  borrowed  funds).  Net
interest  income  depends on the volume of and rates earned on  interest-earning
assets and the volume of and rates paid on interest-bearing liabilities.

         The following table sets forth a summary of average  balances of assets
and liabilities with corresponding  interest income and interest expense as well
as average yield and cost information. Average balances are derived from monthly
balances,  however,  we do not believe the use of month-end  balances has caused
any material  difference in the  information  presented.  There have been no tax
equivalent adjustments made to the yields.


                                     Page 5


<PAGE>

<TABLE>
<CAPTION>

                                                                        AVERAGE BALANCE SHEET
                                                                        ---------------------
                                                                        Year Ended December 31,
                                     ----------------------------------------------------------------------------------------------

                                     ------------------------------   ------------------------------  ------------------------------
                                                 1996                           1995                             1994
                                     ------------------------------   ------------------------------  ------------------------------
                                      Average               Average   Average              Average     Average             Average
                                      Balance  Interest   Yield/Cost  Balance  Interest   Yield/Cost   Balance   Interest Yield/Cost
Interest-earning assets:
<S>                  <C>             <C>        <C>          <C>     <C>        <C>          <C>      <C>        <C>         <C>
    Loans receivable (1) .........   $ 88,162   $  7,686     8.72 %  $ 75,220   $6,788       9.02%    $ 75,118   $  6,264    8.34%
      Mortgage-backed securities .     30,498      1,936     6.35      18,445    1,160       6.29       18,861        983    5.21

    Other interest earnings assets     30,024      1,833     6.11      37,230    2,394       6.43       25,530      1,392    5.45
                                     --------   --------             --------   ------                --------     ------
           Total interest-earning
                   assets.........    148,684     11,455     7.70     130,895   10,342       7.90      119,509      8,639    7.23
                                                --------   ------               ------     ------                   ------  ------

   Non-interest-earning assets ...      9,801                          10,419                           12,810
                                     --------                        --------                         --------
           Total assets ..........   $158,485                        $141,314                         $132,319
                                     ========                        ========                         ========

    Interest-bearing liabilities:
      Savings accounts ...........   $ 22,435        754     3.36    $ 22,591        756     3.35     $ 22,965        700    3.05
         NOW and Money Market ....     14,515        364     2.51      15,368        411     2.67       17,838        477    2.67
        Time Deposits ............    100,479      5,475     5.45      91,505      4,928     5.39       80,283      3,453    4.30
       Borrowed money ............     10,768        592     5.50       2,225        131     5.89        1,784         87    4.88
                                     --------   --------             --------     ------              --------     ------
           Total Interest-bearing
              liabilities ........   $148,197   $  7,185     4.85    $131,689     $6,226    4.73      $122,870     $4,717    3.84
                                                --------   ------                 ------  ------                   ------  ------

 Non-interest-bearing liabilities         574                             228                              265
                                     --------                        --------                         --------
      Total liabilities ..........   $148,771                        $131,917                         $123,135
    Retained Earnings ............      9,714                           9,397                            9,184
                                     --------                        --------                         --------
    Total liabilities and retained
             earnings ............   $158,485                        $141,314                         $132,319
                                     ========                        ========                         ========
   Net interest income ...........              $  4,270                        $  4,116                           $3,922
                                                ========                        ========                           ======
 Interest rate spread(2) .........                           2.86%                          3.17%                            3.39%
                                                           ======                         ======                           ======
  Net yield on Interest-earnings
   assets(3) .....................                           2.87%                          3.14%                            3.28%
                                                           ======                         ======                           ======
 Ratio of average interest-earning
     assets to average interest-
         bearing liabilities .....                         1.0033x                        0.9940x                          0.9726
                                                           ======                         ======                           ======

</TABLE>


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

(1)  Average balances include non-accrual loans.
(2)  Interest rate spread represents the difference between the average yield on
     interest-earning   assets  and  the   average   cost  of   interest-bearing
     liabilities.
(3)  Net yield on  interest-earning  assets  represents net interest income as a
     percentage of average interest-earning assets.

                                     Page 6
<PAGE>

         The  table  below  sets  forth  information  regarding  changes  in our
interest  income  and  interest  expense  for the  periods  indicated.  For each
category  of  our  interest-earning  assets  and  interest-bearing  liabilities,
information  is  provided  on  changes  attributable  to (i)  changes  in volume
(changes in volume  multiplied  by old rate);  (ii) changes in rate  (changes in
rate  multiplied by old volume);  (iii) changes in rate-volume  (changes in rate
multiplied  by the change in volume).  Increases  and decreases due to both rate
and volume, which cannot be segregated,  have been allocated  proportionately to
the change due to volume and change due to rate.

<TABLE>
<CAPTION>
                                                                       Year Ended December 31,
                                  ----------------------------------------------------------------------------------------------
                                        1996       vs.      1995       1995      vs.     1994         1994      vs.     1993
                                  ---------------------------------   ---------------------------   -----------------------------
                                              Increase                        Increase                        Increase
                                             (Decrease)                      (Decrease)                       (Decrease)
                                               Due to                          Due to                           Due to
                                  ---------------------------------   ---------------------------   -----------------------------
                                    Volume      Rate       Net        Volume    Rate        Net       Volume     Rate        Net
                                  ----------  --------   ----------   ------   -----       ------   ---------- --------   --------
Interest
 income
<S>                                 <C>       <C>         <C>        <C>       <C>        <C>        <C>        <C>        <C>
    Loans receivable                $1,168    ($  270)    $  898     $    9    $   515    $   524    ($   72)   ($  457)   ($  529)
    Mortgage-backed securities      $  758     $   18     $  776    ($   22)   $   199    $   177       (549)   ($  231)      (780)

  Other interest earning assets       (463)       (98)   ($  561)       638        364    $ 1,002        363        485        848
                                   -------    -------    -------     ------    -------    -------    -------    -------    -------
   Total interest-earning assets     1,463    ($  350)    $1,113     $  625    $ 1,078    $ 1,703    ($  258)   ($  203)   ($  461)
                                   =============================     ============================    ==============================

  Interest expense:
    Savings accounts               ($    5)    $    3    ($    2)   ($   11)   $    67    $    56    $    76    ($   20)    $   56
       NOW and money market        ($   23)   ($   24)   ($   47)   ($   66)   $     0   ($    66)         3    ($   45)       (42)
     Time deposits                  $  483     $   64     $  547     $  483    $   992    $ 1,475         30    ($  307)      (277)
     Borrowed money                 $  503        (42)    $  461     $   22         22    $    44       (142)         1       (141)
                                   -------    -------    -------     ------    -------    -------    -------    -------    -------
      Total interest-bearing
            liabilities                958          1        959        427      1,082      1,509        (33)      (371)      (404)
                                   =============================     ============================   ===============================

 Net change in interest income     $   504    ($  350)    $  154     $  198   ($     4)   $   194   ($   225)    $  168   ($    57)
                                   =============================     ============================   ===============================
</TABLE>

         Our net interest income  increased  $154,000 or 3.7% to $4.3 million in
1996  compared to $4.1 million in 1995.  The  increase was due  primarily to the
growth of average  interest-earning assets from $130.8 million in 1995 to $148.7
million in 1996,  partially offset by a decline in our interest rate spread from
3.17% in 1995 to 2.86% in 1996.  The decline in our  interest  rate spread had a
corresponding  impact on our net interest  margin which declined 27 basis points
to 2.87% in 1996.

         The increase in our average  interest-earning  assets of $17.9  million
reflects  an increase of $12.9  million in average  loans,  an increase of $12.0
million in average mortgage-backed  securities and a decrease of $7.2 million in
other average  interest-earning  assets which is made up of small  business loan
securities, investment securities, and interest bearing deposits held at banks.

                                     Page 7


<PAGE>



         Our  interest  rate spread and net  interest  margin  decreased in 1996
compared  to  1995.  This  was  due  to  a  decline  in  the  yield  on  average
interest-earning  assets  from 7.90% in 1995 to 7.70% in 1996 and an increase in
the interest cost of average interest-bearing  liabilities from 4.73% in 1995 to
4.85% in 1996.

         The yield on our average  interest-earning assets decreased in 1996 due
to a decline in the yield on loans and, other interest earning assets, offset by
a slight  increase in yield on  mortgage-backed  securities.  As general  market
rates of interest were  relatively  stable during 1995 and 1996,  the decline in
the yield on our loans in 1996 reflected the impact of competition  for new loan
origination's.

         The  increase in the cost of our average  interest-bearing  liabilities
was due primarily to a shift in deposits toward certificates of deposits,  which
have a higher  cost  the  demand  deposits.  The  cost of NOW and  Money  Market
accounts fell from 2.67% in 1995 to 2.51% in 1996,  and borrowed money fell from
5.89% in 1995 to 5.50% in 1996,  while the cost of time deposits rose from 5.39%
in 1995 to 5.45% in 1996.  The  lower  costs of NOW and  Money  Market  accounts
reflects our reduction of deposit rates to match the decrease in interest  rates
during 1996 and the decrease in the cost of borrowings reflects the reduction in
average  advances  from the Federal  Home Loan Bank and the decrease in interest
rates. The increase in the cost of time deposits reflects increased competition.

         Our net interest income  increased  $194,000 or 4.9% to $4.1 million in
1995  compared to $3.9 million in 1994.  The  increase was due  primarily to the
growth of average  interest-earning assets from $119.5 million in 1994 to $130.8
million in 1995,  partially offset by a decline in our interest rate spread from
3.39% in 1994 to 3.17% in 1995.  The decline in our  interest  rate spread had a
corresponding  impact on our net interest  margin which declined 14 basis points
to 3.14% in 1995.

         The increase in our average  interest-earning  assets of $11.4  million
reflects an increase of $11.7 million in other average  interest-earning  assets
which was mostly due to a increase in investment securities held to maturity.

         Our  interest  rate spread and net  interest  margin  decreased in 1995
compared  to  1994.  This  was  due to an  increase  in  the  yield  on  average
interest-earning  assets  from 7.23% in 1994 to 7.90% in 1996 and an increase in
the interest cost of average interest-bearing  liabilities from 3.84% in 1994 to
4.73% in 1995.

         The yield on our average  interest-earning assets increased in 1995 due
to an  increase  in the yield on  loans,  mortgage-backed  securities  and other
interest earning assets.

         The  increase in the cost of our average  interest-bearing  liabilities
was due  primarily to increases  in the cost of savings  accounts  from 3.05% in
1994 to 3.35% in 1996,  time deposits  from 4.30% in 1994 to 5.39% in 1995,  and
borrowed  funds from 4.88% in 1994 to 5.89% in 1995. The increase in the cost of
savings accounts and time deposits reflects an increase in average time deposits
due to our  promotional  activities  to increase our deposit base and a shift in
the  deposit  mix from our lower  cost time  deposits  to our  higher  cost time
deposits.  The  increased  cost of  borrowings  reflects the increase of average
borrowed funds during 1995 and the increase in interest rates on these funds.

                                     Page 8


<PAGE>



         Provision  for Loan Losses.  We recorded a provision for loan losses of
$143,000  in 1996  compared  with  $80,000  in 1995  and a  negative  loan  loss
provision of $145,000. The increase in our provision for loan losses in 1996 and
1995  reflects  the increase in the size of our loan  portfolio  due to internal
loan   growth,   purchase  of   residential   loans  and  the  increase  in  our
non-performing loan portfolio.

         Historically, we have emphasized our loss experience over other factors
in establishing the provision for loan losses.  We review the allowance for loan
losses  in  relation  to:  (i)  the  composition  of our  loan  portfolio,  (ii)
observations of the general  economic  climate and (iii) loan loss  expectations
(identification  of problem  loans and the  establishment  of specific loan loss
allowances on such loans).

         We will  continue  to monitor  our  allowance  for loan losses and make
future  adjustments  to the  allowance  through the provision for loan losses as
economic conditions dictate. We maintain an allowance for loan losses at a level
that we consider to be adequate to provide for the inherent  risk of loss in our
loan portfolio,  however,  there can be no assurance that future losses will not
exceed estimated amounts or that additional  provisions for loan losses will not
be required in future periods.  In addition,  our determination as to the amount
of our allowance for loan losses is subject to review by the OTS, as part of the
examination  process,  which may result in the  establishment  of an  additional
allowance  based upon the  judgment of the OTS after  review of the  information
available at the time of the OTS examination.

         Non-Interest  Income. Our non-interest income increased $20,000 in 1996
or 12.5% from $160,000 for the year ended  December 31, 1995 to $180,000 for the
year ended December 31, 1996. The increase was primarily a result of an increase
in  miscellaneous  non-interest  income from $72,000 in 1995 to $86,000 in 1996.
This  increase  was due to an increase in  collection  of mortgage  late charges
during 1996.

         Our non-interest  income increased $54,000 in 1995 or 51% from $106,000
for the year ended December 31, 1994 to $160,000 for the year ended December 31,
1995.  The  increase  was  primarily a result of  increases  in fees and service
charges and  miscellaneous  income.  Fees and service charges  increased $32,000
from  $61,000  for the  year  ended  December  31,  1994  to  $93,000  in  1995.
Miscellaneous  non-interest  income  increased  $26,000  from $46,000 in 1994 to
$72,000 in 1996.  The  increase for fees,  service  charges,  and  miscellaneous
non-interest  income was due to a higher level of  collection  of mortgage  late
fees, increases in branch, savings and checking fees.





                                     Page 9


<PAGE>



         Non-Interest  Expense.  Our  non-interest  expense  increased  by $1.03
million  or 30% from  $3.46  million  for 1995 to $4.44  million  for 1996.  The
increase was primarily  attributable to the one-time  special SAIF assessment of
$845,000.  Pursuant to the Economic  Growth and Paperwork  Reduction Act of 1996
(the "Act"), the FDIC imposed a special assessment on SAIF members to capitalize
the SAIF at the designated  reserve level of 1.25% as of October 1, 1996.  Based
on our deposits as of March 31, 1995,  the date for  measuring the amount of the
special assessment pursuant to the Act, our special assessment was $845,000. Due
to the  recapitalization  of the SAIF,  we expect  lower  premiums  for  deposit
insurance in future periods. See Form 10-K, "Regulation - Regulation of the Bank
Insurance of Deposit Accounts."

