<PAGE>


                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                   FORM 10-KSB


    [X]ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
                                   ACT OF 1934
                   FOR THE FISCAL YEAR ENDED DECEMBER 31, 2001
                                       OR
    [ ]TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
                              EXCHANGE ACT OF 1934
               For the transaction period from         to
                                               -------    -------


                         Commission File Number: 0-24519

                              LIBERTY BANCORP, INC.
        ----------------------------------------------------------------
             (Exact Name of Registrant as Specified in its Charter)

<TABLE>
<CAPTION>
<S>                                                                     <C>

                           FEDERAL                                                        22-3593532
--------------------------------------------------------------             ---------------------------------------
(State or Other Jurisdiction of Incorporation or Organization)             (I.R.S. Employer Identification Number)

                1410 ST. GEORGES AVENUE, AVENEL, NJ                                           07001
              ---------------------------------------                                       ----------
              (Address of Principal Executive Office)                                       (Zip Code)
</TABLE>

                                 (732) 499-7200
               ---------------------------------------------------
               (Registrant's Telephone Number including area code)

           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 $1.00 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 twelve months (or for such shorter period that the
Registrant was required to file reports) and (2) has been subject to such
requirements for the past 90 days.
YES       X       NO
     ------------    ------------

         Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation SB 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 10-KSB or any
amendments to this Form 10-KSB. [ ]

         The registrant's revenues for the fiscal year ended December 31, 2001
were $21.9 million.

         As of February 15, 2002, there were issued and outstanding 3,267,072
shares of the Registrant's Common Stock. The aggregate value of the voting stock
held by non-affiliates of the Registrant, computed by reference to the closing
price of the Common Stock as of such date ($17.00) was $17.8 million.

                       DOCUMENTS INCORPORATED BY REFERENCE

1.   Sections of Annual Report to Stockholders for the fiscal year ended
     December 31, 2001 (Parts II and IV).

2.   Proxy Statement for the May 22, 2002 Annual Meeting of Stockholders (Part
     III).

<PAGE>

                                     PART I
                                     ------

ITEM 1.  BUSINESS
-----------------

LIBERTY BANCORP, INC.

         Liberty Bancorp, Inc. (the "Company") was formed on June 30, 1998 for
the purpose of acting as the holding company for Liberty Bank (the "Bank"). As
of December 31, 2001, the Company's unconsolidated assets of $31.3 million
consisted primarily of the outstanding capital stock of the Bank and cash and
investments, representing a portion of the net proceeds from the Company's stock
offering completed June 30, 1998 in connection with the mutual holding company
reorganization of the Bank. At December 31, 2001, 1,199,343 shares of the
Company's common stock, par value $1.00 per share, were held by the public, and
2,067,729 shares were held by Liberty Bancorp, MHC, the Company's parent mutual
holding company. The Company's principal business is overseeing and directing
the business of the Bank and investing the net stock offering proceeds retained
by it.

         At December 31, 2001, the Company had consolidated total assets of
$323.0 million, consolidated total deposits of $257.7 million and consolidated
total equity of $31.3 million.

         The Company's executive office is located at 1410 St. Georges Avenue,
Avenel, New Jersey 07001. Its telephone number at this address is (732)
499-7200.

LIBERTY BANK

         The Bank was organized as a building and loan association in 1927 and
became a federal savings and loan association in 1942. The Bank changed its name
from Axia Federal Savings Bank to Liberty Bank in connection with the Bank's
mutual holding company reorganization completed June 30, 1998. The Bank conducts
its business from its corporate headquarters located in Avenel, New Jersey and
six branch offices located in Union and Middlesex Counties, New Jersey. The Bank
has traditionally operated as a community-oriented lender offering various
mortgage and consumer loan products. The Bank is primarily engaged in the
business of offering savings and other FDIC-insured deposits to the general
public and using those funds to originate loans secured by one-to-four family
residences and commercial real estate located in Union and Middlesex Counties.

         The Bank's executive offices are located at 1410 St. Georges Avenue,
Avenel, New Jersey 07001. Its telephone number at that location is (732)
499-7200.

MARKET AREA

         The Bank's headquarters are located in Avenel, New Jersey in the
township of Woodbridge. Branch offices of the Bank are located in East
Brunswick, Edison, Rahway, Linden, Milltown and Monroe Township. All the
branches and the main office are located in the Bank's primary market area
consisting of Middlesex and Union Counties. Middlesex and Union Counties are
contiguous and are located in the eastern central part of New Jersey. The
economies of Middlesex and Union counties are based on retail services and light
manufacturing, especially pharmaceuticals. Both Johnson & Johnson and Merck and
Co. have an administrative and research presence in this market. Among the
largest employers in Middlesex and Union Counties are John F. Kennedy Medical
Center, Robert Wood Johnson Medical Center, Merck and Co. and Johnson & Johnson.
The Bank faces competition from many financial institutions for deposits and
loan originations.

LENDING ACTIVITIES

         GENERAL. The Bank has traditionally concentrated its lending activities
on first mortgage loans secured by one-to-four family properties that conform to
the underwriting guidelines of Fannie Mae and Freddie Mac (often referred to as
"conforming loans"). Fannie Mae and Freddie Mac are federally chartered
corporations that purchase loans in the secondary mortgage market and issue
mortgage-backed securities that are secured by the underlying mortgages. In past
years, the Bank has increased its concentration of multi-family residential real
estate loans, commercial real estate loans and home equity loans.


                                       1
<PAGE>

         LOAN PORTFOLIO ANALYSIS. The following tables set forth the composition
of the Bank's loan portfolio at the dates indicated. The Bank had no
concentration of loans exceeding 10% of total gross loans other than as
disclosed below.

<TABLE>
<CAPTION>

                                                                  AT DECEMBER 31,
                                    ----------------------------------------------------------------------------
                                             2001                      2000                       1999
                                    ------------------------  -----------------------  -------------------------
                                      AMOUNT       PERCENT      AMOUNT      PERCENT      AMOUNT        PERCENT
                                    ----------   -----------  ----------  -----------  ----------    -----------
                                                              (DOLLARS IN THOUSANDS)
<S>                                 <C>               <C>        <C>              <C>     <C>              <C>
Real estate loans:
    One-to-four family.........     $  146,828        74.05%     $  171,735       78.44%  $  182,100       89.86%
    Multi-family...............          6,595         3.33           5,560        2.54        2,143        1.06
    Commercial.................         24,739        12.48          22,807       10.42        7,553        3.72
                                        ------   ----------      ----------  ----------   ----------   ---------
      Total real estate loans..        178,162        89.86         200,102       91.40      191,796       94.64
                                    ----------   ----------      ----------  ----------   ----------   ---------

Consumer loans:
    Home equity................         19,749         9.96          18,605        8.50       10,616        5.24
    Other......................            363         0.18             204        0.10          235        0.12
                                    ----------   ----------      ----------  ----------   ----------   ---------
    Total consumer loans.......         20,112        10.14          18,809        8.60       10,851        5.36
                                    ----------   ----------      ----------  ----------   ----------   ---------
    Total loans................        198,274       100.00         218,911      100.00%     202,647      100.00%
                                    ----------   ----------      ----------  ----------   ----------   ---------
Less:
    Deferred loan origination costs       (220)                        (250)                     (172)
    Allowance for loan losses..            926                          886                      788
                                    ----------                   ----------               ----------

Total loans, net...............     $  197,568                   $  218,275               $  202,031
                                    ----------                   ==========               ==========

<CAPTION>

                                                    AT DECEMBER 31,
                                    ----------------------------------------------------
                                            1998                       1997
                                    ------------------------     -----------------------
                                      AMOUNT       PERCENT         AMOUNT      PERCENT
                                    ----------   -----------     ----------  -----------
                                               (DOLLARS IN THOUSANDS)
<S>                                 <C>               <C>        <C>              <C>
Real estate loans:
    One-to-four family.........     $  166,573        93.23%     $  143,623       93.88%
    Multi-family...............          1,200         0.67           1,258        0.82
    Commercial.................          3,367         1.88           1,906        1.25
                                    ----------   ----------      ----------  ----------
      Total real estate loans..        171,140        95.78         146,787       95.95
                                    ----------   ----------      ----------  ----------

Consumer loans:
    Home equity................          7,133         4.00           5,706        3.73
    Other......................            388         0.22             491        0.32
                                    ----------   ----------      ----------  ----------
    Total consumer loans.......          7,521         4.22           6,197        4.05
                                    ----------   ----------      ----------  ----------
    Total loans................        178,661       100.00%        152,984      100.00%
                                    ----------   ----------      ----------  ----------
Less:
    Deferred loan origination fees          24                           61
    Allowance for loan losses..            760                          723
                                    ----------                   ----------

Total loans, net...............     $  177,877                   $  152,200
                                    ==========                   ----------
</TABLE>

         ONE-TO-FOUR FAMILY REAL ESTATE LENDING. Historically, the Bank has
concentrated its lending activities on the origination of conforming first
mortgage loans secured by one-to-four family residences located in its primary
market area. The Bank originates fixed rate mortgage loans and adjustable rate
mortgage ("ARM") loans. The Bank's fixed-rate one-to-four family mortgage loans
have maturities ranging from 10 to 30 years and are fully amortizing with
monthly payments sufficient to repay the total amount of the loan with interest
at the end of the loan term. Fixed rate loans are generally originated under
terms, conditions and documentation that permit them to be sold to Fannie Mae
and Freddie Mac in the secondary mortgage market. The Bank's fixed-rate loans
customarily include "due on sale" clauses, which give the Bank the right to
declare a loan immediately due and payable in the event the borrower sells or
otherwise disposes of the real property subject to the mortgage and the loan is
not paid.

         The Bank offers ARM loans at competitive interest rates and terms. At
December 31, 2001, $42.7 million, or 23.9%, of the Bank's gross loan portfolio
consisted of ARM loans or other loans subject to periodic interest rate
adjustments. Substantially all of the Bank's ARM loans meet the underwriting
standards of Fannie Mae or Freddie Mac, even though the Bank originates ARM
loans primarily for its own portfolio. Most of the Bank's ARM loans have
interest rates that adjust every year based on the one-year Treasury constant
maturity index. The Bank also originates ARM loans that have fixed interest
rates for an initial period of three to ten years, and thereafter adjust
annually based on the one-year Treasury constant maturity index. A small
percentage of the Bank's ARM loans

                                       2
<PAGE>

adjust based on other indices. Most of the Bank's ARM loans amortize over a
30-year period. The Bank determines whether a borrower qualifies for an ARM loan
based on the initial interest rate on the loan, except that one-year ARM loan
borrowers are qualified at the initial rate plus 2%. The Bank's current ARM
loans do not provide for negative amortization. The Bank's ARM loans generally
provide for annual and lifetime interest rate adjustment limits of 2% and 6%,
respectively. The Bank offers initial interest rates that may be more than 2%
below the interest rate to which the loan may adjust after the first adjustment
date, (based on market interest rates at the time the loan is originated).
Accordingly, because of the Bank's 2% interest rate adjustment limitation, the
interest rates on these loans would not adjust to the fully-indexed rate at the
end of the adjustment period if interest rates were to increase or remain
unchanged at the end of the adjustment period.

