================================================================================
                                  UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549
                              --------------------
                                    FORM 10-K

[X]  ANNUAL REPORT  PURSUANT TO SECTION 13 OR 15(d) OF THE  SECURITIES  EXCHANGE
     ACT OF 1934 [Fee Required]

     For the fiscal year ended September 30, 1997
                                       OR

[ ]  TRANSITION  REPORT  PURSUANT  TO  SECTION  13 OR  15(d)  OF THE  SECURITIES
     EXCHANGE ACT OF 1934 [No Fee Required]

                         Commission file number 0-27716

                          YONKERS FINANCIAL CORPORATION
             (Exact Name of Registrant as Specified in its Charter)

           Delaware                                              13-3870836
           --------                                              ----------
(State or other jurisdiction of                               (I.R.S. Employer
  incorporation or organization)                             Identification No.)

  6 Executive Plaza, Yonkers, New York                             10701
---------------------------------------                         ------------
(Address of principal executive offices)                         (Zip Code)

Registrant's telephone number, including area code: (914) 965-2500

           Securities Registered Pursuant to Section 12(b) of the Act:
                                      None

           Securities Registered Pursuant to Section 12(g) of the Act:

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

         Indicate  by check mark  whether the  Registrant  (1) filed all reports
required to be filed by Section 13 or 15(d) of the  Exchange Act during the past
twelve months (or for such shorter  period that the  Registrant  was required to
file such reports),  and (2) has been subject to such  requirements for the past
90 days. YES [X] NO [ ]

         Indicate by check mark if there is no disclosure  of delinquent  filers
in  response  to Item 405 of  Regulation  S-K  contained  in this  form,  and no
disclosure  will  be  contained,  to the  best  of  Registrant's  knowledge,  in
definitive proxy or information statements incorporated by reference in Part III
of this Form 10-K or any amendment to this Form 10-K. [ ]

         As of December 24, 1997,  there were issued and  outstanding  3,020,763
shares of the  Registrant's  Common  Stock.  The  aggregate  market value of the
voting stock held by non-affiliates of the Registrant,  computed by reference to
the closing price of such stock on the Nasdaq National Market as of December 24,
1997, was  approximately  $48.0 million.  (The exclusion from such amount of the
market  value of the shares owned by any person shall not be deemed an admission
by the Registrant that such person is an affiliate of the Issuer.)

                       DOCUMENTS INCORPORATED BY REFERENCE

PARTS II and IV of Form 10-K--Annual  Report to Stockholders for the fiscal year
ended September 30, 1997. PART III of Form 10-K--Proxy  Statement for the Annual
Meeting of Stockholders for the fiscal year ended September 30, 1997.

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

<PAGE>


                          YONKERS FINANCIAL CORPORATION

                           ANNUAL REPORT ON FORM 10-K
                               SEPTEMBER 30, 1997

                                Table of Contents

                                                                            Page
                                                                            ----
          Part I
          ----------
Item 1    Business..........................................................   3

Item 2    Properties........................................................  45

Item 3    Legal Proceedings.................................................  45

Item 4    Submission of Matters to a Vote of Security Holders...............  46

          Part II
          ----------
Item 5    Market for Registrant's Common Equity and Related Shareholder
          Matters...........................................................  46

Item 6    Selected Financial Data...........................................  46

Item 7    Management's Discussion and Analysis of Financial
             Condition and Results of Operations............................  46

Item 7a   Quantitative and Qualitative Disclosures About Market Risk........  46

Item 8    Financial Statements and Supplementary Data.......................  46

Item 9    Changes in and Disagreements with Accountants on
             Accounting and Financial Disclosure............................  46

          Part III
          ----------
Item 10   Directors, Executive Officers, Promoters and Control Persons;
             Compliance with Section 16(a) of the Exchange Act..............  47

Item 11   Executive Compensation............................................  48

Item 12   Security Ownership of Certain Beneficial Owners
             and Management.................................................  48

Item 13   Certain Relationships and Related Transactions....................  48

          Part IV
          ----------
Item 14   Exhibits, Financial Statement Schedules and Reports on
             Form 8-K.......................................................  49

          Signatures........................................................  51


                                        2

<PAGE>

                                     PART I


Item 1.   Business

General

         Yonkers Financial Corporation (the "Holding Company") was formed at the
direction of The Yonkers Savings and Loan Association,  FA ("Yonkers Savings" or
the  "Association")  in  December  1995 for the  purpose  of  owning  all of the
outstanding stock of the Association issued in the Association's conversion from
the mutual to stock form of organization (the "Conversion").  The Conversion was
completed on April 18, 1996. Concurrent with the Conversion, the Holding Company
sold 3,570,750 shares of its common stock for net proceeds of $34.6 million. The
Holding Company and the Association are  collectively  referred to herein as the
"Company."

         The  Holding  Company  is  incorporated  under the laws of the State of
Delaware  (and  qualified to do business in the State of New York) and generally
is  authorized  to engage in any  activity  that is  permitted  by the  Delaware
General  Corporation Law. The assets of the Holding Company consist of the stock
of the Association,  certain short-term and other investments, and a loan to its
Employee Stock Ownership Plan (the "ESOP").

         As a community-oriented financial institution, the Association offers a
variety of  financial  services to meet the needs of  communities  in its market
area. The  Association  attracts  deposits from the general public and uses such
deposits,  together with borrowings,  to originate primarily one- to four-family
residential  mortgage  loans  (including  home equity lines of credit) and, to a
lesser  extent,   multi-family  and  commercial  real  estate,  consumer,  land,
construction and commercial  business loans in the Association's  primary market
area.  The  Association  also invests in  mortgage-backed  and other  securities
permissible for a  federally-chartered  savings association.  As a member of the
Savings  Association  Insurance Fund ("SAIF") of the Federal  Deposit  Insurance
Corporation  ("FDIC"),  the Association's  deposits are insured up to applicable
limits.

         The  executive  offices  (corporate  headquarters)  of the  Company are
located at 6 Executive Plaza,  Yonkers, New York 10701, and its telephone number
at that address is (914) 965-2500.

Market Area

         The Company  conducts  its banking  operations  through its main office
located at One Manor House Square,  Yonkers,  New York and three branch  offices
located in Yonkers, New York. An in-store branch located in Dutchess County, New
York opened in December 1997. A corporate headquarters office is also maintained
in Yonkers,  New York. The Company's market area for deposits  includes the City
of Yonkers and surrounding  communities.  The Company's  primary market area for
its lending  activities  consists of communities  within  Westchester County and
portions of Rockland, Putnam and Dutchess Counties, New York.

         Yonkers is located in Westchester  County  approximately 10 miles north
of the  Borough of  Manhattan  in New York  City.  Yonkers  and the  surrounding
communities   include  a  diverse   population   of  low-  and   moderate-income
neighborhoods  as well as middle  class  and more  affluent  neighborhoods.  The
housing  in the  low-  and  moderate-income  neighborhoods  consists  mainly  of
apartments while other areas consist primarily of single-family residences.  The


                                        3

<PAGE>

Company's  market area also includes  substantial  commercial  areas  containing
shopping  areas,  office and  medical  facilities  and  small-  and  medium-size
manufacturing and industrial facilities.

Lending Activities

         General.  Historically,  the  Company  originated  30-year,  fixed-rate
mortgage loans secured by one- to four-family  residences.  Since the mid-1980s,
in order to reduce its  vulnerability  to changes in interest rates, the Company
has also originated adjustable-rate mortgage ("ARM") loans and home equity lines
of credit.  During fiscal 1997, the Company began to offer a "15/1"  residential
mortgage  loan product with a fixed rate for the first  fifteen years and annual
rate adjustments thereafter.  The Company engages in secondary market sales of a
portion of its residential mortgage originations,  as market conditions warrant.
The Company also offers  multi-family  and  commercial  real  estate,  consumer,
construction and land loans.

                                        4

<PAGE>

         The following  table sets forth the  composition of the loan portfolio,
by category, in dollar amounts and as a percentage of the total portfolio at the
dates indicated.
<TABLE>
<CAPTION>

                                                                               At September 30,
                                           -----------------------------------------------------------------------------------------
                                                    1997                 1996                   1995                   1994        
                                           ---------------------   ------------------     ------------------     ------------------
                                                         Percent              Percent                Percent                Percent
                                              Amount    of Total   Amount    of Total     Amount    of Total     Amount    of Total
                                              ------    --------   ------    --------     ------    --------     ------    --------
                                                                           (Dollars in Thousands)
Real Estate Mortgage Loans:               
<S>                                           <C>          <C>      <C>         <C>         <C>        <C>        <C>         <C>  
  One- to four-family(1)(2)(3)............    $111,821     79.0%    $62,283     70.6%       $63,282    74.4%      $64,078     80.7%
  Multi-family............................       5,658      4.0       5,471      6.2          5,647     6.6         4,483      5.7 
  Commercial..............................      11,990      8.5       9,117     10.3          6,575     7.7         3,176      4.0 
  Construction............................       2,786      2.0       2,175      2.5          2,205     2.6         2,138      2.7 
  Land....................................       1,814      1.3       1,934      2.2          2,112     2.5           814      1.0 
                                            ----------   ------     -------   ------       --------  ------      --------   ------ 
     Total real estate mortgage loans.....     134,069     94.8      80,980     91.8         79,821    93.8        74,689     94.1 
                                             ---------    -----     -------    -----        -------   -----       -------    ----- 
Other Loans:                              
Consumer loans:                           
  Home equity.............................       3,217      2.3       2,911      3.3          2,389     2.8         1,872      2.4 
  Personal................................       1,666      1.1       1,632      1.8          1,734     2.0         1,704      2.2 
  Automobile..............................         336      0.2         367      0.4            409     0.5           473      0.6 
  Home improvement........................          82      0.1         153      0.2            209     0.2           279      0.3 
  Other...................................         819      0.6         790      0.9            474     0.6           273      0.3 
                                            ----------   ------    --------   ------       --------  ------      --------   ------ 
     Total consumer loans.................       6,120      4.3       5,853      6.6          5,215     6.1         4,601      5.8 
Commercial business loans.................       1,299      0.9       1,413      1.6             56     0.1            92      0.1 
                                            ----------   ------    --------   ------       --------  ------      --------   ------ 
     Total other loans....................       7,419      5.2       7,266      8.2          5,271     6.2         4,693      5.9 
                                            ----------   ------    --------   ------       --------  ------      --------   ------ 
     Total loans..........................     141,488    100.0%     88,246    100.0%        85,092   100.0%       79,382    100.0%
                                                          =====                =====                  =====                  ===== 
Less:                                     
 Construction loans in process............      (1,091)                (171)                   (293)                 (943)         
 Allowance for loan losses................      (1,093)                (937)                   (719)                 (311)         
 Net deferred loan fees...................        (184)                (472)                   (401)                 (304)         
                                            ----------             --------                --------              --------          
     Total loans, net.....................    $139,120              $86,666                 $83,679               $77,824          
                                            ==========             ========                ========              ========          
</TABLE>

                                                      1993   
                                               ------------------ 
                                                           Percent       
                                               Amount     of Total       
                                               ------     --------       
                                            (Dollars in Thousands)
Real Estate Mortgage Loans:               
  One- to four-family(1)(2)(3)............     $67,633     85.1% 
  Multi-family............................       2,281      2.9  
  Commercial..............................       2,704      3.4  
  Construction............................       1,472      1.9  
  Land....................................         914      1.1  
                                              --------   ------  
     Total real estate mortgage loans.....      75,004     94.4  
                                               -------    -----  
Other Loans:                                                     
Consumer loans:                                                  
  Home equity.............................       1,881      2.4  
  Personal................................       1,589      2.0  
  Automobile..............................         381      0.5  
  Home improvement........................         326      0.4  
  Other...................................          81      0.1  
                                             ---------   ------  
     Total consumer loans.................       4,258      5.4  
Commercial business loans.................         175      0.2  
                                             ---------   ------  
     Total other loans....................       4,433      5.6  
                                             ---------   ------  
     Total loans..........................      79,437    100.0% 
                                                          =====  
Less:                                                            
 Construction loans in process............        (215)          
 Allowance for loan losses................        (295)          
 Net deferred loan fees...................        (294)          
                                              --------           
     Total loans, net.....................     $78,633           
                                              ========           

<PAGE>

----------
(1)  Includes  advances under home equity lines of credit of $5.9 million,  $7.3
     million, $9.1 million,  $10.1 million and $11.2 million,  respectively,  at
     September 30, 1997, 1996, 1995, 1994 and 1993.

(2)  Includes cooperative  apartment loans of $4.8 million,  $5.5 million,  $5.8
     million,  $5.9 million and $6.7  million,  respectively,  at September  30,
     1997, 1996, 1995, 1994 and 1993.

(3)  Includes loans held for sale of $20.4 million at September 30, 1997.

                                        5

<PAGE>
         The following  table sets forth the  composition of the loan portfolio,
by  category  and by type of  interest  rate  (fixed or  adjustable),  in dollar
amounts and as a percentage of the total portfolio at the dates indicated.
<TABLE>
<CAPTION>
                                                                                  At September 30,
                                                 -----------------------------------------------------------------------------------
                                                        1997                   1996                 1995                  1994      
                                                 -------------------    ------------------   ------------------     ----------------
                                                            Percent                Percent              Percent              Percent
                                                  Amount    of Total     Amount   of Total   Amount    of Total     Amount  of Total
                                                  ------    --------     ------   --------   ------    --------     ------  --------
                                                                               (Dollars in Thousands)
Fixed-Rate Loans                            
 Real estate mortgage loans:                
<S>                                               <C>         <C>       <C>         <C>       <C>          <C>      <C>        <C>  
 One- to four-family(1).....................      $ 36,074    25.5%     $11,805     13.4%     $11,805      13.9%    $ 8,352    10.5%
 Multi-family...............................           108     0.1           47      0.1          715       0.8         539     0.7 
 Commercial.................................            95     0.1          131      0.1          396       0.5         194     0.2 
 Land.......................................           390     0.3           49      0.1           49       0.1          49     0.1 
                                                 ---------    ----       ------     ----       ------      ----      ------    ---- 
    Total real estate mortgage loans........        36,667    26.0       12,032     13.7       12,965      15.3       9,134    11.5 
Consumer loans..........................             6,120     4.3        5,853      6.6        5,215       6.1       4,601     5.8 
                                                 ---------    ----       ------     ----       ------      ----      ------    ---- 
    Total fixed-rate loans..................        42,787    30.3       17,885     20.3       18,180      21.4      13,735    17.3 
                                                 ---------    ----       ------     ----       ------      ----      ------    ---- 
Adjustable-Rate Loans                       
 Real estate mortgage loans:                
 One- to four-family(2)(3)..................        75,747    53.5       50,478     57.2       51,477     60.5       55,726    70.2 
 Multi-family...............................         5,550     3.9        5,424      6.1        4,932      5.8        3,944     5.0 
 Commercial.................................        11,895     8.4        8,986     10.2        6,179      7.2        2,982     3.7 
 Construction...............................         2,786     2.0        2,175      2.5        2,205      2.6        2,138     2.7 
 Land.......................................         1,424     1.0        1,885      2.1        2,063      2.4          765     1.0 
                                                 ---------    ----       ------     ----       ------     ----       ------    ---- 
    Total real estate mortgage loans........        97,402    68.8       68,948     78.1       66,856     78.5       65,555    82.6 
Commercial business loans...............             1,299     0.9        1,413      1.6           56      0.1           92     0.1 
                                                 ---------    ----       ------     ----       ------     ----       ------    ---- 
    Total adjustable-rate loans.............        98,701    69.7       70,361     79.7       66,912     78.6       65,647    82.7 
                                                 ---------    ----       ------     ----       ------     ----       ------    ---- 
    Total loans.............................       141,488   100.0%      88,246    100.0%      85,092    100.0%      79,382   100.0%
                                                             =====                 =====                 =====                ===== 
Less:                                       
 Construction loans in process..............        (1,091)                (171)                 (293)                 (943)        
 Allowance for loan losses..................        (1,093)                (937)                 (719)                 (311)        
 Net deferred loan fees.....................          (184)                (472)                  (401)                (304)        
                                                 ---------               ------                 ------              -------         
    Total loans, net........................      $139,120              $86,666                $83,679              $77,824         
                                                 =========               ======                 ======              =======         
</TABLE>
                                                      1993         
                                                 ----------------  
                                                          Percent  
                                                 Amount  of Total  
                                                 ------  --------
                                             (Dollars in Thousands)
Fixed-Rate Loans                            
 Real estate mortgage loans:                
 One- to four-family(1).....................     $10,094   12.7%   
 Multi-family...............................         550    0.7    
 Commercial.................................         230    0.3    
 Land.......................................          49    0.1    
                                                  ------   ----    
    Total real estate mortgage loans........      10,923   13.8    
Consumer loans..........................           4,258    5.3    
                                                  ------   ----    
    Total fixed-rate loans..................      15,181   19.1    
                                                  ------   ----    
Adjustable-Rate Loans                                              
 Real estate mortgage loans:                                       
 One- to four-family(2)(3)..................     57,539    72.4    
 Multi-family...............................      1,731     2.2    
 Commercial.................................      2,474     3.1    
 Construction...............................      1,472     1.9    
 Land.......................................        865     1.1    
                                                 ------    ----    
    Total real estate mortgage loans........     64,081    80.7    
Commercial business loans...............            175     0.2    
                                                 ------    ----    
    Total adjustable-rate loans.............     64,256    80.9    
                                                 ------    ----    
    Total loans.............................     79,437  100.0%    
                                                          =====    
Less:                                                              
 Construction loans in process..............       (215)           
 Allowance for loan losses..................       (295)           
 Net deferred loan fees.....................       (294)           
                                                 ------            
    Total loans, net........................    $78,633            
                                                =======            
<PAGE>

----------
(1)  Includes loans held for sale of $20.4 million at September 30, 1997.

