UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                    FORM 10-K

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

                  For the fiscal year ended September 30, 1998

                                       OR

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

              For the Transition period from         to

                           Commission File No. 0-27650

                         CATSKILL FINANCIAL CORPORATION
             (Exact name of registrant as specified in its charter)

         DELAWARE                                      14-1788465
(State or other jurisdiction of          (I.R.S. Employer Identification Number)
incorporation or organization)

                       341 MAIN STREET, CATSKILL, NY 12414
                    (Address of principal executive offices)

        Registrant's telephone number, including area code: (518)943-3600

           Securities registered pursuant to Section 12(b) of the Act:
                                      NONE

           Securities registered pursuant to Section 12(g) of the Act:

                     Common Stock, par value $.01 per share
                                (Title of Class)

Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the  preceding 12 months (or for such  shorter  period that the  registrant  was
required  to file  such  reports),  and  (2) has  been  subject  to such  filing
requirements for the past 90 days. Yes [X] No

Indicate by check mark if disclosure of delinquent  filers  pursuant to Item 405
of Regulation  S-K is not contained  herein,  and will not be contained,  to the
best of registrant's  knowledge,  in definitive proxy or information  statements
incorporated by reference in Part III of this Form 10K or any amendments to this
Form 10K. [X]

As of December 18, 1998, the aggregate  market value of the voting stock held by
non-affiliates  (based upon reported  beneficial  ownership of all directors and
executive  officers of the  registrant;  this  determination  does not  however,
constitute  an  admission  of  affiliated  status  for any of  these  individual
stockholders)  of  the  registrant,   excluding  unallocated  ESOP  shares,  was
approximately $48.2 million.

Indicate the number of shares  outstanding  of each of the  issuer's  classes of
common stock, as of the latest practicable date:

 Common Shares, $.01 par value                              4,358,334
        (Title of class)                      (outstanding at December 18, 1998)
<PAGE>
                       ANNUAL REPORT FOR 1998 ON FORM 10-K


                                TABLE OF CONTENTS

                                   PART I
Item 1.  Business
Item 2.  Properties
Item 3.  Legal Proceedings
Item 4.  Submission of Matters to a Vote of Security Holders

                                     PART II

Item 5.  Market for Registrant's Common Equity
                                                                            
           and Related Shareholder Matters
Item 6.  Selected Financial Data
Item 7.  Management's Discussion and Analysis of Financial
           Condition and Results of Operations
Item 7A. Quantitative and Qualitative Disclosures about Market Risks
Item 8.  Financial Statements and Supplementary Data
Item 9.  Changes in and Disagreements with Accountants on
           Accounting and Financial Disclosure

                                    PART III
Item 10. Directors and Executive Officers of the Registrant
Item 11. Executive Compensation
Item 12. Security Ownership of Certain Beneficial
           Owners and Management
Item 13. Certain Relationships and Related Transactions

                                    PART IV
Item 14. Exhibits and Financial Statement Schedules and Reports on
            Form 8-K
         SIGNATURES


                       DOCUMENTS INCORPORATED BY REFERENCE


     Documents                              Part of 10-K into which incorporated
     ---------                              ------------------------------------

Portions of the Annual Report to
 Shareholders for fiscal year
 ended September 30, 1998.                            Parts II and IV

Definitive Proxy Statement of the
 Registrant dated January 7, 1999, 
 in connection with the Annual 
 Meeting of Shareholders to be held
 February 16, 1999, which is expected
 to be filed on/or about January 7, 1999.             Part III
<PAGE>
                                     PART I

ITEM 1.  BUSINESS

General

         Catskill Financial  Corporation (the "Company" or "Catskill Financial")
was formed in December 1995 for the purpose of acquiring all of the common stock
of Catskill  Savings Bank (the "Bank") upon the  conversion of the Bank from the
mutual to the stock form of  ownership.  The Company is  incorporated  under the
laws of the state of  Delaware,  is qualified to do business in the state of New
York, and generally is authorized to engage in any activity that is permitted by
the Delaware  General  Corporation Law. On April 18, 1996, the Bank converted to
the  stock  form of  ownership,  the  Company  acquired  all of the  issued  and
outstanding  shares of stock of the Bank, and the Company  completed its initial
public stock offering,  issuing  5,686,750 shares of $.01 par value common stock
at $10.00 per share.  Net  proceeds  to the  Company  were $54.9  million  after
conversion  and stock  offering  costs,  and $50.4 million  excluding the shares
acquired by the  Company's  newly  formed  Employee  Stock  Ownership  Plan (the
"ESOP").

         The  consolidated  financial  condition  and  operating  results of the
Company are primarily dependent upon its wholly owned subsidiary,  the Bank, and
all  references to the Company and its  financial  data prior to April 18, 1996,
except where otherwise indicated, refer to the Bank and its financial data.

         The Bank was organized in 1868,  as a state  chartered  mutual  savings
bank. In January 1996, the Bank converted to a federally chartered stock savings
bank.  The  Bank is a  member  of the  Bank  Insurance  Fund  ("BIF"),  which is
administered by the Federal Deposit Insurance Corporation ("FDIC"). Accordingly,
its deposits are insured up to applicable limits by the FDIC, which insurance is
backed by the full  faith and credit of the United  States.  The Bank's  primary
market area is comprised  of Greene  County and  southern  Albany  County in New
York,  serviced  by the Bank's main office and four other  banking  offices.  At
September  30, 1998,  the Bank had total assets of $313.6  million,  deposits of
$213.1 million and equity of $60.3 million, or 19.2% of total assets.

         The Bank has been and intends to  continue  to be a  community-oriented
financial  institution  offering  financial  services  to meet the  needs of the
communities  it serves.  The Bank attracts  deposits from the general public and
uses such deposits,  together with other funds, to originate one- to four-family
residential  mortgage and, to a lesser extent,  consumer  (including home equity
lines of credit), commercial and multi-family real estate and other loans in the
Bank's primary market area. The Bank offers deposit  accounts  having a range of
interest rates and terms. The Bank only solicits  deposits in its primary market
area and does not have  brokered  deposits.  The Bank is a member of the Federal
Home Loan Bank of New York ("FHLBNY").

Regulation

         The  following  is  a  summary  of  certain  statutes  and  regulations
affecting  the Company and the Bank.  The Bank, as a federally  chartered,  FDIC
insured,  savings bank,  derives its powers  principally from federal law and is
subject to  comprehensive  regulation of virtually  every aspect of its business
operations.  The following  summary is selective and should not be considered to
be a complete discussion of all regulation affecting the Company or the Bank.

         General Bank  Regulation.  The Bank's primary federal bank regulator is
the Office of Thrift Supervision ("OTS"). The Bank is also subject to regulation
by the FDIC as the insurer of its deposits.  The Bank must file periodic reports
with the OTS and is regularly  examined by the OTS and the FDIC.  As a result of
these examinations,  the Bank can be required to adjust its loan classifications
or allowance for loan losses,  take other actions to correct  deficiencies found
during the examinations,  or cease engaging in certain  activities.  The Bank is
generally  permitted  to open  deposit-taking  branches  throughout  the  United
States, regardless of local laws regarding branching.

         The  OTS  may  institute   enforcement  action  against  the  Bank  for
violations  of law or for  unsafe and  unsound  banking  practices.  Enforcement
actions can include the issuance of cease and desist orders, the commencement of
removal  proceedings  in which an  employee,  officer or director can be removed
from involvement with the Bank, the assessment of civil monetary penalties,  and
injunctive  relief.  The FDIC may  terminate  the  insurance of deposits,  after
notice and hearing, upon a finding that an institution has engaged in unsafe and
unsound  practices,  cannot continue  operations  because it is in an unsafe and
unsound condition,  or has violated any applicable law, regulation,  rule, order
or condition imposed by the OTS or FDIC. The

                                                             1

<PAGE>
FDIC may  instead  impose less  severe  sanctions.  Neither the OTS nor the FDIC
(which was also the Bank's primary  federal  regulator  before the Bank became a
federal  savings  bank in January  1996) have ever  instituted  any  enforcement
action against the Bank.

         Federal  law and OTS  regulations  limit the  percentage  of the Bank's
assets that can be invested in certain  investments.  For  example,  commercial,
corporate  and  business  loans,   other  than  those  secured  by  real  estate
collateral, are limited in the aggregate to 10% of assets. The purchase of below
investment grade debt securities is prohibited. Loans secured by non-residential
real property cannot, in the aggregate,  exceed 400% of capital.  Consumer loans
not secured by residential real estate are generally limited,  in the aggregate,
to 35% of total assets.  Loans secured by residential  real  property,  and many
other types of loans and investments, are not subject to any percentage of asset
limit. Generally,  the Bank may not lend more than 15% of unimpaired capital and
surplus  to one  borrower,  representing  a lending  limit of $9.4  million  per
borrower,  with an  additional  10% of  unimpaired  capital  and  surplus  being
permitted if secured by certain readily  marketable  collateral.  The Bank is in
compliance  with all these  limits.  The Bank's  largest loan to one borrower at
September 30, 1998, was a $1.0 million  participation loan secured by a motel in
Albany County.

         The OTS also  imposes a  semi-annual  assessment  on all OTS  regulated
institutions  to defer the cost of OTS regulation.  For the  semi-annual  period
ended December 31, 1998, the Bank's OTS assessment was $32,116.

         The Company is a unitary savings and loan holding company, and its sole
FDIC-insured  subsidiary,  the  Bank,  is  a  qualified  thrift  lender  ("QTL",
discussed in more detail  below).  Therefore,  the Company  generally  has broad
authority to engage in all types of business activities.  If the Company were to
acquire  another  insured  institution  as a separate  subsidiary or if the Bank
fails  to  remain a QTL,  the  Company's  activities  will be  limited  to those
permitted of multiple savings and loan holding companies. In general, a multiple
savings and loan holding  company (or subsidiary  thereof that is not an insured
institution)  may,  subject to OTS approval in most cases,  engage in activities
comparable to those  permitted  for bank holding  companies,  certain  insurance
activities, and certain activities related to the operations of its FDIC-insured
subsidiaries.

         Capital   Requirements.   The  Bank  is  subject  to  minimum   capital
requirements  imposed by the OTS. The Bank must maintain (i) tangible capital of
1.5% of tangible assets,  (ii) core capital of 4.0% of adjusted tangible assets,
and (iii) a risk-based  capital  requirement  of 8.0% of  risk-weighted  assets.
Under current law and regulations,  there are no capital  requirements  directly
applicable to the Company.  The Bank  substantially  exceeds all minimum capital
standards  imposed by the OTS. At September  30,  1998,  the Bank had a tangible
capital ratio of 18.79%, a core capital ratio of 18.79% and a risk based capital
ratio of 49.86%.  OTS regulations  require that certain  institutions  with more
than  normal  interest  rate risk  must make a  deduction  from  capital  before
determining  compliance  with the  minimum  capital  requirements.  The Bank has
previously  been  exempt  from the  deduction  requirement  because it had total
assets less than $300 million and risk based capital in excess of 12%.  However,
the  Bank's  capital  ratios  are high  enough  that  even if the  exemption  is
withdrawn,  the  deduction  would  not  have a  material  effect  on the  Bank's
compliance with OTS capital requirements.

         The OTS has the  authority to require that an  institution  take prompt
corrective  action to solve  problems if the  institution  is  undercapitalized,
significantly  undercapitalized or critically  undercapitalized.  Because of the
Bank's high capital ratios,  the prompt  corrective  action  regulations are not
expected to have an effect on the Bank.

