1997 ANNUAL REPORT









                          YONKERS FINANCIAL CORPORATION




<PAGE>


                         YONKERS FINANCIAL CORPORATION
                         -----------------------------

                              FINANCIAL HIGHLIGHTS

At or for the Year Ended September 30,             1997       1996       1995
--------------------------------------------------------------------------------
(Dollars in thousands, except per share data)

SELECTED FINANCIAL DATA
-----------------------
Total assets ................................... $312,956   $259,534   $208,283
Loans receivable, net ..........................  118,683     86,666     83,679
Mortgage-backed securities .....................   93,384     80,850     59,047
Other securities ...............................   69,231     72,709     57,294
Deposits .......................................  207,933    190,675    188,009
Borrowings .....................................   60,096     18,264      4,295
Stockholders' equity(1) ........................   43,878     48,999     15,765
Book value per share(2) ........................    14.53      13.72         --

SELECTED OPERATING DATA
-----------------------
Net interest income ............................ $ 10,774   $  8,401   $  7,059
Net income(3) ..................................    2,952      1,520      1,440
Earnings per share(4) ..........................     1.02       0.22         --

ASSET QUALITY DATA
------------------
Non-performing loans ........................... $  1,138   $  2,775   $  3,530
Non-performing loans to total loans receivable .     0.94%      3.14%      4.15%
----------
(1)  Includes  additional capital in 1997 and 1996 subsequent to the sale of the
     Holding  Company's  common  stock  in  connection  with  the  Association's
     conversion to stock form on April 18, 1996.
(2)  Represents  stockholders' equity divided by total common shares outstanding
     at the end of the period.
(3)  Fiscal  1996 net  income  was  reduced by  approximately  $700,000  for the
     after-tax impact of a Federal deposit insurance special  assessment imposed
     to recapitalize the Savings Association Insurance Fund.
(4)  The  amount for  fiscal  1996 is for the  six-month  period  following  the
     conversion to stock form.

            TABLE OF CONTENTS
            -----------------
            President's Message ................................   2
            Selected Consolidated Financial Information ........   4
            Management's Discussion and Analysis of Financial
              Condition and Results of Operations ..............   5
            Management's Report ................................  24
            Independent Auditors' Report .......................  25
            Consolidated Financial Statements ..................  26
            Stockholder Information ............................  55
            Corporate Information ..............................  56

                                       1
<PAGE>

                         YONKERS FINANCIAL CORPORATION
                         -----------------------------

                             LETTER TO STOCKHOLDERS

To Our Stockholders:

     It is with a great deal of pride that I report to you on our  progress  and
results  for the  fiscal  year ended  September  30,  1997,  our first full year
operating as a public company.  Although fiscal 1997 was a challenging  year, we
successfully implemented several new strategies which enabled us to increase our
core  business  and enhance  shareholder  value.  At the same time,  The Yonkers
Savings and Loan  Association,  FA continues to operate as a  community-oriented
financial institution providing  high-quality service and products that meet the
banking needs of our local customer base.

     Net income for the year ended  September 30, 1997 was $3.0 million or $1.02
per share,  compared to $1.5 million for the year ended  September 30, 1996. Net
income  for  fiscal  1996 was  reduced by a Federal  deposit  insurance  special
assessment of $1.2 million,  or  approximately  $700,000 after taxes,  which was
imposed by Congress to recapitalize the Savings Association  Insurance Fund. The
higher net income in fiscal 1997 also  reflects a $2.4  million  increase in net
interest income attributable to growth in our core business as well as expansion
of our  securities  leveraging  program,  partially  offset  by a  $1.3  million
increase in non-interest  expenses other than the special  assessment.  Although
operating  expenses were higher this year, we improved the  efficiency  ratio to
54.43% in fiscal  1997 from  57.12% in fiscal  1996.  The ratio of  non-interest
expense (excluding the special assessment) to average assets was slightly higher
at 2.26% in fiscal 1997 compared to 2.20% in the prior year.

     Total assets  increased $53.5 million to $313.0 million from $259.5 million
a year  earlier.  Our growth was achieved  without  compromising  the safety and
soundness of our business practices.

     The dramatic  increase in our core business  during fiscal 1997 was focused
in the mortgage loan area.  Loans  receivable  and loans held for sale increased
60.4% or $52.4  million  to $139.1  million  at  September  30,  1997 from $86.7
million at September 30, 1996. This increase, which includes loans held for sale
of $20.4 million,  is a result of higher  originations  of residential  mortgage
loans  attributable  to new  lending  programs  initiated  in fiscal  1997.  The
implementation  of a mortgage broker program,  the hiring of more mortgage sales
representatives,   and  the  introduction  of   newly-designed   products,   all
contributed  to the success of this part of our business.  As we move ahead,  we
will continue to provide  home financing to our  community,  focusing on prudent
underwriting  standards  that  will  result  in  a  high-quality  mortgage  loan
portfolio with moderate risk.

     Our core business expansion in fiscal 1997 also included significant growth
in deposits attributable to new products and excellent customer service. Deposit
liabilities increased $17.2 million to $207.9 million at September 30, 1997 from
$190.7 million at September 30, 1996. Our VIP product, a

                                       2
<PAGE>

                         YONKERS FINANCIAL CORPORATION
                         -----------------------------

                       LETTER TO STOCKHOLDERS (Continued)

popular new program  initiated in fiscal 1997,  was a major  contributor  to the
growth and  retention of our  deposits.  This program  offers  customers  higher
savings  and CD rates,  lower  loan  costs and other  benefits  all tied into an
attractive  checking account. In addition,  modern banking  conveniences such as
automated  teller  machines  ("ATM's"),  "FASTBanking" (our 24 hour  interactive
telephone  banking system) and PC Advantage Banking (our internet based web site
at  http://www.yonkers.com)  will continue to be expanded to help meet the needs
of our customers.  In fact, our first off-site ATM was installed this October at
St. John's Riverside Hospital in Yonkers.

     Fiscal 1998 began with the  Company  taking  further  action to enhance its
retail banking franchise.  We have entered into an agreement with BJ's Wholesale
Club,  Inc., for in-store  branching.  BJ's wholesale clubs currently  include a
club in Westchester County and a club in Dutchess County,  with another location
scheduled to open in early 1998 in Rockland  County.  Our first in-store branch,
located in BJ's Dutchess County location in Wappingers Falls, opened on December
22,  1997.  Our  agreement  gives us 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. We believe this venture will allow us
to bring our personalized service and convenient products to other market areas.

     The Company continues to focus on enhancing  shareholder value. In addition
to growth in our core  business,  the  Company  completed  two stock  repurchase
programs in fiscal 1997. A total of 142,830 shares,  or approximately 19% of the
Company's  common stock, was repurchased in the open market,  including  108,905
shares for purposes of the Company's  management  recognition plan. The Board of
Directors  believes  that  treasury  repurchases  enhance  shareholder  value by
increasing earnings per share.

     Since  converting to stock form, the Company has declared five  consecutive
quarterly cash  dividends.  The dividend paid in the quarter ended September 30,
1997 was  increased  to $0.06 per share  from $0.05 per  share,  reflecting  the
continued strength of the Company's operating results.

     As a  well-established  community bank, we will continue to explore ways to
add value for our stockholders and customers.  We intend to continue to focus on
the financial  needs of our community and continue our active  participation  in
community development and other types of community-related programs.

     On  behalf  of the Board of  Directors,  I wish to thank our  stockholders,
customers and staff for your continued support of Yonkers Financial Corporation.

Sincerely,


/s/ Richard F. Komosinski
-------------------------
Richard F. Komosinski
President and
Chief Executive Officer

                                        3

<PAGE>

                   SELECTED CONSOLIDATED FINANCIAL INFORMATION
                             (Dollars in Thousands)
<TABLE>
<CAPTION>

                                                                    At or For the Year Ended  September 30,
                                                           ------------------------------------------------------
                                                             1997        1996       1995        1994        1993
                                                             ----        ----       ----        ----        ----
Selected Financial Condition Data
<S>                                                       <C>         <C>        <C>         <C>         <C>     
Total assets.........................................     $312,956    $259,534   $208,283    $194,862    $182,717
Loans receivable, net................................      118,683      86,666     83,679      77,824      78,633
Real estate mortgage loans held for sale.............       20,437         ---        ---         ---         ---
Mortgage-backed securities(1):
    Held to maturity.................................       50,346      58,139     52,611      49,181         ---
    Available for sale...............................       43,038      22,711      6,436       7,786         ---
    Held for investment..............................          ---         ---        ---         ---      61,295
Other securities(1):
    Held to maturity.................................       25,983      36,868     42,853      38,539         ---
    Available for sale...............................       43,248      35,841     14,441      11,430         ---
    Held for investment..............................          ---         ---        ---         ---      31,510
Cash and cash equivalents............................        3,593      12,500      3,261       5,818       7,083
Deposits.............................................      207,933     190,675    188,009     179,816     169,508
Borrowings...........................................       60,096      18,264      4,295         295         295
Stockholders' equity(2)..............................       43,878      48,999     15,765      14,156      12,163

Selected Operating Data

Interest and dividend income.........................     $ 20,731     $16,376    $14,063     $12,460     $12,372
Interest expense.....................................        9,957       7,975      7,004       5,422       5,623
                                                         ---------     -------   --------    --------    --------
    Net interest income..............................       10,774       8,401      7,059       7,038       6,749
Provision for loan losses............................          300         462        493          64         313
                                                        ----------    --------   --------   ---------    --------
    Net interest income after provision for loan losses     10,474       7,939      6,566       6,974       6,436
Non-interest income:
    Service charges and fees.........................          814         680        640         529         412
    Other............................................          (27)         22         46          96         247
Non-interest expense (excluding special assessment)..        6,319       5,038      4,779       4,272       3,716
SAIF special assessment(3)...........................          ---       1,166        ---         ---         ---
                                                        ----------    -------- ----------  ----------  ----------
    Income before income tax expense and cumulative
      effect of change in accounting principle.......        4,942       2,437      2,473       3,327       3,379
Income tax expense...................................        1,990         917      1,033       1,356       1,338
                                                          --------    --------   --------    --------    --------
    Income before cumulative effect of change in
      accounting principle...........................        2,952       1,520      1,440       1,971       2,041
Cumulative effect of change in  accounting for income
    taxes............................................          ---         ---        ---         326         ---
                                                         ---------   ---------  ---------    --------   ---------
    Net income.......................................     $  2,952     $ 1,520    $ 1,440     $ 2,297     $ 2,041
                                                          ========     =======    =======     =======     =======
</TABLE>


                                        4

<PAGE>
<TABLE>
<CAPTION>
                  SELECTED CONSOLIDATED FINANCIAL INFORMATION
                  (Dollars in Thousands, Except Per Share Data)
                                                                             At or For the Year Ended September 30,
                                                                        ----------------------------------------------
                                                                        1997       1996      1995       1994      1993
                                                                        ----       ----      ----       ----      ----
<S>                                                                     <C>        <C>       <C>        <C>       <C>  
Selected Financial Ratios and Other Data
Performance Ratios:
    Return on assets (ratio of net income to average total 
      assets)(4)................................................        1.05%      0.66%     0.72%      1.22%     1.16%
    Return on equity (ratio of net income to average 
      equity)(4)................................................        6.72       4.60      9.61      17.31     17.78
    Average interest rate spread(4)(5)..........................        3.26       3.13      3.34       3.58      3.68
    Net interest margin(4)(6)...................................        3.93       3.73      3.61       3.80      3.90
    Efficiency ratio(7).........................................       54.43      57.12     58.18      55.31     50.16
    Net interest income to non-interest expense(4)(8)...........      170.50     135.41    147.71     164.75    181.62
    Non-interest expense to average total assets(4)(8)..........        2.26       2.70      2.39       2.27      2.11
    Average interest-earning assets to average
      interest-bearing liabilities(4)...........................      118.60     117.07    107.70     107.45    106.84
    Earnings per share, from date of conversion.................      $ 1.02    $  0.22$      ---     $  ---    $  ---
    Cash dividends per share....................................        0.21       0.05       ---        ---       ---
    Dividend payout ratio(9)....................................       20.66%     22.50%      ---%       ---%      ---%
Capital Ratios and Other Data:
    Average equity to average assets(4).........................       15.69      14.41      7.50       7.04      6.53
    Equity to total assets at end of period.....................       14.02      18.88      7.57       7.26      6.66
    Book value per share(10)....................................      $14.53     $13.72    $  ---     $  ---    $  ---
    Total risk-based capital....................................       32.08%     37.19%    18.66%     18.67%    16.02%
Asset Quality and Other Data:
    Non-performing loans........................................      $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
                                                                      ======    =======    ======     ======    ======
    Asset quality ratios:
      Non-performing loans to total loans receivable............        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      33.77     20.37      11.68     25.50
      Total loans receivable....................................        0.90       1.06      0.84       0.39      0.37
    Number of full-service banking offices......................           4          4         4          4         4
</TABLE>
----------
(1)  The  Company  has  classified  its  securities  as  "held to  maturity"  or
     "available for sale" since September 30, 1994, when it adopted Statement of
     Financial Accounting Standards No. 115, "Accounting for Certain Investments
     in Debt and Equity Securities."

(2)  Includes  additional capital in 1997 and 1996 subsequent to the sale of the
     Holding  Company's  common  stock  in  connection  with  the  Association's
     conversion to stock form on April 18, 1996.

(3)  Represents the Association's  share of a special  assessment imposed on all
     financial  institutions  with deposits  insured by the Savings  Association
     Insurance Fund (the "SAIF").  See "Management's  Discussion and Analysis of
     Financial  Condition  and Results of  Operations - Comparison  of Operating
     Results for the Years Ended September 30, 1996 and 1995."

(4)  Ratio is based on average  daily  balances  during  fiscal 1997 and average
     monthly balances during the earlier years.

(5)  The  interest   rate  spread   represents   the   difference   between  the
     weighted-average yield on interest-earning  assets and the weighted-average
     cost of interest-bearing liabilities.

(6)  The net interest  margin  represents  net  interest  income as a percent of
     average interest-earning assets.

(7)  The  efficiency  ratio  represents  non-interest  expense  (other  than the
     special  assessment  in 1996 and  certain  loss  provisions  in each  year)
     divided by the sum of net interest  income and  non-interest  income (other
     than net security gains and losses).

(8)  Excluding the SAIF special  assessment  described in note (3), the ratio of
     net interest income to  non-interest  expense and the ratio of non-interest
     expense to average total assets for fiscal 1996 would have been 166.75% and
     2.20%, respectively.

(9)  Represents  dividends paid as a percentage of net income.  Ratio for fiscal
     1996  is  based  on net  income  for the  six-month  period  following  the
     Association's conversion to stock form.

(10) Represents  stockholders' equity divided by total common shares outstanding
     at the end of the period.

                                        5
<PAGE>



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


General

         Yonkers  Financial  Corporation (the "Holding  Company") is the unitary
savings   association   holding   company  for  The  Yonkers  Savings  and  Loan
Association,  FA (the  "Association"),  a federally  chartered  savings and loan
association and a wholly-owned subsidiary of the Holding Company.  Collectively,
the Holding Company and the Association are referred to herein as the "Company."
On April 18, 1996,  the  Association  converted  from a mutual  savings and loan
association  to  a  stock  savings  and  loan  association  (the  "Conversion").
Concurrent with the Conversion, the Holding Company sold 3,570,750 shares of its
common stock in a subscription  and community  offering at a price of $10.00 per
share, for net proceeds of $34.6 million (the "Stock Offering").

         The Company's primary market area consists of Westchester  County,  New
York, and portions of Putnam, Rockland and Dutchess Counties, New York. Business
is conducted  from its executive  offices as well as four  full-service  banking
offices  located in Yonkers,  New York. A branch  located in a discount store in
Wappingers Falls, Dutchess County, opened in December 1997. The Association is a
community-oriented  savings  institution  whose business  primarily  consists of
accepting  deposits from  customers  within its market area and investing  those
funds in mortgage loans secured by one-to-four  family  residences.  To a lesser
extent,   funds  are  invested  in  multi-family  and  commercial  real  estate,
construction,  land,  consumer and commercial  business loans.  The Company also
invests in mortgage-backed and other securities.  The Holding Company's business
activities  have been limited to its  ownership of the  Association  and certain
short-term and other investments.

         The  Company's  results of operations  are  primarily  dependent on net
interest  income,  which is the  difference  between the interest  income on its
interest-earning  assets (such as loans and securities) and the interest expense
on its  interest-bearing  liabilities  (such as deposits  and  borrowings).  The
Company's  results of  operations  are also  affected by the  provision for loan
losses,  non-interest  income  and  non-interest  expense.   Noninterest  income
primarily consists of service charges and fees on deposit and loan products. The
Company's  non-interest  expenses primarily consist of employee compensation and
benefits,  occupancy and equipment  expenses,  federal deposit  insurance costs,
data processing service fees and other operating expenses.

         The  Company's  results of  operations  are  significantly  affected by
general  economic and  competitive  conditions  (particularly  changes in market
interest  rates),  government  policies,  changes in  accounting  standards  and
actions of regulatory agencies.  Future changes in applicable laws,  regulations
or  government  policies  may have a  material  impact on the  Company.  Lending
activities are  influenced by the demand for and supply of housing,  competition
among  lenders,  the  level of  interest  rates and the  availability  of funds.
Deposit flows and costs of funds are  influenced by prevailing  market  interest
rates  (including  rates  on  non-deposit  investment   alternatives),   account
maturities,  and the  levels of  personal  income and  savings in the  Company's
market area.




                                        6

<PAGE>



Operating Strategy

         The Company's basic mission is to maintain its focus as an independent,
community-oriented  financial  institution  servicing  customers  in its primary
market  area.  The Board of  Directors  has sought to  accomplish  this  mission
through  an  operating  strategy  designed  to  maintain  capital  in  excess of
regulatory requirements and manage, to the extent practical,  the Company's loan
delinquencies and vulnerability to changes in interest rates. The key components
of the Company's  operating strategy are to: (i) focus its lending operations on
the origination of loans secured by one-to-four  family residential real estate;
(ii)  supplement its  one-to-four  family  residential  lending  activities with
multi-family,  commercial real estate,  consumer,  construction  and land loans;
(iii) augment its lending  activities with  investments in  mortgage-backed  and
other  securities;  (iv)  emphasize  adjustable  rate  and/or  short and  medium
duration assets; (v) build and maintain its regular savings, transaction,  money
market and club accounts;  (vi)  increase,  at a managed pace, the volume of the
Company's assets and liabilities; and (vii) utilize borrowings to fund increases
in asset volume at a positive interest rate spread.

Comparison of Financial Condition at September 30, 1997 and 1996

         Total assets increased $53.5 million to $313.0 million at September 30,
1997 from  $259.5  million  at  September  30,  1996.  Asset  growth  was funded
primarily   through  proceeds  from  borrowings   under  securities   repurchase
agreements  and deposit  inflows,  partially  offset by funds used to repurchase
shares of the Holding Company's common stock.

         Borrowings  under  securities  repurchase  agreements  increased  $43.8
million to $54.1  million at September  30, 1997 from $10.3 million at September
30, 1996.  Deposit  liabilities  increased  $17.2  million to $207.9  million at
September  30, 1997 from $190.7  million at September  30,  1996.  Funds of $8.9
million were used to repurchase  658,892 shares of the Holding  Company's common
stock in the open market  during the year ended  September  30, 1997,  including
both treasury shares and shares for use in the Company's management  recognition
plan ("MRP"). A total of 108,905  repurchased shares with a cost of $1.4 million
were awarded under the MRP in fiscal 1997.

         Funds provided by borrowings and deposit growth were primarily invested
in new loans and securities,  while funds from existing  short-term  investments
were  primarily  used to fund the  Holding  Company's  stock  repurchases.  On a
combined basis,  loans  receivable  (held for portfolio) and loans held for sale
increased  $52.4  million to $139.1  million at  September  30,  1997 from $86.7
million at September 30, 1996. The combined increase, which includes an increase
of $20.4  million in real estate  mortgage  loans held for sale,  has  primarily
resulted from higher originations of residential  mortgage loans attributable to
new lending programs  initiated in fiscal 1997. Total securities  increased $9.0
million to $162.6 million at September 30, 1997 from $153.6 million at September
30,  1996.  Short-term  investments  decreased  $8.8  million to $1.5 million at
September 30, 1997 from $10.3 million at September 30. 1996.