(2)  Includes  advances under home equity lines of credit of $5.9 million,  $7.3
     million, $9.1 million,  $10.1 million and $11.2 million,  respectively,  at
     September 30, 1997, 1996, 1995, 1994 and 1993.

(3)  Includes cooperative  apartment loans of $4.8 million,  $5.5 million,  $5.8
     million,  $5.9 million and $6.7  million,  respectively,  at September  30,
     1997, 1996, 1995, 1994 and 1993.

                                        6

<PAGE>



         The  following  table  sets  forth  the  contractual  maturity  of  the
Company's  loan  portfolio at September 30, 1997.  The table reflects the entire
unpaid  principal  balance of a loan in the  maturity  period that  includes the
final payment date and, accordingly,  does not give effect to periodic principal
repayments or possible prepayments. Principal repayments and prepayments totaled
$13.6 million , $11.8  million and $11.0  million for the years ended  September
30, 1997, 1996 and 1995, respectively.
<TABLE>
<CAPTION>

                                                                           At September 30, 1997
                                   -------------------------------------------------------------------------------------------------
                                                                             Commercial                                             
                                   One-to Four-Family(1)  Multi-Family       Real Estate       Construction            Land         
                                   ---------------------  --------------   ----------------  ------------------   ------------------
                                             Weighted           Weighted           Weighted            Weighted            Weighted 
                                              Average            Average            Average             Average             Average 
                                      Amount   Rate     Amount    Rate     Amount    Rate    Amount      Rate     Amount     Rate   
                                      ------   ----     ------    ----     ------    ----    ------      ----     ------     ----   
                                                                          (Dollars in Thousands)
Contractual maturity:            
<S>                                 <C>           <C>   <C>         <C>   <C>         <C>     <C>         <C>     <C>         <C>   
 One year or less(2) ............   $  1,785      9.19% $  101      9.13%   $  247    10.44%  $2,786      10.24%  $1,018      10.66%
                                    --------            ------              ------            ------              ------
 After one year:                 
   More than 1 year to 2 years ..      1,307      9.78      --       --        --       --        --        --        29      10.50 
   More than 2 years to 3 years .      1,166      9.61       5      8.25        30     9.50       --        --       520      10.50 
   More than 3 years to 5 years .      1,909      9.62      --       --        113     8.70       --        --        --        --  
   More than 5 years to 10 years       3,950      9.10     674      9.02       892     9.53       --        --        --        --  
   More than 10 years to 20 years     15,847      8.03   4,379      8.93     7,730     8.86       --        --       247      10.00 
   More than 20 years ...........     85,857      7.63     499      8.85     2,978     8.53       --        --        --        --  
                                    --------            ------             -------            ------              ------
   Total after one year .........    110,036      7.82   5,557      8.93    11,743     8.83       --        --       796      10.34 
                                    --------            ------             -------            ------              ------            
   Total amount due .............   $111,821      7.84% $5,658      8.93%  $11,990     8.86%  $2,786      10.24%  $1,814      10.52%
                                    ========            ======             =======            ======              ======            
</TABLE>
                                             At September 30, 1997
                                      -----------------------------------------
                                         Consumer and                           
                                      Commercial Business            Total      
                                      -------------------      ---------------- 
                                                Weighted               Weighted 
                                                 Average                Average 
                                        Amount     Rate        Amount     Rate  
                                        ------     ----        ------     ----  
Contractual maturity:            
 One year or less(2) ............      $  261      13.26%    $6,198      10.12%
                                       ------                ------
 After one year:                                                                
   More than 1 year to 2 years ..         456      11.42      1,792      10.28  
   More than 2 years to 3 years .         765      10.97      2,486      10.21  
   More than 3 years to 5 years .       1,689      10.73      3,711      10.10  
   More than 5 years to 10 years        4,141       9.61      9,657       9.35  
   More than 10 years to 20 years         107       8.72     28,310       8.42  
   More than 20 years ...........          --         --     89,334       7.67  
                                       ------               -------
   Total after one year .........       7,158      10.12    135,290       8.09  
                                       ------               -------
   Total amount due .............      $7,419      10.23   $141,488       8.18  
                                       ======               =======
----------
(1)  Includes  $5.9 million of advances  under home equity lines of credit which
     require minimum interest-only  payments for the first five to ten years the
     advance is  outstanding,  followed by a balloon  payment  thereafter.  Also
     includes  $20.4  million in loans held for sale on the basis of their final
     contractual maturity (all more than 20 years).

(2)  Includes  demand  loans,  loans having no stated  maturity,  and  overdraft
     loans.

                                       7

<PAGE>


         The following table sets forth the dollar amounts in each loan category
at September 30, 1997 that are  contractually  due after September 30, 1998, and
whether such loans have fixed interest rates or adjustable interest rates.

                                                    Due After September 30, 1998
                                                   -----------------------------
                                                    Fixed   Adjustable    Total
                                                    -----   ----------    -----
                                                           (In Thousands)
Real estate mortgage loans:
    One- to four-family .......................   $ 36,015   $ 74,021   $110,036
    Multi-family ..............................        108      5,449      5,557
    Commercial ................................         74     11,669     11,743
    Construction ..............................         --         --         --
    Land ......................................        247        549        796
                                                  --------   --------   --------
       Total real estate mortgage loans .......     36,444     91,688    128,132
       Consumer and commercial business loans .      5,859      1,299      7,158
                                                  --------   --------   --------
       Total loans ............................   $ 42,303   $ 92,987   $135,290
                                                  ========   ========   ========

         Pursuant to Federal law, the aggregate amount of loans that the Company
is  permitted  to make to any one  borrower or a group of related  borrowers  is
generally  limited to 15% of the  Association's  unimpaired  capital and surplus
(25% if the  security for such loan has a "readily  ascertainable"  value or 30%
for certain residential  development loans). At September 30, 1997, based on the
15% limitation, the Company's loans-to-one borrower limit was approximately $5.6
million.  On the same  date,  the  Company  had no  borrowers  with  outstanding
balances in excess of this amount.  As of September 30, 1997, the largest dollar
amount outstanding to one borrower,  or group of related  borrowers,  was a $2.0
million loan to a development  company for the purpose of land  development  and
the construction of six single-family  residences located in Ossining, New York.
The advanced  portion of this loan  totaled $1.1 million at September  30, 1997,
consisting of $520,000 for land lots and $586,000 for  construction of the first
four  residences  for which there are  contracts for sale.  The  Company's  next
largest  loan to one  borrower  or group  outstanding  totaled  $1.5  million at
September 30, 1997 and was secured by an office building located in Yonkers, New
York.  These loans were  performing in accordance  with their terms at September
30, 1997.

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

         Under  the  Company's  loan  policy,   the  individual   processing  an
application is responsible for ensuring that all documentation is obtained prior
to the  submission  of  the  application  to a loan  officer  for  approval.  In
addition,  the loan officer  verifies that the  application  meets the Company's
underwriting guidelines described below. Also, each application file is reviewed
to assure its accuracy and  completeness.  In 1997,  the Company  instituted  an
enhanced  quality  control  procedure for  residential  loan  originations.  The

                                       8
<PAGE>


quality   control  system  reviews   underwriting   decisions,   appraisals  and
documentation.  The Company is using the services of an  independent  company to
perform the quality control reviews.

         The Company's  lending  officers  have  approval  authority for one- to
four-family residential loans, other than cooperative apartment ("co-op") loans,
up to $250,000.  One- to four-family residential loans over $250,000 to $500,000
require the approval of the Company's  President or its Vice President and Chief
Lending  Officer.  Co-op loans up to $500,000 require the approval and/or review
of the Chief Lending  Officer.  The Company's Chief Lending Officer has approval
authority for  multi-family  and commercial real estate loans up to $500,000 and
for land loans up to  $250,000.  Loans in excess of these  amounts  require  the
approval of the Company's  Executive  Committee or Board of  Directors.  Various
officers have approval  authority ranging from $2,000 on secured consumer loans,
up to $50,000 on  fixed-rate  home equity loans and up to $30,000 on  commercial
business  loans.  Approval  authorities  on unsecured  consumer loans range from
$2,000 to $10,000.

         Generally,  the Company  requires  title  insurance or abstracts on its
mortgage  loans as well as fire and  extended  coverage  casualty  insurance  in
amounts  at least  equal to the  principal  amount  of the loan or the  value of
improvements  on the property,  depending on the type of loan.  The Company also
requires flood insurance to protect the property  securing its interest when the
property is located in a flood plain.

         One- to Four-Family Residential Real Estate Lending. The cornerstone of
the Company's  lending  program is the origination of loans secured by mortgages
on owner-occupied one- to four-family residences.  At September 30, 1997, $111.8
million,  or 79.0%, of the Company's loan portfolio  consisted of mortgage loans
on one- to  four-family  residences  (including  $20.4 million of loans held for
sale,  $5.9  million  of  advances  under home  equity  lines of credit and $4.8
million of co-op loans).  Substantially  all of the residential loans originated
by the  Company  are  secured by  properties  located in the  Company's  primary
lending  area. A majority of the mortgage  loans  originated  by the Company are
retained and serviced by it. At September 30, 1997,  approximately  $4.5 million
of the Company's one- to four-family  residential real estate loans were secured
by  non-owner  occupied  properties.  At  that  date,  the  average  outstanding
residential loan balance was approximately $114,000.

         Since the mid-1980s,  the Company has offered ARM loans at rates and on
terms determined in accordance with market and competitive  factors. The Company
offers  one-year  ARMs for  terms of up to 30 years at a margin  (generally  275
basis  points)  over the yield on the  Average  Weekly  One Year  U.S.  Treasury
Constant Maturity Index. The one-year ARM loans currently offered by the Company
generally  provide for a 200 basis point annual  interest  rate change cap and a
lifetime cap of 600 basis points over the initial rate.  The Company also offers
a  three-year  ARM loan which  adjusts  based on a margin  (generally  275 basis
points) over the yield on the three-year Treasury Note. The Company's three-year
ARM loans have a 200 basis point interest rate cap per  adjustment  period and a
lifetime cap of 500 basis points over the initial rate.  The Company also offers
loans which are fixed for the first five-, seven- or ten-year period of the loan
term and adjust annually  thereafter  based on a specified margin over the yield
on the Average  Weekly One Year U.S.  Treasury  Constant  Maturity Index for the
remaining loan term.  These loans currently  provide for an annual interest rate
cap not to exceed 300 basis  points for the initial  adjustment  period (and 200
basis points thereafter) and a lifetime cap of 500 basis points.

                                       9
<PAGE>

         The Company's ARM loans typically do not adjust below the initial rate.
Initial  interest  rates offered on the  Company's  ARMs may be 100 to 350 basis
points  below the fully  indexed  rate.  Although  borrowers  on such  loans are
generally  qualified  at the fully  indexed  rate,  the risk of default on these
loans  may  increase  as  interest  rates  increase.  See "-  Delinquencies  and
Non-Performing  Assets." The Company's ARMs do not permit negative  amortization
of principal,  do not contain prepayment  penalties and are not convertible into
fixed-rate  loans.  At September 30, 1997,  one- to four-family  ARMs (including
loans of $35.7 million  earning a fixed rate of interest for initial  periods of
five, seven or 10 years) totaled $75.7 million,  or 53.5% of the Company's total
loan portfolio.

         During fiscal 1997,  the Company  began to offer a 30-year  residential
mortgage  loan product with a fixed rate for the first  fifteen years and annual
rate adjustments  thereafter based on a specified margin over the Average Weekly
One Year U.S.  Treasury  Constant  Maturity Index.  In addition,  the loan has a
conversion  option which allows the  borrower to convert,  during years  sixteen
through eighteen, to a fixed rate for the remaining term. Loans held for sale of
$20.4 million at September 30, 1997 represent substantially all of the Company's
loans of this  type.  The sale of these  loans  was  completed,  with  servicing
retained,  during November 1997. The Company also offers conventional fixed-rate
loans with  maximum  terms of up to 30 years,  although the Company has recently
emphasized  originations of fixed-rate  loans with terms of 10 to 15 years.  The
interest  rate on such loans is  generally  based on  competitive  factors.  The
fixed-rate  one- to four-family  loans described in this paragraph are typically
underwritten  in accordance  with Freddie Mac and Fannie Mae standards to permit
their sale in the  secondary  market.  The Company  engages in secondary  market
sales  of  a  portion  of  its  residential  mortgage  originations,  as  market
conditions warrant.

         The Company originates home equity lines of credit secured by a lien on
the borrower's residence.  The Company's home equity lines are generally limited
to $250,000.  The Company uses the same  underwriting  standards for home equity
lines  as it uses  for  one- to  four-family  residential  mortgage  loans.  The
interest rates for home equity lines of credit float at a stated margin over the
lowest prime rate published in The Wall Street Journal and may not exceed 15.75%
over the life of the loan.  The Company  currently  offers home equity lines for
terms of up to 30 years  with  interest  only paid for the first 10 years of the
loan term.  At September 30, 1997,  the Company had $5.9 million of  outstanding
advances  under  home  equity  lines and an  additional  $4.4  million  of funds
committed, but undrawn, under home equity lines of credit.

         The Company also  originates  loans secured by co-ops and  condominiums
located  in  its  market  area.   Condominium   and  co-op  loans  are  made  on
substantially  the same terms as one- to  four-family  loans,  except that co-op
loans are made only at adjustable rates of interest.  At September 30, 1997, the
Company had $8.5 million of condominium and co-op loans.

         In underwriting one- to four-family  residential real estate loans, the
Company evaluates the borrower's ability to make principal,  interest and escrow
payments,  as well as the value of the  property  that will  secure the loan and
debt-to-income  ratios. The Company currently  originates  residential  mortgage
loans with loan-to-value  ratios of up to 80% for owner-occupied homes (95% with
private mortgage  insurance to reduce the Company's exposure to 80% or less); up
to 65%  for  non-owner  occupied  homes;  and up to 75%  for  co-op  loans.  The
Company's home equity lines of credit are originated in amounts which,  together
with the  amount of the  first  mortgage,  generally  do not  exceed  75% of the
appraised value of the property securing the loan.

                                       10
<PAGE>

         The  Company's   residential   mortgage   loans   customarily   include
due-on-sale clauses giving the Company the right to declare the loan immediately
due and payable in the event that,  among other  things,  the borrower  sells or
otherwise  disposes of the property  subject to the mortgage and the loan is not
repaid.

         Multi-family  and  Commercial  Real  Estate  Lending.  The  Company has
increased  its  emphasis  on  the  origination  of  permanent  multi-family  and
commercial  real  estate  loans since  fiscal  1994,  in order to  increase  the
interest  rate  sensitivity  and yield of its loan  portfolio  and to complement
residential  lending  opportunities.  The Company's  multi-family and commercial
real estate loan portfolio includes loans secured by apartment buildings, office
buildings,  strip shopping centers and other income producing properties located
in its market area.  At September  30,  1997,  the Company had $12.0  million in
commercial real estate loans, representing 8.5% of the total loan portfolio, and
$5.7 million in multi-family loans, or 4.0% of the total loan portfolio.

         The Company's  permanent  multi-family and commercial real estate loans
generally carry a maximum term of 20 years and have  adjustable  rates generally
based on a specific  index,  plus a margin.  These loans are  generally  made in
amounts of up to 75% of the lesser of the appraised  value or the purchase price
of the property,  with a projected debt service coverage ratio of at least 125%.
Appraisals on properties securing  multi-family and commercial real estate loans
are performed by an independent  appraiser designated by the Company at the time
the loan is made. All appraisals on multi-family or commercial real estate loans
are  reviewed  by  the  Company's   management.   In  addition,   the  Company's
underwriting  procedures require  verification of the borrower's credit history,
income and financial statements,  banking  relationships,  references and income
projections  for the  property.  Where  feasible,  the  Company  seeks to obtain
personal  guarantees  on these loans.  For loans in excess of $250,000,  Phase I
environmental studies are performed.

         The table below sets forth,  by type of security  property,  the number
and amount of the Company's  multi-family  and  commercial  real estate loans at
September  30,  1997.  Substantially  all of the loans  referred to in the table
below are secured by properties located in the Company's market area.

                                                  Outstanding        Amount
                                        Number of   Principal    Non-Performing
                                         Loans       Balance    or of Concern(1)
                                         -----       -------    ----------------
                                               (Dollars in Thousands)
Commercial real estate:
    Small business facilities ..........      34     $ 8,195        $   211
    Office buildings ...................       5       2,914            227
    Health care facilities .............       4         769             --
    Industrial real estate .............       1         112             --
    Multi-family .......................      30       5,658             --
                                         -------     -------        -------
       Total multi-family and                                       
        commercial real estate loans ...      74     $17,648        $   438
                                         =======     =======        =======
----------
(1)  See "- Delinquencies and Non-Performing Assets"

         At September 30, 1997,  the Company's  largest  commercial  real estate
loan had an  outstanding  balance of $1.5 million.  This loan was  originated in
September 1995 and refinanced in July 1997, and is secured by an office building
located in Yonkers.  At September 30, 1997, the largest  multi-family loan had a
balance of $434,000 and is secured by a 21-unit  apartment  building  located in
Yonkers, New York.

                                       11
<PAGE>


         Multi-family  and  commercial  real estate  loans  generally  present a
higher level of risk than loans secured by one- to four-family residences.  This
greater risk is due to several factors, including the concentration of principal
in a limited  number of loans and  borrowers,  the  effects of general  economic
conditions  on income  producing  properties,  and the  increased  difficulty of
evaluating and monitoring  these types of loans.  Furthermore,  the repayment of
loans secured by multi-family and commercial real estate is typically  dependent
upon the successful  operation of the related real estate  project.  If the cash
flow from the project is reduced  (for  example,  if leases are not  obtained or
renewed), the borrower's ability to repay the loan may be impaired.

