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

                                    FORM 10-K

   [X]      Annual  report  pursuant  to section 13 or 15(d) of the  securities
             exchange act of 1934 for the year ended December 31, 1997

   [ ]      Transition report pursuant to section 13 or 15(d) of the
             securities exchange act of 1934

                         Commission file number 1-13157

                               JSB FINANCIAL, INC.
                               -------------------
             (Exact name of registrant as specified in its charter)


          Delaware                                   11-3000874
          --------                                   ----------
(State or other jurisdiction of                    (I.R.S. Employer
 incorporation or organization)                    Identification No.)

                   303 Merrick Road, Lynbrook, New York 11563
                   ------------------------------------------
                    (Address of principal executive offices)

       Registrant's telephone number, including area code: (516) 887-7000
       ------------------------------------------------------------------

     Securities registered pursuant to Section 12(b) of the Act:
     Common Stock $.01 par value (Title of each class)
     -------------------------------------------------

     New York Stock Exchange (Name of each exchange on which registered)
     -------------------------------------------------------------------

     Securities registered pursuant to Section 12(g) of the Act:   None
     -----------------------------------------------------------   ----

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

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

     The aggregate  market value of voting stock held by  non-affiliates  of the
     registrant  as of March 4,  1998:  Common  stock par value  $.01 per share,
     $450,467,434.  This  figure is based on the  closing  price by the New York
     Stock  Exchange  for a share of the  registrant's  common stock on March 4,
     1998, which was $53.3125 as reported in the Wall Street Journal on March 5,
     1998.

     The number of shares of the  registrant's  Common Stock  outstanding  as of
     March 16, 1998 was 9,882,547 shares.


     DOCUMENTS  INCORPORATED  BY  REFERENCE:  Portions of the  definitive  Proxy
     Statement for the Annual Meeting of Stockholders to be held on May 12, 1998
     and portions of the 1997 Annual  Report to  Stockholders  are  incorporated
     herein by reference Parts I, II and III.



<PAGE>  2


                         FORM 10-K CROSS-REFERENCE INDEX

PART I                                                                   Page
------                                                                   ----
Item  1.  Business .....................................................   3
Item  2.  Properties....................................................  32
Item  3.  Legal Proceedings.............................................  32
Item  4.  Submission of Matters to a Vote of Security Holders...........  32
Additional Item.  Executive Officers....................................  33

PART II
-------
Item  5.  Market for JSB Financial Inc.'s Common Equity
            and Related Stockholders' Matters...........................  34
Item  6.  Selected Financial Data.......................................  34
Item  7.  Management's Discussion and Analysis of Financial Condition
            and Results of Operations...................................  34
Item  8.  Financial Statements and Supplementary Data ..................  34
Item  9.  Changes in and Disagreements with Accountants on Accounting
            and Financial Disclosure....................................  34

PART III
--------
Item 10.  Directors and Executive Officers..............................  35
Item 11.  Executive Compensation........................................  35
Item 12.  Security Ownership of Certain Beneficial Owners
            and Management..............................................  35
Item 13.  Certain Relationships and Related Transactions................  35

PART IV
-------
Item 14.  Exhibits, Financial Statement Schedules and Reports on
            Form 8-K....................................................  36

SIGNATURES..............................................................  39



<PAGE>  3

                                     PART I

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

                             DESCRIPTION OF BUSINESS

General
-------

        JSB  Financial,  Inc.  ("JSB  Financial",   "Company"  or  the  "Holding
Company") is a Delaware  corporation,  incorporated  on February 6, 1990,  which
acquired all of the stock of Jamaica Savings Bank FSB ("Jamaica  Savings" or the
"Bank") upon the Bank's  conversion  from a federally  chartered  mutual savings
bank to a federally  chartered  stock savings  bank.  The stock  conversion  was
completed  on  June  27,  1990.  The  information  presented  in  the  financial
statements  and in the Form 10-K reflect the financial  condition and results of
operations of the Company, as consolidated with its wholly owned subsidiary, the
Bank.

        In addition to the Company's investment in the Bank, the Company invests
in U.S. Government and agency securities,  federal funds sold (through the Bank)
and holds first  mortgage  loans.  The Company  received the mortgage loans as a
dividend from the Bank. (See Note 27 to the Consolidated  Financial  Statements,
included on pages 42 and 43 in the 1997 Annual Report to Stockholders.)

        Jamaica  Savings  was  organized  in 1866 as a New York state  chartered
mutual  savings  bank.  In 1983,  the Bank  converted  to a federally  chartered
savings bank, retaining the "leeway" investment authority and broader investment
powers  available to a state  chartered  savings bank,  and its Federal  Deposit
Insurance Corporation ("FDIC") insurance.

        The Bank's principal  business consists of attracting  deposits from the
general public and investing those deposits,  together with funds generated from
operations,  in first  mortgage  loans  secured by real  estate,  collateralized
mortgage  obligations  ("CMOs"),  U.S. Government and federal agency securities,
and to a lesser extent, various other consumer loans and federal funds sold. The
Bank has a number of  wholly-owned  subsidiary  corporations  primarily  for the
purpose of owning, operating and disposing of real estate properties.

        Since 1990, the Company has  maintained  stock  repurchase  programs and
paid quarterly cash dividends to stockholders.  During 1997, the Company did not
repurchase any of its outstanding  common stock and paid total cash dividends of
$13.8 million, or $1.40 per common share.

Market Area and Competition
---------------------------

        Market Area  Headquartered  in  Lynbrook,  New York,  the Bank  conducts
business from 13 full service branch offices, 10 of which are located in the New
York City  borough of Queens,  one in the borough of  Manhattan  and one each in
suburban Nassau (the headquarters) and Suffolk counties.

        Jamaica Savings is a  community-oriented  financial  institution serving
its market area with a wide selection of residential  loans,  consumer loans and
retail  financial  services.  Management  considers  the  Bank's  retail  branch
network,  reputation for financial  strength and quality customer service as its
major competitive  advantages in attracting and retaining customers.  Management
believes that the Bank benefits from its community bank orientation.  The Bank's
long term  relationships  with its depositors are considered a valuable resource
for the future, as the Bank continues to expand services offered to customers.

         Local Economy The primary market area for the Bank is  concentrated  in
the  neighborhoods  surrounding  its thirteen full service  offices.  Management
believes that its branch offices are primarily  located in communities  that can
generally be characterized as stable, residential neighborhoods of predominantly
one- to  four-family  residences  and middle  income  families.  During the late
1980's to the early 1990's,  the New York metropolitan area experienced  reduced
employment  as a result of the  general  decline in the local  economy and other
factors.  The area  experienced  a general  decline in real estate  values and a
decline in home sales and  construction  and,  sharp  decreases  in the value of
commercial properties, land, as well as cooperatives and condominiums.


<PAGE>  4

         During the last four years,  unemployment  and real estate  values have
been  relatively  stable in the New York  metropolitan  area.  New York City has
benefited  from the  resurgence  and  growth  in  employment  and  profitability
experienced by national  securities and investment  banking firms, many of which
are domiciled in  Manhattan,  as well as the growth and  profitability  of other
financial  service  companies,  such as money center banks.  The strength of the
national  economy and of the United  States  equities  markets  has  contributed
significantly  to the recent growth and increased  profitability  of Wall Street
securities and investment  banking firms,  which has benefited the Bank's market
area.

         A weakness or  deterioration  in the economic  conditions of the Bank's
primary  lending  area in the  future  could  result  in the  Bank  experiencing
increases in non-performing  loans. Such increases would likely result in higher
provisions for possible loan losses,  reduced levels of interest  earning assets
which would lower the level of net interest income and possibly result in higher
levels of other real estate owned expense.

        Highly   Competitive   Industry  and  Geographic  Area  The  Bank  faces
significant  competition  for  mortgage and consumer  loan  originations  and in
attracting  and  retaining  deposits.  The New York City  metropolitan  and Long
Island areas have a high concentration of financial institutions,  many of which
are significantly larger and have greater financial resources than the Bank, all
of which are competitors of the Bank to varying degrees.  The Bank's competition
for loans and deposits  comes  principally  from savings and loan  associations,
savings banks, commercial banks, mortgage banking companies, insurance companies
and credit unions.  The most direct  competition  for deposits has  historically
come from savings and loan  associations,  savings banks,  commercial  banks and
credit unions.  In addition,  products  offered by the securities  industry have
created alternative investments,  including money market accounts,  mutual funds
and annuities,  available to the general public.  The Bank competes for deposits
through pricing, service and by offering a variety of deposit accounts and other
services.  Management competes for loans principally through pricing, efficiency
and the quality of its services provided to borrowers,  real estate and mortgage
brokers.   Competition  may  also  increase  as  a  result  of  the  lifting  of
restrictions on interstate operations of financial institutions.