         Deposit Insurance  Premiums.  The FDIC's deposit insurance premiums are
assessed  through  a  risk-based  system  under  which  all  insured  depository
institutions  are placed  into one of nine  categories  and  assessed  insurance
premiums based upon their level of capital and supervisory evaluation. Under the
system,  institutions  classified as well capitalized and considered healthy pay
the lowest  premium.  The Bank is in this category and currently pays no deposit
insurance premiums. If the Bank's capital ratios substantially deteriorate or if
the Bank is found to be  otherwise  unhealthy,  the deposit  insurance  premiums
payable by the Bank could increase.  The Bank must,  however,  pay a part of the
costs of the "FICO" bonds sold in the late 1980s to finance the savings and loan
bailout. The FICO bond assessment is approximately .012% of insured deposits.

         Dividend  Restrictions.  OTS regulations  impose limits on dividends or
other capital  distributions by savings institutions based on capital levels and
net income.  An institution,  such as the Bank, that meets or exceeds all of its
capital  requirements  (both before and after giving effect to the distribution)
and  is  not  in  need  of  more  than  normal  supervision,  may  make  capital
distributions  during a  calendar  year of up to the  greater of (i) 100% of net
income for the current calendar year plus 50% of its capital surplus (capital in
excess of regulatory  requirements)  or (ii) 75% of its net income over the most
recent  four  quarters.  Any  additional  capital  distributions  require  prior
regulatory approval.


                                                             2

<PAGE>
         The Bank's capital levels exceed regulatory  minimums to such an extent
that the  substantive  restrictions  on  dividends  are not  expected  to have a
material effect on the Company.  However, OTS regulations also impose procedural
restrictions.  The OTS must  receive  at least 30 days'  written  notice  before
making any capital distributions.  All such capital distributions are subject to
the OTS' right to object to a distribution on safety and soundness grounds.  The
OTS has proposed regulations that would eliminate the notice requirement for the
highest rated institutions so that advance notice would not be required for most
normal  dividends.  The Bank expects that it will not be required to give notice
under normal circumstances if the new proposal is adopted in its current form.

         Qualified Thrift Lenders. If the Bank fails to remain a QTL, as defined
below,  it must  either  convert  to a  national  bank  charter or be subject to
restrictions on its activities  specified by law and the OTS regulations,  which
restrictions  would generally  limit  activities to those permitted for national
banks.  Also, three years after the savings  institution  ceases to be a QTL, it
would be prohibited  from  retaining any  investment or engaging in any activity
not  permissible  for a  national  bank and  would  be  required  to  repay  any
outstanding borrowings from any Federal Home Loan Bank.

         A savings institution will be a QTL if its qualified thrift investments
equal or exceed 65% of its portfolio  assets on a monthly  average basis in nine
of every 12 months.  Qualified thrift  investments  include,  among others,  (i)
certain housing-related loans and investments (notably including residential one
to four family  mortgage  loans),  (ii) certain  federal  government  and agency
obligations,  (iii) loans to purchase or construct  churches,  schools,  nursing
homes and  hospitals  (subject  to certain  limitations),  (iv)  consumer  loans
(subject to certain limitations), (v) shares of stock issued by any Federal Home
Loan Bank,  and (vi) shares of stock issued by the FHLMC or the FNMA (subject to
certain limitations).  The Bank satisfied the QTL test at September 30, 1998, as
well as for every month-end during fiscal 1998.

         Community  Reinvestment Act. Under the Community  Reinvestment Act (the
"CRA"),  as  implemented  by OTS  regulations,  the  Bank has a  continuing  and
affirmative obligation consistent with its safe and sound operation to help meet
the credit needs of its entire  community,  including  low and  moderate  income
neighborhoods.  The Bank is periodically examined by the OTS for compliance with
the CRA.  Subject to certain  exceptions and elections,  under recently  adopted
rules the Bank's  CRA  performance  will be  evaluated  based upon the  lending,
investment   and  service   activities  of  the  Bank.   The  Bank  received  an
"outstanding"  CRA rating from the OTS under prior  evaluation rules and has not
yet been examined under the new rules.

         Federal Reserve  Regulation.  Under Federal Reserve Board  regulations,
the Bank must maintain  reserves  against its  transaction  accounts  (primarily
interest-bearing  checking accounts) and non-personal time deposits.  The effect
of  the  reserve  requirements  is  to  compel  the  Bank  to  maintain  certain
low-yielding  reserve  deposits which are not available for investment in higher
yielding  assets.  However,  at the present time, in light of the Bank's current
cash and due from banks, the reserve requirements do not have a material adverse
effect on the Bank. The balances maintained to meet the reserve requirements may
be used to satisfy  liquidity  requirements  imposed by the OTS.  The Bank is in
compliance with its reserve requirements.

         Taxation.  The Company  pays federal and New York State income taxes on
its  income  on terms  substantially  similar  to other  business  corporations.
Special  rules  allowing  the Bank a special  deduction to create a tax bad debt
reserve have been abolished. Furthermore, the Bank must recapture, over a period
of six to eight years,  any additions to its tax bad debt  reserves  since 1988.
The Bank had already  provided,  as a provision for deferred taxes in accordance
with SFAS No. 109, for the tax consequences of the Bank's post-1987 additions to
the tax bad debt reserve.  Therefore,  the recapture requirement will not have a
material financial statement impact.

Market Area

         Catskill   (population  of  11,965  in  the  1990  census)  is  located
approximately  30 miles south of Albany on the western banks of the Hudson River
and is the largest municipality in Greene County. Greene County extends from the
Hudson  River west into the  northern  Catskill  Mountains.  The Bank's  primary
market  area is  heavily  dependent  on  tourism,  does not  have a  substantial
commercial  or  industrial  base  and  has  shown  only  limited   economic  and
demographic growth.

         Overall, the population of Albany County has remained relatively steady
in the  last  decade  while  the  more  rural  Greene  County  benefited  from a
population  expansion.  In 1995,  Greene County  registered a 48,000  population
count, a 10.1% increase from 1985.

         The business  sectors in Greene  County  which  account for the largest
percentage of earnings are state and local government,  the service industry and
wholesale  and  retail  trade.  Manufacturing  also  accounts  for a  noteworthy
percentage of

                                                             3

<PAGE>
earnings in Greene County. The New York State Thruway, which runs through Greene
County, as well as the county's lower cost of living, are attractive features to
local  employers,   especially   distributors  such  as  United  Stationers  and
manufacturers such as Dynabil Industries.  Major sources of employment in Greene
County  include a state prison,  the county  government  and various health care
facilities, as well as various manufacturing companies.

         Based on the  latest  available  data,  there are a total of 19 deposit
taking offices of commercial banks and thrift  institutions in Greene County and
117 in Albany County. The Bank's four offices in Greene County hold 29.3% of all
deposits and 56.6% of thrift institution deposits. In Albany County, with a much
larger deposit base, the Bank's share of all deposits was approximately 0.7%.

Lending Activities

         General.  The Bank's  primary  lending  activity is the  origination of
fixed- and adjustable rate, one- to four-family  residential  mortgage loans for
retention in its portfolio.  The Bank also originates  fixed-rate consumer loans
and adjustable-rate  home equity line of credit consumer loans.  Adjustable rate
mortgage  ("ARM") and consumer loans increase the percentage of the Bank's loans
with more frequent  terms to repricing or shorter  maturities  than  fixed-rate,
one- to four-family  mortgage loans.  See "- Loan Portfolio  Composition" and "-
One- to  Four-Family  Residential  Real Estate  Lending." In addition,  the Bank
originates  multi-family and commercial real estate loans. Loan originations are
generated  by the  Bank's  marketing  efforts,  which  include  print  and radio
advertising,  lobby displays and direct contact with local civic  organizations,
as well as by the Bank's present customers, walk-in customers and referrals from
real estate  agents and builders.  At September 30, 1998,  the Bank's gross loan
portfolio totaled $140.0 million.

         The  approval  of the  Executive  Committee  of  the  Bank's  Board  of
Directors  is required  for all real  estate  loans in excess of  $150,000,  and
consumer  loans in excess of  $100,000.  Bank  employees  with the  authority to
approve  such real  estate  loans of  $150,000 or less,  and  consumer  loans of
$100,000 or less are designated,  and their lending authority is defined, by the
Executive  Committee.  The Executive  Committee acts in accordance with policies
established not less frequently than annually by the Board of Directors.

         The aggregate  amount of loans that the Bank is permitted to make under
applicable federal regulations to any one borrower,  including related entities,
is generally  equal to 15% of unimpaired  capital and surplus.  At September 30,
1998,  the maximum  amount  which the Bank could have loaned to any one borrower
and the borrower's  related  entities was  approximately  $9.4 million.  At that
date, the Bank's largest lending relationship  (representing less than 1% of the
Bank's  total loan  portfolio)  was a $1.0 million  commercial  real estate loan
secured by a motel  located in Albany  County,  New York. At September 30, 1998,
there were only eight other loans (or lending  relationships)  with  outstanding
balances in excess of $250,000,  representing $3.8 million, or less than 2.7% of
the Bank's total loan portfolio.


                                                             4

<PAGE>
Loan Portfolio Composition.  The following table presents information concerning
the  composition  of  the  Bank's  loan  portfolio  in  dollar  amounts  and  in
percentages as of the dates indicated.
<TABLE>
<CAPTION>
                                                                             September 30,
                                             -----------------------------------------------------------------------------
                                                     1998                        1997                        1996         
                                             -----------------------------------------------------------------------------
                                              Amount       Percent        Amount       Percent       Amount       Percent 
                                              ------       -------        ------       -------       ------       ------- 
                                                                        (Dollars in Thousands)
<S>                                          <C>           <C>           <C>           <C>           <C>          <C>     
Real Estate Loans:
------------------
 One- to four-family...................      $113,423       81.02%       $102,232       80.69%       $100,383      80.34% 
 Multi-family and commercial...........         6,389        4.56           4,691        3.70           5,115       4.09  
 Construction..........................         1,182        0.85           1,306        1.03             423        .34  
                                             --------      ------        --------      ------        --------     ------  
     Total real estate loans...........       120,994       86.43         108,229       85.42         105,921      84.77  
                                             -------       ------        --------      ------        --------     ------  
                                                                                                                          
Commercial Loans ......................           602         .43              63         .05             ---        ---  
----------------                             --------      ------        --------      ------                             
                                                                                                                          
Consumer Loans:                                                                                                           
---------------                                                                                                           
  Automobile...........................         6,301        4.50           6,655        5.25           7,029       5.63  
  Home equity..........................         3,490        2.49           3,709        2.93           4,368       3.50  
  Other secured........................         2,912        2.08           3,385        2.67           2,965       2.37  
  Student..............................         2,795        2.00           2,658        2.10           2,450       1.96  
  Other unsecured......................         2,366        1.69           1,316        1.04           1,430       1.15  
  Mobile home..........................           535         .38             687         .54             782        .62  
                                             --------      ------        --------      ------         -------     ------  
     Total consumer loans..............        18,399       13.14          18,410       14.53          19,024      15.23  
                                             --------      ------        --------      ------         -------     ------  
Total Loans............................       139,995      100.00%        126,702      100.00%        124,945     100.00% 
                                             --------      ======        --------      ======         -------     ======  
                                                                                                                          