         The $52.4 million combined  increase in loans receivable and loans held
for sale primarily  reflects  increases of $49.5 million in  one-to-four  family
mortgage loans (including $20.4 million in loans held for sale) and $2.9 million
in commercial real estate loans.  Net increases and decreases in other portfolio
categories were not significant.  During fiscal 1997, the Company  implemented a
mortgage broker program, utilized additional mortgage sales representatives and

                                        7

<PAGE>



developed a newly  designed  "15/1"  residential  mortgage loan product,  all of
which contributed to the increase in loan production. The 15/1 mortgage loan has
a term of 30 years 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  majority of which were  originated  during the quarter
ended September 30, 1997. The sale of these loans was completed,  with servicing
retained,  during  November  1997.  The  Company  expects  to engage in  similar
secondary  market  sales of a portion of its future  residential  mortgage  loan
originations  as market  conditions  warrant.  These loans will be classified as
held for sale at origination and carried at the lower of cost or market value.

         The securities portfolio at September 30, 1997 reflects a $27.7 million
increase  in  available-for-sale  securities  and an $18.7  million  decrease in
held-to-maturity  securities,  compared to September  30, 1996.  The increase in
available-for-sale  securities  primarily  reflected  purchases of $55.8 million
(including   purchases  of  longer  term,  fixed  rate  securities  funded  with
borrowings  under repurchase  agreements),  partially offset by $13.4 million in
principal  payments,  maturities  and calls,  and $15.9 million in proceeds from
sales. The Company's  overall interest rate risk, as measured by the sensitivity
of its net portfolio value to instantaneous interest rate changes, has increased
somewhat as a result of funding  these  security  purchases  with  shorter  term
borrowings.   See   "Interest   Rate   Risk   Management".   The   decrease   in
held-to-maturity  securities  primarily reflects principal payments,  maturities
and calls of $18.6 million.  Available-for-sale  securities represented 53.1% of
the total  securities  portfolio  at September  30,  1997,  compared to 38.1% at
September 30, 1996.  Management  has  increased the level of  available-for-sale
securities to enhance the Company's overall financial flexibility, including the
ability to reposition the portfolio or reduce  borrowings in response to changes
in interest rates and other market conditions.

         Borrowings at September  30, 1997 reflect a $43.8  million  increase in
securities  repurchase  agreements to $54.1 million compared to $10.3 million at
September 30, 1996, partially offset by a $2.0 million decrease in FHLB advances
to $6.0  million  compared to $8.0 million at  September  30, 1996.  The Company
began to utilize  repurchase  agreements  during the quarter ended September 30,
1996 as a means of leveraging  available capital to support further asset growth
(primarily available-for-sale  securities) and increase net interest income. For
information regarding the terms of the repurchase agreements, see "Liquidity and
Capital Resources".

         The $17.2 million  increase in deposit  liabilities  during fiscal 1997
was the result of aggressive  cross-selling,  quality  customer  service and new
deposit products. During fiscal 1997, the Company introduced a VIP program which
offers certain high-balance  customers higher savings and certificate of deposit
rates, lower loan costs and other benefits, all tied into an attractive checking
account.  In addition,  modern banking  conveniences such as "FASTBanking" (a 24
hour interactive telephone banking system) and PC Advantage Banking (an internet
based web site) were expanded to meet the needs of the Company's customers.

         Stockholders'  equity  decreased  $5.1  million,  from $49.0 million at
September  30, 1996 to $43.9  million at  September  30,  1997.  The decrease is
primarily  attributable  to common  share  repurchases  at a total  cost of $8.9
million, partially offset by net income of $2.3 million retained after dividends
and an improvement of $751,000 in the after-tax net unrealized gains and losses

                                        8

<PAGE>



on  available-for-sale  securities.  A  total  of  658,892  common  shares  were
repurchased in open market transactions during fiscal 1997 at an average cost of
$13.52 per share. Of this total,  108,905 repurchased shares with a cost of $1.4
million were awarded under the MRP during the year and 549,987  shares were held
as treasury  stock at September 30, 1997. The ratio of  stockholders'  equity to
total assets at September 30, 1997 was 14.02% as compared to 18.88% at September
30,  1996.  Book value per share  (computed  based on total  shares  issued less
treasury  shares) was $14.53 at September  30, 1997, up from $13.72 at September
30, 1996. For information regarding the Association's regulatory capital amounts
and ratios, see "Liquidity and Capital Resources".

         Total non-performing  assets decreased $1.9 million,  from $3.4 million
at  September  30, 1996 to $1.5 million at September  30, 1997,  reflecting  net
reductions of $1.6 million in non-accrual loans past due ninety days or more and
$224,000  in real  estate  owned.  The ratio of  non-performing  assets to total
assets  decreased  to 0.48% at September  30, 1997 from 1.30% at  September  30,
1996.  The  allowance  for loan losses was $1.1  million or 0.90% of total loans
receivable at September 30, 1997, compared to $937,000 or 1.06% at September 30,
1996.  The  ratio of the  allowance  for loan  losses  to  non-performing  loans
increased to 96.05% at September 30, 1997 from 33.77% at September 30, 1996. See
"Asset Quality" for additional information.

Analysis of Net Interest Income

         Net  interest  income  represents  the  difference  between  income  on
interest-earning  assets  and  expense  on  interest-bearing   liabilities.  Net
interest income is affected by the relative amounts of  interest-earning  assets
and interest-bearing liabilities, and the interest rates earned or paid on them.

         The following table sets forth average  balance sheets,  average yields
and costs, and certain other information for the years ended September 30, 1997,
1996 and 1995. The average  yields and costs were computed by dividing  interest
income or expense by the average  balance of the related assets or  liabilities.
Average  balances  were  computed  based on daily  balances  in fiscal  1997 and
month-end balances in fiscal 1996 and 1995.  Management believes that the use of
average monthly balances rather than average daily balances in earlier years did
not have a material effect on the information presented.  The yields include the
effect of deferred fees,  discounts and premiums included in interest income. No
tax-equivalent  yield  adjustments were made for tax-exempt  securities,  as the
effect thereof was not material.


                                        9

<PAGE>

<TABLE>
<CAPTION>
                                                                     For the Year Ended September 30,
                                           -----------------------------------------------------------------------------------------
                                                      1997                          1996                          1995
                                           ---------------------------- ----------------------------- ------------------------------
                                           Average             Average   Average            Average    Average             Average
                                           Balance  Interest  Yield/Cost Balance  Interest Yield/Cost  Balance  Interest  Yield/Cost
                                           -------  --------  ---------- -------  -------- ----------  -------  --------  ----------
                                                                             (Dollars in Thousands)
<S>                                      <C>         <C>         <C>    <C>         <C>      <C>      <C>         <C>        <C>  
Assets
Interest-earning assets:
   Loans(1)..............................$  98,721   $  8,603    8.71%  $ 85,479    $ 7,471  8.74%    $ 80,027    $ 6,937    8.67%
   Mortgage-backed securities(2).........   88,030      6,078    6.90     66,778      4,346   6.51      58,662      3,813    6.50
   Other securities(2)...................   79,584      5,655    7.11     60,567      3,807   6.29      51,136      2,988    5.84
   Other earning assets..................    7,760        395    5.09     12,367        752   6.08       5,670        325    5.73
                                         ---------  ---------            -------   --------            -------   --------
     Total interest-earning assets.......  274,095    $20,731    7.56    225,191    $16,376   7.27     195,495    $14,063    7.19
                                                      =======                       =======                       =======
                                                                                                      
Allowance for loan losses................   (1,048)                         (841)                         (414)
Non-interest-earning assets..............    6,850                         5,062                         4,817
                                         ---------                       -------                       -------
     Total assets........................ $279,897                       $229,412                     $199,898
                                          ========                       ========                     ========
                                                                                                      
Liabilities and Equity                                                                                
Interest-bearing liabilities:                                                                         
   NOW, club  and money market accounts..$  38,284   $    862    2.25%   $ 32,606  $    788   2.42%   $ 28,910    $   710    2.46%
   Regular savings accounts(3)...........   46,636      1,166    2.50     51,564      1,336   2.59      60,173      1,610    2.68
   Savings certificate accounts..........  110,935      5,894    5.31    104,613      5,656   5.41      90,270      4,582    5.08
                                         ---------   --------            -------   --------            -------   --------
     Total interest-bearing deposits.....  195,855      7,922    4.04    188,783      7,780   4.12     179,353      6,902    3.85
                                                                                                      
   Borrowings............................   35,260      2,035    5.77      3,570        195   5.46       2,170        102    4.70
                                         ---------   --------            -------   --------            -------  ---------
     Total interest-bearing liabilities..  231,115    $ 9,957    4.30    192,353    $ 7,975   4.14     181,523    $ 7,004    3.85
                                                      =======                       =======                       =======
                                                                                                      
Non-interest-bearing liabilities.........    4,860                         3,996                         3,389
                                         ---------                       -------                       -------
     Total liabilities...................  235,975                       196,349                       184,912
                                                                                                      
Equity...................................   43,922                        33,063                        14,986
                                         ---------                       -------                       -------
     Total liabilities and equity........ $279,897                       $229,412                     $199,898
                                          ========                       ========                     ========
                                                                                                      
Net interest income......................             $10,774                       $ 8,401                       $ 7,059
                                                      =======                       =======                       =======
Average interest rate spread(4)..........                        3.26%                        3.13%                          3.34%
Net interest margin(5)...................                        3.93%                        3.73%                          3.61%
Net interest-earning assets(6)........... $ 42,980                       $ 32,838                     $ 13,972
                                          ========                       ========                     ========
Ratio of total interest-earning assets      
   to total interest-bearing liabilities.                      118.60%                      117.07%                        107.70%
</TABLE>
----------
(1)  Balances are net of deferred loan fees and  construction  loans in process,
     and include loans receivable and loans held for sale. Non-accrual loans are
     included in the balances.

(2)  Average balances represent amortized cost.

(3)  Includes mortgage escrow accounts.

(4)  Average interest rate spread represents the difference between the yield on
     average  interest-earning  assets and the cost of average  interest-bearing
     liabilities.

(5)  Net interest margin represents net interest income divided by average total
     interest-earning assets.

(6)  Net interest-earning  assets represents total interest-earning  assets less
     total interest-bearing liabilities.

                                       10

<PAGE>



         The  following  table  presents the extent to which changes in interest
rates and changes in the volume of interest-earning  assets and interest-bearing
liabilities  have affected the Company's  interest  income and interest  expense
during the periods  indicated.  Information  is provided in each  category  with
respect to (i)  changes  attributable  to changes in volume  (changes  in volume
multiplied by prior rate), (ii) changes attributable to changes in rate (changes
in rate  multiplied  by prior  volume),  and (iii) the net  change.  The changes
attributable  to the  combined  impact  of volume  and rate have been  allocated
proportionately to the changes due to volume and changes due to rate.

<TABLE>
<CAPTION>
                                               Fiscal 1997 Compared to Fiscal 1996  Fiscal 1996 Compared to Fiscal 1995
                                               -----------------------------------  -----------------------------------
                                                           Increase                        Increase
                                                          (Decrease)                      (Decrease)
                                                            Due to                          Due to 
                                                      ---------------     Net          ----------------      Net
                                                      Volume     Rate    Change        Volume      Rate     Change
                                                      ------     ----    ------        ------      ----     ------
                                                                            (Dollars In Thousands)
Interest-earning assets:
<S>                                                   <C>       <C>      <C>           <C>       <C>        <C>   
   Loans.....................................         $1,155    $ (23)   $1,132        $  473    $   61     $  534
   Mortgage-backed securities................          1,406      326     1,732           528         5        533
   Other securities..........................          1,232      616     1,848           560       259        819
   Other earning assets......................           (246)    (111)     (357)          413        14        427
                                                     -------    -----   -------       -------   -------     ------
     Total...................................          3,547      808     4,355         1,974       339      2,313
                                                      ------    -----    ------       -------   -------     ------

Interest-bearing liabilities:
   NOW, club and money market accounts.......            134      (60)       74            89       (11)        78
   Regular savings accounts..................           (127)     (43)     (170)         (230)      (44)      (274)
   Savings certificate accounts..............            339     (101)      238           736       338      1,074
   Borrowings................................          1,782       58     1,840            62        31         93
                                                     -------   ------    ------       -------   -------   --------
     Total...................................          2,128     (146)    1,982           657       314        971
                                                      ------    -----    ------       -------   -------   --------
Net change in net interest income............        $ 1,419   $  954    $2,373       $ 1,317   $    25    $ 1,342
                                                     =======   ======    ======       =======   =======    =======
</TABLE>

Comparison of Operating Results for the Years Ended September 30, 1997 and 1996

         General.  Net income was $3.0 million or $1.02 per share for the fiscal
year ended  September  30, 1997,  compared to net income of $1.5 million for the
fiscal  year ended  September  30,  1996.  Earnings  per share was $0.22 for the
six-month  period from the Conversion to September 30, 1996. The increase in net
income was  primarily  attributable  to a $2.4 million  increase in net interest
income  and the  absence  in  fiscal  1997  of a $1.2  million  Federal  deposit
insurance  special  assessment  charged to  earnings in fiscal  1996,  partially
offset by  increases of $1.3 million in  non-interest  expenses  (other than the
special  assessment)  and $1.1  million in income  tax  expense.  Excluding  the
after-tax  effect of the  special  assessment,  net income for fiscal 1996 would
have been $2.2 million.

         Net Interest  Income.  Net interest  income  increased  $2.4 million to
$10.8  million for the year ended  September  30, 1997 from $8.4 million for the
prior  year.  The  increase  reflects  higher  average  interest-earning  assets
primarily  attributable  to the growth in the loan and securities  portfolios in
fiscal 1997,  as well as  reinvestment  of the net proceeds  from the April 1996
stock  offering  for a full year in fiscal 1997  compared to  approximately  six
months in fiscal 1996. The higher net interest income also reflects increases in
both the average interest rate spread and net interest margin,  which were 3.26%
and 3.93% for the year ended  September  30,  1997  compared to 3.13% and 3.73%,
respectively, for the prior year.


                                       11

<PAGE>



         Compared to fiscal 1996,  market interest rates averaged slightly lower
in fiscal  1997,  particularly  across the longer term  maturity end of the U.S.
Treasury  yield  curve.  The  Company  realized  higher  average  yields  on its
interest-earning   assets   primarily   as  a   result   of  the   purchase   of
higher-yielding,  longer-term fixed rate securities. Although the Company's rate
paid on deposit liabilities  declined,  the overall rate on its interest-bearing
liabilities increased due to the larger proportion of higher-rate  borrowings to
total interest-bearing  liabilities.  However, on a combined basis, these trends
in interest rates had a positive impact on the Company's  average  interest rate
spread and net interest margin in fiscal 1997 compared to fiscal 1996.

         Interest and Dividend  Income.  Interest  and dividend  income  totaled
$20.7 million for the year ended September 30, 1997, an increase of $4.3 million
compared to $16.4 million for the prior year. This increase  reflects the effect
of a $48.9 million  increase in total average  interest-earning  assets and a 29
basis point  increase in the average  yield on such assets to 7.56% for the year
ended September 30, 1997 from 7.27% for the prior year.

         Interest  income on loans increased by $1.1 million to $8.6 million for
the year  ended  September  30,  1997 from  $7.5  million  for the  prior  year,
reflecting a $13.2 million increase in the average balance,  partially offset by
a 3 basis  point  decrease  in the average  yield.  The  increase in the average
balance of loans was primarily  attributable to increases in one- to four-family
residential loans and commercial real estate loans.

         On a combined basis,  interest and dividend  income on  mortgage-backed
and other securities  increased $3.5 million to $11.7 million for the year ended
September  30, 1997 from $8.2 million for year ended  September  30, 1996.  This
combined increase  consisted of (i) a $1.8 million increase in interest on other
securities,  attributable  to the  effects of a $19.0  million  increase  in the
average balance and an 82 basis point increase in the average yield,  and (ii) a
$1.7 million increase in interest on mortgage-backed securities, attributable to
the effects of a $21.2  million  increase in the average  balance and a 39 basis
point  increase  in the  average  yield.  The  higher  average  yields  on  both
portfolios reflect current-year  purchases of longer term, fixed rate securities
at higher yields.

         Interest  and  dividend  income  on  other  earning  assets   decreased
$357,000,   primarily  due  to  the  use  of  short-term   investments  to  fund
current-year repurchases of the Holding Company's common stock.

         Interest  Expense.  Interest expense totaled $10.0 million for the year
ended  September 30, 1997, an increase of $2.0 million from $8.0 million for the
year ended September 30, 1996.

         Interest expense on deposits increased $142,000 to $7.9 million for the
year  ended  September  30,  1997 from $7.8  million  for the prior  year.  This
increase  reflects the effect of a $7.1 million  increase in the average balance
of interest-bearing  deposits,  partially offset by an 8 basis point decrease in
the average rate to 4.04% for the year ended  September  30, 1997 from 4.12% for
the prior year. The increase in average interest-bearing deposits consisted of a
$6.3 million increase in average savings certificate accounts (to $110.9 million
from $104.6 million) and a $5.7 million  increase in average NOW, club and money
market  accounts (to $38.3 million from $32.6  million),  partially  offset by a
$5.0 million decrease in average regular savings accounts (to $46.6 million from
$51.6 million). The overall decrease in the average rate paid reflects the

                                       12

<PAGE>



overall  stability in deposit interest rates during fiscal 1997,  coupled with a
slowdown in the shift from  generally  lower rate savings  accounts to generally
higher rate certificate accounts.

         Interest  expense on borrowings  increased $1.8 million to $2.0 million
for the year ended September 30, 1997 from $195,000 for the year ended September
30, 1996, as the Company continued to increase  borrowings to leverage available
capital and support further asset growth. Substantially all of this increase was
attributable to interest on borrowings under securities  repurchase  agreements,
which had an average  balance of $32.1  million and an average rate of 5.77% for
the  year  ended  September  30,  1997  compared  to  $1.2  million  and  5.35%,
respectively,  for the prior year. See  "Liquidity and Capital  Resources" for a
further discussion of the Company's securities repurchase agreements.

         Provision  for Loan Losses.  The provision for loan losses was $300,000
and  $462,000  for  the  fiscal  years  ended   September  30,  1997  and  1996,
respectively.   The  current-year   provision   reflects  the  impact  of  lower
non-performing  loans and net charge-offs  compared to the prior year, partially
offset by the impact of portfolio growth in the current year.

         Non-performing  loans  declined to $1.1 million at  September  30, 1997
from $2.8 million at September 30, 1996. The decrease in nonperforming loans was
primarily a result of (i)  returning  certain  loans to  accruing  status due to
collections received and management's judgment that these loans will continue to
perform,  (ii)  payoffs  received on a $232,000  construction  loan secured by a
two-family  residence and a $304,000  mortgage  loan secured by a  single-family
residence as a result of the sale of these  properties,  and (iii)  transfers of
loans of $313,000 to real estate owned.

         Net loan charge-offs  declined to $144,000 in fiscal 1997 from $244,000
in fiscal 1996.  Charge-offs in the 1996 period include $203,000 relating to the
settlement of the Company's  participation  interest in a loan originated by the
Thrift Association Service Corporation  ("TASCO").  The remaining charge-offs in
both years primarily relate to transfers of foreclosed properties to real estate
owned.