         Construction and Land Lending.  The Company  originates a modest amount
of  construction  loans to  individuals  and  builders for the  construction  of
residential real estate. At September 30, 1997, the Company's  construction loan
portfolio totaled $2.8 million, or 2.0% of the total loan portfolio. The Company
also  currently  originates  a limited  number of land loans  primarily  for the
purpose of  developing  residential  subdivisions.  At September  30, 1997,  the
Company's  land loan portfolio  totaled $1.8 million,  or 1.3% of the total loan
portfolio.  At September 30, 1997, all of the Company's land loans were made for
the  purpose  of  developing  residential  lots  except  for two loans  totaling
$296,000 which were secured by commercial real estate.

         Construction  loans  to  individuals  for  the  construction  of  their
residences  are  structured  to  convert  to  permanent  loans at the end of the
construction  phase,  which  typically runs up to one year.  These  construction
loans have rates and terms comparable to one- to four-family  loans then offered
by the Company,  except that during the  construction  phase,  the borrower pays
interest  only  at  a  specified   margin  over  the  prime  rate.  The  maximum
loan-to-value ratio of owner-occupied  single-family  construction loans is 75%.
Residential  construction loans are generally  underwritten pursuant to the same
guidelines used for originating  permanent  residential  loans. At September 30,
1997,  there were $1.4  million of  construction  loans  outstanding  to persons
intending to occupy the premises upon the completion of the construction.

         The Company also originates  construction  loans to builders of one- to
four-family residences.  Such loans generally carry terms of up to two years and
require  the  payment  of  interest   only  for  the  loan  term.   The  maximum
loan-to-value  ratio on loans to builders for the  construction  of  residential
real  estate is 75%.  When  practical,  the  Company  seeks to  obtain  personal
guarantees on such loans. The Company generally limits loans to builders for the
construction  of homes on  speculation  for sale to two  homes per  builder.  At
September  30,  1997,  the  Company  had  $1.4  million  of  construction  loans
outstanding to builders of one- to four-family residences.

         The Company's  construction loan agreements generally provide that loan
proceeds are  disbursed in increments as  construction  progresses.  The Company
reviews the progress of the  construction of the dwelling  before  disbursements
are made.

         The  Company  also  makes  loans to  builders  and  developers  for the
development of one- to four-family lots in the Company's market area. All of the
Company's land loans have been originated with adjustable rates of interest tied
to the prime rate of interest  and have terms of five years or less.  Land loans
are generally made in amounts up to a maximum  loan-to-value ratio of 65% on raw
land  and up to  75% on  developed  building  lots  based  upon  an  independent
appraisal.  When feasible,  the Company obtains personal guarantees for its land
loans.

                                       12
<PAGE>

         The table below sets forth,  by type of security  property,  the number
and amount of the Company's  construction  and land loans at September 30, 1997,
all of which are secured by properties located in the Company's market area.
<TABLE>
<CAPTION>

                                                                   Outstanding       Amount
                                             Number       Loan      Principal    Non-Performing
                                            of Loans   Commitment    Balance    or of Concern(1)
                                            --------   ----------    -------    ----------------
                                                    (Dollars in Thousands)
<S>                                             <C>      <C>          <C>          <C>   
Single-family construction .............        12       $2,786       $1,695       $  632
Residential land .......................         7        1,518        1,518          376
Other land .............................         2          296          296          296
                                            ------       ------       ------       ------
 Total construction and land loans .....        21       $4,600       $3,509       $1,304
                                            ======       ======       ======       ======
</TABLE>
----------
(1)  See "- Delinquencies and Non-Performing Assets"

         Construction and land loans are obtained  principally through referrals
from the Company's and management's  contacts in the business  community as well
as existing and walk-in customers. The application process includes a submission
to the Company of accurate plans,  specifications and costs of the project to be
constructed/developed.  These  items  are  used  as a  basis  to  determine  the
appraised  value of the  subject  property.  Loans  are  based on the  lesser of
current appraised value and/or the cost of construction (land plus building).

         Construction  and  land  lending   generally  affords  the  Company  an
opportunity  to receive  interest  at rates  higher than those  obtainable  from
permanent  residential  loans and to receive higher  origination  and other loan
fees.  In  addition,  construction  and  land  loans  are  generally  made  with
adjustable  rates of  interest  or for  relatively  short  terms.  Nevertheless,
construction and land lending is generally  considered to involve a higher level
of  credit  risk  than  one-  to  four-family  residential  lending  due  to the
concentration  of principal in a limited number of loans and borrowers,  as well
as the effects of general economic  conditions on development  properties and on
real estate developers and managers.  In addition,  the nature of these loans is
such that they are more difficult to evaluate and monitor.  Finally, the risk of
loss on  construction  and land loans is dependent  largely upon the accuracy of
the initial estimate of the individual  property's value upon completion and the
estimated cost (including interest) of construction. If the cost estimate proves
to be inaccurate, the Company may be required to advance funds beyond the amount
originally committed to permit completion of the property.

         Consumer Lending. In order to increase the interest rate sensitivity of
the loan  portfolio  and provide a broader  range of loan products to its retail
customers,  the  Company  originates  a variety  of  consumer  loans,  including
automobile,  home  equity,  deposit  account and other loans for  household  and
personal purposes.  At September 30, 1997,  consumer loans totaled $6.1 million,
or 4.3% of total  loans  outstanding.  The  Company  intends  to  emphasize  its
consumer  lending in the future and to consider  hiring an  additional  consumer
lending officer in order to increase volume.

                                       13


<PAGE>



         Consumer  loan  terms vary  according  to the type of loan and value of
collateral,  length  of  contract  and  creditworthiness  of the  borrower.  The
Company's  consumer loans are made at fixed interest rates,  with terms of up to
10 years.  Home equity loans are made at fixed rates up to a maximum loan amount
of $50,000.

         The underwriting  standards  employed by the Company for consumer loans
include a determination  of the  applicant's  payment history on other debts and
the ability to meet  existing  obligations  and payments on the  proposed  loan.
Although  creditworthiness  of the  applicant is of primary  consideration,  the
underwriting process also includes a comparison of the value of the security, if
any, in relation to the proposed loan amount.

         Consumer loans may entail greater credit risk than residential mortgage
loans,  particularly  in the case of consumer  loans which are  unsecured or are
secured by rapidly depreciable  assets, such as automobiles.  In such cases, any
repossessed collateral for a defaulted consumer loan may not provide an adequate
source of repayment of the  outstanding  loan balance as a result of the greater
likelihood  of  damage,  loss  or  depreciation.   In  addition,  consumer  loan
collections are dependent on the borrower's continuing financial stability,  and
thus  are  more  likely  to  be  affected  by  adverse  personal  circumstances.
Furthermore,  the  application  of various  federal  and state  laws,  including
bankruptcy and  insolvency  laws, may limit the amount which can be recovered on
such  loans.  At  September  30,  1997,  there  were  $9,000 of  consumer  loans
delinquent 90 days or more.  There can be no assurance that  delinquencies  will
not increase in the future.

         Commercial Business Lending.  Federally chartered savings institutions,
such as the  Association,  are authorized to make secured or unsecured loans and
letters of credit for commercial,  corporate, business and agricultural purposes
and to engage in commercial leasing activities,  up to a maximum of 20% of total
assets,  provided that amounts in excess of 10% relate to small  business  loans
(as defined). The Company may from time to time make a limited number of secured
and unsecured  commercial loans to local businesses.  At September 30, 1997, the
Company had $1.3 million of commercial business loans outstanding,  representing
0.9% of the total loan portfolio.

         The Company's  commercial  business lending policy includes credit file
documentation and analysis of the borrower's character and capacity to repay the
loan, the adequacy of the borrower's  capital and collateral,  and an evaluation
of conditions  affecting the borrower.  Analysis of the borrower's past, present
and  future  cash flows is also an  important  aspect of the  Company's  current
credit analysis.

         Unlike  residential  mortgage  loans,  which  generally are made on the
basis of the borrower's ability to make repayment from his or her employment and
other  income,  and which are secured by real  property  whose value tends to be
more  easily  ascertainable,  commercial  business  loans are of higher risk and
typically are made on the basis of the borrower's ability to make repayment from
the cash flow of the borrower's business. As a result, the availability of funds
for the repayment of commercial business loans may be substantially dependent on
the success of the business itself.  Further,  the collateral securing the loans
may  depreciate  over time,  may be difficult  to appraise and may  fluctuate in
value based on the success of the business.


                                       14

<PAGE>



Originations, Purchases and Sales of Loans

         Loan  applications  are  taken  at  each  of  the  Company's   offices.
Applications  are processed  and approved at the Company's  Loan Center which is
located  in one of the  branch  offices,  except for  consumer  loans  which are
processed  and  approved  at the  main  office.  The  Company  currently  offers
incentives   to  employees  for  loan   referrals.   The  Company  also  employs
commissioned  loan  originators and utilizes  mortgage  brokers to assist in the
process of obtaining loans.

         While the Company originates both fixed- and adjustable-rate loans, its
ability to originate  loans is dependent upon the relative  customer  demand for
loans in its market.  Demand is affected by the local  economy and the  interest
rate environment.

         Historically,  most of the fixed-rate  one- to four-family  residential
loans  originated by the Company were  retained in its  portfolio.  However,  in
order to reduce its  vulnerability  to changes in  interest  rates,  the Company
engages in  secondary  market sales of a portion of its  fixed-rate  residential
mortgage  originations.  When loans are sold, the Company  typically retains the
responsibility  for collecting and remitting loan payments,  making certain that
real  estate  tax  payments  are made on  behalf  of  borrowers,  and  otherwise
servicing the loans.  At September 30, 1997, the Company  serviced $15.5 million
of mortgage loans for others.

         From time to time, in order to supplement  loan demand in the Company's
market area, the Company  acquires  mortgage-backed  securities  which are held,
depending on the investment  intent, in the "held to maturity" or "available for
sale" portfolios. See "- Investment Activities - Mortgage-Backed Securities" and
Note 2 of the Notes to Consolidated Financial Statements.



                                       15

<PAGE>



         The following table sets forth the Company's loan originations,  sales,
repayments and other portfolio activity for the periods indicated.

                                                    For the Year Ended
                                                       September 30,
                                            ------------------------------------
                                               1997          1996        1995
                                               ----          ----        ----
                                                      (In Thousands)
Unpaid principal balances at
 beginning of year ......................   $  88,246    $  85,092    $  79,382
                                            ---------    ---------    ---------
Loans originated:
  Real estate mortgage loans
    One- to four-family(1) ..............      60,510        9,142        7,787
    Multi-family ........................         839          174        1,328
    Commercial ..........................       2,815        2,740        3,548
    Construction ........................       2,913        1,285          755
    Land ................................         150           --        1,300
  Consumer and commercial business
    loans ...............................       2,919        4,415        2,732
                                            ---------    ---------    ---------
    Total loans originated ..............      70,146       17,756       17,450
                                            ---------    ---------    ---------
    Loans sold:
  One- to four-family real estate
    mortgage loans ......................      (2,822)      (1,886)        (387)
                                            ---------    ---------    ---------
  Principal repayments:
  Real estate mortgage loans ............     (10,846)      (9,389)      (8,807)
  Consumer and commercial business loans       (2,766)      (2,391)      (2,154)
                                            ---------    ---------    ---------
    Total principal repayments ..........     (13,612)     (11,780)     (10,961)
                                            ---------    ---------    ---------
  Charge-offs ...........................        (157)        (333)         (89)
  Transfers to real estate owned ........        (313)        (603)        (303)
                                            ---------    ---------    ---------
  Unpaid principal balances at
    end of year .........................     141,488       88,246       85,092
  Less:
     Construction loans in process ......      (1,091)        (171)        (293)
     Allowance for loan losses ..........      (1,093)        (937)        (719)
     Net deferred loan fees .............        (184)        (472)        (401)
                                            ---------    ---------    ---------
  Net loans at end of year ..............   $ 139,120    $  86,666    $  83,679
                                            =========    =========    =========
----------
(1)  Consists of (i)  adjustable-rate  loans of $32.3 million,  $5.6 million and
     $3.4 million, and (ii) fixed-rate loans of $28.2 million,  $3.5 million and
     $4.4  million  for the  years  ended  September  30,  1997,  1996 and 1995,
     respectively.  The  fixed-rate  loans in fiscal 1997 include loans of $20.4
     million  which were held for sale at  September  30, 1997 and  subsequently
     sold (with servicing retained) in November 1997.

Delinquencies and Non-Performing Assets

         Delinquency  Procedures.  When a  borrower  fails  to  make a  required
payment on a loan,  the Company  attempts to cure the  delinquency by contacting
the  borrower.  A late  notice  is sent on all  loans  over 16 days  delinquent.
Additional  written and verbal contacts may be made with the borrower between 30
and 90 days after the due date. If the loan is contractually delinquent 60 days,
the Company  usually sends a 30-day demand letter to the borrower and, after the
loan is  contractually  delinquent  91 days,  institutes  appropriate  action to
foreclose on the property.  If  foreclosed,  the property is sold at auction and
may be purchased by the Company. Delinquent consumer loans are generally handled
in a similar manner. The

                                       16

<PAGE>



Company's  procedures  for  repossession  and sale of  consumer  collateral  are
subject to various requirements under New York consumer protection laws.

         Real estate  acquired by the Company as a result of  foreclosure  or by
deed in lieu of foreclosure is classified as real estate owned until it is sold.
When property is acquired or expected to be acquired by  foreclosure  or deed in
lieu of  foreclosure,  it is recorded at estimated fair value less the estimated
cost of disposition,  with the resulting write-down charged to the allowance for
loan losses.  After acquisition,  all costs incurred in maintaining the property
are expensed. Costs relating to the development and improvement of the property,
however, are capitalized.

         The following table sets forth certain information with respect to loan
portfolio delinquencies at the dates indicated.
<TABLE>
<CAPTION>

                                                        At September 30, 1997                       At September 30, 1996
                                              -------------------------------------------  -----------------------------------------
                                                   60 - 89 Days         90 Days or More        60 - 89 Days       90 Days or More
                                              ---------------------  --------------------  -------------------  --------------------
                                              Number of   Principal  Number of  Principal  Number of Principal  Number of  Principal
                                                 Loans      Balance    Loans     Balance     Loans    Balance     Loans     Balance
                                                 -----      -------    -----     -------     -----    -------     -----     -------
                                                                            (Dollars in Thousands)
Real estate mortgage loans:
<S>                                                 <C>    <C>            <C>  <C>             <C>    <C>          <C>    <C>   
    One- to four-family ......................      1      $   88         3    $  389          12     $1,513       17     $1,757
    Multi-family .............................      1         101        --        --          --         --       --         --
    Construction .............................      1          88         2       279          --         --        3        511
    Land .....................................     --          --         3       250          --         --        3        250
    Commercial ...............................     --          --         1       211           1        383        1        214
    Consumer loans ...........................      1           7         2         9           3          5        7         43
                                                  ---      ------       ---    ------         ---     ------      ---     ------
       Total .................................      4      $  248        11    $1,138          16     $1,190       31     $2,775
                                                  ===      ======       ===    ======         ===     ======      ===      =====
       Delinquent loans to total loans(1) ....               0.20%               0.80%                  2.15%               3.14%
                                                           ======              ======                 ======              ======
</TABLE>
----------
(1)  If loans held for sale at September 30, 1997 are excluded from total loans,
     the  percentages are 0.23% for the 60-89 days category and 0.94% for the 90
     days or more category.

         Classification of Assets. Federal regulations require that each savings
institution  classify  its own  assets  on a  regular  basis.  In  addition,  in
connection  with  examinations of savings  institutions,  OTS and FDIC examiners
have authority to identify  problem assets and, if appropriate,  require them to
be classified.  There are three classifications for problem assets: substandard,
doubtful,  and loss.  Substandard assets have one or more defined weaknesses and
are characterized by the distinct  possibility that the institution will sustain
some  loss if the  deficiencies  are not  corrected.  Doubtful  assets  have the
weaknesses of substandard assets, with the additional  characteristics  that the
weaknesses  make  collection  or  liquidation  in full on the basis of currently
existing  facts,  conditions  and  values  questionable,  and  there  is a  high
possibility of loss. An asset classified loss is considered uncollectible and of
such  little  value that  continuance  as an asset on the  balance  sheet of the
institution  is not  warranted.  Assets  classified as  substandard  or doubtful
require the institution to establish prudent general allowances for loan losses.
If an asset or portion  thereof is  classified  as loss,  the  institution  must
either  establish  specific  allowances for loan losses in the amount of 100% of
the  portion of the asset  classified  loss,  or charge off such  amount.  If an
institution does not agree with an examiner's classification of an asset, it may
appeal this  determination to the Regional  Director of the OTS. On the basis of
management's  review,  at September 30, 1997,  the Company had  classified  $1.2
million of loans and $379,000 of real estate owned as substandard, and $2,000 of
loans as doubtful.

         The Company's  classified assets consist  principally of non-performing
loans, real estate owned and certain other loans of concern discussed herein. As
of the date hereof,  these asset  classifications  are substantially  consistent
with those of the OTS and FDIC.