Less:                                                                                                                     
 Net deferred fees.....................           260                         476                         579             
 Allowance for loan losses.............         1,950                       1,889                       1,833             
                                             --------                    --------                    --------             
 Total loans receivable, net...........      $137,785                    $124,337                    $122,533             
                                             ========                    ========                    ========             
<PAGE>
<CAPTION>
                                                               September 30,
                                             ------------------------------------------------
                                                     1995                       1994
                                             ------------------------------------------------
                                              Amount      Percent        Amount       Percent
                                              ------      -------        ------       -------
                                                          (Dollars in Thousands)
<S>                                          <C>          <C>           <C>           <C>  
Real Estate Loans:
------------------
 One- to four-family...................      $ 95,588      79.04%       $ 96,570       79.37%
 Multi-family and commercial...........         5,132       4.24           5,606        4.61
 Construction..........................           230        .19             743         .61
                                             --------     ------        --------      ------
     Total real estate loans...........       100,950      83.47         102,919       84.59
                                             --------     ------        --------      ------
                                                                     
Commercial Loans ......................           ---        ---             ---         ---
----------------                                                     
                                                                     
Consumer Loans:                                                      
---------------                                                      
  Automobile...........................         6,652       5.50           5,220        4.29
  Home equity..........................         5,393       4.46           6,021        4.95
  Other secured........................         2,970       2.46           2,680        2.20
  Student..............................         2,373       1.96           2,195        1.80
  Other unsecured......................         1,415       1.17           1,078         .89
  Mobile home..........................         1,185        .98           1,562        1.28
                                             --------     ------        --------      ------
     Total consumer loans..............        19,988      16.53          18,756       15.41
                                             --------     ------        --------      ------
Total Loans............................       120,938     100.00%        121,675      100.00%
                                             --------     ======        --------      ======
                                                                     
Less:                                                                
 Net deferred fees.....................           624                        696
 Allowance for loan losses.............         1,950                      1,746
                                             --------                   --------
 Total loans receivable, net...........      $118,364                   $119,233
                                             ========                   --------
                                                                 
</TABLE>

                                                             5

<PAGE>
         The  following  table  presents  the  composition  of the  Bank's  loan
portfolios by fixed- and adjustable-rate at the dates indicated.
<TABLE>
<CAPTION>
                                                                                September 30,
                                              ----------------------------------------------------------------------------
                                                            1998                    1997                       1996       
                                              ----------------------------------------------------------------------------
                                                Amount       Percent       Amount      Percent        Amount       Percent
                                                ------       -------       ------      -------        ------       -------
                                                                            (Dollars in Thousands)
<S>                                            <C>          <C>           <C>          <C>           <C>           <C>    
Fixed-Rate Loans:
 Real estate:
  One- to four-family........................  $ 83,643      59.75%       $ 67,782      53.50%       $ 63,491       50.81%
  Multi-family and commercial................     3,395       2.43           1,850       1.46           2,142        1.71 
  Construction...............................     1,182        .84           1,306       1.03             423        0.34 
                                               --------     ------        --------     ------        --------      ------ 
     Total real estate loans.................    88,220      63.02          70,938      55.99          66,056       52.86 
                                               --------      -----        --------     ------        --------      ------ 
 Consumer....................................    12,114       8.65          14,638      11.55          14,656       11.73 
                                               --------      -----        --------     ------        --------      ------ 
     Total fixed-rate loans..................   100,334      71.67          85,576      67.54          80,712       64.59 
                                                                                                                          
Adjustable-Rate Loans:                                                                                                    
 Real estate:                                                                                                             
  One- to four-family........................    29,780      21.27          34,450      27.19          36,892       29.53 
  Multi-family and commercial................     2,994       2.14           2,904       2.29           2,973        2.38 
                                                -------      -----        --------     ------        --------      ------ 
     Total real estate loans.................    32,774      23.41          37,354      29.48          39,865       31.91 
                                                -------      -----        --------     ------        --------      ------ 
 Consumer....................................     6,285       4.49           3,709       2.93           4,368        3.50 
                                                -------      -----        --------     ------        --------      ------ 
 Commercial..................................       602        ---              63        .05             ---         --- 
                                               --------     ------        --------     ------        --------      ------ 
     Total adjustable-rate loans.............    39,661      28.33          41,126      32.46          44,233       35.41 
                                               --------     ------        --------     ------        --------      ------ 
     Total loans.............................   139,995     100.00%        126,702     100.00%        124,945      100.00%
                                               --------     ======        --------     ======        --------      ====== 
                                                                                                                          
Less:                                                                                                                     
 Deferred fees...............................       260                        476                        579             
 Allowance for loan losses...................     1,950                      1,889                      1,833             
                                               --------                   --------                   --------             
    Total loans receivable, net..............   137,785                    124,337                   $122,533             
                                               ========                   ========                   ========             
<PAGE>
<CAPTION>
                                                                 September 30,
                                              ------------------------------------------------
                                                        1995                       1994
                                              ------------------------------------------------
                                               Amount       Percent       Amount       Percent
                                               ------       -------       ------       -------
                                                            (Dollars in Thousands)
<S>                                           <C>           <C>          <C>           <C>  
Fixed-Rate Loans:
 Real estate:
  One- to four-family........................ $ 53,993       44.65%      $ 51,163       42.05%
  Multi-family and commercial................    1,743        1.44          2,295        1.88
  Construction...............................      230         .19            743         .61
                                              --------      ------       --------      ------
     Total real estate loans.................   55,966       46.28         54,201       44.54
                                              --------      ------       --------      ------
 Consumer....................................   14,595       12.06         12,735       10.47
                                              --------      ------       --------      ------
     Total fixed-rate loans..................   70,561       58.34         66,936       55.01
                                                                      
Adjustable-Rate Loans:                                                
 Real estate:                                                         
  One- to four-family........................   41,595       34.40         45,407       37.32
  Multi-family and commercial................    3,389        2.80          3,311        2.72
                                              --------      ------       --------      ------
     Total real estate loans.................   44,984       37.20         48,718       40.04
                                              --------      ------       --------      ------
 Consumer....................................    5,393        4.46          6,021        4.95
                                              --------      ------       --------      ------
 Commercial..................................      ---         ---            ---         ---
                                              --------      ------       --------      ------
     Total adjustable-rate loans.............   50,377       41.66         54,739       44.99
                                              --------      ------       --------      ------
     Total loans.............................  120,938      100.00%       121,675      100.00%
                                              --------      ======       --------      ======
                                                                      
Less:                                                                 
 Deferred fees...............................      624                        696
 Allowance for loan losses...................    1,950                      1,746
                                              --------                   --------
    Total loans receivable, net.............. $118,364                   $119,233
                                              ========                   ========
</TABLE>

                                                             6

<PAGE>
The  following  table sets forth the  contractual  maturities of the Bank's loan
portfolio at September 30, 1998.  Loans which have  adjustable  or  renegotiable
interest  rates are shown as maturing in the period  during which the final loan
payment is due without  regard to rate  adjustments.  The table does not reflect
the  effects  of loan  amortization,  possible  prepayments  or  enforcement  of
due-on-sale clauses.
<TABLE>
<CAPTION>
                                                        Due During Years Ending September 30,
                                                        -------------------------------------

                                    1999(1)            2000                2001             2002-2003           2004-2008       
                              -----------------   -----------------   -----------------  ------------------  ------------------ 
                                       Weighted            Weighted            Weighted            Weighted            Weighted 
                                        Average             Average             Average             Average             Average 
                              Amount     Rate     Amount     Rate     Amount     Rate     Amount     Rate     Amount     Rate   
                              ------     ----     ------     ----     ------     ----     ------     ----     ------     ----   
                                                                (Dollars in Thousands)
<S>                            <C>       <C>       <C>        <C>      <C>        <C>      <C>        <C>      <C>         <C>  
         Real Estate
----------------------------

One- to Four-Family.........   $ 6,604   7.59%     $ 6,960    7.55%    $ 7,299    7.53%    $15,340    7.56%    $37,715     7.48%
Multi-family and                            6          231       0         519       1       1,953       3         600          
Commercial..................     1,953    8.4                  9.1                 9.3                 8.9                 9.11 
Construction................     1,132   7.21          ---     ---         ---     ---         ---     ---         ---      --- 

                                                                                                                                
        Commercial                                                                                                              
----------------------------

Lines of credit.............       602   8.90          ---    ---          ---    ---          ---     ---         ---     ---  
                                                                                                                                

        Consumer                                                                                                                
----------------------------

Consumer ...................     4,462   9.14        3,655    8.90       2,342    8.98       2,117    9.29       1,361     9.85 
                               -------              ------             -------             -------             -------          
                                                                                                                                
                                                                                                                                
     Total Loans............   $14,753   8.19%     $10,846    8.04     $10,160    7.95     $19,410    7.88     $39,676     7.59 
                               =======             =======             =======             =======             =======          
<PAGE>
<CAPTION>
                                        Due During Years Ending September 30,
                                        -------------------------------------

                                  2009-2013      2014 and following        Total
                              -----------------  -------------------   ------------------
                                       Weighted             Weighted             Weighted
                                        Average              Average              Average
                              Amount     Rate     Amount      Rate     Amount      Rate
                              ------     ----     ------      ----     ------      ----
                                               (Dollars in Thousands)
<S>                            <C>         <C>     <C>          <C>    <C>          <C> 
         Real Estate
----------------------------

One- to Four-Family.........   $24,851     7.45%   $14,654      7.50   $113,423     7.50%
Multi-family and                                                   7      6,389        1
Commercial..................       457     9.39        676       9.2                 8.9
Construction................       ---      ---         50      7.97      1,182     7.28

                                                                       
        Commercial                                                     
----------------------------

Lines of credit.............       ---     ---         ---       ---        602     8.90
                                                                       

        Consumer                                                       
----------------------------

Consumer ...................     2,178     8.56      2,284      8.80     18,399     9.03
                               -------             -------              -------
                                                                       
                                                                       
     Total Loans............   $27,486     7.57    $17,664      7.74   $139,995     7.77
                               =======             =======             ========
                                                                    
                                                                                                                                   
</TABLE>

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



                                                                      7

<PAGE>
One- to Four-Family Residential Real Estate Lending

         The Bank's  residential  mortgage loans consist of loans to purchase or
refinance  one- to  four-family,  owner-occupied  residences  and,  to a  lesser
extent, secondary residences. At September 30, 1998, $113.4 million, or 81.0% of
the Bank's gross loans,  consisted of one- to four-family  residential  mortgage
loans. Approximately 73.7% of the Bank's one-to four-family residential mortgage
loans  provide  for fixed  rates of  interest.  The Bank's  one- to  four-family
mortgage loans typically provide for repayment of principal over a period not to
exceed 25 years. The Bank's one- to four-family  residential  mortgage loans are
priced  competitively  with  the  market.  Accordingly,  the  Bank  attempts  to
distinguish itself from its competitors based on quality of service.

         The Bank underwrites its one- to four-family residential mortgage loans
using Federal National Mortgage Association ("FNMA") secondary market standards.
The Bank holds in its portfolio  all one- to  four-family  residential  mortgage
loans it originates. While the Bank currently does not sell loans, and presently
has no intention to do so,  management may consider  selling loans in the future
depending on market conditions and the  asset/liability  management of the Bank.
In  underwriting  one- to  four-family  residential  mortgage  loans,  the  Bank
evaluates  both the  borrower's  credit  history  and  ability  to make  monthly
payments,  and the value of the property securing the loan.  Properties securing
ARM and all fixed-rate  loans are appraised by independent fee  appraisers.  The
Bank  requires   borrowers  to  obtain  title  insurance  and  hazard  insurance
(including flood insurance,  where appropriate) naming the Bank as lienholder in
an amount not less than the amount of the loan, or the maximum  insurable  value
of the property.