Lending Activities and Risk
---------------------------

General
-------
     The Bank  offers a  variety  of loans  to  serve  the  credit  needs of the
communities  in which it  operates.  The  Bank's  loan  portfolio  is  comprised
primarily of first mortgage loans secured by:  multi-family  rental  properties;
cooperative  buildings;  one-to four-family residences (which is almost entirely
comprised of  mortgages  secured by one and two family  residences);  commercial
property and to a lesser extent,  construction loans. The Bank also offers other
loans,  including:  property  improvement;  home equity loans;  loans secured by
deposit  accounts;  student  loans;  automobile  loans and  personal  loans.  At
December 31, 1997, the loan portfolio was $999.7  million,  net of allowances of
$5.9 million and unearned fees and  discounts of $3.3  million.  At December 31,
1997, net loans  represented  65.1% of the Company's total assets.  During 1997,
mortgage loans  originated for portfolio were $205.2 million  compared to $136.2
million during 1996. The Bank does not offer any loans that provide for negative
amortization.  (See "Loan Portfolio" and "Maturities and  Sensitivities of Loans
to Changes in Interest Rates", pages 23 and 24, herein.) Management monitors the
economy and real  estate  market in which the Bank  operates  and  modifies  its
lending policies as considered appropriate.

        Pursuant  to the New York  City  Housing  Partnership/HPD  Homeownership
Program, the Bank provides funding for two New York construction  projects,  one
in Queens  and one in  Brooklyn,  New  York,  whereby  the Bank  holds the first
mortgage on the  premises and obtains  personal  guarantees  from the  builders.
Advances  for each of these  projects  are based on executed  contracts  of sale
prior to construction and construction progress on a per unit/house basis. These
projects are as follows:  (1) East New York Homes - In February,  1997, the Bank
entered into an agreement to finance the  construction  of 45 2-family houses in
East New York,  Brooklyn.  The Bank  commitment is for $6.9 million with no more
than $3.5 million  outstanding  at any one time.  (2)  Bayswater  Village in Far
Rockaway,  Queens,  New  York - In  December,  1996,  the Bank  entered  into an
agreement  to finance  the  construction  of 16  two-family  houses with a total
development  cost of $3.5 million with no more than $1.9 million  outstanding at
any one time.

<PAGE>  5

        In addition,  the Bank makes six month  construction  loans to a builder
who constructs one and two-family  houses in low to moderate income areas within
the Bank's market area.  The loans are approved on a per building  basis and the
Bank holds the first  mortgage on the premises and obtains a personal  guarantee
from the builder.  At December  31, 1997,  the Bank held a total $3.1 million in
construction loans.

        The Bank continues to emphasize  lending on multi-family  and underlying
cooperative  properties.  Lending on these types of properties poses significant
additional  risks to the lender as  compared  with one-to  four-family  mortgage
lending.   These  loans  generally  are  made  to  single  borrowers  or  realty
corporations  controlled by an individual  or group of  individuals  and involve
substantially higher loan balances than one-to four-family  residential mortgage
loans.  Moreover,  the  repayment  of such loans is  typically  dependent on the
successful  operation  of the  property,  which  in turn is  dependent  upon the
expertise  and  ability of the  borrower  to properly  manage and  maintain  the
property.  In addition,  management  recognizes that repayment of commercial and
multi-family  loans is subject to adverse  changes in the real estate  market or
the economy,  to a far greater  extent than is  repayment of one-to  four-family
mortgage loans.

Multi-family,  Underlying Cooperative and Commercial Real Estate Lending
------------------------------------------------------------------------
     The Bank originates mortgage loans secured by multi-family  dwellings of 50
units or more,  cooperative  buildings and income  producing  properties such as
shopping centers. At December 31, 1997, 57.5% of total gross mortgage loans were
secured by multi-family  rental properties,  27.3% by cooperative  buildings and
7.3% by  commercial  real  estate.  At that date,  the Bank's ten largest  loans
totaled $121.0  million.  These ten mortgage loans were comprised of: five loans
totaling $62.9 million  secured by  multi-family  rental  properties;  two loans
totaling $23.4 million secured by underlying  cooperative  buildings;  one $12.8
million  mortgage loan secured by the land underlying a luxury  Manhattan hotel;
one $11.1 million loan secured by a commercial  office  building;  and one $10.8
million loan  secured by a shopping  center.  At December  31, 1997,  the Bank's
largest loan was an $18.5 million  mortgage loan secured by a 684 unit apartment
complex. The Bank's largest underlying  cooperative loan, which had a balance of
$12.8 million at December 31, 1997, was  non-performing.  Subsequent to December
31, 1997, the Bank entered into a settlement  agreement with the borrower.  (See
"Delinquencies and Classified Assets",  page 25 and "Potential Problem Loans and
Other Assets and Subsequent Developments", page 28, herein.)

        Substantially  all of the  Bank's  mortgage  loans on  income  producing
properties  are secured by  properties  located  within the Bank's  market area.
Mortgages currently offered on income producing  properties are underwritten for
terms that  generally  do not exceed 10 years.  Since  amortization  (if any) on
multi-family  rental,  underlying  cooperative and commercial  mortgage loans is
over significantly  longer periods than the terms to maturity,  balloon payments
are due at  maturity.  In  establishing  interest  rates,  origination  fees and
amortization terms for these types of loans, management considers current market
conditions,  competition and the risks associated with the property securing the
loan.  The  interest  rates on such loans are based on the five to ten year U.S.
Treasury  Constant Maturity Index, plus a spread to reflect the term of the loan
and associated credit risk.

        In underwriting  mortgage loans secured by income producing  properties,
including  multi-family  rental,  underlying  cooperative  and  commercial  real
estate,  the Bank's mortgage officers engage in detailed analysis to ensure that
the property's  anticipated cash flow is sufficient to cover operating  expenses
and debt service. Under the Bank's current policy, at origination, loan-to-value
ratios  generally do not exceed 75% on loans secured by multi-family  rental and
commercial real estate properties and 40% on underlying  cooperatives.  The Bank
requires  that  properties  securing  such loans be appraised by a member of the
Bank's appraisal staff or a qualified independent  appraiser.  The Bank requires
borrowers to obtain title insurance and hazard insurance in an amount sufficient
to cover the mortgage naming the Bank as loss payee. All loans secured by income
producing  property  must be  approved  by two  members of the  Bank's  Mortgage
Committee,  which is comprised of five members of the Board of Directors and the
Chairman of the Board "ex officio",  or one member of the Mortgage Committee and
the senior lending officer.

<PAGE>  6

        Underlying cooperative loans are first liens on the cooperative building
and the land.  Underlying  cooperative mortgages are senior to cooperative share
loans.  Cooperative  share  loans are secured by the  proprietary  leases on the
individual units. Consequently, when the amount of an underlying loan is related
to the  market  value of a  cooperative  building,  including  the  value of the
individual units, the resulting loan-to-value ratio generally is in the range of
15% to 30%.

        Mortgage lending on multi-family, cooperative, and commercial properties
poses  significant  additional  risks to the  lender  as  compared  with  one-to
four-family mortgage lending. At December 31, 1997, the largest concentration of
loans to any one  borrower  consisted  of two  mortgage  loans with an aggregate
balance of $29.6 million,  which were secured by a multi-family garden apartment
complex and a commercial office tower.

        Management  monitors the loan  portfolios on a regular basis in order to
identify  trends that may affect future  collectibility.  Specific  attention is
given  to   concentrations   of  credit  based  on  the  loan   collateral   and
concentrations to any one borrower or category of borrower.  (See "Delinquencies
and   Classified   Assets"  and   "Potential   Problem   Loans  and   Subsequent
Developments", page 25 through 28, herein.)

One-to Four-Family  Lending
---------------------------
     The  Bank  offers  first  mortgage  loans  secured  by  one-to  four-family
residences and  condominium  units in complexes  which are at least 90% sold and
cooperative  apartment  share loans where at least 65% of the total  cooperative
shares are sold. While three-to  four-family  mortgages are offered by the Bank,
minimal demand has been experienced.  At December 31, 1997,  one-to  four-family
mortgages totaled $73.8 million, of which $66.0 million were fixed rate mortgage
loans and $7.8  million  were  adjustable  rate  mortgage  ("ARM")  loans.  Loan
applications  are received from  existing  customers and generated by referrals,
branch  and  newspaper  advertising.   One-to  four-family  mortgage  loans  are
generally  underwritten  according  to  Federal  National  Mortgage  Association
("Fannie Mae") and State of New York Mortgage Association ("SONYMA") guidelines,
except as to limitations on loan amount.

        For a loan secured by one-to four-family  residential real estate,  upon
receipt  of  a  completed  loan   application,   disclosures  are  sent  to  the
applicant(s).  Income and certain other information is verified, a credit report
is ordered, and, if necessary, additional financial information is requested. If
the mortgage applicant's credit is verified and approved, an appraisal and flood
certification for the property are ordered.  In addition to utilizing the Bank's
appraisal staff, some appraisals on one-to  four-family  properties are prepared
by independent appraisers,  who are approved as qualified by the Bank's Mortgage
Committee.  It is the  Bank's  policy to  require  title  insurance  and  hazard
insurance  prior to closing on all real estate first mortgage  loans.  Borrowers
are generally  required to advance funds on a monthly basis to a mortgage escrow
account, together with each payment of principal and interest. Disbursements are
made from escrow accounts for real estate taxes and insurance premiums.

