Exhibit No. 13



<PAGE>
                               1997 ANNUAL REPORT

                  1910 SERVING THE COMMUNITY FOR 87 YEARS 1997

                   FIRST SAVINGS BANCORP OF LITTLE FALLS, INC




<PAGE>








Dear Fellow Stockholder,


In 1997, the Savings Bank recorded a pre-tax income of $1.23 million compared to
pre-tax loss of $179,110 in 1996.  The income in 1997 compared to a loss in 1996
is attributable to a decrease in federal insurance premium of $1.0 million which
included a one time payment into the deposit  insurance  fund(SAIF)  of $845,000
during the 1996  period and a $333,000  increase  in net  interest  income.  The
corresponding  after-tax  earnings are $794,100 in 1997,  and a $120,100 loss in
1996.

Net  interest  income  increased  by  $333,000  or 7.8% to $4.6  million in 1997
compared  to $4.3  million in 1996;  provisions  for loan  losses  decreased  by
$41,300 in 1997,  compared to $142,500 in 1996,  resulting in an increase in net
interest income after  provisions for loan losses of $374,000 to $4.5 million in
1997 compared to $4.1 million in 1996. Non-interest income decreased to $167,000
in 1997  compared  to  $180,000  in 1996,  reflecting  decreased  collection  of
mortgage late fees and DDA fees.  Non-interest expense decreased $1.0 million to
$3.4 million in 1997  compared to $4.5 million in 1996,  primarily  because of a
decrease  of $1.0  million in  federal  insurance  premium  which  included  the
$845,000 non-recurring special SAIF assessment paid in 1996.

Your bank was the  unsuccessful  bidder in an auction  for 75% of the stock of a
small  commercial  bank based in Brooklyn,  New York.  The Board of Directors is
continuing to explore an initial public offering.

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  "Company" 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 "Bank") in connection with the  reorganization  of the Bank into
the holding company form of 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, 1997,  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 $15,509 and $17,882 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 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 purchase
securities and 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, 1997,  the 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,
1998,  Redeem  Inc.  does  not  hold  title  to any  property,  and has no loans
outstanding from First Savings. Redeem has no significant 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 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 Bank to pay dividends, since the Bancorp's main asset is
the stock of the  Savings  Bank.  The  ability of the Bank to pay  dividends  is
restricted by the  regulations of the OTS and tax  considerations.  The 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 1997, a dividend of
$1.00 per share was declared to the owners of Common Stock.

There are 42 holders of the Common Stock of the Bancorp as of March 31, 1998.
















                                     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.

    Certain forward-looking statements contained herein are subject to risks and
uncertainties. The Company's actual results may differ materially from those set
forth in such  forward-looking  statements.  Reference is made to the  Company's
reports filed with the  Securities  and Exchange  Commission for a discussion of
factors that may cause such differences to occur.

         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, 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 11%,  23%,  28% and 37% in the event of 1%, 2%, 3% and 4%
increases and decreases in market interest rates, respectively.  At December 31,
1997,  based on  information  provided by the OTS, it was estimated that our NPV
would  decrease  17%, 36%, 57% and 77% and increase 15%, 30%, 46% and 68% 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 $11.4 million or 6.8% from
$166.7  million at December 31, 1996 to $178.1 million at December 31, 1997. Our
total  liabilities  increased  $10.9  million  or 6.9% from  $157.4  million  at
December  31, 1996 as  compared to $168.3  million at  December  31,  1997.  The
increase in assets primarily  reflects the Company deployment of proceeds from a
reduction in interest  bearing  deposits,  sales of and  repayments  received on
securities  available for sale, and deposit growth into our loan portfolio,  and
investment  securities  held to maturity.  Comparing  balances from December 31,
1997 to 1996, we increased our loan receivable by $10.7 million,  our investment
securities  held to  maturity  increased  by  $17.6  million,  interest  bearing
deposits decreased by $7.8 million, and investment securities available for sale
decreased by $6.3  million.  Deposits  increased  $10.2 million and our borrowed
funds increased $551,000.

Results Of Operations for the Years Ending December 31, 1997 and 1996

         Net Income(Loss).  Net income(loss)  increased  $914,000 from a loss of
$120,000 for 1996 to an income of $794,000 for 1997.  The increase was primarily
the result of a decrease in federal  deposit  insurance  premium of $1.0 million
and increased net interest income.

Net income(loss)  decreased $483,000 or 133% from income of $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  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,
                                        ---------------------------------------------------------------------------------

                                        ------------------------    --------------------------   ------------------------
                                                  1997                        1996                         1995
                                        ------------------------    --------------------------   ------------------------
                                                          Average                     Average                     Average
                                         Average          Yield/     Average          Yield/      Average         Yield/
                                         Balance Interest  Cost      Balance Interest  Cost       Balance Interest Cost
Interest-earning assets:
<S>                                    <C>      <C>       <C>       <C>      <C>        <C>      <C>     <C>       <C>
      Loans receivable (1)              $101,389 $8,639    8.52 %    $88,162  $7,686     8.72 %   $75,220 $6,788    9.02 %
      Mortgage-backed secruities          28,318  1,811    6.40       30,498   1,936     6.35      18,445  1,160    6.29
      Other interest earnings assets      34,230  2,257     6.59      30,024   1,833      6.11     37,230  2,394     6.43
                                         ------- ------              -------  ------              ------- ------
           Total interest-earning
           assets                        163,937 12,707    7.75      148,684 11,455      7.70     130,895 10,342    7.90
                                         -------  -----              -------    -----             -------   ----


Non-interest-earning assets                9,158                       9,801                       10,419
                                          ------                      ------                      ------
           Total assets                 $173,095                    $158,485                     $141,314
                                        ========                    ========                     ========

Interest-bearing
liabilities:
      Savings accounts                   $23,574    796    3.38      $22,435     754     3.36     $22,591    756    3.35
      NOW and Money Market                14,760    365    2.47       14,515     364     2.51      15,368    410    2.67
      Time Deposits                      123,927  6,923    5.59      100,479   5,475     5.45      91,505  4,929    5.39
      Borrowed money                         305     20    6.56       10,768    592      5.50       2,225    131    5.89
                                            ----    ---              -------    ----               ------   ----
           Total Interest-bearing
                liabilities              162,566 8,104     4.99      148,197  7,185      4.85     131,689 6,226     4.73
                                                ------    -----              ------    -----             ------   ----

Non-interest-bearing liabilities             830                         574                          228
                                            ----                        ----                         ---

      Total liabilities                  163,396                     148,771                      131,917
Retained Earnings                          9,699                       9,714                        9,397
                                          ------                      ------                       -----
      Total liabilities and retained
           earnings                     $173,095                    $158,485                     $141,314
                                        =========                   =========                    =========
Net interest income                              $4,603                       $4,270                      $4,116
                                                 =======                     ========                     =======
Interest rate spread                                       2.76 %                        2.85 %                     3.17 %
                                                        ========                     =========                   ========
Net yield on
Interest-earnings
      assets                                               2.81 %                        2.87 %                     3.14 %
                                                        ========                     =========                   ========
Ratio of average interest-earning
      assets to average
      interest-bearing
      liabilities                                        1.0084 x                      1.0033 x                   0.9940 x
                                                        ========                     =========                   ========
</TABLE>

(1) Includes non-accrual loans.

(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,
                                                 -----------------------------------------------------------------------
                                                    1997       vs.      1996            1996        vs.        1995
                                                 -------------------------------     ----------------------------------
                                                            Increase                             Increase
                                                            (Decrease)                           (Decrease)
                                                            Due to                               Due to
                                                 -------------------------------     ----------------------------------
                                                     Volume   Rate       Net              Volume   Rate        Net
<S>                                                 <C>       <C>         <C>            <C>        <C>          <C>
Interest income:
   Loans receivable                                  $1,153    ($200)      $953           $1,168     ($270)       $898
   Mortgage-backed securities                          (138)      13       (125)             758        18         776
   Other interest earning assets                        257      167        424             (463)      (98)       (561)
                                                       ----      ----      ----            -----       ----      -----
        Total interest-earning assets                $1,272     ($20)    $1,252           $1,463     ($350)     $1,113
                                                 ===============================     ==================================


Interest expense:
   Savings accounts                                     $38        $4       $42              ($5)        $3        ($2)
   NOW and money market                                   6        (5)        1              (22)       (24)       (46)
   Time deposits                                      1,278       170     1,448              482         64         546
   Borrowed  money                                     (575)        3      (572)             503        (42)        461
                                                      -----        --     -----             ----       ----        ---
        Total interest-bearing                          747       172       919              958          1         959
                                                 ===============================     ==================================
             liabilities

Net change                                             $525    ($192)      $333             $504     ($350)       $154
                                                 ===============================     ==================================

</TABLE>



         Our net interest income  increased  $333,000 or 7.8% to $4.6 million in
1997  compared to $4.3 million in 1996.  The  increase  was due  primarily to an
increase of $884,000 in average net interest-earning assets, partially offset by
a decline in our interest  rate spread from 2.85% in 1996 to 2.76% in 1997.  The
decline  in our  interest  rate  spread  had a  corresponding  impact on our net
interest margin which declined 6 basis points to 2.81% in 1997.

