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, 1999

                                       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 of                           (I.R.S. Employer
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. |_|

      The registrant's revenues for the fiscal year ended December 31, 1999 were
$18.5 million.

      As of December 31, 2000, there were issued and outstanding 3,621,329
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 ($6.00) was $8.0 million.

                       DOCUMENTS INCORPORATED BY REFERENCE

1.    Sections of Annual Report to Stockholders for the fiscal year ended
      December 31, 1999 (Parts II and IV).

2.    Proxy Statement for the May 2000 Annual Meeting of Stockholders (Part
      III).
<PAGE>

                                     PART I

ITEM 1. Business

Liberty Bancorp, Inc.

      Liberty Bancorp, Inc. (the "Company") was formed on June 30, 1998 for the
purpose of acting as the holding company for Liberty Bank (the "Bank"). As of
December 31, 1999, the Company's assets consist primarily of the outstanding
capital stock of the Bank and cash and investments of $3.8 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, 1999, 1,553,600 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, 1999, the Company had consolidated total assets of $283.3
million, consolidated total deposits of $220.5 million and consolidated total
equity of $31.9 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
four 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,
Linden and Monroe Township, 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 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.


                                       2
<PAGE>

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

<TABLE>
<CAPTION>
                                                             At December 31,
                                                             ---------------
                                            1999                   1998                 1997
                                            ----                   ----                 ----
                                    Amount      Percent    Amount     Percent    Amount     Percent
                                    ------      -------    ------     -------    ------     -------
                                                         (Dollars in Thousands)
<S>                                <C>          <C>       <C>         <C>       <C>         <C>
Real estate loans:
  One-to-four family               $ 182,100     89.86%   $ 166,573    93.23%   $ 143,623    93.88%
  Multi-family                         2,143      1.06        1,200     0.67        1,258     0.82
  Commercial                           7,553      3.72        3,367     1.88        1,906     1.25
  Construction                            --        --           --       --           --       --
                                     -------     -----      -------    -----      -------    -----
    Total real estate loans          191,796     94.64      171,140    95.78      146,787    95.95
                                     -------     -----      -------    -----      -------    -----

Consumer loans:
  Home equity                         10,616      5.24        7,133     4.00        5,706     3.73
  Other                                  235       .12          388     0.22          491     0.32
                                     -------     -----      -------    -----      -------    -----
  Total consumer loans                10,851      5.36        7,521     4.22        6,197     4.05
                                     -------     -----      -------    -----      -------    -----
  Total loans                        202,647    100.00%     178,661   100.00%     152,984   100.00%
                                     =======    ======      =======   ======      =======   ======
Less:
  Loans in process                        --                     --                    --
  Deferred loan origination fees        (172)                    24                    61
  Allowance for loan losses              788                    760                   723

Total loans, net                   $ 202,031              $ 177,877             $ 152,200
                                   =========              =========             =========
</TABLE>

                                                    At December 31,
                                                    ---------------
                                              1996                  1995
                                              ----                  ----
                                        Amount     Percent    Amount     Percent
                                        ------     -------    ------     -------
                                                  (Dollars in Thousands)
Real estate loans:
  One-to-four family                   $120,892     91.93%   $ 97,007     92.08%
  Multi-family                            1,875      1.42       2,018      1.92
  Commercial                              2,035      1.55       1,862      1.75
  Construction                              237      0.18          --        --
                                       --------    ------    --------    ------
    Total real estate loans             125,039     95.08     100,887     95.76
                                       ========    ======    ========    ======

Consumer loans:
  Home equity                             5,364      4.08       3,345      3.17
  Other                                   1,101      0.84       1,123      1.07
                                       --------    ------
  Total consumer loans                    6,465      4.92       4,468      4.24
                                       --------    ------    --------    ------
  Total loans                           131,504    100.00%    105,355    100.00%
                                       ========    ======    ========    ======
Less:
  Loans in process                            3                    --
  Deferred loan origination fees            277                   392

  Allowance for loan losses                 534                   490
                                       --------              --------

Total loans, net                       $130,690              $104,473
                                       ========              ========

      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


                                       3
<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, 1999, $47.5 million, or 23.5%, 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.