         Borrowers' demand for ARM loans versus fixed-rate mortgage loans is
affected by market interest rates, borrowers' expectations of future changes in
the level of market interest rates, and the difference between the initial
interest rates and fees charged for each type of loan. The relative amount of
fixed-rate mortgage loans and ARM loans that the Bank originates at any time is
largely determined by borrowers' demand for each type of loan.

         Retaining ARM loans helps reduce the Bank's exposure to changes in
interest rates. There are, however, potential credit risks associated with ARM
loans in a rising interest rate environment. Specifically, during periods of
rising interest rates the risk of default on ARM loans may increase as a result
of repricing and the increased monthly payments required of the borrower. In
addition, although ARM loans allow the Bank to increase the sensitivity of its
asset base to changes in market interest rates, the extent of this interest
sensitivity is limited by the annual and lifetime interest rate adjustment
limits. Because of these considerations, the Bank has no assurance that yields
on ARM loans will be sufficient to offset increases in the Bank's cost of funds.
The Bank believes these risks, which have not had a material adverse effect on
the Bank to date, generally are less than the risks associated with holding
long-term, fixed-rate loans in portfolio during a rising interest rate
environment.

         The Bank requires title insurance insuring the status of the underlying
mortgaged properties and an acceptable attorney's opinion on all loans where
real estate is the primary source of security. The Bank also requires that fire
and casualty insurance be maintained in an amount at least equal to the
outstanding loan balance and, if appropriate, flood insurance also must be
maintained.

         Pursuant to underwriting guidelines adopted by the Bank's Board of
Directors, the Bank can lend up to 95% of the appraised value of the property
securing a one-to-four family residential loan. The Bank does not require
private mortgage insurance for loans of up to and including 80% of the appraised
value of the property. The Bank requires private mortgage insurance for between
17% and 30% of the amount of the loan for loans of 80% to 95% of the appraised
value of the property.

         MULTI-FAMILY RESIDENTIAL REAL ESTATE LENDING. The Bank originates
mortgage loans secured by multi-family residential properties (consisting of
more than four units). The Bank offers both fixed-rate and adjustable-rate
multi-family residential real estate loans. Fixed rate loans are generally
offered with a balloon term of ten years with a 25 year amortization period, and
with a "balloon" or final principal payment due at maturity. The Bank also
offers a 15 year fixed rate multi-family residential loan with a 15 year term
and amortization period and a one, five or ten year adjustable-rate loan with a
25 year term and amortization period. The interest rate on the adjustable rate
loans is tied to the Treasury Index that corresponds to the time between
adjustments. At December 31, 2001, the average balance of the Bank's
multi-family residential real estate loans was $264,000, and the largest such
loan had a balance of $587,000 and was performing in accordance with its
contractual terms.

         The Bank requires appraisals of all properties securing multi-family
residential real estate loans. Appraisals are performed by an independent
State-licensed and qualified appraiser approved by the Bank, and all appraisals
are reviewed by management. The Bank, when underwriting such loans, considers
the quality of the real estate, the credit of the borrower, the cash flow of the
project and the quality of management involved with the property. Loan-to-value
ratios on the Bank's multi-family residential real estate loans are generally
limited to 75%. As part of the criteria for underwriting multi-family
residential real estate loans, the Bank generally imposes a debt coverage ratio
(the ratio of net cash from operations before payment of debt service to debt
service) of not less than 1.25. The Bank's policy is also to obtain personal
guarantees from the principals of its corporate borrowers on multi-family
residential real estate loans.

                                       3
<PAGE>

         Multi-family residential real estate loans generally have higher
interest rates than those available on one-to-four family residential loans.
However, loans secured by multi-family residential real estate usually have
higher balances and are more difficult to evaluate and monitor and, therefore,
may involve a greater degree of credit risk than one-to-four family residential
mortgage loans. If the estimated value is inaccurate, the value of the property
may be insufficient to assure full repayment in the event of default and
foreclosure. Because payments on such loans often depend on the successful
operation and management of the properties, repayment of such loans may be
affected by adverse conditions in the real estate market or the economy. The
Bank seeks to minimize these risks by limiting the maximum loan-to-value ratio,
and strictly scrutinizing the financial condition of the borrower, the quality
of the collateral and the management of the property securing the loan. The Bank
also generally obtains loan guarantees from financially capable parties based on
a review of personal financial statements.

         COMMERCIAL REAL ESTATE LENDING. The Bank originates mortgage loans for
the acquisition or refinance of commercial real estate properties. The Bank
offers both fixed-rate and adjustable-rate commercial real estate loans. Fixed
rate loans are generally offered with a balloon term of ten years with a 25 year
amortization period, and with a "balloon" or final principal payment due at
maturity. The Bank also offers a 15 year fixed rate multi-family residential
loan with a 15 year term and amortization period and a one, five or ten year
adjustable-rate loan with a 25 year term and amortization period. The interest
rate on the adjustable rate loans is tied to the Treasury Index with a term that
corresponds to the time between adjustments. At December 31, 2001, the average
balance of the Bank's commercial real estate loans was $334,000, and the largest
such loan had a balance of $2.3 million and was performing in accordance with
its contractual terms.

         The Bank requires appraisals of all properties securing commercial real
estate loans. Appraisals are performed by an independent State licensed and
qualified appraiser approved by the Bank, all of which are reviewed by
management. The Bank, when underwriting such loans, considers the quality and
location of the real estate, the credit of the borrower, the cash flow of the
project and the quality of management involved with the property.

         Loan-to-value ratios on the Bank's commercial real estate loans are
generally limited to 75% of the appraised value of the secured property. As part
of the criteria for underwriting commercial real estate loans, the Bank
generally imposes a debt coverage ratio (the ratio of net cash from operations
before payment of debt service to debt service) of not less than 1.25. It is
also the Bank's policy to obtain personal guarantees from the principals of its
corporate borrowers on its commercial real estate loans.

         Commercial real estate loans generally have higher interest rates than
those available on one-to-four family residential loans. However, loans secured
by such properties usually have higher balances and are more difficult to
evaluate and monitor and, therefore, may involve a greater degree of risk than
one-to-four family residential mortgage loans. If the estimated value is
inaccurate, in the event of default and foreclosure the value of the property
securing the loan may be insufficient to assure full repayment. Because payments
on such loans often depend on the successful development, operation and
management of the properties, repayment of such loans may be affected by adverse
conditions in the real estate market or the economy. The Bank seeks to minimize
these risks by limiting the maximum loan-to-value ratio and strictly
scrutinizing the financial condition of the borrower, the quality of the
collateral and the management of the property securing the loan. The Bank also
obtains loan guarantees from financially capable parties based on a review of
personal financial statements.

         CONSTRUCTION LENDING. To a lesser extent, the Bank originates
residential construction loans to local home builders and to individuals who
have a contract with a builder for the construction of their residence. The
Bank's construction loans are generally secured by property located in the
Bank's primary market area. At December 31, 2001, the Bank had no construction
loans outstanding.



                                       4
<PAGE>

         CONSUMER LENDING. The Bank's consumer loans consist of both fixed-rate
and adjustable-rate line of credit home equity loans, and loans secured by
deposit accounts. The Bank's home equity loans and lines of credit are secured
by a first or second mortgage on residential property, and have fixed and
variable interest rates that are tied to THE WALL STREET JOURNAL prime lending
rate (the "Prime Rate"). Variable interest rate equity lines of credit adjust
monthly and generally have terms of up to 20 years. Home equity loans are
offered with fixed interest rates and have terms from five to 20 years. Loans
secured by deposit accounts do not have a fixed term, and are due and payable
when the underlying deposit account or certificate is withdrawn or matures. The
Bank promotes consumer loans by contacting existing customers and by other
promotions and advertising directed at existing and prospective customers. Real
estate or deposits secure all of the Bank's consumer loans.

         Consumer lending is an important part of the Bank's business because
such loans generally have shorter terms and higher yields than one-to-four
family mortgage loans, thus reducing exposure to changes in interest rates. In
addition, consumer loans expand the products and services offered by the Bank to
better meet all of the financial services needs of its customers. Consumer loans
generally involve greater credit risk than residential mortgage loans because of
the difference in the underlying collateral. Repossessed collateral for a
defaulted consumer loan may not provide an adequate source of repayment of the
outstanding loan balance because of the greater likelihood of damage, loss or
depreciation in the underlying collateral. The remaining deficiency often does
not warrant further substantial collection efforts against the borrower beyond
obtaining a deficiency judgment. In addition, consumer loan collections depend
on the borrower's personal financial stability. Furthermore, the application of
various federal and state laws, including federal and state bankruptcy and
insolvency laws, may limit the amount that can be recovered on such loans. The
Bank believes that these risks are not as prevalent in the case of the Bank's
consumer loan portfolio because a large percentage of the portfolio consists of
home equity loans that are underwritten so that their credit risk is
substantially similar to that of one-to-four family residential mortgage loans.
Nevertheless, these loans have greater credit risk than one-to-four family
residential mortgage loans because they often are secured by mortgages
subordinated to the existing first mortgage on the property, which may or may
not be held by the Bank.

         The Bank's underwriting procedures for consumer loans include an
assessment of the applicant's credit history and the ability to meet existing
and proposed debt obligations. Although the applicant's creditworthiness is the
primary consideration, the underwriting process also includes a comparison of
the value of the security, to the proposed loan amount. The Bank underwrites and
originates its consumer loans internally, which the Bank believes limits its
exposure to credit risks associated with loans underwritten or purchased from
brokers and other external sources.

         MATURITY OF LOAN PORTFOLIO. The following table sets forth certain
information at December 31, 2001 regarding the dollar amount of loans maturing
in the Bank's portfolio based on their contractual terms to maturity, but does
not include scheduled payments or potential prepayments. Demand loans and loans
with no stated maturity are reported as becoming due within one year. Loan
balances do not include undisbursed loan proceeds, unearned discounts, unearned
income and allowance for loans losses.

<TABLE>
<CAPTION>

                                                 ONE-TO-FOUR
                                                   FAMILY     MULTI-FAMILY  COMMERCIAL    CONSUMER       TOTAL
                                                 -----------  ------------  ----------   ----------   ----------
                                                                          (IN THOUSANDS)
<S>                                             <C>          <C>           <C>          <C>          <C>
Amounts Due:
Within 1 year...............................     $     182    $      --     $      --    $     565    $     747
Over 1 to 2 years...........................           912           --            --          172        1,084
Over 2 to 3 years...........................         2,569           --            --          366        2,935
Over 3 to 5 years...........................         1,232           --            --        1,157        2,389
Over 5 to 10 years..........................        13,519        1,149         2,428        5,156       22,252
Over 10 to 25 years.........................        65,806        5,446        21,298       12,696      105,246
Over 25 years...............................        62,608           --         1,013           --       63,621
                                                 ---------    ---------     ---------    ---------    ---------
Total amount due............................     $ 146,828    $   6,595     $  24,739    $  20,112    $ 198,274
                                                 =========    =========     =========    =========    =========
</TABLE>


                                       5
<PAGE>

         The following table sets forth the dollar amount of all loans for which
final payment is not due until after December 31, 2002. The table also shows the
amount of loans that have fixed rates of interest and those that have adjustable
rates of interest.