         Pursuant to the Act,  we will pay,  in  addition to our normal  deposit
insurance  premium  as  a  member  of  the  SAIF,  an  annual  amount  equal  to
approximately   6.4  basis  points  of  outstanding  SAIF  deposits  toward  the
retirement  of the  Financing  Corporation  Bonds ("Fico  Bonds")  issued in the
1980's to assist in the  recovery of the savings and loan  industry.  Members of
the Bank  Insurance  Fund ("BIF"),  by contrast,  will pay, in addition to their
normal deposit insurance premium,  approximately 1.3 basis points.  Beginning no
later than January 1, 2000, the rate paid to retire the Fico Bonds will be equal
for members of the BIF and the SAIF.  The Act also  provides  for the merging of
the BIF and the  SAIF  by  January  1,  1999  provided  there  are no  financial
institutions  still chartered as savings  associations at that time.  Should the
insurance  funds be merged before  January 1, 2000, the rate paid by all members
of this new fund to retire the Fico Bonds would be equal.

         In addition, our salaries and employee benefits decreased by $61,000 in
1996 compared to 1995. The decrease was a result of some staff reduction through
normal  attrition  and  reduced  medical  benefits  expense.  Equipment  expense
decreased by $21,000 in 1996 as compared to 1995.  Equipment  costs increased in
1995 due to the acquisition of Little Ferry Branch in fiscal 1994. There were no
branch  acquisitions  in 1996.  Our  legal  fees  increased  $48,000  in 1996 as
compared  to 1995.  This  increase  was the  result of  increased  legal fees in
connection with a lawsuit involving one of our real estate owned properties. The
suit was settled in 1996 and did not have a material affect on our  consolidated
financial statements.

         Our  non-interest  expense  increased  by  $30,000  or 0.9% from  $3.43
million for 1994 to $3.46 million for 1995.  Our salaries and employee  benefits
increased $200,000 from $1.2 million in 1994 to $1.4 million in 1995. Due to our
acquisition of the Little Ferry Branch,  salaries  increased  $94,000,  benefits
increased  $25,000,  and payroll taxes  increased  $23,000.  We also paid to our
employees  incentive payments of $16,000 in 1995. Loss on foreclosed real estate
decreased  $154,000  from  $312,000 in 1994 to  $157,000 as sales of  properties
resulted in gains of $73,000 in 1995 versus losses of $87,000 in 1994.

         Income Tax Expense.  We recognized an income tax benefit of $59,000 for
1996  compared to a tax expense of $376,000 in 1995.  The $435,000  decrease was
the result of pre-tax loss of $179,000 in 1996 versus pre-tax income of $738,000
in 1995.

                                     Page 10


<PAGE>



Liquidity and Capital Resources

         We are required to maintain  minimum levels of liquid assets as defined
by OTS regulations.  This requirement,  which varies from time to time depending
upon economic  conditions and deposit  flows,  is based upon a percentage of our
deposits and short term borrowings. The required ratio currently is 5.0% and our
liquidity  ratio  average  was 13.9% and 14.5% at  December  31,  1995 and 1996,
respectively.

         Our  primary  sources  of funds are  deposits,  repayment  of loans and
mortgage-backed  securities,  maturities  of  investments  and  interest-bearing
deposits, funds provided from operations and advances from the FHLB of New York.
While  scheduled   repayments  of  loans  and  mortgage-backed   securities  and
maturities of investment  securities  are predicable  sources of funds,  deposit
flows and loan  prepayments  are  greatly  influenced  by the  general  level of
interest  rates,  economic  conditions  and  competition.  We use our  liquidity
resources  principally  to fund  existing and future loan  commitments,  to fund
maturing  certificates of deposit and demand deposit  withdrawals,  to invest in
other  interest-earning  assets,  to maintain  liquidity,  and to meet operating
expenses.

         Net cash  provided  by our  operating  activities  for the  year  ended
December  31, 1996  totalled  $1.3  million as compared to $784,000 for the year
ended December 31, 1995.  Net cash provided by our operating  activities for the
year ended  December 31, 1995 totalled  $784,000 as compared to $1.6 million for
the year ended December 31, 1994.

         Net cash used in our investing  activities  for the year ended December
31, 1996 totalled  $4.0 a decrease of $19.4 million from December 31, 1995.  The
decrease  was  primarily  attributable  to an increase  of $17.3  million of net
proceeds  from  calls and sales of  investment  securities  and  mortgage-backed
securities.

         Net cash used in our investing  activities  for the year ended December
31, 1995 totalled $23.4 an increase of $23.0 million from December 31, 1994. The
increase was primarily  attributable to the receipt of $12.0 million from a 1994
branch acquisition, and, purchases of $9.0 in loan receivables in 1995.

         Net cash provided by our financing  activities  for 1996 totalled $12.2
million.  This was the result of a net increase in deposits of $24.3 million and
repayment of FHLB advances of $12.6.

         Net cash provided by our financing  activities  for 1995 totalled $20.2
million.  This was the result of a net  increase in deposits of $7.8 million and
of FHLB advances of $12.6.

         Liquidity  may be adversely  affected by unexpected  deposit  outflows,
excessive interest rates paid by competitors,  adverse publicity relating to the
savings and loan industry,  and similar matters.  Further, the disparity in Fico
Bond interest payments as described herein could result in us losing deposits to
BIF members that have lower costs of funds and  therefore are able to pay higher
rates of interest on deposits. Management monitors projected liquidity needs and
determines the level  desirable,  based in part on our commitments to make loans
and  management's  assessment  of our  ability to  generate  funds.  We are also
subject to federal regulations that impose certain minimum capital requirements.

                                     Page 11

<PAGE>


Impact of Inflation and Changing Prices

         Our  consolidated  financial  statements  and  the  accompanying  notes
presented  elsewhere in this  document,  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 and
due to inflation.  The impact of inflation is reflected in the increased cost of
our  operations.  Unlike most  industrial  companies,  nearly all our assets and
liabilities are monetary.  As a result,  interest rates have a greater impact on
our  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.

Recent Accounting Pronouncements

         FASB  Statement on Accounting  for Transfers and Servicing of Financial
Assets and  Extinguishment  of  Liabilities.  In June 1996, FASB issued SFAS No.
125, which will be effective, on a prospective basis, for fiscal years beginning
after  December  31,  1996.  SFAS No.  125  provides  accounting  and  reporting
standards for transfers and servicing of financial assets and  extinguishment of
liabilities based on consistent application of a  financial-components  approach
that  focuses on  control.  SFAS No. 125 extends  the  "available  for sale" and
"trading" approach of SFAS No. 115 to non-security  financial assets that can be
contractually  prepaid or otherwise settled in such a way that the holder of the
asset  would  not  recover  substantially  all of its  recorded  investment.  In
addition,  SFAS No.  125 amends  SFAS No.  115 to prevent a security  from being
classified as held to maturity if the security can be prepaid or settled in such
a manner that the holder of the security would not recover  substantially all of
its recorded  investment.  The extension of the SFAS No. 115 approach to certain
non-security  financial  assets and the  amendment to SFAS No. 115 are effective
for financial  assets held on or acquired  after  January 1, 1997.  The FASB has
proposed to defer the  effective  date of SFAS No. 125 until January 1, 1998 for
certain transactions  including repurchase agreements,  dollar-roll,  securities
lending and similar  transactions.  FASB 125 will not have a material  effect on
our financial statements.



                                     Page 12


<PAGE>




SELECTED FINANCIAL DATA
-----------------------

<TABLE>
<CAPTION>
                                                          AT OR FOR THE YEAR ENDED DECEMBER 31,

                                                       1996      1995     1994      1993      1992
                                                       ----      ----     ----      ----      ----
                                                            (In Thousands, except for per share
                                                                          amounts)
TOTAL AMOUNT OF :
<S>                                                <C>       <C>      <C>       <C>       <C>
      ASSETS                                       $166,734  $154,635 $133,730  $130,574  $131,530
      LOANS RECEIVABLE, NET                          94,733    85,836   74,277    76,918    81,550
      SECURITIES AVAILABLE FOR SALE                  37,507    35,964    -----    15,893     -----
      MORTGAGE-BACKED SECURITIES                     12,805     2,545   18,289     4,035    23,935
      INVESTMENT SECURITIES                           2,926    19,823   28,120    10,443     5,942
      CASH & CASH EQUIVALENTS                        10,673     1,128    3,559    12,345     8,703
      DEPOSITS                                      156,596   131,636  123,656   115,494   123,836
      FHLB ADVANCES                                   -----    12,600    -----     5,000     -----
      RETAINED EARNINGS                               5,062     5,352    5,210     4,930     2,473
      OTHER EQUITY                                    4,270     4,245    3,967     4,111     4,110
      NET INTEREST INCOME                             4,270     4,116    3,922     3,980     3,520
      NET (LOSS) INCOME                                (120)      363      499     2,500       975
      EARNINGS PER COMMON SHARE                      ($0.27)    $0.82    $1.13     $5.68     $1.78
      COMMON STOCK DIVIDENDS                          -----     $0.50    $0.50     -----     -----
</TABLE>

                                    Page 13

<PAGE>

                   FIRST SAVINGS BANCORP OF LITTLE FALLS, INC.
                                AND SUBSIDIARIES

                        CONSOLIDATED FINANCIAL STATEMENTS
                   (With Independent Auditor's Report Thereon)

                                December 31, 1996




<PAGE>





                   FIRST SAVINGS BANCORP OF LITTLE FALLS, INC.
                                AND SUBSIDIARIES
                        CONSOLIDATED FINANCIAL STATEMENTS
                   (With Independent Auditor's Report Thereon)
                                December 31, 1996
         ---------------------------------------------------------------




                                      INDEX
                                      -----



                                                                          Page
                                                                          ----

Management Responsibility Statement                                        1



Independent Auditors' Report                                               2



Consolidated Statements of Financial Condition as of
  December 31, 1996 and 1995                                               3



Consolidated Statements of Operations for Each of the Years in the
  Three-Year Period Ended December 31, 1996                                4



Consolidated Statements of Changes in Stockholders' Equity for
  Each of the Years in the Three-Year Period Ended December 31, 1996       5



Consolidated Statements of Cash Flows for each of the Years in the
  Three-Year Period Ended December 31, 1996                              6 - 7



Notes to Consolidated Financial Statements                              8 - 34





All  schedules  are omitted  because they are not required or  applicable or the
required  information is shown in the consolidated  financial  statements or the
notes thereto.

<PAGE>


                       MANAGEMENT RESPONSIBILITY STATEMENT
                       -----------------------------------


                                                                February 7, 1997


Management of First Savings Bancorp of Little Falls,  Inc. and its  Subsidiaries
is responsible for the preparation of the consolidated  financial  statement and
all other  consolidated  financial  information  included  in this  report.  The
consolidated  financial  statements  were prepared in accordance  with generally
accepted  accounting  principles applied on a consistent basis. All consolidated
financial  information  included  in this report  agrees  with the  consolidated
financial  statements.  In  preparing  the  consolidated  financial  statements,
management makes informed estimates and judgements,  with consideration given to
materiality, about the expected result of various events and transactions.

Management  maintains  a system of internal  accounting  control  that  includes
personnel  selection,   appropriate  division  of  responsibilities  and  formal
procedures  and  policies  consistent  with high  standards  of  accounting  and
administrative  practice.  Consideration has been given to the necessary balance
between costs of systems of internal control and the benefits derived.

Management  reviews and modifies its systems of accounting and internal  control
in light of changes in  conditions  and  operations  as well as in  response  to
recommendations  from  independent  certified  public  accountants.   Management
believes  the  accounting  and  internal  control  systems  provide   reasonable
assurance that assets are safeguarded and financial information is reliable.

The Board of  Directors  (the  "Board")  is  responsible  for  determining  that
management fulfills its  responsibilities in the preparation of the consolidated
financial  statements  and in the control of operation.  The Board  appoints the
independent  certified public  accountants,  approves the overall scope of audit
work and related fee arrangements and reviews audit reports and findings.


                                                   /s/H.S. Kostakopoulos
                                                   -----------------------------
                                                   Dr. H.S. Kostakopoulos
                                                   President and Chief Executive
                                                   Officer

                                                   /s/Brian McCourt
                                                   -----------------------------
                                                   Brian McCourt
                                                   Vice President, Treasurer
                                                   and Controller
1.


<PAGE>

                                  [Letterhead]



[LOGO]

Established                    RADICS & CO., LLC
   1933            Certified Public Accountants & Consultants



                          INDEPENDENT AUDITORS' REPORT
                          ----------------------------




To The Board of Directors and Stockholders
First Savings Bancorp of Little Falls, Inc.
Little Falls, NJ


We have audited the accompanying  consolidated statements of financial condition
of  First  Savings  Bancorp  of  Little  Falls,  Inc.  (the  "Corporation")  and
Subsidiaries  as of  December  31,  1996 and 1995 and the  related  consolidated
statements of  operations,  changes in  stockholders'  equity and cash flows for
each of the years in the  three-year  period  ended  December  31,  1996.  These
consolidated  financial  statements are the  responsibility of the Corporation's
management.  Our  responsibility is to express an opinion on these  consolidated
financial statements based on our audits.

We  conducted  our  audits  in  accordance  with  generally   accepted  auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable  assurance about whether the  consolidated  financial  statements are
free of material  misstatement.  An audit includes  examining,  on a test basis,
evidence  supporting the amounts and disclosures in the  consolidated  financial
statements.  An audit also includes assessing the accounting principles used and
significant  estimates  made by  management,  as well as evaluating  the overall
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 second
preceding  paragraph present fairly, in all material respects,  the consolidated
financial   position  of  First  Savings  Bancorp  of  Little  Falls,  Inc.  and
Subsidiaries at December 31, 1996 and 1995, and the results of their  operations
and  their  cash  flows  for each of the years in the  three-year  period  ended
December 31, 1996, in conformity with generally accepted accounting principles.

As discussed in note 1 to  consolidated  financial  statements,  the Corporation
changed its method of accounting for debt and equity  securities during the year
ended December 31, 1994.

                                                                             2.