         The increase in our average  interest-earning  assets of $15.3  million
reflects  an  increase of $13.2  million in average  loans,  an decrease of $2.2
million in average mortgage-backed  securities and a increase of $4.2 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.
Offsetting   the   foregoing  was  an  increase  of  $14.4  million  in  average
interest-bearing  liabilities,  reflecting a $24.8  million  increase in average
interest-bearing  deposits,  primarily time deposits,  offset by a $10.5 million
decrease in borrowed money.

                                     Page 7


<PAGE>





         Our  interest  rate spread and net  interest  margin  decreased in 1997
compared  to  1996.  This  was  due  to a  increase  in  the  yield  on  average
interest-earning  assets  from 7.70% in 1996 to 7.75% in 1997 and an increase in
the interest cost of average interest-bearing  liabilities from 4.85% in 1996 to
4.99% in 1997.

         The yield on our average  interest-earning assets increased in 1997 due
the  deployment  of  interest  bearing  deposits  into loans and other  interest
bearing assets, offset by a slight decrease in yield on loans. As general market
rates of interest were  relatively  stable during 1996 and 1997,  the decline in
the yield on our loans in 1997 reflected the impact of competition  for new loan
originations.

         The  increase in the cost of our average  interest-bearing  liabilities
was due primarily to a growth in deposits toward certificates of deposits, which
have a higher  cost then  demand and  savings  deposits.  While the cost of time
deposits rose from 5.45% in 1996 to 5.59% in 1997, the cost of  non-certificates
accounts  remained  steady at 3.03%.  The increase in the cost of time  deposits
reflects desire for growth and increased  competition.  The increase in deposits
allowed the Bank to reduce its reliance on borrowed money.

         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 $130.9 million in 1995 to $148.7
million  in 1996,  partially  offset  by a $16.5  million  increase  in  average
interest-bearing  liabilities  and a decline in our  interest  rate  spread from
3.17% in 1995 to 2.85% 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 $17.8  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.

         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.





                                     Page 8


<PAGE>




         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.

         Provision  for Loan Losses.  We recorded a provision for loan losses of
$101,000 in 1997  compared  with  $143,000 in 1996 and a loan loss  provision of
$80,000 in 1995.  The increase in our provision  for loan losses in 1997,  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 impaired 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 decreased $13,000 in 1997
or 7.3% from  $180,000 for the year ended  December 31, 1996 to $167,000 for the
year ended December 31, 1997. The decrease was primarily a result of an decrease
in  miscellaneous  non-interest  income from $86,000 in 1996 to $68,000 in 1997.
This  decrease  was due to an decrease in  collection  of mortgage  late charges
during 1996. The decrease was partially offset by a increase in gain on sales of
securities of $4,000.

         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.



                                     Page 9


<PAGE>




         Non-Interest  Expense.  Our  non-interest  expense  decreased by $1.049
million  or 23% from  $4.49  million  for 1996 to $3.44  million  for 1997.  The
increase was primarily  attributable to a decrease of federal deposit  insurance
premium of $1.03 million which included the one-time  special SAIF assessment of
$845,000 paid in 1996.  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 experienced lower premiums
for deposits in 1997 and expect  continued 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  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,  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 increased by $89,000 or
6.5% in 1997 compared to 1996. The increase was a result of some staff increases
in our loan area to accommodate our loan growth.  Loss on foreclosed real estate
decreased  $235,000 in 1997 as compared to 1996. The decrease was due to $37,000
of loss  provisions in 1997 compared to $257,000 of loss provisions in 1996. Our
legal fees increased $128,000 in 1997 as compared to 1996. This increase was the
result of legal fees in connection  with a  unsuccessful  bid to purchase 75% of
the stock of a small commercial Bank based in Brooklyn, New York. The Bank is no
longer  pursuing the purchase and should not incur any legal fees regarding this
matter in 1998.  Exclusive  of the items  specifically  discussed  above,  other
elements of non-interest  expense totalled $1.44 million in 1997, an increase of
1.4% over the $1.42 million in 1996.

    Our  non-interest  expense  increased  by $1.03  million  or 30% from  $3.46
million  for  1995 to  $4.49  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.

                                     Page 10

<PAGE>



         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. See Form 10-K, "Real Estate Owned".

         Income Tax Expense. We recognized an income tax expense of $436,000 for
1997 compared to a tax benefit of $59,000 in 1996. The $495,000 increase was the
result of pre-tax loss of $179,000 in 1996 versus  pre-tax income of $794,000 in
1997.

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 4.0% and our
liquidity  ratio  average  was 14.5% and 37.7% at  December  31,  1996 and 1997,
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, 1997 totalled $1.4 million as compared to $1.3 million for the year
ended December 31, 1996 and $784,000 for the year ended December 31, 1995.

         Net cash used in our investing  activities  for the year ended December
31, 1997  totalled  $18.8 million an increase of $14.8 million from December 31,
1996. The increase was primarily  attributable to a $10.1 million excess of loan
originations  over  repayments  in 1997  compared to $2.9  million in 1996 and a
decrease of $8.0 million in net proceeds  from calls of  investment  securities.
Net cash used in our investing  activities  for the year ended December 31, 1996
totalled $4.0 million 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 provided by our financing  activities  for 1997 totalled $10.4
million.  This was  primarily  the result of a net increase in deposits of $10.2
million.  Net cash provided by our financing  activities for 1996 totalled $12.2
million.  This was the result of a net  increase in  deposits  of $25.0  million
offset by a repayment of FHLB advances of $12.6 million.

                                     Page 11


<PAGE>





         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.

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
deferred 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>





In June 1997,  the FASB  issued  Statement  No.  130,  "Reporting  Comprehensive
Income".  Statement  No.  130  requires  that all items that are  components  of
"comprehensive  income" be reported in a financial  statement  that is displayed
with the same prominence as other financial statements.  Comprehensive income is
defined as the "change in equity [net assets] of a business  enterprise during a
period  from  transactions  and other  events and  circumstances  from  nonowner
sources.  It includes all changes in equity during period except those resulting
from  investments  by owners  and  distributions  to owners.  Companies  will be
required to (a) classify items of other comprehensive  income by their nature in
the  financial  statements  and (b)  display  the  accumulated  balance of other
comprehensive  income separately from retained  earnings and additional  paid-in
capital in the equity  section of a statement of financial  position.  Statement
No. 130 is effective  for fiscal  years  beginning  after  December 15, 1997 and
requires    reclassification   of   prior   periods   presented   and   requires
reclassification  of prior periods  presented.  As the requirements of Statement
No. 130 is effective  for fiscal  years  beginning  after  December 15, 1997 and
requires  reclassification  of prior periods  presented.  As the requirements of
Statement No. 130 are disclosure-related, its implementation will have no impact
on the Corporation's consolidated financial condition or results of operations.

Year 2000

   The Year 2000  issue  concerns  the  potential  impact of  historic  computer
software  code  that  only  utilitizes  two  digits to  represent  the  calendar
year(e.g.  "98" for "1998").  Software so developed could produce  inaccurate or
unpredictable  results  upon the change to January 1,  2000,  when  current  and
future  dates  represent  a lower two digit year  number  than date in the prior
century.  The Bank,  similar to most financial  institutions,  is  significantly
subject to the  potential  impact of the "Year 2000  issue" due to the nature of
financial  informatio9n.  Potential  impact to the Bank may arise from software,
hardware, and equipment both within the Bank's direct control and outside of the
Bank's  ownership.  Yet with  which  the Bank  electronically  or  operationally
interfaces (e.g.  vendors providing credit bureau  information).  The Bank has a
year 2000 compliance  program in place to ensure that all software  applications
will be year 2000 certified  compliant.  Management expects that it will be able
to satisfy year 2000 compliance issues by the end of 1998. Management intends to
perform  testing  on all  systems  throughout  1998 and 1999.  The Bank does not
expect that the cost of its year 2000 compliance program will be material to its
financial condition or results of operations.  Non-compliance with the year 2000
issue could have an adverse affect of the operations of the business.


                                     Page 13


<PAGE>








                                              SELECTED FINANCIAL DATA

<TABLE>
<CAPTION>
                                                               At or for the year ended DECEMBER 31,

                                                         1997         1996        1995       1994       1993
                                                          (In    thousands except for per share amounts )
<S>                                                  <C>          <C>         <C>        <C>        <C>
TOTAL AMOUNT OF :
      TOTAL ASSETS                                   $178,144     $166,734    $154,635   $133,730   $130,574
      LOANS RECEIVABLE,                               105,467       94,733      85,836     74,277     76,918
      SECURITIES AVAILABLE FOR SALE                    31,226       37,507      35,964         --     15,893
      MORTGAGE-BACKED                                  10,415       12,805       2,545     18,289      4,035
      SECURITIES HELD TO
      MATURITY
      INVESTMENT                                       19,644        2,000      19,000     28,120     10,443
      SECURITIES,
      HELD TO MATURITY
      CASH & CASH EQUIVALENTS                           3,683       10,673       1,128      3,559     12,345
      DEPOSITS                                        166,759      156,596     131,636    123,656    115,494
      BORROWED MONEY                                      551           --      12,600         --      5,000
      STOCKHOLDERS EQUITY                               9,864        9,332       9,597      9,177      9,041
      NET INTEREST INCOME                               4,603        4,270       4,116      3,922      3,980
      NET INCOME(LOSS)                                    794         (120)        363        499      2,500
      DILUTED EARNINGS PER COMMON SHARE                 $1.80       ($0.27)      $0.82      $1.13      $5.68
      COMMON STOCK DIVIDENDS DECLARED                   $1.00           --       $0.50      $0.50         --
      RETURN ON AVERAGE ASSETS                           0.46%       -0.08%       0.26%      0.38%      1.90%
      RETURN ON AVERAGE EQUITY                           8.19%       -1.24%       3.86%      5.43%     32.22%
      DIVIDEND PAYOUT RATIO (1)                         55.42%          --       25.95%     15.20%      0.00%
      AVERAGE EQUITY TO AVERAGE ASSETS                   5.60%        6.13%       6.65%      6.94%      5.88%
      RATIO
</TABLE>


(1) Common stock dividends  declared as a percentage of net income applicable to
common shares.



