UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                              WASHINGTON, DC 20549

                                    FORM 10-Q

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

For the quarterly period ended ..............................SEPTEMBER 30, 1999

                                       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.: 000-23809


                          FIRST SENTINEL BANCORP, INC.
             (exact name of registrant as specified in its charter)


             DELAWARE                                    22-3566151
 (State or other jurisdiction                     (IRS Employer I.D. No.)
of incorporation or organization)

               1000 WOODBRIDGE CENTER DRIVE, WOODBRIDGE, NJ 07095
                    (Address of principal executive offices)

       Registrant's telephone number, including area code: (732) 726-9700

                                 NOT APPLICABLE
       Former Name, Address, and Fiscal year, if changed since last report


     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______.


                      APPLICABLE ONLY TO CORPORATE ISSUERS

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

            CLASS                          OUTSTANDING AT OCTOBER 31, 1999
--------------------------------        -------------------------------------
        Common Stock                              39,777,009 shares


<PAGE>


                          FIRST SENTINEL BANCORP, INC.

                               INDEX TO FORM 10-Q
                                                                          PAGE #
PART I.         FINANCIAL INFORMATION

Item 1.         Financial Statements (Unaudited)

                Consolidated Statements of Financial Condition as of September
                30, 1999 and December 31, 1998                                 3

                Consolidated Statements of Income for the three and nine months
                ended September 30, 1999 and 1998                              4

                Consolidated Statements of Stockholders' Equity for the nine
                months ended September 30, 1999 and 1998                       5

                Consolidated Statements of Cash Flows for the nine months ended
                September 30, 1999 and 1998                                    6

                Notes to Consolidated Financial Statements                     7

Item 2.         Management's Discussion and Analysis of Financial Condition
                and Results of Operations                                      9

Item 3.         Quantitative and Qualitative Disclosure About Market Risk     16

PART            II. OTHER INFORMATION.                                        17

                SIGNATURES                                                    18

                                       2

<PAGE>


FIRST SENTINEL BANCORP, INC. AND SUBSIDIARIES
--------------------------------------------------------------------------------
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(Dollars in thousands, except share data) (Unaudited)

<TABLE>
<CAPTION>
                                                                                     September 30,         December 31,
                                                                                         1999                  1998
                                                                                   ----------------       --------------

ASSETS
<S>                                                                               <C>                    <C>
Cash and due from banks.........................................................  $          19,020      $        22,831
Federal funds sold..............................................................                 --               14,800
                                                                                   ----------------       --------------
     Total cash and cash equivalents............................................             19,020               37,631
Federal Home Loan Bank of New York (FHLB-NY) stock, at cost.....................             15,732               12,852
Investment securities available for sale........................................            232,964              242,197
Mortgage-backed securities available for sale...................................            629,482              661,881
Loans receivable, net...........................................................            957,870              854,697
Interest and dividends receivable...............................................             12,045               13,556
Premises and equipment, net.....................................................             16,685               16,481
Excess of cost over fair value of net assets acquired...........................              7,318                7,956
Other assets....................................................................             13,223                7,807
                                                                                   ----------------       --------------
     Total assets...............................................................  $       1,904,339      $     1,855,058
                                                                                   ================       ==============

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

LIABILITIES AND STOCKHOLDERS' EQUITY

LIABILITIES
Deposits........................................................................  $       1,237,628      $     1,268,119
Borrowed funds..................................................................            383,325              264,675
Advances by borrowers for taxes and insurance...................................              8,452                6,969
Other liabilities...............................................................             12,784               15,476
                                                                                   ----------------       --------------
    Total liabilities...........................................................          1,642,189            1,555,239
                                                                                   ----------------       --------------
STOCKHOLDERS' EQUITY
Preferred Stock; authorized 10,000,000 shares; issued and outstanding - none....                  -                    -
Common Stock,  $.01 par value,  85,000,000  shares  authorized;  43,106,742
     and 39,777,009 shares issued and outstanding at 9/30/99 and
     43,105,497 and 42,675,397 shares issued and outstanding at 12/31/98........                431                  431
Paid-in capital.................................................................            201,053              201,105
Retained earnings...............................................................            119,448              112,601
Accumulated other comprehensive (loss) income...................................            (12,386)               2,498
Less: Treasury stock (3,329,733  and 430,100 shares at September 30, 1999 and
        December 31, 1998, respectively) .......................................            (29,705)              (3,664)
      Unearned Common Stock acquired by the Employee Stock
        Ownership Plan (ESOP)...................................................            (12,385)             (13,073)
      Unearned Common Stock acquired by the Recognition and
        Retention Plan (RRP)....................................................             (4,306)                 (79)
                                                                                   ----------------       --------------
      Total stockholders' equity................................................            262,150              299,819
                                                                                   ----------------       --------------
      Total liabilities and stockholders' equity................................  $       1,904,339      $     1,855,058
                                                                                   ================       ==============

</TABLE>

   See accompanying notes to the unaudited consolidated financial statements.

                                       3

<PAGE>


FIRST SENTINEL BANCORP, INC. AND SUBSIDIARIES
--------------------------------------------------------------------------------
CONSOLIDATED STATEMENTS OF INCOME
(Dollars in thousands, except share data) (Unaudited)

<TABLE>
<CAPTION>
                                                                     Three months ended             Nine months ended September
                                                                        September 30,                           30,
                                                                -------------------------------    -------------------------------
                                                                    1999             1998              1999             1998
                                                                --------------   --------------    --------------   --------------
INTEREST INCOME

<S>                                                            <C>              <C>               <C>              <C>
  Loans........................................................$        17,359  $        15,748   $        50,270  $        45,124
  Mortgage-backed securities held to maturity..................             --            2,212                --           11,810
  Investment securities held to maturity.......................             --            1,799                --            7,096
  Investment and mortgage-backed securities
    available for sale.........................................         13,728           10,400            41,243           23,842
                                                                --------------   --------------    --------------   --------------
     Total interest income.....................................         31,087           30,159            91,513           87,872
                                                                --------------   --------------    --------------   --------------

INTEREST EXPENSE:
 Deposits:
   NOW and money market demand ................................          2,404            2,725             7,013            7,517
   Savings.....................................................            981              677             2,970            2,497
   Certificates of deposit.....................................          8,384            9,918            25,781           29,615
                                                                --------------   --------------    --------------   --------------
     Total interest expense - deposits.........................         11,769           13,320            35,764           39,629
 Borrowed funds................................................          4,363            3,054            12,190            8,954
                                                                --------------   --------------    --------------   --------------
     Total interest expense....................................         16,132           16,374            47,954           48,583
                                                                --------------   --------------    --------------   --------------
     Net interest income.......................................         14,955           13,785            43,559           39,289
 Provision for loan losses.....................................            300              352             1,200            1,092
                                                                --------------   --------------    --------------   --------------
     Net interest income after provision for loan losses.......         14,655           13,433            42,359           38,197
                                                                --------------   --------------    --------------   --------------

OTHER OPERATING INCOME:
  Fees and service charges.....................................            626              569             1,859            1,679
  Net gain on sales of loans and securities available for sale.            273              372               850              521
  Net gain on sale of deposits.................................             --               --                --            1,084
  Other, net...................................................            (53)             142               187              440
                                                                --------------   --------------    --------------   --------------
     Total other operating income..............................            846            1,083             2,896            3,724
                                                                --------------   --------------    --------------   --------------

