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, 1998

                                       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)




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


  1410 St. Georges Avenue, Avenel, NJ                           07001
 (Address of Principal Executive Office)                      (Zip Code)


                                 (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 S-B 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. [X]

     The registrant's  revenues for the fiscal year ended December 31, 1998 were
$16.0 million.

     As of March 18, 1999, there were issued and outstanding 3,626,329 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 ($10.3125) was $15.2 million.

                       DOCUMENTS INCORPORATED BY REFERENCE

1.   Sections  of Annual  Report  to  Stockholders  for the  fiscal  year  ended
     December 31, 1998 (Parts II and IV).

2.   Proxy Statement for the May 1999 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").  The
Company's assets consist primarily of the outstanding  capital stock of the Bank
and cash and  investments  of $8.9  million,  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,
1998, 1,833,646 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, 1998, the Company had  consolidated  total assets of $260.4
million,  consolidated  total deposits of $223.3 million and consolidated  total
equity of $34.4 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
three 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 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, Rahway
and  Linden,  all of which  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 and
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  intense  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


<PAGE>


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
addition, the Bank originates construction loans,  multi-family residential real
estate loans, commercial real estate loans, home equity loans and other consumer
loans.

     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,
                                        ------------------------------------------------------------------------
                                                 1998                     1997                      1996
                                        --------------------      --------------------      -------------------
                                         Amount       Percent       Amount     Percent        Amount     Percent
                                         ------       -------       ------     -------        ------     -------
                                                                  (Dollars in Thousands)
<S>                                     <C>            <C>        <C>            <C>         <C>           <C>
   Real estate loans:
     One-to-four family...............  $ 166,573      93.23%     $ 143,623      93.88%      $120,892      91.93%
     Multi-family.....................      1,200       0.67          1,258       0.82          1,875       1.42
     Commercial.......................      3,367       1.88          1,906       1.25          2,035       1.55
     Construction.....................         --         --             --         --            237       0.18
                                        ---------    -------      ---------     ------       --------     ------
       Total real estate loans........    171,140      95.78        146,787      95.95        125,039      95.08
                                        ---------    -------      ---------     ------       --------     ------

   Consumer loans:
     Home equity......................      7,133       4.00          5,706       3.73          5,364       4.08
     Other............................        388       0.22            491       0.32          1,101       0.84
                                        ---------    -------      ---------     ------       --------     ------
     Total consumer loans.............      7,521       4.22          6,197       4.05          6,465       4.92
                                        ---------    -------      ---------     ------       --------     ------
     Total loans......................    178,661     100.00%       152,984     100.00%       131,504     100.00%
                                        ---------    =======      ---------     ======       --------     ======
   Less:
     Loans in process.................                                   --                         3
     Deferred loan origination fees...         24                        61                       277
     Allowance for loan losses........        760                       723                       534
                                        ---------                 ---------                  --------

   Total loans, net...................  $ 177,877                 $ 152,200                  $130,690
                                        =========                 =========                  ========
</TABLE>


                                                    At December 31,
                                       ----------------------------------------
                                               1995                 1994
                                       ------------------    ------------------
                                        Amount    Percent     Amount    Percent
                                        ------    -------     ------    -------
                                                    (Dollars in Thousands)
Real estate loans:
  One-to-four family ................. $ 97,007    92.08%    $ 91,895     91.56%
  Multi-family .......................    2,018     1.92        2,102      2.09
  Commercial .........................    1,862     1.75        2,049      2.04
  Construction .......................       --       --           --        --
                                       --------   ------     --------    ------
    Total real estate loans ..........  100,887    95.76       96,046     95.69
                                       --------   ------     --------    ------

Consumer loans:
  Home equity ........................    3,345     3.17        3,005      2.99
  Other ..............................    1,123     1.07        1,321      1.32
                                                             --------    ------
  Total consumer loans ...............    4,468     4.24        4,326      4.31
                                                             --------    ------
  Total loans ........................  105,355   100.00%     100,372    100.00%
                                       --------   ======     --------    ======
Less:
  Loans in process ...................       --                    --
  Deferred loan origination fees .....      392                   428
  Allowance for loan losses ..........      490                   442
                                       --------              --------

Total loans, net ..................... $104,473              $ 99,502
                                       ========              ========


     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


                                       2
<PAGE>


loans are generally  originated under terms,  conditions and documentation which
permit them to be sold to Fannie Mae and Freddie Mac in the  secondary  mortgage
market,  although the Bank rarely sells fixed-rate  loans. 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, 1998, $59.0 million,  or 33.04%, 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 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.

     Borrower 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 majority of the Bank's  multi-family  residential  real estate
loans are secured by apartment  buildings  located in the Bank's  primary market
area. The Bank offers both fixed-rate


                                        3
<PAGE>


and adjustable-rate multi-family residential real estate loans. Fixed rate loans
are generally  offered with balloon terms of three, five and seven 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-year  adjustable-rate
loan with a 25 year  term and  amortization  period.  The  interest  rate on the
adjustable rate loans is tied to the one year constant  maturity Treasury index,
with  annual  and  lifetime  interest  rate  adjustment  limits  of 2%  and  6%,
respectively.   At  December  31,  1998,  the  average  balance  of  the  Bank's
multi-family  residential  real estate loans was $239,912,  and the largest such
loan had a  balance  of  $450,244  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.