         The  allowance  for  loan  losses  was $1.1  million  or 0.90% of loans
receivable at September 30, 1997, compared to $937,000 or 1.06% at September 30,
1996.  The  ratio of the  allowance  for loan  losses  to  non-performing  loans
increased  to 96.05% at September  30, 1997 from 33.77% at  September  30, 1996.
Management  estimates  the  allowance  for loan  losses  based on an analysis of
various factors,  including the value of the underlying  collateral,  growth and
composition of the loan  portfolio,  the  relationship of the allowance for loan
losses to outstanding loans, historical loss experience,  delinquency trends and
prevailing economic conditions. Although the Company maintains its allowance for
loan losses at a level it considers  adequate to absorb probable  losses,  there
can be no assurance  that such losses will not exceed the  estimated  amounts or
that additional substantial provisions for losses will not be required in future
periods.  Subject to market  conditions  in the future,  the Company  intends to
continue to expand its  multi-family  and commercial real estate  lending.  As a
result,  these loan  categories  may represent a larger  percentage of the total
loan portfolio in the future.  Since such loans are generally thought to carry a
higher degree of credit risk than  one-to-four-family  residential loans, such a
change in the loan portfolio mix would probably result in a further  increase in
the allowance for losses. See "Asset Quality" for further information.


                                       13

<PAGE>



         Non-Interest  Income.  Non-interest income for the year ended September
30,  1997  increased  $85,000  to  $787,000  from  $702,000  for the year  ended
September  30, 1996.  This  increase was  primarily  attributable  to a $134,000
increase in service  charges and fee income,  partially  offset by a $48,000 net
loss on sales of securities in fiscal 1997. The increase in service  charges and
fee income primarily reflects  increases in transaction  volume. The net loss on
securities  primarily  reflects  realized losses on sales of available  for-sale
securities.

         Non-Interest  Expense.  Non-interest expense increased $115,000 to $6.3
million for the year ended  September  30, 1997 from $6.2  million for the prior
year. Increases of $886,000 in compensation and benefits expense and $519,000 in
other non-interest  expense were substantially offset by a $1.4 million decrease
in  Federal  deposit  insurance  costs.  Incremental  expenses  associated  with
ensuring that the  Company's  computer  systems are Year 2000  compliant are not
expected  to have a  material  impact  on  financial  condition  or  results  of
operations.

         The increase in compensation  and benefits expense  primarily  reflects
(i) the current year  recognition of $271,000 in costs  associated with the MRP,
(ii) a $277,000 increase in employee stock ownership plan expenses  reflecting a
full year of costs under such plan as well as an increase in the Company's stock
price, and (iii) additional staffing and merit and  performance-based  increases
for management and staff members.

         The increase in other non-interest expense is primarily attributable to
additional  advertising expense and costs associated with operations as a public
company for a full year in fiscal 1997, as well as a non-recurring  reduction of
$162,000 in fiscal 1996 expenses resulting from the favorable  resolution of the
Company's Nationar claim.

         The decrease in Federal deposit insurance costs was attributable to the
Federal deposit insurance special  assessment of $1.2 million in fiscal 1996, as
well as lower deposit insurance rates subsequent to the  recapitalization of the
Savings Association  Insurance Fund ("SAIF").  For calendar 1997, SAIF insurance
premiums  range from 0 to 27 basis  points of insured  deposits,  compared to 23
basis points for all  institutions  prior to the  recapitalization  of SAIF.  In
connection  with  the   recapitalization,   a  Financing   Corporation  ("FICO")
assessment is now imposed on all  SAIF-assessable  deposits.  For calendar 1997,
this assessment equals 6.48 basis points on SAIF-insured deposits.

         Income Tax  Expense.  Income tax expense  amounted to $2.0  million and
$917,000 for the fiscal years ended  September 30, 1997 and 1996,  respectively.
The increase primarily reflects higher pre-tax income in fiscal 1997, as well as
a  non-recurring  tax  benefit of  $100,000  recognized  in fiscal 1996 due to a
decrease in deferred  tax  liabilities  caused by an  amendment  to the New York
State tax law enacted in July 1996.

Comparison  of Operating  Results for the Fiscal Years Ended  September 30, 1996
and 1995

         General.  Net income was $1.5 million for the year ended  September 30,
1996  compared  to $1.4  million  for the year ended  September  30,  1995.  The
increase in net income was primarily  attributable to a $1.3 million increase in
net interest income and a $116,000 decrease in income tax expense, substantially
offset by a $1.4 million increase in non-interest expense primarily attributable
to the $1.2 million Federal deposit insurance special assessment.

         Net Interest Income. Net interest income increased $1.3 million to $8.4
million for the year ended  September  30,  1996 from $7.1  million for the year
ended September 30, 1995. This

                                       14

<PAGE>



increase was  primarily  attributable  to the positive  effect of an increase in
average  earning  assets,  partially  offset by a 21 basis point decrease in the
interest  rate spread to 3.13% for the year ended  September 30, 1996 from 3.34%
for the prior year.  The increase in average  earning assets for the 1996 fiscal
year reflects  reinvestment  of the Stock Offering  proceeds for the period from
April 18, 1996 to September 30, 1996, as well as  reinvestment  of proceeds from
borrowings and deposit growth.

         Compared to fiscal 1995, market interest rates remained relatively flat
in fiscal 1996.  The Company  realized  slightly  higher  average  yields on its
interest-earning  assets  primarily as a result of the reinvestment of principal
payments,   maturities  and  calls  into  higher  yielding   intermediate   term
securities,  and  the  increase  in  the  proportion  of  the  Company's  assets
consisting of non-residential  loans. However, a shift from generally lower rate
regular savings  accounts to generally  higher rate  certificate  accounts had a
negative  impact on the Company's  average  interest-rate  spread in fiscal 1996
compared to fiscal 1995.

         Interest and Dividend  Income.  Interest  and dividend  income  totaled
$16.4 million for the year ended September 30, 1996, an increase of $2.3 million
as  compared  to $14.1  million  for the year ended  September  30,  1995.  This
increase  reflects a $29.7 million  increase in total  average  interest-earning
assets and an 8 basis  point  increase  in the  average  yield on such assets to
7.27% for the year ended September 30, 1996 from 7.19% for the prior year.

         Interest  income on loans increased by $534,000 to $7.5 million for the
year ended September 30, 1996 from $6.9 million for the year ended September 30,
1995, reflecting a $5.5 million increase in the average balance of loans and a 7
basis point increase in the average yield.  The increase in the average  balance
of loans was primarily  attributable  to increases in commercial real estate and
commercial business loans.

         On a combined basis,  interest and dividend  income on  mortgage-backed
and other  securities  increased $1.4 million to $8.2 million for the year ended
September 30, 1996 from $6.8 million for the year ended September 30, 1995. This
combined  increase  consisted  of (i) an $819,000  increase in interest on other
securities, attributable to a $9.4 million increase in the average balance and a
45 basis point  increase in the  average  yield and (ii) a $533,000  increase in
interest  on  mortgage-backed  securities,  primarily  attributable  to an  $8.1
million increase in the average balance.

         Interest  and  dividend  income  on  other  earning  assets   increased
$427,000,  primarily due to the  reinvestment of a portion of the Stock Offering
proceeds in short-term liquid assets.

         Interest  Expense.  Interest  expense totaled $8.0 million for the year
ended  September  30, 1996,  an increase of $1.0 million as compared to interest
expense of $7.0 million for the year ended September 30, 1995.

         Interest expense on deposits increased $878,000 to $7.8 million for the
year ended September 30, 1996 from $6.9 million for the year ended September 30,
1995. This increase  reflects a $9.4 million  increase in the average balance of
interest-bearing  deposits and a 29 basis point  increase in the average rate to
4.14% for the year ended  September 30, 1996 from 3.85% for the prior year.  The
increase  in average  interest-bearing  deposits  consisted  of a $14.3  million
increase in average savings  certificate  accounts (to $104.6 million from $90.3
million) and a $3.7

                                       15

<PAGE>



million  increase in average  NOW,  club and money  market  accounts,  partially
offset by an $8.6 million decrease in average regular savings accounts (to $51.6
million  from $60.2  million).  The overall  increase  in the average  rate paid
reflects the  continuing  shift from  generally  lower rate savings  accounts to
generally higher rate certificate accounts.

         Interest  expense on borrowings  increased  $93,000 to $195,000 for the
year ended  September  30, 1996 from  $102,000 for the year ended  September 30,
1995.  This  increase  primarily  reflects a $1.4  million  increase  in average
borrowings  to $3.6  million  for the year ended  September  30,  1996 from $2.2
million  for the prior  year,  as the  Company  leveraged  available  capital to
support further asset growth.

         Provision  for Loan Losses.  The provision for loan losses was $462,000
for the year ended September 30, 1996,  compared to $493,000 for prior year. Net
loan charge-offs  were $244,000 for the year ended September 30, 1996,  compared
to $85,000 for the year ended September 30, 1995.  Non-performing  loans totaled
$2.8 million at  September  30,  1996,  down from $3.5 million at September  30,
1995.  The  allowance  for loan  losses was  $937,000 or 1.06% of total loans at
September  30,  1996,  compared to $719,000 or 0.84% of total loans at September
30, 1995. The ratio of the allowance for loan losses to nonperforming  loans was
33.77% at September 30, 1996, compared to 20.37% a year earlier.

         Charge-offs for the year ended September 30, 1996 include  $203,000 for
the settlement of the Company's non-performing interest in a participation loan,
as well as $97,000 for three single-family properties that were transferred into
real estate owned.  The  participation  loan was originated by TASCO in 1986 and
was secured by a co-op located in Kew Gardens,  New York.  Management decided to
replenish the allowance for the net charge-offs  during the year ended September
30,1996 and to further  increase  the  allowance  as a result of loan growth and
changes in the portfolio mix.

         Non-Interest  Income.  Non-interest income for the year ended September
30,  1996  increased  $16,000  to  $702,000  from  $686,000  for the year  ended
September  30, 1995.  This  increase  was  primarily  attributable  to a $40,000
increase  in service  charges  and fee  income,  reflecting  higher  transaction
volume,  partially  offset  by a  $29,000  decrease  in the net gain on sales of
securities.

         Non-Interest Expense. Non-interest expense for the year ended September
30, 1996  increased $1.4 million to $6.2 million from $4.8 million for the prior
year. The increase was primarily  attributable to the SAIF special assessment of
$1.2 million  (discussed  below),  an increase of $339,000 in  compensation  and
benefits expense and an increase of $82,000 in occupancy and equipment  expense,
partially offset by a decrease of $241,000 in other non-interest expense.

                                       16

<PAGE>


         The increase in compensation  and benefits expense  primarily  reflects
the recognition in fiscal 1996 of $147,000 in expense  associated with the ESOP;
merit and performance  based increases for management and staff members;  and an
increase in the number of  employees.  The increase in occupancy  and  equipment
expense primarily reflects the leasing of additional space for corporate offices
initially  occupied  during  fiscal  1996.  The  decrease in other  non-interest
expense was primarily attributable to adjustments related to the Company's claim
against  Nationar,  a check-clearing  and trust company which failed in February
1995. At that time, the Company had

a  check-clearing  balance of $841,000 due from Nationar.  Based on management's
concerns at that time about the probability of fully collecting this balance,  a
provision for losses of $168,000 was  recognized in other  non-interest  expense
for the year ended September 30, 1995,  which reduced the net carrying amount of
the  claim  to  $673,000.  In June  1996,  the  Company  collected  $835,000  in
settlement of the claim. The difference of $162,000 between the amount collected
and the net  carrying  amount of the claim  was  reflected  as a credit to other
non-interest  expense  for the year  ended  September  30,  1996.  The  ratio of
non-interest  expense  to  average  total  assets  (excluding  the SAIF  special
assessment)  decreased to 2.20% for the year ended September 30, 1996 from 2.39%
for the prior year.

         The  deposits  of  savings  associations  such as the  Association  are
insured  by the SAIF  which,  together  with the Bank  Insurance  Fund  ("BIF"),
comprise  the  deposit  insurance  funds  administered  by the  Federal  Deposit
Insurance  Corporation  ("FDIC").  Beginning in 1995,  when the BIF achieved the
ratio of reserves to deposits required by statute, BIF-insured institutions were
assessed   premiums  at  rates  lower  than  those  applicable  to  SAIF-insured
institutions. In response to this premium disparity, the Deposit Insurance Funds
Act ("Act") was enacted into law on September 30, 1996. Among other things,  the
Act required  depository  institutions to pay a special assessment of 65.7 basis
points on the  balance of their  SAIF-assessable  deposits  held as of March 31,
1995,  in order  to  recapitalize  the SAIF to the  reserve  level  required  by
statute.  Accordingly,  the Company's  consolidated  statement of income for the
year  ended   September  30,  1996  reflects  a  separate   expense   charge  of
approximately  $1.2 million for the accrual of this special assessment which was
paid in November 1996.

         Income Tax Expense. Income tax expense for the year ended September 30,
1996  decreased  $116,000 as compared to the prior year although  pre-tax income
was substantially the same for the two periods.  The decrease in fiscal 1996 was
primarily attributable to a $100,000 tax benefit recognized in the quarter ended
September 30, 1996, due to a decrease in deferred tax  liabilities  caused by an
amendment  to the New York State tax law  enacted in July  1996.  The  amendment
changed the definition of the base-year tax bad debt reserves and eliminated the
need for a deferred tax liability  previously  recognized for reserves in excess
of the  base-year  amount.  See Note 8 of the  Notes to  Consolidated  Financial
Statements for a further  discussion of this amendment and the Association's tax
bad debt reserves.


                                       17

<PAGE>


Asset Quality

         Non-performing assets consist of non-accruing loans past due 90 days or
more and real estate owned  properties  that have been acquired by  foreclosure.
Loans are placed on  non-accrual  status when the  collection  of  principal  or
interest  becomes  doubtful.  Management  and the Board of  Directors  perform a
monthly  review of all  non-performing  loans.  The actions taken by the Company
with  respect  to  delinquencies  (workout,   settlement  or  foreclosure)  vary
depending on the nature of the loan,  length of  delinquency  and the borrower's
past credit history.  The  classification of a loan as  non-performing  does not
necessarily  indicate  that  the  principal  and  interest  ultimately  will  be
uncollectible.  Historical experience indicates that a portion of non-performing
assets will eventually be recovered. Real estate owned properties are carried at
the lower of cost or fair value less sales costs.

         The  following  table  sets forth the  amounts  and  categories  of the
Company's   non-performing   assets  at  the  dates  indicated.   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.
<TABLE>
<CAPTION>

                                                                                At September 30,
                                                             ------------------------------------------------------
                                                              1997        1996        1995        1994        1993
                                                              ----        ----        ----        ----        ----
                                                                         (Dollars in Thousands)
<S>                                                          <C>        <C>         <C>         <C>         <C>   
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....        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       33.77       20.37       11.68       25.50
       Total loans receivable.........................        0.90        1.06        0.84        0.39        0.37
</TABLE>
----------
(1)  Includes a 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.

                                       18

<PAGE>


         The provisions of SFAS No. 114 are applied by the Company to loans that
are individually evaluated for collectibility in accordance with its normal loan
review procedures  (principally loans in the commercial mortgage,  multi-family,
construction  and  land  loan  portfolios).  SFAS  No.  114  does  not  apply to
smaller-balance  homogeneous loans in the Company's one- to four-family mortgage
and consumer  loan  portfolios.  The Company's  recorded  investment in impaired
loans consisted of non-accrual commercial mortgage,  construction and land loans
totaling  $740,000 at September 30, 1997 and $975,000 at September 30, 1996. All
of these loans were collateral-dependent  loans measured based on the fair value
of the  collateral in accordance  with SFAS No. 114. The Company  determines the
need for an allowance for impairment under SFAS No. 114 on a loan-by-loan basis.
At September 30, 1997 and 1996,  such an allowance was not required with respect
to the Company's impaired loans due to the sufficiency of the related collateral
values.  The average  recorded  investment  in impaired  loans was  $799,000 and
$700,000 for the years ended September 30, 1997 and 1996, respectively. Interest
collections  and income  recognized  on  impaired  loans  (while such loans were
considered  impaired) were  insignificant  during the years ended  September 30,
1997 and 1996.

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

         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 losses on existing loans that may
become uncollectible, based on the evaluation of the collectibility of loans and
prior loan loss  experience.  Management's  evaluation  of the  adequacy  of the
allowance  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
assumptions used in making the final determination.


                                       19

<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 mortgate 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 to
     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.


Interest Rate Risk Management

         The principal objectives of the Company's interest rate risk management
activities are to: (i) define an acceptable level of risk based on the Company's
business focus, operating environment,  capital and liquidity requirements,  and
performance  objectives;  (ii)  quantify and monitor the amount of interest rate
risk inherent in the asset/liability  structure;  and (iii) modify the Company's
asset/liability  structure,  as  necessary,  to  manage  interest  rate risk and
maintain net interest margins in changing rate environments. Management seeks to
reduce  the  vulnerability  of the  Company's  operating  results  to changes in
interest  rates and to manage the ratio of  interest  rate  sensitive  assets to
interest rate sensitive  liabilities  within  specified  maturities or repricing
periods.  The Company does not  currently  engage in trading  activities  or use
off-balance  sheet  derivative  instruments to control  interest rate risk. Even
though  such  activities  may be  permitted  with the  approval  of the Board of
Directors,  management  does not  intend  to engage  in such  activities  in the
immediate future.

         Notwithstanding the Company's interest rate risk management activities,
the potential for changing  interest rates is an uncertainty  that could have an
adverse effect on the earnings of the Company. When interest-bearing liabilities
mature or reprice more quickly than interest-earning assets in a given period, a
significant  increase  in market  interest  rates  could  adversely  affect  net
interest income.  Similarly, when interest-earning assets mature or reprice more
quickly than interest-bearing  liabilities,  falling interest rates could result
in a decrease in net interest income. Finally, a flattening of the "yield curve"
(i.e., a narrowing of the spread between long- and short-term  interest  rates),
could  adversely  impact net  interest  income to the extent that the  Company's
assets have a longer average term than its liabilities.

         In  managing  the  Company's  asset/liability  position,  the Board and
management  attempt to manage the Company's  interest rate risk while  enhancing
net interest margins.  However, the Board of Directors continues to believe that
the increased net interest  income  resulting from a mismatch in the maturity of
the Company's asset and liability portfolios can, during periods of declining or
stable  interest  rates and  periods in which  there is a  substantial  positive
difference  between long- and  short-term  interest  rates (i.e.,  a "positively
sloped  yield  curve"),  provide  high enough  returns to justify the  increased
exposure to sudden and unexpected  increases in interest  rates.  (For instance,
during  fiscal 1997,  the Company  significantly  increased its  utilization  of
short-term  borrowings  to fund the  purchase  of  longer  term  mortgage-backed
securities.  As a result,  the Company's results of operations and net portfolio
values remain  significantly  vulnerable  to increases in interest  rates and to
fluctuations in the difference between long- and short-term interest rates.

         Consistent with its asset/liability  management philosophy, the Company
has taken  several steps to manage its interest  rate risk.  First,  the Company
maintains a portfolio  of interest  rate  sensitive  adjustable-rate  loans.  At
September 30, 1997, adjustable-rate loans represented $98.7 million, or 69.7% of
the  total  loan  portfolio.  Second,  most  of the  mortgage-backed  securities
purchased by the Company in recent years had  adjustable  interest  rates and/or
short or intermediate  effective  terms to maturity.  At September 30, 1997, the
Company  had  $55.0  million  of  adjustable-rate  mortgage-backed  pass-through
securities and $12.2 million of

                                       20

<PAGE>



collateralized  mortgage  obligations  ("CMOs") with expected  weighted  average
lives of five years or less. Third, a significant portion of the Company's other
debt securities  (primarily U.S. Government and agency securities) are short- or
intermediate-term   instruments   with   $12.0   million   of  such   securities
contractually  maturing within five years of September 30, 1997. In addition, at
September  30, 1997,  the Company had $11.0 million of "step-up"  securities,  a
substantial  portion of which  would  likely be redeemed  within five years,  if
interest rates remain at current levels.  Fourth,  the Company has a substantial
amount of regular savings, transaction, money market and club accounts which may
be less sensitive to changes in interest  rates than  certificate  accounts.  At
September 30, 1997, the Company had $44.6 million of regular  savings  accounts,
$21.6 million of money market  accounts and $24.8  million of NOW,  checking and
club accounts.  Overall,  these accounts  comprised 43.8% of the Company's total
deposit base.