OPERATING EXPENSES:
  Compensation and benefits....................................          3,362            3,425            10,163            9,830
  Occupancy....................................................            582              542             1,671            1,589
  Equipment....................................................            444              484             1,239            1,439
  Advertising..................................................            350              193               953              714
  Federal deposit insurance....................................            186              190               574              568
  Amortization of intangibles..................................            213              213               638              638
  General and administrative...................................          1,048            1,118             3,312            3,117
                                                                --------------   --------------    --------------   --------------
     Total operating expenses..................................          6,185            6,165            18,550           17,895
                                                                --------------   --------------    --------------   --------------
     Income before income tax expense..........................          9,316            8,351            26,705           24,026

Income tax expense.............................................          3,164            2,720             9,062            8,452
                                                                --------------   --------------    --------------   --------------
     Net income................................................$         6,152  $         5,631   $        17,643  $        15,574
                                                                ==============   ==============    ==============   ==============

Basic earnings per share.......................................$          0.15  $          0.13   $          0.44  $          0.37
                                                                ==============   ==============    ==============   ==============

Weighted average shares outstanding - Basic ...................     39,709,257       41,995,394        40,364,014       42,113,311
                                                                ==============   ==============    ==============   ==============

Diluted earnings per share.....................................$          0.15  $          0.13   $          0.43  $          0.36
                                                                ==============   ==============    ==============   ==============

Weighted average shares outstanding - Diluted..................     40,028,012       42,669,009        40,784,389       42,768,096
                                                                ==============   ==============    ==============   ==============

</TABLE>

See accompanying notes to the unaudited consolidated financial statements.

                                       4

<PAGE>


FIRST SENTINEL BANCORP, INC. AND SUBSIDIARIES
--------------------------------------------------------------------------------
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
 (Dollars in thousands) (Unaudited)

<TABLE>
<CAPTION>

                                                                        Accumulated
                                                                           Other                  Common    Common      Total
                                                                          Compre-                 Stock      Stock     Stock-
                                          Common    Paid In   Retained    hensive     Treasury   Acquired  Acquired   holders'
                                          Stock     Capital   Earnings  Income(Loss)   Stock     by ESOP    by RRP     Equity
                                        -----------------------------------------------------------------------------------------
<S>                                         <C>     <C>       <C>            <C>     <C>           <C>       <C>      <C>
Balance at December 31, 1997 ..........      $470    $59,348   $101,186       $1,295  ($16,677)     ($546)    ($183)   $144,893

Net proceeds from stock offering.......        --    162,232         --           --        --         --        --     162,232
Adjustment for Mutual Holding Co. .....        --      1,577         --           --        --         --        --       1,577
Purchase of ESOP shares................        --         --         --           --        --    (13,240)       --     (13,240)
Net income for the nine months ended
   September  30, 1998.................        --         --     15,574           --        --         --        --      15,574
Cash dividends.........................        --         --     (5,208)          --        --         --        --      (5,208)
Net change in unrealized gain/(loss)
   on securities available for sale....        --         --         --        2,345        --         --        --       2,345
Amortization of RRP....................        --         --         --           --        --         --        78          78
Principal payments on ESOP loan........        --         82         --           --        --        483        --         565
Exercise of stock options..............         1        592         --           --        --         --        --         593
                                        -----------------------------------------------------------------------------------------

Balance at September 30, 1998 .........      $471   $223,831   $111,552       $3,640  ($16,677)  ($13,303)    ($105)   $304,409
                                        =========================================================================================


Balance at December 31, 1998...........      $431   $201,105   $112,601       $2,498   ($3,664)  ($13,073)     ($79)   $299,819
Net income for the nine months
   ended September 30, 1999 ...........       --          --    17,643            --        --         --        --      17,643
Cash dividends.........................       --          --    (6,857)           --        --         --        --      (6,857)
Net change in unrealized gain/(loss)
   on securities available for sale....       --          --        --       (14,884)       --         --        --     (14,884)
Purchases of treasury stock............       --          --        --            --   (36,511)        --        --     (36,511)
Exercise of stock options..............       --           6        --            --        --         --        --           6
Exercise of stock options, issued
   from existing treasury stock........       --          --     (3,283)          --     4,766         --        --       1,483
Transfer of treasury stock to RRP......       --          --       (656)          --     5,704         --    (5,048)         --
Amortization of RRP....................       --          --        --            --        --         --       821         821
Principal payments on ESOP loan ......        --         (58)       --            --        --        688        --         630
                                        -----------------------------------------------------------------------------------------

Balance at September 30, 1999 .........      $431   $201,053   $119,448     ($12,386) ($29,705)  ($12,385)  ($4,306)    262,150
                                        =========================================================================================
</TABLE>

See accompanying notes to the unaudited consolidated financial statements.


                                       5
<PAGE>


FIRST SENTINEL BANCORP, INC. AND SUBSIDIARIES
--------------------------------------------------------------------------------
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands) (Unaudited)

<TABLE>
<CAPTION>
                                                                                             Nine Months Ended
                                                                                               September 30,
                                                                                        ----------------------------
                                                                                           1999            1998
                                                                                        ------------    ------------
Cash flows from operating activities:
<S>                                                                                   <C>             <C>
   Net income.......................................................................  $      17,643   $      15,574
   ADJUSTMENTS  TO  RECONCILE  NET  INCOME  TO NET CASH  PROVIDED  BY  OPERATING
   ACTIVITIES:
   Depreciation of premises and equipment...........................................          1,040             919
   Amortization of excess of cost over fair value of assets acquired................            638             638
   Amortization of ESOP.............................................................            630             565
   Amortization of RRP..............................................................            821              78
   Net amortization of premiums and accretion of discounts and deferred fees....               (198)            390
   Provision for loan losses........................................................          1,200           1,092
   Provision for losses on real estate owned........................................             31             110
   Loans originated for sale........................................................         (7,099)         (8,883)
   Proceeds from sales of mortgage loans available for sale.........................          7,075           8,932
   Net gain on sales of loans and securities available for sale.....................           (850)           (521)
   Net loss (gain) on sales of real estate owned....................................             23            (148)
   Increase in interest and dividends receivable....................................         (1,511)         (1,176)
   (Decrease) increase in other liabilities.........................................         (2,692)          2,194
   Increase in other assets.........................................................          2,411            (861)
                                                                                        ------------    ------------
         Net cash provided by operating activities..................................         22,137          18,903
                                                                                        ------------    ------------
Cash flows from investing activities:
   Proceeds from sales/calls of investment securities available for sale............        118,126          34,828
   Maturities of investment securities..............................................             --          62,010
   Purchases of investment securities available for sale............................       (119,133)       (167,587)
   Purchases of investment securities...............................................             --         (18,880)
   Purchase of FHLB-NY stock........................................................         (2,880)           (369)
   Proceeds from sales of mortgage-backed securities available for sale ............        159,984          65,067
   Principal payments on mortgage-backed securities.................................        174,394         189,258
   Purchases of mortgage-backed securities available for sale.......................       (313,952)       (248,443)
   Purchases of mortgage-backed securities..........................................             --          (5,541)
   Principal repayments on loans....................................................        192,053         158,310
   Origination of loans.............................................................       (264,832)       (261,953)
   Purchases of mortgage loans......................................................        (32,678)        (13,230)
   Proceeds from sale of real estate owned .........................................          1,651           2,340
   Purchases of premises and equipment..............................................         (1,244)         (2,739)
   Proceeds from sales of fixed assets..............................................             --             124
                                                                                        ------------    ------------
          Net cash used in investing activities.....................................        (88,511)       (206,805)
                                                                                        ------------    ------------
Cash flows from financing activities:
   Net proceeds from stock offering and Mutual Holding Co. reorganization ..........             --         163,809
   Purchase of treasury stock.......................................................        (36,511)             --
   Purchase of ESOP shares..........................................................             --         (13,240)
   Stock options exercised..........................................................          1,489             593
   Cash dividends paid..............................................................         (6,857)         (5,208)
   Net (decrease) increase in deposits..............................................        (30,491)         17,039
   Net increase in borrowed funds...................................................        118,650          46,010
   Net increase in advances by borrowers for taxes and insurance ...................          1,483           1,163
                                                                                        ------------    ------------
            Net cash provided by financing activities...............................         47,763         210,166
                                                                                        ------------    ------------
            Net (decrease) increase in cash and cash equivalents....................        (18,611)         22,264
Cash and cash equivalents at beginning of period....................................         37,631          29,903
                                                                                        ------------    ------------
Cash and cash equivalents at end of period..........................................  $      19,020   $      52,167
                                                                                        ------------    ------------