                                       17

<PAGE>

         Non-Performing  Assets.  The table  below  sets forth the  amounts  and
categories of the Company's non-performing assets at the dates indicated.  Loans
are placed on  non-accrual  status when the  collection of principal or interest
becomes doubtful. Real estate owned represents properties acquired in settlement
of  loans.  The  Company's   prospective  adoption  of  Statement  of  Financial
Accounting  Standards ("SFAS") No. 114,  "Accounting by Creditors for Impairment
of a Loan,"  effective  October 1, 1995, had no impact on the  comparability  of
this information.

                                               At September 30,
                                   ------------------------------------------
                                   1997     1996     1995      1994      1993
                                   ----     ----     ----      ----      ----
                                               (Dollars in Thousands)
Non-accruing loans past
 due 90 days or more:
 Real estate mortgage loans
  One- to four-family ........   $  389    $1,757    $2,759    $2,229    $  479
  Multi-family(1) ............       --        --       389       389       399
  Commercial .................      211       214        --        --        --
  Land .......................      250       250        49        --        --
  Construction ...............      279       511       279        --       217
 Consumer loans ..............        9        43        54        45        62
                                 ------    ------    ------    ------    ------
   Total .....................    1,138     2,775     3,530     2,663     1,157
Real estate owned, net .......      379       603       227        73       242
                                 ------    ------    ------    ------    ------
Total non-performing assets ..   $1,517    $3,378    $3,757    $2,736    $1,399
                                 ======    ======    ======    ======    ======
Allowance for loan losses ....   $1,093    $  937    $  719    $  311    $  295
                                 ======    ======    ======    ======    ======
Ratios:
 Non-performing loans to total
  loans receivable(2) ........     0.94%     3.14%     4.15%     3.35%     1.46%
 Non-performing assets to
  total assets ...............     0.48      1.30      1.80      1.40      0.77
 Allowance for loan losses to:
  Non-performing loans .......    96.05     20.37     11.68     25.50     33.77
  Total loans receivable(2) ..     0.90      0.84      0.39      0.37      1.06
----------
(1)  Includes a participation  loan classified as a troubled debt  restructuring
     of $309,000,  $309,000 and $312,000 at September  30, 1995,  1994 and 1993,
     respectively.  Collections  and  charge-offs in fiscal 1996  eliminated the
     recorded investment in this loan.

(2)  Total loans receivable for this purpose exclude loans held for sale.

         For the year  ended  September  30,  1997,  gross  interest  income  of
$107,000  would have been  recorded if the  non-accruing  loans at September 30,
1997 had remained current in accordance with their original terms. The amount of
interest income actually received on such loans in fiscal 1997 was $15,000.  See
Note 3 of the Notes to Consolidated Financial Statements.

         At September 30, 1997, the Company's  non-performing loans consisted of
(1) three  loans  secured  by one- to  four-family  real  estate  located in the
Company's market area which totaled $389,000;  (2) one loan for $211,000 secured
by a store and five  apartments  located in Yonkers,  New York;  (3) three loans

                                       18
<PAGE>

secured by land which totaled  $250,000;  (4) two loans for the  construction of
one- to  four-family  real estate for  $279,000  which were  settled in November
1997;  and (5) two consumer loans which totaled  $9,000.  At September 30, 1997,
real estate owned consisted of five single-family residences with a net carrying
value of $379,000.

         Other Loans of Concern.  In  addition to the  non-performing  loans and
real estate owned discussed in the preceding  section,  as of September 30, 1997
there were other loans of concern  totaling  approximately  $1.0 million." These
are loans with  respect to which known  information  about the  possible  credit
problems of the  borrowers  or the cash flows of the  security  properties  have
caused  management to have concerns as to the ability of the borrowers to comply
with present loan repayment  terms and which may result in the future  inclusion
of such items in the non-performing asset categories.  Management has considered
the Company's  non-performing  loans and other loans of concern in  establishing
the allowance for loan losses.

         As of  September  30,  1997,  the  Company had the  following  loans of
concern  with  principal  balances  in excess of  $200,000  (other  than one- to
four-family mortgage loans):

               The Company has a $247,000 land loan, secured by a lot located in
          Patterson,  New York.  The  borrower  intended  to build a  commercial
          building on the security  property.  At September  30, 1997,  although
          this  loan  was  performing,  it  was  classified  substandard  due to
          hazardous  building materials on an adjacent lot which may result in a
          decline  in  value  of the  security  property.  Although  a  phase  I
          environmental  study  performed  on  the  security  property  did  not
          disclose any contamination to the security property from the adjoining
          lot, the  contamination on the adjacent lot has prevented the borrower
          from  using the  security  property  for its  intended  purpose.  As a
          result,  the loan was  extended  and  modified  in  January  1997 as a
          15-year,  self-liquidating  loan with  market  rate of  interest.  The
          borrower is  continuing  to make  payments on this loan as required by
          the terms of the loan  agreement and is waiting for the  resolution of
          the problem with the adjacent property.

               The Company has a development loan secured by 25 residential lots
          located in Dutchess  County,  New York.  Sales of lots have been slow,
          and the Company has renewed the loan several times at market rates and
          terms.  At September  30, 1997,  10 of the 15 lots in phase I had been
          sold and  construction of the homes  completed.  This development loan
          was performing and had an outstanding balance of $175,000 at September
          30, 1997. On such date, the Company also had two construction loans to
          the  same  borrower  totaling  $353,000  for the  construction  of two
          single-family  homes in this  development.  Although  such  loans were
          current at September 30, 1997, the Company considers these loans to be
          of concern due to the slow sales in the development.

               The  Company  has a  $227,000  participation  interest  in a $3.5
          million  commercial  mortgage  loan  secured  by  a  two-story  office
          building  located  in  Queens,  New  York  originated  by  the  Thrift

                                       19
<PAGE>

          Association  Service  Corporation  ("TASCO").  This loan has a 30-year
          amortization schedule with a balloon payment which was due in December
          1996.  Prior  to  this  scheduled  maturity,  the  borrower  had  been
          unsuccessful in attempting to secure  financing  elsewhere in order to
          payoff the loan. At that time, an extension was granted for six months
          at the original  terms of the loan until May 4, 1997. At September 30,
          1997, the Company and the other participants had been unable to arrive
          at an acceptable  settlement  concerning the extension of the loan. In
          November  1997,  a  settlement  was  structured  with  regard  to  the
          extension of the loan which is currently  awaiting  approval  from the
          participants.  This loan was 30 days  delinquent at September 30, 1997
          and is considered to be of concern because the extended  maturity date
          has passed and the  participants  have not yet agreed on new repayment
          terms.

         Allowance for Loan Losses. The allowance for loan losses is established
through a provision for loan losses charged to operations  based on management's
evaluation  of the  risk  inherent  in the  loan  portfolio.  The  allowance  is
established  as an amount that  management  believes  will be adequate to absorb
probable  losses on existing loans.  Management's  evaluation of the adequacy of
the allowance,  which is subject to periodic review by the Company's regulators,
takes into  consideration  such factors as the historical loan loss  experience,
known and inherent risks in the  portfolio,  changes in the nature and volume of
the loan portfolio, overall portfolio quality, review of specific problem loans,
estimated value of underlying  collateral,  and current economic conditions that
may affect borrowers' ability to pay. While management believes that it uses the
best  information   available  to  determine  the  allowance  for  loan  losses,
unforeseen  market  conditions  could result in adjustments to the allowance for
loan losses, and net earnings could be significantly  affected, if circumstances
differ substantially from the estimates made in making the final determination.



                                       20

<PAGE>


         The  following  table sets forth  activity  in the  allowance  for loan
losses for the periods indicated. The Company's prospective adoption of SFAS No.
114 in fiscal 1995 had no impact on the comparability of this information.
<TABLE>
<CAPTION>

                                                                    For the Year Ended September 30,
                                                          ------------------------------------------------------
                                                            1997       1996         1995       1994        1993
                                                            ----       ----         ----       ----        ----
                                                                             (Dollars in Thousands)
<S>                                                      <C>         <C>         <C>         <C>         <C>    
Balance at beginning of year .........................   $   937     $   719     $   311     $   295     $   490
Provision for losses .................................       300         462         493          64         313
Charge-offs:
  Real estate mortgage loans
    One- to four-family ..............................      (132)        (97)        (76)        (64)        (19)
    Multi-family(1) ..................................        --        (203)         --          --        (477)
  Consumer loans .....................................       (25)        (33)        (13)         (2)        (12)
                                                         -------     -------     -------     -------     -------
    Total charge-offs ................................      (157)       (333)        (89)        (66)       (508)
Recoveries(2) ........................................        13          89           4          18          --
                                                         -------     -------     -------     -------     -------
    Net charge-offs ..................................      (144)       (244)        (85)        (48)       (508)
                                                         -------     -------     -------     -------     -------
Balance at end of year ...............................   $ 1,093     $   937     $   719     $   311     $   295
                                                         =======     =======     =======     =======     =======

       Ratio of net charge-offs to average total loans      0.15%       0.29%       0.10%       0.06%       0.62%
                                                         =======     =======     =======     =======     =======
</TABLE>
----------
(1)  Charge-offs  in  fiscal  1996 and 1993  relate to the  Company's  purchased
     participation  interests in three  multi-family  loans originated by TASCO.
     All such  purchased  participations  were  collected or  charged-off  prior
     September 30, 1996.

(2)  Recoveries   in  fiscal  1996   primarily   relate  to  one  of  the  TASCO
     participation loans which had been partially charged-off in a prior year.


                                       21

<PAGE>



         The following table sets forth the allowance for loan losses  allocated
by loan category,  the total loan amounts by category,  and the percent of loans
in each category to loans receivable at the dates indicated.
<TABLE>
<CAPTION>

                                                                                  At September 30,
                                          ------------------------------------------------------------------------------------------
                                                        1997                            1996                         1995
                                          -----------------------------  -------------------------------  --------------------------
                                                             Percent of                       Percent of                  Percent of
                                                               Loans in                         Loans in                    Loans in
                                                               Each to                          Each to                      Each to
                                                        Loan   Category               Loan      Category             Loan   Category
                                          Allowance  Amounts by  Total   Allowance  Amounts by   Total   Allowance Amounts by  Total
                                            Amount   Category(1) Loans    Amount    Category     Loans    Amount   Category    Loans
                                            ------   ----------  -----    ------    --------     -----    ------   --------    -----
                                                                   (Dollars in Thousands)
Real estate mortgage loans:
<S>                                       <C>        <C>         <C>     <C>      <C>           <C>     <C>      <C>           <C>  
  One- to four-family .................   $    608   $ 91,367    75.5%   $  538   $ 62,283      70.6%   $  302   $ 63,282      74.4%
  Multi-family ........................         11      5,658     4.7        11      5,471       6.2        64      5,647       6.6
  Commercial ..........................        121     11,990     9.9        91      9,117      10.3        66      6,575       7.7
  Construction ........................         98      2,786     2.3        74      2,175       2.5        75      2,205       2.6
  Land(2) .............................        196      1,814     1.5       166      1,934       2.2       171      2,112       2.5
  Consumer and commer-
  cial business loans .................         59      7,419     6.1        57      7,266       8.2        41      5,271       6.2
                                          --------   --------   -----    --------   --------   -----    --------   --------   -----
Total .................................   $  1,093   $121,034   100.0%   $  937   $ 88,246     100.0%   $  719   $ 85,092     100.0%
                                          ========   ========   =====    ========   ========   =====    ========   ========   =====
</TABLE>

<TABLE>
<CAPTION>

                                                         At September 30,
                             --------------------------------------------------------------------------
                                           1994                                      1993
                             ----------------------------------    ------------------------------------
                                                     Percent of                              Percent of
                                                      Loans in                                Loans in
                                                       Each to                                Each to
                                            Loan      Category                   Loan         Category
                             Allowance   Amounts by     Total      Allowance   Amounts by       Total
                               Amount     Category      Loans        Amount     Category        Loans
                               ------    ----------     -----        ------     --------        -----
                                                           (Dollars in Thousands)
Real estate mortgage loans:                                                                 
<S>                                <C>    <C>            <C>         <C>        <C>              <C>  
  One- to four-family .....        188    $ 64,078       80.7%       $ 183      $ 67,633         85.1%
  Multi-family ............         64       4,483        5.7           61         2,281          2.9
  Commercial ..............         20       3,176        4.0           17         2,704          3.4
  Construction ............         16       2,138        2.7           12         1,472          1.9
  Land(2) .................          8         814        1.0            9           914          1.1
  Consumer and commer-                                                                      
  cial business loans .....         15       4,693        5.9           13         4,433          5.6
                              --------    --------      -----       ------       -------        -----
Total .....................        311    $ 79,382      100.0%       $ 295      $ 79,437        100.0%
                              ========    ========      =====       ======       =======        =====
                                                                                         
</TABLE>
----------
(1)  Excludes real estate mortgage loans held for sale of $20.4 million.

(2)  The allowance at September 30, 1997, 1996 and 1995  principally  represents
     an allocation to land loans "of concern." See "- Other Loans of Concern."

                                       22

<PAGE>

Investment Activities

         General.  The Company utilizes  mortgage-backed and other securities in
virtually  all aspects of its  asset/liability  management  strategy.  In making
investment decisions, the Board of Directors considers,  among other things, the
Company's yield and interest rate objectives,  its interest rate and credit risk
position, and its liquidity and cash flow.

         Yonkers  Savings  must  maintain  minimum  levels of  investments  that
qualify as liquid  assets  under OTS  regulations.  Liquidity  may  increase  or
decrease  depending upon the  availability  of funds and  comparative  yields on
investments  in  relation  to the  return on loans.  Cash flow  projections  are
regularly reviewed and updated to assure that adequate liquidity is maintained.


         Generally,  the  investment  policy of the  Company is to invest  funds
among  categories  of  investments  and  maturities  based  upon  the  Company's
asset/liability  management  policies,  investment  quality,  loan  and  deposit
volume,  liquidity needs and performance  objectives.  SFAS No. 115, "Accounting
for Certain Investments in Debt and Equity Securities," requires that securities
be classified into three categories:  trading,  held to maturity,  and available
for sale.  Securities  that are bought and held  principally  for the purpose of
selling  them in the near term are  classified  as  trading  securities  and are
reported at fair value with  unrealized  gains and losses  included in earnings.
Debt  securities  for which the Company has the  positive  intent and ability to
hold to maturity  are  classified  as held to maturity and reported at amortized
cost.  All other  securities  not  classified as trading or held to maturity are
classified as available for sale.  Available-for-sale securities are reported at
fair value with unrealized gains and losses included,  on an after-tax basis, in
a separate  component  of equity.  At  September  30,  1997,  the Company had no
securities  classified as trading. At September 30, 1997, $86.3 million or 53.1%
of  the  Company's  mortgage-backed  and  other  securities  was  classified  as
available for sale.  The remaining  $76.3 million,  or 46.9%,  was classified as
held to maturity.

         Mortgage-Backed  Securities.  The  Company  invests in  mortgage-backed
securities   in  order  to   supplement   loan   production   and   achieve  its
asset/liability   management   goals.   The   Company   has  also   invested  in
mortgage-backed  securities in order to take advantage of the spread between the
yield on such  securities  and the cost of  borrowings  from the FHLB and  other
"wholesale"  sources.  In a number of  instances,  the expected  maturity of the
securities  purchased has been significantly longer than the term of the related
borrowings.

         Substantially  all  of  the  mortgage-backed  securities  owned  by the
Company are issued,  insured or  guaranteed  either  directly or indirectly by a
federal  agency or are rated "AA" or  higher.  As of  September  30,  1997,  the
Company did not have any mortgage-backed securities of a single issuer in excess
of 10% of the  Company's  equity,  except for  federal  agency  obligations.  At
September  30,  1997,   the  Company  had  $50.3  million  and  $43.0   million,
respectively,  of mortgage-backed  securities classified as held to maturity and
as available for sale.

         Consistent with its asset/liability  management strategy,  at September
30, 1997, $55.0 million,  or 58.9% of the Company's  mortgage-backed  securities
had adjustable interest rates. In addition, as discussed below, at September 30,
1997,  the Company had $12.2 million of CMOs with  anticipated  average lives of

                                       23
<PAGE>


five  years  or  less.  For  additional   information  regarding  the  Company's
mortgage-backed  securities  portfolio,  see Note 2 of the Notes to Consolidated
Financial Statements.

         CMOs  are  securities  derived  by  reallocating  the cash  flows  from
mortgage-backed  securities  or pools  of  mortgage  loans  in  order to  create
multiple classes, or tranches, of securities with coupon rates and average lives
that differ from the underlying  collateral as a whole.  The term to maturity of
any particular  tranche is dependent upon the prepayment speed of the underlying
collateral as well as the structure of the particular CMO. As a result, the cash
flows (and hence the values) of certain CMOs are subject to substantial change.

         Management believes that CMOs at times represent attractive  investment
alternatives  relative to other  investments due to the wide variety of maturity
and repayment options available  through such  investments.  In particular,  the
Company has from time to time  concluded  that short and  intermediate  duration
CMOs (seven-year or less estimated average life) represent a better  combination
of rate  and  duration  than  adjustable  rate  mortgage-backed  securities.  At
September 30, 1997, the Company held $23.2 million of CMOs.

         To  assess  price  volatility,   the  Federal  Financial   Institutions
Examination  Council ("FFIEC") adopted a policy in 1992 which requires an annual
"stress" test of mortgage  derivative  securities.  This policy,  which has been
adopted by the OTS,  requires the Company to annually test its CMOs to determine
whether  they are  high-risk or  nonhigh-risk  securities.  Mortgage  derivative
products  with an  average  life or price  volatility  in excess of a  benchmark
30-year,   mortgage-backed,   pass-through  security  are  considered  high-risk
mortgage securities.  Under the policy,  savings institutions may generally only
invest in high-risk  mortgage  securities in order to reduce interest rate risk.
In addition,  all high-risk mortgage  securities acquired after February 9, 1992
which are classified as high risk at the time of purchase must be carried in the
institution's trading account or as assets held for sale. At September 30, 1997,
none of the Company's CMOs were classified as "high-risk."