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

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

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

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

      Multi-Family Residential Real Estate Lending. The Bank originates mortgage
loans secured by multi-family residential properties (consisting of more than
four units). The 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 and adjustable-rate multi-family
residential real estate loans. Fixed rate loans are generally offered with
balloon


                                       4
<PAGE>

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,
1999, the average balance of the Bank's multi-family residential real estate
loans was $238,000, and the largest such loan had a balance of $487,500 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,
1999, the average balance of the Bank's commercial real estate loans was
$343,000, and the largest such loan had a balance of $2,500,000 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.

      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


                                       5
<PAGE>

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, 1999, 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.

      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


                                       6
<PAGE>

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, 1999 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.

                      One-to-Four
                         Family    Multi-Family  Commercial  Consumer    Total
                        --------     --------     --------   --------   --------
                                              (In Thousands)
Amounts Due:
Within 1 year ........  $     18     $     --     $     --   $    216   $    234
Over 1 to 2 years ....       816           --           --        203      1,019
Over 2 to 3 years ....     2,562           --           --        285      2,847
Over 3 to 5 years ....     5,522          250           --        570      6,342
Over 5 to 10 years ...    18,952          802          333      4,417     24,504
Over 10 to 25 years ..    74,048        1,341        7,220      5,160     87,769
Over 25 years ........    79,932           --           --         --     79,932
                        --------     --------     --------   --------   --------
Total amount due .....  $181,850     $  2,393     $  7,553   $ 10,851   $202,647
                        ========     ========     ========   ========   ========


      The following table sets forth the dollar amount of all loans for which
final payment is not due until after December 31, 2000. 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 ..................   $138,196         $ 43,636      $181,832
 Multi-family ........................      2,321               72         2,393
 Commercial ..........................      5,846            1,707         7,553
                                         --------         --------      --------
Total real estate loans ..............    146,363           45,415       191,778

Consumer .............................      8,493            2,142        10,635
                                         --------         --------      --------

 Total loans .........................   $154,856         $ 47,557      $202,413
                                         ========         ========      ========

      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


                                       7
<PAGE>

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.


                                       8
<PAGE>

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

                                                 Years Ended December 31,
                                                 ------------------------
                                           1999            1998           1997
                                           ----            ----           ----
                                                      (In Thousands)
Originations:
  Adjustable rate:
   Real estate
     One-to-four family (1) ......       $  6,632        $  3,586       $ 22,317
     Multi-family ................             --              --             --
     Commercial ..................             --           1,320             --
     Construction ................             --              --             --
   Consumer ......................          1,441           1,008          1,654
                                         --------        --------       --------
     Total adjustable rate .......          8,073           5,914         23,971
                                         --------        --------       --------
  Fixed rate:
   Real estate
     One-to-four family ..........         41,752          53,680         16,234
     Multi-family ................          1,326              --             --
     Commercial ..................          4,810             350             --
     Construction ................             --             178            140
   Consumer ......................          4,960           3,701            838
                                         --------        --------       --------
     Total fixed rate ............         52,848          57,909         17,212
                                         --------        --------       --------
     Total loans originated ......         60,921          63,823         41,183
                                         --------        --------       --------

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

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

Principal repayments .............         36,627          38,160         19,056
                                         --------        --------       --------
  Total reductions ...............         36,627          38,228         19,703
                                         --------        --------       --------
Decrease in other items, net .....           (362)             82             30
                                         --------        --------       --------
  Net increase ...................       $ 23,986        $ 25,677       $ 21,510
                                         ========        ========       ========

----------
(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,
                                           1999            1998            1997
                                           -----           -----           -----
                                                       (In Thousands)

Initial fixed rate:
 Five years                                3,294             549          $6,087
 Seven years                               1,219           1,569           6,909
 Ten years                                   257           1,460           1,027


                                       9
<PAGE>

      Loan Commitments. The Bank issues commitments for mortgage loans
conditioned upon the occurrence of certain events. Such commitments are made in
writing on specified terms and conditions and generally remain outstanding for
45 to 60 days from the date the commitment is issued, depending on the type of
transaction. At December 31, 1999, the Bank had total loan commitments of $5.4
million and commitments to customers for unused lines of credit of $4.0 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 net 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 as expense $65,000 and $6,500
of deferred loan fees during the years ended December 31, 1999 and 1998,
respectively, and recognized as income $69,000 of deferred fees during the year
ended December 31, 1997.