Supplemental  disclosures of cash flow information:
  Cash paid during the period for:
       Interest.....................................................................  $      47,270   $      45,545
       Income taxes.................................................................          9,043           7,331
   Non cash investing and financing activities for the period:
       Transfer of mortgage-backed securities from Held to Maturity to Available
       for Sale.....................................................................            --          181,811
        Transfer of loans to real estate owned......................................  $       1,399   $       3,167

</TABLE>

See accompanying notes to the unaudited consolidated financial statements.

                                       6

<PAGE>


                  FIRST SENTINEL BANCORP, INC. AND SUBSIDIARIES

              Notes to Unaudited Consolidated Financial Statements

(1) BASIS OF PRESENTATION

The accompanying  unaudited consolidated financial statements have been prepared
in accordance with generally accepted accounting principles ("GAAP") for interim
financial  information and in conformity with the  instructions to Form 10-Q and
Article 10 of Regulation S-X for First Sentinel Bancorp,  Inc. ("First Sentinel"
or the "Company") and its  wholly-owned  subsidiaries,  First Savings Bank, SLA,
("First  Savings"  or  the  "Bank")  Pulse  Investment,  Inc.,  Pulse  Insurance
Services,  Inc.  and  Pulse  Real  Estate,  Inc.,  and the  Bank's  wholly-owned
subsidiaries, FSB Financial Corp., and 1000 Woodbridge Center Drive, Inc.

In the  opinion  of  management,  all  adjustments  (consisting  of only  normal
recurring accruals) necessary to present fairly the financial condition, results
of operations, and changes in cash flows have been made at and for the three and
nine months ended September 30, 1999 and 1998. The results of operations for the
three and nine months ended September 30, 1999, are not  necessarily  indicative
of results that may be expected for the entire  fiscal year ending  December 31,
1999. These interim financial  statements should be read in conjunction with the
December 31, 1998 annual report.

(2) EARNINGS PER SHARE

Basic  earnings  per share is  calculated  by  dividing  net income by the daily
average  number of common  shares  outstanding  during the period.  Common stock
equivalents are not included in the calculation.

Diluted  earnings per share is computed  similarly to that of basic earnings per
share  except  that the  denominator  is  increased  to  include  the  number of
additional  common  shares  that would have been  outstanding  if all  potential
dilutive common shares were issued utilizing the treasury stock method.

Calculation of Basic and Diluted Earnings Per Share
--------------------------------------------------------
(dollars in thousands, except per share data)

<TABLE>
<CAPTION>
                                                Three Months ended September      Nine Months ended September 30,
                                                             30,
                                               --------------------------------   --------------------------------
                                                   1999              1998             1999              1998
                                               --------------    --------------   --------------    --------------
<S>                                           <C>               <C>              <C>               <C>
Net income                                    $        6,152    $        5,631   $       17,643    $       15,574
                                               ==============    ==============   ==============    ==============

Basic weighted-average common shares
     outstanding                                  39,709,257        41,995,394       40,364,014        42,113,311
Plus: Dilutive stock options and awards              318,755           673,615          420,375           654,785
                                               --------------    --------------   --------------    --------------
Diluted weighted-average common
     shares outstanding                           40,028,012        42,669,009       40,784,389        42,768,096
                                               ==============    ==============   ==============    ==============

Net income per common share:
   Basic                                      $         0.15    $         0.13   $         0.44    $         0.37
                                               ==============    ==============   ==============    ==============
   Diluted                                    $         0.15    $         0.13   $         0.43    $         0.36
                                               ==============    ==============   ==============    ==============
</TABLE>


(3) DIVIDENDS

Based upon current  operating  results,  the Company  declared cash dividends of
$0.055 per share on August 2, 1999,  payable August 31, 1999, to stockholders of
record on August 13, 1999.

                                       7

<PAGE>


(4)  COMMITMENTS AND CONTINGENCIES

At  September  30,  1999,  the Company  had the  following  commitments:  (i) to
originate  loans of $81.0  million;  (ii) to  purchase  mortgage  loans of $13.4
million;  (iii) to purchase  mortgage-backed  securities of $18.6 million,  (iv)
unused equity lines of credit of $42.2 million;  (v) unused  commercial lines of
credit  of $14.0  million;  (vi)  unused  construction  lines of credit of $31.6
million; and (vii) letters of credit outstanding totaling $2.9 million. Further,
certificates  of deposits,  which are scheduled to mature and/or rollover in one
year or less, totaled $542.3 million at September 30, 1999.

(5)      ALLOWANCE FOR LOAN LOSSES

The following table presents the activity in the allowance for loan losses.

                                         For the nine months ended September 30,
                                         ---------------------------------------
                                                  1999                    1998
                                                  ----                    ----
                                                    (unaudited) (in thousands)
Balance at beginning of period                   $9,505                  $8,454
Provision charged to operations                   1,200                   1,092
Charge offs, net of recoveries                      (88)                   (501)
                                                   ----                   -----

Balance at end of period                        $10,617                  $9,045
                                                =======                  ======

(6)  COMPREHENSIVE  INCOME

Total  comprehensive  income,  consisting  of net  income  and the net change in
unrealized  gain/(loss)  on securities  available for sale, was $2.8 million and
$17.9  million  for  the  nine  months  ended   September  30,  1999  and  1998,
respectively.

(7)  RECENT ACCOUNTING PRONOUNCEMENTS

In October 1998, the FASB issued SFAS No. 134  "Accounting  for  Mortgage-Backed
Securities  Retained after the Securitization of Mortgage Loans Held for Sale by
a  Mortgage  Banking  Enterprise."  This  statement  amends  FASB  Statement  65
"Accounting for Certain Mortgage Banking Activities." It requires that after the
securitization  of mortgage  loans held for sale, an entity  engaged in mortgage
banking activities  classify the resulting  mortgage-backed  securities or other
retained  interests  based  on its  ability  and  intent  to sell or hold  those
investments.  This Statement is effective for the first fiscal quarter beginning
after  December 15, 1998. The adoption of this Statement did not have a material
impact on the financial position or results of operations of the Company.