     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 and refinancing of commercial real estate  properties.  The majority
of the Bank's  commercial real estate loans are secured by office  buildings and
retail  stores  that are located in the Bank's  primary  market  area.  The Bank
offers  both  fixed rate and  adjustable  rate  commercial  real  estate  loans.
Fixed-rate  loans are  generally  approved  with terms of three,  five and seven
years, with a 25 year amortization period, resulting in a balloon payment at the
end of the stated term. The Bank also offers an adjustable  rate commercial real
estate loan with annual interest rate  adjustments tied to the one year Treasury
constant  maturity index, and with annual and lifetime  interest rate adjustment
limits of 2% and 6%, respectively.  Adjustable-rate commercial real estate loans
are offered  for terms of 25 years and are fully  amortizing.  At  December  31,
1998,  the  average  balance  of the Bank's  commercial  real  estate  loans was
$259,000,  and the  largest  such  loan  had a  balance  of  $1,320,000  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.


                                        4
<PAGE>


     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,  generally  with  whom it has an
established relationship,  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, 1998, the Bank had no construction loans outstanding.

     The  Bank's  construction  loans  to home  builders  generally  have  fixed
interest rates and are for a term of 12 months.  Construction  loans to builders
typically are originated with a maximum loan to value ratio of 80%. Construction
loans to  individuals  are  generally  originated  pursuant  to the same  policy
guidelines regarding loan to value ratios that are used in connection with loans
secured by one-to-four family residential real estate.

     Construction  loans to builders are made where the home is pre-sold or on a
speculative  (unsold) basis.  However,  the Bank generally  limits the number of
outstanding  loans on unsold homes under  construction  to individual  builders,
with the amount dependent on the financial strength of the builder,  the present
exposure of the builder,  and prior sales of homes in the development.  Prior to
making a commitment to fund a construction  loan, the Bank requires an appraisal
of the property,  and all appraisals  are reviewed by management.  Loan proceeds
are  disbursed  after an  inspection  of the property  based on a percentage  of
completion. Monthly payment of accrued interest is required.

     Construction  loans generally have higher interest rates with shorter terms
to maturity relative to single-family  permanent mortgage lending.  Construction
loans, however, are generally considered to involve a higher degree of risk than
single-family  permanent  mortgage  loans because of the inherent  difficulty in
estimating  both a  property's  value  at  completion  of the  project  and  the
estimated  cost  of the  project.  If the  estimate  of  construction  costs  is
inaccurate,  the Bank  may be  required  to  advance  funds  beyond  the  amount
originally  committed to permit  completion  of the project.  If the estimate of
value  upon  completion  is  inaccurate,  the  value  of  the  property  may  be
insufficient  to assure full  repayment.  Projects  may also be  jeopardized  by
disagreements  between  borrowers and builders and by the failure of builders to
pay subcontractors.  Loans to builders to construct homes for which no purchaser
has been identified carry more risk because the repayment of the loan depends on
the  builder's  ability  to  sell  the  property  prior  to the  time  that  the
construction loan is due. The Bank has attempted to minimize the foregoing risks
by,  among  other  things,   limiting  its  construction  lending  primarily  to
residential  properties and generally  requiring  personal  guarantees  from the
principals of its corporate borrowers.

     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.  All of the Bank's
consumer loans are secured by real estate or deposits.


                                        5
<PAGE>


     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, 1998  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 ............................   $     25          $     --          $     --          $    306          $    331
Over 1 to 2 years ........................         61                --                --               116               177
Over 2 to 3 years ........................        359                --                --                73               432
Over 3 to 5 years ........................     10,676                --                --               857            11,533
Over 5 to 10 years .......................     20,512               863               122             2,857            24,354
Over 10 to 25 years ......................     60,736               337             3,245             3,312            67,630
Over 25 years ............................     74,204                --                --                --            74,204
                                             --------          --------          --------          --------          --------
Total amount due .........................   $166,573          $  1,200          $  3,367          $  7,521          $178,661
                                             ========          ========          ========          ========          ========
</TABLE>


                                        6
<PAGE>


     The  following  table sets  forth the dollar  amount of all loans for which
final payment is not due until after December 31, 1999. The table also shows the
amount  of loans  which  have  fixed  rates of  interest  and those  which  have
adjustable rates of interest.