         The value of the  Company's  mortgage-backed  securities,  particularly
those  carrying  fixed rates,  would  decline  significantly  in the event of an
increase in interest  rates.  In  addition,  a decrease in interest  rates could
result in an increase in prepayments on the fixed-rate  portion of the Company's
mortgage-backed  securities  portfolio.  Funds  from  such  prepayments  may  be
reinvested at a lower yield. Similarly, a decline in interest rates would result
in the downward adjustment of the rates earned on the Company's adjustable-rate,
mortgage-backed  securities  portfolio  resulting  in lower  yields and interest
income in future periods.


                                       24

<PAGE>



         The following table sets forth the amortized cost and fair value of the
mortgage-backed  securities portfolio, by accounting classification category and
by type of security, at the dates indicated:
<TABLE>
<CAPTION>

                                                                                         At September 30,
                                                          --------------------------------------------------------------------------
                                                                     1997                    1996                      1995
                                                          ----------------------    ----------------------     ---------------------
                                                          Amortized      Fair       Amortized       Fair       Amortized      Fair
                                                             Cost        Value         Cost         Value        Cost         Value
                                                             ----        -----         ----         -----        ----         -----
                                                                                         (In Thousands)
Held to Maturity
<S>                                                         <C>          <C>          <C>          <C>          <C>          <C>    
    Pass-through securities ..........................      $35,283      $35,905      $41,493      $41,520      $35,586      $35,874
    CMOs .............................................       15,063       15,066       16,646       16,478       17,025       16,880
                                                            -------      -------      -------      -------      -------      -------
       Total .........................................       50,346       50,971       58,139       57,998       52,611       52,754
                                                            -------      -------      -------      -------      -------      -------
Available for Sale
    Pass-through securities ..........................       34,460       34,892       20,679       20,572        4,151        4,170
    CMOs .............................................        8,148        8,146        2,146        2,139        2,272        2,266
                                                            -------      -------      -------      -------      -------      -------
       Total .........................................       42,068       43,038       22,825       22,711        6,423        6,436
                                                            -------      -------      -------      -------      -------      -------
       Total mortgage-backed securities ..............      $92,954      $94,009      $80,964      $80,709      $59,034      $59,190
                                                            =======      =======      =======      =======      =======      =======
</TABLE>

         All mortgage-backed securities are guaranteed by Ginnie Mae, Fannie Mae
or Freddie Mac, except for privately issued securities with an amortized cost of
$302,000,   $367,000  and  $507,000  at  September  30,  1997,  1996  and  1995,
respectively.

                                       25

<PAGE>

         The  following  table  sets forth  certain  information  regarding  the
amortized  cost,  fair  value  and  weighted  average  yield  of  the  Company's
mortgage-backed  securities at September 30, 1997. The entire amortized cost and
fair value of such securities are reflected in the maturity period that includes
the final security  payment date and,  accordingly,  no effect has been given to
periodic repayments or possible prepayments. In addition, under the structure of
some of the  Company's  CMOs,  the  Company's  short-  and  intermediate-tranche
interests  have  repayment  priority  over the longer term  tranches of the same
underlying mortgage pool.
<TABLE>
<CAPTION>

                                                                                    At September 30, 1997
                                                           ----------------------------------------------------------------------
                                                                      Held to Maturity                   Available for Sale
                                                           ----------------------------------   ---------------------------------
                                                                                     Weighted                            Weighted
                                                           Amortized      Fair       Average    Amortized     Fair       Average
                                                              Cost        Value       Yield       Cost        Value       Yield
                                                              ----        -----       -----       ----        -----       -----
                                                                      (Dollars in Thousands)
Pass-through securities:
<S>                                                          <C>         <C>         <C>      <C>            <C>           <C>  
    Due after 1 year but within 5 years ................     $    --     $    --        --%    $    --        $    --        --%
    Due after 5 years but within 10 years ..............         201         205      7.05          --             --        --
    Due after 10 years .................................      35,082      35,700      6.98      34,460         34,892      7.52
                                                              ------      ------                ------         ------      
       Total ...........................................      35,283     $35,905      6.98%     34,460        $34,892      7.52
                                                              ======      ======                ======         ======      
CMOs:
    Due after 1 year but within 5 years ................     $   458     $   471      8.00%         --        $    --        --%
    Due after 5 years but within 10 years ..............       2,395       2,391      6.33          --             --        --
    Due after 10 years .................................      12,210      12,204      5.95       8,148          8,146      7.24
                                                              ------      ------                ------          -----      
       Total ...........................................     $15,063     $15,066      6.07%      8,148         $8,146      7.24
                                                              ======      ======                ======         ======      
</TABLE>

         The  following  table sets forth the  activity  in the  mortgage-backed
securities portfolio for the periods indicated.

                                                For the Year Ended September 30,
                                                --------------------------------
                                                1997         1996        1995
                                                       (In Thousands)
Amortized cost at beginning of year ........   $ 80,964    $ 59,034    $ 57,084
                                               --------    --------    --------
Purchases:
    Pass-through securities:
      Adjustable rate ......................      2,502      21,657       8,500
      Fixed rate ...........................     15,144      10,264       1,000
                                               --------    --------    --------
        Total pass-through securities ......     17,646      31,921       9,500
    CMOs ...................................      8,149          --         946
                                               --------    --------    --------
        Total purchases ....................     25,795      31,921      10,446
                                               --------    --------    --------
    Sales of pass-through securities .......     (4,372)         --      (1,285)
    Principal repayments ...................     (9,421)     (9,979)     (7,210)
    Premium and discount amortization, net .        (12)        (12)         (1)
                                               --------    --------    --------
    Amortized cost at end of year ..........   $ 92,954    $ 80,964    $ 59,034
                                               ========    ========    ========

         Other  Securities.  In  addition  to  mortgage-backed  securities,  the
Company also invests in  high-quality  assets  (primarily  government and agency
obligations)  with short and intermediate  terms (typically seven years or less)
to maturity. At

                                       26

<PAGE>



September  30,  1997,  the Company did not own any  investment  securities  of a
single  issuer  which  exceeded  10% of the  Company's  equity,  other than U.S.
Government or federal agency  obligations.  From time to time, the Company holds
high-grade,  medium-term  (up to five years)  corporate  debt  securities  and a
variety  of  mutual  funds  which  invest  in  adjustable-rate   mortgage-backed
securities,  asset-backed securities,  and U.S. Treasury and Agency obligations.
See Note 2 of the Notes to  Consolidated  Financial  Statements  for  additional
information regarding the Company's securities portfolio.

         From time to time,  the Company has  invested in  "step-up"  securities
which provide for interest rate  increases  periodically  if the security is not
redeemed by the issuer. Because of this "step-up" structure, the Company expects
most of these securities to be redeemed prior to maturity. Prior to investing in
these  securities,  the Company analyzes the yield on the security in comparison
to the option on the part of the issuer to redeem the  security  or pay a higher
interest rate. A majority of the Company's  "step-up"  securities  have terms of
seven  years or less and provide for  increases  in interest  rates of 25 to 180
basis points within one to three years of issuance.  At September 30, 1997,  the
Company had $11.0 million of "step-up"  securities with a weighted average yield
of 6.0%.

         The  following  table sets forth the  amortized  cost and fair value of
other securities, by accounting classification category and by type of security,
at the dates indicated:
<TABLE>
<CAPTION>

                                                                                       At September 30,
                                                      ------------------------------------------------------------------------------
                                                                1997                         1996                     1995
                                                      ---------------------      ----------------------      -----------------------
                                                      Amortized      Fair        Amortized       Fair        Amortized        Fair
                                                         Cost        Value         Cost          Value         Cost           Value
                                                         ----        -----         ----          -----         ----           -----
                                                                                      (In Thousands)
Available for Sale
  U.S. Government and Agency:
<S>                                                    <C>           <C>           <C>           <C>           <C>           <C>    
    Step-up securities .........................       $    --       $    --       $ 3,000       $ 2,969       $ 1,985       $ 2,000
    Other securities ...........................        40,805        41,469        26,960        27,023         6,921         6,951
    Mutual fund investments ....................         1,923         1,779         6,070         5,849         5,740         5,535
                                                       -------       -------       -------       -------       -------       -------
      Total ....................................        42,728        43,248        36,030        35,841        14,441        14,691
                                                       -------       -------       -------       -------       -------       -------
Held to Maturity
  U.S. Government and Agency:
    Step-up securities .........................        10,984        10,956        12,966        12,651        20,960        20,675
    Other securities ...........................        14,999        14,975        23,402        23,012        21,393        21,171
  Corporate bonds ..............................            --            --           500           501           500           500
                                                       -------       -------       -------       -------       -------       -------
     Total .....................................        25,983        25,931        36,868        36,164        42,853        42,346
                                                       -------       -------       -------       -------       -------       -------
     Total other securities, net ...............       $68,711       $69,179       $72,898       $72,005       $57,544       $56,787
                                                       =======       =======       =======       =======       =======       =======
</TABLE>


                                       27

<PAGE>



    The following table sets forth certain  information  regarding the amortized
cost,  fair  value  and  weighted  average  yield of other  debt  securities  at
September 30, 1997, by remaining period to contractual maturity.
<TABLE>
<CAPTION>

                                                       Held to Maturity                   Available for Sale
                                                --------------------------------    --------------------------------
                                                                        Weighted                            Weighted
                                                Amortized     Fair       Average    Amortized     Fair       Average
                                                  Cost        Value       Yield       Cost        Value       Yield
                                                  ----        -----       -----       ----        -----       -----
                                                                      (Dollars in Thousands)
U.S. Government and Agency:
<S>                                              <C>         <C>         <C>          <C>      <C>           <C>
    Due within 1 year........................    $ 1,000     $   998      5.31%       $  ---   $     ---       ---%
    Due after 1 year but within 5 years......     10,986      10,951      5.68           ---         ---       ---
    Due after 5 years but within 10 years....      8,999       9,010      7.01        24,100      24,525      7.54
    Due after 10 years.......................      4,998       4,972      6.55        16,705      16,944      7.64
                                                 -------     -------                  ------     -------
       Total.................................    $25,983     $25,931      6.29%      $40,805     $41,469      7.58%
                                                 =======     =======                 =======     =======
</TABLE>

         In addition to its securities portfolios, from time to time the Company
holds short-term liquid assets such as money market mutual funds,  federal funds
sold and interest-bearing deposits. Short-term investments at September 30, 1997
consisted of a $1.5 million investment in a money market mutual fund.

Sources of Funds

         General. The Company's primary sources of funds are deposits,  payments
(including  prepayments)  of  loan  principal,  interest  earned  on  loans  and
securities,  repayments  of  securities,  borrowings  and  funds  provided  from
operations.

         Deposits.  The Company  offers a variety of deposit  accounts  having a
wide  range of  interest  rates and terms.  The  Company's  deposits  consist of
regular savings (passbook)  accounts,  transaction (NOW and checking)  accounts,
money market accounts,  club accounts and certificate accounts. The Company only
solicits deposits in its market area and does not accept brokered deposits.  The
Company  relies  primarily on  competitive  pricing  policies,  advertising  and
customer service to attract and retain these deposits and provides incentives to
employees who refer new deposit  customers to the Company.  The Company also has
ATMs located in three branch offices.

         The variety of deposit  accounts  offered by the Company has allowed it
to be competitive in obtaining funds and to respond with  flexibility to changes
in  consumer  demand.  As certain  customers  have  become  more  interest  rate
conscious, the Company has become more susceptible to short-term fluctuations in
deposit flows.  The Company  manages the pricing of its deposits in keeping with
its asset/liability management, profitability and growth objectives.

         Management  believes that the "core"  portion of the Company's  regular
savings,  transaction,  money market and club accounts can have a lower cost and
be more resistant to interest rate changes than certificate accounts. These core
accounts  decreased  $970,000  during fiscal 1996,  but  increased  $5.4 million
during  fiscal 1997.  Management  believes  that the  majority of the  remaining
portion of the Company's  regular  savings,  transaction,  money market and club
accounts are  relatively  stable sources of deposits.  The Company  continues to
utilize  customer  service  and  marketing   initiatives   (including  newspaper
advertisements)  in an  effort  to  maintain  and  increase  the  volume of such
deposits.  However,  the ability of the Company to attract  and  maintain  these
accounts  (as well as  certificate  accounts)  has been and will  continue to be
affected by market conditions.


                                       28

<PAGE>



         The following table sets forth the deposit  activity of the Company for
the periods indicated.

                                            For the Year Ended September 30,
                                            --------------------------------
                                          1997            1996           1995
                                          ----            ----           ----
                                                (Dollars in Thousands)
Balance at beginning of year ......    $ 190,675      $ 188,009      $ 179,816
Deposits ..........................      425,392        421,132        297,860
Withdrawals .......................     (416,056)      (426,246)      (296,569)
Interest credited .................        7,922          7,780          6,902
                                       ---------      ---------      ---------
Balance at end of year ............    $ 207,933      $ 190,675      $ 188,009
                                       =========      =========      =========

Net increase during the year:
    Amount ........................    $  17,258      $   2,666      $   8,193
                                       =========      =========      =========
    Percent .......................          9.1%           1.4%           4.6%
                                       =========      =========      =========


         The  following  table  sets  forth the  distribution  of the  Company's
deposit  accounts and the related  weighted  average interest rates at the dates
indicated.
<TABLE>
<CAPTION>

                                                                         At September 30,
                                -------------------------------------------------------------------------------------------
                                            1997                           1996                           1995
                                ----------------------------   ----------------------------   -----------------------------
                                       Percent of  Weighted            Percent of  Weighted            Percent of  Weighted
                                         Total     Average               Total     Average               Total     Average
                                Amount   Deposits    Rate      Amount   Deposits     Rate     Amount    Deposits    Rate
                                ------   --------    ----      ------   --------     ----     ------    --------    ----
                                                                (Dollars in Thousands)
<S>                            <C>         <C>                <C>         <C>               <C>          <C>           
Checking accounts............  $  4,655    2.2%      ---%     $  1,957    1.0%     ---%     $  2,680     1.4%      ---%
NOW accounts.................    19,055    9.2      2.00        18,141    9.5      1.86       15,609     8.3      1.73
Money market accounts........    21,624   10.4      3.33        16,599    8.7      2.91       12,484     6.7      2.91
Regular savings accounts ....    44,591   21.4      2.56        47,832   25.1      2.61       54,794    29.1      2.70
Club accounts................     1,132    0.6      2.56         1,112    0.6      2.61        1,044     0.6      2.70
Savings certificate accounts.   116,876   56.2      5.45       105,034   55.1      5.24      101,398    53.9      5.61
                               --------  -----                --------  -----               --------   -----
    Total....................  $207,933  100.0%     4.15%     $190,675  100.0%     3.99%    $188,009   100.0%     4.16%
                               ========  =====                ========  =====               ========   =====
</TABLE>


                                       29

<PAGE>



         The following table sets forth, by interest rate ranges,  the amount of
savings certificate  accounts  outstanding at the dates indicated and the period
to maturity of savings certificate accounts outstanding at September 30, 1997.
<TABLE>
<CAPTION>

                                                   At  September 30, 1997
                                 ------------------------------------------------------------            Total at
                                                     Period to Maturity                                September 30,
                                 ------------------------------------------------------------       ------------------
                                 Less than      One to       More than                Percent
Interest Rate Range               One Year    Three Years   Three Years      Total    of Total       1996         1995
-------------------               --------    -----------   -----------      -----    --------       ----         ----
                                                             (Dollars in Thousands)
<S>                              <C>           <C>          <C>          <C>           <C>        <C>         <C>
4.00% and below..............    $     ---     $     ---    $     ---     $    ---      ---%       $     39   $   3,174
4.01% to 5.00%...............       30,138           865          ---       31,003     26.5          52,810      18,252
5.01% to 6.00%...............       38,719        31,493        4,228       74,440     63.7          35,805      44,359
6.01% to 7.00%...............        2,975         8,004          454       11,433      9.8          16,293      34,282
7.01% and above..............          ---           ---          ---          ---      ---              87       1,331
                                 ---------     ---------    ---------   ----------     -----       --------   ---------
    Total....................      $71,832       $40,362       $4,682     $116,876    100.0%       $105,034    $101,398
                                   =======       =======       ======     ========    =====        ========    ========
</TABLE>

         The following  table sets forth the maturity  distribution  and related
weighted average interest rates for savings  certificate  accounts with balances
less than $100,000, accounts of $100,000 or more, and total savings certificates
at September 30, 1997.
<TABLE>
<CAPTION>

                                             Less than $100,000          $100,000 or More                Total
                                            ---------------------    ----------------------     --------------------
                                                        Weighted                   Weighted                 Weighted
                                                         Average                    Average                  Average
             Maturity Period                Amount        Rate        Amount         Rate       Amount        Rate
             ---------------                ------        ----        ------         ----       ------        ----
                                                                     (Dollars in Thousands)
<S>                                          <C>          <C>           <C>          <C>         <C>           <C>  
Within three months.....................     $ 18,461     5.11%         $ 2,082      5.33%       $ 20,543      5.13%
After three but within six months.......       19,981     5.17            2,344      5.26          22,325      5.18
After six but within 12 months..........       26,262     5.33            2,635      5.45          28,897      5.34
                                            ---------                   -------                  --------
    Total within one year...............       64,704     5.22            7,061      5.35          71,765      5.23
    After one but within two years......       27,090     5.62            3,792      5.74          30,882      5.64
    After two but within three years....        7,979     6.25            1,568      6.49           9,547      6.29
    After three but within five years...        4,191     5.79              491      5.70           4,682      5.78
                                            ---------                   -------                  --------
    Total...............................     $103,964     5.43%         $12,912      5.62%       $116,876      5.45%
                                             ========                   =======                  ========
</TABLE>

         Borrowings.  The  Company's  other  available  sources of funds include
advances from the FHLB of New York and other  borrowings,  including  repurchase
agreements.  As a member of the FHLB of New York, the Company is required to own
capital  stock in the FHLB of New York and is  authorized  to apply for advances
from the FHLB of New York.  Each FHLB credit  program has its own interest rate,
which may be fixed or variable,  and range of  maturities.  The FHLB of New York
may prescribe the acceptable uses for these advances,  as well as limitations on
the size of the advances and repayment  provisions.  At September 30, 1997,  the
Company had $6.0 million of FHLB advances outstanding. On such date, the Company
had a collateral pledge  arrangement with the FHLB of New York pursuant to which
the Company may borrow up to $76.8 million.