        The Bank offers fixed rate  mortgages and ARMs,  with interest rates and
other terms that are  competitive  with those  available in its market area. The
interest rate on ARMs are adjusted based on a spread above an agreed upon index,
such as a United States Treasury  Index.  The Bank's ARM loan interest rates are
generally  subject to annual rate change  limitations  of 2.00%,  up or down. In
addition,  ARM loans  offered  by the Bank  provide  for a  lifetime  cap on the
adjustment  in the interest  rate of 6.00% from the initial  rate.  These limits
help to reduce the interest rate  sensitivity  of such loans during periods with
significant  changes in interest rates. During periods of rising interest rates,
the  increase in the  required  monthly  payment for ARM loans may  increase the
likelihood of  delinquencies.  The ARM loans originated by the Bank reprice each
year,  on  the  loan's   anniversary  date  and  do  not  provide  for  negative
amortization.

        The Bank currently requires that one-to four-family residential mortgage
loans,  excluding  cooperative  apartment loans, not exceed the lesser of 80% of
appraised  value  of the  property  securing  the  loan  or  purchase  price  at
origination.  Up to 95%  financing  is  available  with the  purchase of private
mortgage  insurance  ("PMI"),  provided that the loan  qualifies for sale in the
secondary market.  Loans secured by cooperative  apartments  (cooperative  share
loans)  generally  require a down payment equal to 20% of the purchase price and
are not offered  with PMI. The Bank offers  one-to  four-family  mortgages  with
various terms.  One-to four-family loans must be approved by at least two senior
officers of the  Mortgage,  Consumer Loan or Real Estate  Departments.  Mortgage
loans in the Bank's portfolio  ordinarily  include  due-on-sale  clauses,  which
provide the Bank with the contractual right to deem the loan immediately due and
payable in the event  that the  borrower  transfers  ownership  of the  property
without  the  Bank's  consent.  It is the Bank's  policy to enforce  due-on-sale
provisions  or to require  that the  interest  rate be  adjusted  to the current
market rate when ownership is transferred.  Management monitors various economic
indicators and  competitive  conditions in its lending area,  and, in connection
therewith, may modify underwriting standards based on their assessments.


<PAGE>  7

        During 1997, the Bank originated for sale and subsequently sold, without
recourse,  $1.6 million of mortgage loans, on which the Bank retained servicing.
Included in loan sales were mortgage  loans of $703,000 to the State of New York
Mortgage  Association,  originated  and  sold  pursuant  to a  program  aimed at
prospective  first time home buyers with low to moderate income.  As part of the
Bank's agreement with the government  agencies,  the Bank offers mortgage loans,
for up to 95% of the lower of the purchase price or appraised  value,  on single
family principal  residences to credit qualified home buyers.  In addition,  the
borrower  must have not had income  greater  than 115 percent of the area family
median  income  as  published  by the  U.S.  Department  of  Housing  and  Urban
Development  annually in the report,  "Estimated Median Family Incomes".  During
1996,  the Bank  entered into an  agreement  to  originate  and sell  qualifying
mortgages  and FHA  Title I loans to  Fannie  Mae.  During  1997,  the Bank sold
$907,000  mortgage  loans to Fannie Mae. The Bank plans to  originate  and sell,
without  recourse,  other  mortgage  loans in the  secondary  market  and retain
servicing.

        During 1996, the Bank began offering FHA Home Improvement  Loans,  under
which the maximum loan amount for one-to four-family  properties is $25,000 with
a repayment term of five or ten years.  Loan amounts in excess of $7,500 must be
secured,  however,  no equity is required on owner occupied  properties.  Equity
equal  to the loan  amount  is  required  for  properties  that  are:  non-owner
occupied; income producing; and, not completed structures occupied for less than
six months. Loans over $15,000 must have an appraisal.  Inspections are required
on all loans in excess of $7,500 or if the borrower fails to submit a completion
certificate.  The Bank sells these loans,  without recourse,  to Fannie Mae, and
retains servicing.

Other  Lending
--------------
     The Bank offers a variety of other loan  products,  including:  home equity
loans, home improvement loans; loans secured by deposit accounts; student loans;
personal and automobile loans. At December 31, 1997, total gross other loans was
$29.1  million,  or 2.9% of total gross loans.  At December 31, 1997,  the other
loan  portfolio was comprised as follows:  property  improvement  loans of $10.7
million,  or 36.9%  of the  other  loan  portfolio;  loans  secured  by  deposit
accounts,  which are 100% secured,  of $8.2 million,  or 28.1% of the other loan
portfolio;  and  student  loans,  of $5.2  million,  or 17.9% of the other  loan
portfolio. Student loans are federally guaranteed to varying degrees. Management
is reviewing student loan origination programs packaged by Sallie Mae and Nellie
Mae, under which future  originations of student loans would be funded and owned
by the Bank,  but  servicing  would be  provided  by others.  The  student  loan
portfolio  existing at  December  31,  1997,  is carried at the lower of cost or
estimated fair value, in the aggregate,  as these loans are expected to be sold.
At December 31, 1997,  the $5.2 million  student loan portfolio had an estimated
fair  value of $5.3  million.  The  remainder  of the other loan  portfolio  was
comprised of various consumer type loans and overdraft lines of credit.

        The Bank offers fixed rate home equity loans,  which are reported herein
with property  improvement  loans.  Home equity loans originated by the Bank are
disbursed at closing, and range from $10,100, to a maximum of $50,000 on one and
two-family  owner-occupied  residences only. Financing is available up to 75% of
the  property's  appraised  value  less any  outstanding  mortgage  balance.  In
connection  with  originating  these loans,  the Bank  charges fees  incurred to
perfect  the lien on the  property.  At  December  31,  1997,  the Bank had $9.2
million of home equity loans, with interest rates ranging from 5.5% to 12.0%.

Loan  Origination  and Other Fees
---------------------------------
     In  addition  to  interest  earned  on  loans,  the Bank  charges  fees for
originating  loans,  certain  loan  prepayments  and  modifications.  The income
realized  from such fees  varies  with the volume of loans  made or repaid,  the
availability of funds, and competitive conditions in the lending market.


<PAGE>  8

Investment Activities
---------------------

        General Federally  chartered savings  institutions have the authority to
invest in various  types of liquid  assets,  including  United  States  Treasury
obligations,  securities of various agencies of the federal government,  certain
certificates of deposit of insured  depository  institutions,  certain  banker's
acceptances,  repurchase  agreements and federal funds sold.  Subject to various
restrictions,  federally  chartered  savings  institutions may also invest their
assets in commercial  paper,  investment  grade  corporate  debt  securities and
mutual funds whose assets conform to the investments that a federally  chartered
savings  institution  is  authorized  to make  directly.  At December  31, 1997,
securities and the other investment portfolio combined,  totaled $422.9 million,
or 27.5% of total assets,  of which $244.9  million were in U.S.  Government and
federal agency securities. (See "Investment Portfolio", page 22, herein.)

        Management  formulates the investment  policies,  subject to approval by
the  Board  of  Directors.  The  Chief  Executive  Officer,  or  his  designated
alternate,  makes investment  decisions on a day-to-day basis while the Board of
Directors  acts in an advisory  capacity.  The Bank's  investments in securities
have been  primarily in CMOs and short-term  U.S.  Government and federal agency
securities  with an  average  term to  maturity  of less than  three  years.  In
response to the low interest rate environment, beginning during 1992, the Bank's
purchases of investment  securities  generally  include those maturing in one to
two years.  The Bank's  investment  policy allows  investment in corporate  debt
securities  rated AA or higher.  The Bank classifies all securities,  other than
marketable  equity  securities,  as  "held-to-maturity".  The marketable  equity
securities  portfolio  is  designated  as  "available-for-sale"  and  carried at
estimated  fair  value.   Unrealized  gains  and  losses  on  available-for-sale
securities are excluded from earnings and reported as a net amount in a separate
component of stockholders' equity, until realized. During 1997, the Company sold
marketable equity  securities with a cost of $823,000,  realizing gross gains of
$7.0 million and no losses. Activity in the held-to-maturity portfolio included,
purchases of $499.9 million and maturities of $555.0 million of U.S.  Government
and federal agency  securities and purchases of $55.0 million and maturities and
amortization of $106.5 million in the CMO portfolio, during 1997.

         The  Company,  excluding  activities  of  the  Bank,  invests  in  U.S.
Government and federal agency securities and, through the Bank, invests in money
market instruments.  By investing in short term securities and maintaining funds
in cash and cash equivalents (investments with an original maturity of less than
three months), the Company is able to meet its liquidity needs. In addition,  at
December 31, 1997, the Company held mortgage  loans of $15.2 million,  that were
received as a dividend from the Bank during 1994.

        CMOs are  mortgage-backed  bonds  secured  by the cash flow of a pool of
mortgages.  In a CMO,  scheduled  principal and interest  payments received from
borrowers are separated into different  payment streams,  creating several bonds
that repay invested capital at different  rates. A given pool generally  secures
several  different  classes of CMO bonds.  CMOs pay the bondholder on a schedule
that is different  from the  mortgage  pool as a whole,  and includes  fast pay,
medium pay,  and slow pay bonds to suit the needs of  different  investors.  The
common  arrangements  include:  (i) a fast-pay bond with a maturity much shorter
than the total pool; (ii) a bond paying interest only for the period that may be
contingent on how prior CMOs perform,  before payment of principal begins; (iii)
a bond  paying  variable  interest  based  on an  index,  typically  the  London
Interbank  Offered Rate ("LIBOR"),  even though the mortgages  themselves may be
fixed  rate   loans.   CMOs  manage  the   prepayment   risk   associated   with
mortgage-related  securities  by  splitting  the pools of  mortgage  loans  into
different categories of classes.