      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.


                                       10
<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,
                                                        ---------------
                                          1999      1998      1997      1996      1995
                                          ----      ----      ----      ----      ----
                                                     (Dollars in Thousands)
<S>                                       <C>       <C>       <C>       <C>       <C>
Non-accruing loans:
 One-to-four family .................     $243      $505      $844      $841      $368
 Multi-family .......................       72        66        65        63        --
 Commercial .........................       --        22        --        --        --
 Consumer ...........................       --        --        --        --        --
                                          ----      ----    ------      ----      ----

   Total ............................      315       593       909       904       368
                                          ----      ----    ------      ----      ----

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

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

Real estate owned ...................       80       106       121        --       134
                                          ----      ----    ------      ----      ----

Total non-performing assets .........     $402      $706    $1,055      $930      $957
                                          ====      ====    ======      ====      ====

Total as a percentage of total assets     0.14%     0.27%     0.49%     0.46%     0.51%
                                          ====      ====    ======      ====      ====
</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, 1999 and 1998 had nonaccruing loans been current in accordance with
their original terms amounted to $31,000 and $51,000, respectively. The Bank
recorded $0 and $6,000, 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, 1999.

<TABLE>
<CAPTION>
                                                       Loans delinquent for:
                                                       ---------------------
                               60-89 days                 90 Days and Over            Total Delinquent Loans
                               ----------                 ----------------            ----------------------
                                          Percent                        Percent                        Percent
                                          of Loan                        of Loan                        of Loan
                       Number    Amount   Category   Number     Amount   Category    Number    Amount   Category
                       ------    ------   --------   ------     ------   --------    ------    ------   --------
                                                        (Dollars in Thousands)
<S>                       <C>     <C>        <C>         <C>     <C>       <C>          <C>     <C>       <C>
Real Estate:
 One-to-four family .      3      $115       .06%         4      $243      0.14%         7      $358      0.20%
 Multi-family .......     --        --        --          1        72      3.36          1        72      3.36
 Commercial .........     --        --        --         --        --        --         --        --        --
 Consumer ...........     --        --        --          3         7      0.06          3         7      0.06
                        ----      ----      ----       ----      ----      ----       ----      ----      ----
Total loans .........      3      $115       .06%         8      $322      0.16%        11      $437      0.21%
                        ====      ====      ====       ====      ====      ====       ====      ====      ====
</TABLE>


                                       11
<PAGE>

      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, 1999, the Bank
had $80,000 of real estate acquired in settlement of loans.

      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, 1999.

      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, 1999, the Bank had $384,000 of assets classified
substandard, and $18,000 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


                                       12
<PAGE>

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, 1999 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 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,
                                                            ------------------
                                                1999     1998     1997     1996     1995
                                                ----     ----     ----     ----     ----
                                                          (Dollars in Thousands)
<S>                                             <C>      <C>      <C>      <C>      <C>
Balance at beginning of period ..............   $ 760    $ 723    $ 534    $ 490    $ 442
Charge-offs
Real estate:
  One-to-four family ........................      10        7       11       --       12
  Multi-family and other ....................      22       --       --       --       --
                                                -----    -----    -----    -----    -----
    Total ...................................      32        7       11       --       12

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

Net charge-offs .............................      32        7       11       (1)      12

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

Balance at end of period ....................     788    $ 760    $ 723    $ 534    $ 490

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

Ratio of net charge-offs during the period to
  average non-performing assets .............    5.31%    2.61%    1.04%      --     1.23%
                                                =====    =====    =====    =====    =====
</TABLE>

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

                                                 Years Ended December 31,
                                                 ------------------------
                                          1999    1998    1997     1996    1995
                                          ----    ----    ----     ----    ----
                                                      (In Thousands)

Balance - beginning ..................   $ 760   $ 723   $ 534    $ 490   $ 442
Provisions charged to operations .....      60      44     200       43      60
Loans charged off, net of recoveries .      32       7     (11)       1     (12)
                                         -----   -----   -----    -----   -----
Balance - ending .....................   $ 788   $ 760   $ 723    $ 534   $ 490
                                         =====   =====   =====    =====   =====