                                       8

<PAGE>


FIRST SENTINEL BANCORP, INC.

Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS

GENERAL.

Statements   contained  in  this  report  that  are  not  historical   fact  are
forward-looking  statements,  as that term is defined in the Private  Securities
Reform  Act of  1995.  Such  statements  may be  characterized  as  management's
intentions,  hopes,  beliefs,  expectations or predictions of the future.  It is
important to note that such forward-looking  statements are subject to risks and
uncertainties  that could cause actual results to differ  materially  from those
projected in such  forward-looking  statements.  Factors that could cause future
results  to vary  materially  from  current  expectations  include,  but are not
limited  to,  changes  in  interest  rates,   competition  by  larger  financial
institutions,  deposit and loan growth, changes in the quality or composition of
the Company's loan and investment portfolios,  changes in accounting principles,
policies or  guidelines,  legislative  and  regulatory  changes,  changes in the
economy generally and changes in business conditions in the New Jersey market.

CONVERSION AND REORGANIZATION

On April 8, 1998,  First  Savings  Bank and its mutual  holding  company,  First
Savings  Bancshares,  MHC,  completed a conversion and  reorganization  into the
stock holding company structure, forming First Sentinel as the new stock holding
company and issuing  shares of First  Sentinel  Common Stock in the process (the
"Conversion and Reorganization").  As part of the Conversion and Reorganization,
the  Company  sold  16,550,374  shares of  Common  Stock in a  Subscription  and
Community Offering, raising gross proceeds of $165.6 million.  Concurrently, the
Company issued 14,820,016 shares of Common Stock in exchange for shares of First
Savings Bank, SLA common stock on a 3.9133-for-1 basis (the "Conversion Exchange
Ratio") in an exchange offering.  All per share and earnings per share data have
been restated to reflect the 3.9133 Conversion Exchange Ratio.

On December 18, 1998, the Company acquired Pulse Bancorp,  Inc. ("Pulse").  Each
share of Pulse was converted into 3.764 shares of the Company's  common stock. A
total of 12,066,298 shares were issued, including 800,000 treasury stock shares,
to complete the  transaction.  The  acquisition has been accounted for under the
pooling-of-interests  method  of  accounting  and  accordingly,   the  Company's
consolidated financial statements include the accounts and activity of Pulse for
all periods presented.

YEAR 2000 COMPLIANCE ISSUES.

The Company has adopted a Year 2000  Compliance Plan and established a Year 2000
Compliance  Committee,  which  includes  members of senior  management  from all
operating areas. The objectives of the plan and the committee are to ensure that
the Company  will be prepared  for the new  millennium.  As  recommended  by the
Federal Financial  Institutions  Examination  Council,  the Year 2000 Compliance
Plan  encompasses  the  following  phases:  Awareness,  Assessment,  Renovation,
Validation and Implementation.  These phases entail the identification of risks,
the development of an action plan, the  performance of adequate  testing and the
completion of certification  that the Company's  processing systems will be Year
2000  Compliant.  As of  September  30,  1999,  all  phases  of  the  plan  were
substantially  completed,  although certain procedures remain ongoing.  Progress
reports on the implementation of the plan are reviewed by the Board of Directors
on a monthly basis.

An  integral  component  of the  plan  has  been  to  identify  and  assess  the
capabilities  of the  Company's  operating  systems,  as well  as the  operating
systems of third parties upon which the Company's operations are dependent.  The
Company's  primary  operating  software is obtained  from, and maintained by, an
external provider of software.  This software is the Company's primary source of
information  technology  ("IT"),  and is  considered  "mission  critical" to the
Company's Year 2000 compliance.  In August 1998, the vendor provided the Company
with remediated  software and written  notification that the remediated software
was Year 2000  compliant.  The Company has installed this software and performed
detail tests on both the software and hardware on various  dates  through  April
30, 2001. No material  problems have been

                                       9

<PAGE>


encountered during such testing. The tests and results used to certify the
system as compliant have also been reviewed by an independent Year 2000
consultant engaged by the Company for that purpose.

The Company has also performed minor modifications to the software obtained from
the  vendor.  It is  the  Company's  sole  responsibility  to  ensure  that  any
modifications to the software are Year 2000 compliant. The Company has completed
testing of these  modifications.  No  material  problems  have been  encountered
during  such  testing.  The tests and  results  used to  certify  the  system as
compliant have also been reviewed by an independent Year 2000 consultant engaged
by the  Company  for that  purpose.  The  modifications  to the  software  being
performed by the Company are not considered mission critical as the software can
process all transactions effectively without the modifications.

The Company has substantially completed testing of all other IT systems as well.
These  systems are also provided to the Company by third party  vendors,  all of
whom have  provided  written  assurances to the Company that the systems are, or
are expected to be, Year 2000  compliant  before the  year-end.  The Company has
also  contacted  all other  material  vendors and  suppliers  of non-IT  systems
regarding their Year 2000 state of compliance. The majority of these third party
vendors and suppliers have delivered written assurances to the Company that they
will have all  mission  critical  systems  compliant,  and that there will be no
interruption in service.  The Company has established  internal  guidelines,  by
which time material vendors and suppliers must be compliant, or the Company will
seek  alternate  vendors  and  suppliers.  Based  upon its  current  assessment,
management  believes that the Company's  material third party vendors are taking
the necessary steps to ensure Year 2000 compliance.  There can be no assurances,
however, that such third parties will be compliant by year-end.

In addition,  the Company has contacted  all material  borrowers to assess their
Year 2000  readiness.  The Company has also  incorporated  a Year 2000 readiness
review in its loan  application  process,  in order to reduce  exposure to a new
borrower's  failure to be Year 2000 ready.  Based upon a review of its  material
borrowers as of April 1999, the Company does not anticipate any material  losses
resulting from a borrower's lack of  preparedness.  All new borrowers since that
time have been evaluated for Year 2000  preparation in the loan review  process,
with the exception of those loans  purchased by the Company in  connection  with
the  acquisition of Pulse. A review of the former Pulse  borrowers for Year 2000
preparedness is in progress.  Because the majority of Pulse loans are secured by
real estate,  management  does not anticipate any material losses on such loans.
Despite these  measures,  however,  there can be no assurances  that the Company
will not suffer any losses due to a borrower's failure to be Year 2000 compliant
or that the  Company  will  not  have to  establish  any  reserves  for any such
potential losses.

The Company  expects that  customers  may desire to withdraw  funds in the weeks
preceding  the  century  date  change.   In  order  to  address  that  potential
consequence,  the Company  expects to have  additional  liquid assets  available
toward  year-end.  The Company is  significantly  in excess of the OTS liquidity
requirements,  and  anticipates  remaining so throughout  1999.  Management  has
developed a detailed  Liquidity  Plan that includes  procedures  for  addressing
liquidity  needs in the final weeks of 1999.  The Liquidity  Plan is expected to
reduce interest-earning assets and net interest income for that period. Any such
reduction, however, is expected to be immaterial to the results of operations or
financial condition of the Company.