         The Bank  currently  offers  residential  ARM loans with interest rates
that adjust either annually,  or every three years with adjustments based on the
change in the comparable Treasury index. ARM loans originated prior to 1990 were
adjusted  based  upon a  Federal  Home  Loan Bank  Board  index,  which has been
converted to a Federal Housing  Finance Board index.  One year ARM loans provide
for a 1.5% periodic cap and three year ARM loans provide for a 2.0% periodic cap
and both have lifetime  caps of 6.0% over the initial rate. As a consequence  of
using caps, the interest rates on these loans may not be as rate sensitive as is
the Bank's  cost of funds.  Borrowers  of  residential  ARM loans are  generally
qualified  at the  maximum  increase  in rate  which  could  occur at the  first
adjustment  period,  which may be lower than the fully indexed rate.  The Bank's
residential  ARM loans are not  convertible  into  fixed-rate  loans.  ARM loans
generally pose greater credit risks than fixed-rate loans,  primarily because as
interest  rates rise,  the  required  periodic  payment by the  borrower  rises,
increasing  the potential for default.  As of September 30, 1998,  however,  the
Bank had not experienced  default rates on these loans materially higher than on
similar fixed rate loans.

         The Bank's one- to four-family mortgage loans do not contain prepayment
penalties and do not permit  negative  amortization  of  principal.  Real estate
loans  originated by the Bank generally  contain a "due on sale" clause allowing
the Bank to declare the unpaid  principal  balance due and payable upon the sale
of the  mortgaged  property.  The Bank may waive the due on sale clause on loans
held in its portfolio to permit assumptions of loans by qualified borrowers.

         The Bank does not currently originate residential mortgage loans if the
ratio of the loan amount to the lower of appraised  value, or the purchase price
of the property securing the loan (i.e., the "loan-to-value" ratio) exceeds 95%.
If the loan-to-value  ratio exceeds 90%, the Bank requires that borrowers obtain
private mortgage  insurance in amounts intended to reduce the Bank's exposure to
80% or less of the lower of the  appraised  value or the  purchase  price of the
real estate security.

         The  Bank  also  offers  construction  loans  to  individuals  for  the
construction  of  their  residences.  The Bank has  occasionally  made  loans to
builders for the  construction  of homes  including a limited  amount of housing
construction loans to builders where the home has not been pre-sold.  Generally,
no  construction  loan is approved  unless there is evidence of a commitment for
permanent  financing upon completion of the residence,  whether through the Bank
or  another  financial   institution.   Construction   loans  generally  require
construction stage inspections before funds may be released to the borrower.  At
September 30, 1998, the Bank's  construction loan portfolio totaled  $1,182,000,
or less than 1.0% of its gross loan portfolio.  Although no  construction  loans
were  classified  as  non-performing  as of September  30, 1998,  these loans do
involve a higher level of risk than conventional one- to four-family residential
mortgage loans.  For example,  if construction is not completed and the borrower
defaults,  the Bank may have to hire another  contractor to complete the project
at a higher cost, or completion could be delayed.



                                                             8

<PAGE>
Multi-Family and Commercial Real Estate Lending

         The Company  has engaged in  multi-family  and  commercial  real estate
lending secured primarily by small offices,  retail establishments and apartment
buildings  located in the Bank's primary market area. At September 30, 1998, the
Company had multi-family and commercial real estate loans totaling $6.4 million,
which represented 4.6% of the Bank's gross loan portfolio.

         Multi-family  and commercial  real estate loans  originated by the Bank
generally have a variety of rate adjustment features and other terms. The Bank's
multi-family  and  commercial  real estate loans  typically are for amounts less
than  $250,000,  and generally do not exceed 70% of the  appraised  value of the
property  securing the loan. The term of such loans does not generally exceed 20
years. The Bank analyzes the financial condition of the borrower, the borrower's
credit history,  the sufficiency and reliability of the net income  generated by
the property  securing the loan and the value of the property  itself.  The Bank
generally  requires  personal  guarantees  of the  borrowers  in addition to the
secured property as collateral for such loans. Appraisals on properties securing
multi-family  and commercial  real estate loans are performed by independent fee
appraisers.

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

Consumer Lending

         The Bank currently  originates  substantially all of its consumer loans
in its primary  market area.  Management  believes that  offering  consumer loan
products helps expand the Bank's customer base and creates  stronger ties to its
existing  customer  base. In addition,  because  consumer  loans  generally have
shorter  terms to maturity or  adjustable  rates and may carry  higher  rates of
interest than do residential mortgage loans, they can be useful  asset/liability
and interest rate spread  management  tools. The Bank originates  consumer loans
principally on a direct basis,  in which the Bank extends credit directly to the
borrower.  At September 30, 1998,  the Bank's  consumer loan  portfolio  totaled
$18.4  million,  or 13.1% of the gross  loan  portfolio.  Of  consumer  loans at
September 30, 1998, 65.8% were fixed-rate  loans and 34.2% were  adjustable-rate
loans.

         The Bank offers consumer loans for a variety of purposes. Consumer loan
terms vary according to the type and value of collateral,  contractual  maturity
and  creditworthiness  of the borrower.  Terms to maturity  range up to 20 years
with  respect to home  equity  lines of credit and 15 years with  respect to all
other types of consumer loans.  Unsecured  consumer lines of credit are extended
to borrowers through their checking account maintained at the Bank. These credit
lines currently bear interest at 18.0% and are generally limited to $50,000.

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

         At September 30, 1998,  automobile  loans, the largest component of the
Bank's  consumer loan portfolio,  totalled $6.3 million,  or 34.2% of the Bank's
total consumer loan portfolio and 4.5% of the Bank's gross loan  portfolio.  The
Bank originates  loans to purchase both new and used  automobiles at fixed rates
of interest and terms of up to six years. The Bank's maximum loan-to-value ratio
on new  automobile  loans is 100% of the  borrower's  cost,  which includes such
items as dealer options.

         Advances on home equity lines of credit  represent  the second  largest
component of the Bank's consumer loan portfolio. The Bank's home equity lines of
credit  are  secured by a lien on the  borrower's  residence  and are  generally
originated in amounts which, together with all prior liens on such residence, do
not exceed 90.0% of the appraised  value of the property  securing the loan. The
interest rates for home equity lines of credit float at a stated margin over the
prime rate. Home equity lines of credit generally require interest only payments
on the outstanding balance for the first five years of the loan, after

                                                             9

<PAGE>
which  the  outstanding  balance  may  be  converted  into a  fully  amortizing,
adjustable-rate  loan with a term not in excess of 15 years. As of September 30,
1998, the Bank had $3.5 million in outstanding  advances on home equity lines of
credit, with an additional $1.6 million of unused home equity lines of credit.

         Consumer loans may entail greater credit risk than do residential first
mortgage  loans,  particularly in the case of consumer loans which are unsecured
or are  secured by rapidly  depreciable  assets,  such as  automobiles.  In such
cases, any repossessed  collateral for a defaulted consumer loan may not provide
an adequate source of repayment of the  outstanding  loan balance as a result of
high initial  loan-to-value  ratios,  repossession,  rehabilitation and carrying
costs,  and the  greater  likelihood  of  damage,  loss or  depreciation  of the
underlying collateral. Home equity line of credit loans are generally secured by
subordinate  mortgages which present greater risks than first mortgage liens. At
September 30, 1998,  $71,000,  or .39% of the Bank's consumer loan portfolio was
non-performing,  however, the majority were government guaranteed student loans.
There can be no assurances that additional  delinquencies  will not occur in the
future.

Commercial Business Lending

         Federal regulations authorize  federally-chartered  savings banks, such
as the Bank, to make non-real  estate secured or unsecured loans for commercial,
corporate,  business and agricultural  purposes, up to a maximum of 10% of total
assets. The Bank engages in such commercial business lending principally through
secured and  unsecured  lines of credit as well as through the New York Business
Development  Corporation  (the "NYBDC"),  a privately  owned  corporation  which
provides  loans,  management  assistance,  counseling  and a  variety  of  other
financial  programs to small and medium  sized  businesses  located in New York.
Loans made through the NYBDC may be to businesses  located within or outside the
Bank's primary market area. The Bank is one of 119 participating  commercial and
savings  banks.  At September 30, 1998, the Bank had  approximately  $602,000 in
commercial  business loans outstanding,  representing less than 1.0% of its loan
portfolio,  with an additional  $109,000  committed for loans through NYBDC.  At
September 30, 1998, all of the Bank's commercial  business loans were performing
in accordance with their terms.

Loan Originations

         Loan   originations   are  developed  from  continuing   business  with
depositors and borrowers,  referrals  from real estate agents,  advertising  and
walk-in  customers.  All of the  Bank's  loans are  originated  by its  salaried
employees.

         The Bank's  ability to  originate  loans is  dependent  upon demand for
loans in its market.  Demand is affected by the local  economy and interest rate
environment. The Bank retains all new fixed-rate and adjustable-rate real estate
loans in its  portfolio.  The Bank does not sell loans and has not purchased any
loans since fiscal 1993.

         During the year ended  September 30, 1998,  the Bank  originated  $38.9
million of loans, compared to $21.3 million and $26.8 million in fiscal 1997 and
1996,  respectively.  Management  attributes the increase in originations during
fiscal 1998 to the low interest rate  environment,  in which  interest  rates on
fixed rate loans are at the lowest levels since 1993.  Management attributes the
decline in originations  during fiscal 1997 due to the increase in federal funds
rate in March 1997, which slowed down originations from a favorable  refinancing
market in fiscal 1996.

         In periods of economic  uncertainty,  the Bank's  ability to  originate
sufficient real estate loans with acceptable underwriting characteristics may be
substantially  reduced or restricted  with a resultant  decrease in net interest
income as assets may have to be invested in lower-yielding securities or similar
investments.  While the Bank currently does not sell loans, and presently has no
intention  to do so,  management  may  consider  selling  loans  in  the  future
depending on market conditions and the asset/liability  management  requirements
of the Bank.



                                                            10

<PAGE>
         The following table shows the loan originations,  purchases, sales, and
repayment  activities  of the Bank for the periods  indicated.  The Bank did not
sell any loans during the periods presented.
<TABLE>
<CAPTION>
                                                                  Year Ended September 30,
                                                           -----------------------------------
                                                             1998         1997          1996
                                                           --------     --------      --------
                                                                     (In Thousands)
<S>                                                        <C>          <C>           <C>     
Originations by type:
  One- to four-family and construction..............       $ 24,051     $ 12,588      $ 19,760
  Multi-family and commercial........................         5,184          110           150
  Consumer...........................................         9,683        8,584         6,938
                                                           --------     --------      --------
         Total loans originated......................        38,918       21,282        26,848
                                                           --------     --------      --------

Purchases:
  Total..............................................           ---          ---           ---

Sales:
  Total..............................................           ---          ---           ---

Repayments:
  Principal repayments...............................       (25,225)     (18,705)      (22,312)
  Increase (decrease) in other items, net............          (400)        (820)         (529)
                                                           --------     --------      --------
         Net increase (decrease).....................      $ 13,293     $  1,757      $  4,007
                                                           ========     ========      ========
</TABLE>
Asset Quality

         Generally,  when a borrower fails to make a required  payment on a loan
secured by residential real estate, the Bank initiates collection  procedures by
mailing a delinquency notice after the account is 15 days delinquent. At 30 days
delinquent,   the  Bank  attempts  to  contact  the  customer  by  telephone  to
investigate  the  delinquency  and a  personal  letter  is sent to the  customer
requesting  him or her to make  arrangements  to bring the loan current.  If the
delinquency is not cured by the 45th day, the Bank again attempts to contact the
customer  by  telephone  and  another  personal  letter  is sent.  After 60 days
delinquent, the Bank may commence foreclosure proceedings.