<PAGE>








CORPORATE DATA

Directors

Emanuel M. Kontokosta
Chairman of the Board
Principal Owner of Kontokosta
Associates, New York, New York;
an architectural and engineering firm

Dr. H. S. Kostakopoulos
President and CEO of First Savings
Bank of Little Falls, F.S.B.

Nikos P. Mouyiaris
Vice Chairman
Chairman - Executive Committee
Owner and President of Mana Products,  Long Island City, New York;
 a cosmetics firm

Frederick J. Tedeschi, Esq.
Vice Chairman
Chairman - Investment Committee
Self-employed attorney and Town
Justice, Southold, New York





-------


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









Officers

Dr. H. S. Kostakopoulos
President & Chief Executive Officer

Brian McCourt
Vice President/Controller, Treasurer

Carlo Pascetta
Senior Loan Officer

John Christensen
Assistant Vice President
Manager/Branch Administration

Pamela E. Skurat
Assistant Vice President
Manager/Loan Administration

Veronica Kingsley
Assistant Vice President
Quality Control

Jo-Ann Palmere
Assistant Secretary
Manager - Main Branch

Elizabeth A. Gallagher
Assistant Secretary
Manager - Singac Branch

Lois D'Ambrosia
Manager - Little Ferry Branch

Sarina Matos
Assistant Vice President
Corporate Secretary
Compliance Officer




<PAGE>




Auditors

Radics & Co., LLC.
P.O. Box 676
U.S. Highway 46 East
Pine Brook, New Jersey  07058

General Counsel

McCarter & English
Four Gateway Center
100 Mulberry Street
Newark, New Jersey  07102

Special Securities Counsel

Malizia,  Spidi, Sloane & Fisch, P.C.
1301 K Street, NW
Suite 700 East
Washington, D.C.  20005






























Annual Meeting

The Annual Meeting of  Stockholders  will be held on April 21, 1998 at Corporate
Headquarters, 1 Center Avenue, Little Falls, New Jersey.

10-KSB Information

A copy of Form 10-KSB including  financial statement schedules as filed with the
Securities  and  Exchange   Commission  will  be  furnished  without  charge  to
stockholders as of the record date upon written request to the Secretary,  First
Savings Bank of Little Falls, F.S.B., 1 Center Avenue,  Little Falls, New Jersey
07424.

Corporate Office

1 Center Avenue
Little Falls, New Jersey  07424
973-256-2100

Branches

115 Main Street
Little Falls, New Jersey  07424
973-256-2100

123 Route 23
Singac, New Jersey  07424
973-256-2100

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

Loan Center
1 Center Avenue
Little Falls, New Jersey  07424
973-256-2100


<PAGE>
                   FIRST SAVINGS BANCORP OF LITTLE FALLS, INC.
                                AND SUBSIDIARIES

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

                                December 31, 1997
                      ------------------------------------

<PAGE>








                   FIRST SAVINGS BANCORP OF LITTLE FALLS, INC.
                                AND SUBSIDIARIES
                        CONSOLIDATED FINANCIAL STATEMENTS
                   (With Independent Auditor's Report Thereon)
                                December 31, 1997
         --------------------------------------------------------------


                                      INDEX
                                      -----




                                                                         Page
                                                                         ----


Management Responsibility Statement                                        1



Independent Auditors' Report                                               2



Consolidated Statements of Financial Condition as of
  December 31, 1997 and 1996                                               3



Consolidated Statements of Operations for Each of the Years in the
  Three-Year Period Ended December 31, 1997                                4



Consolidated Statements of Changes in Stockholders' Equity for
  Each of the Years in the Three-Year Period Ended December 31, 1997       5



Consolidated Statements of Cash Flows for each of the Years in the
  Three-Year Period Ended December 31, 1997                               6 - 7



Notes to Consolidated Financial Statements                                8 - 32





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>

February 20, 1997



                       MANAGEMENT RESPONSIBILITY STATEMENT


Management of First Savings  Bancorp of Little Falls,  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 judgments,  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  operations.  The Board appoints the
independent  certified public  accountants,  approves the overall scope of audit
work and related fee arrangements and reviews audit reports and finding.


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


                                /s/ Brian Mccourt
                                ----------------------------------------
                                Brian Mccourt
                                Vice President, Treasurer and Controller


<PAGE>





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




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


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,  1997 and 1996 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,  1997.  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, 1997 and 1996, and the results of their  operations
and  their  cash  flows  for each of the years in the  three-year  period  ended
December 31, 1997, in conformity with generally accepted accounting principles.



                                /s/Radics & Co., LLC



February 20, 1998

                                                                              2.
<PAGE>
                  FIRST SAVINGS BANCORP OF LITTLE FALLS, INC.
                                AND SUBSIDIARIES
                 CONSOLIDATED STATEMENTS OF FINANCIAL CONDITIONS
                -----------------------------------------------

<TABLE>
<CAPTION>
                                                                                                  December 31,
                                                                                       -----------------------------------
Assets                                                                 Note (s)              1997              1996
------                                                            -------------------  -----------------  ----------------
<S>                                                               <C>                  <C>               <C>
Cash and amounts due from depository institutions                                      $      2,142,413  $      1,319,813
Interest-bearing deposits in other banks                                                      1,540,810         9,353,526
                                                                                       -----------------  ----------------

     Total and cash and cash equivalents                               1 and 21               3,683,223        10,673,339

Securities available for sale                                      1, 4, 12 and 21           31,226,440        37,506,700
Investment securities held to maturity                               1, 5 and 21             19,643,589         2,000,000
Mortgage-backed securities held to maturity                        1, 6, 12 and 21           10,414,679        12,805,191
Loans receivable                                                     1, 7 and 21            105,467,485        94,732,642
Real estate owned                                                      1 and 8                1,640,004         2,906,034
Premises and equipment                                                 1 and 9                2,775,060         2,956,315
Federal Home Loan Bank of New York stock                                  12                  1,106,600           925,600
Interest receivable                                                1, 7, 10 and 21            1,379,628         1,110,765
Other assets                                                           1 and 14                 807,631         1,117,511
                                                                                       -----------------  ----------------

     Total assets                                                                      $    178,144,339   $   166,734,097
                                                                                       =================  ================

Liabilities and stockholders' equity
------------------------------------

Liabilities
-----------

Deposits                                                              11 and 21        $    166,758,857   $   156,596,114
Borrowed money                                                        12 and 21                 551,132                 -
Advance payments by borrowers for taxes and insurance                                           769,354           633,815
Other liabilities                                                                               200,537           171,920
                                                                                       -----------------  ----------------

     Total liabilities                                                                      168,279,880       157,401,849
                                                                                       -----------------  ----------------

Commitments and contingencies                                       17, 18 and 21                     -                 -

Stockholders' equity                                               1, 3, 13 and 14
--------------------

Preferred stock - par value $0.01 per share; authorized
 1,000,000 shares; issued and outstanding -0- shares                                                  -                 -
Common stock - par value $1.00 per share;
  authorized 5,000,000 shares;
  issued and outstanding 440,100 shares                                                         440,100           440,100
Paid-in capital                                                                               3,670,377         3,670,377
Retained earnings - substantially restriced                                                   5,458,904         5,062,392
Unrealized gain on securities available for sale, net                                           295,078           159,379
                                                                                       -----------------  ----------------

     Total stockholders' equity                                                               9,864,459         9,332,248
                                                                                       -----------------  ----------------

     Total liabilities and stockholders' equity                                        $    178,144,339   $   166,734,097
                                                                                       =================  ================
</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)           1997              1996              1995
                                                            ---------------   --------------   ---------------  -----------------
<S>                                                         <C>               <C>              <C>              <C>
Interest income:
     Loans                                                     1 and 7        $   8,638,815    $    7,686,356   $    $ 6,788,274
     Mortgage-backed securities                                   1               1,810,796         1,935,936          1,160,130
     Investments                                                  1               1,853,970         1,730,414          2,024,582
     Other interest-earning assets                                                  403,835           102,974            368,823
                                                                              --------------   ---------------  -----------------

          Total interest income                                                  12,707,416        11,455,680         10,341,809
                                                                              --------------   ---------------  -----------------
Interest expense:
     Deposits                                                     11              8,083,690         6,593,393          6,094,747
     Borrowed money                                                                  20,332           591,823            131,038
                                                                              --------------   ---------------  -----------------