<TABLE>
<CAPTION>

                                                FIXED RATES        ADJUSTABLE RATES            TOTAL
                                              ---------------    --------------------     ---------------
                                                                    (IN THOUSANDS)
<S>                                              <C>                   <C>                   <C>
   Real estate loans:
     One-to-four family ..............           $ 114,296             $  32,350             $146,646
     Multi-family.....................               6,595                    --                6,595
     Commercial.......................              19,480                 5,259               24,739
                                                 ---------             ---------             --------
   Total real estate loans............             140,371                37,609              177,980

   Consumer...........................              15,160                 4,387               19,547
                                                 ---------             ---------             --------

     Total loans......................           $ 155,531             $  41,996             $197,527
                                                 =========             =========             ========
</TABLE>

         Scheduled contractual principal repayments of loans do not necessarily
reflect the actual life of such loans. The actual life of a loan is often less
than its contractual term because of prepayment. In addition, due-on-sale
clauses on mortgage loans give the Bank the right to declare loans immediately
due and payable in the event, among other things, that the borrower sells the
real property subject to the mortgage and the loan is not repaid. The average
life of the Bank's mortgage loans portfolio tends to increase, however, when
current mortgage loan market interest rates are substantially higher than
interest rates on existing mortgage loans. Conversely, the average life of the
Bank's loan portfolio would decrease when interest rates on existing mortgage
loans are substantially higher than current mortgage loan market interest rates.

         LOAN SOLICITATION AND PROCESSING. The Bank's lending activities are
subject to the written underwriting standards and loan origination procedures
established by the Board of Directors. Loan originations come from a number of
sources. The principal sources of loan originations are newspaper advertising,
direct mail, loan brokers, real estate agents, home builders, walk-in customers,
referrals and existing customers. The Bank uses professional fee appraisers for
residential real estate loans and construction loans and all commercial real
estate loans. The Bank requires hazard, title and, to the extent applicable,
flood insurance on all property securing its real estate loans. Loan officers
initiate mortgage loan applications. Loans greater than $500,000 are approved by
the Board's Executive Committee acting with the consent of the full Board and
consisting of the Bank's President and three non-employee directors. Loans of
less than $500,000 and greater than $300,000 are approved by the Bank's Loan
Committee, which consists of the Bank's President, the Bank's Executive Vice
President and Vice President of Lending. The Vice President or Assistant Vice
President of Lending may approve loans up to $300,000.






                                       6
<PAGE>

         LOAN ORIGINATIONS, SALES AND PURCHASES. The following table sets forth
total loans originated and repaid during the periods indicated.

<TABLE>
<CAPTION>

                                                                     YEARS ENDED DECEMBER 31,
                                                            -----------------------------------------
                                                               2001            2000           1999
                                                            -----------    -----------    -----------
                                                                          (IN THOUSANDS)
Originations:
------------
<S>                                                         <C>            <C>             <C>
   Adjustable rate:
     Real estate
       One-to-four family (1)..........................      $   3,144      $   7,713       $  6,632
       Multi-family....................................             --             --             --
       Commercial......................................          6,255             --             --
       Construction....................................             --             --             --
     Consumer..........................................          6,981          2,908          1,441
                                                             ---------      ---------       --------
       Total adjustable rate...........................         16,380         10,621          8,073
                                                             ---------      ---------       --------
   Fixed rate:
     Real estate
       One-to-four family..............................          8,915          4,534         41,752
       Multi-family....................................          1,606          3,531          1,326
       Commercial......................................          5,155         15,418          4,810
       Construction....................................             --             --             --
     Consumer..........................................          5,590          8,605          4,960
                                                             ---------      ---------       --------
       Total fixed rate................................         21,266         32,088         52,848
                                                             ---------      ---------       --------
       Total loans originated..........................         37,646         42,709         60,921
                                                             ---------      ---------       --------

Purchases:
---------
   Real estate:
     One-to-four family................................             --             --             --
     Multi-family......................................             --            111             54
     Commercial........................................             --             --             --
   Consumer............................................             --             --             --
                                                             ---------      ---------       --------
     Total loans purchased.............................             --            111             54
                                                             ---------      ---------       --------

Sales and Repayments:
--------------------
   Real estate:
     One-to-four family................................          6,588             --             --
     Multi-family......................................             --             --             --
     Commercial........................................             --             --             --
   Consumer............................................             --             --             --
                                                             ---------      ---------       --------
     Total loans sold..................................          6,588             --             --
                                                             ---------      ---------       --------

Principal repayments...................................         52,655         26,877         36,627
                                                             ---------      ---------       --------
   Total reductions....................................         59,243         26,877         36,627
                                                             ---------      ---------       --------
Increase in other items, net...........................            960            321           (362)
                                                             ---------      ---------       --------
   Net increase (decrease).............................      $ (20,637)     $  16,264       $ 23,986
                                                             ==========     =========       ========
---------------------------------
<CAPTION>

(1) Originations include mortgage loans which adjust annually after an initial
    fixed-rate period of five, seven or ten years in the following amounts:


                                                                      YEARS ENDED DECEMBER 31,
                                                            -----------------------------------------
                                                               2001            2000           1999
                                                            -----------    -----------    -----------
                                                                           (IN THOUSANDS)

<S>                                                         <C>              <C>            <C>
   Initial fixed rate:
     Five years........................................     $      --        $    --        $  3,294
     Seven years.......................................            --            300           1,219
     Ten years.........................................            --             --             257
</TABLE>


                                       7
<PAGE>

         LOAN COMMITMENTS. The Bank issues commitments for mortgage loans
conditioned upon the occurrence of certain events. Such commitments are made in
writing on specified terms and conditions and generally remain outstanding for
45 to 60 days from the date the commitment is issued, depending on the type of
transaction. At December 31, 2001, the Bank had total loan commitments of $3.4
million and commitments to customers for unused lines of credit of $4.2 million
outstanding.

         LOAN FEES. In addition to interest earned on loans, the Bank receives
income from fees in connection with loan originations, late payments and for
miscellaneous services related to its loans. Income from these activities varies
from period-to-period depending upon the volume and type of loans made and
competitive conditions.

         The Bank charges loan origination fees that are calculated as a
percentage of the amount borrowed. In accordance with applicable accounting
procedures, net loan origination fees/costs are deferred and recognized over the
contractual remaining lives of the related loans on a level yield basis.
Discounts and premiums on loans purchased are accreted and amortized in the same
manner. The Bank recognized as expense $79,400 and $30,000 of net deferred loan
fees/costs during the years ended December 31, 2001 and 2000, respectively.

         NONPERFORMING ASSETS AND DELINQUENCIES. When a borrower fails to make a
required payment on a loan, the Bank attempts to cure the deficiency by
contacting the borrower and seeking the payment. Computer generated late notices
are mailed 15 days after a payment is due. In most cases, deficiencies are cured
promptly. If a delinquency continues, additional contact is made either through
a notice or other means, and the Bank will attempt to work out a payment
schedule and actively encourage delinquent borrowers to seek home ownership
counseling. While the Bank generally prefers to work with borrowers to resolve
such problems, the Bank will institute foreclosure or other proceedings, as
necessary, to minimize any potential loss.

         Loans are placed on nonaccrual status generally if, in the opinion of
management, principal or interest payments are not likely to be received in
accordance with the terms of the loan agreement, or when principal or interest
is past due 90 days or more. Interest accrued but not collected at the date the
loan is placed on nonaccrual status is reversed against income when it is
considered uncollectible. Loans may be reinstated to accrual status when
payments are under 90 days past due and, in the opinion of management,
collection of the remaining past due balances can be reasonably expected.

         The Bank's Board of Directors is informed monthly of the status of all
mortgage loans delinquent more than 60 days, all loans in foreclosure and all
foreclosed and repossessed property owned by the Bank. Additionally, the Bank's
Board of Directors reviews monthly the status of all commercial loans with an
original balance in excess of $500,000.



                                       8
<PAGE>
         The following table sets forth information with respect to the Bank's
nonperforming assets at the dates indicated. As of such dates, the Bank had no
restructured loans within the meaning of SFAS No. 15 and SFAS No. 114.

<TABLE>
<CAPTION>
                                                                    AT DECEMBER 31,
                                            --------------------------------------------------------------
                                               2001         2000         1999         1998         1997
                                            ---------     --------     ---------    ---------    ---------
                                                                (DOLLARS IN THOUSANDS)
   Non-accruing loans:
   ------------------
<S>                                         <C>           <C>          <C>          <C>          <C>
     One-to-four family..................   $     585     $    118     $     243    $     505    $     844
     Multi-family........................          73           73            72           66           65
     Commercial..........................          --           --            --           22           --
     Consumer............................          --           --            --           --           --
                                            ---------     --------     ---------    ---------    ---------

       Total...........................           658          191           315          593          909
                                            ---------     --------     ---------    ---------    ---------

   Accruing loans delinquent 90 days or more:
   ------------------------------------------
     One-to-four family................            42           --            --           --           --
     Multi-family......................            --           --            --           --           --
     Commercial........................            --           --            --           --           --
     Consumer (1)......................            --           --             7            7           25
                                            ---------     --------     ---------    ---------    ---------

     Total.............................            42           --             7            7           25
                                            ---------     --------     ---------    ---------    ---------

   Real estate owned...................            --           --            80          106          121
                                            ---------     --------     ---------    ---------    ---------

   Total non-performing assets.........     $     700     $    191     $     402    $     706    $   1,055
                                            =========     ========     =========    =========    =========

   Total as a percentage of total assets         0.22%        0.07%         0.14%        0.27%        0.49%
                                            =========     ========     =========    =========   ==========
</TABLE>
---------------------
(1)  Consists of student loans backed by a government guarantee.

         Interest income that would have been recorded for the fiscal years
ended December 31, 2001 and 2000 had nonaccruing loans been current in
accordance with their original terms amounted to $47,000 and $19,000,
respectively. The Bank recorded $28,000 and $12,000, respectively, of interest
income on such loans for such periods.

         The following table sets forth the Bank's loan delinquencies by type,
by amount and by percentage of type at December 31, 2001.

<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>
Real Estate:
  One-to-four family      1    $   181        0.12%       5      $  627       0.43%        6      $   808       0.55%
  Multi-family....       --         --          --        1          73       1.11         1           73       1.11
  Commercial......       --         --          --       --          --         --        --           --         --
  Consumer........       --         --          --       --          --         --        --           --         --
                    -------    -------    ---------  ------      ------    --------   --------    -------    --------
  Total loans.....        1    $   181        0.09%       6      $  700       0.35%        7      $   881       0.44%
                    =======    =======    =========  ======      ======    ========   ========    =======    ========
</TABLE>

         REAL ESTATE ACQUIRED IN SETTLEMENT OF LOANS. Real estate acquired by
the Bank as a result of foreclosure or by deed-in-lieu of foreclosure is
classified as real estate acquired in settlement of loans until sold. Foreclosed
real estate is held for sale and such assets are carried at fair value minus
estimated cost to sell the property. After the date of acquisition, all costs
incurred in maintaining the property are expensed and costs incurred for the
improvement or development of such property are capitalized up to the extent of
their fair value less estimated selling costs. At December 31, 2001, the Bank
had no real estate acquired in settlement of loans.