         With  respect  to  consumer  loans,  when a  borrower  fails  to make a
required  payment,  the  Bank  initiates  collection  procedures  by  mailing  a
delinquency  notice after the account is 10-15 days delinquent,  and again at 20
days  delinquent.  At 25 days  delinquent,  the Bank  attempts  to  contact  the
customer by telephone to investigate the delinquency.  At 30 days delinquent,  a
personal  letter  is  sent  to the  customer  requesting  him  or  her  to  make
arrangements to bring the loan current.  At 40 days  delinquent,  the Bank again
attempts  to  contact  the  customer  by  telephone  to secure  payment.  If the
delinquency  is not  cured by the 60th  day,  the  Bank  refers  the loan to its
attorney,  who sends  another  personal  letter  notifying  the customer that no
further  payments  will be  accepted  by the Bank  absent a meeting  between the
customer and a Bank loan officer. If no satisfactory arrangements have been made
by the last  business day of the third month,  repossession  of  collateral,  if
possible,  is undertaken  and, if  necessary,  legal  proceedings  are generally
commenced to collect the loan.
<PAGE>
         The following table sets forth the Bank's loan  delinquencies  by type,
by amount and by percentage of type at September 30, 1998.
<TABLE>
<CAPTION>
                                                    Loans Delinquent For:
                              ------------------------------------------------------------------
                                       60-89 Days                      90 Days and Over                 Total Delinquent Loans
                              ------------------------------     -------------------------------    -------------------------------
                                                     Percent                            Percent                             Percent
                                                     of Loan                            of Loan                             of Loan
                              Number     Amount     Category     Number      Amount    Category     Number      Amount     Category
                              ------     ------     --------     ------      ------    --------     ------      ------     --------
                                                                     (Dollars in Thousands)
<S>                             <C>      <C>          <C>          <C>       <C>        <C>            <C>     <C>           <C>
One- to four-family real
 estate....................       3      $ 209        .18%           9       $ 520      .46%           12      $ 729         .64%
Multi-family and
 commercial real estate....       1         49        .77           --          --       --             1         49         .77
Commercial.................      --         --         --           --          --       --            --         --          --
Consumer...................      19         84        .46           10          71      .39            29        155         .84
                                ---      -----        ---          ---       -----                    ---      -----
     Total.................      23      $ 342        .24           19       $ 591      .42            42      $ 933         .67
                                ===      =====                     ===       =====                    ===      =====
</TABLE>

                                                                 11

<PAGE>
         Non-Performing  Assets.  The table  below  sets forth the  amounts  and
categories of the Bank's non-performing  assets. Loans are placed on non-accrual
status when the loan is more than 90 days delinquent (except for FHA insured, VA
guaranteed loans and government guaranteed student loans) or when the collection
of principal and/or interest in full becomes doubtful. When loans are designated
as  non-accrual,  all accrued but unpaid  interest is reversed  against  current
period income and subsequent  cash receipts  generally are applied to reduce the
unpaid  principal   balance.   Foreclosed  assets  include  assets  acquired  in
settlement of loans.
<TABLE>
<CAPTION>
                                                              September 30,
                                            -----------------------------------------------
                                             1998      1997      1996      1995      1994
                                            ------    ------    ------    ------    ------
                                                         (Dollars in Thousands)
<S>                                         <C>       <C>       <C>       <C>       <C>   
Non-performing loans:
  One- to four-family real estate .......   $  520    $  780    $1,008    $  784    $  650
  Multi-family and commercial real estate     --        --          78      --        --
  Consumer ..............................       71       137       283       251      --
                                            ------    ------    ------    ------    ------
     Total ..............................      591       917     1,369     1,035       650
                                            ------    ------    ------    ------    ------

Troubled debt restructured loans:
  Multi-family and commercial real estate     --        --        --        --        --
                                            ------    ------    ------    ------    ------
     Total ..............................     --        --        --        --        --
                                            ------    ------    ------    ------    ------

Foreclosed assets, net:
  One- to four-family real estate .......       53       225       334       326       220
  Multi-family and commercial real estate     --          23        23       158       158
                                            ------    ------    ------    ------    ------
     Total ..............................       53       248       357       484       378
                                            ------    ------    ------    ------    ------

Total non-performing assets .............   $  644    $1,165    $1,726    $1,519    $1,028
                                            ======    ======    ======    ======    ======
Total as a percentage of total assets ...      .20%      .40%      .61%      .66%      .45%
                                            ======    ======    ======    ======    ======
</TABLE>

         For the years ended September 30, 1998,  1997 and 1996,  gross interest
income which would have been recorded had the non-accruing loans been current in
accordance  with their original terms amounted to $28,053,  $49,948 and $77,337,
respectively.

         Non-Accruing  Loans.  At September  30, 1998,  the Bank had $520,000 in
non-accruing  loans,  which  consisted  of 9  one-  to  four-family  residential
mortgage loans and represented .37% of the Bank's gross loan portfolio.

         Foreclosed  Assets.  As of September 30, 1998,  the Bank had $53,000 in
carrying  value of  foreclosed  assets  consisting  of two  one- to  four-family
properties.

         Other Loans of  Concern.  As of  September  30,  1998,  there were $311
thousand  of  other  loans  (consisting  of  a   restaurant/personal   residence
aggregating  $194,000,  and two one to four family real estate  loans  totalling
$117,000) not included in the table or discussed  above where known  information
about the possible credit problems of borrowers caused management to have doubts
as to the ability of the borrower to comply with present loan  repayment  terms.
These loans have been considered by management in conjunction  with the analysis
of the adequacy of the allowance for loan losses.

         Classified Assets.  Federal  regulations provide for the classification
of loans and other assets,  such as debt and equity securities  considered to be
of  lesser  quality,  as  "substandard,"  "doubtful"  or  "loss."  An  asset  is
considered  "substandard"  if it is  inadequately  protected  by the current net
worth and paying capacity of the obligor or of the collateral  pledged,  if any.
"Substandard"  assets include those characterized by the "distinct  possibility"
that the insured  institution  will sustain "some loss" if the  deficiencies are
not  corrected.  Assets  classified  as  "doubtful"  have all of the  weaknesses
inherent in those classified  "substandard," with the added  characteristic that
the weaknesses present make "collection or liquidation in full," on the basis of
currently  existing facts,  conditions,  and values,  "highly  questionable  and
improbable."  Assets  classified as "loss" are those considered  "uncollectible"
and  of  such  little  value  that  their  continuance  as  assets  without  the
establishment of a specific loss reserve is not warranted.


                                                            12

<PAGE>
         When  an  insured  institution  classifies  problem  assets  as  either
substandard or doubtful,  it may increase general  allowances for loan losses in
an amount deemed  prudent by management to address the increased risk of loss on
such  assets.  General  allowances  represent  loss  allowances  which have been
established to recognize the inherent risk associated  with lending  activities,
but which,  unlike  specific  allowances,  have not been allocated to particular
problem assets. When an insured institution classifies problem assets as "loss,"
it is required either to establish a specific allowance for losses equal to 100%
of that  portion of the asset so  classified  or to charge off such  amount.  An
institution's  determination  as to the  classification  of its  assets  and the
amount of its valuation  allowances  is subject to review and  adjustment by the
OTS and the  FDIC,  which  may order  increases  in  general  or  specific  loss
allowances.

         In  accordance  with its  classification  of  assets  policy,  the Bank
regularly  reviews the problem assets in its portfolio to determine  whether any
assets require classification in accordance with applicable regulations.  On the
basis of management's  review of its assets, at September 30, 1998, the Bank had
classified $844,000 as substandard and none as doubtful or loss.

         Allowance for Loan Losses.  At September 30, 1998, the Bank had a total
allowance  for  loan  losses  of  $1,950,000,   representing   329.9%  of  total
non-performing  loans.  The allowance for loan losses is  established  through a
provision for loan losses based on management's  evaluation of the risk inherent
in its loan portfolio and changes in the nature and volume of its loan activity,
including those loans which are being specifically monitored by management. Such
evaluation,  which includes a review of loans for which full  collectibility may
not  be  reasonably   assured,   considers   among  other   matters,   the  loan
classifications  discussed  above,  the estimated  fair value of the  underlying
collateral,  economic  conditions,  historical loan loss  experience,  and other
factors  that  warrant  recognition  in  providing  for an  adequate  loan  loss
allowance.

         Real estate  properties  acquired  through  foreclosure are recorded at
fair value,  less estimated selling costs. If fair value, less selling costs, at
the date of  foreclosure is lower than the book balance of the related loan, the
difference  will be  charged  to the  allowance  for loan  losses at the time of
transfer.  Valuations of the property are periodically updated by management and
if the value  declines,  a specific  provision  for losses on such  property  is
established by a charge to operations.

         The  determination  of the  adequacy of the  allowance  is  necessarily
speculative, based upon future loan performance outside the control of the Bank.
Adverse local,  regional or national  economic  conditions,  changes in interest
rates,  population,  products and other factors can all adversely  affect future
loan delinquency rates.  Unforeseen  conditions could require adjustments to the
allowance  through  additional  loan  loss  provisions.  Net  earnings  could be
significantly   affected  if  circumstances   differ   substantially   from  the
assumptions used in determining the level of the allowance. In addition, federal
regulatory   agencies,   as  an  integral  part  of  the  examination   process,
periodically  review the Bank's  allowance  for loan losses.  Such  agencies may
require  the Bank to increase  the  allowance  based upon their  judgment of the
information available to them at the time of their examination.