        The Bank purchases Planned  Amortization Class ("PAC") (also referred to
as Planned  Principal  Class) bond CMOs. PACs are designed to receive  principal
payments using a predetermined  principal  balance  schedule derived by assuming
two constant prepayment rates for the underlying mortgage-backed securities. All
of the Bank's CMOs are backed by Freddie Mac, Fannie Mae or Government  National
Mortgage Association ("Ginnie Mae") mortgage-backed securities, which are backed
by whole loans.  Management believes these securities  represent  attractive and
limited risk  alternatives  relative to other  investments.  During the past few
years,  the  availability of CMOs that met the Bank's CMO investment  guidelines
was limited.  At December 31, 1997, $104.0 million, or 6.8% of total assets, was
invested  in CMOs.  At  December  31,  1997,  the  Bank's CMO  portfolio  had an
estimated  average  maturity  of  twenty  months.  (See  "Contractual   Maturity
Distribution", page 22, herein.)

<PAGE>  9

Sources of Funds
----------------

General
-------
     The Bank's primary sources of funds are deposits,  principal  payments from
maturities on debt securities, CMOs and principal payments on mortgage and other
loans.  Deposit flows and mortgage prepayments are greatly influenced by general
interest rate changes,  economic  conditions and  competition.  The Bank has not
directly borrowed any funds since 1984. (See  "Borrowings",  page 32, herein and
"Liquidity  and Capital  Resources"  included on pages 12 through 13 in the 1997
Annual Report to Stockholders.)

Deposits 
---------
     The Bank  offers a variety of deposit  accounts  having a range of interest
rates and terms. The Bank's deposits consist of the following types of accounts:
passbook and lease  security;  certificate;  money market;  negotiable  order of
withdrawal  ("NOW") and  non-interest  bearing demand.  As of December 31, 1997,
passbook  and lease  security  accounts  represented  50.4% of the Bank's  total
deposits. The flow of deposits is influenced  significantly by changes in market
interest rates, general economic conditions and competition. The Bank's deposits
are obtained  primarily from the  communities in which its branches are located.
The Bank does not use brokers to obtain deposits,  relying primarily on customer
service and  long-standing  relationships  with  customers to attract and retain
these  deposits.  Certificate  accounts in excess of $100,000  are not  actively
solicited by the Bank nor does the Bank pay preferential  interest rates on such
accounts.  (See Note 16 to the Consolidated  Financial  Statements,  included on
pages 34 and 35 in the 1997 Annual Report to Stockholders.)

        The Bank influences deposit levels and composition  through its interest
rate  structure.  Management  believes that the relatively low level of interest
rates and the strong  performance  and growth of the capital  markets  that have
prevailed are the primary  contributors  for the  continued  decline in deposits
over the past  several  years.  Management  chose to allow  deposits to decline,
rather  than pay rates  that would  result in a lower net income or  necessitate
modifying of the Bank's  existing  investment  structure and  guidelines.  Rates
offered on the Bank's deposit  accounts are competitive with those rates offered
by other financial institutions in its market area. While the highest percentage
of deposits has remained in passbook and lease security  accounts,  the trend of
deposit  shifts has moved away from  passbook  accounts and towards  certificate
accounts.  Deposits at December 31, 1997,  decreased by $23.2 million,  or 2.0%,
compared to deposits at December  31,  1996.  During  1997,  the decrease in the
Bank's  passbook  and  lease  security  accounts  of  $34.8  million,  or  5.8%,
represented the most significant decrease of any deposit category offered by the
Bank.  During 1997,  money market accounts  decreased by $10.1 million or 11.3%,
while certificate accounts increased by $22.4 million, or 5.8%. (See "Deposits",
pages 30 and 31, herein.)

Subsidiaries of the Bank
------------------------

General
-------
     At December 31, 1997, the Bank had 22 subsidiary  corporations of which, 15
were  active  in the  ownership  or  operation  of  real  estate  ("Real  Estate
Subsidiaries"),  one  operates as a real  estate  investment  trust,  and 6 were
inactive.   At  December  31,  1997,  the  Bank's   investment  in  Real  Estate
Subsidiaries,  including  ORE of  $473,000,  was $3.5  million,  or .2% of total
assets. The Real Estate  Subsidiaries  trace to the 1970's,  when, under its New
York State  leeway  investment  authority,  the Bank  organized a number of such
wholly-owned subsidiary  corporations,  many of which formed partnerships.  (See
"Grandfathered  Savings  Bank  Authority",  page 18,  herein.)  The Real  Estate
Subsidiaries:  (i)  took  "equity  interests"  in  the  construction  of  income
producing  properties on which the Bank made loans,  (ii) acquired and operated,
primarily multi-family properties,  as a result of foreclosure proceedings or by
obtaining  deeds  in lieu of  foreclosure,  and  (iii)  invested  in  commercial
properties in which the Bank established  branch offices.  (See Notes 11, 12 and
13 to the Consolidated Financial Statements,  included on pages 32 and 33 in the
1997  Annual  Report  to  Stockholders.)  In the late  1980's,  one Real  Estate
Subsidiary,  Jade  Associates  ("Jade"),  entered  into a joint  venture with an
unrelated party to construct and sell 84 residential cooperative apartments,  in
Flushing,  New York.  At December  31, 1997,  the  remaining  investment  in the
condominium  building  was $2.8  million,  or 92.4% of the $3.0  million of real
estate held-for-sale. (See "Jade Associates" and "LeHavre Associates", below.)


<PAGE>  10

        During the past three years,  the Bank's  investment  in the Real Estate
Subsidiaries has decreased  substantially as a result of the sale of properties.
As  of  June  30,  1997,  management  reclassified  all  remaining  real  estate
held-for-investment  to held-for-sale.  All real estate held-for-sale is carried
at the lower of cost or net fair value.

         The cyclical nature of real estate markets and interest rates influence
the level of financial risk to property  owners.  During these cycles,  the Bank
and its Real Estate  Subsidiaries  have mitigated such risks through:  (1) their
financial  ability to carry  properties  until their  perceived  optimal use and
value can be achieved;  (2) the use of internal property  management to maintain
and operate the  properties;  and (3)  monitoring  the condition of  significant
properties, on regular basis.

        The   activities   of  each  of  the  Bank's   wholly-owned   subsidiary
corporations and the partnerships  they formed are described below.  Real Estate
Subsidiaries that have converted properties to cooperative  residences have done
so under New York State  non-eviction  plans.  Non-eviction  plans  provide that
rent-stabilized  tenants may remain  tenants in their units after a building has
been sold to a cooperative  association.  Due to the  uncertainty  of timing and
future sales value of the unsold  cooperative  shares,  for financial  statement
purposes, unsold shares acquired as a result of converting these properties, are
carried at zero value.  Gains on the sale of these shares are included in income
upon  sale.  However,  for  income tax  purposes,  the value of all  cooperative
shares,  sold and unsold,  in excess of the Bank's  investment  in the  property
prior to conversion to  cooperative,  was included in taxable income at the time
of the sale to the  cooperative.  The tax basis of these  cooperative  shares is
depreciated for tax purposes.

Forty-Second  & Park Corp.
--------------------------
     Forty-Second & Park Corp. is a wholly-owned  subsidiary  corporation of the
Bank.  At  December  31,  1997,  the  subsidiary   owned  28.7%  of  the  shares
representing 17 units in a six-story  cooperative  apartment building containing
57 residential units and 4 professional offices located in Forest Hills, Queens,
New York City ("NYC"). The shares,  relating to the unsold units, are carried at
zero value.  The building was originally  acquired by obtaining the deed in lieu
of foreclosure in 1979. This building, which had been poorly maintained prior to
acquisition, was renovated. In 1982, the property was converted to a cooperative
and sold to Barclay Plaza North  Owner's,  Inc.  During 1997, one unit was sold,
resulting in a net gain, before taxes, of $130,000.  Rents received during 1997,
on the unsold  apartments  totaled $145,000 and maintenance  charges paid to the
cooperative  association totaled $150,000.  For 1997,  Forty-Second & Park Corp.
had net income of $117,000,  after eliminating  intercompany  transactions.  The
Bank's net  investment in  Forty-Second & Park Corp. was $10,000 at December 31,
1997.

Parkway  Associates
-------------------
     Parkway Associates  ("Parkway") is a partnership  between two of the Bank's
wholly-owned subsidiary  corporations,  Grandcet Realty Corp. and Litneck Realty
Corp.,  each of which has a 50%  partnership  interest.  At December  31,  1997,
Parkway owned 19.0% of the cooperative shares,  representing 73 unsold apartment
units plus parking spaces in a 400 unit  cooperative  garden  apartment  complex
located in Floral Park, Queens County,  NYC. The shares,  relating to the unsold
units, are carried at zero value.  The property was originally  acquired through
foreclosure in 1979 and initially  operated as a rental  property.  In the early
1980's, these apartments,  which had been poorly maintained,  were substantially
renovated.  In 1989,  the property was  converted to a  cooperative  and sold to
Floral Park Owners,  Inc.  During  1997,  8 units were sold,  resulting in a net
gain,  before taxes,  of $252,000.  Rents received  during 1997, from the unsold
apartments and garage spaces totaled  $554,000 and  maintenance  charges paid to
the  cooperative   association  and  costs  for  maintenance  employees  totaled
$577,000.  For 1997,  Parkway Associates had a net operating income of $224,000,
after  eliminating  intercompany  transactions.  The  Bank's net  investment  in
Parkway was $29,000 at December 31, 1997.