         The Company enters into repurchase agreements with the FHLB of New York
utilizing  mortgage-backed and other securities as collateral.  At September 30,
1997, the Company had $54.1 million of repurchase  agreements  outstanding which
were collateralized by mortgage-backed and other debt securities.

                                       30

<PAGE>


         See  Note 7 of the  Notes  to  Consolidated  Financial  Statements  for
further  information  concerning  the  Company's  FHLB  advances and  securities
repurchase agreements.

         The following table sets forth information  concerning the balances and
interest rates on borrowings at the dates and for the periods indicated.

                                                         At or For the Year
                                                         Ended September 30,
                                                         -------------------
                                                    1997       1996       1995
                                                    ----       ----       ----
                                                      (Dollars in Thousands)
Securities repurchase agreements:
Balance at end of year ........................   $54,096    $10,264    $    --
 Average balance during year ..................    32,074      1,214      1,250
 Maximum outstanding at any month end .........    54,096     10,264      4,000
 Weighted average interest rate at end of year       5.82%        --%      5.44%
 Average interest rate during the year ........      5.77       6.26       5.35
 FHLB advances:
Balance at end of year ........................   $ 6,000    $ 8,000    $ 4,295
 Average balance during year ..................     3,186      2,356        920
 Maximum outstanding at any month end .........     7,500      8,000      4,295
 Weighted average interest rate at end of year       6.75%      5.73%      6.26%
 Average interest rate during the year ........      5.84       5.52       5.87


Service Corporations

         As a federally chartered savings and loan association,  the Association
is  permitted by OTS  regulations  to invest up to 2% of its assets in the stock
of, or loans to, service corporation subsidiaries,  and may invest an additional
1% of its assets in service  corporations  where such additional  funds are used
for inner-city or community  development purposes. In addition to investments in
service corporations,  federal institutions are permitted to invest an unlimited
amount in operating  subsidiaries  engaged solely in activities  which a federal
savings  association  may  engage  in  directly.  At  September  30,  1997,  the
Association had one service corporation, Yonkers Financial Services Corporation,
which offers life insurance on an agency basis to the Association's customers.

Competition

         The Company faces extremely strong competition both in originating real
estate loans and in attracting deposits.  Competition in originating loans comes
primarily  from  mortgage  bankers,  commercial  banks,  credit unions and other
savings  institutions,  which also make loans secured by real estate  located in
the Company's  market area.  The Company  competes for loans  principally on the
basis of the  interest  rates  and loan fees it  charges,  the types of loans it
originates and the quality of services it provides to borrowers.

                                       31

<PAGE>


         Competition  for  deposits  is  intense  given the size of the New York
market and the fact that it is the home state for many large  regional and money
center  banks.  Competition  for deposits is  principally  from money market and
mutual  funds,  securities  firms,  commercial  banks,  credit  unions and other
savings  institutions  located  in  the  same  communities.   There  is  further
competition for deposits from  institutions  offering home and internet computer
banking.  The ability of the Company to attract and retain  deposits  depends on
its ability to provide an investment opportunity that satisfies the requirements
of investors as to rate of return,  liquidity,  risk,  convenient  locations and
other factors. The Company is significantly smaller than most of its competitors
which, due to their size and economies of scale, generally offer a broader range
of deposit products than the Company. The Company competes for these deposits by
offering  deposit  accounts at competitive  rates,  convenient  business  hours,
availability  of ATMs and a customer  oriented  staff.  As of June 30, 1997, the
latest  date such  information  was  available,  there  were 333  other  thrift,
commercial bank and credit union offices in Westchester County which compete for
deposits.  As of June 30, 1996,  the Company held  approximately  1.05% of total
deposits in Westchester County.

Employees

         At September  30, 1997,  the Company had a total of 56 full-time  and 8
part-time  employees.  None of the Company's  employees are  represented  by any
collective bargaining agreement.  Management considers its employee relations to
be good.

Regulation

         General.  Yonkers  Savings is a  federally  chartered  savings and loan
association,  the deposits of which are federally insured and backed by the full
faith and credit of the United States Government.  Accordingly,  Yonkers Savings
is  subject to broad  federal  regulation  and  oversight  extending  to all its
operations.  Yonkers  Savings is a member of the FHLB of New York and is subject
to certain  limited  regulation by the Board of Governors of the Federal Reserve
System ("Federal Reserve Board").  Prior to December 1995, the Association was a
state-chartered  savings and loan  association and was subject to the regulation
of the State of New York Banking  Department.  Effective  December 28, 1995, the
Association  converted  to a federal  charter.  As the savings and loan  holding
company of  Yonkers  Savings,  the  Holding  Company  also is subject to federal
regulation  and  oversight.  The  purpose of holding  company  regulation  is to
protect subsidiary savings associations. Yonkers Savings is a member of the SAIF
and the deposits of Yonkers  Savings are insured by the FDIC.  As a result,  the
FDIC has certain regulatory and examination authority over Yonkers Savings.

         Certain of these regulatory requirements and restrictions are discussed
below or elsewhere in this document.

         Federal  Regulation  of  Savings  Associations.  The OTS has  extensive
authority  over  the  operations  of  savings  associations.  As  part  of  this
authority, Yonkers Savings is required to file periodic reports with the OTS and
is subject to periodic  examinations  by the OTS and the FDIC.  The last regular
OTS safety and soundness  examination of Yonkers  Savings was as of December 31,

                                       32
<PAGE>

1996.  When  these  examinations  are  conducted  by the OTS and the  FDIC,  the
examiners may require  Yonkers Savings to provide for higher general or specific
loan loss  reserves.  All  savings  associations  are  subject to a  semi-annual
assessment,  based upon the  savings  association's  total  assets,  to fund the
operations of the OTS. Yonkers Savings' OTS assessment for the fiscal year ended
September 30, 1997 was approximately $71,000.

         The OTS also  has  extensive  enforcement  authority  over all  savings
institutions  and their holding  companies,  including  Yonkers  Savings and the
Holding Company.  This enforcement  authority includes,  among other things, the
ability to assess civil money penalties,  to issue  cease-and-desist  or removal
orders and to initiate injunctive actions. In general, these enforcement actions
may be initiated for  violations of laws and  regulations  and unsafe or unsound
practices.  Other  actions or  inactions  may provide the basis for  enforcement
action,  including  misleading or untimely  reports  filed with the OTS.  Except
under certain  circumstances,  public disclosure of final enforcement actions by
the OTS is required.

         In addition, the investment, lending and branching authority of Yonkers
Savings is prescribed by federal laws and it is prohibited  from engaging in any
activities not permitted by such laws. For instance,  no savings institution may
invest in  non-investment  grade  corporate debt  securities.  In addition,  the
permissible  level of  investment  by federal  associations  in loans secured by
non-residential real property may not exceed 400% of total capital,  except with
approval of the OTS. Federal savings  associations are also generally authorized
to  branch  nationwide.   Yonkers  Savings  is  in  compliance  with  the  noted
restrictions.

         Yonkers  Savings'  general  permissible  lending limit for loans-to-one
borrower is equal to the greater of  $500,000 or 15% of  unimpaired  capital and
surplus  (except  for  loans  fully  secured  by  certain   readily   marketable
collateral,  in which case this limit is increased to 25% of unimpaired  capital
and surplus).  At September 30, 1997,  Yonkers Savings' lending limit under this
restriction  was  $5.6  million.  Yonkers  Savings  is in  compliance  with  the
loans-to-one borrower limitation.

         The OTS, as well as the other  federal  banking  agencies,  has adopted
guidelines  establishing  safety and soundness standards on such matters as loan
underwriting and  documentation,  internal controls and audit systems,  interest
rate  risk  exposure,   and  compensation  and  other  employee  benefits.   Any
institution  which fails to comply with these standards must submit a compliance
plan. A failure to submit a plan or to comply with an approved plan will subject
the institution to further enforcement action.

         Insurance of Accounts and Regulation by the FDIC.  Yonkers Savings is a
member of the SAIF,  which is administered by the FDIC.  Deposits are insured up
to applicable  limits by the FDIC and such insurance is backed by the full faith
and credit of the United States Government. As insurer, the FDIC imposes deposit
insurance  premiums and is authorized to conduct  examinations of and to require
reporting by FDIC-insured  institutions.  It also may prohibit any  FDIC-insured
institution  from engaging in any activity the FDIC  determines by regulation or
order to pose a serious  risk to the FDIC.  The FDIC also has the  authority  to

                                       33
<PAGE>

initiate enforcement actions against savings associations,  after giving the OTS
an opportunity to take such action,  and may terminate the deposit  insurance if
it determines that the institution has engaged in unsafe or unsound practices or
is in an unsafe or unsound condition.

         The FDIC's deposit insurance premiums are assessed through a risk-based
system under which all insured  depository  institutions  are placed into one of
nine  categories  and  assessed  insurance  premiums,  based upon their level of
capital and supervisory evaluation. Under the system, institutions classified as
well  capitalized  (i.e., a core capital ratio of at least 5%, a ratio of Tier 1
or core capital to  risk-weighted  assets  ("Tier 1  risk-based  capital") of at
least 6% and a risk-based  capital ratio of at least 10%) and considered healthy
pay the  lowest  premium,  while  institutions  that  are less  than  adequately
capitalized (i.e., core or Tier 1 risk-based capital ratios of less than 4% or a
risk-based  capital  ratio  of less  than  8%)  and  considered  of  substantial
supervisory concern pay the highest premium. Risk classifications of all insured
institutions are made by the FDIC for each semi-annual assessment period.

         In order to equalize the deposit  insurance  premium  schedules for BIF
and SAIF  insured  institutions,  the FDIC imposed a special  assessment  on all
SAIF-assessable deposits pursuant to federal legislation passed on September 30,
1996. The Company's special  assessment,  which was approximately  $1.2 million,
was paid in November 1996,  but accrued for the fiscal year ended  September 30,
1996.  Effective  January 1, 1997, the premium schedule for BIF and SAIF insured
institutions   ranged  from  0  to  27  basis  points.   However,   SAIF-insured
institutions are required to pay a Financing  Corporation (FICO) assessment,  in
order to fund the  interest on bonds  issued to resolve  thrift  failures in the
1980s,  equal to 6.48 basis  points for each $100 in  domestic  deposits,  while
BIF-insured  institutions  pay an assessment equal to 1.52 basis points for each
$100 in  domestic  deposits.  The  assessment  is expected to be reduced to 2.43
basis points no later than January 1, 2000, when BIF insured  institutions fully
participate in the  assessment.  These  assessments,  which may be revised based
upon the level of BIF and SAIF  deposits,  will  continue  until the FICO  bonds
mature in the year 2017.

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

         The capital  regulations  require  tangible capital of at least 1.5% of
adjusted total assets (as defined by  regulation).  Tangible  capital  generally
includes  common  stockholders'  equity  and  retained  earnings,   and  certain
noncumulative  perpetual preferred stock and related surplus.  In addition,  all
intangible  assets,  other than a limited amount of purchased mortgage servicing
rights and credit card relationships, must be deducted from tangible capital for
calculating  compliance  with the  requirement.  At September 30, 1997,  Yonkers
Savings had no intangible assets.

                                       34
<PAGE>

         The OTS regulations establish special  capitalization  requirements for
savings associations that own subsidiaries.  In determining  compliance with the
capital requirements,  all subsidiaries engaged solely in activities permissible
for national  banks or engaged in certain other  activities  solely as agent for
its customers are  "includable"  subsidiaries  that are consolidated for capital
purposes in proportion to the association's level of ownership.  Debt and equity
investments in excludable  subsidiaries are deducted from assets and capital. At
September 30, 1997, Yonkers Savings had one "includable" subsidiary.

         At September 30, 1997,  Yonkers  Savings had tangible  capital of $37.1
million,  or 12.1% of adjusted  total  assets,  which is $32.5 million above the
minimum requirement of 1.5% in effect on that date.

         The capital standards also require core capital equal to at least 3% of
adjusted total assets.  Core capital generally consists of tangible capital plus
certain  intangible  assets,  including a limited  amount of purchased  mortgage
servicing rights and credit card  relationships.  At September 30, 1997, Yonkers
Savings had no  intangible  assets.  In  accordance  with the prompt  corrective
action provisions discussed below,  however, a savings association must maintain
a core  capital  ratio of at least 4% to be  considered  adequately  capitalized
unless its supervisory condition is such to allow it to maintain a 3% ratio.

         At September 30, 1997,  Yonkers Savings had core capital equal to $37.1
million,  or 12.1% of adjusted  total  assets,  which is $27.9 million above the
minimum leverage ratio requirement of 3% in effect on that date.

          The OTS risk-based capital regulations require savings associations to
have  total  capital  of at  least 8% of  risk-weighted  assets.  Total  capital
consists  of  core  capital,  as  defined  above,  and  supplementary   capital.
Supplementary  capital  consists  of  certain  permanent  and  maturing  capital
instruments  that do not qualify as core capital and general  valuation loan and
lease  loss  allowances  up to a  maximum  of  1.25%  of  risk-weighted  assets.
Supplementary  capital may be used to satisfy the risk-based capital requirement
only up to the amount of core capital.  The OTS is also  authorized to require a
savings association to maintain an additional amount of total capital to account
for concentration of credit risk and the risk of non-traditional  activities. At
September 30, 1997,  Yonkers Savings had no capital  instruments that qualify as
supplementary capital and $1.1 million of general loan loss reserves,  which was
less than 1.25% of risk-weighted assets.

         Certain  exclusions from capital and assets are required to be made for
the purpose of calculating  total  capital.  Such  exclusions  consist of equity
investments  (as  defined  by  regulation)  and that  portion  of land loans and
nonresidential  construction  loans in excess of an 80% loan-to-value  ratio and
reciprocal  holdings of qualifying capital  instruments.  Yonkers Savings had no
such exclusions from capital and assets at September 30, 1997.

         In  determining  the  amount  of  risk-weighted   assets,  all  assets,
including  certain  off-balance  sheet items,  are  multiplied by a risk weight,
ranging from 0% to 100%,  based on the risk  inherent in the type of asset.  For
example,  the OTS has assigned a risk weight of 50% for  prudently  underwritten

                                       35
<PAGE>

permanent  one- to  four-family  first lien mortgage loans not more than 90 days
delinquent  and having a loan to value ratio of not more than 80% at origination
unless  insured to such ratio by an  insurer  approved  by Fannie Mae or Freddie
Mac.

         The  OTS  has  adopted  a  final  rule  that  requires   every  savings
association with more than normal interest rate risk exposure to deduct from its
total capital, for purposes of determining compliance with such requirement,  an
amount equal to 50% of its interest-rate risk exposure multiplied by the present
value of its assets.  This exposure is a measure of the potential decline in the
net  portfolio  value of a savings  association,  greater than 2% of the present
value of its  assets,  based upon a  hypothetical  200 basis  point  increase or
decrease  in  interest  rates  (whichever  results  in a greater  decline).  Net
portfolio  value is the  present  value of  expected  cash  flows  from  assets,
liabilities and off-balance sheet contracts. The rule provides for a two quarter
lag between  calculating  interest rate risk and  recognizing any deduction from
capital.  The rule will not become effective until the OTS evaluates the process
by which  savings  associations  may  appeal an  interest  rate  risk  deduction
determination.  It is uncertain as to when this evaluation may be completed. Any
savings association with less than $300 million in assets and a total risk-based
capital  ratio in excess of 12% is exempt from this  requirement  unless the OTS
determines otherwise.

         At  September  30,  1997,  Yonkers  Savings had total  capital of $38.2
million  (including $37.1 million in core capital and $1.1 million in qualifying
supplementary  capital) and  risk-weighted  assets of $119.1 million  (including
$4.9 million in converted off-balance sheet items), or total capital of 32.1% of
risk-weighted  assets. This amount was $28.7 million above the 8% requirement in
effect on that date.

         Under the prompt  corrective action  regulations,  the OTS and the FDIC
are  authorized  (and,  under certain  circumstances,  required) to take certain
actions   against  savings   associations   that  fail  to  meet  their  capital
requirements.  The OTS is  generally  required to take  action to  restrict  the
activities of an  "undercapitalized  association"  (generally  defined as having
less than either a 4% core capital ratio, a 4% Tier 1 risked-based capital ratio
or an 8% risk-based  capital ratio).  Any such association must submit a capital
restoration plan and until such plan is approved by the OTS may not increase its
assets,  acquire  another  institution,  establish a branch or engage in any new
activities,  and  generally  may  not  make  capital  distributions.  The OTS is
authorized  to  impose  the  additional  restrictions  that  are  applicable  to
significantly undercapitalized associations.