                                                            13

<PAGE>
                  The  following  table  sets  forth an  analysis  of the Bank's
allowance for loan losses.
<TABLE>
<CAPTION>
                                                                Year Ended September 30,
                                                -------------------------------------------------------
                                                  1998       1997         1996        1995        1994
                                                -------     -------     -------     -------     -------
                                                                 (Dollars in Thousands)

<S>                                             <C>         <C>         <C>         <C>         <C>    
Balance at beginning of period ..............   $ 1,889     $ 1,833     $ 1,950     $ 1,746     $ 1,294
Charge-offs:
  One- to four-family real estate ...........       (58)       (162)       (237)        (12)         (3)
  Multi-family and commercial real estate ...      --           (30)       --          --          --
  Consumer ..................................       (90)        (90)        (86)        (50)        (29)
                                                -------     -------     -------     -------     -------
         Total charge-offs ..................      (148)       (282)       (323)        (62)        (32)
                                                -------     -------     -------     -------     -------
Recoveries:
  One- to four-family real estate ...........      --             4        --             1          14
  Consumer ..................................        20          34          11          10           5
                                                -------     -------     -------     -------     -------
         Total recoveries ...................        20          38          11          11          19
                                                -------     -------     -------     -------     -------
Net charge-offs .............................      (128)       (244)       (312)        (51)        (13)
Provisions charged to operations ............       189         300         195         255         465
                                                -------     -------     -------     -------     -------
Balance at end of period ....................   $ 1,950     $ 1,889     $ 1,833     $ 1,950     $ 1,746
                                                =======     =======     =======     =======     =======

Ratio of net charge-offs during the period to
 average loans outstanding during the period        .10%        .19%        .26%        .04%        .02%
                                                =======     =======     =======     =======     =======

Ratio of net charge-offs during the period to
 average non-performing assets ..............     21.39%      17.73%      18.60%       4.46%       1.01%
                                                =======     =======     =======     =======     =======
</TABLE>

                                                            14

<PAGE>
         The  distribution  of the Bank's  allowance  for losses on loans at the
dates indicated is summarized as follows:
<TABLE>
<CAPTION>
                                                                    September 30,
                      --------------------------------------------------------------------------------------------------------
                                    1998                                1997                                1996                
                      --------------------------------    --------------------------------    --------------------------------  
                                              Percent                             Percent                             Percent   
                                              of Loans                            of Loans                            of Loans  
                                     Loan      in Each                   Loan      in Each                   Loan      in Each  
                       Amount of    Amounts   Category     Amount of    Amounts   Category     Amount of    Amounts   Category  
                       Loan Loss      by      to Total     Loan Loss      by      to Total     Loan Loss      by      to Total  
                       Allowance   Category    Loans       Allowance   Category    Loans       Allowance   Category    Loans    
                      --------------------------------    --------------------------------    --------------------------------  
                                                               (Dollars in Thousands)                
<S>                     <C>        <C>        <C>          <C>         <C>        <C>          <C>       <C>          <C>       
One- to four-family                                                                                                             
 real estate.........   $  947     $113,423    81.02%      $  573      $102,232    80.69%      $  496    $100,383      80.34%   
Multi-family and                                                                                                                
  commercial real                                                                                                               
  estate.............      196        6,389     4.56          470         4,691     3.70          528       5,115       4.09    
Construction.........       24        1,182      .85           --         1,306     1.03           --         423        .34    
Commercial...........       12          602      .43           --            63      .05           --          --         --    
Consumer.............      293       18,399    13.14          288        18,410    14.53          250      19,024      15.23    
Unallocated..........      478          --       --           558            --      --           559          --         --    
                        ------     --------   ------       ------      --------   ------       ------    --------     ------    
     Total...........   $1,950     $139,995   100.00%      $1,889      $126,702   100.00%      $1,833    $124,945     100.00%   
                        ======     ========   ======       ======      ========   ======       ======    ========     ======    

<CAPTION>
                                                  September 30,
                      --------------------------------------------------------------------
                                    1995                                1994               
                      --------------------------------    -------------------------------- 
                                              Percent                             Percent  
                                              of Loans                            of Loans 
                                     Loan      in Each                   Loan      in Each 
                       Amount of    Amounts   Category     Amount of    Amounts   Category 
                       Loan Loss      by      to Total     Loan Loss      by      to Total 
                       Allowance   Category    Loans       Allowance   Category    Loans   
                      --------------------------------    -------------------------------- 
                                             (Dollars in Thousands)                                                      
<S>                     <C>       <C>         <C>            <C>       <C>         <C>    
One- to four-family                                  
 real estate.........   $  737    $ 95,588     79.04%        $  670    $ 96,570     79.37%
Multi-family and                                                       
  commercial real                                                      
  estate.............      443       5,132      4.24            419       5,606      4.61
Construction.........       --         230       .19             --         743       .61
Commercial...........        --         --        --             --          --        --
Consumer.............      220      19,988     16.53            134      18,756     15.41
Unallocated..........      550          --        --            523          --        --
                        ------    --------    ------         ------    --------    ------ 
     Total...........   $1,950    $120,938    100.00%        $1,746    $121,675    100.00%
                        ======    ========    ======         ======    ========    ======
</TABLE>
                                                                   
                                                                    15
<PAGE>
Investment Activities

         General.  The Bank must maintain  minimum  levels of  investments  that
qualify as liquid  assets  under OTS  regulations.  Liquidity  may  increase  or
decrease  depending upon the  availability  of funds and  comparative  yields on
investments  in  relation  to the  return on loans.  Historically,  the Bank has
maintained liquid assets at levels above the minimum requirements imposed by the
OTS regulations and above levels believed  adequate to meet the  requirements of
normal operations, including potential deposit outflows. For September 1998, the
Bank's average regulatory  liquidity ratio (liquid assets as a percentage of net
withdrawable savings deposits and current borrowings) was 10.52%.

         Securities. Federally chartered savings institutions have the authority
to invest in various types of liquid assets,  including  United States  Treasury
obligations,  securities of various federal agencies,  obligations of states and
political  subdivisions,  certain  certificates  of deposit of insured banks and
savings institutions,  certain bankers'  acceptances,  repurchase agreements and
federal funds.  Subject to various  restrictions,  federally  chartered  savings
institutions  also may invest their assets in investment  grade commercial paper
and  corporate  debt  securities  and mutual funds whose  assets  conform to the
investments  that  a  federally   chartered  savings  institution  is  otherwise
authorized to make  directly.  At September 30, 1998,  the Company's  securities
portfolio at amortized  cost totaled  $74.8  million,  or 23.8% of total assets,
$72.8 million of which are classified as "available for sale" and the balance of
$2.0 million as "held to maturity."

         Generally,  the investment policy of the Company is to invest funds not
needed to fund loans,  among various  categories of  investments  and maturities
based upon the  Company's  need for  liquidity,  to achieve  the proper  balance
between its desire to minimize risk and maximize  yield,  to provide  collateral
for borrowings and to fulfill the Company's asset/liability management policies.
Prior to the Company's  initial public  offering and the Bank's  conversion to a
stock  institution,  the Bank's  investment  strategy had been  directed  toward
high-quality  assets  (primarily U.S.  Government  securities and federal agency
obligations   and  high  grade  corporate  debt   securities)   with  short  and
intermediate terms (five years or less) to maturity.  After the conversion,  the
Company has  extended the duration of its  portfolio by  purchasing  longer term
municipal and corporate debt  securities  with  maturities up to twenty years to
decrease  its asset  sensitivity,  leverage  its capital and  increase  interest
income.  Corporate debt securities  generally are considered of higher risk than
U.S.  Government  securities  and federal agency  obligations.  At September 30,
1998, the weighted average term to maturity of the security portfolio, excluding
other marketable equity securities,  was 15.45 years. See Note 5 of the Notes to
Consolidated  Financial  Statements for information  regarding the maturities of
the Company's securities available for sale portfolio and Note 6 for information
on the Company's securities held to maturity portfolio.

         Mortgage-Backed  Securities. In order to supplement loan production and
achieve  its   asset/liability   management   goals,   the  Company  invests  in
mortgage-backed  securities.  All of the mortgage-backed securities owned by the
Company are issued,  insured or  guaranteed  either  directly or indirectly by a
federal  agency.  At  September  30,  1998,  the  Company  had $88.8  million in
mortgage-backed securities, or 28.2% of total assets, the majority of which, are
classified  as  available  for  sale.  See Note 5 of the  Notes to  Consolidated
Financial  Statements for information  regarding the maturities of the Company's
mortgage-backed securities portfolio.



                                                            16

<PAGE>
         The  following  table  sets  forth  the  composition  of the  Company's
investment  securities,  mortgage-backed  securities and other  interest-earning
assets at the dates indicated.
<TABLE>
<CAPTION>
                                                                       September 30,
                                          --------------------------------------------------------------------
                                                  1998                     1997                     1996
                                          ------------------        -----------------       ------------------ 
                                          Amortized    % of         Amortized   % of        Amortized    % of
                                             Cost      Total           Cost     Total          Cost      Total
                                          ---------   ------        ---------  ------       ---------   ------ 
                                                                  (Dollars in Thousands)
<S>                                        <C>        <C>            <C>       <C>           <C>        <C>    
Investment securities:
  U.S. government and federal
     agency obligations...............     $21,954     29.33         $61,833    87.39%       $70,807     87.41
  Corporate bonds.....................      16,230     21.69           6,042     8.54          9,999     12.34
  State and municipal obligations.....      34,414     45.98             194      .28            206       .25
  Other...............................       2,242      3.00           2,682     3.79             3         --
                                           -------    ------         -------   ------        -------    ------ 
     Total investment securities......     $74,840    100.00%        $70,751   100.00%       $81,015    100.00%
                                           =======    ======         =======   ======        =======    ======
Average remaining contractual                                                            
 life of securities...................         15.45 years               5.80 years              3.83 years

Federal Home Loan Bank of New
 York stock, required by law...........    $ 1,954    100.00%        $ 1,762   100.00%       $ 1,159    100.00%
                                           =======    ======         =======   ======        =======    ======

Other interest-earning assets:
  Federal funds sold..................          --        --              --      --        $35,600      100.0%
                                                                                            =======      =====

Mortgage-backed securities:
  GNMA................................     $41,828     47.12%        $41,450    49.41%       $17,169     48.71%
  FNMA................................      31,151     35.09          29,920    35.67         13,971     39.63
  FHLMC...............................      15,691     17.68          12,416    14.80          4,011     11.38
  Other...............................          96       .11              97      .12             98       .28
                                           -------    ------         -------   ------        -------    ------ 
                                                                  
     Total mortgage-backed
      securities......................     $88,766    100.00%        $83,883   100.00%       $35,249    100.00%
                                           =======    ======         =======   ======        =======    ======
</TABLE>
<PAGE>
                                                             
The  composition  and  maturities  of the  investment  securities  portfolio  by
contractual maturity are indicated in the following table.
<TABLE>
<CAPTION>
                                                                         September 30, 1998
                                           ----------------------------------------------------------------------------------  
                                           Less Than       1 to 5         5 to 10         Over                 Total
                                            1 Year          Years          Years        10 Years       Investment Securities
                                           ---------      ---------      ---------      ---------      ----------------------
                                           Amortized      Amortized      Amortized      Amortized      Amortized       Fair
                                             Cost           Cost           Cost           Cost           Cost          Value
                                           ---------      ---------      ---------      ---------      ---------      -------
                                                                       (Dollars in Thousands)

<S>                                         <C>            <C>            <C>            <C>            <C>           <C>    
U.S. government securities and
  federal agency obligations........        $ 4,002        $ 2,991        $14,961        $   ---        $21,954       $22,479
Corporate bonds.....................            ---            ---          4,480         11,750         16,230        16,226
State and municipal obligations.....            ---             93            105         34,216         34,414        34,915
Other...............................            ---            ---            ---          2,242          2,242         2,444
                                            -------        -------        -------        -------        -------       -------
  Total investment securities.......        $ 4,002        $ 3,084        $19,546        $48,208        $74,840       $76,064
                                            =======        =======        =======        =======        =======       =======

Weighted average tax equivalent           
  yield.............................           6.16%          7.20%          7.27%          7.60%         7.42%
</TABLE>
                                            
         The  Company's  securities  portfolio  at September  30, 1998,  did not
contain  securities of any issuer with an aggregate  book value in excess of 10%
of the Company's equity,  excluding those issued by the United States Government
or its agencies.