                                        Fixed Rates  Adjustable Rates    Total
                                        -----------  ----------------    -----
                                                      (In Thousands)

Real estate loans:
  One-to-four family ..............       $111,508       $ 54,847       $166,355
  Multi-family ....................          1,134             66          1,200
  Commercial ......................            952          2,415          3,367
                                          --------       --------       --------
Total real estate loans ...........        113,594         57,328        170,922

Consumer ..........................          5,591          1,817          7,408
                                          --------       --------       --------

  Total loans .....................       $119,185       $ 59,145       $178,330
                                          ========       ========       ========


     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,
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.  Mortgage  loan  applications  are
initiated  by loan  officers.  All loans of $500,000 or more must be approved by
the Board of Directors. Loans of less than $350,000 may be approved by any three
members of the Bank's Loan  Committee,  which consists of the Bank's  President,
the Bank's Executive Vice President and two lending officers. Loans in excess of
$350,000,  but less  than  $500,000  may be  approved  by the  Bank's  Executive
Committee,  which  consists  of the  Bank's  President  and  three  non-employee
directors.


                                       7
<PAGE>


         Loan Originations, Sales and Purchases. The following table sets forth
total loans originated and repaid during the periods indicated.

                                                     Years Ended December 31,
                                               ---------------------------------
                                                1998          1997         1996
                                               -------      -------      -------
                                                        (In Thousands)
Originations:
   Adjustable rate:
     Real estate
       One-to-four family (1) ...........      $ 3,586      $22,317      $22,542
       Multi-family .....................           --           --           --
       Commercial .......................        1,320           --           --
       Construction .....................           --           --           --
     Consumer ...........................        1,008        1,654        2,122
                                               -------      -------      -------
       Total adjustable rate ............        5,914       23,971       24,664
                                               -------      -------      -------
   Fixed rate:
     Real estate
       One-to-four family ...............       53,680       16,234       15,713
       Multi-family .....................           --           --           --
       Commercial .......................          350           --           --
       Construction .....................          178          140          631
     Consumer ...........................        3,701          838          564
                                               -------      -------      -------
       Total fixed rate .................       57,909       17,212       16,908
                                               -------      -------      -------
       Total loans originated ...........       63,823       41,183       41,572
                                               -------      -------      -------

Purchases:
   Real estate:
     One-to-four family .................           --           --           --
     Multi-family .......................           --           --           97
     Commercial .........................           --           --           --
   Consumer .............................           --           --           --
                                               -------      -------      -------
     Total loans purchased ..............           --           --           97
                                               -------      -------      -------

Sales and Repayments:
   Real estate:
     One-to-four family .................           --           --           --
     Multi-family .......................           --           --           --
     Commercial .........................           --           --           --
   Consumer .............................           68          647           --
                                               -------      -------      -------
     Total loans sold ...................           68          647           --
                                               -------      -------      -------

Principal repayments ....................       38,160       19,056       15,524
                                               -------      -------      -------
   Total reductions .....................       38,228       19,703       15,524
                                               -------      -------      -------
Increase in other items, net ............           82           30           72
                                               -------      -------      -------
   Net increase (decrease) ..............      $25,677      $21,510      $26,217
                                               =======      =======      =======

----------

(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,
                                             -----------------------------------
                                             1998           1997           1996
                                             -----         ------          -----
                                                        (In Thousands)

Initial fixed rate:
  Five years ......................            549         $6,087          2,871
  Seven years .....................          1,569          6,909          3,377
  Ten years .......................          1,460          1,027          2,866


     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


                                        8
<PAGE>


December  31,  1998,  the Bank had total loan  commitments  of $5.2  million and
commitments to customers for unused lines of credit of $3.1 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 which are calculated as a percentage
of the amount borrowed. In accordance with applicable accounting procedures,
loan origination fees in excess of loan origination 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 income of $(6,500), $69,000
and $44,000 of deferred loan fees during the years ended December 31, 1998, 1997
and 1996, 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.


                                       9
<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.

<TABLE>
<CAPTION>
                                                                           At December 31,
                                                ------------------------------------------------------------------
                                                  1998           1997           1996           1995           1994
                                                ------         ------         ------         ------         ------
                                                                         (Dollars in Thousands)
<S>                                             <C>            <C>            <C>            <C>            <C>
Non-accruing loans:
  One-to-four family .........................  $  505         $  844         $  841         $  368         $  737
  Multi-family ...............................      66             65             63             --             --
  Commercial .................................      22             --             --             --             --
  Consumer ...................................      --             --             --             --             --
                                                ------         ------         ------         ------         ------

    Total ....................................     593            909            904            368            737
                                                ------         ------         ------         ------         ------

Accruing loans delinquent 90 days or more:
  One-to-four family .........................      --             --             --            440             58
  Multi-family ...............................      --             --             --             --             --
  Commercial .................................      --             --             --             --             --
  Consumer (1) ...............................       7             25             26             15             51
                                                ------         ------         ------         ------         ------

  Total ......................................       7             25             26            455            109
                                                ------         ------         ------         ------         ------

Real estate owned ............................     106            121             --            134            144
                                                ------         ------         ------         ------         ------

Total non-performing assets ..................  $  706         $1,055         $  930         $  957         $  990
                                                ======         ======         ======         ======         ======

Total as a percentage of total assets ........    0.27%          0.49%          0.46%          0.51%          0.58%
                                                ======         ======         ======         ======         ======
</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, 1998 and 1997 had nonaccruing loans been current in accordance with
their  original terms  amounted to $51,000 and $84,000,  respectively.  The Bank
recorded $6,000 and $36,000,  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, 1998.