                                       9
<PAGE>

         RESTRUCTURED LOANS. Under Generally Accepted Accounting Principals
("GAAP"), the Bank is required to account for certain loan modifications or
restructuring as "troubled debt restructuring." In general, the modification or
restructuring of a debt constitutes a troubled debt restructuring if the Bank
for economic or legal reasons related to the borrower's financial difficulties
grants a concession to the borrowers that the Bank would not otherwise consider.
Debt restructurings or loan modifications for a borrower do not necessarily
constitute troubled debt restructurings, however, and troubled debt
restructurings do not necessarily result in nonaccrual loans. The Bank had no
restructured loans as of December 31, 2001.

         ASSET CLASSIFICATION. The OTS has adopted various regulations regarding
problem assets of savings institutions. The regulations require that each
institution insured by FDIC review and classify its assets on a regular basis.
In addition, in connection with examinations of insured institutions, OTS
examiners have authority to identify problem assets and, if appropriate, require
them to be classified. There are three classifications for problem assets:
substandard, doubtful and loss. Substandard assets have one or more defined
weaknesses and are characterized by the distinct possibility that the insured
institution will sustain some loss if the deficiencies are not corrected.
Doubtful assets have the weaknesses of substandard assets with the additional
characteristic that the weaknesses make collection or liquidation in full on the
basis of currently existing facts, conditions and values questionable, and there
is a high possibility of loss. An asset classified as loss is considered
uncollectible and of such little value that continuance as an asset of the
institution is not warranted. If an asset or portion thereof is classified as
loss, the insured institution establishes specific allowances for loan losses
for the full amount of the portion of the asset classified as loss. All or a
portion of general loan loss allowances established to cover possible losses
related to assets classified substandard or doubtful can be included in
determining an institution's regulatory risk based capital, while specific
valuation allowances for loan losses generally do not qualify as regulatory
capital. Assets that do not currently expose the insured institution to
sufficient risk to warrant classification in one of the aforementioned
categories but possess weaknesses are designated "special mention" and monitored
by the Bank. As of December 31, 2001, the Bank had $231,000 of assets designated
as "special mention," and $410,000 of assets classified substandard, $25,000
classified doubtful and nothing classified loss.

         ALLOWANCE FOR LOAN LOSSES. The Bank has established a systematic
methodology for the determination of provisions for loan losses. The methodology
is set forth in a formal policy and takes into consideration the need for an
overall general valuation allowance as well as specific allowances that are tied
to individual loans.

         In originating loans, the Bank recognizes that losses will be
experienced and that the risk of loss will vary with, among other things, the
type of loan being made, the creditworthiness of the borrower over the term of
the loan, general economic conditions and, in the case of a secured loan, the
quality of the security for the loan. The Bank increases its allowance for loan
losses by charging provisions for loan losses against the Bank's income.

         The general valuation allowance is maintained to cover losses inherent
in the loan portfolio. Management's periodic evaluation of the adequacy of the
allowance is based on the Bank's past loan loss experience, known and inherent
risks in the portfolio, adverse situations that may affect the borrower's
ability to repay, the estimated value of any underlying collateral, current
economic conditions and the size and growth of the loan portfolio. Specific
valuation allowances are established to absorb losses on loans for which full
collectibility cannot be reasonably assured. The amount of the allowance is
based on the estimated value of the collateral securing the loan and other
analyses pertinent to each situation. Generally, a provision for losses is
charged against income monthly to maintain the allowances.

         Management believes that the amount maintained in the allowance at
December 31, 2001 is adequate to absorb losses inherent in the portfolio.
Although management believes that it uses the best information available to make
such determinations, future adjustments to the allowance for loan losses may be
necessary and results of operations could be significantly and adversely
affected if circumstances differ substantially from the assumptions used in
making the determinations. Furthermore, while the Bank believes it has
established its existing allowance for loan losses in accordance with GAAP,
there can be no assurance that regulators, in reviewing the Bank's loan
portfolio, will not request the Bank to increase significantly its allowance for
loan losses. In addition, because future events affecting borrowers and
collateral cannot be predicted with certainty, there can be no assurance that
the existing allowance for loan losses is adequate or that substantial increases
will not be necessary should the quality of any loan deteriorate as a result of
the factors discussed above. Any material increase in the allowance for loan
losses may adversely affect the Bank's financial condition and results of
operations.

                                       10
<PAGE>

         The following table sets forth an analysis of the Bank's allowance for
loan losses.

<TABLE>
<CAPTION>
                                                                  AT OR FOR THE YEARS
                                                                  ENDED DECEMBER 31,
                                            --------------------------------------------------------------
                                               2001         2000         1999         1998         1997
                                            ---------     --------     ---------    ---------    ---------
                                                                (DOLLARS IN THOUSANDS)

<S>                                         <C>           <C>          <C>          <C>          <C>
   Balance at beginning of period.........  $   886       $  788       $  760       $  723       $   534
   Charge-offs
   Real estate:
     One-to-four family...................                     6           10            7            11
     Multi-family and other...............       --           --           22           --            --
                                            -------       ------       ------       ------       -------
       Total..............................                     6           32            7            11

   Total Recoveries.......................       --           --           --           --            --
                                            -------       ------       ------       ------       -------

   Net charge-offs........................                     6           32            7            11

   Additions charged to operations........       40          104           60           44           200
                                            -------       ------       ------       ------       -------

   Balance at end of period...............  $   926       $  886       $  788       $  760       $   723
                                            =======       ======       ======       ======       =======

   Ratio of net charge-offs during the
     period to average loans outstanding
     during the period ...................                    --         0.02%        0.01%         0.01%
                                            =======       ======       ======       ======       =======

   Ratio of net charge-offs during the
     period to average non-performing
     assets ..............................                    --         5.31%        2.61%        1.04%
                                            =======       ======       ======      =======      =======

<CAPTION>

         The activity in the allowance for loan losses is as follows:

                                                               YEARS ENDED DECEMBER 31,
                                            --------------------------------------------------------------
                                               2001        2000          1999         1998         1997
                                            ---------   ----------    ----------   ----------   ----------
                                                                    (IN THOUSANDS)

<S>                                          <C>           <C>          <C>          <C>          <C>
   Balance - beginning....................   $   886       $  788       $  760       $  723       $   534
   Provisions charged to operations.......        40          104           60           44           200
   Loans charged off, net of recoveries...        --           (6)         (32)          (7)          (11)
                                             -------       ------       ------       ------       -------
   Balance - ending.......................   $   926       $  886       $  788       $  760       $   723
                                             =======       ======       ======       ======       =======
</TABLE>


                                       11
<PAGE>

         The following tables set forth the breakdown of the allowance for loan
losses by loan category at the dates indicated. Management believes that the
allowance can be allocated by category only on an approximate basis. The
allocation of the allowance to each category is not necessarily indicative of
losses and does not restrict the use of the allowance to absorb losses in any
other category.

<TABLE>
<CAPTION>
                                                                          AT DECEMBER 31,
                             -----------------------------------------------------------------------------------------------------
                                          2001                               2000                              1999
                             -------------------------------   -------------------------------   ---------------------------------
                                                   LOANS IN                          LOANS IN                            LOANS IN
                                          LOAN       EACH                    LOAN      EACH                    LOAN        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
                             ALLOWANCES  CATEGORY   LOANS      ALLOWANCES   CATEGORY   LOANS     ALLOWANCES   CATEGORY    LOANS
                             ----------  --------  --------    ----------   -------- --------    ----------   --------   --------
                                                                       (DOLLARS IN THOUSANDS)

<S>                          <C>         <C>         <C>       <C>          <C>         <C>      <C>          <C>           <C>
One-to-four family......     $    310    $146,828    74.05%    $    446     $171,735    78.44%   $    476     $182,100      89.86%
Multi-family............          137       6,595     3.33           93        5,560     2.54          33        2,143       1.06
Commercial real estate..          268      24,739    12.48          228       22,807    10.42          94        7,553       3.72
Home equity.............          125      19,749     9.96          113       18,605     8.50          98       10,616       5.24
Other consumer..........           --         363     0.18           --          204     0.10          --          235       0.12
Unallocated.............           86          --     0.00            6           --     0.00         170           --       0.00
                             --------    --------   ------     --------     --------   ------    --------     --------     ------


                             $    926    $198,274   100.00%    $    886     $218,911   100.00%   $    788     $202,647     100.00%
                             ========    ========   =======    ========     ========   ======    ========     ========     ======

<CAPTION>

                                                        AT DECEMBER 31,
                             ----------------------------------------------------------------------
                                            1998                                1997
                             ----------------------------------  ----------------------------------
                                                     LOANS IN                             LOANS IN
                                           LOAN        EACH                    LOAN         EACH
                             AMOUNT OF   AMOUNTS     CATEGORY    AMOUNT OF    AMOUNTS     CATEGORY
                             LOAN LOSS      BY       TO TOTAL    LOAN LOSS      BY        TO TOTAL
                             ALLOWANCES  CATEGORY     LOANS      ALLOWANCES   CATEGORY     LOANS
                             ----------  --------    --------    ----------   --------    --------
                                                     (DOLLARS IN THOUSANDS)
<S>                          <C>         <C>          <C>        <C>         <C>             <C>
One-to-four family......     $    458    $166,573        92.23%  $    402    $143,623        93.88%
Multi-family............           11       1,200         0.67         22       1,258         0.82
Commercial real estate..           40       3,367         1.88         37       1,906         1.25
Home equity.............           81       7,133         4.00         59       5,706         3.73
Other consumer..........           --         388         0.22          3         491         0.32
Unallocated.............          170          --         0.00        200          --         0.00
                             --------    --------    ---------   --------    --------    ---------

                             $    760    $178,661       100.00%  $    723    $152,984       100.00%
                             ========    ========    =========   ========    ========    =========
</TABLE>





                                       12
<PAGE>


INVESTMENT ACTIVITIES

         The Bank is permitted under federal law to invest in various types of
liquid assets, including U.S. Treasury obligations, government sponsored
corporation securities, securities of various federal agencies and of state and
municipal governments, deposits at the FHLB, certificates of deposit of
federally insured institutions, certain bankers' acceptances and federal funds.
Subject to various restrictions, the Bank may also invest a portion of its
assets in commercial paper and corporate debt securities. The Bank is not
permitted, by regulation, to invest in corporate equity securities. Savings
institutions like the Bank are also required to maintain an investment in FHLB
stock. The Bank is required under federal regulations to maintain a minimum
amount of liquid assets.

         The Bank purchases investment securities with excess liquidity arising
when investable funds exceed loan demand. The Bank's current investment policy
limits investments to U.S. Government and government sponsored corporation
securities, certificates of deposit, marketable corporate debt obligations, and
mortgage-backed securities. The Bank's investment policy does not permit
engaging directly in hedging activities or purchasing high risk mortgage
derivative products or non-investment grade corporate bonds. Investments are
made based on certain considerations, which include the interest rate, yield,
settlement date and maturity of the investment, the Bank's liquidity position,
and anticipated cash needs and sources (which in turn include outstanding
commitments, upcoming maturities, estimated deposits and anticipated loan
amortization and repayments). The effect that the proposed investment would have
on the Bank's credit and interest rate risk and risk-based capital is also
considered. The Company categorizes investment portfolios as held to maturity
and available for sale. No assets are categorized as held for trading. At
December 31, 2001, all mortgage-backed securities were classified as available
for sale and carried at fair value. Such securities amounted to $106.5 million
or 33.0% of total assets. US agency obligations in the amount of $1.0 million
were classified as held to maturity.