Management  has  also  developed  a  Contingency  Plan  that  incorporates  both
remediation and business  continuity  plans. The remediation  contingency  plans
focus  on  implementing  oversight  mechanisms  to  ensure  that  the  Company's
Compliance  Plan  achieves  its  intended  results of  renovating,  testing  and
implementing  necessary changes to all mission critical systems prior to January
1, 2000.  The business  continuity  plans set forth the  necessary  policies and
procedures  to  follow  in  the  event  that  critical  business  functions  are
interrupted or impaired due to internal  system or third party  failures.  These
plans are an enhancement of the Company's  existing  Disaster Recovery Plan, and
combined,  are intended to help ensure the continuity of operations in the event
of a loss of  critical  resources.  Testing  of the  Contingency  Plan  has been
substantially  completed  with  satisfactory  results as of September  30, 1999.
These tests and results  have also been  reviewed  by an  independent  Year 2000
consultant engaged by the Company for that purpose.

                                       10

<PAGE>


While the Company has not determined the final cost of compliance,  it currently
anticipates such cost to be immaterial to the results of operations or financial
condition of the Company.  The direct costs  specifically  attributable  to Year
2000  compliance are the engagement of the  consultants  discussed above and the
hiring of temporary help to address the additional  workload created by the Year
2000  compliance  process.  In  addition,  the Company has  initiated a Customer
Awareness Campaign to educate consumers on Year 2000 issues,  which has incurred
certain expenses. To date, the Company has expensed $92,000 in 1998 and $123,000
in the first nine months of 1999.  Additional  expense of $152,000 is  projected
for the final three months of 1999.

Management  believes that it is taking all reasonable and  appropriate  steps to
prepare for the Year 2000, and believes that its efforts are on schedule. Due to
the general  uncertainty  inherent  with Year 2000 issues,  and the inability to
control  external  parties  or  circumstances  upon  which  the  Company  may be
dependent,  however,  there can be no  assurances  that the Company  will not be
adversely affected by the century date change.  Such adverse impact could result
from  failures of the Company's  internal  systems,  failures of material  third
party  vendors or  failures  of material  borrowers.  The Company  could also be
subjected  to  litigation  from  customers,  borrowers  or vendors due to either
internal or external Year 2000 failures. All disclosure concerning the Year 2000
date change should be considered  "Year 2000 Readiness  Disclosure"  pursuant to
the  Year  2000  Information  and  Readiness   Disclosure  Act.  The  Year  2000
information  provided  herein should be read in  conjunction  with the Year 2000
Information  and Readiness  Disclosure Act which,  among other things,  mandates
that certain Year 2000 readiness disclosures may not be used in litigation.

ASSETS. Total assets remained relatively stable at $1.9 billion at September 30,
1999,  reflecting an increase of $49.3 million,  or 2.7% from December 31, 1998.
The change in assets  consisted  primarily of increases in loans  receivable and
other  assets,  offset  by  decreases  in  mortgage-backed   securities  ("MBS")
available for sale, Federal funds sold, and investment  securities available for
sale. Net loans  increased  $103.2  million,  or 12.1%,  to $957.9 million as of
September 30, 1999,  from $854.7  million at December 31, 1998. The increase was
due primarily to loan originations exceeding loan amortization,  prepayments and
sales.  Total loan  originations  for the nine months ended  September 30, 1999,
were $271.9  million,  which  represented a 0.4% increase over  originations  of
$270.8 million for the comparable 1998 period.  Fixed-rate  single-family  first
mortgage loan originations  totaled $77.2 million or 28.4% of production,  while
adjustable-rate  single-family  first mortgage loans accounted for $74.3 million
or 27.4% of total  originations  for the first nine months of 1999.  Also during
the  first  nine  months  of  1999,  commercial  real  estate,   commercial  and
multi-family  loan  originations  totaled  $37.8  million,  or  13.9%  of  total
originations, while construction lending totaled $35.8 million, or 13.1%. During
the same period,  consumer loan  originations,  including  home equity loans and
credit lines, totaled $46.8 million or 17.2% of total originations. In addition,
the Company  purchased  $31.7  million of  adjustable-rate  single-family  first
mortgage loans and $1.0 million of fixed-rate single-family first mortgage loans
through  correspondents  during  the  nine  months  ended  September  30,  1999.
Purchased loans are  re-underwritten by the Bank and are extended under the same
terms and  conditions  as the Bank's  direct  loan  originations.  Repayment  of
principal on loans totaled  $192.1  million for the nine months ended  September
30, 1999, as compared to $158.3 million for the same period in 1998.  Management
has  emphasized  the  origination  of loans in an effort to increase  loans as a
percentage of assets.  While management  intends to continue to actively seek to
originate loans,  the future levels of loan  originations and repayments will be
significantly  influenced by external  interest rates and other economic factors
outside of the control of the Company.

Mortgage-backed  securities  ("MBS") available for sale decreased $32.4 million,
or 4.9%,  to $629.5  million at  September  30,  1999,  from  $661.9  million at
December  31,  1998.  The  decrease  was  primarily  due to sales and  principal
repayments  of  $159.3  million  and  $174.4  million,  respectively,  exceeding
purchases of $314.0 million for the nine month period ended  September 30, 1999.
Net proceeds were used to fund loan growth and repurchase  the Company's  stock.
In addition, a market value decrease of ($12.7 million) resulted from the change
in the value of the MBS portfolio as interest  rates rose in  anticipation  of a
change in Federal Reserve  monetary  policy,  which widened spreads and affected
MBS pricing.  Management expects the market value to recover and has the ability
to carry these securities through various interest rate scenarios.

                                       11

<PAGE>


Investment  securities  available for sale decreased  $9.2 million,  or 3.8%, to
$233.0  million as of  September  30, 1999 from $242.2  million at December  31,
1998.  The decrease was  primarily  due to a market value  adjustment  of ($10.3
million)  reflecting the change in value as interest rates rose in  anticipation
of a change in Federal Reserve  monetary policy.  Management  expects the market
value to recover and has the ability to carry these  securities  through various
interest rate scenarios. For the nine months ended September 30, 1999, sales and
calls of investment securities available for sale totaled $118.0 million,  while
purchases totaled $119.1 million.  Calls of investment  securities available for
sale were concentrated in the portfolio  obtained through the Pulse acquisition.
Federal funds sold decreased $14.8 million from December 31, 1998 as these funds
were deployed in other areas. Other assets increased $5.4 million,  or 69.4%, to
$13.2 million at September 30, 1999,  compared with $7.8 million at December 31,
1998.  The  increase was  primarily  due to the  increased  deferred tax benefit
caused by the decrease in the market value of the securities  available for sale
portfolios.

LIABILITIES.  Deposits  decreased  $30.5  million,  or 2.4%,  to $1.2 billion at
September 30, 1999. The Company continued to experience  deposit outflows at the
former Pulse branches. The outflow was concentrated primarily in certificates of
deposit,  as opposed to the  balance of the core  deposit  base,  as  management
lowered  the  rates on  higher-costing  certificates  of  deposit.  The  Company
continues to focus on a reduction in the dependence on  certificates  of deposit
as its primary funding  source.  Borrowed funds  increased  $118.6  million,  or
44.8%,  to $383.3 million at September 30, 1999, from $264.7 million at December
31,  1998.  The  increased  borrowed  funds  were  used  primarily  to fund loan
originations  and, to a lesser degree,  mitigate deposit  outflows.  Advances by
borrowers for taxes and insurance  increased  $1.5  million,  or 21.3%,  to $8.5
million at September 30, 1999, from $7.0 million at December 31, 1998, primarily
due to the  increase  in  the  residential  loan  portfolio.  Other  liabilities
decreased $2.7 million,  or 17.4%,  to $12.8 million at September 30, 1999, from
$15.5  million at December 31, 1998,  primarily due to decreases in income taxes
payable and various other accrual accounts.