         One approach used by  management to quantify  interest rate risk is the
net portfolio value ("NPV") analysis.  In essence,  this approach calculates the
difference  between the present  value of  liabilities  and the present value of
expected cash flows from assets and off-balance  sheet contracts.  The following
table sets forth,  at  September  30,  1997,  an  analysis of the  Association's
interest  rate risk as measured by the estimated  changes in NPV resulting  from
instantaneous  and  sustained  parallel  shifts in the yield curve (+/-400 basis
points,  measured in 100 basis point increments).  For comparative purposes, the
table also shows the estimated  percent increase  (decrease) in NPV at September
30, 1996.
<TABLE>
<CAPTION>

                                              At September 30, 1997   
                           ------------------------------------------------------------   
                                                Estimated Increase (Decrease) in NPV       Percent Increase      
Change in Interest Rates   Estimated NPV        ------------------------------------     (Decrease) in NPV at               
     (Basis Points)           Amount                  Amount           Percent            September 30, 1996 
     --------------           ------                  ------           -------            ------------------ 
                                              (Dollars in Thousands)                       
           <S>               <C>                   <C>                    <C>                     <C>  
          +400               $25,069               $(23,920)              (49)%                   (44)%
          +300                32,084                (16,905)              (35)                    (32)
          +200                38,135                (10,854)              (22)                    (20)
          +100                43,833                 (5,156)              (11)                    (10)
           ---                48,989                    ---               ---                     ---
          -100                52,635                  3,646                 7                       8
          -200                56,259                  7,270                15                      15
          -300                61,283                 12,294                25                      24
          -400                67,520                 18,531                38                      34
</TABLE>
                                         

         Certain assumptions  utilized by the OTS in assessing the interest rate
risk of thrift  institutions  were employed in preparing  the  preceding  table.
These assumptions relate to interest rates, loan prepayment rates, deposit decay
rates,  and the market values of certain assets under the various  interest rate
scenarios.  It was also  assumed  that  delinquency  rates  will not change as a
result of changes in interest rates although there can be no assurance that this
will be the case. Even if interest rates change in the designated amounts, there
can be no assurance that the Association's  assets and liabilities would perform
as set  forth  above.  In  addition,  a  change  in U.S.  Treasury  rates in the
designated  amounts  accompanied  by a change in the shape of the Treasury yield
curve  would cause  significantly  different  changes to the NPV than  indicated
above.


                                       21

<PAGE>



         Interest rate risk is the most  significant  market risk  affecting the
Company.  Other types of market  risk,  such as foreign  exchange  rate risk and
commodity  price  risk,  do not  arise in the  normal  course  of the  Company's
business activities.

Liquidity and Capital Resources

         The  Company's  primary  sources of funds are  deposits,  principal and
interest  payments on loans and  securities,  borrowings,  and proceeds from the
sale of loans and  securities.  While  maturities and scheduled  amortization of
loans and  securities  provide an  indication  of the  timing of the  receipt of
funds,  other sources of funds such as loan  prepayments and deposit inflows are
less  predictable  due to the  effects of changes in  interest  rates,  economic
conditions and competition.

         The Company is required to maintain an average  daily balance of liquid
assets and short-term liquid assets as a percentage of net withdrawable  deposit
accounts plus short-term  borrowings as defined by OTS regulations.  The minimum
required  liquidity and short-term  liquidity  ratios at September 30, 1997 were
5.0% and 1.0%,  respectively.  At September 30, 1997,  the  Company's  liquidity
ratio  was 6.5% and its  short-term  liquidity  ratio was  2.1%.  Subsequent  to
September 30, 1997, the OTS reduced the liquidity  requirement from 5.0% to 4.0%
and eliminated the short-term liquidity requirement.

         The Company's most liquid assets are cash and cash  equivalents,  which
include highly liquid short-term investments (such as money market mutual funds)
that are readily convertible to known amounts of cash. The level of these assets
is dependent on the Company's  operating,  financing  and  investing  activities
during  any  given  period.  At  September  30,  1997  and  1996,  cash and cash
equivalents totaled $3.6 million and $12.5 million, respectively.

         The primary investing  activities of the Company are the origination of
real estate mortgage and other loans,  and the purchase of  mortgage-backed  and
other securities.  During the years ended September 30, 1997, 1996 and 1995, the
Company's  disbursements  for loan  originations  totaled $69.2  million,  $17.6
million and $17.2 million, respectively. For the years ended September 30, 1997,
1996 and 1995,  purchases of  mortgage-backed  securities totaled $25.8 million,
$31.9 million and $10.4 million, respectively, and purchases of other securities
totaled  $30.0  million,  $35.3 million and $9.3  million,  respectively.  These
activities  were funded  primarily  by net  deposit  inflows,  borrowings  under
repurchase agreements and principal repayments on loans and securities.

         For the years ended  September  30,  1997,  1996 and 1995,  the Company
experienced  net  increases  in  deposits  (including  the  effect  of  interest
credited) of $17.2  million,  $2.7 million and $8.2 million,  respectively.  The
increase in fiscal 1997 was due to aggressive  cross selling,  quality  customer
service  and  new  deposit  products.  The  increase  in  fiscal  1996  reflects
relatively  flat market  interest  rates,  customer  preference for  alternative
investments,  and deposits  withdrawn to purchase stock in the  Conversion.  The
increase in fiscal 1995 reflects the general  increase in market  interest rates
which made deposit products  (particularly shorter term certificates of deposit)
a more attractive investment alternative for the Company's customers.

                                       22

<PAGE>



         In  fiscal  1997,  the  Company  significantly  increased  its  use  of
securities repurchase  agreements as a funding source. In these agreements,  the
Company borrows funds through the transfer of debt securities to the FHLB of New
York, as  counterparty,  and  concurrently  agrees to  repurchase  the identical
securities at a fixed price on a specified date. The Company  accounts for these
agreements  as  secured  financing  transactions  since it  maintains  effective
control over the transferred securities.  Accordingly,  the transaction proceeds
are recorded by the Company as borrowings and the underlying securities continue
to be carried in the Company's debt securities portfolio.  Repurchase agreements
are  collateralized  by the securities sold and, in certain cases, by additional
margin  securities.  During the years ended  September  30,  1997 and 1996,  the
average  borrowings under repurchase  agreements with the FHLB amounted to $32.1
million  and  $1.2  million,   respectively;   the  maximum   month-end  balance
outstanding was $54.1 million, and $10.3 million  respectively;  and the average
interest rate paid was 5.77% and 5.35%, respectively.  The average interest rate
spread on these transactions,  or the difference between the yield earned on the
underlying securities and the rate paid on the repurchase borrowings,  was 1.91%
in fiscal 1997 and 2.40% in fiscal 1996.

                                       23

<PAGE>



         The Company may also borrow  funds from the FHLB of New York subject to
certain  limitations.  Based on the Association's  total assets at September 30,
1997, the Company's  borrowing limit from the FHLB of New York was approximately
$76.8 million, with unused borrowing capacity of $70.8 million at that date.

         At September 30, 1997,  the Company had  outstanding  loan  origination
commitments of $16.4 million,  undisbursed construction loans in process of $1.1
million,  and unadvanced  lines of credit extended to customers of $4.4 million.
The Company anticipates that it will have sufficient funds available to meet its
current  loan  origination  and  other  commitments.   Certificates  of  deposit
scheduled to mature in one year or less from  September  30, 1997 totaled  $71.8
million.  Based on the Company's most recent  experience  and pricing  strategy,
management believes that a significant portion of such deposits will remain with
the Company.

         The main sources of liquidity for the Holding  Company are net proceeds
from the sale of stock and dividends received from the Association,  if any. The
main cash outflows are payments of dividends to shareholders  and repurchases of
the  Holding  Company's  common  stock.  In fiscal  1997,  the  Holding  Company
repurchased a total of 658,892  common shares in open market  transactions  at a
total cost of $8.9 million or $13.52 per share.

         The  Association may not declare or pay cash dividends on or repurchase
any of its shares of common stock if the effect thereof would cause equity to be
reduced below applicable  regulatory capital requirements or the amount required
to be maintained for the liquidation  account established in connection with the
Conversion.  Unlike the  Association,  the Holding Company is not subject to OTS
regulatory  restrictions  on the  payment  of  dividends  to  its  shareholders;
however,  it is  subject to the  requirements  of  Delaware  law.  Delaware  law
generally limits dividends to an amount equal to the excess of the net assets of
the Holding Company (the amount by which total assets exceed total  liabilities)
over its statutory  capital,  or if there is no such excess,  to its profits for
the current and/or immediately preceding fiscal year.

         The  OTS  regulations  require  savings   associations,   such  as  the
Association,  to meet three minimum capital standards:  a tangible capital ratio
requirement  of 1.5% of total assets as adjusted  under the OTS  regulations;  a
leverage  ratio  requirement  of 3.0% of core  capital  to such  adjusted  total
assets;  and a  risk-based  capital  ratio  requirement  of  8.0%  of  core  and
supplementary  capital to total risk-weighted  assets. The Association satisfied
these minimum capital standards at September 30, 1997 with tangible and leverage
capital  ratios  of 12.1% and a total  risk-based  capital  ratio of  32.1%.  In
determining  the amount of  risk-weighted  assets for purposes of the risk-based
capital  requirement,  a savings  association  multiplies  its assets and credit
equivalent  amount for certain  off-balance  sheet items by risk-weights,  which
range from 0% for cash and obligations issued by the United States Government or
its  agencies to 100% for assets  such as  consumer  and  commercial  loans,  as
assigned by the OTS capital regulations.  These capital requirements,  which are
applicable to the Association only, do not consider  additional  capital held at
the Holding Company level, and require certain  adjustments to the Association's
equity to arrive at the various regulatory capital amounts.

         The following table sets forth a  reconciliation  of the  Association's
equity  under  generally  accepted   accounting   principles  ("GAAP")  and  its
regulatory  capital at September 30, 1997, and a comparison of the Association's
regulatory capital amounts and ratios to the related OTS requirements.


                                       24

<PAGE>

<TABLE>
<CAPTION>

                                                                                 Tangible       Core      Risk-Based
                                                                                  Capital      Capital      Capital
                                                                                  -------      -------      -------
                                                                                       (Dollars In Thousands)
<S>                                                                               <C>          <C>          <C>    
GAAP equity.................................................................      $37,749      $37,749      $37,749
Net unrealized gain on available-for-sale debt securities, net of taxes.....         (641)        (641)        (641)
Allowance for loan losses includable in supplementary capital...............          ---          ---        1,093
                                                                               ----------   ----------     --------
Regulatory capital (actual).................................................       37,108       37,108       38,201
Regulatory capital (requirement)............................................        4,608        9,217        9,527
                                                                                 --------     --------     --------
   Excess...................................................................      $32,500      $27,891      $28,674
                                                                                  =======      =======      =======

Capital ratios:
   Actual(1)................................................................         12.1%        12.1%        32.1%
   Requirement..............................................................          1.5          3.0          8.0
   Excess...................................................................         10.6          9.1         24.1
</TABLE>

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

(1)  Based on tangible assets,  total adjusted assets and risk-weighted  assets,
     respectively.

Impact of Accounting Standards

         See Note 14 of the Notes to the Consolidated Financial Statements for a
discussion  of  recently-issued  accounting  standards  concerning  earnings per
share, comprehensive income and segment reporting.

Impact of Inflation and Changing Prices

         The Consolidated  Financial Statements and other financial  information
included in this  report  have been  prepared  in  conformity  with GAAP,  which
require the measurement of financial  position and operating results in terms of
historical  dollars without  considering the changes in the relative  purchasing
power of money over time due to inflation.  The impact of inflation is reflected
in the increased cost of the Company's operations.  Unlike industrial companies,
nearly all of the assets and  liabilities of the Company are monetary in nature.
As a result,  interest rates have a greater impact on the Company's  performance
than do the  effects  of  general  levels of  inflation.  Interest  rates do not
necessarily  move in the same  direction  or to the same extent as the prices of
goods and services.

                                       25

<PAGE>



                               MANAGEMENT'S REPORT

         Management  is  responsible  for the  preparation  and integrity of the
consolidated financial statements and other information presented in this annual
report. The consolidated  financial  statements have been prepared in conformity
with generally accepted accounting principles and reflect management's judgments
and estimates with respect to certain events and transactions.

         Management is responsible for maintaining a system of internal control.
The purpose of the system is to provide  reasonable  assurance that transactions
are recorded in  accordance  with  management's  authorization;  that assets are
safeguarded  against loss or  unauthorized  use; and that  underlying  financial
records support the preparation of financial statements. The system includes the
communication  of  written  policies  and  procedures,  selection  of  qualified
personnel, appropriate segregation of responsibilities, and the ongoing internal
audit function.

         The Board of Directors meets periodically with Company management,  the
internal auditor, and the independent auditors, KPMG Peat Marwick LLP, to review
matters relative to the quality of financial  reporting,  internal control,  and
the nature, extent and results of the audit efforts.

         The  independent  auditors  conduct an annual  audit to enable  them to
express  an opinion  on the  Company's  consolidated  financial  statements.  In
connection  with the audit,  the  independent  auditors  consider the  Company's
internal control to the extent they consider  necessary to determine the nature,
timing and extent of their auditing procedures.


/s/ Richard F. Komosinski                        /s/ Joseph D. Roberto

Richard F. Komosinski                            Joseph D. Roberto
President and Chief Executive Officer            Vice President, Treasurer and
                                                 Chief Financial Officer




                                       26

<PAGE>


                          INDEPENDENT AUDITORS' REPORT





The Board of Directors and Stockholders
Yonkers Financial Corporation:


       We have audited the accompanying  consolidated  balance sheets of Yonkers
Financial  Corporation  and subsidiary  (the "Company") as of September 30, 1997
and  1996,  and the  related  consolidated  statements  of  income,  changes  in
stockholders'  equity,  and cash  flows for each of the years in the  three-year
period ended September 30, 1997. These consolidated financial statements are the
responsibility of the Companyis management.  Our responsibility is to express an
opinion on these consolidated financial statements based on our audits.

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

       In our opinion,  the consolidated  financial statements referred to above
present  fairly,  in all material  respects,  the financial  position of Yonkers
Financial  Corporation and subsidiary as of September 30, 1997 and 1996, and the
results  of their  operations  and their cash flows for each of the years in the
three-year period ended September 30, 1997 in conformity with generally accepted
accounting principles.


/s/KPMG PEAT MARWICK LLP


Stamford, Connecticut
October 30, 1997

                                       27

<PAGE>

                  YONKERS FINANCIAL CORPORATION AND SUBSIDIARY


                           CONSOLIDATED BALANCE SHEETS
                        (In Thousands, Except Share Data)


                                                            September 30,
                                                        ------------------------
                                                           1997         1996
                                                           ----         ----
                  ASSETS

Cash and cash equivalents:
  Cash and due from banks ..........................    $   2,046     $   2,152
  Short-term investments ...........................        1,547        10,348
                                                        ---------     ---------
     Total cash and cash equivalents ...............        3,593        12,500
                                                        ---------     ---------
Securities (note 2):
  Available-for-sale, at fair value
   (amortized cost of $85,336 in 1997
   and $58,855 in 1996) ............................       86,286        58,552
  Held-to-maturity, at amortized cost
   (fair value of $76,902 in 1997
   and $94,162 in 1996) ............................       76,329        95,007
                                                        ---------     ---------
     Total securities ..............................      162,615       153,559
                                                        ---------     ---------
Real estate mortgage loans held for sale,
  at lower of cost or market value (note 3) ........       20,437            --
                                                        ---------     ---------
Loans receivable, net (note 3):
  Real estate mortgage loans .......................      112,357        80,337
  Consumer and commercial business loans ...........        7,419         7,266
  Allowance for loan losses ........................       (1,093)         (937)
                                                        ---------     ---------
    Total loans receivable, net ....................      118,683        86,666
                                                        ---------     ---------
Accrued interest receivable (note 4) ...............        2,845         2,449
Federal Home Loan Bank ("FHLB") stock ..............        3,005         1,065
Office properties and equipment, net (note 5) ......          902           947
Deferred income taxes (note 8) .....................           --         1,010
Other assets .......................................          876         1,338
                                                        ---------     ---------
    Total assets ...................................    $ 312,956     $ 259,534
                                                        =========     =========

      LIABILITIES AND STOCKHOLDERS' EQUITY

Liabilities:
  Deposits (note 6) ................................    $ 207,933     $ 190,675
  Securities repurchase agreements (note 7) ........       54,096        10,264
  FHLB advances (note 7) ...........................        6,000         8,000
  Deferred income taxes (note 8) ...................           58            --
  Other liabilities ................................          991         1,596
                                                        ---------     ---------
    Total liabilities ..............................      269,078       210,535
                                                        ---------     ---------

Commitments and contingencies (notes 3 and 12)

Stockholders' equity (notes 10 and 11):
  Preferred stock (par value $0.01 per
   share; 100,000 shares authorized;
   none issued or outstanding) .....................           --            --
  Common stock (par value $0.01 per
   share; 4,500,000 shares authorized;
   3,570,750 shares issued) ........................           36            36
  Additional paid-in capital .......................       34,734        34,596
  Unallocated common stock held by
   employee stock ownership plan ("ESOP") ..........       (2,428)       (2,714)
  Unamortized awards of common stock
   under management recognition plan ("MRP") .......       (1,125)           --
  Treasury stock, at cost (549,987 shares) .........       (7,513)           --
  Retained income, substantially restricted ........       19,605        17,263
  Net unrealized gain (loss) on available-
   for-sale securities, net of taxes (note 2) ......          569          (182)
                                                        ---------     ---------
   Total stockholders' equity ......................       43,878        48,999
                                                        ---------     ---------

   Total liabilities and stockholders' equity ......    $ 312,956     $ 259,534
                                                        =========     =========


See accompanying notes to consolidated financial statements.

                                       28
<PAGE>


                  YONKERS FINANCIAL CORPORATION AND SUBSIDIARY

                        CONSOLIDATED STATEMENTS OF INCOME
                      (In Thousands, Except Per Share Data)

                                                  Year Ended September 30,
                                              -------------------------------
                                                 1997        1996       1995
                                                 ----        ----       ----
Interest and dividend income:
    Loans .................................  $   8,603    $  7,471   $  6,937
    Securities ............................     11,733       8,153      6,801
    Other earning assets ..................        395         752        325
                                              --------    --------   --------
     Total interest and
      dividend income .....................     20,731      16,376     14,063
                                              --------    --------   --------

Interest expense:
    Deposits ..............................      7,922       7,780      6,902
    Securities repurchase agreements ......      1,849          65         79
    FHLB advances .........................        186         130         23
                                              --------    --------   --------
     Total interest expense ...............      9,957       7,975      7,004
                                              --------    --------   --------
       Net interest income ................     10,774       8,401      7,059

Provision for loan losses (note 3) ........        300         462        493
                                              --------    --------   --------
       Net interest income after
         provision for loan losses ........     10,474       7,939      6,566
                                              --------    --------   --------

Non-interest income:
    Service charges and fees ..............        814         680        640
    Net (loss) gain on sales of
      securities (note 2) .................        (48)         --         29
    Other .................................         21          22         17
                                              --------    --------   --------
    Total non-interest income .............        787         702        686
                                              --------    --------   --------

Non-interest expense:
    Compensation and benefits
     (note 10) ............................      3,411       2,525      2,186
    Occupancy and equipment ...............        733         653        571
    Federal deposit insurance costs:
       Regular premiums ...................        183         435        406
       Special assessment (note 6) ........         --       1,166         --
    Data processing service fees ..........        465         417        367
    Other (note 9) ........................      1,527       1,008      1,249
                                              --------    --------   --------
     Total non-interest expense ...........      6,319       6,204      4,779
                                              --------    --------   --------

       Income before income tax expense ...      4,942       2,437      2,473

Income tax expense (note 8) ...............      1,990         917      1,033
                                              --------    --------   --------

       Net income .........................   $  2,952    $  1,520   $  1,440
                                              ========    ========   ========

Earnings per share, from date of
  conversion (note 11) ....................   $   1.02    $   0.22
                                              ========    ========


See accompanying notes to consolidated financial statements.