<TABLE>
<CAPTION>
                                                                    Loans delinquent for:
                                   ---------------------------------------------------------------------------------------
                                           60-89 days                  90 Days and Over         Total Delinquent Loans
                                   --------------------------    --------------------------    ---------------------------
                                                     Percent                       Percent                        Percent
                                                     of Loan                       of Loan                        of Loan
                                   Number    Amount  Category    Number    Amount  Category    Number    Amount   Category
                                   ------    ------  --------    ------    ------  --------    ------    ------   --------
                                                                   (Dollars in Thousands)
Real Estate:
<S>                                    <C>    <C>       <C>         <C>     <C>       <C>         <C>     <C>       <C>
  One-to-four family ............      5      $160      0.1%         7      $505      0.3%        12      $665      0.4%
  Multi-family ..................     --        --       --          1        66      5.5          1        66      5.5
  Commercial ....................     --        --       --          1        22      0.6          1        22      0.6
  Consumer ......................     --        --       --          3         7       --          3         7       --
                                    ----      ----      ----      ----      ----     ----       ----      ----     ----
   Total loans ..................      5      $160      0.1%        12      $600      0.3%        17      $760      0.4%
                                    ====      ====      ====      ====      ====     ====       ====      ====     ====
</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, 1998, the Bank
had $106,000 of real estate acquired in settlement of loans.


                                       10
<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
always  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, 1998.

     Asset  Classification.  The OTS has adopted various  regulations  regarding
problem  assets of  savings  institutions.  The  regulations  require  that each
insured  institution  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,
1998, the Bank had $299,000 of assets designated as "special mention."

     At  December  31,  1998,  the  Bank  had  $604,000  of  assets   classified
substandard, and $22,000 classified doubtful.

     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, 1998 will be 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


                                       11
<PAGE>


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.

     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,
                                                                ---------------------------------------------------------------
                                                                 1998          1997           1996          1995           1994
                                                                -----         -----          -----         -----          -----
                                                                                     (Dollars in Thousands)

<S>                                                             <C>           <C>            <C>           <C>            <C>
Balance at beginning of period .........................        $ 723         $ 534          $ 490         $ 442          $ 392
Charge-offs
Real estate:
  One-to-four family ...................................            7            11             --            12              3
  Multi-family and other ...............................           --            --             --            --             --
                                                                -----         -----          -----         -----          -----
    Total ..............................................            7            11             --            12              3

Total Recoveries .......................................           --            --              1            --             --
                                                                -----         -----          -----         -----          -----

Net charge-offs ........................................            7            11             (1)           12              3

Additions charged to operations ........................           44           200             43            60             53
                                                                -----         -----          -----         -----          -----

Balance at end of period ...............................        $ 760         $ 723          $ 534         $ 490          $ 442
                                                                =====         =====          =====         =====          =====

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

Ratio of net charge-offs during the period
  to average non-performing assets ....... .............         2.61%         1.04%            --          1.23%          0.31%
                                                                =====         =====          =====         =====          =====
</TABLE>


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

<TABLE>
<CAPTION>
                                                                                    Years Ended December 31,
                                                                ---------------------------------------------------------------
                                                                 1998          1997           1996          1995           1994
                                                                -----         -----          -----         -----          -----
                                                                                         (In Thousands)

<S>                                                             <C>           <C>            <C>           <C>            <C>
Balance - beginning ....................................        $ 723         $ 534          $ 490         $ 442          $ 392
Provisions charged to operations .......................           44           200             43            60             53
Loans charged off, net of recoveries ...................            7           (11)             1           (12)            (3)
                                                                -----         -----          -----         -----          -----
Balance - ending .......................................        $ 760         $ 723          $ 534         $ 490          $ 442
                                                                =====         =====          =====         =====          =====
</TABLE>


                                       12
<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
future losses and does not restrict the use of the allowance to absorb losses in
any other category.