          As a condition to the approval of the capital  restoration  plan,  any
company  controlling  an  undercapitalized  association  must agree that it will
enter  into  a  limited  capital  maintenance  guarantee  with  respect  to  the
institution's achievement of its capital requirements.

         The prompt corrective action  regulations also provide that any savings
association  that fails to comply  with its  capital  plan or is  "significantly
undercapitalized"  (i.e.,  Tier 1 risk-based or core capital ratios of less than
3% or a risk-based capital ratio of less than 6%) must be made subject to one or
more of additional specified actions and operating  restrictions which may cover
all aspects of its  operations and include a forced merger or acquisition of the
association. An association that becomes "critically  undercapitalized" (i.e., a
tangible  capital  ratio  of  2%  or  less)  is  subject  to  further  mandatory
restrictions on its

                                       36

<PAGE>

activities  in addition to those  applicable to  significantly  undercapitalized
associations.  In addition, the OTS must appoint a receiver (or conservator with
the  concurrence of the FDIC) for a savings  association,  with certain  limited
exceptions,  within 90 days after it becomes  critically  undercapitalized.  Any
undercapitalized   association  is  also  subject  to  the  general  enforcement
authority of the OTS and the FDIC, including the appointment of a conservator or
a receiver.

         The OTS is also generally  authorized to reclassify an association into
a lower capital category and impose the restrictions applicable to such category
if the institution is engaged in unsafe or unsound  practices or is in an unsafe
or unsound condition.

         The  imposition  by the OTS or the  FDIC of any of  these  measures  on
Yonkers  Savings  may have a  substantial  adverse  effect on  Yonkers  Savings'
operations and  profitability,  and on the value of the Holding Company's common
stock.   Holding  Company  shareholders  do  not  have  preemptive  rights,  and
therefore,  if the  Holding  Company is directed by the OTS or the FDIC to issue
additional  shares of common stock,  such issuance may result in the dilution in
the percentage ownership of present shareholders.

         Limitations   on  Dividends  and  Other  Capital   Distributions.   OTS
regulations  impose various  restrictions on associations  with respect to their
ability  to  make  distributions  of  capital  which  include  dividends,  stock
redemptions or repurchases,  cash-out  mergers and  transactions  charged to the
capital  account.  OTS  regulations  prohibit an  association  from declaring or
paying any dividends or from repurchasing any of its stock if, as a result,  the
regulatory capital of the association would be reduced below the amount required
to be maintained for the liquidation  account established in connection with its
mutual to stock conversion.

         Generally, associations (such as Yonkers Savings) that before and after
the proposed  distribution  meet their  capital  requirements,  may make capital
distributions  during any calendar  year equal to the greater of (i) 100% of net
income  for the  year-to-date  plus 50% of the amount by which the lesser of the
association's  tangible,  core or risk-based capital exceeds its fully phased-in
capital requirement for such capital component,  as measured at the beginning of
the calendar  year,  or (ii) 75% of net income for the most recent  four-quarter
period.  However,  an  association  deemed  to be in need of  more  than  normal
supervision by the OTS may have its dividend authority restricted.

         Associations  proposing to make a capital distribution need only submit
written notice to the OTS 30 days prior to such distribution.  Associations that
do not currently meet or would not after the proposed capital  distribution meet
their minimum capital requirements must obtain OTS approval prior to making such
distribution.  As a subsidiary of the Holding Company, Yonkers Savings will also
be required to give the OTS 30 days' notice  prior to declaring  any dividend on
its stock.  The OTS may object to the  distribution  during that  30-day  period
based on safety and soundness concerns.

         The OTS has proposed  regulations that would revise the current capital
distribution restrictions.  Under the proposal, a savings association may make a
capital  distribution  without notice to the OTS (unless it is a subsidiary of a
holding company)  provided that it has a CAMEL 1 or 2 rating, is not in troubled
condition (as defined by regulation) and would remain adequately capitalized (as

                                       37


<PAGE>

defined in the OTS prompt corrective action regulations)  following the proposed
distribution.  Savings  associations  that would remain  adequately  capitalized
following the proposed distribution but do not meet the other noted requirements
must notify the OTS 30 days prior to declaring a capital  distribution.  The OTS
stated  it  will  generally   regard  as  permissible  that  amount  of  capital
distributions  that do not exceed  50% of the  institution's  excess  regulatory
capital plus net income to date during the calendar year. A savings  association
may not make a capital  distribution  without prior  approval of the OTS and the
FDIC if it is  undercapitalized  before, or as a result of, such a distribution.
As under the current rule,  the OTS may object to a capital  distribution  if it
would constitute an unsafe or unsound practice.  No assurance may be given as to
whether or in what form the regulations may be adopted.

         Liquidity.  All savings  associations,  including Yonkers Savings,  are
required  to  maintain  an average  daily  balance of liquid  assets  equal to a
certain  percentage of the sum of its average daily balance of net  withdrawable
deposit  accounts and borrowings  payable in one year or less. This liquid asset
ratio requirement may vary from time to time (between 4% and 10%) depending upon
economic conditions and savings flows of all savings  associations.  The minimum
liquid asset ratio of 5% at September 30, 1997 was subsequently reduced to 4%.

         In  addition,  short-term  liquid  assets  (e.g.,  cash,  certain  time
deposits,  certain  bankers  acceptances  and short-term  United States Treasury
obligations)  were  required  to equal at least 1% of an  association's  average
daily balance of net  withdrawable  deposit  accounts and current  borrowings at
September 30, 1997.  Subsequent to that date,  the OTS eliminated the short-term
liquidity requirement.

         Penalties  may be  imposed  upon  associations  for  violations  of the
liquidity requirement.  At September 30, 1997, Yonkers Savings was in compliance
with  both  requirements,  with an  overall  liquid  asset  ratio  of 6.5% and a
short-term liquid asset ratio of 2.1%.

         Accounting.   An  OTS  policy  statement   applicable  to  all  savings
associations  clarifies and  re-emphasizes  that the investment  activities of a
savings   association  must  be  in  compliance  with  approved  and  documented
investment policies and strategies, and must be accounted for in accordance with
GAAP. Under the policy statement,  management must support its classification of
and accounting for loans and securities (i.e., whether held for investment, sale
or trading) with  appropriate  documentation.  Yonkers Savings believes it is in
compliance with these amended rules.

         The OTS has adopted an amendment to its accounting  regulations,  which
may be made more stringent than GAAP by the OTS, to require that transactions be
reported in a manner that best reflects their underlying  economic substance and
inherent risk and that financial  reports must  incorporate any other accounting
regulations or orders prescribed by the OTS.

         Qualified  Thrift  Lender  Test.  All savings  associations,  including
Yonkers Savings,  are required to meet a qualified thrift lender ("QTL") test to
avoid certain  restrictions  on their  operations.  This test requires a savings
association  to have  at  least  65% of its  portfolio  assets  (as  defined  by
regulation)  in qualified  thrift  investments,  primarily  residential  housing
related loans and  investments.  At September 30, 1997,  Yonkers Savings met the
test and has always met the test since its effectiveness.

                                       38


<PAGE>

         Any savings association that fails to meet the QTL test must convert to
a national bank charter, unless it requalifies as a QTL and thereafter remains a
QTL. If an  association  does not  requalify  and  converts  to a national  bank
charter,  it must remain  SAIF-insured  until the FDIC permits it to transfer to
the BIF.  If such an  association  has not yet  requalified  or  converted  to a
national  bank,  its  new  investments  and  activities  are  limited  to  those
permissible  for both a  savings  association  and a  national  bank,  and it is
limited to national bank branching  rights in its home state.  In addition,  the
association  is  immediately  ineligible  for  additional  FHLB  advances and is
subject to national  bank limits for payment of dividends.  If such  association
has not requalified or converted to a national bank within three years after the
failure,  it must  divest  of all  investments  and  cease  all  activities  not
permissible  for a  national  bank.  In  addition,  it must repay  promptly  any
outstanding  FHLB  advances,  which may result in prepayment  penalties.  If any
association  that fails the QTL test is  controlled by a holding  company,  then
within one year after the failure,  the holding  company must register as a bank
holding  company  and  become  subject  to  all  restrictions  on  bank  holding
companies. See "- Holding Company Regulation."

         Community  Reinvestment  Act.  Under  the  Community  Reinvestment  Act
("CRA"),  every  FDIC  insured  institution  has a  continuing  and  affirmative
obligation  consistent  with safe and sound  banking  practices to help meet the
credit  needs  of its  entire  community,  including  low  and  moderate  income
neighborhoods.  The CRA does not  establish  specific  lending  requirements  or
programs  for  financial   institutions  nor  does  it  limit  an  institution's
discretion  to develop the types of products and  services  that it believes are
best  suited  to its  particular  community,  consistent  with the CRA.  The CRA
requires the OTS, in connection  with the  examination  of Yonkers  Savings,  to
assess the institution's record of meeting the credit needs of its community and
to take such record into account in its evaluation of certain applications, such
as  a  merger  or  the  establishment  of  a  branch,  by  Yonkers  Savings.  An
unsatisfactory  rating may be used as the basis for the denial of an application
by the OTS.

         The federal banking agencies,  including the OTS, have recently revised
the CRA  regulations  and  the  methodology  for  determining  an  institution's
compliance with the CRA. Due to the heightened  attention being given to the CRA
in the past few years,  Yonkers  Savings may be  required  to devote  additional
funds for investment  and lending in its local  community.  Yonkers  Savings was
examined for CRA  compliance by the OTS in September  1996 and received a rating
of satisfactory.

         Transactions with Affiliates. Generally, transactions between a savings
association or its  subsidiaries  and its affiliates are required to be on terms
as  favorable  to  the  association  as  transactions  with  non-affiliates.  In
addition,  certain of these  transactions,  such as loans to an  affiliate,  are
restricted to a percentage of the association's  capital.  Affiliates of Yonkers
Savings  include the  Holding  Company  and any  company  which is under  common
control with Yonkers Savings. In addition, a savings association may not lend to
any affiliate  engaged in activities not  permissible for a bank holding company
or  acquire  the  securities  of  most  affiliates.  Subsidiaries  of a  savings

                                       39
<PAGE>

association  are  generally  not  deemed  affiliates;  however,  the OTS has the
discretion  to treat  subsidiaries  of savings  associations  as affiliates on a
case-by-case basis.

         Certain  transactions with directors,  officers or controlling  persons
are also subject to conflict of interest  regulations enforced by the OTS. These
conflict of interest  regulations and other statutes also impose restrictions on
loans to such persons and their  related  interests.  Among other  things,  such
loans must be made on terms  substantially the same as for loans to unaffiliated
individuals.

         Holding  Company  Regulation.  The Holding Company is a unitary savings
and loan holding  company  subject to regulatory  oversight by the OTS. As such,
the Holding Company is required to register and file reports with the OTS and is
subject to  regulation  and  examination  by the OTS. In  addition,  the OTS has
enforcement  authority over the Holding Company and its non-savings  association
subsidiaries  (if any)  which  also  permits  the OTS to  restrict  or  prohibit
activities  that are determined to be a serious risk to the  subsidiary  savings
association.

         As a unitary  savings and loan  holding  company,  the Holding  Company
generally  is not  subject to  activity  restrictions.  If the  Holding  Company
acquires  control of another savings  association as a separate  subsidiary,  it
would become a multiple savings and loan holding company,  and the activities of
the Holding Company and any of its  subsidiaries  (other than Yonkers Savings or
any  other  SAIF-insured  savings  association)  would  become  subject  to such
restrictions  unless  such  other  associations  each  qualify as a QTL and were
acquired in a supervisory acquisition.

         If Yonkers  Savings fails the QTL test, the Holding Company must obtain
the  approval of the OTS prior to  continuing  after such  failure,  directly or
through its other subsidiaries,  any business activity other than those approved
for  multiple  savings and loan  holding  companies  or their  subsidiaries.  In
addition,  within one year of such failure the Holding Company must register as,
and  will  become  subject  to,  the  restrictions  applicable  to bank  holding
companies. The activities authorized for a bank holding company are more limited
than are the activities  authorized  for a unitary or multiple  savings and loan
holding company. See "- Qualified Thrift Lender Test."

         The Holding Company must obtain approval from the OTS before  acquiring
control of any other SAIF-insured  association.  Such acquisitions are generally
prohibited  if they  result  in a  multiple  savings  and loan  holding  company
controlling  savings  associations  in  more  than  one  state.   However,  such
interstate  acquisitions are permitted based on specific state  authorization or
in a supervisory acquisition of a failing savings association.

         Federal  Securities Law. The stock of the Holding Company is registered
with the SEC under the  Exchange  Act.  The  Holding  Company  is subject to the
information,   proxy  solicitation,   insider  trading  restrictions  and  other
requirements of the SEC under the Exchange Act.

         Holding  Company  stock held by persons who are  affiliates  (generally
officers,  directors and principal  stockholders) of the Holding Company may not
be resold without  registration or unless sold in accordance with certain resale

                                       40
<PAGE>

restrictions.   If  the  Holding  Company  meets  specified  public  information
requirements,  each  affiliate  is able to sell in the  public  market,  without
registration, a limited number of shares in any three-month period.

         Federal  Reserve  System.   The  Federal  Reserve  Board  requires  all
depository  institutions to maintain  non-interest bearing reserves at specified
levels against their transaction accounts (primarily checking, NOW and Super NOW
checking  accounts).  At September 30, 1997,  Yonkers  Savings was in compliance
with these  reserve  requirements.  The balances  maintained to meet the reserve
requirements  imposed  by the  Federal  Reserve  Board  may be used  to  satisfy
liquidity requirements that may be imposed by the OTS. See "- Liquidity."

         Savings  associations are authorized to borrow from the Federal Reserve
Bank  "discount   window,"  but  Federal  Reserve  Board   regulations   require
associations to exhaust other reasonable alternative sources of funds, including
FHLB advances, before borrowing from the Federal Reserve Bank.

         Federal Home Loan Bank System.  Yonkers Savings is a member of the FHLB
of New  York,  which  is one of 12  regional  FHLBs  that  administer  the  home
financing credit function of savings associations. Each FHLB serves as a reserve
or  central  bank for its  members  within  its  assigned  region.  It is funded
primarily from proceeds derived from the sale of consolidated obligations of the
FHLB  System.  It makes loans to members  (i.e.,  advances) in  accordance  with
policies and procedures established by the board of directors of the FHLB, which
are subject to the oversight of the Federal Housing Finance Board.  All advances
from the FHLB are  required  to be fully  secured by  sufficient  collateral  as
determined  by the FHLB.  In addition,  all  long-term  advances are required to
provide funds for residential home financing.

         As a member, Yonkers Savings is required to purchase and maintain stock
in the FHLB of New York. At September 30, 1997, Yonkers Savings had $3.0 million
in FHLB stock,  which was in compliance  with this  requirement.  For the fiscal
year ended September 30, 1997, dividends paid by the FHLB of New York to Yonkers
Savings totaled $121,000 compared to $72,000 for fiscal 1996. Over the past five
calendar years  (1992-1996)  such dividends have averaged 8.0% and were 6.4% for
calendar year 1996.

         Under  federal  law,  the FHLBs are  required to provide  funds for the
resolution  of  troubled  savings  associations  and to  contribute  to low- and
moderately-priced housing programs through direct loans or interest subsidies on
advances targeted for community investment and low- and moderate-income  housing
projects.  These  contributions  have  affected  adversely  the  level  of  FHLB
dividends  paid and could continue to do so in the future.  These  contributions
could also have an adverse  effect on the value of FHLB stock in the  future.  A
reduction in value of Yonkers  Savings' FHLB stock may result in a corresponding
reduction in Yonkers Savings' capital.

                                       41
<PAGE>

Taxation

         Federal.  The  Association  and  the  Holding  Company  currently  file
separate  federal  income tax returns.  These returns are filed on a fiscal year
basis, as of September 30, using the accrual method of accounting.

         Savings associations such as the Association are permitted to establish
reserves for bad debts and to make annual  additions  thereto which may,  within
specified  formula limits,  be taken as a deduction in computing  taxable income
for federal  income tax purposes.  The amount of the bad debt reserve  deduction
for  "non-qualifying  loans" is computed under the experience method. The amount
of  the  bad  debt  reserve  deduction  for  "qualifying  real  property  loans"
(generally  loans secured by improved  real estate) is also  computed  under the
experience method.  Historically, a percentage of taxable income method was also
available in computing the qualifying  loan bad debt  deduction;  however,  this
method is no longer available for tax years beginning after December 31, 1995.

         Under the  experience  method,  the bad debt  reserve  deduction  is an
amount  determined  under a formula based  generally upon the bad debts actually
sustained by the savings association over a period of years.

         Since 1987,  the percentage of  specially-computed  taxable income that
was used to compute a savings association's bad debt reserve deduction under the
percentage of taxable income method (the  "percentage  bad debt  deduction") was
8%. The  percentage  bad debt  deduction thus computed was reduced by the amount
permitted as a deduction for  non-qualifying  loans under the experience method.
The availability of the percentage of taxable income method permitted qualifying
savings  associations to be taxed at a lower  effective  federal income tax rate
than that applicable to corporations generally (approximately 31.3% assuming the
maximum percentage bad debt deduction). Under changes in federal tax law enacted
in August 1996, the  percentage  bad debt deduction has been  eliminated for tax
years  beginning  after  December  31,  1995.  Accordingly,  this  method is not
available to the  Association  for its tax years ending  September  30, 1997 and
thereafter.