                                       13
<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,
                                                                           ---------------
                                        1999                                    1998
                                        ----                                    ----
                                                      % 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        $    476    $182,100      89.86%        $    458    $166,573      93.23%
Multi-family                    33       2,143       1.06               11       1,200       0.67
Commercial real estate          94       7,553       3.72               40       3,367       1.88
Home equity                     98      10,616       5.24               81       7,133       4.00
Other consumer                  --         235       0.12               --         388       0.22
Unallocated                     87          --       0.00              170          --       0.00
                          --------    --------     ------         --------    --------     ------

                          $    788    $202,647     100.00%        $    760    $178,661     100.00%
                          ========    ========     ======         ========    ========     ======

<CAPTION>
                                  At December 31,
                                       1997
                                                     % of
                                       Loan        Loans in
                          Amount of   Amounts    Each Category
                          Loan Loss      by        to Total
                         Allowances   Category       Loans
                         ==========   ========     ========
                                (Dollars in Thousands)
<S>                       <C>         <C>          <C>
One-to-four family        $  402      $143,623      93.88%
Multi-family                  22         1,258       0.82
Commercial real estate        37         1,906       1.25
Home equity                   59         5,706       3.73
Other consumer                 3           491       0.32
Unallocated                  200            --       0.00
                          ------      --------     ------

                          $  723      $152,984     100.00%
                          ======      ========     ======

<CAPTION>
                                                                    At December 31,
                                                                    ---------------
                                              1996                                    1995
                                              ----                                    ----
                                                            % 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               $    356    $121,129       92.10%      $     296      $97,007      92.08%
Multi-family                           42       1,875        1.43              43        2,018       1.92
Commercial real estate                 61       2,035        1.55              61        1,862       1.76
Home equity                            75       5,364        4.08              44        3,345       3.17
Other consumer                         --       1,101        0.84              --        1,123       1.07
Unallocated                            --          --        0.00              46           --       0.00
                                 --------    --------      ------        --------    ---------     ------

                                 $    534    $131,504      100.00%       $    490    $ 105,335     100.00%
                                 ========    ========      ======        ========    =========     ======
</TABLE>

Investment Activities


                                       14
<PAGE>

      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 anticipated cash needs and sources (which in turn include outstanding
commitments, upcoming maturities, estimated deposits and anticipated loan
amortization and repayments). The effect that the proposed investment would have
on the Bank's credit and interest rate risk and risk-based capital is also
considered. The Company catagorizes investment portfolios as held to maturity
and available for sale. No assets are catagorized as held for trading. At
December 31, 1999, all mortgage backed securities are classified as available
for sale and carried at fair value. Such securities amounted to $48.7 million or
17.2% of total assets. US agency obligations in the amount of $19.5 million were
classified as held to maturity.

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

<TABLE>
<CAPTION>
                                                                           At December 31,
                                                                           ---------------
                                                       1999                      1998                      1997
                                                       ----                      ----                      ----
                                              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%
 Unrealized gain (loss), net                        --            --          --            --          (8)         (.01)
 Net unamortized (discount)                         --            --          --            --          --            --
 Equity securities                                  --            --          --            --          --            --
 Unrealized gains (loss), net                       --            --          --            --          --            --
                                              --------    ----------    --------    ----------    --------    ----------
   Total investment securities                      --            --          --            --         992          1.84
                                              --------    ----------    --------    ----------    --------    ----------

Mortgage-backed securities:
 GNMA                                           15,707         32.24%     13,353         21.28       1,184          2.20
 Fannie Mae                                      8,493         17.44      17,490         27.88      19,922         36.95
 Freddie Mac                                    16,746         34.38      30,095         47.97      30,614         56.78
 Collateralized Mortgage Obligations             7,761         15.94         868          1.38         545          1.01
   Total mortgage backed securities             48,707        100.00      62,735                    52,925         98.16
                                                                                                  --------    ----------
Total securities available for sale           $ 48,707        100.00%   $ 62,735        100.00%   $ 53,917        100.00%
                                              ========    ==========    ========    ==========    ========    ==========

Held to Maturity:
Investment Securities:
 Federal Agency Obligations                     19,468        100.00%         --            --          --            --

 Total Securities Held to Maturity              19,468        100.00%         --            --          --            --
                                              --------    ----------

FHLB Stock                                    $  2,355                  $  2,008                  $  1,084
                                              ========                  ========                  ========

Other interest earning assets:
 Interest bearing deposits in banks           $  2,049                  $ 12,350                  $  4,739
                                              ========                  ========                  ========
</TABLE>


                                       15
<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, 1999.