                                                /s/ Radics & Co., LLC


February 7, 1997

     55 US Highway 46 East, Post Office Box 676, Pine Brook, NJ 07058-0676
                         201-575-9696 Fax 201-575-9695

<PAGE>

                  FIRST SAVINGS BANCORP OF LITTLE FALLS, INC.
                                AND SUBSIDIARIES
            CONSOLIDATED FINANCIAL STATEMENTS OF FINANCIAL CONDITION

<TABLE>
<CAPTION>
                                                                              December 31,
                                                                       ----------------------------
Assets                                                    Note (s)         1996           1995
                                                       --------------- -------------  -------------

<S>                                                   <C>              <C>             <C>
Cash and amounts due from depository institutions                       $ 1,319,813    $   862,200
Interest-bearing deposits in other banks
                                                                          9,353,526        265,375
                                                                       -------------  -------------

     Total cash and cash equivalents                      1 and 19       10,673,339      1,127,575
Securities available for sale                         1, 3, 11 and 19    37,506,700     35,964,115
Investment securities held to maturity                 1, 4, and 19       2,000,000     19,000,000
Mortgage-backed securities held to maturity           1, 5, 11 and 19    12,805,191      2,545,101
Loans receivable                                        1, 6, and 19     94,732,642     85,836,007
Real estate owned                                         1 and 7         2,906,034      3,724,958
Premises and equipment                                    1 and 8         2,956,315      2,904,934
Federal Home Loan Bank of New York stock                     11             925,600        823,300
Interest receivable                                    1, 6, 9 and 19     1,110,765      1,427,868
Other assets                                              1 and 13        1,117,511      1,281,111
                                                                       -------------  -------------

     Total assets                                                      $166,734,097   $154,634,969
                                                                       =============  =============

Liabilities and retained earnings
Liabilities

Deposits                                                 10 and 19     $156,596,114   $131,636,083
Borrowed money                                           11 and 19                -     12,600,000
Advance payments by borrowers for taxes and insurance                       633,815        563,262
Other liabilities                                                           171,920        238,715
                                                                       -------------  -------------

     Total liabilities                                                  157,401,849    145,038,060
                                                                       -------------  -------------

Commitments and contingencies                          15, 16 and 19              -              -

Stockholders' equity                                  1, 2, 12 and 13
Preferred stock - par value $0.01 per share;
authorized
 1,000,000 shares; issued and outstanding -0-
shares
   (1996) and 34,000 shares (1995)                                                -            340
Common stock - par value $1.00 per share;
  authorized 5,000,000 shares; issued and outstanding
  440,100  shares (1996) and 100,100 shares (1995)                          440,100        100,100
Paid-in capital
                                                                          3,670,377      4,010,037
Retained earnings - substantially restricted
                                                                          5,062,392      5,352,463
Unrealized gain on securities available for sale, net                       159,379        133,969
                                                                       -------------  -------------

     Total stockholders' equity
                                                                          9,332,248      9,596,909
                                                                       -------------  -------------

     Total liabilities and stockholders' equity                        $166,734,097   $154,634,969
                                                                       =============  =============

</TABLE>


See notes to consolidated financial statements.

                                                                              3.

<PAGE>
                   FIRST SAVINGS BANCORP OF LITTLE FALLS, INC.
                                AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF OPERATIONS
                      -------------------------------------

<TABLE>
<CAPTION>
                                                                   YEAR ENDED DECEMBER 31,
                                                          ----------------------------------------
                                               NOTE(S)        1996          1995          1994
                                            ------------  ------------  ------------  ------------

Interest income:
<S>                                           <C>          <C>           <C>           <C>
  Loans                                       1 and 6      $ 7,686,356   $ 6,788,274   $ 6,264,513
  Mortgage-backed securities                     1           1,935,936     1,160,130       982,750
  Investments                                    1           1,730,414     2,024,582       958,711
  Other interest-earning assets                                102,974       368,823       433,246
                                                            ----------    ----------    ----------
     Total interest income                                  11,455,680    10,341,809     8,639,220
                                                            ----------    ----------    ----------

Interest expense:
  Deposits                                       10          6,593,393     6,094,747     4,630,203
  Borrowed money                                               591,823       131,038        86,809
                                                            ----------    ----------    ----------
     Total interest expense                                  7,185,216     6,225,785     4,717,012
                                                            ----------    ----------    ----------

Net interest income                                          4,270,464     4,116,024     3,922,208
Provision for (recovery of) loan losses       1 and 6          142,500        80,228      (145,468)
                                                            ----------    ----------   ----------

Net interest income after
  provision for (recovery of) loan losses                    4,127,964     4,035,796     4,067,676
                                                            ----------    ----------    ----------

  Fees and service charges                                      90,606        92,622        60,848
  (Loss) on sale of loans                                            -             -          (483)
  (Loss) gain on calls and sales of
     securities                             1,3,4 and 5          3,575        (4,808)            -
  Miscellaneous                                                 85,884        71,886        45,566
                                                             ---------     ---------    ----------
     Total non-interest income                                 180,065       159,700       105,931
                                                            ----------    ----------    ----------

Non-interest expenses:
  Salaries and employee benefits                 14          1,368,656     1,429,664     1,260,434
  Net occupancy expense of premises              1             245,327       241,138       229,366
  Equipment                                      1             361,738       382,817       400,341
  Loss on foreclosed real estate              1 and 7          396,168       156,663       311,912
  Federal insurance premium                      16          1,130,410       307,671       305,196
  Advertising and promotion                                    101,070        84,977        75,561
  Consulting fees                                              113,202       136,708       119,949
  Legal fees                                                   170,763       123,141       137,879
  Amortization of intangibles                    1              33,336        33,333        22,223
  Miscellaneous                                                566,469       560,930       564,426
                                                            ----------    ----------    ----------
     Total non-interest expenses                             4,487,139     3,457,042     3,427,287
                                                            ----------     ---------     ---------
(Loss) income before income taxes (benefit)                   (179,110)      738,454       746,320
Income taxes (benefit)                        1 and 13         (59,039)      375,568       247,031
                                                          -----------     ----------       -------
Net (loss) income                                             (120,071)      362,886       499,289

Preferred stock dividends                                      170,000       170,000       170,000
                                                           -----------    ----------    ----------
Net (loss) applicable to common shares                    $   (290,071)  $   192,886   $   329,289
                                                           ===========    ==========    ==========

Net (loss) income per common share
  and common stock equivalents                   1        $      (0.27)  $      0.82   $      1.13
                                                           ===========    ==========    ==========

Dividends per common share                                 $         -   $       .50   $       .50
                                                            ==========    ==========    ==========

Weighted average number of common shares
  and common stock equivalents outstanding       1             440,100       440,100       440,100
                                                          ============    ==========    ==========
</TABLE>
See notes to consolidated financial statements.
                                                                            4.

<PAGE>



                  FIRST SAVINGS BANCORP OF LITTLE FALLS, INC.
                                AND SUBSIDIARIES
           CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
        ----------------------------------------------------------------
<TABLE>
<CAPTION>

                                                                       Unrealized
                                                          Retained     Gain (Loss)
                                                         Earnings -        on           Total
                                                                       Securities
                  Preferred     Common       Paid-in    Substantially   Available   Stockholders'
                                                                           for
                    Stock       Stock        Capital     Restricted     Sale, Net      Equity
                  ----------- -----------  ------------ -------------  ------------ --------------
Balance -
<S>               <C>          <C>         <C>           <C>           <C>           <C>
  January 1,      $ 340        $100,100    $ 4,010,037   $ 4,930,388   $      -      $ 9,040,865
Net income for
  the year ended
  December 31,
  1994                -               -              -       499,289          -          499,289
Unrealized loss
  on securities
  available for
  sale, net of
  income tax
  effect              -               -              -             -     (142,989)    (142,989)
Dividend on
  preferred
  stock               -               -              -      (170,000)           -     (170,000)
Dividend on
  common stock        -               -              -       (50,050)           -      (50,050)
                  ------     ----------   ------------ -------------  ------------ --------------
Balance -
  December 31,
  1994              340         100,100      4,010,037     5,209,627     (142,989)   9,177,115
Net income for
  the year ended
  December 31,
  1995                -               -              -       362,886            -      362,886
Unrealized gain
  on securities
  available for
  sale, net of
  income tax
  effect              -               -              -             -      276,958      276,958
Dividend on
  preferred
  stock               -               -              -      (170,000)           -     (170,000)
Dividend on
  common stock        -               -              -       (50,050)                  (50,050)
                  -----         ----------  ----------   ------------    ---------   -----------
Balance -
  December 31,
  1995              340          100,100     4,010,037     5,352,463      133,969    9,596,909
Net loss for
  the year
  ended
  December 31,
  1996                -                -            -       (120,071)           -     (120,071)
Unrealized gain
  on securities
  available for
  sale, net of
  income tax
  effect              -                -            -              -       25,410       25,410
Conversion of
  preferred
  stock
  to common
  stock            (340)         340,000     (339,660)             -            -             -
Dividend on
  preferred
  stock               -                -            -       (170,000)           -      (170,000)
                  -----          -------   ----------   ------------    ---------   -----------

Balance -
  December 31,
  1996           $    -        $ 440,100   $3,670,377   $  5,062,392    $ 159,379   $ 9,332,248
                  =====         =========   ==========   ============    =========   ===========
</TABLE>
See notes to consolidated financial statements.
                                                                             5.

<PAGE>

                   FIRST SAVINGS BANCORP OF LITTLE FALLS, INC.
                                AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
              ----------------------------------------------------

<TABLE>
<CAPTION>

                                                                    Year Ended December 31,
                                                       --------------------------------------------
                                                          1996            1995          1994
                                                       -------------   ------------- -------------
Cash lows from operating activities:
     Net (loss) income                                 $ (120,071)     $ 362,886     $ 499,289
     Adjustments  to  reconcile  net  (loss)
      income  to net  cash  provided  by
      operating activities:
<S>                                                       <C>            <C>           <C>
          Depreciation                                    287,849        303,303       369,118
          Amortization of premiums, discounts
           and fees, net                                  307,664         97,863        17,071
          Amortization of intangibles                      33,336         33,333        22,223
          Deferred income taxes                           (84,255)        414,735       23,383
          Provision for (recovery of) losses
           on loans and real estate owned                 399,000         210,000      (54,770)
          Net loss (gain) on sales of assets                4,965         (73,360)      87,351
          Loss on calls of investment securities
           held to maturity                                     -           4,808            -
          Decrease (increase) in interest
           receivable, net                                317,103        (501,478)     (263,115)
          Decrease (increase) in refundable
           income taxes                                   212,449        (212,449)      909,482
          (Increase) decrease in other assets             (17,763)         90,235       137,133
          Increase (decrease) in accrued interest
           payable                                            966         144,560        (3,513)
          (Decrease)  in other liabilities                (16,745)        (90,782)     (129,171)
                                                        ---------      ---------     ---------
               Net cash provided by operating
                activities                              1,324,498         783,654     1,614,481
                                                        ---------      ---------     ---------
Cash flows from investing activities:
     Proceeds from maturities of term deposits                  -       8,500,000     9,500,000
     Proceeds from calls of investment securities
      held to maturity                                 17,000,000       4,000,000             -
     Purchases of:
                Term deposits                                   -      (6,000,000)   (2,500,000)
                Securities available for sale         (12,189,859)              -             -
                Investment securities held to
                 maturity                                       -               -   (26,856,360)
                Mortgage-backed securities held
                 to maturity                          (12,491,176)    (21,723,449)            -
                Loans receivable                       (6,135,880)     (9,055,000)            -
                Premises and equipment                   (339,230)       (346,237)     (218,085)
     Principal repayments on:
                Securities available for sale           6,442,347               -       525,724
                Investment securities held to
                 maturity                                       -          20,927     1,907,322
                Mortgage-backed securities held
                 to maturity                            1,817,557       3,715,596       824,443
     Proceeds from sales of:
                Securities available for sale           3,924,166               -             -
                Mortgage-backed securities held to
                 maturity                                 403,979               -             -
                Loans                                      64,615               -       454,423
                Real estate owned                         638,401         458,697     1,246,302
     Net (increase) decrease in loans receivable       (2,929,591)     (2,697,732)    2,003,589
     Additions to real estate owned                      (104,711)       (159,948)            -
     Payments applied to real estate owned                 13,380          11,500        39,445
     (Purchase) redemption of Federal Home Loan Bank
        of New York stock                                (102,300)       (151,300)      271,200
     Net proceeds in connection with the acquisition
         of branch office                                       -               -    12,332,929
                                                        ---------      ---------     ----------
               Net cash (used in) investment
                activities                             (3,988,302)    (23,426,946)     (469,068)
                                                        ---------      ---------     ----------
</TABLE>
See Notes to consolidates financial statements.
                                                                             6.