         The following table sets forth the carrying value of the Bank's
securities portfolio, at the dates indicated.

<TABLE>
<CAPTION>

                                                                    AT DECEMBER 31,
                                      --------------------------------------------------------------------------
                                               2001                      2000                      1999
                                      ----------------------    ----------------------    ----------------------
                                      CARRYING       % OF       CARRYING        % OF      CARRYING       % OF
                                        VALUE        TOTAL         VALUE        TOTAL       VALUE        TOTAL
                                      ---------    ---------    ---------    ---------    ---------     --------
                                                                (DOLLARS IN THOUSANDS)
<S>                                   <C>           <C>        <C>           <C>         <C>           <C>
Mortgage-backed securities:
  GNMA..............................     7,401         6.95       11,862        30.78       15,707        32.13
  Fannie Mae........................    58,803        55.22        6,514        16.90        8,493        17.22
  Freddie Mac.......................    40,281        37.83       12,883        33.43       16,746        33.87
  Collateralized Mortgage Obligations       --           --        7,275        18.89        7,761        15.94
                                       -------      -------     --------     --------     --------      -------
    Total mortgage backed securities   106,485       100.00       38,534       100.00       48,707       100.00
                                       -------      -------     --------     --------     --------      -------

Total securities available for sale.  $106,485       100.00%    $ 38,534       100.00%    $ 48,707       100.00%
                                      ========     ==========   ========     ========     ========      =======

Held to Maturity:
Investment Securities:
  Federal Agency Obligations........     1,000       100.00%      19,485       100.00%      19,468       100.00%
                                      --------                  --------                  --------
  Total Securities Held to Maturity.     1,000       100.00%      19,485       100.00%      19,468       100.00%
                                      ========                  ========                  ========

FHLB Stock..........................  $  2,535                  $  2,355                  $  2,355
                                      ========                  ========                  ========

Other interest earning assets:
  Interest bearing deposits in banks  $  5,739                  $  2,861                  $  2,049
                                      ========                  ========                  ========
</TABLE>


                                       13
<PAGE>

         The following table sets forth the amount of mortgage-backed securities
that mature during each of the periods indicated and the weighted average yields
for each of the periods of maturities at December 31, 2001.

                                                         CARRYING     AVERAGE
                                                           VALUE       YIELD
                                                         --------    ---------
              One year or less...................        $    620       6.50%
              After one year though five years...              --         --
              After five years through ten years.              --         --
              After ten years....................         105,865       4.97
                                                         --------    -------

              Total..............................        $106,485       4.98%
                                                         ========    ========

DEPOSIT ACTIVITIES AND OTHER SOURCES OF FUNDS

         GENERAL. Deposits are the major external source of funds for the Bank's
lending and other investment activities. In addition, the Bank also generates
funds internally from loan principal repayments and prepayments and maturing
investment securities. Scheduled loan repayments are a relatively stable source
of funds, while deposit inflows and outflows and loan prepayments are influenced
significantly by general interest rates and money market conditions. Borrowings
from the FHLB may be used as a long-term funding strategy for increased loan
origination or the purchase of investment securities.

         DEPOSIT ACCOUNTS. The Bank's deposit products include negotiable order
of withdrawal ("NOW") accounts, demand deposit accounts, money market accounts,
regular passbook savings, statement savings accounts and term certificate
accounts. Deposit account terms vary with the principal difference being the
minimum balance deposit, early withdrawal penalties and the interest rate. The
Bank reviews its deposit mix and pricing periodically. The Bank does not utilize
brokered deposits, nor has it sought jumbo ($100,000 or more) certificates of
deposit.

         The Bank believes it is competitive in the type of accounts and
interest rates it offers on its deposit products. The Bank determines the rates
paid based on a number of conditions, including rates paid by competitors, rates
on U.S. Treasury securities, rates offered on various FHLB lending programs, and
the deposit growth rate the Bank is seeking to achieve.

         The Bank may use premiums to attract new checking accounts,
particularly in conjunction with new branch openings. These premiums are
reflected as an increase in the Bank's advertising and promotion expense, as
well as its cost of funds. The Bank also attracts business checking accounts and
promotes individual retirement accounts ("IRAs").


                                       14
<PAGE>

         The following table sets forth an analysis of deposit accounts by type,
maturity, and rate at December 31, 2001, 2000 and 1999.

<TABLE>
<CAPTION>

                                                                              AT DECEMBER 31,
                                     -----------------------------------------------------------------------------------------------
                                                  2001                             2000                             1999
                                     -----------------------------  -------------------------------  -------------------------------
                                               WEIGHTED                         WEIGHTED                         WEIGHTED
                                                AVERAGE    % OF                 AVERAGE     % OF                 AVERAGE     % OF
                                      AMOUNT     RATE     TOTAL      AMOUNT      RATE       TOTAL     AMOUNT      RATE       TOTAL
                                     --------- --------  ---------  ---------  ---------  ---------  ---------  ---------  ---------
                                                                          (DOLLARS IN THOUSANDS)

TRANSACTIONS AND SAVINGS DEPOSITS:

<S>                                  <C>         <C>     <C>        <C>        <C>       <C>         <C>       <C>         <C>
Non-interest bearing..............   $  7,398       --%      2.88%  $  6,228         --%      2.78%   $ 4,600         --%      2.09%
Money market accounts.............      1,964     2.53       0.76      1,946       2.83       0.87      2,213       2.79       1.00
NOW accounts......................     17,182     1.15       6.67     12,081       1.59       5.40     10,314       1.56       4.67
Passbook and statement savings....     64,080     2.03      24.87     49,982       3.00      22.35     51,421       3.00      23.32
                                     --------     -----   --------  --------   --------   --------    -------   --------   --------
  Total transactions and
    savings deposits..............     90,624     1.71      35.18     70,237       2.49      31.40     68,548       2.57      31.08

CERTIFICATE ACCOUNTS WITH REMAINING
  MATURITIES OF:
6 months or less..................     59,250     4.42      22.99     58,261       5.48      26.05     65,281       5.05%     29.60
Over 6 to 12 months...............     48,264     3.78      18.74     60,545       6.03      27.08     42,296       5.18      19.18
Over 12 months....................     59,513     5.08      23.09     34,566       6.19      15.47     44,408       5.55      20.14
                                     --------     -----   --------  --------   --------   --------   --------   --------   --------
  Total certificates..............    167,027     4.47      64.82    153,372       5.86      68.60    151,985       5.23      68.92
                                     --------     -----   --------  --------   --------   --------   --------   --------   --------
   Total deposits.................   $257,651     3.49%    100.00%  $223,609       4.80%    100.00%  $220,533       4.40%    100.00%
                                     ========     ====    ========  ========   ========   ========   ========   ========   =========

<CAPTION>

         TIME DEPOSITS BY MATURITIES. The following table sets forth the amount
of time deposits in the Bank categorized by rates and maturities at December 31,
2001.

                    DECEMBER 31,       DECEMBER 31,        DECEMBER 31,        DECEMBER 31,
                        2002               2003                2004                2005                TOTAL
                  ---------------     ---------------     ---------------    ----------------    ---------------
                                                          (IN THOUSANDS)

<S>                <C>                 <C>                 <C>                 <C>               <C>
Less than 4%.....   $  49,463           $  14,458           $   1,893           $    113          $   65,927
4.00-5.99%.......      52,031               7,468              12,721              2,112              74,332
6.00-7.99%.......       6,020              19,350               1,362                 36              26,768
                    ---------           ---------           ---------           --------          ----------
Total............   $ 107,514           $  41,276           $  15,976           $  2,261          $  167,027
                    =========           =========           =========           ========          ==========
<CAPTION>

         The following table indicates the amount of the Bank's certificates of
deposit by time remaining until maturity as of December 31, 2001.

                                                                                       MATURITY
                                                       -----------------------------------------------------------------------
                                                        3 MONTHS      OVER 3 MONTHS   OVER 12 MONTHS   OVER
                                                         OR LESS      TO 12 MONTHS    TO 36 MONTHS   36 MONTHS        TOTAL
                                                       -----------    ----------------------------------------      ----------
                                                                                      (IN THOUSANDS)

<S>                                                 <C>             <C>            <C>            <C>
Certificates of Deposit less than $100,000             $  23,465       $  71,424      $  51,404      $   2,097    $ 148,390
Certificates of Deposit of $100,000 or more                6,275           6,350          5,848            164       18,637
                                                       ---------       ---------      ---------      ---------    ---------

Total Certificates of Deposit.........                 $  29,740       $  77,774      $  57,252      $   2,261      $ 167,027
                                                       =========       =========      =========      =========      =========
</TABLE>


                                       15
<PAGE>

         DEPOSIT ACTIVITY. The following table sets forth the deposit activity
of the Bank for the periods indicated.

<TABLE>
<CAPTION>
                                                                           AT DECEMBER 31,
                                                   -------------------------------------------------------------
                                                     2001          2000         1999         1998         1997
                                                   ---------    ---------    ---------    ---------     --------
                                                                           (IN THOUSANDS)
<S>                                                <C>          <C>          <C>          <C>           <C>
Beginning balance...........................       $ 223,609    $ 220,533    $ 223,270    $ 198,363     $184,709
                                                   ---------    ---------    ---------    ---------     --------

Net increase (decrease) before interest credited      23,617       (6,337)     (12,167)      15,675        5,283
Interest credited...........................          10,425        9,413        9,430        9,232        8,371
                                                   ---------    ---------    ---------    ---------     --------
Net increase (decrease) in deposits.........          34,042        3,076       (2,737)      24,907       13,654
                                                   ---------    ---------    ---------    ---------     --------
Ending balance..............................       $ 257,651    $ 223,609    $ 220,533      223,270     $198,363
                                                   =========    =========    =========    =========     ========
</TABLE>

         BORROWINGS. Savings deposits are the primary source of funds for the
Bank's lending and investment activities and for its general business purposes.
The Bank has the ability to use advances from the FHLB to supplement its supply
of lendable funds and to meet deposit withdrawal requirements. The FHLB
functions as a central reserve bank providing credit for savings associations
and certain other member financial institutions. As a member of the FHLB, the
Bank is required to own capital stock in the FHLB and is authorized to apply for
advances on the security of such stock and certain of its mortgage loans and
other assets (principally securities that are obligations of, or guaranteed by,
the U.S. Government) provided certain creditworthiness standards have been met.
Advances are made pursuant to several different credit programs. Each credit
program has its own interest rate and range of maturities. Depending on the
program, limitations on the amount of advances are based on the financial
condition of the member institution and the adequacy of collateral pledged to
secure the credit.

         The following table sets forth the maximum month-end balance and
average balance of FHLB advances for the periods indicated.