                                       29
<PAGE>


                  YONKERS FINANCIAL CORPORATION AND SUBSIDIARY


           CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
                      (In Thousands, Except Per Share Data)
<TABLE>
<CAPTION>

                                                                       Unamortized
                                                            Unallocated  Awards of                              Net
                                                               Common     Common                            Unrealized
                                                Additional     Stock      Stock                             Gain (Loss)    Total
                                         Common   Paid-in      Held by     Under     Treasury    Retained        on    Stockholders'
                                          Stock   Capital       ESOP        MRP        Stock      Income     Securities    Equity
                                          -----   -------       ----        ---        -----      ------     ----------    ------
<S>                                      <C>        <C>        <C>         <C>         <C>         <C>         <C>         <C>     
Balance at September 30, 1994 ........   $     --   $     --   $     --    $     --    $     --    $ 14,467    $   (311)   $ 14,156

 Net income ..........................         --         --         --          --          --       1,440          --       1,440
 Change in net unrealized gain (loss)
    on available-for-sale securities,
    net of taxes .....................         --         --         --          --          --          --         169         169
                                         --------   --------   --------    --------    --------    --------    --------    --------

Balance at September 30, 1995 ........         --         --         --          --          --      15,907        (142)     15,765

 Net income ..........................         --         --         --          --          --       1,520          --       1,520
 Dividend paid ($0.05 per share) .....         --         --         --          --          --        (164)         --        (164)
 Issuance of 3,570,750 common shares .         36     34,592         --          --          --          --          --      34,628
 Shares purchased by ESOP
    (285,660 shares) .................         --         --     (2,857)         --          --          --          --      (2,857)
 ESOP shares released for allocation
    (14,283 shares) ..................         --          4        143          --          --          --          --         147
 Change in net unrealized gain (loss)
    on available-for-sale securities,
    net of taxes .....................         --         --         --          --          --          --         (40)        (40)
                                         --------   --------   --------    --------    --------    --------    --------    --------

Balance at September 30, 1996 ........         36     34,596     (2,714)         --          --      17,263        (182)     48,999

 Net income ..........................         --         --         --          --          --       2,952          --       2,952
 Dividends paid ($0.21 per share) ....         --         --         --          --          --        (610)         --        (610)
 Common stock repurchased
    (658,892 shares) .................         --         --         --          --      (8,909)         --          --      (8,909)
 Repurchased stock awarded under
    MRP (108,905 shares) .............         --         --         --      (1,396)      1,396          --          --          --
 Amortization of MRP awards ..........         --         --         --         271          --          --          --         271
 ESOP shares released for allocation
    (28,566 shares) ..................         --        138        286          --          --          --          --         424
 Change in net unrealized gain (loss)
    on available-for-sale securities,
    net of taxes .....................         --         --         --          --          --          --         751         751
                                         --------   --------   --------    --------    --------    --------    --------    --------

Balance at September 30, 1997 ........   $     36   $ 34,734   $ (2,428)   $ (1,125)   $ (7,513)   $ 19,605    $    569    $ 43,878
                                         ========   ========   ========    ========    ========    ========    ========    ========
</TABLE>

See accompanying notes to consolidated financial statements.

                                       30

<PAGE>

                  YONKERS FINANCIAL CORPORATION AND SUBSIDIARY

                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                                 (In Thousands)


                                                   Year Ended September 30,
                                               ---------------------------------
                                                   1997      1996       1995
                                                   ----      ----       ----
Cash flows from operating activities:
 Net income ................................   $  2,952    $  1,520    $  1,440
 Adjustments to reconcile net income
   to net cash provided by operating
   activities:
    Provision for loan losses ..............        300         462         493
    ESOP and MRP expense ...................        695         147          --
    Depreciation and amortization expense ..        194         196         169
    Amortization of deferred fees,
     discounts and premiums, net ...........       (289)       (479)       (517)
    Net loss (gain) on sales of securities .         48          --         (29)
    Other adjustments, net .................       (169)         80        (476)
                                               --------    --------    --------
      Net cash provided by operating
       activities ..........................      3,731       1,926       1,080
                                               --------    --------    --------

Cash flows from investing activities:
 Purchases of securities:
    Available-for-sale .....................    (55,835)    (45,036)     (3,804)
    Held-to-maturity .......................         --     (22,142)    (15,938)
 Proceeds from principal payments,
  maturities and calls of securities:
    Available-for-sale .....................     13,356       7,334       2,023
    Held-to-maturity .......................     18,563      22,895       6,687
 Proceeds from sales of securities:
    Available-for-sale .....................     15,943          --         438
    Held-to-maturity .......................        237          --         847
 Disbursements for loan originations .......    (69,169)    (17,571)    (17,213)
 Principal collections on loans ............     13,612      11,780      10,961
 Proceeds from sales of loans ..............      2,785       1,883         383
 (Purchase) redemption of FHLB stock .......     (1,940)         47         (48)
 Other investing cash flows, net ...........        239        (119)       (166)
                                               --------    --------    --------
     Net cash used in investing
      activities ...........................    (62,209)    (40,929)    (15,830)
                                               --------    --------    --------

Cash flows from financing activities:
 Net increase in deposits ..................     17,258       2,666       8,193
 Net increase (decrease) in borrowings
   with original terms of three months
   or less:
       Securities repurchase agreements ....     18,503      10,264          --
       FHLB advances .......................     (2,000)      3,705       4,000
 Proceeds from longer-term securities
  repurchase agreements ....................     25,329          --          --
 Common stock repurchased ..................     (8,909)         --          --
 Net proceeds from issuance of common
  stock, exclusive of ESOP shares ..........         --      31,771          --
 Dividends paid ............................       (610)       (164)         --
                                               --------    --------    --------
    Net cash provided by financing
     activities ............................     49,571      48,242      12,193
                                               --------    --------    --------

Net (decrease) increase in cash and
 cash equivalents ..........................     (8,907)      9,239      (2,557)
Cash and cash equivalents at
 beginning of year .........................     12,500       3,261       5,818
                                               --------    --------    --------
Cash and cash equivalents at end of year ...   $  3,593    $ 12,500    $  3,261
                                               ========    ========    ========

Supplemental information:
 Interest paid .............................   $  9,623       7,956       7,004
 Income taxes paid .........................      1,931       1,331       1,520
 Loans transferred to real estate owned ....        313         603         303
                                               ========    ========    ========


See accompanying notes to consolidated financial statements.

                                       31

<PAGE>

                  YONKERS FINANCIAL CORPORATION AND SUBSIDIARY

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                        September 30, 1997, 1996 and 1995

(1) Summary of Significant Accounting Policies

       In December 1995, The Yonkers Savings and Loan Association converted from
a New York State  chartered  mutual savings and loan  association to a federally
chartered  mutual  savings and loan  association  under the new name The Yonkers
Savings and Loan Association, FA (the iAssociationi). On April 18, 1996, Yonkers
Financial Corporation (the "Holding Company") became the holding company for the
Association upon completion of the Association's conversion to the stock form of
ownership  (the  "Conversion").   Collectively,  the  Holding  Company  and  the
Association are referred to herein as the "Company".

       The Company's primary market area consists of the City of Yonkers and its
neighboring  communities in Westchester  County,  New York. The Association is a
community-oriented  savings  institution  whose business  primarily  consists of
accepting  deposits from  customers  within its market area and investing  those
funds in mortgage loans secured by one- to four-family  residences.  To a lesser
extent,  funds are invested in  multi-family  and commercial  real estate loans,
construction and land loans,  consumer loans and commercial  business loans. The
Company  also  invests in  mortgage-backed  and other  securities.  Deposits are
insured  up to  applicable  limits by the  Savings  Association  Insurance  Fund
("SAIF") of the Federal Deposit Insurance  Corporation  ("FDIC").  The Company's
primary regulator is the Office of Thrift Supervision ("OTS").

       The  following  is a  summary  of  the  significant  accounting  policies
followed  by the  Company  in the  preparation  of  the  consolidated  financial
statements.

Basis of Presentation

       The consolidated financial statements include the accounts of the Holding
Company  and its  wholly-owned  subsidiary,  the  Association.  All  significant
intercompany  accounts and transactions  have been eliminated in  consolidation.
Prior to the Conversion,  the Holding Company had no operations other than those
of an organizational nature.  Subsequent thereto, the Holding Company's business
activities  have been limited to its  ownership of the  Association  and certain
short-term and other investments.  All financial information included herein for
periods prior to the Conversion refers to the Association.

       The  consolidated  financial  statements have been prepared in conformity
with generally  accepted  accounting  principles.  In preparing the consolidated
financial  statements,  management is required to make estimates and assumptions
that affect the reported amounts of assets,  liabilities,  income and expense. A
material  estimate that is particularly  susceptible to near-term  change is the
allowance for loan losses, which is discussed below.

       Certain reclassifications have been made to prior-year amounts to conform
to the current-year presentation.

                                       32

<PAGE>


Cash Equivalents

       For purposes of reporting cash flows, cash equivalents  consist of highly
liquid short-term  investments.  At September 30, 1997,  short-term  investments
reported in the  consolidated  balance  sheet were money market  mutual funds of
$1.5  million.  Short-term  investments  at September 30, 1996 were money market
mutual funds of $10.2 million and interest-bearing deposits of $0.1 million.

Securities

       The Company  accounts for its securities in accordance  with Statement of
Financial  Accounting  Standards  ("SFAS")  No.  115,  "Accounting  for  Certain
Investments  in Debt and  Equity  Securities."  Under SFAS No.  115,  individual
securities are classified as held-to-maturity securities, trading securities, or
available-for-sale  securities.  Securities held to maturity are limited to debt
securities  for which the entity has the positive  intent and ability to hold to
maturity.  Trading  securities  are debt and equity  securities  that are bought
principally for the purpose of selling them in the near term. All other debt and
equity securities are classified as available for sale.

       Held-to-maturity    securities    are   carried   at   amortized    cost.
Available-for-sale  securities are carried at fair value with  unrealized  gains
and losses  excluded  from  earnings  and  reported on a  net-of-tax  basis as a
separate  component  of  stockholders'   equity.  The  Company  has  no  trading
securities.  Federal Home Loan Bank stock is a  non-marketable  equity  security
held in accordance with certain  regulatory  requirements and,  accordingly,  is
carried at cost.

       Premiums and discounts are amortized to interest  income on a level-yield
basis over the expected term of the debt security.  Realized gains and losses on
sales of securities are  determined  based on the amortized cost of the specific
securities  sold.  Unrealized  losses on  securities  are charged to earnings if
management determines that the decline in fair value of a security is other than
temporary.

Real Estate Mortgage Loans Held for Sale

       Real  estate  mortgage  loans held for sale in the  secondary  market are
carried at lower of cost or market  value in the  aggregate.  Market  values are
estimated based on outstanding  investor sale  commitments or, in the absence of
such  commitments,  based on current  secondary market yield  requirements.  Net
unrealized  losses, if any, are recognized in a valuation  allowance by a charge
to income.

Allowance for Loan Losses

       The  allowance  for loan losses is  increased  by  provisions  for losses
charged to income. Losses on loans (including impaired loans) are charged to the
allowance  for loan  losses  when all or a  portion  of a loan is  deemed  to be
uncollectible.  Recoveries of loans  previously  charged-off are credited to the
allowance  when  realized.  Management  estimates  the allowance for loan losses
based on an  evaluation of the Companyis  past loan loss  experience,  known and
inherent risks in the portfolio,  estimated value of underlying collateral,  and
current economic conditions.  In managementis  judgment,  the allowance for loan
losses is adequate to absorb probable losses in the existing portfolio.

                                       33
<PAGE>


                  YONKERS FINANCIAL CORPORATION AND SUBSIDIARY

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


       Establishing   the  allowance  for  loan  losses   involves   significant
management judgments utilizing the best information available at the time. Those
judgments  are  subject to  further  review by various  sources,  including  the
Companyis  regulators.  Adjustments  to the  allowance  may be  necessary in the
future based on changes in economic and real estate market  conditions,  further
information  obtained  regarding  known problem  loans,  the  identification  of
additional problem loans, and other factors.

       Effective  October 1, 1995,  the Company  prospectively  adopted SFAS No.
114,  "Accounting by Creditors for Impairment of a Loan," as amended by SFAS No.
118.  Under SFAS No. 114, a loan is  considered  to be impaired  when,  based on
current  information and events, it is probable that the creditor will be unable
to collect all principal and interest contractually due. Creditors are permitted
to measure impaired loans based on (i) the present value of expected future cash
flows  discounted  at the  loan's  effective  interest  rate,  (ii)  the  loan's
observable market price or (iii) the fair value of the collateral if the loan is
collateral dependent. If the approach used results in a measurement that is less
than an impaired loan's recorded investment, an impairment loss is recognized as
part of the allowance for loan losses. SFAS No. 118 allows creditors to continue
to use existing  methods for recognizing  interest income on impaired loans. The
Company's adoption of SFAS Nos. 114 and 118 did not affect its overall allowance
for loan losses or income recognition practices.

Interest and Fees on Loans

       Interest is accrued  monthly on  outstanding  principal  balances  unless
management  considers  the  collection  of interest or principal to be doubtful.
Loans on non-accrual  status include all loans  contractually  delinquent ninety
days or  more.  Interest  payments  received  on  non-accrual  loans  (including
impaired loans) are recognized as income unless future collections are doubtful.
Loans are returned to accrual status when collectibility is no longer considered
doubtful (generally, when all payments have been brought current).

       Loan  origination  fees and  certain  direct loan  origination  costs are
deferred,  and the net fee or cost is  amortized  to  interest  income  over the
contractual term of the loans using the level-yield method. Unamortized fees and
costs  applicable to loans prepaid or sold are  recognized in income at the time
of prepayment or sale.

Real Estate Owned

       Real estate owned properties  acquired  through  foreclosure are recorded
initially at fair value less estimated sales costs, with the resulting writedown
charged to the allowance for loan losses. Thereafter, an allowance for losses on
real  estate  owned is  established  by a  charge  to  expense  to  reflect  any
subsequent  declines in fair  value.  Fair value  estimates  are based on recent
appraisals and other available information. Costs incurred to develop or improve
properties are capitalized, while holding costs are charged to expense.

Office Properties and Equipment

         Office properties and equipment are comprised of land (carried at cost)
and  buildings,   furniture,  fixtures,  equipment  and  leasehold  improvements
(carried at cost less accumulated  depreciation and amortization).  Depreciation
is computed using the  straight-line  method over the estimated  useful lives of
the related assets. Leasehold improvements are amortized using the straight-line
method  over the shorter of the lease term or the  estimated  useful life of the
improvement. Costs incurred to improve or extend the life of existing assets are
capitalized.  Repairs and maintenance, as well as renewals and replacements of a
routine nature, are charged to expense.

Income Taxes

       In accordance  with the asset and liability  method  required by SFAS No.
109,  "Accounting  for Income  Taxes,"  deferred  taxes are  recognized  for the
estimated future tax effects attributable to "temporary differences" between the
financial  statement  carrying  amounts of existing  assets and  liabilities and
their  respective  tax bases.  A deferred tax  liability is  recognized  for all
temporary  differences that will result in future taxable income. A deferred tax
asset is recognized for all temporary differences that will result in future tax
deductions,  subject  to  reduction  of the asset by a  valuation  allowance  in
certain  circumstances.  This valuation  allowance is recognized if, based on an
analysis of available  evidence,  management  determines  that it is more likely
than not that a portion or all of the  deferred  tax asset will not be realized.
The  valuation  allowance is subject to ongoing  adjustment  based on changes in
circumstances that affect  managementis  judgment about the realizability of the
deferred tax asset.  Adjustments to increase or decrease the valuation allowance
are charged or credited, respectively, to income tax expense.

       Deferred tax assets and  liabilities are measured using enacted tax rates
expected to apply to future  taxable  income.  The effect on deferred tax assets
and  liabilities  of an enacted  change in tax rates is recognized in income tax
expense in the period that includes the enactment date of the change.

Pension Plans

       The Company has a  non-contributory  defined  benefit  pension plan which
covers substantially all employees.  Pension costs are funded on a current basis
in compliance with the requirements of the Employee  Retirement  Income Security
Act.  Costs  for this  plan,  as well as any  unfunded  supplemental  retirement
agreements,  are  accounted  for in  accordance  with SFAS No.  87,  "Employers'
Accounting for Pensions."

                                       34
<PAGE>
                  YONKERS FINANCIAL CORPORATION AND SUBSIDIARY

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Stock-Based Compensation Plans

       Compensation  expense is  recognized  for the  Company's  employee  stock
ownership  plan  ("ESOP")  equal to the fair  value of  shares  committed  to be
released for allocation to participant accounts. Any difference between the fair
value at that  time and the  ESOP's  original  acquisition  cost is  charged  or
credited to  stockholders'  equity  (additional  paid-in  capital).  The cost of
unallocated  ESOP shares  (shares not yet committed to be released) is reflected
as a reduction of stockholders' equity.

       The  Company  accounts  for its  stock  option  plan in  accordance  with
Accounting Principles Board ("APB") Opinion No. 25, "Accounting for Stock Issued
to  Employees."  Accordingly,  compensation  expense is  recognized  only if the
exercise price of the option is less than the fair value of the underlying stock
at the grant date.  SFAS No. 123,  "Accounting  for  Stock-Based  Compensation,"
encourages  entities  to  recognize  the fair  value of all  stock-based  awards
(measured on the grant date) as  compensation  expense over the vesting  period.
Alternatively,  SFAS No.  123 allows  entities  to apply the  provisions  of APB
Opinion No. 25 and provide pro forma  disclosures of net income and earnings per
share as if the fair-value-based method defined in SFAS No. 123 had been applied
to awards granted in fiscal years beginning after December 15, 1994. The Company
has elected to apply the  provisions of APB Opinion No. 25 and provide these pro
forma disclosures.

       The Company's  management  recognition and retention plan ("MRP") is also
accounted  for in  accordance  with APB  Opinion  No.  25. The fair value of the
shares  awarded,   measured  at  the  grant  date,  is  recognized  as  unearned
compensation   (a  deduction  from   stockholders'   equity)  and  amortized  to
compensation expense as the shares become vested.

Earnings Per Share

       Earnings per share is reported for periods following the Conversion based
on  net  income  divided  by  the  weighted  average  number  of  common  shares
outstanding and common stock equivalents  (dilutive stock options computed using
the  treasury  stock  method).  Common  stock  equivalents  are  included in the
calculation of earnings per share when such inclusion has a significant dilutive
effect.  Unallocated  ESOP shares that have not been committed to be released to
participants  are excluded  from  outstanding  shares in  computing  earning per
share.

(2) Securities

       The   Company's    securities    portfolio    principally   consists   of
mortgage-backed   securities  and  U.S.   Government   and  Agency   securities.
Mortgage-backed    securities   include   both   pass-through   securities   and
collateralized  mortgage  obligations  ("CMOs"),  substantially all of which are
guaranteed by U.S.  Government  or  government-sponsored  entities  (Fannie Mae,
Ginnie Mae and Freddie Mac).