<PAGE>
<TABLE>
<CAPTION>
                  FIRST SAVINGS BANCORP OF LITTLE FALLS, INC.
                                AND SUBSIDIARIES
                     CONSOLIDATED STATEMENTS OF CASH FLOWS
                     -------------------------------------
                                                                    Year Ended December 31,
                                                      ----------------------------------------------
                                                            1996            1995            1994
                                                      -----------------  ------------- -------------
Cash flows from financing activities:
<S>                                                   <C>               <C>             <C>
     Net increase (decrease) in deposits              $   24,959,065    $  7,835,814    $(4,697,694)
     Proceeds net of repayments from borrowed
      money                                              (12,600,000)     12,600,000     (5,000,000)
     Increase (decrease) in advance payments
       by borrowers for taxes and insurance                   70,553          (4,243)       (63,298)
     Cash dividend paid on preferred stock                  (170,000)       (170,000)      (170,000)
     Cash dividend paid on common stock                      (50,050)        (50,050)             -
                                                        -------------   ------------    -----------
          Net cash provided by (used in)
           financing activities                           12,209,568      20,211,521     (9,930,992)
                                                        -------------   -------------    -----------
Net increase (decrease) in cash and cash
  equivalents                                              9,545,764      (2,431,771)    (8,785,579)
Cash and cash equivalents - beginning                      1,127,575       3,559,346     12,344,925
                                                        -----------     -----------      -----------

Cash and cash equivalents - ending                      $ 10,673,339    $  1,127,575    $ 3,559,346
                                                        ============    ============    =============
Supplemental disclosures for cash flows information:
     Cash paid (refunded) during the year for:
          Interest                                      $  7,195,772    $  6,069,703    $ 4,720,525
                                                        ============    ============    =============

          Income taxes                                  $   (210,459)   $    225,111    $  (605,898)
                                                        ============    ============    =============
Supplemental disclosure of noncash activities:
     Investment securities held to maturity
      transferred to available for sale                 $          -       1,921,218              -
                                                        ============    ============    ============
     Mortgage-backed securities held to
       maturity transferred to (from) available
       for sale                                         $          -      33,654,187    $(15,105,404)
                                                        ============    ============    =============
     Unrealized gain (loss) on securities, net:
        Upon initial adoption of Statement of
          Financial Accounting Standards No. 115        $         -     $          -          80,113
        Subsequent change                                    25,410          276,658        (223,102)
                                                        -----------     -----------      -----------
                                                             25,410          276,958        (142,989)
                                                        ============    ============    =============
     Loans transferred to real estate owned             $   493,186     $    405,461    $    817,460
                                                        ============    ============    =============

     Loans originated to facilitate the sale
       of real estate owned                             $   500,000     $    256,500    $    409,500
                                                        ============    ============    =============
     Dividends declared but not paid:
          Common stock                                  $          -    $     50,050    $     50,050
          Preferred stock                                     42,500          42,500          42,500
                                                        -----------     -----------      -----------
                                                              42,500          92,550          92,550
                                                        ============    ============    =============
     Preferred stock converted to common stock          $    339,660    $          -    $           -
                                                        ============    ============    =============
     Branch acquisition:
          Assets acquired                               $          -    $          -    $     30,387
          Liabilities assumed                                      -               -     (12,863,316)
          Excess of cost over net assets
           acquired                                                -               -         500,000
                                                        ------------    ------------     -----------
                                                        $          -    $          -     (12,332,929)
                                                        ============    ============     ===========
</TABLE>
See notes to consolidated financial statements.
                                                                              7.
<PAGE>

                   FIRST SAVINGS BANCORP OF LITTLE FALLS, INC.
                                AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
            --------------------------------------------------------


1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
---------------------------------------------

   Basis of consolidated financial statement presentation
   ------------------------------------------------------

   The consolidated financial statements include the accounts of the Corporation
   and its wholly owned subsidiary, First Savings Bank of Little Falls, FSB (the
   "Savings Bank"), and the Savings Bank's wholly owned subsidiaries,  The First
   Service  Corporation of Little Falls (the "Service Corp.") and Redeem,  Inc.,
   and have been  prepared in  conformity  with  generally  accepted  accounting
   principles.  All significant intercompany accounts and transactions have been
   eliminated in consolidation.

   In preparing the consolidated financial statements, management is required to
   make estimates and assumptions that affect the reported amounts of assets and
   liabilities  as of the  date  of the  statements  of  consolidated  financial
   condition and revenues and expenses for the period then ended. Actual results
   could differ significantly from those estimates.

   Material estimates that are particularly  susceptible to significant  changes
   in the  near-term  relate  to the  determination  of the  allowance  for loan
   losses,  the  valuation  of real estate  owned and the  determination  of the
   amount of deferred tax assets which are more likely than not to be realized.

   Management  believes  that the  allowance  for loan losses is adequate,  real
   estate owned is  appropriately  valued and  deferred tax assets  recorded are
   more  likely  than  not  to be  realized.  While  management  uses  available
   information  to  recognize  losses on loans  and real  estate  owned,  future
   additions  to the  allowance  for loan losses or further  writedowns  of real
   estate owned may be necessary based on changes in economic  conditions in the
   Savings Bank's market area.

   In  addition,  various  regulatory  agencies,  as an  integral  part of their
   examination  process,  periodically  review the Savings Bank's  allowance for
   loan losses and real estate owned  valuations.  Such agencies may require the
   Savings Bank to recognize additions to the allowance or additional writedowns
   based on their judgments about  information  available to them at the time of
   their examination.

   Cash and cash equivalents
   -------------------------

   Cash and  cash  equivalents  include  cash and  amounts  due from  depository
   institutions  and  interest-bearing  deposits  in other  banks with  original
   maturities of three months or less.
                                                                             8.

<PAGE>

                   FIRST SAVINGS BANCORP OF LITTLE FALLS, INC.
                                AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
            --------------------------------------------------------


1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Cont'd)
   ------------------------------------------

   Investment and mortgage-backed securities
   -----------------------------------------

   Pursuant to  Financial  Accounting  Standards  Board  ("FASB")  Statement  of
   Financial  Accounting  Standards  ("Statement") No. 115,  investments in debt
   securities  that the  Corporation has the positive intent and ability to hold
   to maturity are  classified as  held-to-maturity  securities  and reported at
   amortized  cost.  Debt  and  equity  securities  that  are  bought  and  held
   principally  for the purpose of selling them in the near term are  classified
   as trading  securities and reported at fair value,  with  unrealized  holding
   gains and  losses  included  in  earnings.  Debt and  equity  securities  not
   classified  as trading  securities  nor as  held-to-maturity  securities  are
   classified as available for sale securities and reported at fair value,  with
   unrealized holding gains or losses, net of deferred income taxes, reported in
   a separate component of stockholders' equity.

   The initial  application  of Statement  No. 115,  effective  January 1, 1994,
   resulted in an increase to  stockholders'  equity,  net of deferred taxes, of
   approximately  $80,000,  but had no effect on  operations.  On April 1, 1994,
   management  transferred the entire  securities  available for sale portfolio,
   having a carrying value of approximately $15,105,000, to held to maturity. As
   required,  the unrealized  loss at the date of transfer was  capitalized  for
   subsequent amortization over the remaining lives of the related securities.

   As permitted  by the FASB's "A guide to  Implementation  of Statement  115 on
   Accounting  for  Certain  Investments  in Debt and  Equity  Securities",  the
   Savings  Bank  reassessed  the   classification   it  its  held  to  maturity
   portfolios.  Effective  December 31, 1995, as a result of such  reassessment,
   the Savings  Bank  transferred  securities  with an  approximate  book value,
   including  approximately  $189,000 of unrealized  losses  remaining  from the
   April 1, 1994  transfer,  of  $35,575,000  and an  approximate  fair value of
   $35,964,000,  from held to maturity to available for sale. In connection with
   such  transfer,  an  unrecognized  gain,  net of deferred  income  taxes,  of
   approximately  $253,000 was recognized and classified as a separate component
   of stockholders' equity.

   Premiums and discounts on all  securities  are  amortized/accreted  using the
   interest method.  Interest and dividend income on securities,  which includes
   amortization  of premiums and  accretion of  discounts,  is recognized in the
   consolidated  financial statements when earned. The adjusted cost basis of an
   identified security sold or called is used for determining security gains and
   losses recognized in the consolidated statements of operations.



                                                                           9.


<PAGE>

                   FIRST SAVINGS BANCORP OF LITTLE FALLS, INC.
                                AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
            --------------------------------------------------------

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Cont'd)
   ------------------------------------------

   Loans receivable
   ----------------

   Loans receivable are stated at unpaid  principal  balances less the allowance
   for loan losses and deferred loan fees and discounts.  Interest is calculated
   by the use of the actuarial method.

   The  Savings  Bank  defers  loan  origination  fees and  certain  direct loan
   origination  costs and accretes  such amounts as an  adjustment of yield over
   the contractual lives of the related loans.  Discounts on loans purchased are
   recognized as income by use of a method which  approximates  the  level-yield
   method over the terms of the respective loans.

   Uncollectible  interest on loans that are  contractually  past due is charged
   off and the related loans placed on nonaccrual status. 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  probable,  in which case the loan is  returned to an
   accrual status.

   Allowance for loan losses
   -------------------------

   An allowance for loan losses is maintained at a level considered  adequate to
   absorb future loan losses. Management of the Savings Bank, in determining the
   allowance for loan losses, considers the risks inherent in its loan portfolio
   and changes in the nature and volume of its loan  activities,  along with the
   general economic and real estate market conditions.

   The Savings Bank utilizes a two-tier approach:  (1) identification of problem
   loans and  establishment  of specific loss allowances on such loans;  and (2)
   establishment  of general  valuation  allowances on the remainder of its loan
   portfolio. The Savings Bank maintains a loan review system which allows for a
   periodic  review  of its  loan  portfolio  and the  early  identification  of
   potential  problem loans. Such system takes into  consideration,  among other
   things,  delinquency  status, size of loans, type and estimated fair value of
   collateral  and  financial  condition of the  borrowers.  Specific  loan loss
   allowances are  established  for  identified  loans based on a review of such
   information.  General loan loss  allowance  are based upon a  combination  of
   factors  including,   but  not  limited  to,  actual  loan  loss  experience,
   composition of loan portfolio,  current economic  conditions and management's
   judgment.

   Although  management  believes that  adequate  specific and general loan loss
   allowances  are  established,  actual losses are dependent upon future events
   and, as such, further additions to the level of the allowance for loan losses
   may be necessary.

   Effective  January 1, 1995, the Savings Bank adopted FASB Statements No. 114,
   "Accounting by Creditors for  Impairment of a Loan" and No. 118,  "Accounting
   by Creditors for Impairment of a Loan - Income  Recognition and Disclosures".
   The   provisions   of  these   statements   are   applicable  to  all  loans,
   uncollateralized  as well as  collateralized,  except  for  large  groups  of
   smaller-balance   homogeneous  loans  that  are  collectively  evaluated  for
   impairment  and loans that are measured at fair value or at the lower of cost
   or fair value.



                                                                     10.
<PAGE>

                  FIRST SAVINGS BANCORP OF LITTLE FALLS, INC.
                                AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                   ------------------------------------------

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Cont'd)
   ------------------------------------------

   Allowance for loan losses (Cont'd)
   -------------------------

   The  Statements  require that impaired loans be measured based on the present
   value of  expected  future  cash flows  discounted  at the  loan's  effective
   interest rate or, as a practical  expedient,  at the loans observable  market
   price or fair value of the collateral if the loan is collateral dependent.  A
   loan evaluated for impairment is deemed to be impaired when, based on current
   information  and events,  it is probable that the Savings Bank will be unable
   to collect all amounts due  according  to the  contractual  terms of the loan
   agreement. All loans identified as impaired are evaluated independently.  The
   Savings Bank does not aggregate such loans for evaluation purposes.

   Payments  received on impaired  loans are applied  first to accrued  interest
   receivable and then to principal.

   Real estate owned
   -----------------

   Real estate owned consists of real estate  acquired by foreclosure or deed in
   lieu of  foreclosure.  Real estate  owned is recorded at the lower of cost or
   fair value at date of acquisition and thereafter carried at the lower or such
   initially recorded amount or fair value less estimated selling costs.

   Costs   incurred  in  developing  or  preparing   properties   for  sale  are
   capitalized.  Income and  expense  related to the holding  and  operating  of
   properties  are recorded in  operations.  Gains and losses from sales of such
   properties are recognized as incurred.

   Concentration of risk
   ---------------------

   The Savings Bank's real estate and lending  activity is  concentrated in real
   estate and loans secured by real estate located primarily in the State of New
   Jersey.

   Premises and equipment
   ----------------------

   Premises  and  equipment  are  comprised  of land,  at cost,  and  buildings,
   building  improvements,  furniture,  fixtures and  equipment,  at cost,  less
   accumulated   depreciation.   Depreciation   charges  are   computed  on  the
   straight-line method over the following estimated useful lives:

                  Building and improvements             40 to 50  years

                  Furniture, fixtures and equipment     3 to 10 years

   Significant  renewals  and  betterments  are  charged  to  the  premises  and
   equipment  account.  Maintenance and repairs are charged to operations in the
   year  incurred.  Rental  income  is  netted  against  occupancy  costs in the
   consolidated statements of operations.



                                                                             11.

<PAGE>


                   FIRST SAVINGS BANCORP OF LITTLE FALLS, INC.
                                AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
            --------------------------------------------------------


1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Cont'd)
---------------------------------------------

   Income Taxes
   ------------

   The Corporation and its subsidiaries  file a consolidated  federal income tax
   return. Income taxes are allocated based on the contribution of income to the
   consolidated income tax return. Separate state income tax returns are filed.

   The accrual  basis of  accounting  is used for both  financial and income tax
   reporting.   Provisions  for  income  taxes  reflected  in  the  consolidated
   financial  statements  differ  from the amounts  reflected  in the income tax
   returns due to temporary  differences  in the  reporting of certain items for
   financial  reporting and tax reporting  purposes and the  recognition  of net
   operating loss carryforwards for financial reporting purposes. The income tax
   provision shown in the consolidated  financial statements relates to items of
   income and expense in those  statements  irrespective of temporary  variances
   for  income  tax  reporting  purposes.  The tax  effect  of  these  temporary
   variances is accounted  for as deferred  income  taxes  applicable  to future
   years.  A valuation  allowance is provided for deferred tax assets when it is
   more  likely than not that a portion of the  deferred  tax assets will not be
   realized.

   Interest rate risk
   ------------------

   The  Savings  Bank is  principally  engaged  in the  business  of  attracting
   deposits  from the general  public and using these  deposits,  together  with
   borrowings and other funds, to purchase  securities and to make loans secured
   by real estate.  The potential for  interest-rate  risk exists as a result of
   the generally shorter duration of interest-sensitive  liabilities compared to
   the generally longer duration of interest-sensitive  assets. In a rising rate
   environment,  liabilities  will reprice faster than assets,  thereby reducing
   the market  value of  long-term  assets  and net  interest  income.  For this
   reason,  management  regularly  monitors the  maturity  structure of interest
   sensitive   assets  and   liabilities  in  order  to  measure  its  level  of
   interest-rate risk and to plan for future volatility.

   Excess of cost over  assets acquired
   ------------------------------------

   The cost in excess of fair value of net assets  (goodwill)  acquired  in 1994
   through the  acquisition  of a branch  office is  amortized to expense over a
   period of fifteen  years by use of the  straight-line  method.  The remaining
   unamortized  balance  amounted to $411,000  and $444,000 at December 31, 1996
   and 1995, respectively, and is included in other assets.

   Net income per common share and common stock equivalents
   --------------------------------------------------------

   Net income per common  share and  common  stock  equivalents  is based on the
   average  number of common  shares and common  stock  equivalents  outstanding
   during that period.  The calculation  assumes the exercise of the convertible
   preferred  stock,  which is considered a common stock  equivalent,  as of the
   first day of the period.