          Total interest expense                                                  8,104,022         7,185,216          6,225,785
                                                                              --------------   ---------------  -----------------

Net interest income                                                               4,603,394         4,270,464          4,116,024
Provision for loan losses                                      1 and 7              101,174           142,500             80,228
                                                                              --------------   ---------------  -----------------

Net interest income after provision for loan losses                               4,502,220         4,127,964          4,035,796
                                                                              --------------   ---------------  -----------------
Non-interest income:
     Fees and service charges                                                        90,980            90,606             92,622
     Gain (loss) on calls and sales of securities           1, 4, 5 and 6             7,836             3,575             (4,808)
     Miscellaneous                                                                   68,060            85,884             71,886
                                                                              --------------   ---------------  -----------------

          Total non-interest income                                                 166,876           180,065            159,700
                                                                              --------------   ---------------  -----------------
Non-interest expenses:
     Salaries and employee benefits                               15              1,457,573         1,368,656          1,429,664
     Net occupancy expense of premises                            1                 243,005           245,327            241,138
     Equipment                                                    1                 375,333           361,738            382,817
     Loss on foreclosed real estate                            1 and 8              161,599           396,168            156,663
     Federal insurance premium                                    18                 98,312         1,130,410            307,671
     Advertising and promotion                                                      104,217           101,070             84,977
     Consulting fees                                                                121,928           113,202            136,708
     Legal fees                                                                     276,148           170,763            123,141
     Amortization of intangibles                                  1                  33,336            33,336             33,333
     Miscellaneous                                                                  567,160           566,469            560,930
                                                                              --------------   ---------------  -----------------

          Total non-interest expenses                                             3,438,611         4,487,139          3,457,042
                                                                              --------------   ---------------  -----------------

Income (loss) before income taxes (benefit)                                       1,230,485          (179,110)           738,454
Income taxes  (benefit)                                        1 and 14             436,373           (59,039)           375,568
                                                                              --------------   ---------------  -----------------

Net income (loss)                                                                   794,112          (120,071)           362,886
Preferred stock dividends                                                                  -          170,000            170,000
                                                                              --------------   ---------------  -----------------

Net income (loss) applicable to common shares                                 $     794,112    $     (290,071)  $        192,886
                                                                              ==============   ===============  =================
Net income (loss) per common share:                            1 and 16
     Basic                                                                    $        1.80    $        (2.90)  $           1.93
     Diluted                                                                           1.80             (0.27)              0.82
                                                                              ==============   ===============  =================

Dividends declared per common share                               3           $        1.00    $       -        $           0.50
                                                                              ==============   ===============  =================
</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 Securities        Total
                                  Preferred      Common          Paid-in       Substantially     Available for    Stockholders'
                                    Stock         Stock          Capital         Restricted        Sale, Net          Equity
                                 ------------  ------------   --------------   ---------------   --------------  -----------------

<S>                             <C>           <C>            <C>              <C>               <C>             <C>
Balance - January 1, 1995        $       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 loss 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

Net income for the year
 ended December  31, 1997                -             -              -               794,112            -                794,112

Unrealized gain on
  securities available
  for sale, net of
  income tax effect                      -             -              -                -               135,699            135,699

Dividend on common stock                 -             -              -              (397,600)           -               (397,600)
                                 ------------  ------------   --------------   ---------------   --------------  -----------------

Balance - December 31, 1997      $       -     $   440,100    $   3,670,377    $    5,458,904    $     295,078   $      9,864,459
                                 ============  ============   ==============   ===============   ==============  =================
</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,
                                                                                 --------------------------------------------------
                                                                                      1997             1996             1995
                                                                                 ---------------  ---------------- ----------------
<S>                                                                              <C>              <C>              <C>

Cash flows from operating activities:
     Net income (loss)                                                           $      794,112   $      (120,071) $       362,886
     Adjustments to reconcile net income (loss) to
       net cash provided by operating activities:
          Depreciation                                                                  284,052           287,849          303,303
          Amortization of premiums, discounts and fees, net                             183,675           307,664           97,863
          Amortization of intangibles                                                    33,336            33,336           33,333
          Deferred income taxes                                                         147,493           (84,225)         414,735
          Provision for losses on loans and real estate owned                           138,511           399,000          210,000
          Net (gain) loss on sales of assets                                             (8,817)            4,965          (73,360)
          Loss on calls of investment securities held to maturity                             -                 -            4,808
          (Increase) decrease in interest receivable                                   (268,863)          317,103         (501,708)
          Decrease (increase) in refundable income taxes                                      -           212,449         (212,449)
          Decrease (increase) in other assets                                            55,198           (17,763)          90,235
          Increase (decrease) in accrued interest payable                                12,111               966          144,560
          Increase (decrease) in other liabilities                                       68,040           (16,745)         (90,782)
                                                                                 ---------------  ---------------- ----------------

               Net cash provided by operating activities                              1,438,848         1,324,498          783,654
                                                                                 ---------------  ---------------- ----------------

Cash flows from investing activities:
     Proceeds from maturities of term deposits                                                -                 -        8,500,000
     Proceeds from calls of investment securities held to maturity                    9,000,000        17,000,000        4,000,000
     Purchases of:
          Term deposits                                                                       -                 -       (6,000,000)
          Securities available for sale                                              (3,202,687)      (12,189,859)               -
          Investment securities held to maturity                                    (26,607,569)                -                -
          Mortgage-backed securities held to maturity                                         -       (12,491,176)     (21,723,449)
          Loans receivable                                                                    -        (6,135,880)      (9,055,000)
          Premises and equipment                                                       (102,797)         (339,230)        (346,237)
          Federal Home Loan Bank of New York stock                                     (181,000)         (102,300)        (151,300)
     Principal repayments on:
          Securities available for sale                                               6,085,224         6,442,347                -
          Investment securities held to maturity                                              -                 -           20,927
          Mortgage-backed securities held to maturity                                 2,393,587         1,817,557        3,715,596
     Proceeds from sales of:
          Securities available for sale                                               3,340,764         3,924,166                -
          Mortgage-backed securities held to maturity                                         -           403,979                -
          Loans receivable                                                                    -            64,615                -
          Real estate owned                                                             612,029           638,401          458,697
     Net (increase) in loans receivable                                             (10,121,440)       (2,929,591)      (2,697,732)
     Additions to real estate owned                                                     (51,355)         (104,711)        (159,948)
     Payments applied to real estate owned                                                6,000            13,380           11,500
                                                                                 ---------------  ---------------- ----------------

               Net cash (used in) investment activities                             (18,829,244)       (3,988,302)     (23,426,946)
                                                                                 ---------------  ---------------- ----------------
</TABLE>

See notes to consolidated financial statements.

                                                                              6.

<PAGE>
                  FIRST SAVINGS BANCORP OF LITTLE FALLS, INC.
                                AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                -----------------------------------------------
<TABLE>
<CAPTION>
                                                                                        Year Ended December 31,
                                                                           --------------------------------------------------
                                                                                1997              1996             1995
                                                                           ----------------  ---------------  ---------------
<S>                                                                        <C>               <C>              <C>
Cash flows from financing activities:
     Net increase in deposits                                              $    10,153,709   $   24,959,065   $    7,835,814
     Proceeds net of repayments from short-term borrowed money                           -      (12,600,000)      12,600,000
     Proceeds of long-term debt                                                    568,000                -                -
     Repayments of long-term debt                                                  (16,868)               -                -
     Increase (decrease) in advance payments
       by borrowers for taxes and insurance                                        135,539           70,553           (4,243)
     Cash dividend paid on preferred stock                                         (42,500)        (170,000)        (170,000)
     Cash dividend paid on common stock                                           (397,600)         (50,050)         (50,050)
                                                                           ----------------  ---------------  ---------------

          Net cash provided by financing activities                             10,400,280       12,209,568       20,211,521
                                                                           ----------------  ---------------  ---------------

Net (decrease) increase in cash and cash equivalents                            (6,990,116)       9,545,764       (2,431,771)
Cash and cash equivalents - beginning                                           10,673,339        1,127,575        3,559,346
                                                                           ----------------  ---------------  ---------------

Cash and cash equivalents - ending                                         $     3,683,223   $   10,673,339   $    1,127,575
                                                                           ================  ===============  ===============

Supplemental disclosure of cash flow information:
     Cash paid (refunded) during the year for:
          Interest                                                         $     8,091,911   $    7,195,772   $    6,069,703
                                                                           ================  ===============  ===============

          Income taxes                                                     $       240,792   $     (210,459)  $      225,111
                                                                           ================  ===============  ===============

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

     Unrealized gain on securities available for sale, net                 $       135,699   $       25,410   $      276,958
                                                                           ================  ===============  ===============

     Loans transferred to real estate owned                                $              -  $      493,186   $      405,461
                                                                           ================  ===============  ===============

     Loans originated to facilitate the sale of real estate owned          $       663,000   $            -   $    $ 256,500
                                                                           ================  ===============  ===============

     Dividends declared but not paid:
     Common stock                                                          $             -   $            -   $       50,050
     Preferred stock                                                                     -           42,500           42,500
                                                                           ----------------  ---------------  ---------------

                                                                           $             -   $       42,500   $       92,550
                                                                           ================  ===============  ===============

     Preferred stock converted to common stock                             $             -   $      339,660   $            -
                                                                           ================  ===============  ===============
</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 periods then  ended.
    Actual results could differ significantly from those estimates.