       The following is a summary of securities at September 30, 1997:

                                                  Gross Unrealized
                                     Amortized  --------------------      Fair
                                       Cost       Gains      Losses       Value
                                       ----       -----      ------       -----
                                                    (In Thousands)
Available-for-Sale Securities
Mortgage-backed securities:
  Pass-through securities ........   $ 34,460   $    446    $    (14)   $ 34,892
  CMOs ...........................      8,148         --          (2)      8,146
                                     --------   --------    --------    --------
                                       42,608        446         (16)     43,038
U.S. Government and Agency
 securities ......................     40,805        671          (7)     41,469
Mutual fund investments ..........      1,923         --        (144)      1,779
                                     --------   --------    --------    --------
    Total available for sale .....   $ 85,336   $  1,117    $   (167)   $ 86,286
                                     ========   ========    ========    ========
Held-to-Maturity Securities
Mortgage-backed securities:
  Pass-through securities ........   $ 35,283   $    733    $   (111)   $ 35,905
  CMOs ...........................     15,063        127        (124)     15,066
                                     --------   --------    --------    --------
                                       50,346        860        (235)     50,971
                                     --------   --------    --------    --------
U.S. Government and Agency:
  Step-up securities .............     10,984         18         (46)     10,956
  Other securities ...............     14,999         32         (56)     14,975
                                     --------   --------    --------    --------
                                       25,983         50        (102)     25,931
                                     --------   --------    --------    --------
    Total held to maturity .......   $ 76,329   $    910    $   (337)   $ 76,902
                                     ========   ========    ========    ========

                                       35
<PAGE>

                  YONKERS FINANCIAL CORPORATION AND SUBSIDIARY

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


       The following is a summary of securities at September 30, 1996:

                                                  Gross Unrealized
                                     Amortized  --------------------     Fair
                                       Cost      Gains       Losses      Value
                                       ----      -----       ------      -----
                                                     (In Thousands)
Available-for-Sale Securities
Mortgage-backed securities:
  Pass-through securities ........   $ 20,679   $     80    $   (187)   $ 20,572
  CMOs ...........................      2,146         --          (7)      2,139
                                     --------   --------    --------    --------
                                       22,825         80        (194)     22,711
                                     --------   --------    --------    --------
U.S. Government and Agency:
  Step-up securities .............      3,000         --         (31)      2,969
  Other securities ...............     26,960        116         (53)     27,023
                                     --------   --------    --------    --------
                                       29,960        116         (84)     29,992
                                     --------   --------    --------    --------
Mutual fund investments ..........      6,070         --        (221)      5,849
                                     --------   --------    --------    --------
    Total available for sale .....   $ 58,855   $    196    $   (499)   $ 58,552
                                     ========   ========    ========    ========
Held-to-Maturity Securities
Mortgage-backed securities:
  Pass-through securities ........   $ 41,493   $    426    $   (399)   $ 41,520
  CMOs ...........................     16,646        132        (300)     16,478
                                     --------   --------    --------    --------
                                       58,139        558        (699)     57,998
                                     --------   --------    --------    --------
U.S. Government and Agency:
  Step-up securities .............     12,966          1        (316)     12,651
  Other securities ...............     23,402          7        (397)     23,012
                                     --------   --------    --------    --------
                                       36,368          8        (713)     35,663
                                     --------   --------    --------    --------
Corporate bond ...................        500          1          --         501
                                     --------   --------    --------    --------
    Total held to maturity .......   $ 95,007   $    567    $ (1,412)   $ 94,162
                                     ========   ========    ========    ========

       Mortgage-backed and other debt securities at September 30, 1997 consisted
of fixed-rate securities and adjustable-rate  securities with amortized costs of
$93.9 million and $65.8 million,  respectively,  and weighted  average yields of
7.30% and 6.74%, respectively. Fixed-rate and adjustable-rate debt securities at
September 30, 1996 totaled $77.2 million and $70.6 million,  respectively,  with
weighted average yields of 7.20% and 6.52%, respectively.

                                       36

<PAGE>



       Mortgage-backed  securities include securities  guaranteed by Fannie Mae,
Ginnie Mae and Freddie Mac with total  amortized  costs of $39.2 million,  $30.7
million and $22.7 million,  respectively,  at September 30, 1997 ($46.1 million,
$18.6  million  and  $15.9  million,   respectively,  at  September  30,  1996).
Privately-issued  mortgage-backed securities had amortized costs of $0.3 million
and $0.4 million at September 30, 1997 and 1996, respectively.

       The Company's step-up securities are issued by U.S.  Government  Agencies
or government-sponsored  enterprises and initially pay an above-market yield for
a short non-call  period.  If the  securities are not called,  the interest rate
"steps-up"  to a higher  coupon  rate which would be below  then-current  market
rates.  These  securities  had a  weighted  average  yield of 5.97% and 5.78% at
September 30, 1997 and 1996, respectively.

       The net  unrealized  gain on  available-for-sale  securities was $950,000
($569,000 after taxes) at September 30, 1997,  compared to a net unrealized loss
of $303,000  ($182,000 after taxes) at September 30, 1996. Changes in unrealized
holding  gains and  losses  resulted  in an  after-tax  increase  (decrease)  in
stockholders'  equity of $751,000,  ($40,000)  and $169,000  during fiscal 1997,
1996 and 1995,  respectively.  These gains and losses will continue to fluctuate
based on changes in the portfolio and market conditions.

       Sales of securities  resulted in the following  gross  realized gains and
gross realized losses during the years ended September 30:

                                                    1997       1996        1995
                                                    ----       ----         ----
                                                         (In Thousands)
Available-for-sale securities:
    Gains ...................................       $ 47        $ --       $  7
    Losses ..................................        (97)         --         (1)
                                                    ----        ----       ----
                                                     (50)         --          6
                                                    ----        ----       ----
Held-to-maturity securities:
    Gains ...................................          2          --         24
    Losses ..................................         --          --         (1)
                                                    ----        ----       ----
                                                       2          --         23
                                                    ----        ----       ----
Net (loss) gain .............................       $(48)       $ --       $ 29
                                                    ====        ====       ====

       The  held-to-maturity  securities  sold in  fiscal  1997  and  1995  were
mortgage-backed  securities  with an amortized  cost of $235,000  and  $824,000,
respectively, for which the Company had collected more than 85% of the principal
purchased.  Under SFAS No. 115,  sales in these  circumstances  are deemed to be
equivalent to maturities and, accordingly,  do not call into question the intent
to hold other debt securities to maturity in the future.

                                       37

<PAGE>
                  YONKERS FINANCIAL CORPORATION AND SUBSIDIARY

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

       The following is a summary of the  amortized  cost and fair value of U.S.
Government and Agency  securities at September 30, 1997, by remaining  period to
contractual  maturity  (ignoring  earlier call dates, if any). Actual maturities
may differ from contractual maturities because certain security issuers have the
right to call or prepay their obligations.

                                   Available for Sale        Held to Maturity
                                 --------------------      ---------------------
                                 Amortized      Fair       Amortized      Fair
Contractual Maturity                Cost        Value        Cost         Value
--------------------                ----        -----        ----         -----
                                                 (In Thousands)
Within one year ............      $    --      $    --      $ 1,000      $   998
One to five years ..........           --           --       10,986       10,951
Five to ten years ..........       24,100       24,525        8,999        9,010
Over ten years .............       16,705       16,944        4,998        4,972
                                  -------      -------      -------      -------
     Total .................      $40,805      $41,469      $25,983      $25,931
                                  =======      =======      =======      =======

(3) Loans

       A summary of loans receivable at September 30 follows:

                                                        1997             1996
                                                        ----             ----
                                                          (In Thousands)
Real estate mortgage loans:
    Residential properties:
       One- to four-family ...................       $  91,367        $  62,283
       Multi-family ..........................           5,658            5,471
    Commercial properties ....................          11,990            9,117
    Land loans ...............................           1,814            1,934
    Construction loans .......................           2,786            2,175
    Construction loans in process ............          (1,091)            (171)
    Deferred loan fees, net ..................            (167)            (472)
                                                     ---------        ---------
                                                       112,357           80,337
                                                     ---------        ---------
Consumer loans:
    Home equity ..............................           3,217            2,911
    Personal .................................           1,666            1,632
    Automobile ...............................             336              367
    Home improvement .........................              82              153
    Other ....................................             819              790
                                                     ---------        ---------
                                                         6,120            5,853
Commercial business loans ....................           1,299            1,413
                                                     ---------        ---------
                                                         7,419            7,266
                                                     ---------        ---------
       Total loans receivable ................         119,776           87,603
Allowance for loan losses ....................          (1,093)            (937)
                                                     ---------        ---------
       Total loans receivable, net ...........       $ 118,683        $  86,666
                                                     =========        =========

                                       38

<PAGE>

                  YONKERS FINANCIAL CORPORATION AND SUBSIDIARY

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


       Gross loans receivable at September 30, 1997 consisted of adjustable-rate
loans of $98.7  million and  fixed-rate  loans of $22.3  million  with  weighted
average yields of 8.19% and 8.65%, respectively.  Adjustable-rate and fixed-rate
loans  at  September  30,  1996  totaled   $70.4  million  and  $17.9   million,
respectively,  with weighted  average  yields of 8.44% and 8.92%,  respectively.
One- to  four-family  residential  mortgage loans at September 30, 1997 and 1996
include  advances  under home  equity  lines of credit of $5.9  million and $7.3
million,  respectively, and cooperative apartment loans of $4.8 million and $5.5
million, respectively.

       The Company  primarily  originates  real estate mortgage loans secured by
existing  single-family  residential  properties.  The Company  also  originates
multi-family and commercial real estate loans, land loans,  construction  loans,
consumer loans and commercial  business loans. A substantial portion of the loan
portfolio is secured by real estate  properties  located in Westchester  County,
New York. The ability of the Companyis  borrowers to make principal and interest
payments is dependent upon,  among other things,  the level of overall  economic
activity and the real estate market  conditions  prevailing within the Companyis
concentrated lending area.

       Activity in the  allowance  for loan losses is  summarized as follows for
the years ended September 30:

                                              1997           1996         1995
                                              ----           ----         ----
                                                       (In Thousands)
Balance at beginning of year .........      $   937       $   719       $   311
Provision for losses .................          300           462           493
Charge-offs ..........................         (157)         (333)          (89)
Recoveries ...........................           13            89             4
                                            -------       -------       -------
Balance at end of year ...............      $ 1,093       $   937       $   719
                                            =======       =======       =======

       The principal  balances of non-accrual loans past due ninety days or more
at September 30 are as follows:

                                                  1997        1996          1995
                                                  ----        ----          ----
                                                         (In Thousands)
Real estate mortgage loans:
    One- to four-family .................       $  389       $1,757       $2,759
    Multi-family ........................           --           --          389
    Commercial ..........................          211          214           --
    Land ................................          250          250           49
    Construction ........................          279          511          279
Consumer loans ..........................            9           43           54
                                                ------       ------       ------
          Total .........................       $1,138       $2,775       $3,530
                                                ======       ======       ======

                                       39
<PAGE>

                  YONKERS FINANCIAL CORPORATION AND SUBSIDIARY

                   NOTES TO CNSOLIDATED FINANCIAL STATEMENTS


       If interest  payments on the  foregoing  non-accrual  loans had been made
during the respective years in accordance with the loan  agreements,  additional
interest income of $92,000,  $157,000 and $191,000 would have been recognized in
the years ended September 30, 1997, 1996 and 1995, respectively.

       SFAS No.  114  applies  to  loans  that are  individually  evaluated  for
collectibility  in accordance with the Company's  normal loan review  procedures
(principally  loans  in  the  multi-family,   commercial   mortgage,   land  and
construction  loan portfolios).  The standard does not apply to  smaller-balance
homogeneous  loans in the Company's  one- to  four-family  mortgage and consumer
loan  portfolios.   The  Company's   impaired  loans  consisted  of  non-accrual
commercial  mortgage,  land and  construction  loans with a recorded  investment
totaling $740,000 and $975,000 at September 30, 1997 and 1996, respectively. All
of these loans were collateral-dependent  loans measured based on the fair value
of the  collateral in accordance  with SFAS No. 114. The Company  determines the
need for an allowance for loan  impairment  under SFAS No. 114 on a loan-by-loan
basis.  At September 30, 1997 and 1996,  such an allowance was not required with
respect to the Company's  impaired loans primarily due to the sufficiency of the
related collateral values. The Company's average recorded investment in impaired
loans was approximately  $799,000 and $700,000 for the years ended September 30,
1997 and 1996,  respectively.  Interest  collections  and income  recognized  on
impaired loans (while such loans were  considered  impaired) were  insignificant
during fiscal 1997 and 1996.

       At September 30, 1997 and 1996, other assets includes  single-family real
estate  owned  properties  with net carrying  values of $379,000  and  $603,000,
respectively. Provisions for losses and other activity in the allowance for real
estate  owned losses were  insignificant  during the years ended  September  30,
1997, 1996 and 1995.

       The Company has sold,  with recourse,  certain real estate mortgage loans
and retained  the related  servicing  rights.  The  principal  balances of these
serviced loans, which are not included in the accompanying  consolidated balance
sheets,  totaled $2.7  million,  $3.4 million and $4.3 million at September  30,
1997,  1996 and 1995,  respectively.  The  Company is  required  to remit to the
investors the monthly  principal and interest  payments (less servicing fees) on
these loans,  including loans that are delinquent or in  foreclosure.  No losses
have been  incurred  through  September  30,  1997 as a result of this  recourse
obligation.  The Company also serviced real estate  mortgage  loans sold without
recourse with total principal balances of $12.8 million,  $10.6 million and $9.4
million at September 30, 1997, 1996 and 1995, respectively. Real estate mortgage
loans held for sale of $20.4 million at September 30, 1997 were sold in November
1997, with servicing retained.

       SFAS No. 125, "Accounting for Transfers and Servicing of Financial Assets
and  Extinguishments  of  Liabilities,"  includes  a  requirement  to  recognize
servicing rights as an asset when loans are sold with servicing  retained.  SFAS
No. 125 generally  became  effective for  transactions  entered into on or after
January 1, 1997 and superseded SFAS No. 122,  "Accounting for Mortgage Servicing
Rights,"  which  became  effective  for the  Company on  October 1, 1996.  These
accounting standards require that a portion of the cost of an originated loan be
allocated to the loan's  servicing  right  (retained by the seller) based on the
fair  value  of the  servicing  right  relative  to the  fair  value of the loan
including the servicing  right.  The  allocated  cost of the retained  servicing
right is recognized  as a separate  asset at the  settlement  date and amortized
thereafter in  proportion  to, and over the period of,  estimated  servicing net
income.  Mortgage servicing assets must be periodically  assessed for impairment
on a  stratified  basis.  A valuation  allowance is  recognized,  by a charge to
income, if the estimated fair value of a stratum exceeds the related unamortized
servicing asset. Since the Company's loan sale activity completed in fiscal 1997
was insignificant, its prospective adoption of the servicing asset provisions of
SFAS Nos. 122 and 125 did not have a material impact on its financial  condition
or results of operations.

                                       40
<PAGE>

                  YONKERS FINANCIAL CORPORATION AND SUBSIDIARY

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


(4) Accrued Interest Receivable

       A summary of accrued interest receivable at September 30 follows:

                                                            1997            1996
                                                            ----            ----
                                                               (In Thousands)
Loans ............................................         $  940         $  764
Securities:
    Mortgage-backed securities ...................            486            433
    Other securities .............................          1,419          1,252
                                                           ------         ------
    Total ........................................         $2,845         $2,449
                                                           ======         ======

(5) Office Properties and Equipment

       A summary of office properties and equipment at September 30 follows:

                                                            1997           1996
                                                            ----           ----
                                                               (In Thousands)
Land .................................................     $    45      $    45
Buildings ............................................         240          207
Leasehold improvements ...............................         589          582
Furniture, fixtures and equipment ....................       1,773        1,664
                                                           -------      -------
                                                             2,647        2,498
Less accumulated depreciation and amortization .......      (1,745)      (1,551)
                                                           -------      -------
    Total office properties and equipment, net .......     $   902      $   947
                                                           =======      =======

(6) Deposits

       Deposit  balances and weighted average stated interest rates at September
30 are summarized as follows:

                                            1997                   1996
                                    ------------------     -------------------
                                      Amount      Rate       Amount       Rate
                                      ------      ----       ------       ----
                                                (Dollars In Thousands)
Checking .........................   $  4,655             $  1,957
NOW ..............................     19,055     2.00%      18,141       1.86%
Money market .....................     21,624     3.33       16,599       2.91
Regular savings ..................     44,591     2.56       47,832       2.61
Club .............................      1,132     2.56        1,112       2.61
                                     --------              -------
                                       91,057     2.49       85,641       2.45
                                     --------              -------
Savings certificates by remaining                          
 term to contractual maturity:                             
  Within one year ................     71,765     5.23       70,507       5.02
  After one but within two years .     30,882     5.64       18,755       5.49
  After two but within three years      9,547     6.29        7,226       5.52
  After three years ..............      4,682     5.78        8,546       6.28
                                     --------              -------
                                      116,876     5.45      105,034       5.24
                                     --------              -------
   Total deposits ................   $207,933     4.15%    $190,675       3.99%
                                     ========              =======

                                       41
<PAGE>

                  YONKERS FINANCIAL CORPORATION AND SUBSIDIARY

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


       Savings  certificates issued in denominations of $100,000 or more totaled
$12.9 million and $10.6  million at September  30, 1997 and 1996,  respectively.
The FDIC generally insures depositor accounts up to $100,000,  as defined in the
applicable regulations.

       The Deposit  Insurance  Funds Act of 1996 (the "Act") was signed into law
on  September  30,  1996.  Among  other  things,  the  Act  required  depository
institutions  to pay a one-time  special  assessment of 65.7 basis points on the
balance of their SAIF-assessable deposits held as of March 31, 1995, in order to
recapitalize the SAIF to the reserve level required by statute. Accordingly, the
consolidated  statement of income for the year ended September 30, 1996 reflects
a separate expense charge of approximately  $1.2 million for the accrual of this
special assessment which was paid in November 1996.

(7) Borrowings

       Borrowings  and  weighted  average  interest  rates at  September  30 are
summarized as follows, by remaining period to maturity:

                                              1997                1996
                                      -----------------    -----------------
                                       Amount      Rate     Amount      Rate
                                       ------      ----     ------      ----
                                               (Dollars In Thousands)
Securities repurchase
  agreements maturing:
   Within 30 days ..............      $28,767      5.63%   $10,264      5.44%
   After one year ..............       25,329      6.03         --        --
                                      -------              -------
      Total ....................      $54,096      5.82%   $10,264      5.44%
                                      =======              =======
Federal Home Loan
 Bank ("FHLB") advances
 maturing within 30 days .......      $ 6,000      6.75%   $ 8,000      5.73%
                                      =======              =======

Securities Repurchase Agreements

       In securities  repurchase  agreements,  the Company borrows funds through
the transfer of debt  securities to the FHLB of New York, as  counterparty,  and
concurrently agrees to repurchase the identical securities at a fixed price on a
specified date. The Company accounts for these  agreements as secured  financing
transactions   since  it  maintains   effective  control  over  the  transferred
securities. Accordingly, the transaction proceeds are recorded by the Company as
borrowings and the underlying securities continue to be carried in the Company's
debt  securities  portfolio.  Repurchase  agreements are  collateralized  by the
securities sold and, in certain cases, by additional margin  securities.  During
the years ended  September  30,  1997 and 1996,  the  average  borrowings  under
repurchase  agreements with the FHLB amounted to $32.1 million and $1.2 million,
respectively,  and the maximum month-end  balance  outstanding was $54.1 million
and $10.3 million, respectively.

                                       42

<PAGE>

                  YONKERS FINANCIAL CORPORATION AND SUBSIDIARY

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


       Additional   information  concerning  outstanding  securities  repurchase
agreements  with the FHLB of New York as of September  30, 1997 is summarized as
follows:

                              Repurchase Borrowings

                                           Accrued     Weighted    Fair Value
                                          Interest     Average   of Collateral
Remaining Term to Maturity    Amount     Payable (1)    Rate    Securities (2)
--------------------------    ------     -----------    ----    --------------
                                         (Dollars In Thousands)
Within 30 days ...........   $28,767       $   149      5.63%      $33,302
After one year ...........    25,329           204      6.03        26,747
                             -------       -------                 -------
    Total ................   $54,096       $   353      5.82%      $60,049
                             =======       =======                 =======

(1)  Included in other liabilities in the consolidated balance sheet.

(2)  Represents the fair value of the mortgage-backed securities ($53.0 million)
     and other debt  securities  ($7.0  million)  which were  transferred to the
     counterparty,  including  accrued  interest  receivable of $537,000.  These
     securities consist of  available-for-sale  securities and  held-to-maturity
     securities   with  fair  values  of  $42.9   million  and  $17.1   million,
     respectively.