   Reclassification
   ----------------

   Certain  amounts  for the years  ended  December  31, 1995 and 1994 have been
   reclassified to conform to current year's presentation.


                                                                           12.

<PAGE>


                   FIRST SAVINGS BANCORP OF LITTLE FALLS, INC.
                                AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
            --------------------------------------------------------

2. STOCKHOLDERS' EQUITY
-----------------------

   For the  purpose of  granting to  eligible  account  holders a priority  over
   stockholders  in the event of future  liquidation,  the Savings  Bank, at the
   time of its conversion to stock form, established a liquidation account in an
   amount equal to its total net worth of  $1,579,000  at March 31, 1992. In the
   event of future  liquidation of the converted  Savings Bank (and only in such
   event),  an eligible account holder who continues to maintain his/her deposit
   account  shall be entitled  to receive a  distribution  from the  liquidation
   account.  The total amount of the liquidation  account will be decreased (but
   never increased) in an amount  proportionately  corresponding to decreases in
   the  deposit  account  balances  of  eligible  account  holders  as  of  each
   subsequent  year  end.  No  dividends  may be  paid to  stockholders  if such
   dividends would reduce the net worth of the converted  Savings Bank below the
   amount  required by the liquidation  account.  The balance of the liquidation
   account at December 31, 1996 has not been determined.

   The preferred stock issued in the conversion was  non-cumulative.  Each share
   was permitted to be converted at stockholder option into ten shares of common
   stock.  Effective  December  31,  1996,  all  34,000  outstanding  shares  of
   preferred  stock were  converted  into 340,000  shares of common  stock.  The
   holders of preferred stock received dividends at the annual rate of $5.00 per
   share. Holders of the non-cumulative preferred stock had no voting rights and
   liquidation rights subordinate to those of holders of common stock.

   The ability of the  Corporation to pay dividends to stockholders is dependent
   upon its receiving  dividends from the Savings Bank. The Savings Bank may pay
   dividends and/or capital distributions,  as defined by regulations,  during a
   calendar year up to one-hundred percent of its net income to date during such
   year plus an amount  which would reduce by fifty  percent its excess  capital
   over its regulatory capital requirements at the beginning of such year.

3. SECURITIES AVAILABLE FOR SALE
---------------------------------

<TABLE>
<CAPTION>
                                                              December 31, 1996
                                            -------------------------------------------------------
                                             Amortized         Gross Unrealized         Carrying
                                                             ----------------------
                                               Value           Gains       Losses        Value
                                            -------------    ----------   ---------   -------------

<S>                                          <C>             <C>          <C>          <C>
Government National Mortgage Association     $12,174,754     $ 144,707    $  2,541     $12,316,920
Federal National Mortgage Association          3,688,379        10,471      57,757       3,641,093
Federal Home Loan Mortgage Corporation         1,635,735        24,632       5,822       1,654,545
Small Business Administration                 19,762,634       155,708      24,200      19,894,142
                                            -------------    ----------   ---------   -------------
                                             $37,261,502     $ 335,518     $90,320     $37,506,700
                                            =============    ==========   =========   =============
</TABLE>



                                                                           13.

<PAGE>


                   FIRST SAVINGS BANCORP OF LITTLE FALLS, INC.
                                AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
            --------------------------------------------------------

3.  SECURITIES AVAILABLE FOR SALE (Cont'd)
------------------------------------------

<TABLE>
<CAPTION>
                                                               December 31, 1995
                                            ---------------------------------------------------------
                                             Amortized          Gross Unrealized         Carrying
                                                             -----------------------
                                               Value           Gains       Losses         Value
                                            -------------    ----------   ---------    -------------

<S>                                          <C>              <C>          <C>          <C>
Government National Mortgage Association     $10,417,212      $ 79,525     $17,396      $10,479,341
Federal National Mortgage Association          2,590,585         3,876      21,451        2,573,010
Federal Home Loan Mortgage Corporation         1,955,837         6,248       6,724        1,955,361
Small Business Administration                 20,800,526       161,877       6,000       20,956,403
                                            -------------    ----------   ---------    -------------

                                             $35,764,160      $251,526     $51,571      $35,964,115
                                            =============    ==========   =========    =============

</TABLE>

The  foregoing  securities  are not due at a  single  maturity  date as they are
subject to periodic repayment. Accordingly, such securities will generally repay
at a more rapid rate than  reflected in the  following  table of  securities  by
final maturity date.

<TABLE>
<CAPTION>
                                                              December 31, 1996
                                            --------------------------------------------------------
                                             Amortized          Gross Unrealized         Carrying
                                                             -----------------------
                                               Value           Gains        Losses         Value
                                            -------------    ----------    ---------   --------------

<S>                                          <C>             <C>           <C>           <C>
Due after one year through five years        $ 1,484,193     $  17,451     $  5,783      $ 1,495,861
Due after five years through ten years        10,537,900        94,618       14,810       10,617,708
Due after ten years                           25,239,409        22,349       69,727       25,399,131
                                            -------------    ----------    ---------   --------------

                                             $37,261,502      $335,518      $90,320      $37,506,700
                                            =============    ==========    =========   ==============
</TABLE>

<TABLE>
<CAPTION>

                                                               December 31, 1995
                                            --------------------------------------------------------
                                             Amortized          Gross Unrealized         Carrying
                                                             -----------------------
                                               Value           Gains        Losses         Value
                                            -------------    ----------    ---------   --------------

<S>                                          <C>              <C>           <C>          <C>
Due after five years through ten years       $11,585,314      $100,029      $ 5,999      $11,679,344
Due after ten years                           24,178,846       151,497       45,572       24,284,771
                                            -------------    ----------    ---------   --------------

                                             $35,764,160      $251,526      $51,571      $35,964,115
                                            =============    ==========    =========   ==============
</TABLE>


As permitted by "A Guide to  Implementation  of Statement 115 on Accounting  for
Certain  Investments  in  Debt  and  Equity  Securities",  issued  by the  FASB,
management performed a reassessment of the appropriateness of the classification
of the Savings  Bank's  securities.  As a result,  effective  December 31, 1995,
investment  securities  with a carrying value of $1,921,218 and  mortgage-backed
securities with a carrying value of $33,654,187 were  reclassified  from held to
maturity to available for sale.

                                                                            14.

<PAGE>


                   FIRST SAVINGS BANCORP OF LITTLE FALLS, INC.
                                AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
            --------------------------------------------------------

3.  SECURITIES AVAILABLE FOR SALE (Cont'd)
---------------------------------

During the year ended  December  31,  1996,  proceeds  from sales of  securities
available  for sale totalled  $3,924,166  and resulted in gross gains of $4,548.
There were no sales of  securities  available  for sale  during the years  ended
December 31, 1995 and 1994.

A security  available for sale,  having a carrying value of $360,000 at December
31,  1996,  is pledged  to secure  public  funds on  deposit.  Additionally,  at
December  31, 1996,  securities  available  for sale with an aggregate  carrying
value of $1,134,000 are pledged to secure customer deposits.

4.  INVESTMENT SECURITIES HELD TO MATURITY
------------------------------------------

<TABLE>
<CAPTION>
                                                                December 31, 1996
                                              ------------------------------------------------------
                                                Carrying         Gross Unrealized        Estimated
                                                              -----------------------
                                                 Value          Gains       Losses      Fair Value
                                              -------------   ----------   ---------   -------------

U.S. Government Agencies due after ten
<S>                                            <C>            <C>          <C>          <C>
  years                                        $ 2,000,000    $        -   $      -     $ 2,000,000
                                              =============   ==========   =========   =============

</TABLE>


<TABLE>
<CAPTION>

                                                               December 31, 1995
                                            --------------------------------------------------------
                                                                                        Estimated
                                              Carrying         Gross Unrealized            Fair
                                                             ----------------------
                                               Value           Gains       Losses         Value
                                            -------------    ----------   ---------    -------------
U.S. Government Agencies:
<S>                                          <C>              <C>         <C>           <C>
     Due after one year through five years   $15,000,000      $  1,120    $ 50,170      $14,950,950
     Due after five years through ten years    2,000,000         1,080           -        2,001,080
     Due after ten years                       2,000,000             -           -        2,000,000
                                            -------------    ----------   ---------    -------------

                                             $19,000,000        $2,200     $50,170      $18,952,030
                                            =============    ==========   =========    =============
</TABLE>


There were no sales of investment  securities  held to maturity during the years
ended  December 31, 1996,  1995,  and 1994.  During the years ended December 31,
1996 and 1995,  proceeds  from calls of investment  securities  held to maturity
totalled  $17,000,000  and  $4,000,000,  respectively,  and resulted in no gross
gains or losses in 1996 and gross losses of $4,808 in 1995.




                                                                          15.

<PAGE>

                   FIRST SAVINGS BANCORP OF LITTLE FALLS, INC.
                                AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
            --------------------------------------------------------

5.   MORTGAGE-BACKED SECURITIES HELD TO MATURITY
------------------------------------------------
<TABLE>
<CAPTION>
                                                               December 31, 1996
                                            -------------------------------------------------------
                                                                                       Estimated
                                              Carrying         Gross Unrealized           Fair
                                                             ---------------------
                                               Value          Gains      Losses          Value
                                            -------------    --------   ----------    -------------

<S>                                         <C>              <C>         <C>           <C>
Government National Mortgage Association    $     39,023     $ 1,047     $    280      $    39,790
Federal National Mortgage Association          1,809,078      29,263            -        1,838,341
Federal Home Loan Mortgage Corporation         9,957,090      20,147       42,601        9,934,636
Federal Home Loan Mortgage Corporation
     REMIC                                     1,000,000           -            -        1,000,000
                                            ------------     -------     --------      -----------

                                            $ 12,805,191     $50,457     $ 42,881      $12,812,767
                                            ============     =======     ========      ===========
</TABLE>


<TABLE>
<CAPTION>
                                                              December 31, 1995
                                            -------------------------------------------------------
                                                                                        Estimated
                                              Carrying          Gross Unrealized          Fair
                                                             -----------------------
                                               Value           Gains       Losses         Value
                                            -------------    ----------   ---------    ------------

<S>                                           <C>            <C>           <C>         <C>  <C>
Government National Mortgage Association      $   53,502     $   1,429     $   356     4    54,575
Federal National Mortgage Association            488,259           383         527         488,115
Federal Home Loan Mortgage Corporation         1,003,340         3,150      11,658         994,832
Federal Home Loan Mortgage Corporation
     REMIC                                     1,000,000         -           -           1,000,000
                                            -------------    ----------   ---------    ------------

                                              $2,545,101     $   4,962     $12,541     $ 2,537,522
                                            =============    ==========   =========    ============

</TABLE>


During the year ended December 31, 1996,  proceeds from sales of mortgage-backed
securities  held to maturity  totalled  $403,979 and resulted in gross losses of
$973. There were no sales of mortgage-backed  securities held to maturity during
the years ended December 31, 1995 and 1994.

A  mortgage-backed  security held to maturity with a carrying  value $172,000 at
December 31, 1995 was pledged to secure public finds on deposit.




                                                                             16.


<PAGE>

                   FIRST SAVINGS BANCORP OF LITTLE FALLS, INC.
                                AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
            --------------------------------------------------------


6.  LOANS RECEIVABLE
--------------------

<TABLE>
<CAPTION>
                                                                  December 31,
                                                         ------------------------------
                                                             1996             1995
                                                         --------------   -------------

Real estate mortgage:
<S>                                                        <C>             <C>
     One-to-four family                                    $74,156,889     $64,755,370
     Multi-family                                            3,311,210       5,290,641
     Non-residential                                         6,775,830       5,225,500
     Land                                                       41,373         299,505
                                                         --------------   -------------

                                                            84,285,302      75,571,016
                                                         --------------   -------------

Commercial loans                                             3,954,014       3,576,368
                                                         --------------   -------------

Consumer:
     Equity                                                  4,681,054       5,402,231
     Home improvement and second mortgages                   1,090,470         869,847
     Passbook or certificate                                   814,064         810,807
     Student education                                         115,908         125,100
     Other loans                                               527,256         145,746
                                                         --------------   -------------

                                                             7,228,752       7,353,731
                                                         --------------   -------------

Total loans                                                 95,468,068      86,501,115
                                                         --------------   -------------

Less:  Allowance for loan losses                               523,715         388,633
          Deferred loan fees and discounts                     211,711         276,475
                                                         --------------   -------------

                                                               735,426         665,108
                                                         --------------   -------------

                                                           $94,732,642     $85,836,007
                                                         ==============   =============
</TABLE>

The Savings Bank has granted  loans to its officers and  directors  and to their
associates.  Related  party  loans  are made on  substantially  the same  terms,
including  interest rates and  collateral,  as those  prevailing at the time for
comparable  transactions with unrelated persons and do not involve more than the
normal risk of  collectibility.  The  aggregate  dollar  amount of these  loans,
exclusive of loans to any officer or director and their  affiliates  which total
less than  $60,000,  was  $775,000  and  $843,000 at December 31, 1996 and 1995,
respectively.  Activity  during the year ended  December  31, 1996  included new
loans of $34,000 and repayments of $48,000.



                                                                           17.

<PAGE>

                   FIRST SAVINGS BANCORP OF LITTLE FALLS, INC.
                                AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
            --------------------------------------------------------


6.  LOANS RECEIVABLE  (Cont'd)
------------------------------

 An analysis of the allowance for loan losses is as follows:

                                      Year Ended December 31,
                              ------------------------------------
                                 1996         1995         1994
                              ----------   ---------    ----------

Balance - beginning           $ 388,633    $ 377,315    $ 547,330
Provision charged (recovery
 credited) to operations        142,500       80,228     (145,468)
Loans charged off                (7,418)     (70,605)     (29,521)
Recoveries                           --        1,695        4,974
                              ---------    ---------    ---------

Balance - ending              $ 523,715    $ 388,633    $ 377,315
                              =========    =========    =========

Impaired loans and related amounts recorded in the allowance for loan losses are
summarized as follows: (in thousands):

                                                             December 31,
                                                          --------------------
                                                           1996        1995
                                                          --------    --------
    Recorded investment in impaired loans:
         With recorded allowance                          $ 1,277     $     -
         Without recorded allowances                            -         281
                                                          --------    --------

              Total impaired loans                          1,277         281

         Related allowance for loan losses                   155            -
                                                          --------    --------

              Net impaired loans                          $ 1,122       $ 281
                                                          ========    ========

For the years ended December 31, 1996 and 1995, the average recorded  investment
in impaired loans totalled $559,000 and $355,000, respectively.  Interest income
recognized on such loans during the time each was impaired  totalled $28,000 and
$7,000, respectively, all of which was recorded on the cash basis.