<TABLE>
<CAPTION>
                                                                      YEARS ENDED DECEMBER 31,
                                                   -------------------------------------------------------------
                                                     2001          2000         1999         1998         1997
                                                   ---------    ---------    ---------    ---------     --------
                                                                           (IN THOUSANDS)
Maximum balance:
---------------
<S>                                                <C>          <C>          <C>          <C>           <C>
     FHLB advances..........................       $  19,300    $  13,400    $      --    $      --     $  7,500

Average balance:
---------------
     FHLB advances..........................       $   9,908    $   8,805    $      --    $      --     $  1,663
</TABLE>

         At December 31, 2001 and 2000, the Bank had advances outstanding from
the FHLB of New York of $9.0 million and $5.8 million, respectively.

         The following table sets forth the maximum month-end balance and
average balance of Repurchase Agreements with the FHLB for the years ended
December 31, 2001 and 2000.

<TABLE>
<CAPTION>
                                                                      AT AND
                                                                FOR THE YEARS ENDED
                                                                   DECEMBER 31,
                                                   ------------------------------------------
                                                                  (IN THOUSANDS)
                                                     2001                           2000
                                                   -----------                  -------------
<S>                                                    <C>                            <C>
         Maximum Balance:
            FHLB advances                              $38,500                        $31,800
         Average balance
            FHLB advances                               25,501                         28,150
         Average interest rates                          4.68%                          6.40%
         Investment securities underlying
            agreements at year end:
               Carrying value                           18,510                         25,629
               Fair value                               18,976                         25,546

</TABLE>

                                       16
<PAGE>

EMPLOYEES

         As of December 31, 2001, the Bank had 59 full-time and 17 part-time
employee, none of whom is represented by a collective bargaining unit. The Bank
believes its relationship with its employees is good.

                                   REGULATION

         As a federally chartered SAIF-insured savings bank, the Bank is subject
to examination, supervision and extensive regulation by the OTS and the FDIC.
The Bank is a member of the FHLB of New York. This regulation and supervision
establishes a comprehensive framework of activities in which an institution can
engage and is intended primarily for the protection of the insurance fund and
depositors. The Bank also is subject to regulation by the Board of Governors of
the Federal Reserve System (the "Federal Reserve Board") governing reserves to
be maintained against deposits and certain other matters. The OTS examines the
Bank and prepares reports for the consideration of the Bank's Board of
Directors. The FDIC also examines the Bank in its role as the administrator of
the SAIF. The Bank's relationship with its depositors and borrowers also is
regulated to a great extent by both federal and state laws, especially in such
matters as the ownership of savings accounts and the form and content of the
Bank's mortgage documents. Any change in such regulation, whether by the FDIC,
OTS, or Congress, could have a material adverse impact on the Company and the
Bank and their operations.

FEDERAL REGULATION OF SAVINGS INSTITUTIONS

         BUSINESS ACTIVITIES. The activities of savings institutions are
governed by the Home Owners' Loan Act, as amended (the "HOLA") and, in certain
respects, the Federal Deposit Insurance Act (the "FDI Act") and the regulations
issued by the agencies to implement these statutes. These laws and regulations
delineate the nature and extent of the activities in which savings association
may engage. The description of statutory provisions and regulations applicable
to savings associations set forth herein does not purport to be a complete
description of such statutes and regulations and their effect on the Bank.

         LOANS TO ONE BORROWER. Under the HOLA, savings institutions are
generally subject to the national bank limits on loans to a single or related
group of borrowers. Generally, this limit is 15% of the Bank's unimpaired
capital and surplus, and an additional 10% of unimpaired capital and surplus if
such loan is secured by readily-marketable collateral, which is defined to
include certain financial instruments and bullion. The OTS by regulation has
amended the loans to one borrower rule to permit savings associations meeting
certain requirements to extend loans to one borrower in additional amounts under
circumstances limited essentially to loans to develop or complete residential
housing units.

         QUALIFIED THRIFT LENDER TEST. In general, savings associations are
required to maintain at least 65% of their portfolio assets in certain qualified
thrift investments (which consist primarily of loans and other investments
related to residential real estate and certain other assets). A savings
association that fails the qualified thrift lender test is subject to
substantial restrictions on activities and to other significant penalties.

         Recent legislation has expanded the qualified thrift lender test to
provide savings associations with greater authority to lend and diversify their
portfolios. In particular, credit card and education loans may now be made by
savings associations without regard to any percentage-of-assets limit, and
commercial loans may be made in an amount up to 10% of total assets, plus an
additional 10% for small business loans. Loans for personal, family and
household purposes (other than credit card, small business and educational
loans) are now included without limit with other assets that, in the aggregate,
may account for up to 20% of total assets. The Bank satisfied the qualified
thrift lender test on December 31, 2001.

         LIMITATIONS ON CAPITAL DISTRIBUTIONS. OTS regulations impose
limitations upon all capital distributions by savings institutions, such as cash
dividends, payments to repurchase or otherwise acquire its shares, payments to
stockholders of another institution in a cash-out merger and other distributions
charged against capital. A "well capitalized" institution can, after prior
notice but without the approval of the OTS, make capital distributions during a
calendar year in an amount up to 100% of its net income during the calendar year
plus its retained net income for the preceding two years. As of December 31,
2001, the Bank was a "well-capitalized" institution, but no dividends were paid
to the Company.

         COMMUNITY REINVESTMENT ACT AND FAIR LENDING LAWS. Savings associations
share a responsibility under the Community Reinvestment Act ("CRA") and related
regulations of the OTS to help meet the credit needs of their communities,
including low- and moderate-income neighborhoods. In addition, the Equal Credit
Opportunity Act

                                       17
<PAGE>

and the Fair Housing Act (together, the "Fair Lending Laws") prohibit lenders
from discriminating in their lending practices on the basis of characteristics
specified in those statutes. An institution's failure to comply with the
provisions of CRA could, at a minimum, result in regulatory restrictions on its
activities, and failure to complete with the Fair Lending Laws could result in
enforcement actions by the OTS, as well as other federal regulatory agencies and
the Department of Justice. The Bank received a satisfactory CRA rating under the
current CRA regulations in its most recent federal examination by the OTS.

         TRANSACTIONS WITH RELATED PARTIES. The Bank's authority to engage in
transactions with related parties or "affiliates" (I.E., any company that
controls or is under common control with an institution, including the Company
and any nonsavings institution subsidiaries) or to make loans to certain
insiders, is limited by Sections 23A and 23B of the Federal Reserve Act ("FRA").
Section 23A limits the aggregate amount of transactions with any individual
affiliate to 10% of the capital and surplus of the savings institution and also
limits the aggregate amount of transactions with all affiliates to 20% of the
savings institution's capital and surplus. Certain transactions with affiliates
are required to be secured by collateral in an amount and of a type described in
Section 23A and the purchase of low quality assets from affiliates is generally
prohibited. Section 23B provides that certain transactions with affiliates,
including loans and asset purchases, must be on terms and under circumstances,
including credit standards, that are substantially the same or at least as
favorable to the institution as those prevailing at the time for comparable
transactions with nonaffiliated companies.

         ENFORCEMENT. Under the FDI Act, the OTS has primary enforcement
responsibility over savings institutions and has the authority to bring
enforcement action against all "institution-related parties," including
stockholders, attorneys, appraisers and accountants who knowingly or recklessly
participate in wrongful action likely to have an adverse effect on an insured
institution. Formal enforcement action may range from the issuance of a capital
directive or cease and desist order to removal of officers and/or directors of
the institutions, receivership, conservatorship or the termination of deposit
insurance. Civil penalties cover a wide range of violations and actions, and
range up to $25,000 per day, unless a finding of reckless disregard is made, in
which case penalties may be as high as $1 million per day. Under the FDI Act,
the FDIC has the authority to recommend to the Director of OTS that enforcement
action be taken with respect to a particular savings institution. If action is
not taken by the Director, the FDIC has authority to take such action under
certain circumstances.

         STANDARDS FOR SAFETY AND SOUNDNESS. The FDI Act requires each federal
banking agency to prescribe for all insured depository institutions standards
relating to, among other things, internal controls, information systems and
audit systems, loan documentation, credit underwriting, interest rate risk
exposure, asset growth, and compensation fees and benefits and such other
operational and managerial standards as the agency deems appropriate. The
federal banking agencies adopted a final regulation and Interagency Guidelines
Prescribing Standards for Safety and Soundness ("Guidelines") to implement the
safety and soundness standards required under the FDI Act. The Guidelines set
forth the safety and soundness standards that the federal banking agencies use
to identify and address problems at insured depository institutions before
capital becomes impaired. The Guidelines address internal controls and
information systems; internal audit systems; credit underwriting; loan
documentation; interest rate risk exposure; asset growth; and compensation, fees
and benefits. If the appropriate federal banking agency determines that an
institution fails to meet any standard prescribed by the Guidelines, the agency
may require the institution to submit to the agency an acceptable plan to
achieve compliance with the standard, as required by the FDI Act. The final
regulations establish deadlines for the submission and review of such safety and
soundness compliance plans.

         CAPITAL REQUIREMENTS. The OTS capital regulations require savings
institutions to meet three capital standards: a 1.5% tangible capital standard,
a 4% leverage (core capital) ratio and an 8% risk based capital standard. Core
capital is defined as common stockholders' equity (including retained earnings),
certain noncumulative perpetual preferred stock and related surplus, minority
interests in equity accounts of consolidated subsidiaries less intangibles other
than certain mortgage servicing rights ("MSRs"), and credit card relationships.
The OTS regulations require that, in meeting the leverage ratio, tangible and
risk-based capital standards institutions generally must deduct investments in
and loans to subsidiaries engaged in activities not permissible for a national
bank. In addition, the OTS prompt corrective action regulation provides that a
savings institution that has a leverage capital ratio of less than 4% (3% for
institutions receiving the highest CAMEL examination rating) will be deemed to
be "undercapitalized" and may be subject to certain restrictions.

         The risk-based capital standard for savings institutions requires the
maintenance of total capital (which is defined as core capital and supplementary
capital) to risk-weighted assets of 8%. In determining the amount of
risk-weighted assets, all assets, including certain off-balance sheet assets,
are multiplied by a risk-weight of 0% to 100%, as assigned by the OTS capital
regulation based on the risks OTS believes are inherent in the type of asset.
The components of core capital are equivalent to those discussed earlier under
the leverage standard. The components of


                                       18
<PAGE>

supplementary capital currently include cumulative preferred stock, long-term
perpetual preferred stock, mandatory convertible securities, subordinated debt
and intermediate preferred stock and, within specified limits, the allowance for
loan and lease losses. Overall, the amount of supplementary capital included as
part of total capital cannot exceed 100% of core capital.

         At December 31, 2001, the Bank exceeded each of the three OTS capital
requirements on a fully phased-in basis. Set forth below is a summary of the
Bank's compliance with the OTS capital standards as of December 31, 2001.