    Material estimates that are particularly  susceptible to significant changes
    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 with other financial institutions
    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
    -----------------------------------------

    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.

    As permitted by the Financial Accounting Standards Board's ("FASB") "A guide
    to Implementation of Statement 115 on Accounting for Certain  Investments in
    Debt and Equity  Securities",  the Savings  Bank,  in 1995,  reassessed  the
    classification of 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 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.

    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.

                                                                              9.
<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
    -------------------------

    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 impaired 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 impaired 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.

    Impaired  loans are 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 of
    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.

                                                                             10.
<PAGE>

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



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

    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.

    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 carry forwards 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)  is  amortized to
    expense over a period of fifteen years by use of the  straight-line  method.
    The  remaining  unamortized  balance  amounted to $378,000  and  $411,000 at
    December 31, 1997 and 1996, respectively, and is included in other assets.

                                                                             11.

<PAGE>

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



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

    Net income per common share
    ---------------------------

    In February  1997, the FASB issued Statement No. 128,  "Earnings Per Share".
    Statement  No. 128 is effective for years ending after December 15, 1997 and
    requires  that prior period data be restated. Per share amounts are reported
    in accordance with Statement No. 128.

    Basic net income per common  share is  calculated  by dividing net income by
    the weighted average number of shares of common stock  outstanding.  Diluted
    net income per share is calculated by adjusting the weighted  average number
    of shares of common stock  outstanding  to include the effect of convertible
    preferred stock.
    See Note 16 for a reconciliation of such amounts.

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

    Certain  amounts  for the years ended  December  31, 1996 and 1995 have been
    reclassified to conform to current year's presentation.


2.  IMPACT OF NEW ACCOUNTING STANDARDS
--------------------------------------

In June 1997,  the FASB  issued  Statement  No.  130,  "Reporting  Comprehensive
Income".  Statement  No.  130  requires  that all items that are  components  of
"comprehensive  income" be reported in a financial  statement  that is displayed
with the same prominence as other financial statements.  Comprehensive income is
defined as the "change in equity [net assets] of a business  enterprise during a
period  from  transactions  and other  events and  circumstances  from  nonowner
sources.  It  includes  all  changes  in  equity  during a period  except  those
resulting from  investments by owners and  distributions  to owners".  Companies
will be required to (a) classify  items of other  comprehensive  income by their
nature in the financial  statements and (b) display the  accumulated  balance of
other  comprehensive  income  separately  from retained  earnings and additional
paid-in  capital in the equity  section of a statement  of  financial  position.
Statement No. 130 is effective  for fiscal years  beginning  after  December 15,
1997  and  requires   reclassification  of  prior  periods  presented.   As  the
requirements  of Statement No. 130 are  disclosure-related,  its  implementation
will have no impact on the  Corporation's  consolidated  financial  condition or
results of operations.


4.  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, 1997 has not
been determined.

                                                                             12.

<PAGE>

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


3.   STOCKHOLDERS' EQUITY (Cont'd.)
-------------------------

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.

During the year ended December 31, 1997, the Corporation declared cash dividends
to common  shareholders  of  $440,100,  or $1.00  per  share.  The four  largest
shareholders,  whose combined  holdings exceed 90% of the total shares of common
stock outstanding, waived $42,500 of such dividends due them. As such, dividends
actually paid totalled $397,600.


4.  SECURITIES AVAILABLE FOR SALE
---------------------------------

<TABLE>
<CAPTION>
                                                                                   December 31, 1997
                                                               -------------------------------------------------------------
                                                                 Amortized           Gross Unrealized           Carrying
                                                                                ---------------------------
                                                                   Value           Gains         Losses          Value
                                                               ---------------  -------------  ------------  ---------------
<S>                                                            <C>              <C>            <C>           <C>
Mortgage-backed securities:
      Government National Mortgage Asociation                  $    9,913,396   $    151,585   $         -   $   10,064,981
      Federal National Mortgage Association                         2,135,837          4,898        19,523        2,121,212
      Federal Home Loan Mortgage Corporation                          665,900         15,132             -          681,032
      Federal National Mortgage Association REMIC                   1,920,246              -            59        1,920,187
                                                               ---------------  -------------  ------------  ---------------

                                                                   14,635,379        171,615        19,582       14,787,412
Small Business Administration                                      16,111,311        297,717             -       16,409,028
Common stock                                                           25,000          5,000             -           30,000
                                                               ---------------  -------------  ------------  ---------------

                                                                 $ 30,771,690      $ 474,332      $ 19,582     $ 31,226,440
                                                               ===============  =============  ============  ===============
</TABLE>

<TABLE>
<CAPTION>
                                                                                    December 31, 1996
                                                               -------------------------------------------------------------
                                                                 Amortized           Gross Unrealized           Carrying
                                                                                ---------------------------
                                                                   Value           Gains         Losses          Value
                                                               ---------------  -------------  ------------  ---------------
<S>                                                            <C>              <C>            <C>           <C>
Mortgage-backed securities:
      Government National Mortgage Asociation                  $   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
                                                               ---------------  -------------  ------------  ---------------

                                                                   17,498,868        179,810        66,120       17,612,558
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
                   ------------------------------------------



4.  SECURITIES AVAILABLE FOR SALE (Cont'd.)

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, 1997
                                                               -------------------------------------------------------------
                                                                 Amortized           Gross Unrealized           Carrying
                                                                                ---------------------------
                                                                   Value           Gains         Losses          Value
                                                               ---------------  -------------  ------------  ---------------

<S>                                                            <C>              <C>            <C>           <C>
      Due after one year through five years                    $    2,184,043   $     51,484   $         -   $    2,235,527
      Due after five years through ten years                        7,123,438        174,670             -        7,298,108
      Due after ten years                                          21,439,209        243,178        19,582       21,662,805
      Equity security                                                  25,000          5,000             -           30,000
                                                               ---------------  -------------  ------------  ---------------

                                                               $   30,771,690   $    474,332   $    19,582   $   31,226,440
                                                               ===============  =============  ============  ===============
</TABLE>

<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        223,449        69,727       25,393,131
                                                               ---------------  -------------  ------------  ---------------

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

During  the years  ended  December  31,  1997 and 1996,  proceeds  from sales of
securities available for sale totalled $3,340,764 and $3,924,166,  respectively,
and resulted in gross gains of $45,337 and $4,548, respectively, and, during the
year ended  December 31, 1997,  gross losses of $37,501.  There were no sales of
securities available for sale during the year ended December 31, 1995.

A security  available for sale,  having a carrying value of $360,000 at December
31,  1996,  was  pledged to secure  public  funds on deposit.  Additionally,  at
December  31, 1997 and 1996,  securities  available  for sale with an  aggregate
carrying value of $2,593,000 and $1,134,000, respectively, are pledged to secure
customer deposits.


                                                                             14.
<PAGE>

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



5.  INVESTMENT SECURITIES HELD TO MATURITY
------------------------------------------

<TABLE>
<CAPTION>
                                                                                    December 31, 1997
                                                               -------------------------------------------------------------
                                                                  Carrying           Gross Unrealized          Estimated
                                                                                ---------------------------
                                                                   Value           Gains         Losses        Fair Value
                                                               ---------------  -------------  ------------  ---------------
<S>                                                            <C>              <C>            <C>           <C>
U.S. Government Agencies:
      Due after one year through five years                    $    1,999,587   $      3,485   $         -   $    2,003,072
      Due after five years through ten years                        8,000,000              -             -        8,000,000
      Due after ten years                                           9,644,002          2,591         2,482        9,644,111
                                                               ---------------  -------------  ------------  ---------------

                                                               $   19,643,589   $      6,076   $     2,482   $   19,647,183
                                                               ===============  =============  ============  ===============
</TABLE>

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

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


There were no sales of investment  securities  held to maturity during the years
ended  December 31,  1997,  1996 and 1995.  During the years ended  December 31,
1997,  1996 and 1995,  proceeds  from  calls of  investment  securities  held to
maturity  totalled  $9,000,000,  $17,000,000 and $4,000,000,  respectively,  and
resulted in no gross gains or losses in 1997 and 1996 and gross losses of $4,808
in 1995.