Elmback  Associates
-------------------
     Elmback Associates  ("Elmback") is a partnership  between two of the Bank's
wholly-owned  subsidiary  corporations,  Before Real Estate,  Inc. and Afta Real
Estate,  Inc.,  each of which has a 50%  partnership  interest.  At December 31,
1997,  Elmback  owned 22.2% of the  cooperative  shares  representing  13 unsold
apartment  units in a six story  cooperative  apartment  building with 61 units,
located in a low to moderate  income area of Jamaica,  Queens  County,  NYC. The
property,  originally  acquired  by deed in lieu of  foreclosure  in  1980,  was
subsequently  renovated and operated as a rental property. In 1988, the property
was  converted  to a  cooperative  and sold to 87-46  Chelsea  Owners,  Inc. The
shares,  relating to the unsold units, are carried at zero value. During 1997, 5
units were sold  resulting  in a net gain,  before  taxes,  of  $120,000.  Rents
received during 1997, on the unsold apartment units totaled $91,000 covering the
$83,000 of maintenance charges paid to the cooperative association.

<PAGE>  11

        In addition,  as part of a 1994 mortgage  loan workout  between the Bank
and an unrelated borrower, Elmback took title to cooperative shares representing
57 unsold cooperative apartments in an 82 unit cooperative property,  located in
Brooklyn,  New York.  During  1997,  2 units were sold and  $29,000 of gains was
deferred.  At December 31, 1997, 31 units  remained,  which comprised the entire
$473,000 in ORE.  This property  generated a net loss of $54,000 for 1997.  (See
"Other Real Estate", page 28, herein.)

        For 1997 Elmback  Associates had net operating income of $69,000,  after
eliminating intercompany transactions.  The Bank's net investment in Elmback was
$504,000 at December 31, 1997.

D & D  Associates
-----------------
     D & D  Associates  ("D&D") is a  partnership  formed by Pendex  Real Estate
Corp. and Sutdex Real Estate,  Inc., two wholly-owned  subsidiaries of the Bank,
each of which holds a 50% partnership  interest. At December 31, 1997, D&D owned
23.1% of the shares  representing  35 unsold units in two six-story  cooperative
apartment buildings with 176 units. These buildings,  located in Jamaica, Queens
County, NYC, were originally  acquired through foreclosure  proceedings in 1981.
Subsequent to  foreclosure,  the buildings were renovated and operated as rental
properties. During 1985, one of the buildings was converted to a cooperative and
sold to the Tyler Towers  Owners  Corp.  During  1988,  the second  building was
converted to a cooperative and sold to the Park Sanford Owners Corp. The shares,
relating to the unsold apartment units, are carried at zero value.  During 1997,
6 units were sold,  resulting  in a net gain  before  taxes of  $52,000.  Rental
income from the buildings  for 1997 totaled  $192,000  covering the  maintenance
charges  of  $167,000  paid  to the  cooperative  associations.  For  1997,  D&D
Associates had a net operating income of $20,000, after eliminating intercompany
transactions. The Bank's net investment in D&D was $45,000 at December 31, 1997.

Bay Hill Gardens
----------------
     Bay Hill  Gardens is a  partnership  between  110-11 72nd Ave.,  Corp.  and
Yalcrab  Real  Estate,   Inc.,  two  of  the  Bank's   wholly-owned   subsidiary
corporations,  each of which holds a 50% interest in the partnership.  For 1997,
this  subsidiary  had net income before taxes of $1,000,  which  resulted from a
real estate tax refund from prior years.  At December  31, 1997,  the Bank had a
net liability for this  subsidiary of $54,000,  comprised  primarily of accounts
payable.

1995 Associates
---------------
     1995  Associates is a partnership  between Jamsab Realty Corp. and Jasthree
Inc., two wholly-owned  subsidiary  corporations of the Bank, holding 99% and 1%
interests in the partnership,  respectively.  The partnership was formed in 1973
to  construct  and operate an 18 story  commercial  building  at 1995  Broadway,
Manhattan,  NYC,  in which the Bank  leased the main floor for a branch  office.
During 1989,  the Bank  purchased the branch  office space from the  partnership
upon  conversion  of the property to a two-unit  condominium  consisting  of the
branch office on the main floor and the commercial  office tower. On October 29,
1997, the commercial office tower was sold,  resulting in a pre-tax gain of $9.2
million.  For 1997,  this  partnership  had net  income,  before  taxes of $10.0
million, after eliminating intercompany transactions.  At December 31, 1997, the
Bank had a net liability for this subsidiary of $36,000,  comprised primarily of
accounts payable.

Lefmet Corp.
------------
     Lefmet Corp., a wholly-owned  subsidiary  corporation of the Bank, owns and
operates  commercial property consisting of seven stores located in Kew Gardens,
Queens County,  NYC, one of which the Bank occupies as a branch  office.  During
1997, the property generated net income, before federal taxes, of $38,000, after
eliminating intercompany transactions. The Bank's net investment in Lefmet Corp.
was $206,000 at December 31, 1997.

Jade Associates and LeHavre  Associates
---------------------------------------
     Prior to December 1993,  Jade was a joint venture  between Sher Park Realty
Corp.,  ("Sher  Park") a  wholly-owned  subsidiary  of the Bank and an unrelated
general  contractor,  each with a 50% interest.  The joint venture was formed to
fund,  construct  and  subsequently  sell  an 84  unit  condominium  complex  in
Flushing, New York.


<PAGE>  12

        The project was initially  funded through equal  contributions  from the
partners and an $11.6 million building loan from LeHavre Associates ("LeHavre"),
another  wholly-owned  subsidiary of the Bank. (LeHavre is a partnership between
Jas Cove Corp. and Avre Realty Corp., both wholly-owned  subsidiary corporations
of the Bank.)  Between 1989 and 1993,  a total of $4.0 million of reserves  were
established  against the  investment  and the loan,  related to a decline in the
value of the property.

        In  December  of 1993,  an  agreement  was  entered  into with the joint
venture partner,  whereby:  (1) Jamlyn Realty Corp.  ("Jamlyn"),  a wholly-owned
subsidiary  corporation of the Bank,  acquired the joint ventures  partner's 50%
interest;  (2) the outside partner was forgiven the excess contributions of $1.5
million made by Sher Park;  (3) Jamlyn paid the costs,  which totaled  $579,000,
incurred  in  connection  with the  transfer  of the  partnership  interest  and
property. The inter-company loan from LeHavre was eliminated during 1994.

        During  1997,  15  units  were  sold,  resulting  in  deferred  gains of
$232,000,  as sales are being accounted for under the cost recovery  method.  At
December 31, 1997, the Bank's net investment in Jade was $2.8 million, primarily
reflecting the 34 unsold units.
For 1997, this property generated pretax income of $74,000.

Concerned Management
--------------------
     Concerned  Management is a wholly-owned  subsidiary of the Bank,  which was
formed in 1979 to manage and  operate  the real  estate  acquired  by the Bank's
other subsidiary  corporations and partnerships.  Concerned  Management operates
from a leased office, located in Flushing, Queens County, NYC.

        Other Subsidiaries Of the Bank's remaining five wholly-owned  subsidiary
corporations,  three are nominee  corporations used in the conduct of the Bank's
business.  The fourth,  Jam-Ser  Corp.,  was formed to act as agent to sell life
insurance  as  permitted  by New York State law.  The fifth,  Tier Inc.,  a real
estate investment trust, was formed during the second quarter of 1997. Tier Inc.
may, among other things, be utilized by the Bank to raise capital in the future.

Savings Bank Life Insurance
---------------------------

        The Bank is a  customer  of the  Savings  Bank Life  Insurance  ("SBLI")
Department, which is a separate legal mutual entity owned by its policy holders.
The Bank,  through the SBLI  Department  offers SBLI to its  customers up to the
legal maximum of $50,000 per insured  individual and, as a trustee bank,  offers
an additional $350,000 in group coverage per insured under the SBLI Department's
Financial  Institution  Group  Life  Insurance  policy.  The  SBLI  Department's
activities  are segregated  from the Bank and while they do not directly  affect
the Bank's earnings, management believes that offering SBLI is beneficial to the
Bank's  relationships  with its  depositors  and the  general  public.  The SBLI
Department  pays its own expenses and reimburses the Bank for expenses  incurred
on its behalf.

Personnel
---------

        As of December 31, 1997,  the Bank had 311  full-time  employees and 118
part-time  employees.   The  employees  are  not  represented  by  a  collective
bargaining unit and the Bank considers its relationship with its employees to be
good.