<TABLE>
<CAPTION>
                                                                       At December 31,
                           -------------------------------------------------------------------------------------------------------
                                        1998                               1997                                1996
                          ---------------------------------- ---------------------------------- ---------------------------------
                                                   % of                               % of                                % of
                                        Loan     Loans in                  Loan      Loans in                   Loan    Loans in
                          Amount of    Amounts Each Category  Amount of   Amounts  Each Category  Amount of   Amounts  Each 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........ $    458   $166,573      93.23%    $    402   $143,623     93.88%      $    356   $121,129     92.10%
Multi-family .............       11      1,200        .67           22      1,258      0.82             42      1,875      1.43
Commercial real estate ...       40      3,367       1.88           37      1,906      1.25             61      2,035      1.55
Home equity ..............       81      7,133       4.00           59      5,706      3.73             75      5,364      4.08
Other consumer ...........       --        388       0.22            3        491      0.32             --      1,101      0.84
Unallocated ..............      170         --       0.00          200         --      0.00             --         --      0.00
                           --------   --------     ------     --------   --------    ------       --------   --------    ------

                           $    760   $178,661        100%    $    723   $152,984    100.00%      $    534   $131,504    100.00%
                           ========   ========     ======     ========   ========    ======       ========   ========    ======


<CAPTION>

                                                       At December 31,
                            -----------------------------------------------------------------------
                                         1995                                 1994
                           ----------------------------------- ------------------------------------
                                                     % of                               % of
                                         Loan      Loans in                  Loan      Loans in
                           Amount of    Amounts  Each Category  Amount of   Amounts  Each 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 ......  $    296    $ 97,007      92.08%     $    240   $ 91,895     91.56%
Multi-family ............        43       2,018       1.92            37      2,102      2.09
Commercial real
 estate .................        61       1,862       1.76            33      2,049      2.04
Home equity .............        44       3,345       3.17            30      3,005      2.99
Other consumer ..........        --       1,123       1.07            --      1,321      1.32
Unallocated .............        46          --       0.00           102         --      0.00
                           --------    --------     ------      --------   --------    ------

                           $    490    $105,335     100.00%     $    442   $100,372    100.00%
                           ========    ========     ======      ========   ========    ======
</TABLE>


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 of New York, 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 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


                                       13
<PAGE>


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 following table sets forth the carrying value of the Bank's  securities
portfolio,  at the dates indicated.  All securities,  other than FHLB stock, are
available for sale.

<TABLE>
<CAPTION>
                                                                                 At December 31,
                                                 -------------------------------------------------------------------------------
                                                          1998                        1997                      1996
                                                 ----------------------      -----------------------    ------------------------
                                                 Carrying       % of         Carrying        % of       Carrying         % of
                                                  Value         Total          Value        Total        Value           Total
                                                 --------       -----        --------       -----       --------         -----
                                                                            (Dollars in Thousands)
<S>                                              <C>             <C>         <C>              <C>       <C>              <C>
Available for sale:
Investment securities:
  Federal agency obligations ..................  $     --            --%     $  1,000           1.85%   $  4,007           6.72%
  Unrealized gain (loss), net .................        --            --            (8)          (.01)        (63)          (.10)
  Equity securities ...........................        --            --            --             --          --             --
  Unrealized gains (loss), net ................        --            --            --             --         120            .20
                                                 --------     ---------      --------      ---------    --------      ---------
    Total investment securities ...............        --            --           992           1.84       4,064           6.82
                                                 --------     ---------      --------      ---------    --------      ---------

Mortgage-backed securities:
  GNMA ........................................    13,353         21.28         1,184           2.20       1,813           3.04
  Fannie Mae ..................................    17,490         27.88        19,922          36.95      12,300          20.64
  Freddie Mac .................................    30,095         47.97        30,614          56.78      40,604          68.14
  Net unamortized premium, (discounts) ........       868          1.38           545           1.01         487           0.82
  Unrealized gains, net .......................       929          1.49           660           1.22         321           0.54
                                                 --------     ---------      --------      ---------    --------      ---------
    Total mortgage backed securities ..........    62,735                      52,925          98.16      55,525          93.18
                                                 --------                    --------      ---------    --------      ---------

Total securities available for sale ...........  $ 62,735        100.00%     $ 53,917         100.00%   $ 59,589         100.00%
                                                 ========     =========      ========      =========    ========      =========

FHLB Stock ....................................  $  2,008                    $  1,804                   $  1,615
                                                 ========                    ========                   ========

Other interest earning assets:
  Interest bearing deposits in banks ..........  $ 12,350                    $  4,739                   $  4,471
                                                 ========                    ========                   ========
</TABLE>


                                       14
<PAGE>


         The following table sets forth the amount of mortgage-backed securities
which mature during each of the periods indicated and the weighted average
yields for each of the range at maturities at December 31, 1998.


                                                        Carrying     Average
                                                         Value        Yield
                                                        --------     -------

     One year or less ...........................       $   631       6.50%
     After one year though five years ...........         3,072       6.57
     After five years through ten years .........            --         --
     After ten years ............................        59,032       7.10
                                                        -------       ----

     Total ......................................       $62,735       7.07%
                                                        =======

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 of New York may be used on a short-term  basis to  compensate  for
reductions  in the flow of funds from other  sources or as a  long-term  funding
strategy. Presently, the Bank has no other borrowing arrangements.

     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  weekly.  The Bank does not utilize
brokered deposits, nor has it sought jumbo 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 of New York 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").


                                       15
<PAGE>





     The following table sets forth an analysis of deposit accounts by type,
maturity, and rate at December 31, 1998, 1997 and 1996.