 6.   MORTGAGE-BACKED SECURITIES HELD TO MATURITY
-------------------------------------------------

<TABLE>
<CAPTION>
                                                                        December 31, 1997
                                                               --------------------------------------------------------------
                                                                  Carrying           Gross Unrealized           Estimated
                                                                                 --------------------------
                                                                   Value            Gains         Losses        Fair Value
                                                               ---------------   ------------   -----------   ---------------

<S>                                                            <C>               <C>            <C>           <C>
Government National Mortgage Association                       $       31,453    $       630    $        -    $       32,083
Federal National Mortgage Association                               1,540,181              -           167         1,540,014
Federal Home Loan Mortgage Corporation                              7,843,045         25,541         2,864         7,865,722
Federal National Mortgage Association REMIC                         1,000,000              -             -         1,000,000
                                                               ---------------   ------------   -----------   ---------------

                                                               $   10,414,679    $    26,171       $ 3,031      $ 10,437,819
                                                               ===============   ============   ===========   ===============
</TABLE>

<TABLE>
<CAPTION>

                                                                                     December 31, 1996
                                                               --------------------------------------------------------------
                                                                  Carrying           Gross Unrealized           Estimated
                                                                                 --------------------------
                                                                   Value            Gains         Losses        Fair 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 National Mortgage Association REMIC                         1,000,000             -              -         1,000,000
                                                               ---------------   ------------   -----------   ---------------

                                                               $   12,805,191    $    50,457    $   42,881    $   12,812,767
                                                               ===============   ============   ===========   ===============
</TABLE>
                                                                             15.

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


 6.   MORTGAGE-BACKED SECURITIES HELD TO MATURITY (Cont'd.)
-------------------------------------------------

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, 1997 and 1995.

Mortgage-backed securities held to maturity with a carrying value of $414,000 at
December 31, 1997 were pledged to secure public finds on deposit.


 7.   LOANS RECEIVABLE
----------------------

<TABLE>
<CAPTION>
                                                                                         December 31,
                                                                             ---------------------------------------
                                                                                  1997                   1996
                                                                             ----------------       ----------------
<S>                                                                          <C>                    <C>
Real estate mortgage:
     One-to-four family                                                      $    83,317,259        $    74,156,889
     Multi-family                                                                  5,020,506              3,311,210
     Non-residential                                                               6,182,670              6,775,830
     Land                                                                             38,949                 41,373
                                                                             ----------------       ----------------

                                                                                  94,559,384             84,285,302
                                                                             ----------------       ----------------

Commercial loans                                                                   4,655,264              3,954,014
                                                                             ----------------       ----------------

Consumer:
     Equity                                                                        4,398,584              4,681,054
     Home improvement and second mortgages                                         1,346,046              1,090,470
     Passbook or certificate                                                         629,681                814,064
     Student education                                                                90,750                115,908
     Other loans                                                                     619,456                527,256
                                                                             ----------------       ----------------

                                                                                   7,084,517              7,228,752
                                                                             ----------------       ----------------

Total loans                                                                      106,299,165             95,468,068
                                                                             ----------------       ----------------

Less:  Allowance for loan losses                                                     596,230                523,715
        Deferred loan fees and discounts                                             235,450                211,711
                                                                             ----------------       ----------------

                                                                                     831,680                735,426
                                                                             ----------------       ----------------

                                                                             $   105,467,485        $    94,732,642
                                                                             ================       ================
</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  $868,000  and  $775,000 at December 31, 1997 and 1996,
respectively.  Activity  during the year ended  December  31, 1997  included new
loans of $174,000 and repayments of $81,000.
                                                                             16.
<PAGE>

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



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

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

<TABLE>
<CAPTION>
                                                                            Year Ended December 31,
                                                                   ------------------------------------------
                                                                      1997          1996            1995
                                                                   ------------  ------------    ------------

<S>                                                                <C>           <C>             <C>
        Balance - beginning                                        $   523,715   $   388,633     $   377,315
        Provision charged to operations                                101,174       142,500          80,228
        Loans charged off                                              (37,374)       (7,418)        (70,605)
        Recoveries                                                       8,715             -           1,695
                                                                   ------------  ------------    ------------

        Balance - ending                                           $   596,230   $   523,715     $   388,633
                                                                   ============  ============    ============
</TABLE>

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

<TABLE>
<CAPTION>
                                                                                        December 31,
                                                                                 ----------------------------
                                                                                    1997            1996
                                                                                 ------------    ------------

<S>                                                                              <C>             <C>
        Recorded investment in impaired loans:
             With recorded allowance                                             $       696     $     1,277
             Without recorded allowances                                                   -               -
                                                                                 ------------    ------------

                  Total impaired loans                                                   696           1,277

             Related allowance for loan losses                                            35             155
                                                                                 ------------    ------------

                  Net impaired loans                                             $       661     $     1,122
                                                                                 ============    ============
</TABLE>

For the years ended  December  31,  1997,  1996 and 1995,  the average  recorded
investment  in  impaired  loans  totalled  $1,321,000,  $559,000  and  $355,000,
respectively.  Interest income recognized on such loans during the time each was
impaired totalled $118,000, $28,000 and $7,000,  respectively,  all of which was
recorded on the cash basis.

Nonaccrual loans totalled approximately $2,601,000, $1,639,000 and $1,146,000 at
December 31, 1997,  1996 and 1995,  respectively.  Renegotiated  loans for which
interest  has been  reduced  totalled  approximately  $406,000,  $1,313,000  and
$1,348,000 at December 31, 1997,  1996 and 1995,  respectively.  Interest income
that would have been  recorded  under the  original  terms of such loans and the
interest income actually recognized are summarized below:

<TABLE>
<CAPTION>
                                                                            Year Ended December 31,
                                                                   ------------------------------------------
                                                                      1997          1996            1995
                                                                   ------------  ------------    ------------
                                                                                (In Thousands)

<S>                                                                <C>           <C>             <C>
        Interest income that would have been recorded              $       292   $       303     $       250
        Interest income recognized                                         161           230             184
                                                                   ------------  ------------    ------------

        Interest income foregone                                   $       131   $        73     $        66
                                                                   ============  ============    ============
</TABLE>
                                                                             17.
<PAGE>
                   FIRST SAVINGS BANCORP OF LITTLE FALLS, INC.
                                AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                   ------------------------------------------



8.  REAL ESTATE OWNED
---------------------
<TABLE>
<CAPTION>
                                                                                                 December 31,
                                                                                    ---------------------------------
                                                                                        1997               1996
                                                                                    --------------     --------------

<S>                                                                                 <C>                <C>
Acquired in settlement of loans                                                     $   1,674,616      $   3,443,636
Allowance for losses                                                                      (34,612)          (537,602)
                                                                                    --------------     --------------

                                                                                    $   1,640,004      $   2,906,034
                                                                                    ==============     ==============
</TABLE>

The following is an analysis of the allowance for losses:


<TABLE>
<CAPTION>
                                                                                 Year Ended December 31,
                                                                     ------------------------------------------------
                                                                         1997           1996               1995
                                                                     -------------  --------------     --------------

<S>                                                                  <C>            <C>                <C>
      Balance - beginning                                            $    537,602   $     302,537      $   1,461,991
      Provision charged to operations                                      37,337         256,500            129,772
      Losses charged off                                                 (540,327)        (21,435)        (1,289,226)
                                                                     -------------  --------------     --------------

      Balance - ending                                               $     34,612   $     537,602      $     302,537
                                                                     =============  ==============     ==============
</TABLE>

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

<TABLE>
<CAPTION>

                                                                                 Year Ended December 31,
                                                                     ------------------------------------------------
                                                                         1997           1996               1995
                                                                     -------------  --------------     --------------

<S>                                                                  <C>            <C>                <C>
      Provision for losses                                           $     37,337   $     256,500      $     129,772
      Operating expenses, net of rental income                            125,243         131,128            100,251
      (Gain) loss on disposition                                             (981)          8,540            (73,360)
                                                                     -------------  --------------     --------------

                                                                     $    161,599   $     396,168      $     156,663
                                                                     =============  ==============     ==============
</TABLE>
                                                                             18.
<PAGE>

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


9.  PREMISES AND EQUIPMENT
--------------------------

<TABLE>
<CAPTION>
                                                                                December 31,
                                                                      ---------------------------------
                                                                          1997               1996
                                                                      --------------    ---------------

<S>                                                                   <C>               <C>
Land                                                                  $     547,867     $      547,867
                                                                      --------------    ---------------

Buildings and improvements                                                3,112,048          3,060,894
Less accumulated depreciation                                             1,173,521          1,065,155
                                                                      --------------    ---------------

                                                                          1,938,527          1,995,739
                                                                      --------------    ---------------

Furniture, fixtures and equipment                                         1,677,207          1,625,564
Less accumulated depreciation                                             1,388,541          1,212,854
                                                                      --------------    ---------------

                                                                            288,666            412,709
                                                                      --------------    ---------------

                                                                      $   2,775,060     $    2,956,315
                                                                      ==============    ===============
</TABLE>

10.  INTEREST RECEIVABLE
------------------------

<TABLE>
<CAPTION>

                                                                                December 31,
                                                                      ---------------------------------
                                                                          1997               1996
                                                                      --------------    ---------------

<S>                                                                   <C>               <C>
Loans                                                                 $     652,651     $      640,131
Securities                                                                  707,313            470,634
Other interest-earning assets                                                19,664                -
                                                                      --------------    ---------------

                                                                      $   1,379,628     $    1,110,765
                                                                      ==============    ===============
</TABLE>

11.  DEPOSITS
-------------
<TABLE>
<CAPTION>

                                                                 December 31 ,
                                       ------------------------------------------------------------------
                                                    1997                             1996
                                       -------------------------------   --------------------------------
                                        Weighted                          Weighted
                                         Average                           Average
                                          Rate            Amount            Rate             Amount
                                       ------------  -----------------   ------------    ----------------