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

            One year or less ...................   $   160     7.00%
            After one year though five years ...     1,737     6.50
            After five years through ten years .        --       --
            After ten years ....................    39,067     6.70
                                                   -------     ----

            Total ..............................   $40,964     6.69%
                                                   =======

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 as a long-term funding strategy for
increased loan origination or the purchase of investment securities.

      Deposit Accounts. The Bank's deposit products include negotiable order of
withdrawal ("NOW") accounts, demand deposit accounts, money market accounts,
regular passbook savings, statement savings accounts and term certificate
accounts. Deposit account terms vary with the principal difference being the
minimum balance deposit, early withdrawal penalties and the interest rate. The
Bank reviews its deposit mix and pricing 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").


                                       16
<PAGE>

      The following table sets forth an analysis of deposit accounts by type,
maturity, and rate at December 31, 1999, 1998 and 1997.

<TABLE>
<CAPTION>
                                                                             At December 31,
                                                                             ---------------
                                                     1999                          1998                           1997
                                                     ----                          ----                           ----
                                                   Weighted                      Weighted                       Weighted
                                                   Average     % of              Average    % of                Average      % of
                                          Amount     Rate     Total     Amount     Rate     Total      Amount     Rate       Total
                                         -------     ----     -----    -------     ----     -----     -------     ----       -----
                                                                         (Dollars in Thousands)
<S>                                     <C>          <C>    <C>        <C>         <C>    <C>        <C>          <C>       <C>
Transactions and savings deposits:

Non-interest bearing                    $  4,600       --%     2.09%     4,398       --%    1.97%    $  3,376       --%       1.70%
Money market accounts                      2,213     2.79      1.00      2,587     2.64     1.16        2,809     2.69        1.42
NOW accounts                              10,314     1.56      4.67      9,995     1.50     4.47        9,696     1.50        4.89
Passbook and statement savings            51,421     3.00     23.32     49,197     3.00    22.03       45,168     3.00       22.77
                                        --------     ----    ------    -------            ------      -------     ----      ------
Total transactions and savings deposits   68,548     2.57     31.08     66,177     2.56    29.63       61,049     2.58       30.78
                                                                                                      -------     ----      ------

Certificate accounts with
remaining maturities of:
6 months or less                          65,281     5.05%    29.60     46,443     5.18    20.80       62,587     5.30       31.55
Over 6 to 12 months                       42,296     5.18     19.18     59,895     5.47    26.83       27,714     5.37       13.97
Over 12 months                            44,408     5.55     20.14     50,755     5.72    22.74       47,013     5.89       23.70
                                        --------     ----    ------    -------     ----   ------      -------     ----      ------
Total certificates                       151,985     5.23     68.92    157,093     5.46    70.37      137,314     5.52       69.22
                                        --------     ----    ------    -------     ----   ------      -------     ----      ------
 Total deposits                         $220,533     4.40%   100.00%   223,270     4.60%  100.00%     198,363     4.62%     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,
1999.

                  December 31, December 31, December 31, December 31,
                      2000         2001         2002         2004         Total
                    --------     --------     --------     --------     --------
                                           (In Thousands)

Less than 4% .....         5     $      3     $     --     $     --            8
4.00-5.99% .......  $ 99,619       39,025        2,853          899     $142,396
6.00-7.99% .......     7,953        1,577           16           35        9,581
                    --------     --------     --------     --------     --------
Total ............  $107,577     $ 40,605     $  2,869     $    934     $151,985
                    ========     ========     ========     ========     ========


                                       17
<PAGE>

      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,
1999.