<TABLE>
<CAPTION>
                                                                              At December 31,
                                        --------------------------------------------------------------------------------------------
                                                    1998                           1997                           1996
                                        ---------------------------    ---------------------------    ------------------------------
                                                   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 ..............   $  4,398      --%      1.97%   $  3,376      --%      1.70%   $  2,417      --%      1.31%
  Money market accounts .............      2,587     2.64      1.16       2,809     2.69      1.42       3,160     2.75      1.71
  NOW accounts ......................      9,995     1.50      4.47       9,696     1.50      4.89       8,816     2.25      4.77
  Passbook and statement savings ....     49,197     3.00     22.03      45,168     3.00     22.77      44,120     2.99     23.89
                                        --------             ------    --------              ------    --------            ------
    Total transactions and
      savings deposits ..............     66,177     2.56     29.63      61,049     2.58     30.78      58,513     2.74     31.68
                                                                       --------              ------    --------            ------

  Certificate accounts with remaining
    maturities of:
  6 months or less ..................     46,443     5.18     20.80      62,587     5.30     31.55      52,974     5.05     28.68
  Over 6 to 12 months ...............     59,895     5.47     26.83      27,714     5.37     13.97      31,902     5.50     17.27
  Over 12 months ....................     50,755     5.72     22.74      47,013     5.89     23.70      41,320     5.75     22.37
                                        --------             ------    --------             ------    --------             ------
    Total certificates ..............    157,093     5.46     70.37     137,314     5.52     69.22     126,196     5.39     68.32
                                        --------             ------    --------             ------    --------             ------
     Total deposits .................   $223,270     4.60%   100.00%   $198,363     4.62%   100.00%   $184,709     4.55%   100.00%
                                        ========   ======    ======    ========   ======    ======    ========   ======    ======
</TABLE>


     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,
1998.

<TABLE>
<CAPTION>
                                                                                                      After
                                             December 31,       December 31,      December 31,     December 31,
                                                 1999              2000              2001              2001              Total
                                             ------------       ------------      ------------     ------------        --------
                                                                                (In Thousands)

<S>                                            <C>               <C>               <C>               <C>               <C>
     Less than 4% ...................               786          $     62          $     --          $     12               860
     4.00-5.99% .....................          $104,691            39,953             1,812             1,202          $147,658
     6.00-7.99% .....................               861             7,714                --                --             8,575
                                               --------          --------          --------          --------          --------
     Total ..........................          $106,338          $ 47,729          $  1,812          $  1,214          $157,093
                                               ========          ========          ========          ========          ========
</TABLE>

     The  following  table  indicates the amount of the Bank's  certificates  of
deposit and other deposits by time  remaining  until maturity as of December 31,
1998.

<TABLE>
<CAPTION>
                                                                                          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>           <C>
     Certificates of Deposit less than $100,000 .........    $ 24,473      $ 75,219        $ 45,560      $  1,214      $146,467
     Certificates of Deposit of $100,000 or more ........       1,475         5,171           3,981            --        10,626
                                                             --------      --------        --------      --------      --------

     Total Certificates of Deposit ......................    $ 25,948      $ 80,390        $ 49,541      $  1,214      $157,093
                                                             ========      ========        ========      ========      ========
</TABLE>


                                       16
<PAGE>


     Deposit  Activity.  The following table sets forth the deposit  activity of
the Bank for the periods indicated.

<TABLE>
<CAPTION>
                                                                              At December 31,
                                                     -------------------------------------------------------------
                                                        1998         1997         1996         1995         1994
                                                     ---------    ---------    ---------    ---------    ---------
                                                                              (In Thousands)
<S>                                                  <C>          <C>          <C>          <C>          <C>
Beginning balance ..............................     $ 198,363    $ 184,709    $ 169,842    $ 153,769    $ 154,055
                                                     ---------    ---------    ---------    ---------    ---------

Net increase (decrease) before interest credited        15,675        5,283        7,343        6,446       (5,192)
Interest credited ..............................         9,232        8,371        7,524        9,627        4,906
                                                     ---------    ---------    ---------    ---------    ---------
Net increase (decrease) in deposits ............        24,907       13,654       14,867       16,073         (286)
                                                     ---------    ---------    ---------    ---------    ---------
Ending balance .................................     $ 223,270    $ 198,363    $ 184,709    $ 169,842    $ 153,769
                                                     =========    =========    =========    =========    =========
</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 of New York to supplement its
supply of lendable funds and to meet deposit withdrawal  requirements.  The FHLB
of New York  functions as a central  reserve bank  providing  credit for savings
associations and certain other member financial institutions. As a member of the
FHLB of New York,  the Bank is required to own capital  stock in the FHLB of New
York 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 of New York advances for the periods indicated.

                                         Years Ended December 31,
                         -------------------------------------------------------
                          1998         1997        1996        1995        1994
                         -------      ------      ------      ------      ------
                                              (In Thousands)

Maximum balance:
     FHLB advances ..... $    --      $7,500      $  800      $4,200      $4,100

Average balance:
     FHLB advances ..... $    --      $1,663      $   12      $  962      $  304


     At December 31, 1998 and 1997, no advances were  outstanding  from the FHLB
of New York.