Non accrual loans totalled approximately  $1,639,000,  $1,146,000 and $1,470,000
at December 31, 1996, 1995 and 1994, respectively.  Renegotiated loans for which
interest has been reduced  totalled  approximately  $1,313,000,  $1,348,000  and
$1,253,000 at December 31, 1996,  1995 and 1994,  respectively.  Interest income
that would have been  recorded  under the  original  terms of such loans and the
interest income actually recognized are summarized below:


                                                 Year Ended December 31,
                                              -----------------------------
                                               1996       1995       1994
                                              --------   --------   -------
                                                     (In Thousands)

      Interest income that would have been       $303      $ 250     $ 289
      recorded
      Interest income recognized                  230        184       162
                                              --------   --------   -------
      Interest income foregone                  $  73     $   66     $ 127
                                              ========   ========   =======

                                                                           18.


<PAGE>
                   FIRST SAVINGS BANCORP OF LITTLE FALLS, INC.
                                AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
            --------------------------------------------------------


7.  REAL ESTATE OWNED
---------------------
                                                      December 31,
                                              ------------------------------
                                                  1996             1995
                                              -------------    -------------

   Acquired in settlement of loans            $  3,443,636     $ 4,027,495
   Allowance for losses
                                                  (537,602)       (302,537)
                                              --------------    ------------

                                              $  2,906,034     $ 3,724,958
                                              =============    =============

The following is an analysis of the allowance for losses:

<TABLE>
<CAPTION>
                                                         Year Ended December 31,
                                              ----------------------------------------------
                                                  1996            1995             1994
                                              -------------   --------------   -------------

<S>                                           <C>              <C>               <C>
   Balance - beginning                        $     302,537    $  1,461,991      $1,496,920
   Provision charged to operations                  256,500        129,772           90,698
   Losses charged off                               (21,435)    (1,289,226)        (125,627)
                                              -------------    -----------     ------------

   Balance - ending                           $     537,602    $   302,537       $1,461,991
                                              =============   ==============   =============
</TABLE>

The following is an analysis of loss on foreclosed real estate:

<TABLE>
<CAPTION>
                                                          Year Ended December 31,
                                              ------------------------------------------------
                                                  1996             1995             1994
                                              -------------   ----------------   -----------

<S>                                               <C>            <C>           <C>
   Provision for losses                           $256,500       $129,772      $ 90,698
   Operating expenses, net of rental income        131,128        100,251       134,346
   Loss (gain) on disposition                        8,540        (73,360)       86,868
                                              -------------   ------------    ----------

                                                  $396,168       $156,663      $311,912
                                              =============   ============   ===========
</TABLE>


                                                                          19.

<PAGE>


                   FIRST SAVINGS BANCORP OF LITTLE FALLS, INC.
                                AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
            --------------------------------------------------------


8.  PREMISES AND EQUIPMENT
--------------------------
                                                    December 31,
                                             ---------------------------
                                                1996           1995
                                             -----------    ------------

Land                                         $  547,867      $  547,867
                                             -----------    ------------

Buildings and improvements                    3,060,894       2,838,213
Less accumulated depreciation                 1,065,155         963,274
                                             -----------    ------------

                                              1,995,739       1,874,939
                                             -----------    ------------

Furniture, fixtures and equipment             1,625,564       2,061,277
Less accumulated depreciation                   812,855       1,579,149
                                             -----------    ------------

                                                412,709         482,128
                                             -----------    ------------

                                             $2,956,315      $2,904,934
                                             ===========    ============


9.  INTEREST RECEIVABLE
-----------------------
                                                    December 31,
                                             ---------------------------
                                                1996           1995
                                             -----------    ------------

Loans                                        $  640,131      $  744,285
Securities                                      470,634         681,465
Other interest-earning assets                         -           2,118
                                             -----------    ------------

                                             $1,110,765      $1,427,868
                                             ===========    ============

10. DEPOSITS
------------<TABLE>
<CAPTION>

                                                        December 31,
                                   --------------------------------------------------------
                                              1996                          1995
                                   ----------------------------   -------------------------
                                    Weighted                       Weighted
                                    Average                        Average
                                      Rate          Amount           Rate        Amount
                                   -----------   --------------   ----------- -------------

<S>                                  <C>          <C>               <C>       <C>
Non-interest-bearing demand          0.00%        $  1,985,234      0.00%     $  1,493,296
NOW and Super NOW                    2.03%           4,204,758      2.02%        3,874,953
Money Market                         3.38%           8,102,117      3.29%        8,707,747
Savings and Realty Trust             3.35%          21,967,044      3.32%       21,998,935
Certificates of deposit              5.62%         120,336,961      5.53%       95,561,152
                                                  ------------                ------------

                                     5.02%        $156,596,114      4.84%     $131,636,083
                                                  ============                ============
</TABLE>

                                                                        20.

<PAGE>
                   FIRST SAVINGS BANCORP OF LITTLE FALLS, INC.
                                AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
            --------------------------------------------------------


10.  DEPOSITS (Cont'd)
-------------

Interest expense on deposits is summarized as follows:

                                              Year Ended December 31,
                                      -----------------------------------------
                                         1996           1995           1994
                                      ------------   -----------    -----------
                                                   (In Thousands)

          Savings and Realty Trust       $    754      $    756       $    700
          NOW and Money Market                364           410            477
          Certificates of deposit           5,475         4,929          3,453
                                      ------------   -----------    -----------

                                          $ 6,593       $ 6,095        $ 4,630
                                      ============   ===========    ===========

A summary of certificates of deposit by time remaining until maturity follows:

                                                       December 31,
                                                 --------------------------
                                                    1996           1995
                                                 ------------   -----------
                                                      (In Thousands)

          Within one year                          $  88,730     $  66,352
          After one year through two years            18,295        11,956
          Thereafter                                  13,312        17,253
                                                 ------------   -----------

               Total                              $  120,337     $  95,561
                                                 ============   ===========

A summary of  certificates  of deposit of $100,000 or more by time  remaining to
maturity follows:

                                                       December 31,
                                                 --------------------------
                                                    1996           1995
                                                 ------------    ----------
                                                      (In Thousands)

          Within three months                     $    3,589      $  1,571
          After three through six months               1,611         1,225
          After six through twelve months              2,449         1,120
          After twelve months                          1,754         2,229
                                                 ------------    ----------

                                                   $   9,403       $ 6,145
                                                 ============    ==========


11.  BORROWED MONEY

Borrowed  money at December 31, 1995  consisted of  $12,600,000 in advances from
the Federal  Home Loan Bank of New York  ("FHLB")  carrying an average  interest
rate of 5.78% and maturing within three months.

                                                                           21.

<PAGE>

                   FIRST SAVINGS BANCORP OF LITTLE FALLS, INC.
                                AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
            --------------------------------------------------------


11.  BORROWED MONEY (Cont'd)
-------------------

At December 31, 1996 and 1995,  the Savings  Bank had  available to it overnight
lines of credit of $25,117,000  and  $15,576,200,  respectively,  granted by the
FHLB.  The unused  amount of credit  available  to the Savings  Bank under these
lines,  which may continue  until  terminated  by either the Savings Bank or the
FHLB, was $25,117,000 at December 31, 1996.

Collateral  pledged to secure the foregoing credit  facilities  consists of FHLB
stock of $925,600 and $823,300 at December 31, 1996 and 1995, respectively,  and
mortgage-backed  securities with an aggregate  carrying value of $21,245,000 and
$24,786,000 at December 31, 1996 and 1995, respectively.

12.REGULATORY CAPITAL
---------------------

The Savings Bank is subject to capital requirements  prescribed by the Office of
Thrift Supervision ("OTS") consisting of three separate  measurements of capital
adequacy (the "Capital Rule"). The Capital Rule requires each saving institution
to maintain tangible capital equal to at least 1.5% of its total tangible assets
and core  capital  equal to at least  3.0% of its  adjusted  total  assets.  The
Capital Rule further requires each savings institution to maintain total capital
equal to at least 8.0% of its risk-weighted assets.

The  following  table sets forth the capital  position  of the  Savings  Bank as
calculated under the Capital Rule as of December 31, 1996:

<TABLE>
<CAPTION>

                                      Tangible                Core                 Risk-Based
                                 --------------------   ------------------    ---------------------
                                  Amount     Percent    Amount      Percent     Amount     Percent
                                 ---------   --------   --------    -------    ---------   --------
                                                      (Dollars on Thousands)
<S>                              <C>          <C>       <C>          <C>       <C>          <C>
GAAP stockholder's equity        $  9,372     5.65      $ 9,372      5.65      $  9,372     13.10
Deduct non-includable
portion of:
     Deferred tax asset              (194)    (.12)        (194)     (.12)         (194)      (.27)
     Intangible asset                (411)    (.25)        (411)     (.25)         (411)      (.58)
     Unrealized gain on
      securities, net                (159)    (.09)        (159)     (.09)         (159)       (.22)
Add:  General valuation
  allowance                             -        -            -         -           816        1.14
                                 ---------   --------   --------    -------    ---------   --------

Regulatory capital as
calculated                          8,608      5.19       8,608      5.19         9,424       13.17
Regulatory capital as
required                            2,490      1.50       4,980      3.00         5,725        8.00
                                 ---------   --------   --------    -------    ---------   --------

Excess                           $  6,118      3.69     $ 3,628      2.19      $ 3,699         5.17
                                 =========   ========   ========    =======    =========   ========
</TABLE>


The Federal  Deposit  Insurance  Corporation  Improvement Act of 1991 ("FDICIA")
imposes increased  requirements on the operations of financial  institutions and
mandated the development of regulations  designed to empower  regulators to take
prompt  corrective  action with respect to institutions  that fall below certain
capital standards.  FDICIA stipulates that an institution with less than 4% core
capital is deemed to be undercapitalized.  Quantitative  measures established by
FDICIA to ensure capital  adequacy  require the Savings Bank to maintain minimum
amounts and ratios of total and Tier I capital  (as defined in the  regulations)
to  risk-weighted  assets (as defined),  and of Tier I capital to average assets
(as defined).  Management  believes,  as of December 31, 1996,  that the Savings
Bank meets all capital adequacy requirements to which it is subject.



                                                                          22.

<PAGE>

                   FIRST SAVINGS BANCORP OF LITTLE FALLS, INC.
                                AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
            --------------------------------------------------------

12.  REGULATORY CAPITAL  (Cont'd)
-----------------------

As of March 11,  1996,  the most recent  notification  from the OTS, the Savings
Bank was  categorized as well  capitalized  under the  regulatory  framework for
prompt corrective  action.  To be categorized as well  capitalized,  the Savings
Bank must maintain minimum total, risk-based, and Tier I leverage ratios of 10%,
6%, and 5%, respectively.  There are no conditions existing or events which have
occurred  since   notification   that  management   believes  have  changed  the
institution's category.

13.  INCOME TAXES
-----------------

The Savings Bank qualifies as a Savings  Institution under the provisions of the
Internal Revenue Code and was therefore permitted,  prior to January 1, 1996, to
deduct from taxable  income an allowance  for bad debts based on the greater of:
(1) actual  loan  losses  (the  "experience  method");  or (2) eight  percent of
taxable  income before such bad debt  deduction  less certain  adjustments  (the
"percentage of taxable income method").  The percentage of taxable income method
was repealed  effective  January 1, 1996.  For the year ended December 31, 1996,
the Saving Bank must use either the experience method or the specific charge off
method.  For the years ended  December 31, 1995 and 1994,  the deduction for bad
debts was computed  using the  percentage  of taxable  income  method.  Retained
earnings at December 31, 1996  includes  approximately  $3.5 million of such bad
debt allowance, for which income taxes have not been provided.



The components of income taxes (benefit) are summarized as follows:

<TABLE>
<CAPTION>
                                                          Year Ended December 31,
                                                  -----------------------------------------
                                                      1996           1995          1994
                                                  --------------   ----------   ------------

<S>                                                   <C>            <C>          <C>
          Current                                     $  25,216      $(39,167)    $ 223,648
                                                  --------------   ------------    ---------

          Deferred:
               Temporary differences                   (105,845)       393,068        1,870
               Net operating loss
                 carryforward                            21,590         21,667       21,513
                                                  --------------   ------------   ----------

                                                        (84,255)       414,735       23,383
                                                  --------------    -----------   ----------

                                                      $ (59,039)     $ 375,568     $ 24,031
                                                  ==============    ===========    =========
</TABLE>



                                                                           23.

<PAGE>

                   FIRST SAVINGS BANCORP OF LITTLE FALLS, INC.
                                AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
            --------------------------------------------------------


13.  INCOME TAXES  (Cont'd)
-----------------

Deferred  income taxes result from temporary  differences in the  recognition of
income and  expense for tax and  financial  statement  purposes.  The sources of
these temporary differences and the tax effects are as follows:

                                            Year Ended December 31,
                                      ------------------------------------
                                         1996         1995         1994
                                      -----------   ---------   ----------

Allowance for losses on loans and     $(125,575)     405,495     $  3,739
     real estate owned
Deferred loan fees                        8,639        8,902       (8,929)
Nonaccrual interest                      25,477       (7,887)      19,781

Interest on refundable income taxes          --           --      (58,338)
Depreciation                             (6,400)      (8,536)      (8,698)
Net operating loss carryforward          21,590       21,667       21,513
Other                                    (7,986)      (4,906)     (15,685)
                                      ---------    ---------    ---------

                                      $ (84,255)   $ 414,735     $ 23,383
                                      =========    =========    =========

The components of the net deferred tax asset are as follows:

                                                           December 31,
                                                      -----------------------
                                                        1996          1995
                                                      ----------    ---------

          Deferred tax assets:
               Allowance for losses on loans and
                real estate owned                     $ 381,862     $256,287
               Net operating loss carryforward          215,900      237,490
               Nonaccrual interest                       29,382       54,859
               Deferred loan fees, net                   39,578       48,217
               Other                                     13,313        5,327
                                                      ----------    ---------

                                                        680,035      602,180
                                                      ----------    ---------

          Deferred tax liabilities:
               Depreciation                              55,769       62,169
               Unrealized gain on securities             85,819       65,986
          available for sale
                                                      ----------    ---------

                                                        141,588      128,155
                                                      ----------    ---------

          Net deferred tax assets                     $ 538,447     $474,025
                                                      ==========    =========


                                                                            24.
<PAGE>


                   FIRST SAVINGS BANCORP OF LITTLE FALLS, INC.
                                AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
            --------------------------------------------------------



13.  INCOME TAXES  (Cont'd)
-----------------

For income tax reporting purposes, at December 31, 1996, the Corporation has net
operating loss carryforwards  totalling  approximately $635,000 that will expire
on December 31, 2006.