                                                            17

<PAGE>
         The following table sets forth the final contractual  maturities of the
Company's mortgage-backed securities at September 30, 1998.
<TABLE>
<CAPTION>
                                                                              September 30,
                                           Due in                                 1998
                3 Years      3 to 5        5 to 10     10 to 20     Over 20     Amortized
                or Less       Years         Years        Years       Years        Cost
                -------      -------      -------      -------      -------      -------
                                               (In Thousands)
<S>             <C>          <C>          <C>          <C>          <C>          <C>    
GNMA .....      $  --        $    12      $   184      $ 4,226      $37,405      $41,827
FNMA .....        3,970        1,165         --          4,945       21,071       31,151
FHLMC ....         --           --             23        7,100        8,569       15,692
Other ....         --           --           --           --             96           96
                -------      -------      -------      -------      -------      -------

     Total      $ 3,970      $ 1,177      $   207      $16,271      $67,141      $88,766
                =======      =======      =======      =======      =======      =======
</TABLE>

Sources of Funds

         General.   The  Bank's  primary  sources  of  funds  are  deposits  and
borrowings,  amortization  and  prepayment  of loan  principal,  maturities  and
prepayments  of  securities,  short-term  investments,  and funds  provided from
operations.

         Deposits.  The Bank offers deposit  accounts having a range of interest
rates and terms. The Bank offers passbook and statement savings accounts,  money
market  savings  accounts,  transaction  accounts,  and  certificate  of deposit
accounts  currently ranging in terms from six months to six years. The Bank only
solicits  deposits  from its  primary  market  area  and does not have  brokered
deposits. The Bank relies primarily on competitive pricing policies, advertising
and customer  service to attract and retain these  deposits.  The Bank generally
does not utilize  premiums or promotional  gifts for new accounts,  although one
existing program for senior citizens does provide certain  enumerated  benefits,
such as discounts on loans and safe deposit boxes, free travelers checks,  money
orders and a variety of other services.

         The flow of deposits is influenced  significantly  by general  economic
conditions,   changes  in  money  market  and  prevailing  interest  rates,  and
competition.  The variety of deposit accounts offered by the Bank has allowed it
to be competitive in obtaining funds and to respond with  flexibility to changes
in consumer  demand.  In recent years,  the Bank has become more  susceptible to
short-term fluctuations in deposit flows, as customers have become more interest
rate conscious. The Bank manages the pricing of its deposits in keeping with its
asset/liability management, liquidity and profitability objectives. Based on its
experience,  the Bank believes that its passbook,  statement  savings  accounts,
money market savings  accounts and  transaction  accounts are relatively  stable
sources of  deposits.  However,  the ability of the Bank to attract and maintain
certificates  of deposit and the rates paid on those  deposits has been and will
continue to be significantly affected by market conditions.
<PAGE>
         The following table sets forth the deposit flows at the Bank during the
periods indicated.
<TABLE>
<CAPTION>
                                              Year Ended September 30,
                                   -------------------------------------------
                                      1998             1997            1996
                                   ---------        ---------        ---------
                                             (Dollars in Thousands)

<S>                                <C>              <C>              <C>      
Opening balance ...............    $ 200,912        $ 196,753        $ 197,230
Deposits ......................      310,108          254,977          235,800
Withdrawals ...................     (309,896)        (259,424)        (244,962)
Interest credited .............        8,853            8,606            8,685
                                   ---------        ---------        ---------
                               
Ending balance ................    $ 209,977        $ 200,912        $ 196,753
                                   =========        =========        =========
                               
Net increase (decrease) .......    $   9,065        $    4,159    $       (477)
                                   =========        =========        =========
                               
Percent increase (decrease) ...         4.51%            2.11%            (.24)%
                                   =========        =========        =========

</TABLE>

                                                            18

<PAGE>
The  following  table sets forth the dollar  amount of  deposits  in the various
types of deposit programs offered by the Bank for the periods indicated.
<TABLE>
<CAPTION>
                                                              Year Ended September 30,
                                         -----------------------------------------------------------------
                                                1998                   1997                    1996
                                         -------------------     -------------------     -----------------
                                                     Percent                 Percent               Percent
                                         Amount     of Total     Amount     of Total     Amount   of Total
                                         ------     --------     ------     --------     ------   --------
                                                               (Dollars in Thousands)
<S>                                      <C>         <C>         <C>         <C>        <C>        <C>    
Non-Certificate Deposits(1):
Statement savings accounts 3.54%.......   $11,867      5.65%       $8,388      4.17%    $  7,881     4.01%
Non-interest bearing demand
  accounts.............................     6,009      2.86         4,370      2.18        3,714     1.89
Passbook savings accounts 3.20%........    66,208     31.53        71,060     35.37       75,477    38.36
NOW accounts 1.98%.....................    12,396      5.91        10,438      5.20        9,070     4.61
Money market accounts 2.96%............     5,949      2.83         7,115      3.54        7,752     3.94
                                         --------    ------      --------    ------     --------   ------ 
                                                                                       
Total non-certificates.................   102,429     48.78       101,371     50.46      103,894    52.81
                                         --------    ------      --------    ------     --------   ------ 
                                                                                       
Certificates of Deposit:                                                               
 2.00 -  3.99%.........................       ---       ---            20       .01           30      .01
 4.00 -  5.99%.........................   106,990     50.95        88,416     44.00       75,293    38.27
 6.00 -  7.99%.........................       558       .27        11,105      5.53       17,536     8.91
                                         --------    ------      --------    ------     --------   ------ 
Total certificates.....................   107,548     51.22        99,541     49.54       92,859    47.19
                                         --------    ------      --------    ------     --------   ------ 
                                                                                       
Total deposits.........................  $209,977    100.00%     $200,912    100.00%    $196,753   100.00%
                                         ========    ======      ========    ======     ========   ====== 
</TABLE>
------------------
(1) Interest rates shown are as of September 30, 1998.

                                                            19

<PAGE>
         The following table shows rate and maturity  information for the Bank's
certificates of deposit as of September 30, 1998.
<TABLE>
<CAPTION>
                                       4.00-        6.00-                       Percent
                                       5.99%        7.99%         Total         of Total
                                     --------     --------      --------        --------
                                                  (Dollars in Thousands)
Certificate accounts maturing
 in quarter ending:
------------------------------
<S>                                  <C>          <C>           <C>              <C>    
December 31, 1998..............      $ 27,973    $     ---      $ 27,973          26.01%
March 31, 1999.................        23,233           36        23,269          21.64
June 30, 1999..................        15,399          ---        15,399          14.32
September 30, 1999.............        12,005          ---        12,005          11.16
December 31, 1999..............         5,036          ---         5,036           4.68
March 31, 2000.................         4,209          ---         4,209           3.91
June 30, 2000..................         3,749           51         3,800           3.53
September 30, 2000.............         2,499          ---         2,499           2.32
December 31, 2000..............         2,560          ---         2,560           2.38
March 31, 2001.................         2,946          ---         2,946           2.74
June 30, 2001..................         1,259           26         1,285           1.20
September 30, 2001.............         1,947          ---         1,947           1.81
Thereafter.....................         4,175          445         4,620           4.30
                                     --------     --------      --------         ------ 

   Total.......................      $106,990     $    558      $107,548         100.00%
                                     ========     ========      ========         ======

   Percent of total............         99.48%         .52%
                                     ========     ========
</TABLE>
<PAGE>

         The following table indicates the amount of the Bank's  certificates of
deposit by time remaining until maturity as of September 30, 1998.
<TABLE>
<CAPTION>
                                                                           Maturity
                                                     ----------------------------------------------------
                                                                      Over          Over                       
                                                     3 Months        3 to 6        6 to 12        Over    
                                                      or Less        Months        Months       12 months      Total
                                                      --------      --------      --------      ---------     -------
                                                                               (In Thousands)
<S>                                                    <C>           <C>           <C>           <C>         <C>     
Certificates of deposit less than $100,000.......      $24,313       $21,423       $24,819       $24,706      $95,261
Certificates of deposit of $100,000 or more......        3,661         1,846         2,584         4,196       12,287
                                                      --------      --------      --------      --------      -------
Total certificates of deposit....................      $27,974       $23,269       $27,403       $28,902     $107,548
                                                       =======       =======       =======       =======     ========
</TABLE>

         Borrowings.  Although  deposits are the Bank's primary source of funds,
the Bank may utilize  borrowings as a funding  source.  As a member of the FHLB,
the Bank has access to overnight  funds of  approximately  $14.3 million,  along
with an additional  line of $14.3 million for one month  advances.  At September
30, 1998, the Bank had borrowings of $6.8 million under its overnight line.

         In January 1998, the Bank began  converting a portion of its short-term
borrowings to long-term  borrowings  principally through convertible  (callable)
advances  with  the  FHLB.  The   borrowings  are  secured  by   mortgage-backed
securities,  and have contractual maturities of ten years, however, they include
options  which  give the  lender  the right to call the debt  after a  specified
lock-out period. The Company had $25 million of such borrowings at September 30,
1998,  which had lock-out  periods  ranging from one to five years.  For further
detail, see Note #16 to the Consolidated Financial Statements.



                                                            20

<PAGE>
Subsidiary and Other Activities

         As a federally chartered savings association,  the Bank is permitted by
OTS  regulations to invest up to 2% of its assets,  or $6.3 million at September
30, 1998, in the stock of, or loans to, service  corporation  subsidiaries.  The
Bank may invest an  additional  1% of its assets in service  corporations  where
such additional funds are used for inner-city or community  development purposes
and up to 50% of its total capital in conforming  loans to service  corporations
in which it owns more than 10% of the capital stock.  Federal  associations also
are permitted to invest an unlimited  amount in operating  subsidiaries  engaged
solely in activities which a federal  association may engage in directly.  As of
September 30, 1998, the Bank had one subsidiary,  Catskill  Financial  Services,
Inc., which commenced  operations in January 1998,  principally to issue Savings
Bank Life Insurance.

         The  Company,  as a  unitary  savings  and  loan  holding  company,  is
generally   permitted   under  federal  law  to  engage,   through   non-banking
subsidiaries,  in  whatever  business  activities  it may choose to pursue.  The
Company currently has no such subsidiaries.

Competition

         The Company faces strong  competition,  both in originating real estate
and other loans and in attracting  deposits.  Competition  in  originating  real
estate loans comes primarily from other savings institutions,  commercial banks,
credit unions and mortgage  bankers  making loans secured by real estate located
in the Company's  primary market area.  Other savings  institutions,  commercial
banks,  credit unions and finance  companies  provide  vigorous  competition  in
consumer lending.

         The Bank  attracts  all of its  deposits  through  its branch  offices,
primarily  from the  communities  in which those  branch  offices  are  located;
therefore,  competition for those deposits is principally  from mutual funds and
other savings  institutions,  commercial  banks and credit unions located in the
same communities.  The Bank competes for these deposits by offering a variety of
deposit accounts at competitive rates, convenient business hours, and convenient
branch locations with interbranch deposit and withdrawal  privileges.  Automated
teller machine  facilities are also available at four of the Bank's offices.  At
September  30,  1998,  the  Bank  held  approximately  30%  of  total  financial
institution  deposits and 57% of total  thrift  deposits in Greene  County,  New
York, and approximately .09% of total financial  institution  deposits in Albany
County, New York.

Employees

         At  September  30,  1998,  the  Company  had a total  of 70  employees,
including four part-time employees.  The Company's employees are not represented
by any collective bargaining group.  Management considers its employee relations
to be good.