CAPITAL.  The Company's  stockholders' equity decreased $37.7 million, or 12.6%,
to $262.2  million at September  30, 1999,  from $299.8  million at December 31,
1998. The primary  reasons for the decrease in equity were the purchase of $36.5
million of treasury stock, the increase in the net unrealized loss on securities
available for sale of $14.9 million,  and cash dividends of $6.9 million.  These
decreases  were  partially  offset by net income of $17.6  million  for the nine
months ended September 30, 1999.

The Office of Thrift  Supervision  ("OTS")  requires  that the Bank meet minimum
tangible,  core and risk-based capital requirements.  At September 30, 1999, the
Bank exceeded all regulatory capital requirements, as follows:

<TABLE>
<CAPTION>
                                Required                   Actual
                          ----------------------    ----------------------        Excess of Actual
                                      % of                      % of              over Regulatory
                            Amount     Assets         Amount     Assets             Requirements
                          ----------- ----------    ----------- ----------     -----------------------
                                              (Dollars in thousands) (Unaudited)
<S>                          <C>          <C>         <C>          <C>                <C>
Tangible Capital             $28,397      1.50%       $219,949     11.62%             $191,552
Core Capital                  56,794      3.00%        219,949     11.62%              163,155
Risk-based Capital            61,905      8.00%        229,632     29.68%              167,727

</TABLE>

LIQUIDITY  AND CAPITAL  RESOURCES.  The Company's  primary  sources of funds are
deposits;   proceeds  from   principal  and  interest   payments  on  loans  and
mortgage-backed  securities;  sales of  loans,  mortgage-backed  securities  and
investments available for sale; maturities or calls of investment securities and
short-term investments;  and, to an increasing extent, advances from the FHLB-NY
and other borrowed funds.  While maturities and scheduled  amortization of loans
and mortgage-backed  securities are a predictable source of funds,  deposit cash
flows and mortgage prepayments are greatly influenced by general interest rates,
competition, and economic conditions.

The most  significant  sources of funds for the first  nine  months of 1999 were
principal  repayments and prepayments of loans and  mortgage-backed  securities,
totaling  $192.1 million and $174.4  million,  respectively.  Other  significant
sources of funds for the nine months ended  September  30, 1999,  were sales and
calls of investment  securities  available for sale of $118.1 million,  sales of
MBS available for sale totaling $160.0  million,  and a net increase in borrowed
funds totaling $118.7 million.

                                       12

<PAGE>


The  primary  investing  activities  of the Company for the first nine months of
1999  were  the  purchases  of  mortgage-backed  securities  available  for sale
totaling $314.0 million,  origination of loans totaling $271.9 million,  and the
purchases of investment  securities  available for sale totaling $119.1 million.
Other significant uses of funds during the nine months ended September 30, 1999,
were  $36.5  million  for the  repurchase  of common  stock,  $32.7  million  in
purchases of mortgage loans and $30.5 million in decreased deposits.

The Bank is required to maintain an average  daily  balance of liquid  assets as
defined by OTS  regulations.  This ratio is based upon a percentage  of deposits
and short-term  borrowings.  The required  minimum ratio is currently 4.00%. The
Bank's  liquidity  ratio at September 30, 1999, was 48.2% and assets  qualifying
for liquidity purposes totaled $573.3 million.

COMPARISON  OF OPERATING  RESULTS FOR THE THREE AND NINE MONTHS ENDED  SEPTEMBER
30, 1999 AND 1998.

RESULTS OF OPERATIONS.  Net income for the three and nine months ended September
30,  1999,   totaled  $6.2  million  and  $17.6  million,   respectively,   with
basic/diluted  earnings per share of $0.15/$0.15 and $0.44/$0.43,  respectively.
This  represented  an increase of $521,000 and $2.1 million,  or 9.3% and 13.3%,
respectively,  over  the net  income  of $5.6  million  and  $15.6  million,  or
$0.13/$0.13 and $0.37/$0.36 basic/diluted earnings per share, respectively,  for
the comparable 1998 periods. Earnings in 1998 were augmented by a $687,000 after
tax,  non-recurring  gain on the sale of deposits realized in the first quarter.
The  1999   year-to-date   increase  in  net  income,   exclusive  of  the  1998
non-recurring  gain,  was $2.8  million or 18.5%.  The increase in net income in
1999 was  partially  attributable  to  earnings  on the  $162.2  million  in net
proceeds from the Company's  Conversion and  Reorganization in April,  1998. The
proceeds  raised in the  Conversion  and  Reorganization  allowed the Company to
increase  interest-earning  assets without a corresponding  increase in interest
bearing liabilities.

INTEREST  INCOME.  Interest income for the three and nine months ended September
30,  1999,   increased  by  $928,000  and  $3.6  million,   or  3.1%  and  4.1%,
respectively,  from the same periods in 1998.  Interest on loans  increased $1.6
million and $5.1 million, or 10.2% and 11.4%, respectively, to $17.4 million and
$50.3  million  for the three and nine  months  ended  September  30,  1999,  as
compared  to $15.7  million and $45.1  million for the same period in 1998.  The
increase was primarily due to loan originations  exceeding principal  repayments
and sales.  The average  balance of the loan portfolio for the nine month period
ended  September 30, 1999  increased to $914.8  million from $772.2  million for
1998,  while the average yield on the portfolio  decreased to 7.33% for the nine
months  ended  September  30,  1999,  from  7.79%  for the same  period in 1998.
Although  interest  rates have increased in 1999, the yield on the portfolio has
declined  during  the nine  months  ended  September  30,  1999 as the  rates on
principal  repayments  have  exceeded  the  rates on new loan  originations.  In
addition,  a decrease in interest rates in the first quarter of 1999 as compared
with the first quarter of 1998 negatively  affected the yield on adjustable rate
mortgage loans repricing during that time period.

As of December 31, 1998,  the Company had  classified  the entire balance of all
MBS and investment  securities as available for sale. It is anticipated that all
MBS and investment  security  purchases will be classified as available for sale
for the  foreseeable  future.  Such  classification  is also the  reason for the
significant increase in the investments and MBS available for sale category. The
average balance of the investment and MBS available for sale portfolios  totaled
$908.2  million,  with an  annualized  yield of 6.05% for the nine months  ended
September 30, 1999,  while the combined  available for sale and held to maturity
portfolios' average balance was $859.4 million with an annualized yield of 6.63%
for  the  nine  months  ended  September  30,  1998.  Declining  interest  rates
throughout 1998 have significantly affected the yield on the portfolio. Rates on
investment  securities  available  for sale were  negatively  affected as higher
yielding investments were called and rates on replacement  securities were lower
than  the  rates  on the  securities  that  were  called.  The  yield on the MBS
available  for sale  portfolio  was also  negatively  affected  as  higher  rate
underlying  loans prepaid.  Due to market  interest  rates,  new purchases had a
lower yield than the MBS in the  portfolio in 1998.  Growth in  interest-earning
assets is expected to  continue.  Yields on the  portfolio  will  continue to be
affected by market interest rates.