Employees

     As of  December  31,  1998,  the  Bank  had 43  full-time  and 1  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


                                       17
<PAGE>


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, 1998.

     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.  The rule establishes  three tiers of institutions,  which are
based primarily on an institution's  capital level. An institution,  such as the
Bank, that exceeds all fully phased-in capital  requirements  before and after a
proposed capital distribution ("Tier 1 Association") and has not been advised by
the OTS that it is in need of more than normal  supervision,  could, after prior
notice but without the approval of the OTS, make capital  distributions during a
calendar  year equal to the  greater  of: (i) 100% of its net  earnings  to date
during the  calendar  year plus the amount  that would  reduce by  one-half  its
"surplus  capital  ratio" (the excess capital over its fully  phased-in  capital
requirements)  at the  beginning  of the calendar  year;  or (ii) 75% of its net
earnings for the previous four quarters; provided that the institution would not
be undercapitalized, as that term is defined in the OTS Prompt Corrective Action
regulations,   following  the  capital  distribution.   Any  additional  capital
distributions would require prior regulatory  approval.  In the event the Bank's
capital fell below its  fully-phased  in requirement or the OTS notified it that
it was in need of more than  normal  supervision,  the  Bank's  ability  to make
capital distributions could be restricted. In addition, the OTS could prohibit a
proposed  capital  distribution  by any  institution,  which would  otherwise be
permitted by the regulation,  if the OTS determines that such distribution would
constitute an unsafe or unsound practice.

     The OTS has  proposed  regulations  that would  revise the current  capital
distribution  restrictions.  Under the proposal a savings institution may make a
capital distribution without notice to the OTS, unless it is a subsidiary of a


                                       18
<PAGE>


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

     Liquidity.  The Bank is required to  maintain an average  daily  balance of
specified  liquid assets equal to a monthly average of not less than a specified
percentage  (currently  4%)  of  its  net  withdrawable  deposit  accounts  plus
borrowings  payable in one year or less.  Monetary  penalties may be imposed for
failure to meet these liquidity requirements. The Bank's average liquidity ratio
at December 31, 1998 exceeded the then applicable requirements.

     Community Reinvestment Act and Fair Lending Laws. Savings association 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 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,  and  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


                                       19
<PAGE>


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 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.

     The  OTS  has  incorporated  an  interest  rate  risk  component  into  its
regulatory  capital  rule.  The final  interest  rate risk rule also adjusts the
risk-weighting  for  certain  mortgage  derivative  securities.  Under the rule,
savings  associations  with "above normal"  interest rate risk exposure would be
subject to a deduction  from total  capital for  purposes of  calculating  their
risk-based capital requirements.  A savings association's  interest rate risk is
measured  by the decline in the net  portfolio  value of its assets  (i.e.,  the
difference  between  incoming  and outgoing  discounted  cash flows from assets,
liabilities  and  off-balance   sheet   contracts)  that  would  result  from  a
hypothetical  200-basis  point  increase or decrease  in market  interest  rates
divided  by the  estimated  economic  value  of  the  association's  assets,  as
calculated  in  accordance  with  guidelines  set  forth by the OTS.  A  savings
association whose measured interest rate risk exposure exceeds 2% must deduct an
interest rate  component in  calculating  its total capital under the risk-based
capital rule. The interest rate risk component is an amount equal to one-half of
the difference  between the  institution's  measured  interest rate risk and 2%,
multiplied by the estimated  economic value of the  association's  assets.  That
dollar amount is deducted  from an  association's  total capital in  calculating
compliance with its risk-based capital  requirement.  Under the rule, there is a
two quarter lag between the reporting  date of an  institution's  financial data
and the  effective  date for the new capital  requirement  based on that data. A
savings association with assets of less than $300 million and risk-based capital
ratios in excess of 12% is not  subject  to the  interest  rate risk  component,
unless the OTS determines otherwise. The rule also provides that the Director of
the OTS may waive or defer an  association's  interest rate risk  component on a
case-by-case  basis.  The OTS has postponed  the  effective  date of the capital
component in order to provide it with an opportunity to review the interest rate
risk  approaches  taken by the other federal banking  agencies.  At December 31,
1998,  the Bank met each of its  capital  requirements,  in each case on a fully
phased-in basis.


                                       20
<PAGE>


     At  December  31,  1998,  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, 1998.

<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, 1998:
  Tier I core capital ................... $24,952        9.60%         $10,397        4.00%        $12,996              5%
  Tier I risk-based capital .............  24,952        23.08          10,397        4.00           6,497              6%
  Total risk-based capital ..............  25,713        23.78           8,650        8.00          10,812             10%
</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.