Regulation and Supervision
--------------------------

        The description of statutory  provisions and  regulations  applicable to
savings institutions and their holding companies set forth in the Form 10-K does
not purport to be a complete  description of such statutes and  regulations  and
their effects on the Bank and the Company.

General
-------
     The Company,  as a unitary savings and loan holding company, is required to
file certain  reports with, and otherwise  comply with the rules and regulations
of the Office of Thrift Supervision  ("OTS") under the Home Owners' Loan Act, as
amended (the "HOLA") and as a publicly held company,  is subject to the periodic
disclosure  and  other  requirements  under  the  federal  securities  laws.  In
addition, the activities of savings institutions, such as the Bank, are governed
by the  HOLA  and  the  Federal  Deposit  Insurance  Act  ("FDI  Act").  Certain
regulatory  requirements  applicable to the Bank and the Company are referred to
below or elsewhere herein.

<PAGE>  13

         The  Bank  is  subject  to  extensive   regulation,   examination   and
supervision by the OTS, as its primary federal  regulator,  and the FDIC, as the
deposit  insurer.  The Bank is a member of the Federal  Home Loan Bank  ("FHLB")
System and its deposit accounts are insured up to applicable  limits by the Bank
Insurance Fund ("BIF")  managed by the FDIC. The Bank must file reports with the
OTS and the FDIC  concerning its activities and financial  condition in addition
to obtaining  regulatory  approvals prior to entering into certain  transactions
such as mergers with, or acquisitions  of, other savings  institutions.  The OTS
and the FDIC conduct  periodic  examinations to test the Bank's  compliance with
various regulatory  requirements.  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
regulatory structure also gives the regulatory  authorities extensive discretion
in connection with their supervisory and enforcement  activities and examination
policies,  including  policies with respect to the  classification of assets and
the  establishment of adequate loan loss reserves for regulatory  purposes.  Any
change in such  regulatory  requirements  and policies,  whether by the OTS, the
FDIC or the Congress could have a material  adverse  impact on the Company,  the
Bank and their operations.  Certain of the regulatory requirements applicable to
the Bank and to the Company are referred to below or elsewhere herein.

Holding  Company  Regulations
-----------------------------
     The Company is a  nondiversified  unitary  savings and loan holding company
within the meaning of the HOLA. As a unitary  savings and loan holding  company,
the Company  generally is not restricted  under existing laws as to the types of
business activities in which it may engage,  provided that the Bank continues to
be a qualified thrift lender ("QTL"). (See "Qualified Thrift Lender Test", pages
16 and 17,  herein.)  Upon any  non-supervisory  acquisition  by the  Company of
another  savings  institution  or  savings  bank that  meets the QTL test and is
deemed  to be a savings  institution  by the OTS,  the  Company  would  become a
multiple  savings and loan holding company (if the acquired  institution is held
as a separate  subsidiary) and would be subject to extensive  limitations on the
types of  business  activities  in which it could  engage.  The HOLA  limits the
activities of a multiple  savings and loan holding  company and its  non-insured
institution  subsidiaries  primarily to activities  permissible for bank holding
companies  under  Section  4(c)(8) of the Bank Holding  Company Act ("BHC Act"),
subject to the prior  approval  of the OTS,  and  activities  authorized  by OTS
regulation.

         The HOLA  prohibits a savings  and loan  holding  company,  directly or
indirectly, or through one or more subsidiaries,  from acquiring more than 5% of
the voting stock of another  savings  institution  or holding  company  thereof,
without prior written approval of the OTS; or acquiring or retaining  control of
a  depository  institution  that  is not  insured  by the  FDIC.  In  evaluating
applications by holding companies to acquire savings institutions,  the OTS must
consider the financial  and  managerial  resources  and future  prospects of the
company and institution  involved,  the effect of the acquisition on the risk to
the insurance  funds, the convenience and needs of the community and competitive
factors.

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

         Although savings and loan holding companies are not subject to specific
capital  requirements  or specific  restrictions  on the payment of dividends or
other  capital  distributions,  the HOLA does  prescribe  such  restrictions  on
subsidiary  savings  institutions,  as described below. The Bank must notify the
OTS 30 days before  declaring  any  dividend to the Company.  In  addition,  the
financial impact of a holding company on its subsidiary  institution is a matter
that is  evaluated by the OTS and the OTS has  authority  to order  cessation of
activities or divestiture of subsidiaries  deemed to pose a threat to the safety
and soundness of the institution.

<PAGE>  14

Federal Savings Institution Regulation
--------------------------------------

Capital   Requirements
----------------------
     The OTS capital  regulations  require  savings  institutions  to meet three
capital standards: a 1.5% tangible capital ratio; a 3.0% leverage (core) capital
ratio; and an 8.0% risk-based capital ratio. In addition,  the prompt corrective
action  standards  discussed below  establish,  in effect, a minimum 2% tangible
capital ratio, a 4% leverage (core) capital ratio (3% for institutions receiving
the highest rating on the CAMEL financial rating system),  and together with the
risk-based  capital standard  itself,  a 4% Tier I risk based capital  standard.
Core  capital is  defined as common  stockholders'  equity  (including  retained
earnings),  certain noncumulative  perpetual preferred stock and related surplus
and minority interests in the equity accounts of consolidated subsidiaries, less
intangibles  other than certain purchased  mortgage  servicing rights and credit
card  relationships.  The OTS  regulations  also  require  that,  in meeting the
leverage (core) ratio,  tangible and risk-based capital standards,  institutions
must  generally  deduct  investments  in and loans to  subsidiaries  engaged  in
activities  not  permissible  for a  national  bank and  investments  in  equity
securities.

        The risk-based  capital standard for savings  institutions  requires the
maintenance of Tier I (core) and total capital (which is defined as core capital
and supplementary  capital) to risk-weighted  assets of 4% and 8%, respectively.
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 Tier I (core)  capital  are
equivalent to those discussed earlier.  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 the  allowance  for loan and  lease  losses,  limited  to a
maximum of 1.25% of risk-weighted  assets.  Overall, the amount of supplementary
capital included as part of total capital cannot exceed 100% of core capital.

        The OTS has  adopted  an  interest  rate risk  component  as part of its
regulatory  capital  requirement.  Implementation  of such an interest rate risk
component has been deferred  indefinitely  by the OTS. If made applicable by the
OTS, such interest rate risk component would subject savings  institutions  with
"above normal" interest rate risk exposure to a deduction from total capital for
purposes  of  calculating  their  risk-based  capital  requirements.  A  savings
institution's  interest  rate risk would be  measured  by the decline in the net
portfolio  value of its  assets  (i.e.,  the  difference  between  incoming  and
outgoing  discounted cash flows from assets,  liabilities and off-balance  sheet
contracts)  that would result from a  hypothetical  200 basis point  increase or
decrease in market interest rates divided by the estimated economic value of the
institution's  assets.  In  calculating  its total capital under the  risk-based
capital rule, a savings  institution  whose measured interest rate risk exposure
exceeds 2% would have to deduct an amount  equal to one-half  of the  difference
between the institution's  measured interest rate risk and 2%, multiplied by the
estimated  economic value of the institution's  assets.  The Director of the OTS
would have the authority to waive or defer a savings institution's interest rate
risk component on a case-by-case  basis.  A savings  institution  with assets of
less than $300 million and risk-based  capital ratios in excess of 12% would not
be subject  to the  interest  rate risk  component,  unless  the OTS  determines
otherwise.  At December 31, 1997, the Bank met each of its capital  requirements
in each case on a fully phased-in basis and it is anticipated that the Bank will
not be subject to the  interest  rate risk  component.  A table  presenting  the
Bank's  capital  position at December  31, 1997 is  presented  in Note 26 to the
Consolidated  Financial  Statements,  contained  on page 41 of the  1997  Annual
Report to Stockholders, and is incorporated herein by reference.

<PAGE>  15

<TABLE>

        A reconciliation  between the Bank's regulatory capital and GAAP capital
at December 31, 1997 is presented below:
<CAPTION>


                                                            Tangible Capital
                                                             (In thousands)
            <S>                                                  <C>
 
            GAAP capital-originally reported to
              regulatory authorities and on the Bank's
              consolidated financial statements ............     $264,464

            Less:
             Regulatory capital adjustments:
              Investments in Non-includable Subsidiaries ...        6,827
              Adjustment for net unrealized gains,
               net of tax ..................................       28,469
                                                                 --------

               Regulatory Capital...........................     $229,168
                                                                 ========
</TABLE>

Prompt  Corrective  Regulatory  Action.
---------------------------------------
     Under the OTS prompt corrective action regulations, ("PCA Regulations") the
OTS is required to take certain  supervisory  actions  against  undercapitalized
institutions,  the severity of which  depends upon the  institution's  degree of
undercapitalization.