                                       13

<PAGE>


INTEREST EXPENSE.  Interest expense decreased  $242,000 to $16.1 million for the
three months ended  September  30, 1999,  compared to $16.4 million for the same
period in 1998. For the nine months ended September 30, 1999,  interest  expense
decreased  $629,000  to  $48.0  million,  compared  to  $48.6  million  for  the
comparable 1998 period.  Interest expense on deposits decreased $1.6 million and
$3.9  million,  or 11.6%  and 9.8%,  respectively,  to $11.8  million  and $35.8
million for the three and nine months ended  September  30, 1999, as compared to
$13.3  million  and  $39.6  million  for the same  periods  in 1998.  Management
continued to  concentrate  its efforts on increasing  the level of core accounts
and decreasing  certificate  accounts as a percentage of overall  deposits.  The
increase  in the  average  balance of NOW and money  market  demand and  savings
accounts, along with the increase in the average balance of non-interest bearing
deposits,  reflects this  strategy.  The average  balance of these core accounts
totaled $561.2 million for the nine months ended September 30, 1999, as compared
to $510.1 million for the same period in 1998. The average  interest cost on all
deposits for the nine months ended  September  30, 1999 was 3.79% as compared to
4.28% for the same period in 1998.  Non-interest bearing accounts averaged $44.2
million for the nine months ended  September 30, 1999, up from $40.0 million for
the  comparable  1998 period.  The average  balance of  certificates  of deposit
decreased to $696.1 million for the nine months ended  September 30, 1999,  from
$725.8  million for the same period in 1998 due  primarily to the sale of higher
rate deposits in a branch sold in the first quarter of 1998 and by  management's
reduction in the interest  rates offered to certificate  customers.  The average
cost of  certificates  over the nine-month  period ended September 30, 1999, was
4.94%,  as  compared  to 5.44%  over the same  period in 1998.  Management  will
continue to offer certificate rates that are competitive, but lower than certain
area  competition.  This  strategy  may  continue to cause a limited  outflow of
funds.  Interest on borrowed funds for the three and nine months ended September
30,  1999,  increased  $1.3  million  and  $3.2  million,  or 42.9%  and  36.1%,
respectively,  to $4.4 million and $12.2  million,  compared to $3.1 million and
$9.0  million  for the same  respective  periods in 1998.  The  increase  in the
average  balance of borrowed funds for the nine months ended September 30, 1999,
to  $302.4  million,  from  $209.7  million  was  attributable  to  management's
continuing  strategy to fund earning  asset  growth  through the use of borrowed
funds,  where  accretive to earnings,  and to use borrowed funds to mitigate the
outflow of  certificate  of deposit  accounts.  This  strategy  is  expected  to
continue and  borrowings can be expected to continue to increase as a percentage
of total liabilities. Offsetting the increase in the average balance of borrowed
funds was the reduced interest cost of 5.37% for the nine months ended September
30, 1999, down from 5.69% for the same period in 1998.

NET INTEREST INCOME BEFORE PROVISION FOR LOAN LOSSES. Net interest income before
provision for loan losses  increased $1.1 million and $4.3 million,  or 8.5% and
10.9%,  respectively,  to $15.0 million and $43.6 million for the three and nine
months ended September 30, 1999, compared to $13.8 million and $39.3 million for
the same periods in 1998. The increase was due to the changes in interest income
and interest  expense  described  above.  The interest rate spread  increased to
2.54% for the three months  ended  September  30, 1999,  from 2.38% for the same
period  in  1998.   The  increase  was  due  to  a  reduction  in  the  cost  of
interest-bearing  liabilities to 4.23% for the quarter ended September 30, 1999,
from 4.63% for the same period in 1998,  partially  offset by a reduction in the
yield on  interest  earning  assets to 6.77% from 7.01% for the same  respective
periods.  For the nine months ended September 30, 1999, interest spread declined
to 2.47% from 2.57% for the same  period in 1998 as  reductions  in the yield on
earning  assets  outpaced the  decrease in the average cost of  interest-bearing
liabilities.  Comparing the nine months ended  September 30, 1999 and 1998,  the
yield on  interest-earning  assets declined 49 basis points to 6.69%,  while the
cost of interest-bearing  liabilities decreased by 39 basis points to 4.22%. The
net interest margin  increased to 3.25% for the three months ended September 30,
1999, from 3.21% for the same period in 1998, as a result of the increase in net
interest  income  resulting  from the  increase  in earning  asset  volume and a
reduction in the average cost of funds.  For the nine months ended September 30,
1999, the net interest margin  decreased to 3.19% from 3.21% for the same period
in 1998 as a result of the compression in the interest rate spread.

PROVISION FOR LOAN LOSSES.  The provision for loan losses for the three and nine
months ended September 30, 1999,  decreased $52,000 and increased  $108,000,  or
(14.8%)  and 9.9%,  respectively,  to  $300,000  and $1.2  million,  compared to
$352,000  and $1.1  million for the same  periods in 1998.  Provisions  for loan
losses are made based on  management's  evaluation of risks inherent in the loan
portfolio,  giving  consideration to on-going credit  evaluations and changes in
the balance and composition of the loan portfolio.  Total loans, net of unearned
and  deferred  income,  increased  $130.8  million  for the  nine  months  ended
September  30,  1999,  with  commercial  real estate loans  increasing  to $86.7
million or 8.9% of total

                                       14

<PAGE>


loans,  up from $65.1  million or 7.5% at December  31,  1998.  In  management's
opinion, the allowance for loan losses,  totaling $10.6 million at September 30,
1999, is adequate to cover losses  inherent in the  portfolio.  Management  will
continue to review the need for additions to its allowance for loan losses based
upon its quarterly review of the loan portfolio, the level of delinquencies, and
general market and economic conditions.

The following  table sets forth ratios  regarding  nonaccrual  loans,  and loans
which are 90 days or more  delinquent,  but on which  the  Company  is  accruing
interest at the dates indicated.  The Company discontinues  accruing interest on
delinquent loans when collection of interest is considered  doubtful,  generally
when 90 days or more  delinquent  and when  loan-to-value  ratios exceed 55%, at
which time all accrued but uncollected  interest is reversed.  Total  foreclosed
real  estate  ("REO"),  net,  totaled  $1.2  million at  September  30, 1999 and
consisted  of  10  properties.  The  largest  individual  property,  carried  at
$504,000,  was  under  contract  for  sale at  September  30,  1999.  Management
continues to pursue the sale of REO properties in an expedient manner.