         The  federal  tax  legislation  enacted in August  1996 also  imposes a
requirement  to recapture  into taxable income the portion of the qualifying and
non-qualifying  loan  reserves  in excess of the  "base-year"  balances  of such
reserves.  For the  Association,  the base-year  reserves are the balances as of
September 30, 1988.  Recapture of the excess reserves will occur over a six-year
period  which  could begin for the  Association  as early as the tax year ending
September  30,  1998  (commencement  of the  recapture  period  may be  delayed,
however,  until the year ending  September  30, 1999  provided  the  Association
continues to meet certain  residential  lending  requirements).  The Association
previously established,  and will continue to maintain, a deferred tax liability
with  respect to its  federal tax bad debt  reserves in excess of the  base-year
balances;  accordingly,  the  legislative  changes  will have no effect on total
income tax expense for financial reporting purposes.

                                       42
<PAGE>


         Also, under the August 1996 legislation,  the  Association's  base-year
federal tax bad debt reserves are "frozen" and subject to current recapture only
in very limited circumstances.  Generally,  recapture of all or a portion of the
base-year reserves will be required if the Association pays a dividend in excess
of the greater of its current or accumulated  earnings and profits,  redeems any
of its stock,  or is liquidated.  The Association has not established a deferred
federal tax liability under SFAS No. 109 for its base-year  federal tax bad debt
reserves,  as it does not anticipate  engaging in any of the  transactions  that
would cause such reserves to be recaptured.

         In addition  to the regular  income  tax,  corporations  generally  are
subject to a minimum tax. An alternative minimum tax is imposed at a minimum tax
rate  of 20% on  alternative  minimum  taxable  income,  which  is the  sum of a
corporation's   regular  taxable  income  (with  certain  adjustments)  and  tax
preference items, less any available  exemption.  The alternative minimum tax is
imposed to the extent it exceeds the  corporation's  regular income tax, and net
operating  losses can  offset no more than 90% of  alternative  minimum  taxable
income. The Association and the Company have not been subject to the alternative
minimum  tax.

         The  Association  has been  audited by the IRS with  respect to federal
income tax returns through  September 30, 1991, and all  deficiencies  have been
satisfied.  In the opinion of management,  any examination of still open returns
would not result in a deficiency  which could have a material  adverse effect on
the financial condition of the Company.

         New York State. The Association and the Holding Company  currently file
combined  New York State tax  returns on a fiscal  year  basis.  The  Company is
subject to the New York State Franchise Tax on Banking Corporations in an annual
amount  equal to the greater of (i) 9% of "entire net income"  allocable  to New
York State during the taxable year, or (ii) the applicable  alternative  minimum
tax. The  alternative  minimum tax is generally  the greater of (a) 0.01% of the
value of assets allocable to New York State with certain  modifications,  (b) 3%
of  "alternative  entire net income"  allocable to New York State,  or (c) $250.
Entire  net income is similar  to  federal  taxable  income,  subject to certain
modifications  (including  the fact that net operating  losses cannot be carried
back or carried  forward).  In addition,  New York also  imposes a  Metropolitan
Commuter Transportation District surcharge of 17% that is assessed on the amount
of the New York State Franchise tax.

         In July 1996, New York State enacted legislation to preserve the use of
the percentage of taxable  income bad debt deduction for state tax purposes.  In
general,  the  legislation  provides  for  a  deduction  equal  to  32%  of  the
Association's  New  York  State  taxable  income,  which  is  comparable  to the
deductions  permitted under the prior tax law. The legislation also provides for
a floating  base  year,  which will  allow the  Association  to change  from the
percentage of taxable income method to the experience  method without  recapture
of any reserve.  Previously, the Association had established a deferred New York
State tax  liability  for the excess of its New York State tax bad debt reserves
over  the  amount  of its  base-year  New York  State  reserves.  Since  the new

                                       43
<PAGE>


legislation  effectively  eliminated  the  reserves  in excess of the  base-year
balances,  the Company  reduced its deferred tax  liability by $100,000  (with a
corresponding  reduction  in  income  tax  expense)  during  the  quarter  ended
September 30, 1996.

         Generally,  New York State tax law has requirements  similar to federal
requirements  regarding the recapture of base-year  tax bad debt  reserves.  One
notable  exception is that,  after the 1996  legislation,  New York continues to
require  that at least 60% of the  Association's  assets  consist  of  specified
assets  (generally,  loans  secured  by  residential  real  estate or  deposits,
educational  loans, cash and certain  government  obligations).  The Association
expects to continue to meet the 60% requirement and does not anticipate engaging
in any of the  transactions  which  would  require  recapture  of its  base-year
reserves  (such as changing to a commercial  bank charter).  Accordingly,  under
SFAS No. 109, it has not provided any deferred tax liability on such reserves.

         Delaware.  As a Delaware company, the Company is exempted from Delaware
corporate  income tax but is required  to file an annual  report with and pay an
annual fee to the State of  Delaware.  The Company is also  subject to an annual
franchise tax imposed by the State of Delaware.

                                       44

<PAGE>



Item 2. Properties

         The following  table sets forth  information  concerning  the Company's
properties  at September 30, 1997.  The Company's  premises had an aggregate net
book value of approximately $329,000 at that date.
<TABLE>
<CAPTION>

                                           Year                              Net Book Value at
          Location                    Acquired/Leased   Owned or Leased     September 30, 1997
--------------------------------      ---------------   ---------------     ------------------
                                                                              (In Thousands)
<S>                                       <C>              <C>                       <C>  
Corporate Headquarters:
6 Executive Plaza                         1996             Leased                    $  11
Yonkers, New York  10701-9858

Main Office:
One Manor House Square                    1976              Owned                      146
Yonkers, New York  10701-2701

Full Service Branches:
780 Palisade Avenue                       1989             Leased                       42
Yonkers, New York  10703

1759 Central Park Avenue                  1977             Leased                       65
Yonkers, New York  10710-2828

2320 Central Park Avenue                  1986             Leased                       65
Yonkers, New York  10710-1216
</TABLE>


         Yonkers Savings has entered into an agreement with BJ's Wholesale Club,
Inc. for in-store  branching.  An in-store branch opened on December 22, 1997 in
BJ's location in Wappingers Falls, New York. The  Association's  agreement gives
it the right of first  refusal to  establish  an in-store  branch in any of BJ's
remaining or future clubs located in Dutchess, Putnam, Rockland, and Westchester
Counties, New York.

         The Company  believes that its current  facilities are adequate to meet
present  needs.  In the  future,  the  Company  intends to  continue  to explore
branching  opportunities  to the  extent  they  develop,  although  no  specific
proposals are  currently  under  consideration,  other than the  possibility  of
additional in-store branches under the agreement described above.

         The Company's  depositor and borrower  customer files are maintained by
an  independent  data  processing  company.  The net book value of the  computer
equipment  utilized  by the  Company at  September  30,  1997 was  approximately
$125,000.

Item 3. Legal Proceedings

         The Company is involved as  plaintiff  or  defendant  in various  legal
proceedings  arising in the normal  course of its  business.  While the ultimate
outcome of these various legal  proceedings  cannot be predicted with certainty,
it is the opinion of  management  that the  resolution  of these  legal  actions
should not have a material effect on the Company's financial  position,  results
of operations or liquidity.

                                       45
<PAGE>

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

         No matter was  submitted  to a vote of  security  holders,  through the
solicitation  of proxies or otherwise,  during the quarter  ended  September 30,
1997.

                                     PART II


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

         Page 55 of the attached  1997 Annual Report to  Stockholders  is herein
incorporated by reference.

Item 6. Selected Financial Data

         Pages 4 and 5 of the attached  1997 Annual Report to  Stockholders  are
herein incorporated by reference.

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

         Pages 6 through 25 of the attached 1997 Annual  Report to  Stockholders
are herein incorporated by reference.

Item 7a. Quantitative and Qualitative Disclosures About Market Risk

         The section "Interest Rate Risk  Management", appearing on pages 20 and
22 of the attached 1997 Annual  Report to Stockholders,  is herein  incorporated
by reference.

Item 8. Financial Statements and Supplementary Data

         Pages 28 through 56 of the attached 1997 Annual Report to  Stockholders
are herein incorporated by reference.

Item 9. Changes In and Disagreements With Accountants on Accounting and
        Financial Disclosure

         There has been no  Current  Report  on Form 8-K filed  within 24 months
prior to the date of the most recent financial  statements reporting a change of
accountants and/or reporting disagreements on any matter of accounting principle
or financial statement disclosure.


                                       46

<PAGE>

                                    PART III


Item  10.  Directors,   Executive  Officers,   Promoters  and  Control  Persons;
           Compliance with Section 16(a) of the Exchange Act

Directors

         Information  concerning  directors of the  Registrant  is  incorporated
herein by reference from the Company's definitive Proxy Statement for the Annual
Meeting  of  Stockholders  to be held in January  1998,  a copy of which will be
filed not later than 120 days after the close of the fiscal year.

Executive Officers Who Are Not Directors

         The  following are the  Company's  executive  officers who are not also
directors as of September 30, 1997.

         Joseph L. Macchia.  Mr.  Macchia,  age 46, has been Vice  President and
Secretary to the Association since 1991, and Vice President and Secretary of the
Holding  Company since its  formation.  Mr.  Macchia was named Chief  Operations
Officer in January 1997. Mr. Macchia is responsible for the Association's branch
administration,  consumer lending and savings operations. He is also responsible
for the  Association's  Bank  Secrecy Act  compliance.  Prior to such time,  Mr.
Macchia  served  as the  Association's  Vice  President.  Mr.  Macchia  has been
employed by the Association since 1972.

         Joseph  D.  Roberto.  Mr.  Roberto,  age  45,  is the  Vice  President,
Treasurer and Chief Financial Officer of the Holding Company,  a position he has
held since its formation,  and is Vice President,  Treasurer and Chief Financial
Officer of the  Association.  Mr. Roberto was appointed the  Association's  Vice
President and Treasurer in 1991 and Chief Financial Officer in 1995. Mr. Roberto
is  responsible   for  the  Accounting   Department,   interest  rate  risk  and
asset/liability  management as well as financial  reporting.  Prior to 1991, Mr.
Roberto served as the  Association's  Secretary and  Treasurer.  Mr. Roberto has
been employed by the Association since 1973.

         Philip  Guarnieri.  Mr.  Guarnieri,  age 40, is the Vice  President and
Chief Lending  Officer of the  Association.  Mr.  Guarnieri  was appointed  Vice
President  and  Chief  Lending  Officer  in July  1996.  Prior  to  joining  the
Association,  Mr.  Guarnieri was the Vice President for loan origination at Home
Federal  Savings Bank,  Queens,  New York. Mr.  Guarnieri is responsible for the
administration of the Association's real estate lending programs.

Compliance with Section 16(a)

         Section 16(a) of the Exchange Act requires the Company's  directors and
executive  officers,  and persons who own more than 10% of a registered class of
the  Holding  Company's  equity  securities,  to file  with the SEC  reports  of
ownership  and reports of changes in  ownership of common stock and other equity

                                       47
<PAGE>

securities  of the Holding  Company.  Officers,  directors  and greater than 10%
stockholders  are required by SEC  regulation to furnish the Company with copies
of all Section 16(a) forms they file.

         To the Company's  knowledge,  based solely on a review of the copies of
such reports furnished to the Company and written  representations that no other
reports were  required  during the fiscal year ended  September  30,  1997,  all
Section 16(a) filing  requirements  applicable  to its  officers,  directors and
greater  than 10 percent  beneficial  owners  were met,  with the  exception  of
certain  transactions  in a nominal  amount  of the  Company's  stock  made by a
partnership in which director emeritus John S. Kulacz had a beneficial interest.
Mr. Kulacz has recently filed a Form 4 to reflect these transactions.

Item 11. Executive Compensation

         Information concerning executive compensation is incorporated herein by
reference  from  the  definitive  Proxy  Statement  for the  Annual  Meeting  of
Stockholders to be held in January 1998, a copy of which will be filed not later
than 120 days after the close of the fiscal year.

Item 12. Security Ownership of Certain Beneficial Owners and Management

         Information  concerning security ownership of certain beneficial owners
and management is  incorporated  herein by reference  from the definitive  Proxy
Statement for the Annual Meeting of  Stockholders  to be held in January 1998, a
copy of which  will be filed  not  later  than 120 days  after  the close of the
fiscal year.

Item 13. Certain Relationships and Related Transactions

         Information  concerning certain  relationships and related transactions
is incorporated  herein by reference from the definitive Proxy Statement for the
Annual Meeting of  Stockholders to be held in January 1998, a copy of which will
be filed not later than 120 days after the close of the fiscal year.


                                       48

<PAGE>

                                     PART IV


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

         (a) (1)  Financial Statements

         The following information appearing in the Company's 1997 Annual Report
to Stockholders is herein incorporated by reference:

       Item                                           Pages in Annual Report
       ----                                           ----------------------
Independent Auditors' Report                                 Page 27

Consolidated Balance Sheets as of September 30,
1997 and 1996                                                Page 28

Consolidated Statements of Income for the Years
 Ended September 30, 1997, 1996 and 1995                     Page 29

Consolidated Statements of Changes in Stockholders'
 Equity for the Years Ended September 30, 1997, 1996
  and 1995                                                   Page 30

Consolidated Statements of Cash Flows for the Years
 Ended September 30, 1997, 1996 and 1995                     Page 31

Notes to Consolidated Financial Statements                   Pages 32 through 54


                                       49

<PAGE>

         (a) (2)  Financial Statement Schedules

         All  financial  statement  schedules  have been omitted as the required
information is not applicable or has been included in the Consolidated Financial
Statements.

         (a) (3)  Exhibits
<TABLE>
<CAPTION>
                                                                                                            Sequential Page
                                                                                Reference to                  Number Where
                                                                                 Prior Filing              Attached Exhibits
  Regulation S-K                                                                  or Exhibit              are Located in this
      Exhibit                                                                  Number Attached                 Form 10-K
      Number                              Document                                 Hereto                       Report
      ------                              --------                                 ------                       ------
<S>               <C>                                                             <C>                      <C>
       3(a)        Certificate of Incorporation                                       *                     Not applicable
       3(b)        By-Laws                                                            *                     Not applicable
         4         Instruments defining the rights of security holders,               *                     Not applicable
                    including debentures
         9         Voting Trust Agreement                                           None                    Not applicable
        10         Material Contracts
                     Employment Contract                                              *                     Not applicable
                     Management Recognition Plan and Stock
                       Option and Incentive Plan                                      *                     Not applicable
                   Change-in-Control Severance Agreements                            **                     Not applicable
        11         Statement re: computation of per share earnings              Not required                Not applicable
        12         Statement re: computation of ratios                          Not required                Not applicable
        13         Annual Report to Security Holders                                 13
        16         Letter re: change in certifying accountants                      None                    Not applicable
        18         Letter re: change in accounting principles                       None                    Not applicable
        19         Previously unfiled documents                                     None                    Not applicable
        21         Subsidiaries of Registrant                                        21
        22         Published report regarding matters submitted to vote             None                    Not applicable
                    of security holders
        23         Consents of Experts and Counsel                                   23
        24         Power of Attorney                                            Not required                Not applicable
        27         Financial Data Schedule                                           27
        28         Information from reports furnished to state insurance            None                    Not applicable
                    regulatory authorities
        99         Additional Exhibits                                              None                    Not applicable
</TABLE>

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

*    Filed as exhibits to the Company's Form S-1 registration statement filed on
     December  29,  1995  (File  No.  33-81013)  pursuant  to  Section  5 of the
     Securities Act of 1933, as amended.  All of such previously filed documents
     are hereby  incorporated herein by reference in accordance with Item 601 of
     Regulation S-K.

**   Filed as exhibits to the Company's Pre-effective Amendment No.1 to its Form
     S-1  registration  statement filed on February 6, 1996 (File No.  33-81013)
     pursuant to Section 5 of the  Securities  Act of 1933,  as amended.  All of
     such previously filed documents are hereby incorporated herein by reference
     in accordance with Item 601 of Regulation S-K.

         (b)  Reports on Form 8-K

         During the quarter ended September 30, 1997, no current reports on Form
8-K were filed by the Holding Company.

                                       50

<PAGE>


                                                    SIGNATURES


         Pursuant  to the  requirements  of  Section  15(d)  of  the  Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.

                                   YONKERS FINANCIAL CORPORATION


                                   By:      /s/ Richard F. Komosinski
                                            ------------------------------------
                                            Richard F. Komosinski, President,
                                            Chief Executive Officer and Director
                                            (Duly Authorized Representative)

         Pursuant to the  requirements  of the Securities  Exchange Act of 1934,
this report has been signed below by the following persons in the capacities and
on the dates indicated.

/s/ Richard F. Komosinski                       /s/ William G. Bachop
---------------------------------               --------------------------------
Richard F. Komosinski, President,               William G. Bachop, Chairman
Chief Executive Officer and Director
(Principal Executive and Operating Officer)

Date: December 29, 1997                         Date:    December 29, 1997
      ---------------------------                        -----------------------

/s/ Michael J. Martin                           /s/ Charles D. Lohrfink
---------------------------------               --------------------------------
Michael J. Martin,  Director                    Charles D. Lohrfink, Director

Date:    December 29, 1997                      Date:    December 29, 1997
         ------------------------                        -----------------------

/s/ Donald R. Angelilli                        /s/ Eben T. Walker
--------------------------------               ---------------------------------
Donald R. Angelilli, Director                  Eben T. Walker, Director

Date:    December 29, 1997                     Date:     December 29, 1997
         -----------------------                         -----------------------

/s/ P. Anthony Sarubbi                        /s/ Joseph D. Roberto
--------------------------------              ----------------------------------
P. Anthony Sarubbi, Director                  Joseph D. Roberto
                                              Vice President, Treasurer and
                                              Chief Financial Officer
                                              (Principal Financial and
                                              Accounting Officer)

Date:    December 29, 1997                    Date:      December 29, 1997
         -----------------------                         -----------------------

                                       51