<TABLE>
        The PCA  Regulations  define  five  capital  categories  and provide the
minimum numerical requirements,  subject to certain exceptions, for each capital
category, as detailed below.
<CAPTION>

                                Total Risk-      Tier I         Leverage      Tangible Capital
Capital Category                Based Ratio      (Core)          Ratio         to Assets Ratio
----------------------------------------------------------------------------------------------
<S>                             <C>            <C>           <C>              <C>      
Well capitalized                10% or above   6% or above   5% or above         N/A
Adequately capitalized          8% or above    4% or above   4% or above(1)      N/A
Undercapitalized                Less than 8%   Less than 4%  Less than 4%(1)     N/A
Significantly undercapitalized  Less than 6%   Less than 3%  Less than 3%        N/A
Critically undercapitalized         N/A            N/A           N/A          2% or less

<FN>
(1) 3% for institutions with the highest examination rating.
</FN>
</TABLE>

        Well  capitalized  institutions  must meet or exceed  each of the ratios
shown in the table  and may not be  subject  to any  order,  written  agreement,
capital directive,  or prompt corrective action directive to meet and maintain a
specific  capital  level.  Institutions  failing to meet any one of the  minimum
capital   requirements  will  be  considered   undercapitalized,   significantly
undercapitalized or critically undercapitalized,  depending on the institution's
capital condition.  An institution's capital category is determined on the basis
of  its  most  recent  Call  Report,  Thrift  Financial  Report,  or  Report  of
Examination.  Subject to narrow exception,  the banking regulator is required to
appoint a receiver or  conservator  for an  institution  that is  identified  as
"critically  undercapitalized".  The  regulation  also  provides  that a capital
restoration plan must be filed with the OTS within 45 days of the date a savings
institution  receives  notice  that  it  is  "undercapitalized",  "significantly
undercapitalized"  or "critically  undercapitalized".  Compliance with such plan
must  be  guaranteed  by any  parent  holding  company.  In  addition,  numerous
mandatory supervisory actions become immediately  applicable to the institution,
including, but not limited to, increased monitoring by regulators,  restrictions
on growth, capital distributions and expansion. 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.


<PAGE>  16

Insurance of Deposit  Accounts
------------------------------
     Deposits of the Bank are insured by the BIF. The BIF is administered by the
FDIC. The FDIC currently  imposes an assessment rate schedule from 0 to 27 basis
points.  On September  30, 1996,  the Deposit  Insurance  Funds Act of 1996 (the
"Funds  Act") was signed into law.  The Funds Act spreads  the  obligations  for
payment of the Financing  Corporation  ("FICO") bonds across all BIF and Savings
Association  Insurance  Fund ("SAIF")  members.  Effective  January 1, 1997, BIF
deposits are assessed for the FICO  obligation of 1.3 basis  points,  while SAIF
deposits will pay 6.48 basis points.  Full pro-rata sharing of the FICO payments
between BIF and SAIF members will occur on the earlier of January 1, 2000 or the
date the BIF and SAIF are merged.  The Funds Act specifies that the BIF and SAIF
will be merged on January 1, 1999,  provided  no savings  associations  exist at
that time.

         The Bank paid $149,000 in FDIC insurance  premiums during 1997. BIF and
SAIF members will continue to pay  assessments,  as described above, to fund the
FICO  obligation.   Management  cannot  predict  the  level  of  FDIC  insurance
assessments on an on-going basis,  whether the savings  association charter will
be eliminated or whether the BIF and SAIF will eventually be merged.

         Under the FDI Act,  insurance of deposits may be terminated by the FDIC
upon a finding that the institution has engaged in unsafe or unsound  practices,
is in an unsafe or unsound condition to continue  operations or has violated any
applicable law, regulation,  rule, order or condition imposed by the FDIC or the
OTS.  Management  of the  Bank  does  not  know of any  practice,  condition  or
violation that might lead to termination of the Bank's deposit insurance.

Thrift Rechartering Legislation
-------------------------------
     The Funds Act provides  that the BIF and SAIF will merge on January 1, 1999
if there are no more savings  associations as of that date. Various proposals to
eliminate the federal thrift charter,  create a uniform  financial  institutions
charter and abolish the OTS have been  introduced in Congress.  Some bills would
require federal savings  institutions to convert to a national bank or some type
of state charter by a specified date or they would automatically become national
banks.  Under some  proposals,  converted  federal  thrifts  would  generally be
required to conform their activities to those permitted for the charter selected
and  divestiture  of  nonconforming  assets  would be  required  over a two year
period,  subject to two possible one year  extensions.  State chartered  thrifts
would  become  subject  to the  same  federal  regulation  as  applies  to state
commercial  banks.  A more recent bill  passed by the Banking  Committee  of the
House of Representatives, would allow savings institutions to continue to engage
in activities being conducted when they convert to a bank. Holding companies for
savings  institutions  would become  subject to the same  regulation  as holding
companies that control  commercial banks, with limited  grandfather  provisions.
The Bank is unable to predict  whether  such  legislation  will be enacted,  the
extent to which  legislation would restrict or disrupt its operations or whether
the BIF and SAIF funds will eventually merge.

Loans to One Borrower
---------------------
     Under the  HOLA,  as  amended,  savings  institutions  are  subject  to the
national bank limits on loans to one borrower.  Generally,  savings institutions
may not make a loan to a single  or  related  group of  borrowers  in an  amount
greater than 15% of its unimpaired capital and surplus. An additional amount may
be lent, equal to 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.  At December 31, 1997, the Bank was in compliance with
this  limitation,  with the  highest  aggregate  loans to one  borrower of $29.6
million, or 11.2 % of the Bank's capital.  The Company, as a unitary savings and
loan holding  company,  is not subject to the loan to one  borrower  limitation.
Management reviews the loans to one borrower limit at the time the loan is made,
however,  subsequent  changes in the Bank's  capital  position  may cause credit
concentrations to exceed 15% of the Bank's capital.  The Bank carefully monitors
the  creditworthiness of borrowers with high concentrations of credit as well as
the properties that secure these loans.

Qualified Thrift Lender Test
----------------------------
     The HOLA requires  savings  institutions to meet a QTL test.  Under the QTL
test,  a  savings  institution  is  required  to  maintain  at least  65% of its
portfolio  assets (defined as total assets,  less:  intangible  assets including
goodwill;  property  used by the  institution  in  conducting  its  business and
specified  liquid  assets  up to 20%  of  total  assets)  in  "qualified  thrift
investments" (primarily residential mortgages and related investments, including
certain  mortgage-backed  securities)  on a  monthly  basis in 9 out of every 12
months.

<PAGE>  17

         A savings  institution  that  fails the QTL test is  subject to certain
operating  restrictions and may be required to convert to a bank charter.  As of
December  31,  1997,  the Bank  maintained  91.4%  of its  portfolio  assets  in
qualified thrift investments and, therefore, met the QTL test.

Limitations on Capital Distributions
------------------------------------
     OTS  regulations  impose  limitations  upon all  capital  distributions  by
savings  institutions,  such  as  cash  dividends,  payments  to  repurchase  or
otherwise acquire its shares, payments to stockholders of another institution in
a cash-out  merger and other  distributions  charged against  capital.  The rule
establishes  three  tiers of  institutions,  which  are  based  primarily  on an
institution's  capital level.  An institution  that exceeds all fully  phased-in
capital  requirements before and after a proposed capital  distribution ("Tier 1
Bank")  and has not  been  advised  by the OTS  that it is in need of more  than
normal supervision,  could, after prior notice but without obtaining approval of
the OTS, make capital  distributions during a calendar year equal to the greater
of (i) 100% of its net earnings to date during the calendar year plus the amount
that would reduce by one-half its "surplus  capital  ratio" (the excess  capital
over its fully phased-in capital  requirements) at the beginning of the calendar
year  or  (ii)  75% of its  net  income  for the  previous  four  quarters.  Any
additional capital distributions would require prior regulatory approval. In the
event a bank's capital falls below its regulatory requirements or is notified by
the OTS that it is in need of more than  normal  supervision,  an  institution's
ability to make capital distributions could be restricted.  In addition, the OTS
could prohibit a proposed capital  distribution by any institution,  which would
otherwise  be  permitted  by  regulation,   if  the  OTS  determines  that  such
distribution  would constitute an unsafe or unsound practice.  In December 1994,
the OTS proposed  amendments to its capital  distribution  regulation that would
generally authorize the payment of capital  distributions  without OTS approval,
provided the payment does not make the institution  undercapitalized  within the
meaning of the prompt corrective action regulation.  However,  institutions in a
holding  company  structure  would  still have a prior  notice  requirement.  At
December 31, 1997, the Bank was a Tier 1 Bank.

Liquidity
---------
     Information  regarding  liquidity appears under the caption  "Liquidity and
Capital  Resources"  included  on pages 12 and 13 in the 1997  Annual  Report to
Stockholders.

Assessments
-----------
     Savings  institutions  are required to pay  assessments to the OTS, to fund
the operations of the OTS. The general  assessments,  to be paid on a semiannual
basis, is computed based upon the savings institution's total assets,  including
consolidated  subsidiaries,  as reported in the  institution's  latest quarterly
Thrift  Financial  Report.  The  Bank's  total  assessments  for the year  ended
December 31, 1997, was $261,000.

         Branching  OTS  regulations  permit  nationwide  branching by federally
chartered  savings  institutions to the extent allowed by federal statute.  This
permits federal savings  institutions  to establish  interstate  networks and to
geographically  diversify their loan  portfolios and lines of business.  The OTS
authority  preempts any state law  purporting  to regulate  branching by federal
savings institutions.