<TABLE>
<CAPTION>
 (dollars in thousands)                                  Sept. 30,  June 30,  Mar. 31,   Dec. 31,  Sept. 30,
                                                           1999       1999      1998       1998      1999
                                                        --------- ---------- ---------- --------- ----------
<S>                                                       <C>        <C>        <C>       <C>        <C>
 Non-accrual mortgage loans .........................     $2,251     $2,537     $3,112    $2,648     $2,429
 Non-accrual other loans.............................         82         82         94        92         93
                                                        --------- ---------- ---------- --------- ----------
    Total non-accrual loans..........................      2,333      2,619      3,206     2,740      2,522
 Loans 90 days or more delinquent and
      still accruing.................................        320        224        127     1,525      1,292
 Restructured loans..................................          -          -          -         -      2,081
                                                        --------- ---------- ---------- --------- ----------
 Total non-performing loans .........................      2,653      2,843      3,333     4,265      5,895
 Total foreclosed real estate, net of related
      allowance......................................      1,193      1,422      1,516     1,453      2,356
                                                        ========= ========== ========== ========= ==========
 Total non-performing assets ........................     $3,846     $4,265     $4,849    $5,718     $8,251
                                                        ========= ========== ========== ========= ==========
 Non-performing loans to loans receivable, net ......      0.27%      0.32%      0.38%     0.50%      0.71%
 Non-performing assets to total assets ..............      0.20%      0.23%      0.26%     0.31%      0.46%

</TABLE>

OTHER OPERATING INCOME. Other operating income decreased $237,000,  or 21.9%, to
$846,000 for the three months ended September 30, 1999, compared to $1.1 million
for the same period in 1998. An increase in fees and service  charges was offset
by the  decline in the Other,  net  category  caused  primarily  by  charge-offs
related to a real estate owned property totaling  $150,000.  For the nine months
ended  September  30, 1999,  other  operating  income  totaled $2.9  million,  a
decrease  of  $828,000,  or 22.2% from the same  period in 1998.  Excluding  the
non-recurring gain on the sale of deposits in 1998, total other operating income
increased  $256,000,  or 9.7% for the nine  months  ended  September  30,  1999,
compared  with the same  period  in 1998.  Fees and  service  charges  increased
$180,000,  or 10.7%,  to $1.9  million for the nine months ended  September  30,
1999,  compared  to $1.7  million  for the same  period in 1998.  This  increase
occurred  despite the waiver of service charges on the former Pulse accounts for
a  three-month  period ending in  September,  1999.  The increase in net gain on
sales of loans and  securities  during the nine months ended  September 30, 1999
was  primarily  due to sales of MBS.  Management  disposed of numerous MBS whose
principal  balance  had  been  reduced   significantly  due  to  paydowns,   and
adjustable-rate  MBS whose price performance  target had been attained.  The net
gain on sale of deposits in the first nine months of 1998  represented  the gain
resulting  from the sale of the  Eatontown  branch  office to another  financial
institution in February, 1998.

OPERATING  EXPENSES.  Operating  expenses  for the three and nine  months  ended
September  30,  1999,  increased  $20,000  and  $655,000,   or  0.3%  and  3.7%,
respectively,  to $6.2 million and $18.6  million,  compared to $6.2 million and
$17.9 million for the same periods in 1998.  Compensation and benefits decreased
$63,000  and  increased  $333,000,  or (1.8%)  and 3.4%,  respectively,  to $3.4
million  and $10.2  million for the three and nine months  ended  September  30,
1999. The year to date increase in  compensation  and benefits was primarily due
to: expenses associated with the Company's 1998 Stock-Based Incentive Plan which
commenced  in  December,  1998;  the cost of accrued  postretirement  healthcare
benefits; the compensation cost associated with the opening of the Highland Park
branch office in June 1998 and the Spotswood branch in June, 1999; and a cost of
living  salary  increase  in the first  quarter of 1999.  These  increases  were
partially mitigated by First Savings offering a voluntary  retirement  incentive

                                       15

<PAGE>


that reduced payroll beginning in the first quarter of 1999, as well as staffing
efficiencies realized as a result of the Pulse acquisition.  Advertising expense
increased $157,000 and $239,000, or 81.3% and 33.5%,  respectively,  to $350,000
and $953,000 for the three and nine months ended September 30, 1999, compared to
$193,000 and $714,000 for the same periods in 1998, as the Company  continued to
solicit additional loan volume and promoted the opening of the Spotswood branch.
Equipment  expense  for the three and nine  months  ended  September  30,  1999,
totaled $444,000 and $1.2 million,  a decrease of $40,000 and $200,000,  or 8.3%
and 13.9%,  respectively,  primarily  due to  expenses  incurred in 1998 for new
computer   equipment   purchased   by  the  former   Pulse  Bank.   General  and
administrative  expenses decreased $70,000 and increased $195,000, or (6.3%) and
6.3%,  respectively,  to $1.0  million  and $3.3  million for the three and nine
months  ended  September  30,  1999.  The year to date  increase  in general and
administrative  expenses was  primarily  related to the  conversion  of the data
systems  from the former  Pulse data center to the  Company's  in-house  systems
which took place in the second  quarter of 1999,  and an increase in supervisory
examination  fees. As a measure of the Company's  non-interest  expense control,
the  Company's   overhead   ratio   (operating   expense,   excluding   goodwill
amortization,  divided by average  assets)  improved  to 1.27% for the three and
nine months ended September 30, 1999,  compared to 1.33% and 1.36% for the three
and nine months ended  September  30, 1998.  Operating  expenses are expected to
increase, however, in the first half of 2000 as the Company undertakes a planned
upgrade of branch operations.  The Company is currently interviewing vendors and
evaluating  hardware  and  software  solutions  to  facilitate  teller  platform
automation,  including document  preparation and online signature  verification.
These upgrades are intended to enhance customer service,  streamline the account
opening  process,  reduce  printing  costs and  provide  improved  security  and
research  capabilities.  At present,  the Company has not determined the cost of
such upgrades, which are expected to begin in the first quarter of 2000.


Item 3.  QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK.

There  have  been  no  material  changes  to  information   required   regarding
quantitative and qualitative  disclosures  about market risk from the end of the
preceding  fiscal  year  to  the  date  of the  most  recent  interim  financial
statements (September 30, 1999).

                                       16

<PAGE>


                           PART II. OTHER INFORMATION

Item 1.   LEGAL PROCEEDINGS.
          There are various claims and lawsuits in which the Registrant is
          periodically involved incidental to the Registrant's business. In the
          opinion of management, no material loss is expected from any of such
          pending claims and lawsuits.

Item 2.   CHANGES IN SECURITIES.
          None.

Item 3.   DEFAULTS UPON SENIOR SECURITIES.
          Not applicable.

Item 4.   SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
          None.

Item 5.   OTHER INFORMATION.
          None.

Item 6.   EXHIBITS AND REPORTS ON FORM 8-K.
          a.) EXHIBITS

---------- -------------------------------------------------------- ------------
 Exhibit
 Number                            Description                       Reference
---------- -------------------------------------------------------- ------------
   3.1     Certificate of Incorporation of First Sentinel Bancorp,       *
           Inc.
   3.2     Bylaws of First Sentinel Bancorp, Inc.                        *
    4      Stock certificate of First Sentinel Bancorp, Inc.             *
   11      Statement re: Computation of Ratios                         page 7
   27      Financial Data Schedule                                    attached
---------- -------------------------------------------------------- ------------

          b.) REPORTS ON FORM 8 - K
              None

* - Incorporated  herein by reference  into this document from the  Registration
Statement  on Form S-1 and  exhibits  thereto of First  Sentinel  Bancorp,  Inc.
(formerly First Source Bancorp, Inc.), and any amendments or supplements thereto
filed with the SEC on December  19,  1997 and  amended on February 9, 1998,  SEC
File No. 333-42757.

                                       17

<PAGE>


                                   SIGNATURES

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


                                                    FIRST SENTINEL BANCORP, INC.




Date:  November 10, 1999                  By:   JOHN P. MULKERIN
                                                ----------------
                                          John P. Mulkerin
                                          President and Chief Executive Officer


Date:  November 10, 1999                  By:   CHRISTOPHER MARTIN
                                                ------------------
                                          Christopher Martin
                                          Executive Vice President and Chief
                                          Operating and Financial Officer and
                                          Corporate Secretary

                                       18