     Thrift Charter.  Congress has been considering legislation in various forms
that would require federal thrifts,  such as the Bank, to convert their charters
to national or state bank charters.  The Bank cannot  determine  whether,  or in
what form,  such  legislation  may  eventually  be  enacted  and there can be no
assurance that any  legislation  that is enacted would not adversely  affect the
Bank and the Company.

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 such action is taken by the
FDIC, it could have an adverse effect on the earnings of the Bank.


                                       21
<PAGE>


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,  1998,  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.

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, 1998, 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


                                       22
<PAGE>


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 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;  (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;  and (v) in the event the mutual holding company  converts to stock
form,  the  appraisal  submitted to the OTS in  connection  with the  conversion
application  takes into account the aggregate  amount of the dividends waived by
the mutual holding company.

     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
the Dividend Waiver Adjustment described below and 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.

     The Dividend Waiver  Adjustment  would decrease the percentage of the to-be
outstanding shares of common stock of the New Holding Company issued to Minority
Stockholders  in exchange  for their  shares of Common  Stock to reflect (i) the
aggregate  amount of  dividends  waived by the Mutual  Holding  Company and (ii)
assets other than Common Stock held by the Mutual Holding  Company.  Pursuant to
the Dividend Waiver  Adjustment,  the percentage of the to-be outstanding shares
of the New Holding Company issued to Minority Stockholders in exchange for their
shares of  Common  Stock  would be equal to the  percentage  of the  outstanding
shares of Common Stock held by Minority


                                       23
<PAGE>


Stockholders  multiplied by the Dividend  Waiver  Fraction.  The Dividend Waiver
Fraction is equal to the product of (a) a fraction,  of which the  numerator  is
equal  to the  Company's  stockholders'  equity  at the  time of the  Conversion
Transaction  less the aggregate amount of dividends waived by the Mutual Holding
Company and the  denominator is equal to the Company's  stockholders'  equity at
the  time of the  Conversion  Transaction,  and (b) a  fraction,  of  which  the
numerator  is equal to the  appraised  pro forma market value of the New Holding
Company minus the value of the Mutual Holding Company's assets other than Common
Stock  and the  denominator  is equal to the pro forma  market  value of the New
Holding Company.

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 is, and the Company will be,  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, 1998,  was  approximately
$733,000.

     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.

     At  December  31,  1998,  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.


                                       24
<PAGE>


     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, 1998,  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.

ITEM 2.   Properties

(a)  Properties

     The  following  table sets forth certain  information  regarding the Bank's
offices at December 31, 1998.

                                             Approximate
Location                      Year Opened    Square Feet        Deposits
--------                      -----------    -----------        --------

1410 St. Georges Avenue          1986          9,200         $68.0 million
Avenel, NJ 07001

1515 Irving Street               1995          7,300         $43.0 million
Rahway, NJ 07065

225 North Wood Ave               1977          1,400         $42.0 million
Linden, NJ 07036

755 State Highway 18             1974          2,000         $70.0 million
East Brunswick, NJ 08816


                                       25
<PAGE>


     At December 31, 1998, the net book value of the Company's office properties
and fixtures, furniture, and equipments was $2.1 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
hereunder  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  is less
than 10% of the Bank's total consolidated assets at December 31, 1998.

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.

                                     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, 1998 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.


                                       26
<PAGE>


ITEM 8.   Financial Statements and Supplementary Data

     The financial  statements  are contained in the Company's  Annual Report to
Stockholders and is 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 1999 Annual Meeting of Stockholders (the "1999
Proxy Statement") is incorporated herein by reference.

ITEM 11.  Executive Compensation

     The "Proposal I--Election of Directors" section of the Company's 1999 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 1999 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 1999 Proxy Statement is incorporated herein by reference.

                                     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


                                       27
<PAGE>


     (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  has not filed a Current  Report on Form 8-K during the fourth
quarter of the fiscal year ended December 31, 1998.

     (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 Stockholders                     13

          21        Subsidiaries of Registrant                        21

*    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.


                                       28
<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.


                                      Liberty Bancorp, Inc.



Date:    March 26, 1999               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.

<TABLE>
<CAPTION>
<S>                                                <C>
By:    /s/ John R. Bowen                           By:    /s/ Michael J. Widmer
       --------------------------------------             -----------------------------------
       John R. Bowen                                      Michael J. Widmer
       President, Chief Executive Officer and             Executive Vice President, Chief
       Director (Principal Executive Officer)             Financial Officer and Director
                                                          (Principal Financial and Accounting
                                                          Officer)

Date:  March 26, 1999                              Date:  March 26, 1999



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


Date:  March 26, 1999                              Date:  March 26, 1999



By:    /s/ John W. Fox                             By:    
       --------------------------------------             -----------------------------------
       John W. Fox                                        Donald F. Marsh
       Director                                           Director


Date:  March 26, 1999                              Date:  



By:                                                By:    /s/ Paul J. McGovern
       --------------------------------------             -----------------------------------
       John C. Marsh                                      Paul J. McGovern
       Director                                           Director

Date:



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

Date:  March 26, 1999
</TABLE>