The following  table presents a  reconciliation  between the reported income tax
expense  (benefit) and the income tax expense  (benefit) which would be computed
by applying the federal statutory rate of 34% to income before income taxes:

<TABLE>
<CAPTION>
                                                         Year Ended December 31,
                                                 -----------------------------------------
                                                    1996           1995           1994
                                                 ------------   -----------    -----------

<S>                                                <C>           <C>            <C>
          Federal income taxes (benefit)           $ (60,897)    $ 251,074      $ 253,749
          Increase (reduction) of income
          taxes
           resulting from:
               Change in permanent difference
                 relating to base year tax
                 bad debt reserves                         -       100,541        (12,824)
               State income taxes, net of
                 federal income tax effect            (3,216)       21,967         13,934
               Other                                   5,074         1,986         (7,828)
                                                 ------------   -----------     -----------

                                                   $ (59,039)    $ 375,568      $ 247,031
                                                 =============   ==========     ==========
</TABLE>

14.  RETIREMENT PLAN
--------------------

The Savings Bank has a 401(k) plan covering all eligible  employees.  Under this
plan, participants may elect to contribute up to 15% of their compensation,  not
to exceed  applicable  limits as per the Internal Revenue Code. The Savings Bank
has elected to match 50% of employees' contributions, up to a maximum 6% of each
respective employee's compensation. The 401(k) plan expense was $18,000, $22,000
and $22,000 for the years ended December 31, 1996 , 1995 and 1994, respectively.

15. COMMITTMENTS AND CONTINGENCIES
----------------------------------

The Savings Bank 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.
These  financial  instruments  primarily  include  commitments to extend credit.
These instruments  involve, to varying degrees,  elements of credit and interest
rate risk in excess of the amount  recognized in the  consolidated  statement of
financial  condition.  The  contract  or notional  amounts of those  instruments
reflect the extent of involvement the Savings Bank has in particular  classes of
financial instruments.

The Savings Bank'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 notional amount of those instruments. The Savings
Bank  uses the same  credit  policies  in  making  commitments  and  conditional
obligations as it does for on-balance-sheet instruments.


                                                                           25.

<PAGE>


                   FIRST SAVINGS BANCORP OF LITTLE FALLS, INC.
                                AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
            --------------------------------------------------------

15.  COMMITTMENTS AND CONTINGENCIES (Cont'd)
-----------------------------------

The Savings Bank has  outstanding  various  commitments  to  originate  loans as
follows:

<TABLE>
<CAPTION>
                                                                December 31,
                                                         ----------------------------
                                                             1996           1995
                                                         -------------   ------------

<S>                                                       <C>             <C>
          Commitments expiring in three months or less    $ 1,216,000     $1,158,000
                                                         =============   ============
</TABLE>


At December 31, 1996, the outstanding  commitments consist of $185,000 for fixed
rate first  mortgage  loans with rates  ranging  from  7.875%  through  8.375% ,
$196,000 for fixed rate second  mortgage loans with rates ranging from 8.375% to
9.50%,  $200,000 for a commercial  mortgage loan having a rate which will adjust
monthly to the prime rate plus 3.50%,  $600,000  for a fifteen  year  commercial
mortgage  loan  which will carry a fixed rate at 11.00% for the first five years
and then adjust each fifth year to the five year U.S.  treasury  rate plus 4.00%
and $35,000 for an equity line of credit.

At December 31, 1996 and 1995, undisbursed funds from approved home equity lines
of credit amounted to  approximately  $2,529,000 and  $3,074,000,  respectively.
Unless they are  specifically  cancelled by notice from the Savings Bank,  these
funds  represent  firm  commitments  available  to the  respective  borrowers on
demand.  The interest rate charged for any month on funds disbursed is generally
1.00%  to  2.00%  above  the  prime  rate.  Certain  lines  are  subject  to  an
introductory rate of 2% below the prime rate for the first year. The Saving Bank
also offers unsecured credit lines in conjunction with a credit card program. At
December 31, 1996, unused amounts under these lines of credit totalled $90,000.

Commitments  to extend  credit are  agreements  to lend to a customer as long as
there is no violation of any condition established in the contract.  Commitments
generally  have fixed  expiration  dates or other  termination  clauses  and may
require  payment of a fee. Since many of the  commitments are expected to expire
without  being  drawn  upon,  the total  commitment  amounts do not  necessarily
represent future cash  requirements.  The Savings Bank evaluates each customer's
creditworthiness  on a case-by case basis. The amount of collateral  obtained if
deemed  necessary  by the  Savings  Bank  upon  extension  of credit is based on
management's  credit evaluation of the  counterparty.  Collateral held generally
includes residential and commercial real estate.  Management does not anticipate
losses on any of these transactions.

In the conduct of their  business,  the  Corporation,  the Savings  Bank and the
Savings Bank's  subsidiaries are involved in normal litigation  matters.  In the
opinion of management,  the ultimate  disposition of such litigation  should not
have a  material  adverse  effect  on the  consolidated  financial  position  or
operations of the Corporation.




                                                                           26.

<PAGE>

                   FIRST SAVINGS BANCORP OF LITTLE FALLS, INC.
                                AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
            --------------------------------------------------------



15. COMMITMENTS AND CONTINGENCIES (Cont'd)
---------------------------------

The Savings  Bank has been named as the sole  defendant in a suit brought by the
owners of several condominiums in a particular condominium development. The suit
primarily  seeks  redress  for  alleged   construction   defects  affecting  the
condominium.  The Plaintiffs  purchased the condominiums  from the Savings Bank.
The  Savings  Bank had taken  title to the  condominiums  in 1992  pursuant to a
settlement of contested  litigation with its borrower who had filed a bankruptcy
petition.  The Savings Bank proceeded to complete the Public Offering  Statement
and obtain approval from the New Jersey  Department of Community Affairs to sell
the condominiums.  Although the Savings Bank did not construct the condominiums,
the   plaintiffs   claim  that  the  Savings  Bank  has  liability  for  alleged
construction  defects as a sponsor.  The Plaintiffs  also allege other causes of
action such as fraud and negligence.

In December  1996, a settlement  in principal  was reached with the  plaintiffs.
Under this  settlement,  the plaintiffs have agreed to execute a general release
in favor of the Savings Bank to dismiss the litigation in exchange for a $31,000
cash payment by the Savings Bank and a matching  $31,000  payment by the Savings
Bank's insurance  carrier.  While this settlement has been agreed to, definitive
settlement documents have not yet been signed.

16. LEGISLATIVE MATTERS
-----------------------

On September  30,  1996,  legislation  was enacted  which,  among other  things,
imposed a special  one-time  assessment on Savings  Association  Insurance  Fund
("SAIF") member  institutions,  including the Savings Bank, to recapitalize  the
SAIF and spread the  obligation  for payment of Financial  Corporation  ("FICO")
bonds  across all SAIF and Bank  Insurance  Fund  ("BIF")  members.  The special
assessment being levied amounts to 65.7 basis points on SAIF assessable deposits
held as of March 31, 1995.  The special  assessment  was recognized in the third
quarter  of 1996 and is tax  deductible.  The  Savings  Bank  took a  charge  of
$845,000 as a result of the special assessment.  This legislation will eliminate
the substantial  disparity between the amount that BIF and SAIF members had been
paying for deposit insurance premiums.

Beginning on January 1, 1997, the FDIC has estimated that, in addition to normal
deposit insurance  premiums,  BIF members will pay a portion of the FICO payment
equal to 1.3 basis points on BIF -insured  deposits compared to 6.4 basis points
by SAIF members on SAIF-insured  deposits.  All institutions will pay a pro-rata
share of the FICO  payment  on the  earlier  of January 1, 2000 or the date upon
which  the last  savings  association  ceases  to exist.  The  legislation  also
requires BIF and SAIF to be merged by January 1, 1999 provided that  legislation
is  adopted  to  eliminate  the  saving  association   charter  and  no  savings
associations remain as of that time.

The FDIC has recently  lowered SAIF assessments to a range comparable to that of
BIF members,  although SAIF members must also make the FICO  payments  described
above.  Management cannot predict the level of FDIC insurance  assessments on an
ongoing basis or whether the BIF and SAIF will eventually be merged.



                                                                        27.

<PAGE>


                   FIRST SAVINGS BANCORP OF LITTLE FALLS, INC.
                                AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
            --------------------------------------------------------

16. LEGISLATIVE MATTERS (Cont'd)
-----------------------

On August  21,  1996,  legislation  was  enacted to allow for the  recapture  of
post-1987 tax bad debt reserves.  Prior to enactment certain thrift institutions
such as the Savings Bank were  allowed  deductions  for bad debts under  methods
more favorable than those granted to other taxpayers.  This legislation repealed
the Code  Section  593  reserve  method  of  accounting  for bad debts by thrift
institutions   effective  for  taxable  years  beginning   after  1995.   Thrift
institutions  that are  treated  as small  banks  are  allowed  to  utilize  the
experience method  applicable to such  institutions,  while thrift  institutions
that are treated as large banks are required to use only the specific charge off
method.

For small institutions such as the Savings Bank, the amount of the institution's
applicable  excess  reserves  generally is the excess of (1) the balances of its
reserve for losses on qualifying  real property loans and its reserve for losses
on nonqualifying loans as of the close of its last taxable year beginning before
January 1, 1996,  over (ii) the greater of the balance of (a) its  pre-1988  tax
reserves or (b) what the reserves  would have been at the close of its last year
beginning  before  January  1,  1996,  had the  Savings  Bank  always  used  the
experience  method.  At  December  31,  1996,  the  Savings  Bank had no  excess
reserves.


17..   PARENT CORPORATION FINANCIAL INFORMATION
-----------------------------------------------

The following condensed  financial  statements of the Corporation should be read
in conjunction with the Notes to Consolidated Financial Statements.



                              STATEMENTS OF FINANCIAL CONDITION
                                                        December 31,
                                                 ---------------------------
                                                    1996            1995
                                                 ------------    -----------
          Assets
          Cash and cash equivalents               $   17,397     $   16,923
          Investment in subsidiary                 9,372,123      9,679,868
          Organization costs                          22,949         30,389
                                                 ------------    -----------

               Total assets                       $9,412,469     $9,727,180
                                                 ============    ===========


                                                                          28.

<PAGE>

                   FIRST SAVINGS BANCORP OF LITTLE FALLS, INC.
                                AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
            --------------------------------------------------------


17.  PARENT CORPORATION FINANCIAL INFORMATION (Cont'd)
---------------------------------------------



                              STATEMENTS OF FINANCIAL CONDITION
                              ---------------------------------

                                                            December 31,
                                                     ---------------------------
                                                        1996            1995
                                                     ------------    -----------
          Liabilities and stockholders' equity
          Liabilities
          Dividends payable                           $   42,500       $  92,550
          Due to subsidiary                               37,721          37,721
                                                     ------------    -----------

              Total liabilities                           80,221         130,271
                                                     ------------    -----------

          Stockholders' equity
          Preferred stock                                      -             340
          Common stock                                   440,100         100,100
          Paid-in-capital in excess of par value       3,670,377       4,010,037
          Retained earnings - substantially
           restricted                                  5,221,771       5,486,432
                                                     ------------    -----------

               Total stockholders' equity              9,332,248       9,596,909
                                                     ------------    -----------

               Total liabilities and
                stockholders' equity                 $ 9,412,469      $9,727,180
                                                     ============    ===========

                                   STATEMENTS OF OPERATIONS
                                   ------------------------

<TABLE>
<CAPTION>
                                                                      January 7, 1994
                                       Year Ended December 31,      (Date of Inception)
                                      --------------------------
                                         1996           1995        to December 31, 1994
                                      ------------   -----------    ---------------------

<S>                                     <C>           <C>               <C>
Dividends from subsidiary               $ 220,050     $ 220,050         $  42,500
Interest income                               474           460             1,462
                                      ------------   -----------        ----------

     Total income                         220,524       220,510            43,962

Expenses                                    7,440           505             6,826
                                      ------------   -----------        ----------

                                          213,084       220,005            37,136
Equity in undistributed (loss)
   earnings of subsidiaries              (333,155)      142,881           461,252
                                      -------------   ----------        ----------

(Loss) income before income taxes        (120,071)      362,886           498,388
Income taxes                                    -             -                 -
                                      ------------   -----------        ----------

Net (loss) income                      $ (120,071)     $362,886          $498,388
                                      =============   ==========         =========
</TABLE>

                                                                           29.

<PAGE>

                   FIRST SAVINGS BANCORP OF LITTLE FALLS, INC.
                                AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
            --------------------------------------------------------


17.  PARENT CORPORATION FINANCIAL INFORMATION (Cont'd)
---------------------------------------------



                            STATEMENTS OF CASH FLOWS
                            ------------------------

<TABLE>
<CAPTION>
                                                                              January 7, 1994
                                             Year Ended December 31,             (Date of
                                                                                Inception)
                                          -------------------------------
                                              1996              1995             to December
                                                                                   31,1994
                                          --------------    -------------    --------------------

Cash flows from operating activities:
<S>                                       <C>                  <C>               <C>
     Net (loss) income                    $ (120,071)          $ 362,886         $ 498,388
     Adjustments to reconcile net
       (loss) income to
       net cash provided by
       operating activities:
          Equity in undistributed
           loss (earnings)
           of subsidiary                     333,155            (142,881)         (461,252)
          Amortization of
           organization costs                  7,440                   -             6,826
          Increase in due to
           subsidiary                              -                 506                 -
                                          ----------         -----------       -----------

          Net cash provided by
           operating activities              220,524             220,511            43,962
                                          ----------         -----------       -----------

Cash flows from financing activities:
     Paid in capital received from
      subsidiary                                   -                   -           100,000
     Cash dividends paid                    (220,050)           (220,050)         (127,500)
                                          ----------         -----------       -----------

          Net cash (used in)
           financing activities             (220,050)           (220,050)          (27,500)
                                          ----------         -----------       -----------

Net increase in cash and cash
equivalents                                      474                 461            16,462
Cash and cash equivalents - beginning         16,923              16,462                 -
                                          ----------         -----------       -----------

Cash and cash equivalents - ending        $   17,397         $    16,923       $    16,462
                                          ==========         ===========       ===========


</TABLE>

                                                                           30.