<S>                                         <C>      <C>                     <C>         <C>
Non-interest-bearing demand                  0.00%   $      2,958,852         0.00%      $     1,985,234
NOW and Super NOW                            2.04%          4,336,162         2.03%            4,204,758
Money Market                                 3.51%          8,107,509         3.38%            8,102,117
Savings and Realty Trust                     3.39%         24,403,289         3.35%           21,967,044
Certificates of deposit                      5.67%        126,953,045         5.62%          120,336,961
                                                     ----------------                    ---------------

                                             5.04%   $    166,758,857         5.02%      $   156,596,114
                                                     =================                   ================
</TABLE>
                                                                             19.
<PAGE>

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


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

Interest expense on deposits is summarized as follows:
<TABLE>
<CAPTION>



                                                                      Year Ended Decmber 31,
                                                             ------------------------------------------
                                                                1997           1996           1995
                                                             ------------  -------------  -------------
                                                                          (In Thousands)

<S>                                                          <C>            <C>            <C>
       Savings and Realty Trust                              $       796   $        754    $       756
       NOW and Money Market                                          365            364            410
       Certificates of deposit                                     6,923          5,475          4,929
                                                             ------------  -------------   ------------

                                                             $     8,084   $      6,593    $     6,095
                                                             ============  =============   ============
</TABLE>

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

<TABLE>
<CAPTION>
                                                                                  December 31,
                                                                           ----------------------------
                                                                               1997           1996
                                                                           -------------  -------------
                                                                                 (In Thousands)

<S>                                                                        <C>            <C>
       Within one year                                                     $     97,555   $     88,730
       After one year through two years                                          18,216         18,295
       Thereafter                                                                11,182         13,312
                                                                           -------------  -------------

            Total                                                          $    126,953   $    120,337
                                                                           =============  =============
</TABLE>

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

<TABLE>
<CAPTION>


                                                                                  December 31,
                                                                           ----------------------------
                                                                               1997           1996
                                                                           -------------  -------------
                                                                                 (In Thousands)

<S>                                                                        <C>            <C>
       Within three months                                                 $      1,984   $      3,589
       After three through six months                                             2,402          1,611
       After six through twelve months                                            4,534          2,449
       After twelve months                                                        2,236          1,754
                                                                           -------------  -------------

                                                                           $     11,156   $      9,403
                                                                           =============  =============
</TABLE>

                                                                             20.
<PAGE>

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


12.  BORROWED MONEY
-------------------

Borrowed  money at December 31, 1997  consisted of a ten-year  term advance from
the  Federal  Home  Loan  Bank of New York  ("FHLB"),  maturing  June 18,  2007,
carrying an interest  rate of 6.70% and having a remaining  balance of $551,132.
The advance is payable in monthly principal and interest  installments of $6,507
through maturity.

At December 31, 1997 and 1996,  the Savings  Bank had  available to it overnight
lines of credit of $16,936,000  and  $25,117,000,  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 $16,936,000 at December 31, 1997

Collateral  pledged to secure the foregoing credit  facilities  consists of FHLB
stock of  $1,106,600  and $925,600 at December 31, 1997 and 1996,  respectively,
and securities  with an aggregate  carrying value of $16,504,000 and $21,245,000
at December 31, 1997 and 1996, respectively.



13.  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, 1997:

<TABLE>
<CAPTION>

                                                           Tangible                    Core                    Risk-Based
                                                   -------------------------  ------------------------  -------------------------
                                                     Amount       Percent       Amount      Percent       Amount       Percent
                                                   -----------  ------------  -----------  -----------  ------------  -----------
                                                                              (Dollars in Thousands)

<S>                                                <C>          <C>           <C>               <C>      <C>               <C>
      GAAP  equity                                 $    9,897          5.56   $     9,867        5.56    $     9,867        12.74
      Deduct non-includable portion of:
           Deferred tax asset                            (173)        (0.10)         (173)      (0.10)          (173)       (0.22)
           Intangible asset                              (378)        (0.21)         (378)      (0.21)          (378)       (0.49)
           Unrealized gain on securities, net            (295)        (0.16)         (295)      (0.16)          (295)       (0.38)
      Add: General valuation allowance                      -             -             -           -            596         0.77
                                                   -----------  ------------  -----------  -----------  ------------  -----------

      Regulatory capital as calculated                  9,021          5.09         9,021        5.09          9,617        12.42
      Regulatory capital as required                    2,660          1.50         5,321        3.00          6,197         8.00
                                                   -----------  ------------  -----------  -----------  ------------  -----------

      Excess                                          $ 6,361          3.59   $     3,700        2.09    $     3,420         4.42
                                                   ===========  ============  ===========  ===========  ============  ===========
</TABLE>
                                                                             21.
<PAGE>
                   FIRST SAVINGS BANCORP OF LITTLE FALLS, INC.
                                AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                   ------------------------------------------


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

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, 1997,  that the Savings
Bank meets all capital adequacy requirements to which it is subject.

As of September 30, 1997, 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.


14.  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 income tax years ended December 31,
1996 and  thereafter,  the Saving Bank must use either the experience  method or
the specific charge off method.  Retained earnings at December 31, 1997 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,
                                                                 ---------------------------------------------
                                                                    1997             1996            1995
                                                                 ------------    -------------   -------------

<S>                                                              <C>             <C>             <C>
       Current                                                   $   288,880     $     25,216    $    (39,167)
                                                                 ------------    -------------   -------------

       Deferred:
           Temporary differences                                     125,903         (105,845)        393,068
           Net operating loss carryforward                            21,590           21,590          21,667
                                                                 ------------    -------------   -------------

                                                                     147,493          (84,255)        414,735
                                                                 ------------    -------------   -------------

                                                                 $   436,373     $    (59,039)   $    375,568
                                                                 ============    =============   =============
</TABLE>
                                                                             22.
<PAGE>

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



14.  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:

<TABLE>
<CAPTION>
                                                                       Year Ended December 31,
                                                                 ---------------------------------------------
                                                                    1997             1996            1995
                                                                 ------------    -------------   -------------

<S>                                                              <C>             <C>             <C>
       Allowance for losses on
        loans and real estate owned                              $   155,928     $   (125,575)   $    405,495
       Deferred loan fees                                              4,342            8,639           8,902
       Nonaccrual interesst                                          (14,965)          25,477          (7,887)
       Depreciation                                                  (32,715)          (6,400)         (8,536)
       Net operating loss carryforward                                21,590           21,590          21,667
       Other                                                          13,313           (7,986)         (4,906)
                                                                 ------------    -------------   -------------

                                                                   $ 147,493        $ (84,255)      $ 414,735
                                                                 ============    =============   =============
</TABLE>

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

<TABLE>
<CAPTION>


                                                                                         December 31,
                                                                                 -----------------------------
                                                                                     1997            1996
                                                                                 -------------   -------------
<S>                                                                              <C>             <C>
       Deferred tax assets:
           Allowance for losses on
            loans and real estate owned                                          $    225,934    $    381,862
           Net operating loss carryfoward                                             194,310         215,900
           Nonaccrual interest                                                         44,347          29,382
           Deferred loan fees, net                                                     35,236          39,578
           Other                                                                            -          13,313
                                                                                 -------------   -------------

                                                                                      499,827         680,035
                                                                                 -------------   -------------

       Deferred tax liabilities:
           Depreciation                                                                23,054          55,769
           Unrealized gain on securities available for sale                           159,672          85,819
                                                                                 -------------   -------------

                                                                                      182,726         141,588
                                                                                 -------------   -------------

       Net deferred tax assets included in other assets                          $    317,101    $    538,447
                                                                                 =============   =============
</TABLE>

                                                                             23.
<PAGE>

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



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

For income tax reporting purposes, at December 31, 1997, the Corporation has net
operating loss carryforwards  totalling  approximately $571,500 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,
                                                                 ---------------------------------------------
                                                                    1997             1996            1995
                                                                 ------------    -------------   -------------

<S>                                                              <C>             <C>             <C>
       Federal income taxes (benefit)                            $   418,365     $    (60,897)   $    251,074
       Increase (reduction) of
        income taxes resulting from:
           Change in permanent difference relating
            to base year tax bad debt reserves                             -                -         100,541
           State income taxes,
            net of federal income tax effect                          25,670           (3,216)         21,967
           Other                                                      (7,662)           5,074           1,986
                                                                 ------------    -------------   -------------

                                                                   $ 436,373        $ (59,039)      $ 375,568
                                                                 ============    =============   =============
</TABLE>

15.  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 $25,000, $18,000
and $22,000 for the years ended December 31, 1997 , 1996 and 1995, respectively.