<TABLE>
<CAPTION>

                                                                                          TO BE WELL CAPITALIZED
                                                                      FOR CAPITAL         UNDER PROMPT CORRECTIVE
                                              ACTUAL               ADEQUACY PURPOSES         ACTION PROVISIONS
                                      ------------------------  -----------------------   ------------------------
                                        AMOUNT       RATIO (1)    AMOUNT      RATIO (1)     AMOUNT        RATIO(1)
                                      ---------      ---------  ---------     ---------   ---------       --------
<S>                                   <C>             <C>       <C>               <C>     <C>            <C>
As of December 31, 2001:
  Tier I core capital...............  $  28,544          8.88%  $  12,897         4.00%   $  16,078         5.00%
  Tier I risk-based capital.........     29,395         19.26%         --           --        8,892         6.00%
  Total risk-based capital..........     29,395         19.83%     11,856         8.00%      14,820        10.00%
</TABLE>

(1)      Core capital is calculated on the basis of a percentage of total
         adjusted assets; risk-based capital levels are calculated on the basis
         of a percentage of risk-weighted assets.

PROMPT CORRECTIVE REGULATORY ACTION

         Under the OTS Prompt Corrective Action regulations, the OTS is required
to take certain supervisory actions against undercapitalized institutions, the
severity of which depends upon the institution's degree of capitalization.
Generally, a savings institution that has total risk-based capital of less than
8.0% or a leverage ratio or a Tier 1 core capital ratio that is less than 4.0%
is considered to be undercapitalized. A savings institution that has total
risk-based capital of less than 6.0%, a Tier 1 core risk-based capital ratio of
less than 3.0% or a leverage ratio that is less than 3.0% is considered to be
"significantly undercapitalized," and a savings institution that has a tangible
capital to assets ratio equal to or less than 2.0% is deemed to be "critically
undercapitalized." Subject to a narrow exception, the banking regulator is
required to appoint a receiver or conservator for an institution that is
"critically undercapitalized." The regulation also provides that a capital
restoration plan must be filed with the OTS within 45 days of the date an
institution receives notice that it is "undercapitalized," "significantly
undercapitalized" or "critically undercapitalized." In addition, numerous
mandatory supervisory actions become immediately applicable to the institution,
including, but not limited to, restrictions on growth, investment activities,
capital distributions, and affiliate transactions. The OTS may also take any one
of a number of discretionary supervisory actions, including the issuance of a
capital directive and the replacement of senior executive officers and
directors.

INSURANCE OF DEPOSIT ACCOUNTS

         The FDIC has adopted a risk-based insurance assessment system. The FDIC
assigns an institution to one of three capital categories based on the
institution's financial information, as of the reporting period ending seven
months before the assessment period, consisting of (1) well capitalized, (2)
adequately capitalized or (3) undercapitalized, and one of three supervisory
subcategories within each capital group. The supervisory subgroup to which an
institution is assigned is based on a supervisory evaluation provided to the
FDIC by the institution's primary federal regulator and information which the
FDIC determines to be relevant to the institution's financial condition and the
risk posed to the deposit insurance funds. An institution's assessment rate
depends on the capital category and supervisory category to which it is
assigned. The FDIC is authorized to raise the assessment rates in certain
circumstances. The FDIC has exercised this authority several times in the past
and may raise insurance premiums in the future. If the FDIC takes such action,
it could have an adverse effect on the earnings of the Bank.

FEDERAL HOME LOAN BANK SYSTEM

         The Bank, as a federal association, is required to be a member of the
FHLB System, which consists of 12 regional FHLBs. The FHLB provides a central
credit facility primarily for member institutions. The Bank, as a member of the
FHLB of New York, is required to acquire and hold shares of capital stock in
that FHLB in an amount at least equal to 1% of the aggregate principal amount of
its unpaid residential mortgage loans and similar obligations at the beginning
of each year, or 1/20 of its advances (borrowings) from the FHLB, whichever is
greater. As of December 31, 2001, the Bank was in compliance with this
requirement. The FHLBs are required to provide funds for the resolution of
insolvent thrifts and to contribute funds for affordable housing programs. These
requirements could reduce the amount of dividends that the FHLBs pay to their
members and could also result in the FHLBs imposing a higher rate of interest on
advances to their members.

                                       19
<PAGE>

FEDERAL RESERVE SYSTEM

         The Federal Reserve Board regulations require savings institutions to
maintain noninterest-earning reserves against their transaction accounts
(primarily NOW and regular checking accounts). At December 31, 2001, the Bank
was in compliance with these reserve requirements. The balances maintained to
meet the reserve requirements imposed by the FRB may be used to satisfy
liquidity requirements imposed by the OTS.

HOLDING COMPANY REGULATION

         GENERALLY. The Mutual Holding Company and the Company are
nondiversified mutual savings and loan holding companies within the meaning of
the HOLA. As such, the Mutual Holding Company and the Company are registered
with the OTS and are subject to OTS regulations, examinations, supervision and
reporting requirements. In addition, the OTS has enforcement authority over the
Mutual Holding Company and the Company and any nonsavings institution
subsidiaries. Among other things, this authority permits the OTS to restrict or
prohibit activities that are determined to be a serious risk to the subsidiary
savings institution. As federal corporations, the Company and the Mutual Holding
Company are generally not subject to state business organizations law.

         PERMITTED ACTIVITIES. Pursuant to Section 10(o) of the HOLA and OTS
regulations and policy, a mutual holding company and a federally chartered
mid-tier holding company such as the Company may engage in the following
activities: (i) investing in the stock of a savings association; (ii) acquiring
a mutual association through the merger of such association into a savings
association subsidiary of such holding company or an interim savings association
subsidiary of such holding company; (iii) merging with or acquiring another
holding company, one of whose subsidiaries is a savings association; (iv)
investing in a corporation, the capital stock of which is available for purchase
by a savings association under federal law or under the law of any state where
the subsidiary savings association or associations share their home offices; (v)
furnishing or performing management services for a savings association
subsidiary of such company; (vi) holding, managing or liquidating assets owned
or acquired from a savings subsidiary of such company; (vii) holding or managing
properties used or occupied by a savings association subsidiary of such company
properties used or occupied by a savings association subsidiary of such company;
(viii) acting as trustee under deeds of trust; (ix) any other activity (A) that
the Federal Reserve Board, by regulation, has determined to be permissible for
bank holding companies under Section 4(c) of the Bank Holding Company Act of
1956, unless the Director, by regulation, prohibits or limits any such activity
for savings and loan holding companies; or (B) in which multiple savings and
loan holding companies were authorized (by regulation) to directly engage on
March 5, 1987; and (x) purchasing, holding, or disposing of stock acquired in
connection with a qualified stock issuance if the purchase of such stock by such
savings and loan holding company is approved by the Director. If a mutual
holding company acquires or merges with another holding company, the holding
company acquired or the holding company resulting from such merger or
acquisition may only invest in assets and engage in activities listed in (i)
through (x) above, and has a period of two years to cease any nonconforming
activities and divest of any nonconforming investments.

         The HOLA prohibits a savings and loan holding company, including the
Company and the Mutual Holding Company, directly or indirectly, or through one
or more subsidiaries, from acquiring another savings institution or holding
company thereof, without prior written approval of the OTS. It also prohibits
the acquisition or retention of, with certain exceptions, more than 5% of a
nonsubsidiary savings institution, a nonsubsidiary holding company, or a
nonsubsidiary company engaged in activities other than those permitted by the
HOLA; or acquiring or retaining control of an institution that is not federally
insured. In evaluating applications by holding companies to acquire savings
institutions, the OTS must consider the financial and managerial resources,
future prospects of the company and institution involved, the effect of the
acquisition on the risk to the insurance fund, the convenience and needs of the
community and competitive factors.

         The OTS is prohibited from approving any acquisition that would result
in a multiple savings and loan holding company controlling savings institutions
in more than one state, subject to two exceptions: (i) the approval of
interstate supervisory acquisitions by savings and loan holding companies, and
(ii) the acquisition of a savings institution in another state if the laws of
the state of the target savings institution specifically permit such
acquisitions. The states vary in the extent to which they permit interstate
savings and loan holding company acquisitions.

         WAIVERS OF DIVIDENDS BY THE MUTUAL HOLDING COMPANY. OTS regulations
require the Mutual Holding Company to notify the OTS of any proposed waiver of
its right to receive dividends. The OTS reviews dividend waiver notices on a
case-by-case basis, and, in general, does not object to any such waiver if: (i)
the mutual holding company's board of directors determines that such waiver is
consistent with such directors' fiduciary duties to the

                                       20
<PAGE>

mutual holding company's members; (ii) for as long as the savings association
subsidiary is controlled by the mutual holding company, the dollar amount of
dividends waived by the mutual holding company are considered as a restriction
to the retained earnings of the savings association, which restriction, if
material, is disclosed in the public financial statements of the savings
association as a note to the financial statements; (iii) the amount of any
dividend waived by the mutual holding company is available for declaration as a
dividend solely to the mutual holding company, and, in accordance with SFAS 5,
where the savings association determines that the payment of such dividend to
the mutual holding company is probable, an appropriate dollar amount is recorded
as a liability; and (iv) the amount of any waived dividend is considered as
having been paid by the savings association in evaluating any proposed dividend
under OTS capital distribution regulations.

         CONVERSION OF THE MUTUAL HOLDING COMPANY TO STOCK FORM. OTS regulations
permit the Mutual Holding Company to issue from the mutual to the stock form of
ownership (a "Conversion Transaction"). There can be no assurance when, if ever,
a Conversion Transaction will occur, and the Board of Directors has no current
intention or plan to undertake a Conversion Transaction. In a Conversion
Transaction a new holding company would be formed as the successor to the
Company (the "New Holding Company"), the Mutual Holding Company's corporate
existence would end, and certain depositors of the Bank would receive the right
to subscribe for additional shares of the New Holding Company. In a Conversion
Transaction, each share of Common Stock held by the Company's public
stockholders ("Minority Stockholders") would be automatically converted into a
number of shares of common stock of the New Holding Company determined pursuant
an exchange ratio that ensures that after the Conversion Transaction, subject to
any adjustment to reflect the receipt of cash in lieu of fractional shares, the
percentage of the to-be outstanding shares of the New Holding Company issued to
Minority Stockholders in exchange for their Common Stock would be equal to the
percentage of the outstanding shares of Common Stock held by Minority
Stockholders immediately prior to the Conversion Transaction. The total number
of shares held by Minority Stockholders after the Conversion Transaction would
also be affected by any purchases by such persons in the offering that would be
conducted as part of the Conversion Transaction.

FEDERAL SECURITIES LAW

         Shares of the Company's Common Stock are registered with the SEC under
the Section R(g) of Securities Exchange Act of 1934 (the "Exchange Act"). The
Company is subject to the information, proxy solicitation, insider trading
restrictions and other requirements of the SEC under the Exchange Act.

                                    TAXATION

FEDERAL INCOME TAXES

         GENERAL. The Bank and the Company are subject to federal income
taxation in the same general manner as other corporations, with some exceptions
discussed below. The following discussion of federal taxation is intended only
to summarize certain pertinent federal income tax matters and is not a
comprehensive description of the tax rules applicable to the Bank.

         METHOD OF ACCOUNTING. For federal income tax purposes, the Bank
currently reports its income and expenses on the accrual method of accounting
and uses a tax year ending December 31 for filing its federal income tax
returns. The Small Business Protection Act of 1996 (the "1996 Act") eliminated
the use of the reserve method of accounting for bad debt reserves by savings
institutions, effective for taxable years beginning after 1995.