         At September 30, 1997,  the  Company's  "amount at risk" (excess of the
carrying amount, or market value if higher, of the securities transferred to the
FHLB of New York over the amount of the repurchase  liability) was approximately
$6.0 million.  The weighted average  remaining  maturity of these agreements was
approximately 20 months.

FHLB Advances

         As a member of the FHLB of New York, the Bank may have outstanding FHLB
advances of up to 25% of  its total assets,  or approximately  $76.8 million  at
September 30, 1997, in a combination of term advances and overnight  funds.  The
Bank's  unused  FHLB  borrowing  capacity  was  approximately  $70.8  million at
September 30, 1997.

         Borrowings are secured by the Bankis  investment in FHLB stock and by a
blanket  security  agreement.  This  agreement  requires the Bank to maintain as
collateral  certain  qualifying assets  (principally  securities and residential
mortgage  loans) not  otherwise  pledged.  The Bank  satisfied  this  collateral
requirement at September 30, 1997 and 1996.

                                       43

<PAGE>

                  YONKERS FINANCIAL CORPORATION AND SUBSIDIARY

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


(8) Income Taxes

       The  components  of income tax expense are  summarized as follows for the
years ended September 30:

                                              1997         1996          1995
                                              ----         ----          ----
                                                      (In Thousands)
Current tax expense:
   Federal ...........................      $ 1,177       $ 1,155       $   880
   State .............................          247           668            91
                                            -------       -------       -------
                                              1,424         1,823           971
                                            -------       -------       -------
Deferred tax expense (benefit):
   Federal ...........................          413          (410)         (124)
   State .............................          153          (496)          186
                                            -------       -------       -------
                                                566          (906)           62
                                            -------       -------       -------
Total income tax expense .............      $ 1,990       $   917       $ 1,033
                                            =======       =======       =======

       The  following is a  reconciliation  of the expected  income tax expense,
computed at the applicable  Federal  statutory rate of 34%, to the actual income
tax expense for the years ended September 30:

                                                 1997         1996         1995
                                                 ----         ----         ----
                                                    (Dollars in Thousands)
Tax at Federal statutory rate ............      $1,680       $  829      $  841
New York State income taxes, net of
    Federal tax benefit ..................         264          114         183
Other reconciling items, net .............          46          (26)          9
                                                ------       ------      ------
Actual income tax expense ................      $1,990       $  917      $1,033
                                                ======       ======      ======
 Effective income tax rate ...............        40.3%        37.6%       41.8%
                                                ======       ======      ======

       The tax effects of temporary  differences  that give rise to deferred tax
assets and liabilities are as follows at September 30:

                                                                 1997       1996
                                                                 ----       ----
                                                                 (In Thousands)
Deferred tax liabilities:
    Net unrealized gain on available-for-sale securities ....   $  381    $   --
    Other taxable temporary differences .....................      200       215
                                                                ------    ------
           Total deferred tax liabilities ...................      581       215
                                                                ------    ------
Deferred tax assets:
    Allowance for loan losses ...............................      448       385
    Accrued SAIF special assessment .........................       --       479
    Net unrealized loss on available-for-sale securities ....       --       121
    Other deductible temporary differences ..................       75       240
                                                                ------    ------
           Total deferred tax assets ........................      523     1,225
                                                                ------    ------
           Net deferred tax (liability) asset ...............   $  (58)   $1,010
                                                                ======    ======

                                       44

<PAGE>

                  YONKERS FINANCIAL CORPORATION AND SUBSIDIARY

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


       Based  on  the  Company's   historical  and  anticipated  future  pre-tax
earnings,  management  believes  that it is more  likely than not that the total
deferred tax assets will be realized.

       As a thrift institution, the Association is subject to special provisions
in the Federal and New York State tax laws  regarding its allowable tax bad debt
deductions and related tax bad debt reserves. These deductions historically have
been  determined  using  methods  based on loss  experience  or a percentage  of
taxable  income.  Tax bad  debt  reserves  represent  the  excess  of  allowable
deductions  over  actual bad debt  losses and other  reserve  reductions.  These
reserves consist of a defined base-year amount, plus additional amounts ("excess
reserves") accumulated after the base year. SFAS No. 109 requires recognition of
deferred tax liabilities  with respect to such excess  reserves,  as well as any
portion  of the  base-year  amount  which is  expected  to  become  taxable  (or
"recaptured") in the foreseeable future.

       Certain  amendments to the Federal and New York State tax laws  regarding
bad debt deductions were enacted in July and August 1996. The Federal amendments
include  elimination  of the  percentage-of-taxable-income  method for tax years
beginning  after  December 31, 1995 and imposition of a requirement to recapture
into taxable income (over a six-year  period) the bad debt reserves in excess of
the base-year amounts. The Company previously established,  and will continue to
maintain, a deferred tax liability with respect to such excess Federal reserves.
The New York  State  amendments  redesignate  the State bad debt  reserve as the
base-year amount and provide for future additions to the base-year reserve using
the percentage-of-taxable-income  method. This change effectively eliminated the
excess  New York State  reserves  for which a deferred  tax  liability  had been
recognized and,  accordingly,  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.

       At September 30, 1997, the Association's  base-year Federal and State tax
bad  debt  reserves  were  $3.0  million  and  $8.6  million,  respectively.  In
accordance with SFAS No. 109,  deferred tax liabilities have not been recognized
with  respect to these  reserves,  since the Company  does not expect that these
amounts will become  taxable in the  foreseeable  future.  Under the tax laws as
amended,  events that would  result in taxation  of these  reserves  include (i)
redemptions of the  Association's  stock or certain excess  distributions to the
Holding  Company and (ii) failure of the  Association to retain a thrift charter
or  continue  to  maintain a  specified  qualifying-assets  ratio and meet other
thrift definition tests for New York State tax purposes.  At September 30, 1997,
the  Association's  unrecognized  deferred tax  liabilities  with respect to its
Federal and State tax bad debt  reserves  were $1.0  million  and $0.6  million,
respectively.

(9) Other Non-Interest Expense

    The components  of other non-interest  expense  are as follows for the years
ended September 30:

                                                       1997      1996      1995
                                                       ----      ----      ----
                                                           (In Thousands)
Advertising and promotion .......................   $   246   $   118    $    84
Supervisory exams and audits ....................       164       150        142
Correspondent bank fees .........................       113       114         95
Checking account expenses .......................       100        93         84
Telephone and postage ...........................       107        80         59
Insurance and surety bond premiums ..............       107        78         89
Stationery and printing .........................        93        68         77
Appraisal fees ..................................        94        50         55
(Credit) provision for loss on Nationar claim ...        --      (162)       168
Provision for litigation settlement .............        --        --         93
Other ...........................................       503       419        303
                                                    -------   -------    -------
           Total ................................   $ 1,527   $ 1,008    $ 1,249
                                                    =======   =======    =======

                                       45

<PAGE>

                  YONKERS FINANCIAL CORPORATION AND SUBSIDIARY

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


       In February 1995, the New York Superintendent of Banks took possession of
Nationar, a check clearing and trust company, freezing all of Nationar's assets.
At that time,  the Company  had a check  clearing  balance of $841,000  due from
Nationar. Based upon the information available at September 30, 1995, management
believed that there was at least a reasonable  likelihood that the Company would
not  recover  its  entire  claim  against  Nationar.  As a result,  the  Company
established a valuation allowance of $168,000 against its claim and included the
related  provision  for loss of $168,000 in other  non-interest  expense for the
year ended September 30, 1995. In June 1996, the Company  collected  $835,000 in
settlement of the claim. The difference of $162,000 between the amount collected
and the  claim's  net  carrying  amount  was  reflected  as a  credit  to  other
non-interest expense for the year ended September 30, 1996.

(10) Employee Benefit and Stock Compensation Plans

Pension Benefits

       All  eligible  Company  employees  are  included  in the New  York  State
Bankers'  Retirement  System,  a trusteed  non-contributory  pension  plan.  The
benefits contemplated by the plan are funded through annual remittances based on
actuarially determined funding requirements.

       The  following is a  reconciliation  of the funded status of the plan and
the amount of prepaid pension cost included in other assets at September 30:

                                                               1997       1996
                                                               ----       ----
                                                               (In Thousands)
Actuarial present value of benefit obligations:
 Accumulated benefit obligation, including vested benefits
    of $1,054,000 in 1997 and $1,009,000 in 1996 .........   $(1,063)   $(1,014)
                                                             =======    =======
 Projected benefit obligation ............................   $(1,224)   $(1,411)
Plan assets at fair value (primarily debt and
 equity securities) ......................................     1,963      1,882
                                                             -------    -------
Plan assets in excess of projected benefit obligation ....       739        471
Unrecognized net gain ....................................      (179)      (179)
Unrecognized prior service cost ..........................      (269)        (2)
                                                             -------    -------
          Prepaid pension cost ...........................   $   291    $   290
                                                             =======    =======

       Pension (credit)  expense  consisted of the following for the years ended
September 30:

                                                  1997     1996     1995
                                                  ----     ----     ----
                                                       (In Thousands)
Service cost (benefits earned during the year)   $  72    $  96    $  86
Interest cost on projected benefit obligation       94      111      100
Actual return on plan assets .................    (155)    (136)    (114)
Net amortization and deferral ................     (13)      --        2
                                                 -----    -----    -----
        Net pension (credit) expense .........   $  (2)   $  71    $  74
                                                 =====    =====    =====

       The  projected  benefit  obligations  at September 30, 1997 and 1996 were
computed  using a discount rate of 8.0% and a rate of  compensation  increase of
5.0%. The expected long-term rate of return on plan assets was 8.5%.

       The  Company   entered  into  a  non-qualified   Supplemental   Executive
Retirement  Agreement with an executive  officer,  effective January 1, 1997, to
provide retirement  benefits in addition to the benefits provided by the pension
plan. The projected  benefit  obligation at September 30, 1997 was approximately
$200,000,  computed  using a  discount  rate of 8.0% and a rate of  compensation
increase of 5.0%. Pension expense of $27,000 was recognized for the period ended
September 30, 1997.

                                       46
<PAGE>

                  YONKERS FINANCIAL CORPORATION AND SUBSIDIARY

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Savings Plan

       The Company also maintains an employee  savings plan under Section 401(k)
of the Internal Revenue Code.  Eligible  employees may make contributions to the
plan  of up to  15% of  their  compensation,  subject  to a  dollar  limitation.
Effective  January  1997,  the Company no longer makes  matching  contributions;
prior  thereto,  matching  contributions  were made in  amounts of up to 2% of a
participant's   compensation.   Participants   vest  immediately  in  their  own
contributions and over a five-year period with respect to Company contributions.
Savings  plan  expense  was  $10,000,  $28,000  and  $22,000 for the years ended
September 30, 1997, 1996 and 1995, respectively.

Employee Stock Ownership Plan

       In connection  with the Conversion,  the Company  established an ESOP for
eligible  employees.  The ESOP  borrowed  approximately  $2.9  million  from the
Holding  Company  and used the funds to purchase  285,660  shares of the Holding
Company's common stock sold in the subscription and community offering described
in note 11. The Association makes semi-annual contributions to the ESOP equal to
the  debt  service  requirements  less  all  dividends  received  by the ESOP on
unallocated  shares.  The ESOP uses these  contributions  and dividends to repay
principal and interest over the ten-year term of the loan.

       Shares  purchased by the ESOP are held in a suspense  account by the plan
trustee  until  allocated to  participant  accounts.  Shares  released  from the
suspense  account are allocated to  participants  on the basis of their relative
compensation.  Participants  become vested in the allocated shares over a period
not  to  exceed  five  years.  Any  forfeited  shares  are  allocated  to  other
participants in the same proportion as contributions.  Total shares released for
allocation to participants  were 28,566 in fiscal 1997 and 14,283 in fiscal 1996
(from the Conversion  date).  Compensation  expense  recognized  with respect to
these  shares  amounted  to  $424,000  and  $147,000  in  fiscal  1997 and 1996,
respectively,  based on the average fair value of the Holding  Company's  common
stock for each  period.  The cost of the 242,811  shares which have not yet been
committed to be released to participant  accounts is reflected as a reduction to
stockholders'  equity ($2.4 million at September  30,  1997).  The fair value of
these shares was approximately $4.8 million at that date.

Stock Option and Incentive Plan

       On October 30, 1996,  the  stockholders  approved  the Yonkers  Financial
Corporation 1996 Stock Option and Incentive Plan. Under the plan, 357,075 shares
of  authorized  but  unissued  Holding  Company  common  stock are  reserved for
issuance to employees and non-employee directors upon option exercises.  Options
may be either  non-qualified  stock  options or incentive  stock  options.  Each
option  entitles the holder to purchase one share of common stock at an exercise
price equal to the fair market value of the stock on the grant date.  An initial
grant of 264,951  options was made,  effective  October 30, 1996, at an exercise
price of $12.875 per share.  Options were granted later in fiscal 1997 for 3,000
shares at an exercise  price of $16.625 per share.  All options  granted  have a
ten-year  term and vest ratably over five years.  All options  granted in fiscal
1997 were  outstanding at September 30, 1997 with a weighted  average  remaining
term of  approximately  9.1 years,  although no options were exercisable at that
date. At September 30, 1997,  there were 89,124  reserved  shares  available for
future option grants.

       Options  were  granted at exercise  prices equal to the fair value of the
common stock at the grant dates. Therefore, in accordance with the provisions of
APB Opinion No. 25 related to fixed stock options,  no  compensation  expense is
recognized with respect to options  granted or exercised.  Under the alternative
fair-value-based  method  defined in SFAS No.  123,  the fair value of all fixed
stock  options on the grant date would be recognized as expense over the vesting
period. The estimated per-share fair value of options granted in fiscal 1997 was
$4.50,  estimated using the Black-Scholes  option-pricing model with assumptions
approximately as follows:  dividend yield of 1.7%;  expected  volatility rate of
25.3%;  risk-free  interest rate of 6.7%; and expected option life of 7.0 years.
Had the Company applied the fair-value-based  method to the options granted, net
income and  earnings  per share for fiscal 1997 would have been $2.8 million and
$0.95, respectively, compared to the reported amounts of $3.0 million and $1.02,
respectively.

                                       47

<PAGE>

                  YONKERS FINANCIAL CORPORATION AND SUBSIDIARY

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Management Recognition Plan

       On October 30, 1996, the stockholders also approved the Yonkers Financial
Corporation 1996 Management  Recognition Plan ("MRP").  The purpose of this plan
is to provide directors,  officers and employees with a proprietary  interest in
the Company in a manner  designed to encourage  such  individuals to remain with
the Company.  Awards  granted  under this plan vest ratably over five years from
the date of grant.  The  Holding  Company  completed  the funding of the plan in
November 1996 by purchasing 142,830 shares of common stock in the open market at
a total cost of  approximately  $1.8  million.  MRP awards for  108,905 of these
shares were made in fiscal 1997,  with the  remaining  33,925  purchased  shares
included in  treasury  stock at  September  30,  1997 and  available  for future
awards.  Unearned  compensation of $1.4 million was recorded with respect to the
shares awarded and $271,000 of that amount was amortized to compensation expense
in fiscal 1997.

(11) Stockholders' Equity

Conversion and Stock Offering

       Concurrent  with the  Conversion on April 18, 1996,  the Holding  Company
sold  3,570,750  shares of its  common  stock in a  subscription  and  community
offering at a price of $10 per share,  for net proceeds of $34.6  million  after
deducting  conversion  costs of $1.1  million.  The Holding  Company  used $17.3
million of the net  proceeds  to acquire all of the common  stock  issued by the
Association in the Conversion.

       In accordance with regulatory requirements, the Association established a
liquidation  account  at the  time of the  Conversion  in the  amount  of  $15.8
million,  equal to its equity at September 30, 1995. The liquidation  account is
maintained for the benefit of eligible and supplemental eligible account holders
who continue to maintain their accounts at the Association after the Conversion.
The liquidation account will be reduced annually to the extent that eligible and
supplemental  eligible account holders have reduced their qualifying deposits as
of each  anniversary  date.  Subsequent  increases will not restore such account
holder's  interest  in the  liquidation  account.  In the  event  of a  complete
liquidation of the  Association,  each eligible  account holder and supplemental
eligible  account  holder will be entitled  to receive a  distribution  from the
liquidation  account  in  an  amount   proportionate  to  the  current  adjusted
qualifying balances for accounts then held.

Earnings Per Share

       Earnings  per share  ("EPS") of $1.02 for  fiscal  1997 and $0.22 for the
six-month  period ended September 30, 1996 were based on weighted average common
shares of 2,907,304 and 3,291,698,  respectively.  Outstanding stock options did
not have a  significant  dilutive  effect.  EPS data has not been  presented for
periods prior to the Conversion.

Capital Distributions

       The  Association  may not declare or pay cash  dividends on or repurchase
any of its  shares  of  common  stock if the  effect  thereof  would  cause  its
stockholder's   equity  to  be  reduced  below  applicable   regulatory  capital
requirements  or the  amount  required  to be  maintained  for  the  liquidation
account.  The  OTS  capital  distribution   regulations  applicable  to  savings
institutions  (such as the  Association)  that  meet  their  regulatory  capital
requirements,  generally  limit dividend  payments in any year to the greater of
(i) 100% of  year-to-date  net income plus an amount that would  reduce  surplus
capital by one-half or (ii) 75% of net income for the most recent four quarters.
Surplus  capital is the excess of actual  capital at the  beginning  of the year
over the institution's  minimum regulatory capital requirement.  The Association
did not pay any dividends to the Holding Company in fiscal 1997 and 1996.

       Unlike  the  Association,  the  Holding  Company  is not  subject  to OTS
regulatory  restrictions  on the payment of dividends to its  shareholders.  The
Holding Company is subject,  however,  to Delaware law, which  generally  limits
dividends  to an amount  equal to the  excess of the net  assets of the  Holding
Company (the amount by which total assets  exceed  total  liabilities)  over its
statutory  capital,  or if there is no such  excess,  to its net profits for the
current and/or immediately preceding fiscal year.

                                       48

<PAGE>

                  YONKERS FINANCIAL CORPORATION AND SUBSIDIARY

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


       During  fiscal  1997,  pursuant to approvals  received  from the OTS, the
Holding Company repurchased a total of 516,062 common shares for its treasury at
a total cost of $7.1 million. These repurchases were made under a 10% repurchase
program  completed in November  1996 and a 5%  repurchase  program  completed in
August 1997, and were in addition to shares  purchased to fund the MRP described
in note 10.

Regulatory Capital Requirements

       OTS regulations require savings  institutions to maintain a minimum ratio
of tangible  capital to total adjusted assets of 1.5%; a minimum ratio of Tier I
(core)  capital to total  adjusted  assets of 3.0%; and a minimum ratio of total
(core and supplementary) capital to risk-weighted assets of 8.0%.

       Under its prompt  corrective action  regulations,  the OTS is required to
take certain supervisory actions (and may take additional discretionary actions)
with  respect to an  undercapitalized  institution.  Such  actions  could have a
direct  material  effect  on  the  institution's   financial   statements.   The
regulations establish a framework for the classification of savings institutions
into   five    categories:    well    capitalized,    adequately    capitalized,
undercapitalized,     significantly     undercapitalized,     and     critically
undercapitalized. Generally, an institution is considered well capitalized if it
has a Tier I (core) capital ratio of at least 5.0%; a Tier I risk-based  capital
ratio of at least 6.0%; and a total risk-based capital ratio of at least 10.0%.

       The foregoing  capital ratios are based in part on specific  quantitative
measures  of  assets,   liabilities  and  certain   off-balance-sheet  items  as
calculated  under   regulatory   accounting   practices.   Capital  amounts  and
classifications  are also  subject  to  qualitative  judgments  by the OTS about
capital   components,   risk   weightings  and  other  factors.   These  capital
requirements,  which are  applicable  to the  Association  only, do not consider
additional capital at the Holding Company level.

       Management  believes  that,  as of  September  30,  1997  and  1996,  the
Association  met all  capital  adequacy  requirements  to which  it is  subject.
Further,  the most recent OTS  notification  categorized  the  Association  as a
well-capitalized  institution under the prompt  corrective  action  regulations.
There have been no conditions or events since that  notification that management
believes have changed the Association's capital classification.