                                                                             24.
<PAGE>

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




16. NET INCOME (LOSS) PER COMMON SHARE
--------------------------------------

                         Year Ended December 31, 1997
                         ----------------------------
                                        Weighted
                                        Average
                               Net      Number         Per
                              Income    of Shares     Share
                              ------    ---------     -----

Basic and diluted net income  $794,112   440,100      $1.80
                              ========   =======      =====
<TABLE>
<CAPTION>
                                                       Year Ended December 31,
                               ------------------------------------------------------------
                                               1996                          1995
                               ------------------------------    --------------------------
                                              Weighted                      Weighted
                                              Average                       Average
                                Net           Number    Per       Net       Number    Per
                                Loss         of Shares Share     Income    of Shares Share
<S>                           <C>            <C>       <C>       <C>       <C>       <C>
Basic net income (loss)
 applicable to common shares  $(290,071)     100,100   $(2.90)   $192,886  $100,100  $1.93
                                                       ======                        =====
Assumed conversion of
 preferred stock to
 common stock                   170,000      340,000              170,000   340,000
                                -------      -------              -------   -------
Diluted net income (loss)     $(120,071)     440,100   $(0.27)   $362,886   440,100  $0.82
                              =========      =======   ======    ========   =======  =====
</TABLE>

17.  COMMITMENTS 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
                   ------------------------------------------



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

At December 31, 1997, the Bank had  outstanding  commitments to originate  loans
totalling  $975,000,  consisting of $691,000 for fixed rate first mortgage loans
with rates ranging from 7.00% through 7.75%,  $259,000 for adjustable rate first
mortgage  loans with initial  rates ranging from 6.875% to 7.65% and $25,000 for
an equity line of credit.

At December 31, 1996, the Bank had  outstanding  commitments to originate  loans
totalling $1,216,000, consisting 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, 1997 and 1996, undisbursed funds from approved home equity lines
of credit amounted to  approximately  $2,686,000 and  $2,529,000,  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  Savings
Bank also  offers  unsecured  credit  lines in  conjunction  with a credit  card
program.  At December  31, 1997 and 1996,  unused  amounts  under these lines of
credit totalled $137,000 and $90,000, respectively.

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



18.  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 levied amounted 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 was tax deductible.  The Savings Bank took a charge of $845,000 as a
result of the special  assessment.  This legislation  eliminates the substantial
disparity  between  the amount  that BIF and SAIF  members  had been  paying for
deposit insurance premiums.

Currently,  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  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.

On August  21,  1996,  legislation  was  enacted to allow for the  recapture  of
post-1987 tax bad debt reserves ("excess 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. The Savings Bank has excess reserves of approximately  $3,000
remaining at December 31, 1997 which will be recaptured  ratably during the next
four years.

                                                                             27.


<PAGE>

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



19.   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,
                                                   ----------------------------
Assets                                                1997                1996
------                                             ----------        ----------

Cash and cash equivalents                          $   17,882        $   17,397
Investment in subsidiary                            9,867,301         9,372,123
Organization costs                                     15,509            22,949
                                                   ----------        ----------
      Total assets                                 $9,900,692        $9,412,469
                                                   ==========        ==========


Liabilities and stockholders' equity
------------------------------------

Liabilities
-----------

Dividends payable                                  $        -       $    42,500
Due to subsidiary                                      36,233            37,721
                                                   ----------       -----------
      Total liabilities                                36,233            80,221
                                                   ----------       -----------

Stockholders' equity
--------------------

Preferred stock                                             -                 -
Common stock                                          440,100           440,100
Paid-in-capital in excess of par value              3,670,377         3,670,377
Retained earnings - substantially restricted        5,753,982         5,221,771
                                                    ---------         ---------

      Total stockholders' equity                    9,864,459         9,332,248
                                                    ---------         ---------

      Total liabilities and stockholders' equity   $9,900,692        $9,412,469
                                                   ==========        ==========

                                                                 28.



                                                                  ---
<PAGE>

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


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

                            STATEMENTS OF OPERATIONS
                            ------------------------
<TABLE>
<CAPTION>
                                                                      Year Ended December 31,
                                                             ------------------------------------
                                                               1997         1996           1995
                                                             --------     ---------      --------


<S>                                                          <C>            <C>          <C>
Dividends from subsidiary                                    $440,100     $ 220,050      $ 20,050
Interest income                                                   486           474           460
                                                             --------     ---------      --------

Total income                                                  440,586       220,524       220,510


Expenses                                                        7,845         7,440           505
                                                             --------     ---------      --------

                                                              432,741        21,084       220,005
Equity in undistributed earnings (loss) of subsidiaries       359,479      (333,155)      142,881
                                                             --------     ---------      --------

Income (loss) before income taxes                             792,220      (120,071)      362,886
Income tax (benefit)                                            1,892             -             -
                                                             --------     ---------      --------

Net income (loss)                                            $794,112     $(120,071)     $362,886
                                                             ========     =========      ========

</TABLE>


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

<TABLE>
<CAPTION>
                                                                      Year Ended December 31,
                                                             ------------------------------------
                                                               1997         1996           1995
                                                             --------     ---------      --------


<S>                                                         <C>            <C>          <C>
Cash flows from operating activities
  Net income (loss)                                          $ 794,112    $(120,071)    $ 362,886
  Adjustments to reconcile net income (loss)
   to net cash provided by operating activities:
     Equity in undistributed
     (earnings) loss of subsidiary                            (359,479)     333,155      (142,881)
     Amortization of organization costs                          7,440        7,440              -
     (Decrease) increase in due to subsidiary                   (1,488)           -           506
                                                             ---------    ---------     ---------
        Net cash provided by operating activities              440,585      220,524       220,511
                                                             ---------    ---------     ---------

Cash flows from financing activities:
  cash dividends paid                                         (440,100)    (220,050)     (220,050)
                                                             ---------    ---------     ---------

        Net cash (used in) financing activities               (440,100)    (220,050)     (220,050)
                                                             ---------    ---------     ---------

Net increase in cash and cash equivalents                          485          474           461
Cash and cash equivalents - beginning                           17,397       16,923        16,462
                                                             ---------    ---------     ---------

Cash and cash equivalents - ending                           $  17,882    $  17,397     $  16,923
                                                             =========    =========     =========
</TABLE>



                                                                             29.
<PAGE>

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



20.  QUARTERLY FINANCIAL DATA (UNAUDITED)
-----------------------------------------
<TABLE>
<CAPTION>
                                                                 Quarter Ended
                                             --------------------------------------------------------
                                              March 31,      June 30,     September 30,  December 31,
                                                1997          1997            1997           1997
                                             ----------     ----------    ------------   ------------


<S>                                          <C>            <C>            <C>            <C>
Total interest income                        $2,980,860     $3,159,415     $3,270,835     $3,296,306
Total interest expense                        1,957,284      2,007,387      2,062,360      2,076,991
                                             ----------     ----------     ----------     ----------

Net interest income                           1,023,576      1,152,028      1,208,475      1,219,315


Provision for loan losses                        25,000         25,000         25,000         26,174
Total non-interest income                        31,527         51,805         40,860         42,684
Total non-interest expenses                     794,560        853,479        849,627        940,945
Income taxes                                     86,814        114,563        134,178        100,818
                                             ----------     ----------     ----------     ----------

Net income                                   $  148,729     $  210,791     $  240,530     $  194,062
                                             ==========     ==========     ==========     ==========

Basic and diluted net
 income per common share                     $     0.34     $     0.48     $     0.55     $     0.43
                                             ==========     ==========     ==========     ==========

</TABLE>


<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:
  Basic                                      $     1.22     $     0.96     $    (4.34)    $    (0.74)
  Diluted                                          0.37           0.32          (0.89)         (0.07)
                                             ==========     ==========     ==========     ==========
</TABLE>







                                                                             30.

<PAGE>


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

21.  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 and interest receivable
         -------------------------------------------------

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

         Securities
         ----------

         The fair  value for  securities,  both  available  for sale and held to
         maturity,  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.

         Borrowed money
         --------------

         The fair value of borrowed  money is  estimated by  discounting  future
         cash flows, using the current rates available for borrowings 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   counterparties.   For   fixed-rate   loan
         commitments,  fair value also  considers  the  difference  between  the
         current levels of interest rates and the committed rates.


<PAGE>




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



21.  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 and interest receivable
      -------------------------------------------------

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

      Securities
      ----------

      The  fair  values  for  securities,  both  available  for sale and held to
      maturity,  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.

      Borrowed money
      --------------

      The fair value of borrowed money is estimated by  discounting  future cash
      flows,  using the  current  rates  available  for  borrowings  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
      counterparties. For fixed-rate loan commitments, fair value also considers
      the  difference  between  the  current  levels of  interest  rates and the
      committed rates.

                                                                           31.
<PAGE>

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



21.  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,
                                                  -------------------------------------------------------
                                                            1997                          1996
                                                  ------------------------      -------------------------
                                                  Carrying      Estimated        Carrying      Estimated
                                                   Value        Fair Value        Value        Fair Value
                                                   -----        ----------        -----        ----------
Financial assets
----------------
<S>                                               <C>           <C>             <C>            <C>
Cash and cash equivalents                         $  3,683      $   3,683       $  10,673      $  10,673
Securities available for sale                       31,226         31,226          37,507         37,507
Investment securities held to maturity              19,644         19,647           2,000          2,000
Mortgage-backed securities held to maturity         10,415         10,438          12,805         12,813
Loans receivable                                   105,467        108,497          94,733         94,552
Accrued interest receivable                          1,380          1,380           1,111          1,111

Financial liabilities
---------------------

Deposits                                           166,759        167,415         156,596        157,818
Borrowed money                                         551            557               -              -

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

To originate and fund loans                           3,798          3,798           3,835          3,835
</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.

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.

                                                                             32.