<PAGE>


                   FIRST SAVINGS BANCORP OF LITTLE FALLS, INC.
                                AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
            --------------------------------------------------------

18. QUARTERLY FINANCIAL DATA (UNAUDITED)
----------------------------------------

<TABLE>
<CAPTION>
                                                        Quarter Ended
                                ---------------------------------------------------------------
                                 March 31,      June 30,       September 30,     December 31,
                                   1996           1996             1996              1996
                                ------------   ------------   ----------------   --------------

<S>                              <C>            <C>                <C>              <C>
 Total interest income           $2,818,787     $2,822,134         $2,849,290       $2,965,469
 Total interest expense           1,775,928      1,757,264          1,810,840        1,841,184
                                 ----------     ----------         ----------       ----------

 Net interest income              1,042,859      1,064,870          1,038,450        1,124,285

 Provision for loan losses           25,000         25,000             25,000          117,500
 Total non-interest income           41,050         39,933             43,255           55,827
 Total non-interest expenses        806,754        867,947          1,657,919        1,104,519
 Income taxes (benefit)              87,960         72,810           (209,770)         (10,039)
                                 ----------     ----------         ----------       ----------

 Net income (loss)               $  164,195     $  139,046         $ (391,444)      $  (31,868)
                                 ==========     ==========         ==========       ==========

 Net income (loss) per common
  share and common stock
  equivalents                    $      .37     $      .32         $     (.89)      $     (.07)
                                 ==========     ==========         ==========       ==========

 Dividends per common share      $       -      $        -         $        -       $        -
                                 ---------       ---------          ---------        ---------

</TABLE>


<TABLE>
<CAPTION>

                                                           Quarter Ended
                                   ---------------------------------------------------------------
                                    March 31,      June 30,       September 30,     December 31,
                                      1995           1995             1995              1995
                                   ------------   ------------   ----------------   --------------

<S>                                 <C>            <C>                <C>              <C>
 Total interest income              $2,378,479     $2,493,489         $2,596,476       $2,873,825
 Total interest expense              1,379,105      1,528,330          1,661,413        1,657,397
                                    ----------     ----------        -----------      -----------

 Net interest income                   999,374        965,159            935,063        1,216,428

 Provision for loan losses                   -              -                -             80,228
 Total non-interest income              40,087         40,182             44,321           35,110
 Total non-interest expenses           824,820        892,715            784,698          954,809
 Income taxes                           75,375         39,329             68,198          192,666
                                    ----------     ----------        -----------      -----------

 Net income                         $  139,266     $   73,297        $   126,488      $    23,835
                                   ============   ============   ================   ==============

 Net income per common share
   and common stock equivalents     $      .31     $      .17        $       .29      $       .05
                                    ==========     ==========        ===========      ===========

 Dividends per common share         $        -     $       -         $         -      $       .50
                                    ==========     ==========        ===========      ===========

</TABLE>
                                                                           31.

<PAGE>

                   FIRST SAVINGS BANCORP OF LITTLE FALLS, INC.
                                AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
            --------------------------------------------------------

19.  ESTIMATED FAIR VALUE OF FINANCIAL INSTRUMENTS
--------------------------------------------------

The fair value of a financial  instrument  is defined as the amount at which the
instrument could be exchanged in a current  transaction between willing parties,
other than a forced or liquidation sale.  Significant  estimations were used for
the  purposes of this  disclosure.  Estimated  fair values have been  determined
using the best  available  data and  estimation  methodology  suitable  for each
category of financial  instruments.  For those loans and deposits  with floating
interest rates, it is presumed that estimated fair values generally  approximate
their  recorded  book  balances.  The  estimation  methodologies  used  and  the
estimated fair values and carrying  values of the financial  instruments are set
forth below.

     Cash and cash equivalents, interest receivable and borrowed money
     -----------------------------------------------------------------

     The carrying amounts for cash and cash equivalents, interest receivable and
     borrowed  money  approximate  fair  value as a result  of their  short-term
     nature.

     Securities
     ----------

     The fair values for  securities are based on quoted market prices or dealer
     prices,  if  available.  If quoted  market  prices or dealer prices are not
     available,  fair value is estimated  using quoted  market  prices or dealer
     prices for similar securities.

     Loans
     -----

     The fair value of loans is  estimated  by  discounting  future  cash flows,
     using the  current  rates at which  similar  loans with  similar  remaining
     maturities would be made to borrowers with similar credit ratings.

     Deposits
     --------

     For demand,  savings and club accounts,  fair value is the carrying  amount
     reported  in the  consolidated  financial  statements.  For  fixed-maturity
     certificates of deposit,  fair value is estimated using the rates currently
     offered for deposits of similar remaining maturities.

     Commitments
     -----------

     The fair value of commitments to extend credit is estimated  using the fees
     currently charged to enter into similar  agreements taking into account the
     remaining terms of the agreements and the present  creditworthiness  of the
     coutnerparties.  For fixed-rate loan commitments, fair value also considers
     the  difference  between  the  current  levels  of  interest  rates and the
     committed rates.





                                                                           32.

<PAGE>


                   FIRST SAVINGS BANCORP OF LITTLE FALLS, INC.
                                AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
            --------------------------------------------------------

19. ESTIMATED FAIR VALUE OF FINANCIAL INSTRUMENTS (Cont'd)
-------------------------------------------------

The carrying  values and estimated fair values of financial  instruments  are as
follows.


<TABLE>
<CAPTION>
                                                                   December 31,
                                               -----------------------------------------------------
                                                         1996                        1995
                                               -------------------------   -------------------------
                                               Carrying      Estimated      Carrying     Estimated
                                                 Value       Fair value      Value       Fair value
                                               ----------    -----------   -----------   -----------
                                                                  (in thousands)
 Financial assets

<S>                                              <C>           <C>           <C>           <C>
 Cash and cash equivalents                       $10,673       $ 10,673      $  1,128      $  1,128
 Securities available for sale                    37,507         37,507        35,964        35,964
 Investment securities held to maturity            2,000          2,000        19,000        18,952
 Mortgage-backed securities held to               12,805         12,813         2,545         2,538
 maturity
 Loans receivable                                 94,733         94,552        85,836        87,702
 Accrued interest receivable                       1,111          1,111         1,428         1,428

 Financial liabilities

 Deposits                                        156,596        157,818       131,636       132,500
 Borrowed money                                        -              -        12,600        12,600

 Commitments

 To originate and fund loans                       3,835          3,835         4,162         4,162

</TABLE>

Fair  value  estimates  are made at a specific  point in time based on  relevant
market  information  and  information  about the  financial  instruments.  These
estimates do not reflect any premium or discount that could result from offering
for sale at one time the entire holdings of a particular  financial  instrument.
Because no market  value  exists  for a  significant  portion  of the  financial
instruments,  fair  value  estimates  are based on  judgments  regarding  future
expected loss experience,  current economic conditions,  risk characteristics of
various financial instruments, and other factors. These estimates are subjective
in nature, involve uncertainties and matters of judgment and, therefore,  cannot
be determined with precision.  Changes in assumptions could significantly affect
the estimates.

In addition, 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 exclude the value of assets and liabilities  that are not
considered financial instruments.  Other significant assets and liabilities that
are not  considered  financial  assets  and  liabilities  include  premises  and
equipment,  other real estate owned and advance  payments by borrowers for taxes
and insurance.  In addition, the tax ramifications related to the realization of
the  unrealized  gains and  losses can have a  significant  effect on fair value
estimates and have not been considered in any of these estimates.


                                                                        33.

<PAGE>


                   FIRST SAVINGS BANCORP OF LITTLE FALLS, INC.
                                AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
            --------------------------------------------------------

19. ESTIMATED FAIR VALUE OF FINANCIAL INSTRUMENTS (Cont'd)
-------------------------------------------------

Finally,  reasonable  comparability  between  financial  institutions may not be
likely due to the wide range of  permitted  valuation  techniques  and  numerous
estimates which must be made given the absence of active  secondary  markets for
many of the financial instruments.  This lack of uniform valuation methodologies
introduces a greater degree of subjectivity to those estimated fair values.

20. IMPACT OF NEW ACCOUNTING STANDARDS
--------------------------------------

In June 1996, the FASB issued  Statement No. 125,  "Accounting for Transfers and
Servicing of Financial Assets and Extinguishments of Liabilities." Statement No.
125 provides  accounting and reporting  standards for transfers and servicing of
financial  assets  and   extinguishments  of  liabilities  based  on  consistent
application of a financial  components  approach that focuses on control.  Under
that approach,  after a transfer of financial  assets,  an entity recognizes the
financial and servicing  assets it controls and the liabilities it has incurred,
derecognizes  the  financial  assets  when  control  has been  surrendered,  and
derecognizes  liabilities when extinguished.  This Statement provides consistent
standards for  distinguishing  transfers of financial assets that are sales from
transfers that are secured  borrowings.  A transfer of financial assets in which
the transferor  surrenders control,  as defined,  over those assets is accounted
for as a sale to the extent that consideration  other than beneficial  interests
in the  transferred  assets is received in exchange.  Statement No. 125 requires
that liabilities and derivatives  incurred or obtained by transferors as part of
a  transfer  of  financial  assets  be  initially  measured  at fair  value,  if
practicable,  and requires that servicing assets and other retained interests in
the  transferred  assets be measured by allocating the previous  carrying amount
between the assets sold,  if any, and retained  interest,  if any,  based on the
relative fair values at the date of the transfer.  Further, servicing assets and
liabilities  must be subsequently  measured by (a) amortization in proportion to
and over the period of estimated net servicing income or loss and (b) assessment
for asset impairment or increased  obligation  based on their values.  Statement
No. 125 requires that debtors reclassify  financial assets pledged as collateral
and that secured parties  recognize those assets and their  obligation to return
them in certain  circumstances  in which the secured  party has taken control of
those assets.  Statement No. 125 is effective for  transactions  occurring after
December 31, 1996, with the exception of certain provisions which have had their
effective  date  delayed an  additional  year via FASB  Statement  No. 127.  The
application  the  provisions  of  Statement  No. 125 is not  expected  to have a
material adverse effect on the Corporation's consolidated financial condition of
results of operations.




                                                                           34.

<PAGE>

<TABLE>
<CAPTION>

<S>                                                                             <C>
                                                                                Officers
CORPORATE DATA
                                                                                Dr. H. S. Kostakopoulos
Directors                                                                       President & Chief Executive Officer

Emanuel M. Kontokosta                                                           Brian McCourt
Chairman of the Board                                                           Vice President/Controller, Treasurer
Principal Owner of Kontokosta
Associates, New York, New York;                                                 John Christensen
an architectural and engineering firm                                           Assistant Vice President
                                                                                Manager/Branch Administration
Dr. H. S. Kostakopoulos
President and CEO of First Savings                                              Pamela E. Skurat
Bank of Little Falls, F.S.B.                                                    Assistant Vice President
                                                                                Manager/Loan Administration
Nikos P. Mouyiaris
Vice Chairman                                                                   Veronica Kingsley
Chairman - Executive Committee                                                  Assistant Vice President
Owner and President of Mana Products,  Long Island City, New York;              Quality Control
 a cosmetics firm
                                                                                Jo-Ann Palmere
Frederick J. Tedeschi, Esq.                                                     Assistant Secretary
Vice Chairman                                                                   Loan Officer
Chairman - Investment Committee
Self-employed attorney and Town                                                 Lisa Polidori
Justice, Southold, New York                                                     Assistant Secretary
                                                                                Manager - Main Branch
Paul D. Oesterle, Jr.
Program Manager, Digital Equipment                                              Elizabeth A. Gallagher
Corp., New York, New York                                                       Assistant Secretary
                                                                                Manager - Singac Branch
Anthony J. Sansiveri
Self-employed Certified Public                                                  Lois D'Ambrosia
Accountant, Clifton, New Jersey                                                 Manager - Little Ferry Branch

                                                                                Sarina Matos
                                                                                Assistant Vice President
                                                                                Corporate Secretary
                                                                                Compliance Officer
</TABLE>

-------

Transfer Agent
First Savings Bank of Little Falls, F.S.B.



<PAGE>


<TABLE>
<CAPTION>


<S>                                   <C>
Auditors                              Annual Meeting

Radics & Co., LLC.                    The Annual Meeting of  Stockholders  will be held on April 16, 1997 at Corporate
P.O. Box 676                          Headquarters, 7 Center Avenue, Little Falls, New Jersey.
U.S. Highway 46 East
Pine Brook, New Jersey  07058         10-K Information

General Counsel                       A copy of Form 10-K including  financial  statement  schedules as filed with the
                                      Securities  and  Exchange   Commission  will  be  furnished  without  charge  to
McCarter & English                    stockholders as of the record date upon written request to the Secretary,  First
Four Gateway Center                   Savings Bank of Little Falls, F.S.B., 7 Center Avenue,  Little Falls, New Jersey
100 Mulberry Street                   07424.
Newark, New Jersey  07102
                                      Corporate Office
Special Securities Counsel
                                      7 Center Avenue
Malizia,  Spidi, Sloane & Fisch, P.C. Little Falls, New Jersey  07424
1301 K Street, NW                     201-256-2100
Suite 700 East
Washington, D.C.  20005               Branches

                                      115 Main Street
                                      Little Falls, New Jersey  07424
                                      201-256-2100

                                      123 Route 23
                                      Singac, New Jersey  07424
                                      201-256-2100

                                      Little Ferry
                                      100 Washington Avenue
                                      Little Ferry, NJ 07643
                                      201-641-6755

                                      Loan Center
                                      7 Center Avenue
                                      Little Falls, New Jersey  07424
                                      201-256-2100
</TABLE>