ITEM 2.  PROPERTIES

         The Bank  conducts  its  business  at its main  office  and four  other
banking  offices in its primary  market area.  The Company does not own or lease
any other  premises and operates  principally  from the Bank's main office.  The
following table sets forth information relating to each of the Bank's offices as
of September 30, 1998.  The Bank also owns a parking lot located at 313-317 Main
Street,  Catskill,  New York, which is used to service the main office.  The net
book value of the Bank's premises and equipment  (including  land,  building and
leasehold  improvements and furniture,  fixtures and equipment) at September 30,
1998 was $2.5 million. See Note 9 of Notes to Consolidated Financial Statements.
The Bank believes that its current  facilities  are adequate to meet the present
and  foreseeable  needs of the Bank and the Company,  subject to possible future
expansion.


                                                            21

<PAGE>
<TABLE>
<CAPTION>
                                                                                Total                  Net Book
                                                             Owned           Approximate          Value or Leasehold
                                          Date                or               Square               Improvement at
              Location                  Acquired            Leased             Footage            September 30, 1998
-------------------------------- ---------------------- --------------- ---------------------    -------------------
                                                                                                    (In thousands)
<S>                                  <C>                   <C>                <C>                       <C>
Main Office:
341 Main Street
Catskill, New York                   Prior to 1950           Owned             11,750                   $  609

Branch Offices:
Route 9-W
Ravena, New York                          1972               Owned              2,822                      267

Route 9-W
Corner Boulevard Avenue
Catskill, New York                        1978               Owned              2,900                      709

Route 296
Windham, New York                         1996               Owned              3,620                      736

Supermarket Branch:
Bryant's Supermarket(1)
Route 32
Greenville, New York                      1998              Leased                650                      201
                                                                                                        ------
                                                                                                        $2,522
                                                                                                        ======
</TABLE>
(1) Branch opened April 1998 and lease term expires in April 2013

ITEM 3. LEGAL PROCEEDINGS

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

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


         During  the  fourth  quarter  of fiscal  1998,  there  were no  matters
submitted to a vote of shareholders of Catskill Financial Corporation.


                                                            22

<PAGE>
                                     PART II

ITEM 5.  MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED SHAREHOLDER MATTERS

         The following information included in the Annual Report to Shareholders
for the fiscal  year  ended  September  30,  1998,  (the  "Annual  Report"),  is
incorporated herein by reference:  "SHAREHOLDER  INFORMATION",  which appears on
page 65 of the Annual Report.

ITEM 6.  SELECTED FINANCIAL DATA

         The following information included in the Annual Report is incorporated
herein by reference: "SELECTED CONSOLIDATED FINANCIAL INFORMATION" which appears
on pages 4 and 5 of the Annual Report.

ITEM 7. MANAGEMENT'S  DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
        OF OPERATIONS

         The following information included in the Annual Report is incorporated
herein  by  reference:   "MANAGEMENT'S  DISCUSSION  AND  ANALYSIS  OF  FINANCIAL
CONDITION AND RESULTS OF OPERATIONS", which appears on pages 7 through 27 of the
Annual Report.

ITEM 7A.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS

         The following information included in the Annual Report is incorporated
herein  by  reference:   "MANAGEMENT'S  DISCUSSION  AND  ANALYSIS  OF  FINANCIAL
CONDITION AND RESULTS OF OPERATIONS - Asset/Liability Management", which appears
on pages 11 through 14 of the Annual Report.

ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

         The following information included in the Annual Report is incorporated
herein by  reference:  The  consolidated  statements  of financial  condition of
Catskill Financial Corporation and Subsidiary as of September 30, 1998 and 1997,
and the related consolidated statements of income, shareholders' equity and cash
flows for each of the years in the three-year  period ended  September 30, 1998,
together with the related notes and the  independent  auditors'  report thereon,
all of which appears on pages 28 through 64 of the Annual Report.

ITEM  9.  CHANGES  IN AND  DISAGREEMENTS  WITH  ACCOUNTANTS  ON  ACCOUNTING  AND
          FINANCIAL DISCLOSURE

         None.

                                    PART III

ITEM 10.  DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

         The  following   information   included  in  the  Proxy   Statement  is
incorporated  herein by reference a copy of which is expected to be filed within
120 days of September 30, 1998 ("the Proxy Statement"): "ELECTION OF DIRECTORS",
and  "INFORMATION  CONCERNING  THE BOARD OF DIRECTORS AND  EXECUTIVE  OFFICERS",
which appears on pages 2 through 5 of the Proxy Statement.

ITEM 11.  EXECUTIVE COMPENSATION

         The  information  included on pages 7 through 13 of the Proxy Statement
is incorporated herein by reference.



                                                            23

<PAGE>
ITEM 12.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

         The  following   information   included  in  the  Proxy   Statement  is
incorporated  herein  by  reference:  "VOTING  SECURITIES  AND  CERTAIN  HOLDERS
THEREOF" which appears on pages 5 THROUGH 7 of the Proxy Statement.

ITEM 13.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

         The  information  included  on  page  15  of  the  Proxy  Statement  is
incorporated herein by reference: "TRANSACTIONS WITH DIRECTORS AND OFFICERS."


                                     PART IV

ITEM 14.  EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K

         (a) Listed below are all  financial  statements  and exhibits  filed as
part of this report:
              (1) The consolidated statements of financial condition of Catskill
Financial  Corporation and subsidiary as of September 30, 1998 and 1997, and the
related consolidated  statements of income,  shareholders' equity and cash flows
for  each of the  years in the  three-year  period  ended  September  30,  1998,
together with the related notes and the  independent  auditors'  report thereon,
appearing in the Annual Report on pages 28 through 64 are incorporated herein by
reference.

              (2) Schedules omitted as they are not applicable

              (3) Exhibits

         The  following  exhibits are either filed as part of this report or are
incorporated herein by reference:
<TABLE>
<CAPTION>
Regulation S - K Exhibit
    Reference Number                                Description
------------------------                            -----------
<S>                             <C>
          3.1                   Certificate   of   Incorporation   of   Catskill
                                Financial Corporation (incorporated by reference
                                to Exhibit 3.1 to the Registration  Statement on
                                Form S-1 No.  #33-81019,  of Catskill  Financial
                                Corporation,   filed  on   February   5,   1996,
                                (hereinafter "Form S-1")

          3.2                   By  laws  of  Catskill   Financial   Corporation
                                (incorporated  by  reference  to Exhibit  3.2 to
                                Form S-1)

           4                    Specimen  Stock  Certificate   (incorporated  by
                                reference to Exhibit 4 to Form S-1.)

          10.1                  Catskill Financial Corporation 1996 Stock Option
                                and Incentive Compensation Plan (incorporated by
                                reference to Proxy Statement for Special Meeting
                                of    Stockholders    of   Catskill    Financial
                                Corporation held on October 24, 1996.)

          10.2                  Employment agreement dated April 1, 1998, by and
                                between  Catskill  Savings  Bank and  Wilbur  J.
                                Cross.  (incorporated  by  reference  to Exhibit
                                10.2 to Form 10Q for the nine month period ended
                                June 30, 1998.)

          10.3                  Catskill  Financial  Corporation  Employee Stock
                                ownership  Plan  (incorporated  by  reference to
                                Exhibit 10.3 to Form S-1.)
</TABLE>


                                                                 24
<PAGE>
<TABLE>
<CAPTION>
Regulation S - K Exhibit
    Reference Number                                Description
------------------------                            -----------
<S>                             <C>
         10.4                   Catskill   Financial   Corporation    Management
                                Recognition  Plan  (incorporated by reference to
                                Proxy   Statement   for   Special   Meeting   of
                                Stockholders of Catskill  Financial  Corporation
                                held on October 24, 1996.)

         10.5                   Trustees Deferred  Compensation Plan of Catskill
                                Savings  Bank   (incorporated  by  reference  to
                                Exhibit 10.7 to Form S- 1.)

         10.6                   Employment agreement dated April 1, 1998, by and
                                between  Catskill   Financial   Corporation  and
                                Wilbur J. Cross.  (Incorporated  by reference to
                                Exhibit  10.1 to Form  10Q  for the  nine  month
                                period ended June 30, 1998.)

         10.7                   Catskill  Financial   Corporation   Supplemental
                                Executive  Retirement  Plan.   (Incorporated  by
                                reference  to  Exhibit  10.3 to Form 10Q for the
                                nine month period ended June 30, 1998.)

         10.8                   Catskill  Financial   Corporation   Supplemental
                                Executive Retirement Plan Trust (incorporated by
                                reference  to  Exhibit  10.4 to Form 10Q for the
                                nine month period ended June 30, 1998.)

         10.9                   Employment  Agreement  dated August 1, 1998,  by
                                and between  Catskill  Savings Bank and David J.
                                DeLuca.

         10.10                  Schedule  pursuant to instruction #2 of Item 601
                                of   Regulation   SK.  There  is  an  employment
                                agreement  with  Keith  Lampman,   an  executive
                                officer    of   the    registrant,    which   is
                                substantially   identical   to   the   agreement
                                included as Exhibit 10.9.  The only  differences
                                are that  the  agreement  is with  Mr.  Lampman,
                                contains his  residence  address,  refers to his
                                title as "Vice  President"  and does not contain
                                section  1(e)(3) as contained  in the  agreement
                                included as Exhibit 10.9.

          11                    Computation of Net Income per Common Share

          13                    1998 Annual Report to security holders

          21                    Subsidiaries of the registrant

          23                    Consent of KPMG Peat Marwick LLP

          27                    Financial Data Schedule
</TABLE>
                                       25

<PAGE>
                                   SIGNATURES

         Pursuant to the  requirements  of Section 13 or 15(d) of the Securities
and  Exchange  Act of 1934,  the  registrant  has duly  caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.

                                        CATSKILL FINANCIAL CORPORATION
                                                (Registrant)


                                        By:    /s/ Wilbur J. Cross
                                             ------------------------------
                                        Wilbur J. Cross
                                        Director & Chairman of the Board,
                                        President & Chief Executive Officer
Date:  December 18, 1998

         Pursuant to the  requirements  of the Securities  Exchange Act of 1934,
this  report has been  signed  below by the  following  persons on behalf of the
registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
               Signature                                    Title                                  Date
               ---------                                    -----                                  ----
<S>                                        <C>                                               <C>
 /s/ Wilbur J. Cross                       Director & Chairman of the Board,
---------------------------------          President and Chief                               December 18, 1998
Wilbur J. Cross                            Executive Officer

                                                  
 /s/ David J. DeLuca                       Chief Financial Officer                                            
---------------------------------          (Principal Financial Officer &                    December 18, 1998
David J. DeLuca                            Principal Accounting Officer)                                
                                                                                                              
                                           
 /s/ George P. Jones                       Director                                          December 18, 1998
---------------------------------                                                                             
George P. Jones                                                                                               
                                                                                                              
 /s/ Richard A. Marshall                   Director                                          December 18, 1998
--------------------------------                                                                              
Richard A. Marshall                                                                                           
                                                                                                              
 /s/ Allan D. Oren                         Director                                          December 18, 1998
-----------------------------------                                                                           
Allan D. Oren                                                                                                 
                                                                                                              
 /s/ Hugh J. Quigley                       Director                                          December 18, 1998
-----------------------------------                                                                           
Hugh J. Quigley                                                                                               
                                           
 /s/ Edward P. Stiefel                     Director                                          December 18, 1998
-----------------------------------                                                                           
Edward P. Stiefel, Esq.                                                                                       
</TABLE>
                                           
                                                            26