<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      $ 31,223      $ 68,109       $ 41,093       $    934    $141,359
Certificates of Deposit of $100,000 or more        2,666         5,579          2,381             --      10,626
                                                --------      --------       --------       --------    --------

Total Certificates of Deposit                   $ 33,889      $ 73,688       $ 43,474       $    934    $151,985
                                                ========      ========       ========       ========    ========
</TABLE>


                                       18
<PAGE>

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

<TABLE>
<CAPTION>
                                                                                At December 31,
                                                                                ---------------
                                                       1999           1998          1997          1996          1995
                                                     ---------      ---------     ---------     ---------     ---------
                                                                                 (In Thousands)
<S>                                                  <C>            <C>           <C>           <C>           <C>
Beginning balance                                    $ 223,270      $ 198,363     $ 184,709     $ 169,842     $ 153,769
                                                     ---------      ---------     ---------     ---------     ---------

Net increase (decrease) before interest credited       (12,167)        15,675         5,283         7,343         6,446
Interest credited                                        9,430          9,232         8,371         7,524         9,627
                                                     ---------      ---------     ---------     ---------     ---------
Net increase (decrease) in deposits                     (2,737)        24,907        13,654        14,867        16,073
                                                     ---------      ---------     ---------     ---------     ---------
Ending balance                                       $ 220,533      $ 223,270     $ 198,363     $ 184,709     $ 169,842
                                                     =========      =========     =========     =========     =========
</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,
                                            ------------------------
                               1999       1998       1997       1996       1995
                               ----       ----       ----       ----       ----
                                                 (In Thousands)

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

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

      At December 31, 1999 and 1998, no advances were outstanding from the FHLB
of New York.

      The following table sets forth the maximum month-end balance and average
balance of Repurchase Agreements with the FHLB of New York for the year ended
December 31, 1999.

                                                                  (In Thousands)

Maximum balance:
   FHLB advances                                                   $      24,800
Average balance:
   FHLB advances                                                   $      13,258
Investment Securities underlying agreements at year end:
   Carrying Value                                                  $      35,179
   Fair Value                                                      $      35,074


                                       19
<PAGE>

Employees

      As of December 31, 1999, the Bank had 49 full-time and 2 part-time
employee, none of whom is represented by a collective bargaining unit. The Bank
believes its relationship with its employees is good.

                                   REGULATION

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

Federal Regulation of Savings Institutions

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

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

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

      Recent legislation has expanded the qualified thrift lender test to
provide savings associations with greater authority to lend and diversify their
portfolios. In particular, credit card and education loans may now be made by
savings associations without regard to any percentage-of-assets limit, and
commercial loans may be made in an amount up to 10% of total assets, plus an
additional 10% for small business loans. Loans for personal, family and
household purposes (other than credit card, small business and educational
loans) are now included without limit with other assets that, in the aggregate,
may account for up to 20% of total assets. The Bank satisfied the qualified
thrift lender test on December 31, 1999.

      Limitations on Capital Distributions. OTS regulations impose limitations
upon all capital distributions by savings institutions, such as cash dividends,
payments to repurchase or otherwise acquire its shares, payments to stockholders
of another institution in a cash-out merger and other distributions charged
against capital. A "well


                                       20
<PAGE>

capitalized" institution can, after prior notice but without the approval of the
OTS, make capital distributions during a calendar year in an amount up to 100
percent of its net income during the calendar year, plus its retained net income
for the preceding two years. As of September 30, 1999, the Bank was a "well
capitalized" institution.

      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, 1999 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 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


                                       21
<PAGE>

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.


                                       22
<PAGE>

      At December 31, 1999, the Bank exceeded all 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, 1999.

<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, 1999:
 Tier I core capital         $26,298     9.38%      $11,213       4%         $14,016      5%
 Tier I risk-based capital    26,298    21.01        11,213       4            7,512      6%
 Total risk-based capital     27,086    21.63        10,015       8           12,519     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.

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.

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, 1999, 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


                                       23
<PAGE>

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, 1999, the Bank
was in compliance with these reserve requirements. The balances maintained to
meet the reserve requirements imposed by the FRB may be used to satisfy
liquidity requirements imposed by the OTS.

Holding Company Regulation

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

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

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

      The OTS is prohibited from approving any acquisition that would result in
a multiple savings and loan holding company controlling savings institutions in
more than one state, subject to two exceptions: (i) the approval of interstate


                                       24
<PAGE>

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 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


                                       25
<PAGE>

      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, 1999, was approximately
$586,000.