       The following is a summary of the  Association's  actual capital  amounts
and ratios as of September 30, 1997 and 1996,  compared to the OTS  requirements
for  minimum  capital  adequacy  and for  classification  as a  well-capitalized
institution:
<TABLE>
<CAPTION>
                                                                                   Minimum Capital               For Classification
                                                 Association Actual                    Adequacy                 as Well Capitalized
                                                ----------------------        -------------------------        ---------------------
                                                 Amount          Ratio         Amount             Ratio         Amount        Ratio
                                                 ------          -----         ------             -----         ------        -----
                                                                          (Dollars In Thousands)
September 30, 1997
<S>                                             <C>               <C>         <C>                   <C> 
Tangible capital ......................         $37,108           12.1%       $ 4,608               1.5%
Tier I (core) capital .................          37,108           12.1          9,217               3.0        $15,361          5.0%
Risk-based capital:
    Tier I ............................          37,108           31.2                                           7,145          6.0
    Total .............................          38,201           32.1          9,527               8.0         11,909         10.0

September 30, 1996
Tangible capital ......................         $34,409           14.0%       $ 3,673               1.5%
Tier I (core) capital .................          34,409           14.0          7,346               3.0        $12,244          5.0%
Risk-based capital:
    Tier I ............................          34,409           36.3                                           5,693          6.0
    Total .............................          35,346           37.2          7,591               8.0          9,488         10.0
</TABLE>

                                       49

<PAGE>

                  YONKERS FINANCIAL CORPORATION AND SUBSIDIARY

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


(12) Commitments and Contingencies

Off-Balance Sheet Financial Instruments

       The Companyis  off-balance  sheet financial  instruments  were limited to
outstanding commitments to originate loans of $16.4 million, unadvanced lines of
credit extended to customers of $4.4 million and undisbursed  construction loans
in process of $1.1 million at September 30, 1997 ($1.5 million, $5.0 million and
$0.2 million,  respectively,  at September 30, 1996). Although these contractual
amounts represent the Companyis maximum potential  exposure to credit loss, they
do not necessarily  represent future cash requirements since certain commitments
and lines of credit may expire  without being funded and others may not be fully
drawn upon. Substantially all of these commitments and lines of credit have been
provided to customers  within the Companyis  primary  lending area  described in
note 3. Commitments  generally have fixed expiration dates or other  termination
clauses and may require the payment of a fee by the  customer.  Commitments  and
lines of credit are subject to the Company's credit approval process,  including
a  case-by-case  evaluation  of  the  customer's  creditworthiness  and  related
collateral requirements.

Lease Commitments

       The Company is obligated under non-cancellable  leases for certain of its
banking premises.  Rental expense under these leases was $203,000,  $172,000 and
$120,000 for the years ended September 30, 1997, 1996 and 1995, respectively. At
September  30,  1997,  the  future  minimum  rental  payments  under  the  lease
agreements  for the fiscal  years  ending  September  30 are  $222,000  in 1998;
$233,000 in 1999;  $195,000  in 2000;  $140,000  in 2001;  $91,000 in 2002;  and
$12,000 thereafter.

Legal Proceedings

       In the normal  course of  business,  the  Company is  involved in various
outstanding legal proceedings. In the opinion of management,  after consultation
with legal  counsel,  the  outcome of such legal  proceedings  should not have a
material effect on the Company's financial  condition,  results of operations or
liquidity.

(13) Fair Values of Financial Instruments

       SFAS No. 107  requires  disclosures  about the fair  values of  financial
instruments  for which it is practicable to estimate fair value.  The definition
of a financial instrument includes many of the assets and liabilities recognized
in the Companyis balance sheet, as well as certain off-balance sheet items. Fair
value is defined in SFAS No. 107 as the amount at which a  financial  instrument
could be exchanged in a current transaction between willing parties,  other than
in a forced or liquidation sale.

       Quoted  market  prices are used to estimate fair values when those prices
are available.  However, active markets do not exist for many types of financial
instruments.  Consequently,  fair values for these instruments must be estimated
by  management  using  techniques  such as  discounted  cash flow  analysis  and
comparison to similar  instruments.  Estimates developed using these methods are
highly subjective and require judgments regarding  significant matters,  such as
the amount and timing of future cash flows and the  selection of discount  rates
that appropriately  reflect market and credit risks.  Changes in these judgments
often have a material effect on the fair value estimates.  Since these estimates
are made as of a  specific  point in time,  they  are  susceptible  to  material
near-term changes.  Fair values disclosed in accordance with SFAS No. 107 do not
reflect  any  premium or  discount  that could  result  from the sale of a large
volume of a particular  financial  instrument,  nor do they reflect possible tax
ramifications or estimated transaction costs.

                                       50

<PAGE>

                  YONKERS FINANCIAL CORPORATION AND SUBSIDIARY

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


       The following is a summary of the carrying amounts and fair values of the
Companyis  financial assets and liabilities (none of which were held for trading
purposes) at September 30:
<TABLE>
<CAPTION>

                                                                    1997                           1996
                                                         -------------------------       -------------------------
                                                           Carrying        Fair           Carrying        Fair
                                                            Amount         Value           Amount         Value
                                                            ------         -----           ------         -----
                                                                               (In Millions)          
Financial assets:
<S>                                                     <C>              <C>           <C>             <C>    
   Cash and due from banks........................      $     2.0        $   2.0       $     2.2       $   2.2
   Short-term investments.........................            1.5            1.5            10.3          10.3
   Securities.....................................          162.6          163.2           153.6         152.7
   Real estate mortgage loans held for sale.......           20.4           20.4             -             -
   Loans receivable...............................          118.7          119.5            86.7          85.4
   Accrued interest receivable....................            2.8            2.8             2.4           2.4
   FHLB stock.....................................            3.0            3.0             1.1           1.1
Financial liabilities:
   Savings certificate accounts...................          116.9          116.9           105.0         104.9
   Other deposit accounts.........................           91.0           91.0            85.7          85.7
   Securities repurchase agreements...............           54.1           53.8            10.3          10.3
   FHLB advances..................................            6.0            6.0             8.0           8.0
</TABLE>

       The following is a description of the principal valuation methods used by
the Company to estimate the fair values of its financial instruments:

Securities

       The fair  values of  securities  were  based on  market  prices or dealer
quotes.

Loans

       For  valuation  purposes,  the loan  portfolio  was  segregated  into its
significant  categories,  such as residential mortgage loans and consumer loans.
These categories were further analyzed, where appropriate, into components based
on significant financial characteristics such as type of interest rate (fixed or
adjustable).  Generally,  management  estimated fair values by  discounting  the
anticipated  cash flows at current  market rates for loans with similar terms to
borrowers of similar credit quality.

Deposit Liabilities

       The fair values of savings  certificate  accounts  represent  contractual
cash flows  discounted  using interest rates  currently  offered on certificates
with similar  characteristics and remaining maturities.  In accordance with SFAS
No.  107,  the fair  values  of  deposit  liabilities  with no  stated  maturity
(checking,  NOW, money market,  regular  savings and club accounts) are equal to
the carrying amounts payable on demand.

       In  accordance  with SFAS No.  107,  these fair values do not include the
value of core deposit  relationships which comprise a significant portion of the
Companyis  deposit base.  Management  believes  that the Companyis  core deposit
relationships  provide a relatively stable,  low-cost funding source which has a
substantial unrecognized value separate from the deposit balances.

                                       51

<PAGE>

                  YONKERS FINANCIAL CORPORATION AND SUBSIDIARY

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


Borrowings

       The fair values of  securities  repurchase  agreements  and FHLB advances
represent  contractual  repayments  discounted  using interest  rates  currently
available on borrowings with similar characteristics and remaining maturities.

Other Financial Instruments

       The other  financial  assets and  liabilities  set forth in the preceding
table have fair values that approximate the respective  carrying amounts because
the instruments are payable on demand or have short-term  maturities and present
relatively low credit risk and interest rate risk.

       The fair values of the loan origination  commitments and unadvanced lines
of  credit  described  in note 12 were  estimated  based on an  analysis  of the
interest  rates and fees currently  charged to enter into similar  transactions,
considering the remaining terms of the instruments and the  creditworthiness  of
the  potential  borrowers.  At September  30, 1997 and 1996,  the fair values of
these financial instruments approximated the related carrying amounts which were
not significant.

(14) Recent Accounting Pronouncements

       In February  1997,  the Financial  Accounting  Standards  Board  ("FASB")
issued SFAS No. 128,  "Earnings per Share," which requires  presentation of both
basic  earnings per share  ("EPS") and diluted EPS by all entities  with complex
capital structures. Basic EPS, which replaces primary EPS, excludes dilution and
is  computed  by  dividing  income  available  to  common  stockholders  by  the
weighted-average number of common shares outstanding for the period. Diluted EPS
reflects  the  potential  dilution  that  could  occur  if  securities  or other
contracts to issue  common  stock (such as the  Company's  stock  options)  were
exercised or  converted  into common stock or resulted in the issuance of common
stock that then shared in the earnings of the entity.  As required,  the Company
will adopt SFAS No. 128 in its fiscal quarter ending  December 31, 1997 and will
restate all prior-period EPS data at that time.

       In June 1997,  the FASB  issued SFAS No.  130,  "Reporting  Comprehensive
Income,"  which   establishes   standards  for  the  reporting  and  display  of
comprehensive income (and its components) in financial statements. Comprehensive
income  represents net income and certain amounts  reported  directly in equity,
such as the net unrealized gain or loss on available-for-sale  securities. While
SFAS No. 130 does not require a specific  reporting format, it does require that
an enterprise display an amount representing total comprehensive  income for the
period.  SFAS No. 130 is effective for fiscal years beginning after December 15,
1997 and, accordingly,  will be adopted by the Company in its fiscal year ending
September 30, 1999.

       In June 1997,  the FASB also  issued  SFAS No.  131,  "Disclosures  about
Segments of an Enterprise and Related Information." Among other things, SFAS No.
131 requires  public  companies to report (i) certain  financial and descriptive
information  about its  reportable  operating  segments (as  defined),  and (ii)
certain  enterprise-wide  financial  information  about  products and  services,
geographic areas and major customers. The required segment financial disclosures
include a measure of profit or loss, certain specific revenue and expense items,
and total  assets.  SFAS No. 131 is effective for fiscal years  beginning  after
December 15, 1997 and, accordingly, will be adopted by the Company in its fiscal
year ending September 30, 1999.

       Management  does not anticipate that the adoption of these standards will
have a material impact on the Company's consolidated financial statements.

                                       52

<PAGE>

                  YONKERS FINANCIAL CORPORATION AND SUBSIDIARY

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


(15) Parent Company Condensed Financial Information

       Set forth below are the  condensed  balance  sheets of Yonkers  Financial
Corporation as of September 30, 1997 and 1996,  and its condensed  statements of
income and cash flows for the periods then ended:
<TABLE>
<CAPTION>
                                                                          September 30,
                                                                     ----------------------
                                                                        1997           1996
                                                                        ----           ----
<S>                                                               <C>            <C>       
Condensed Balance Sheets                                                  (In Thousands)
Assets:
   Cash.........................................................  $     259     $      384
   Short-term investments.......................................      1,546         10,248
   Securities...................................................      4,024          4,016
   Investment in subsidiary.....................................     37,749         34,351
   Other assets.................................................        318             64
                                                                    -------       --------
         Total assets...........................................  $  43,896     $   49,063
                                                                    =======       ========
Liabilities and Stockholders' Equity:
   Liabilities..................................................  $      18     $       64
   Stockholders' equity.........................................     43,878         48,999
                                                                   --------      ---------
         Total liabilities and stockholders' equity.............  $  43,896     $   49,063
                                                                    =======       ========

                                                                   Year Ended September 30,
                                                                   ------------------------
                                                                       1997           1996*
                                                                       ----           -----
Condensed Statements of Income                                          (In Thousands)
Interest income.................................................  $     682     $      388
Non-interest expense............................................       (150)           (43)
                                                                    -------       --------
   Income before income tax expense and equity in
      undistributed earnings of subsidiary......................        532            345
Income tax expense .............................................        232            146
                                                                    -------       --------
   Income before equity in undistributed earnings of subsidiary.        300            199
Equity in undistributed earnings of subsidiary..................      2,652            530
                                                                    -------      ---------
         Net income.............................................  $   2,952     $      729
                                                                    =======       ========
Condensed Statements of Cash Flows
Cash flows from operating activities:
   Net income  .................................................  $   2,952     $      729
   Adjustments to reconcile net income to net cash provided by
      operating activities:
         Equity in undistributed earnings of subsidiary.........     (2,652)          (530)
         Other adjustments, net.................................        106             (3)
                                                                    -------       --------
         Net cash provided by operating activities..............        406            196
                                                                    -------       --------
Cash flows from investing activities:
   Purchases of securities......................................     (4,000)        (4,000)
   Proceeds from calls of securities............................      4,000             --
   Purchase of subsidiary's common stock........................         --        (17,314)
   Other........................................................        286            143
                                                                    -------       --------
         Net cash provided by (used in) investing activities....        286        (21,171)
                                                                    -------       ---------
Cash flows from financing activities:
   Common stock repurchased.....................................     (8,909)            --
   Net proceeds from issuance of common stock, exclusive
      of ESOP shares............................................         --         31,771
   Dividends paid...............................................       (610)          (164)
                                                                    -------       --------
         Net cash (used in) provided by financing activities....     (9,519)        31,607
                                                                    -------       --------
Net (decrease) increase in cash and cash equivalents............     (8,827)        10,632
Cash and cash equivalents at beginning of period................     10,632             --
                                                                   --------        -------
Cash and cash equivalents at end of period......................  $   1,805     $   10,632
                                                                   ========      =========
</TABLE>

*    From the date of conversion, April 18, 1996.

                                       53

<PAGE>

                  YONKERS FINANCIAL CORPORATION AND SUBSIDIARY

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


(16) Selected Quarterly Financial Data (Unaudited)

       The following is a summary of unaudited  quarterly financial data for the
fiscal years ended September 30, 1997 and 1996:
<TABLE>
<CAPTION>
                                                                 Three Months Ended
                                        ------------------------------------------------------------------
                                          December 31         March 31          June 30       September 30
                                          -----------         --------          -------       ------------
                                                       (In Thousands, Except Per Share Data)
Fiscal 1997
<S>                                     <C>               <C>              <C>               <C>        
Interest and dividend income..........  $     4,740       $     5,107      $     5,339       $     5,545
Interest expense......................        2,229             2,392            2,588             2,748
                                           --------          --------         --------          --------
    Net interest income...............        2,511             2,715            2,751             2,797
Provision for loan losses.............           75                75               75                75
Non-interest income...................          202               165              199               221
Non-interest expense..................        1,583             1,549            1,569             1,618
                                           --------          --------         --------          --------
    Income before income taxes........        1,055             1,256            1,306             1,325
Income tax expense....................          388               508              513               581
                                           --------          --------         --------          --------
    Net income........................  $       667       $       748      $       793       $       744
                                           ========          ========         ========          ========
    Earnings per share................  $      0.22       $      0.26      $      0.27       $      0.27
                                            =======            ======          =======            ======

Fiscal 1996

Interest and dividend income..........  $     3,821       $     3,813      $     4,267       $     4,475
Interest expense......................        2,024             2,001            1,954             1,996
                                           --------          --------         --------          --------
    Net interest income...............        1,797             1,812            2,313             2,479
Provision for loan losses.............          100                50              237                75
Non-interest income...................          166               165              173               198
SAIF special assessment...............           --                --               --             1,166
Other non-interest expense............        1,200             1,249            1,148             1,441
                                           --------          --------         --------          --------
    Income (loss) before income
       taxes..........................          663               678            1,101                (5)
Income tax expense (benefit)..........          272               278              469              (102)
                                           --------          --------         --------          --------
    Net income........................  $       391       $       400      $       632       $        97
                                           ========          ========         ========          ========
    Earnings per share................                                     $      0.19       $      0.03
                                                                               =======            ======
</TABLE>

                                       54


<PAGE>



                          YONKERS FINANCIAL CORPORATION
                             STOCKHOLDER INFORMATION

ANNUAL MEETING

The annual meeting of stockholders will be held at 4:30 p.m.,  January 28, 1998,
at The Yonkers  Savings  and Loan  Association,  FA,  located at One Manor House
Square, Yonkers, New York.

STOCK LISTING

The Company's  stock is traded over the counter,  on the NASDAQ  National Market
under the symbol "YFCB".

PRICE RANGE OF COMMON STOCK AND DIVIDENDS

The table  below shows the range of high and low bid prices and  dividends  paid
for the quarters indicated.  The prices do not represent actual transactions and
do not include retail markups, markdowns or commissions.


      QUARTER ENDED                   HIGH         LOW          DIVIDENDS
      -------------                   ----         ---          ---------
June 30, 1996..................     $10 1/4      $ 9 1/4         $ ---
September 30, 1996.............      12 5/8        9 1/2          0.05
December 31, 1996..............      13 3/8       12 1/8          0.05
March 31, 1997.................      16 1/4       12 3/4          0.05
June 30, 1997..................      15 3/4       14 1/4          0.05
September 30, 1997.............      20 3/8       15 3/8          0.06


The Board of  Directors  intends to  continue  the  payment  of cash  dividends,
dependent on the results of operations  and financial  condition of the Company,
tax considerations,  industry standards,  economic conditions,  general business
practices  and  other  factors.   Dividend  payment   decisions  are  made  with
consideration of a variety of factors including earnings,  financial  condition,
market  considerations  and regulatory  restrictions.  Restrictions  on dividend
payments  are  described  in  Note 11 of the  Notes  to  Consolidated  Financial
Statements included in this report.

As of September 30, 1997,  the Company had  approximately  533  stockholders  of
record and 3,020,763 outstanding shares of common stock.

SHAREHOLDER AND GENERAL INQUIRIES                   TRANSFER AGENT

Joseph L. Macchia, Vice President                   Registrar & Transfer Co.
Yonkers Financial Corporation                       10 Commerce Drive
6 Executive Plaza                                   Cranford, New Jersey 07016
Yonkers, New York 10701                             (800) 456-0596
(914) 965-2500

ANNUAL AND OTHER REPORTS

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

INVESTOR RELATIONS

Yonkers Financial Corporation
6 Executive Plaza
Yonkers, New York 10701
(914) 965-2500


                                       55

<PAGE>

                          YONKERS FINANCIAL CORPORATION
                              CORPORATE INFORMATION

COMPANY AND BANK ADDRESS

6 Executive Plaza
Yonkers, New York 10701
Telephone         (914) 965-2500
Fax               (914) 965-2599

BOARD OF DIRECTORS

William G. Bachop, Chairman
Retired professional engineer and President of
Herbert G. Martin, Inc.

P. Anthony  Sarubbi,  Vice  Chairman 
A consulting  engineer and  President of P. Anthony Sarubbi, Inc.

Donald R. Angelilli
A real estate broker employed by Prudential Ragette

Richard F. Komosinski
President and Chief Executive Officer
The Yonkers Savings and Loan Association, FA

Michael J. Martin
Vice President of Herbert G. Martin, Inc.

Eben T. Walker
President of Graphite Metallizing Corporation

Charles D. Lohrfink
Retired Public Affairs Director for Consolidated
Edison

YONKERS FINANCIAL CORPORATION
  OFFICERS

Richard F. Komosinski
President and Chief Executive Officer

Joseph L. Macchia
Vice President, Secretary and
Chief Operations Officer

Joseph D. Roberto
Vice President, Treasurer and
Chief Financial Officer

Philip Guaranieri
Vice President and
Chief Lending Officer

INDEPENDENT AUDITORS

KPMG Peat Marwick LLP
3001 Summer Street
Stamford, Connecticut  06905

SPECIAL COUNSEL

Silver, Freedman & Taff, L.L.P.
1100 New York Avenue, N.W.
Seventh Floor -- East Tower
Washington, D.C.  20005

                                       56