         BAD DEBT RESERVES. Prior to the 1996 Act, the Bank was permitted to
establish a reserve for bad debts and to make annual additions to the reserve.
These additions could, within specified formula limits, be deducted in arriving
at the Bank's taxable income. As a result of the 1996 Act, the Bank must use the
specific charge off method in computing its bad debt deduction beginning with
its 1996 Federal tax return. In addition, the federal legislation requires the
recapture (over a six year period) of the excess of tax bad debt reserves at
December 31, 1995 over those established as of December 31, 1987. The amount of
such reserve subject to recapture as of December 31, 2001, was approximately
$293,000.

         TAXABLE DISTRIBUTIONS AND RECAPTURE. Prior to the 1996 Act, bad debt
reserves created prior to January 1, 1988 were subject to recapture into taxable
income should the Bank fail to meet certain thrift asset and definitional tests.
New federal legislation eliminated these thrift related recapture rules.
However, under current law, pre-1988 reserves remain subject to recapture should
the Bank make certain non-dividend distributions or cease to maintain a savings
bank charter.

                                       21
<PAGE>

         At December 31, 2001, the Bank's total federal pre-1988 reserve was
approximately $3.0 million. This reserve reflects the cumulative effects of
federal tax deductions by the Bank for which no federal income tax provision has
been made.

         MINIMUM TAX. The Code imposes an alternative minimum tax ("AMT") at a
rate of 20% on a base of regular taxable income plus certain tax preferences
("alternative minimum taxable income" or "AMTI"). The AMT is payable to the
extent such AMTI is in excess of an exemption amount. Net operating losses can
offset no more than 90% of AMTI. Certain payments of alternative minimum tax may
be used as credits against regular tax liabilities in future years. The Bank has
not been subject to the alternative minimum tax and has no such amounts
available as credits for carryover.

         NET OPERATING LOSS CARRYOVERS. A financial institution may carry back
net operating losses to the preceding two taxable years and forward to the
succeeding 20 taxable years. This provision applies to losses incurred in
taxable years beginning after 1986. At December 31, 2001, the Bank had no net
operating loss carryforwards for federal income tax purposes.

         CORPORATE DIVIDENDS-RECEIVED DEDUCTION. The Company may exclude from
its income 100% of dividends received from the Bank as a member of the same
affiliated group of corporations. The corporate dividends-received deduction is
80% in the case of dividends received from corporations with which a corporate
recipient does not file a consolidated return, and corporations which own less
than 20% of the stock of a corporation distributing a dividend may deduct only
70% of dividends received or accrued on their behalf.

         The Bank is not currently under audit with respect to its federal
income tax returns and has not been audited with respect to its federal income
tax returns during the past five years.

STATE AND LOCAL TAXATION

         STATE OF NEW JERSEY. The Bank files New Jersey income tax returns. For
New Jersey income tax purposes, savings institutions are presently taxed at a
rate equal to 3% of taxable income. For this purpose, "taxable income" generally
means federal taxable income, subject to certain adjustments (including the
addition of net interest income on state and municipal obligations). The Bank is
not currently under audit with respect to its New Jersey income tax returns.

         The Company is required to file a New Jersey income tax return because
it is doing business in New Jersey. For New Jersey tax purposes, regular
corporations are presently taxed at a rate equal to 9% of taxable income. For
this purpose, "taxable income" generally means federal taxable income subject to
certain adjustments (including addition of interest income on state and
municipal obligation). However, if the Company meets certain requirements, it
may be eligible to elect to be taxed as a New Jersey Investment Company at a tax
rate presently equal to 2.25% (25% of 9%) of taxable income.


                                       22
<PAGE>

ITEM 2.  PROPERTIES
-------------------

(a)      PROPERTIES

         The following table sets forth certain information regarding the Bank's
offices at December 31, 2001.

<TABLE>
<CAPTION>

LOCATION YEAR                            OPENED             APPROXIMATE SQUARE FEET          DEPOSITS
-------- ------------------         -----------------       ------------------------    ------------------
<S>                                       <C>                        <C>                  <C>
1410 St. Georges Avenue                   1986                       9,200                $63.3 million
Avenel, NJ 07001

1515 Irving Street                        1927                       7,300                $43.6 million
Rahway, NJ 07065

501 North Wood Ave.                       1977                       4,000                $49.7 million
Linden, NJ 07036

755 State Highway 18                      1974                       2,000                $62.7 million
East Brunswick, NJ 08816

1600 Perrineville Rd.                     1999                       2,400                $21.7 million
Monroe Township, NJ 08831

336 Ryders Lane                           2000                       3,500                $12.9 million
Milltown, NJ 08850

1031 Route 1 South                        2001                       3,500                $3.8 million
Edison, NJ 08837
</TABLE>

         At December 31, 2001, the net book value of the Company's office
properties, capital leases, and fixtures, furniture, and equipments was $5.9
million.

(b)      INVESTMENT POLICIES

         For a description of the Bank's policies (all of which may be changed
without a vote of the Bank's security holders) and the limitations on the
percentage of assets which may be invested in any one investment, or type of
investment with respect to: (1) investments in real estate or interests in real
estate; (2) investments in real estate mortgages; and (3) securities of or
interests in primarily engaged in real estate activities, reference is made here
under to the information presented above under "Item 1. Description of Business.

(c)      DESCRIPTION OF REAL ESTATE AND OPERATING DATA

         Not Applicable. The book value of each of the Bank's properties was
less than 10% of the Bank's total consolidated assets at December 31, 2001.

ITEM 3.  LEGAL PROCEEDINGS
--------------------------

         Periodically, there have been various claims and lawsuits involving the
Bank, such as claims to enforce liens, condemnation proceedings on properties in
which the Bank holds security interests, claims involving the making and
servicing of real property loans and other issues incident to the Bank's
business. The Bank is not a party to any pending legal proceedings that it
believes would have a material adverse effect on the financial condition or
operations of the Bank.

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

         No matters were submitted to a vote of stockholders during the fourth
quarter of the year under report.

                                       23
<PAGE>

                                     PART II

ITEM 5.  MARKET FOR COMPANY'S COMMON STOCK AND RELATED SECURITY HOLDER MATTERS
------------------------------------------------------------------------------

         The "Market for Common Stock" section of the Company's Annual Report to
Stockholders is incorporated herein by reference.

ITEM 6.  SELECTED FINANCIAL DATA
--------------------------------

         The selected financial information for the year ended December 31, 2001
is filed as part of the Company's Annual Report to Stockholders and is
incorporated by reference.

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

         The "Management's Discussion and Analysis of Financial Condition and
Results of Operations" section of the Company's Annual Report to Stockholders is
incorporated herein by reference.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
-------------------------------------------------------------------

         The information required by this item is set forth under the caption
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" in the Annual Report to Stockholders which is incorporated herein by
reference.

ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
----------------------------------------------------

         The financial statements are contained in the Company's Annual Report
to Stockholders and are incorporated herein by reference.

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

         None.
                                    PART III


ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY
--------------------------------------------------------

         The "Proposal I--Election of Directors" section of the Company's
definitive proxy statement for the Company's 2001 Annual Meeting of Stockholders
(the "2002 Proxy Statement") is incorporated herein by reference.

ITEM 11. EXECUTIVE COMPENSATION
-------------------------------

         The "Proposal I--Election of Directors" section of the Company's 2002
Proxy Statement is incorporated herein by reference.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
-----------------------------------------------------------------------

         The "Proposal I--Election of Directors" section of the Company's 2002
Proxy Statement is incorporated herein by reference.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
-------------------------------------------------------

         The "Transactions with Certain Related Persons" section of the
Company's 2002 Proxy Statement is incorporated herein by reference.


                                       24
<PAGE>


                                     PART IV

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

         (a)(1)  FINANCIAL STATEMENTS

         The exhibits and financial statement schedules filed as a part of this
Form 10-KSB are as follows:

                  (A)      Report of Independent Auditors

                  (B)      Consolidated Statements of Financial Condition

                  (C)      Consolidated Statements of Income

                  (D)      Consolidated Statements of Comprehensive Income

                  (E)      Consolidated Statements of Stockholders' Equity

                  (F)      Consolidated Statements of Cash Flows

                  (G)      Notes to Consolidated Financial Statements

         (a)(2)  FINANCIAL STATEMENT SCHEDULES

         All financial statement schedules have been omitted as the required
         information is inapplicable or has been included in the Notes to
         Consolidated Financial Statements.

         (b)      REPORTS ON FORM 8-K

         The Company did not file a Current Report on Form 8-K during the fourth
quarter of the fiscal year ended December 31, 2001.

         (c)      EXHIBITS


          3         Federal Stock Charter and Bylaws                     *

          4         Instruments defining the rights of                   *
                    Security holders, including indentures

          10.1      Form of Employment Agreement                         *

          10.2      Form of Employee Stock Ownership Plan                *

          13        Annual Report to Security Holders                    13

          21        Subsidiaries of Registrant                           21

          23        Consent of Radics & Co., LLC                         23

* Incorporated herein by reference to the Company's Registration Statement on
Form SB-2 (file no. 333-48003), originally filed with the SEC on March 16, 1998,
as amended on May 4, 1998 and May 12, 1998.


                                       25
<PAGE>

                                   SIGNATURES

         Pursuant to the requirements of Section 13 of the Securities Exchange
Act of 1934, the Company has duly caused this report to be signed on its behalf
by the undersigned, thereunto duly authorized.

<TABLE>
<CAPTION>

                                                               LIBERTY BANCORP, INC.



<S>                                                            <C>
Date:    March 28, 2002                                        By:     /s/ John R. Bowen
                                                                       ----------------------------------------
                                                                       John R. Bowen
                                                                       President and Chief Executive Officer

         Pursuant to the requirements of the Securities Exchange 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.



By:    /s/ John R. Bowen                                        By:    /s/ Michael J. Widmer
       -------------------------------------------                    -----------------------------------------
       John R. Bowen                                                   Michael J. Widmer
       President, Chief Executive Officer                              Executive Vice President, Chief Operating
       and Director (Principal Executive Officer)                      Officer, Chief Financial Officer and
                                                                       Director (Principal Financial and Accounting Officer)


Date:  March 28, 2002                                           Date:  March 28, 2002


By:    /s/ Neil R. Bryson                                       By:    /s/ Anthony V. Caruso
       --------------------------------------------                    ----------------------------------------
       Dr. Neil R. Bryson                                              Anthony V. Caruso
       Director                                                        Director


Date:  March 28, 2002                                           Date:  March 28, 2002


By:    /s/ Annette Catino                                       By:    /s/ John C. Marsh
       --------------------------------------------                    ----------------------------------------
       Annette Catino                                                  John C. Marsh
       Director                                                        Director


Date:  March 28, 2002                                           Date:  March 28, 2002


By:    /s/ Paul J. McGovern                                     By:    /s/ Nelson L. Taylor, Jr.
       --------------------------------------------                    ----------------------------------------
       Paul J. McGovern                                                Nelson L. Taylor, Jr.
       Director                                                        Director

Date:  March 28, 2002                                           Date:  March 28, 2002

</TABLE>

                                       26