      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, 1999, the Bank's total federal pre-1988 reserve was
approximately $3,009,000. This reserve reflects the cumulative effects of
federal tax deductions by the Bank for which no federal income tax provision has
been made.

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

      Net Operating Loss Carryovers. A financial institution may carry back net
operating losses to the preceding two taxable years and forward to the
succeeding 20 taxable years. This provision applies to losses incurred in
taxable years beginning after 1996. At December 31, 1999, 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.


                                       26
<PAGE>

      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, 1999.

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

1410 St. Georges Avenue     1986                   9,200           $65.9 million
Avenel, NJ 07001

1515 Irving Street          1995                   7,300           $41.2 million
Rahway, NJ 07065

225 North Wood Ave.         1977                   1,400           $42.4 million
Linden, NJ 07036

755 State Highway 18        1974                   2,000           $64.7 million
East Brunswick, NJ 08816

1600 Perrineville Rd.       1999                   2,400           $6.5 million
Monroe Township, NJ

      At December 31, 1999, the net book value of the Company's office
properties and fixtures, furniture, and equipment and capitalized leases was $
4.87 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


                                       27
<PAGE>

      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, 1999.

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, 1999 is
filed as part of the Company's Annual Report to Stockholders and is incorporated
by reference.

ITEM 7. Management's Discussion and Analysis of Financial Condition and Results
        of Operations

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

ITEM 7A. Quantitative and Qualitative Disclosures about Market Risk

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

ITEM 8. Financial Statements and Supplementary Data

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

ITEM 9. Changes in and Disagreements with Accountants on Accounting and
        Financial Disclosure

      None.


                                       28
<PAGE>

                                    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 2000 Annual Meeting of Stockholders
(the "2000 Proxy Statement") is incorporated herein by reference.

ITEM 11. Executive Compensation

      The "Proposal I--Election of Directors" section of the Company's 2000
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 2000
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
2000 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 Stockholder's Equity

            (F)   Consolidated Statements of Cash Flows

            (G)   Notes to Consolidated Financial Statements

      (a)(2) Financial Statement Schedules

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

      (b)   Reports on Form 8-K


                                       29
<PAGE>

      The Company has not filed a Current Report on Form 8-K during the fourth
quarter of the fiscal year ended December 31, 1999.

      (c)   Exhibits

            3     Federal Stock Charter and Bylaws *

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

            10.1  Form of Employment Agreement *

            10.2  Form of Employee Stock Ownership * Plan


            13    Annual Report to Security Holders 13

            21    Subsidiaries of Registrant 21

            23    Consent of Radics & Co., LLC 23

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


                                       30
<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 27, 2000                   By: /s/ John R. Bowen
                                           ------------------------------------
                                           John R. Bowen
                                           President and Chief Executive Officer

      Pursuant to the requirements of the Securities Exchange of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.


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

Date: March 27, 2000                         Date: March 27, 2000


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

Date: March 27, 2000                         Date: March 27, 2000


By: /s/ John W. Fox                          By: /s/ John C. Marsh
    ----------------------                       -------------------------------
    John W. Fox                                 John C. Marsh
    Director                                    Director

Date: March 27, 2000                         Date: March 27, 2000


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

Date: March 27, 2000                         Date: March 27, 2000

<PAGE>

                              LIBERTY BANCORP, INC.
                                AND SUBSIDIARIES
                        CONSOLIDATED FINANCIAL STATEMENTS
                   (With Independent Auditors' Report Thereon)

                                December 31, 1999
                     --------------------------------------

                                      INDEX

                                                                          Page
                                                                          ----

Management Responsibility Statement                                         1

Independent Auditors' Report                                                2

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

Consolidated Statements of Income
     for the Years Ended December 31, 1999 and 1998                         4

Consolidated Statements of Comprehensive Income
     for the Years Ended December 31, 1999 and 1998                         5

Consolidated Statements of Stockholders' Equity
     for the Years Ended December 31, 1999 and 1998                         6

Consolidated Statements of Cash Flows
     for the Years Ended December 31, 1999 and 1998                       7 - 8

Notes to Consolidated Financial Statements                                9 - 37

All schedules are omitted as the required information is either not applicable
or is presented in the consolidated financial statements.