Transactions  with  Related  Parties
------------------------------------
     The Bank's  authority to engage in  transactions  with  related  parties or
"affiliates" (e.g., any company that controls or is under common control with an
institution),  or to make loans to certain  insiders,  is limited by Section 23A
and 23B of the Federal  Reserve Act  ("FRA").  Section 23A limits the  aggregate
amount of  covered  transactions  with any  individual  affiliate  to 10% of the
capital  and  surplus  of the  savings  institution.  The  aggregate  amount  of
transactions with all affiliates is limited 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   individuals   or   entities.   In  the  absence  of   comparable
transactions,  such  transactions may only occur under terms and  circumstances,
including  credit  standards,  that in good  faith  would be offered to or would
apply  to  non-affiliated   individuals  or  entities.   In  addition,   savings
institutions  are  prohibited  from lending to any affiliate  that is engaged in
activities  that are not  permissible  for bank holding  companies under Section
4(c) of the Bank Holding Company Act. Further, no savings institution may invest
in the securities of any affiliate other than a subsidiary.

<PAGE>  18

         The Bank's authority to extend credit to executive officers,  directors
and 10%  shareholders  (referred  to as  "insiders"),  as well as entities  such
persons  control,  is  governed  by  Sections  22(g)  and  22(h)  of the FRA and
Regulation O thereunder.  Among other things, such loans are required to be made
on terms substantially the same as those offered to unaffiliated individuals and
do not  involve  more than the  normal  risk of  repayment.  Recent  legislation
created an  exception  for loans  made  pursuant  to a benefit  or  compensation
program that is widely  available to all employees of the  institution  and does
not give preference to insiders over other  employees.  Regulation O also places
individual  and  aggregate  limits  on the  amount of loans the Bank may make to
insiders  based,  in part, on the Bank's capital  position and requires  certain
board approval procedures to be followed.

Enforcement
-----------
     Under the FDI Act,  the OTS has  primary  enforcement  responsibility  over
savings  institutions  and  has the  authority  to  bring  actions  against  the
institution and all  "institution-affiliated  parties",  including stockholders,
and any  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 orders; the removal of officers and/or directors;
appointment of a receiver or conservator;  or termination of deposit  insurance.
Civil  penalties  cover a wide range of violations  and an amount to $25,000 per
day, or possibly $1 million per day in especially egregious cases. Under the FDI
Act,  the  FDIC  has the  authority  to  recommend  to the  Director  of the OTS
enforcement action to 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.  Federal  law also  establishes  criminal
penalties for certain violations.

Standards for Safety and Soundness
----------------------------------
     The  federal   banking   agencies  have  adopted   Interagency   Guidelines
Prescribing  Standards for Safety and Soundness  ("Guidelines") and a final rule
to implement  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 standards  set forth in the  Guidelines
address internal controls and information systems; internal audit system; credit
underwriting; loan documentation; interest rate risk exposure; asset growth; and
compensation,  fees and benefits.  If the  appropriate  federal  banking  agency
determines  that an  institution  fails to meet any standard  prescribed  by the
Guidelines,  the agency may require the  institution  to submit to the agency an
acceptable plan to achieve  compliance  with the Guidelines,  as required by the
FDI Act. The final rule  establishes  deadlines for the submission and review of
such safety and soundness compliance plans when such plans are required.

Grandfathered Savings Bank Authority
------------------------------------
     Until  1983,  the Bank was a New York  state  chartered  savings  bank with
investment  powers conferred by New York State law. The Bank retained such power
when it  converted  to a  federally  chartered  savings  bank.  The HOLA and OTS
regulations  empower  the Bank to exercise  all the powers that its  predecessor
state chartered  savings bank possessed under New York State law, whether or not
such powers had been exercised,  subject to the authority of the OTS and FDIC to
limit such powers for safety and soundness  reasons.  These  powers,  which were
preserved  in the  FIRREA,  are in addition  to powers the Bank  possesses  as a
federally chartered savings bank. Where a "grandfathered"  power overlaps with a
power  authorized  under federal law, the Bank may act under the more  favorable
authority.

        The  grandfathered  powers  include the  authority  to invest in various
types of investment securities, including corporate bonds and stock, and in real
estate development.  In addition,  the Bank has grandfathered  authority to make
leeway investments,  which include, subject to certain specific exceptions,  any
investment  not  otherwise  authorized  by the New York State Banking Law at the
time of the Bank's charter conversion,  provided that any single investment does
not exceed 1% of the Bank's assets and that all such  investments  do not exceed
5% of its assets. At December 31, 1997, the Bank's capital investments, computed
for regulatory purposes, retained under the leeway provisions were $6.8 million,
or .5% of the Bank's assets.  These powers allow the Bank to pursue  diversified
acquisition opportunities and provide the Bank with flexibility in restructuring
its  assets.   The  Bank  intends  to  continue  to  utilize   these  powers  as
opportunities  arise and as permitted under  applicable  rules and  regulations.
(See "Thrift Rechartering Legislation", page 16, herein.)


<PAGE>  19

Federal  Home Loan Bank  System
-------------------------------
     The Bank is a member of the FHLB  System  which  consists  of  twelve  (12)
regional  FHLBs.  The FHLB  provides a central  credit  facility,  primarily for
member institutions.  The Bank, as a member of the FHLB-New York ("FHLB-NY"), is
required to acquire and hold shares of capital stock in the FHLB-NY 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-NY,  if any, whichever is greater.  The
Bank was in  compliance  with this  requirement,  with an  investment in FHLB-NY
stock  at  December  31,  1997 of $7.6  million.  Should  the Bank  obtain  FHLB
advances,  these  advances must be secured by specified  types of collateral and
may be obtained  primarily  for the purpose of providing  funds for  residential
housing finance.

        The FHLBs are required to provide funds for the  resolution of insolvent
thrifts  and  to  contribute  funds  for  affordable  housing  programs.   These
requirements  have  limited  the  FHLB-NY's  ability to pay  dividends  to their
members and could also result in the FHLBs  imposing  higher  interest  rates on
advances to their members. Further, there can be no assurance that the impact of
FIRREA on the FHLBs will not also cause a decrease  in the value of the  FHLB-NY
stock held by the Bank.  For the years ended  December 31, 1997,  1996 and 1995,
dividends  from the FHLB-NY to the Bank were  $496,000,  $438,000  and  $481,000
respectively.

Federal  Reserve  System
------------------------
     The Federal Reserve Board ("FRB") regulations require savings  institutions
to maintain  non-interest  earning reserves against their  transaction  accounts
(primarily NOW and regular checking accounts).  During 1997, the FRB regulations
generally  required that reserves be maintained  against  aggregate  transaction
accounts as follows:  for accounts aggregating $49.3 million or less (subject to
adjustment  by the FRB) a reserve  requirement  of 3%; and for accounts  greater
than $49.3 million, a reserve  requirement of $1.35 million plus 10% (subject to
adjustment  by the FRB  between  8% and  14%)  against  that  portion  of  total
transaction  accounts  in excess of $49.3  million.  The first  $4.4  million of
otherwise  reservable balances (subject to adjustments by the FRB) were exempted
from the reserve requirements.  During 1997, the Bank was in compliance with the
foregoing  requirements  and expects to continue to remain in  compliance in the
future. For 1998, the FRB has decreased from $49.3 million to $47.8 million, the
amount of transaction  accounts  subject to the 3% reserve  requirement  and has
increased the amount of exempt  reservable  balances,  from $4.4 million to $4.7
million.

        The balances maintained to meet the reserve  requirements imposed by the
FRB may be used to satisfy  liquidity  requirements  which may be imposed by the
OTS.  Because  required  reserves must be maintained in the form of either vault
cash,  a  non-interest   bearing  account  at  a  Federal  Reserve  Bank,  or  a
pass-through  account  as  defined  by  the  FRB,  the  effect  of  the  reserve
requirement is to reduce the Bank's interest earning assets. FHLB System members
are also authorized to borrow from the Federal Reserve  "discount  window",  but
FRB  regulations  require  institutions  to  exhaust  all  FHLB  sources  before
borrowing from a Federal Reserve Bank.

Taxation
--------

General
-------
     The  following  discussion of tax matters is intended only as a summary and
does not purport to be a comprehensive  description of the tax rules  applicable
to the  Company.  The Bank was  audited  by: the  Internal  Revenue  Service for
taxable years 1990 through  1993;  New York State for taxable years 1994 through
1996 and; New York City for taxable years 1991 through 1993.

Federal
-------
     The Bank is subject to the rules of federal income  taxation  applicable to
corporations.  The Bank computes  taxable  income,  using the accrual  method of
accounting,  on a consolidated  basis. The current maximum federal corporate tax
rate for all income, including capital gains, is 35%.

State and Local Taxation
------------------------
     The Bank is  subject  to New York State  ("NYS")  Franchise  Tax on Banking
Corporations and to the NYC Banking Corporation Tax.

        The NYS and NYC taxes on  banking  corporations  are each  imposed in an
annual amount equal to the greater of; (1) 9% of the Bank's  "Entire Net Income"
allocable  to NYS (and to NYC for  purposes  of the City tax) during the taxable
year, or (2) the applicable  alternative minimum tax. The applicable alternative
minimum tax is  generally  the greater of (1) a  percentage  of the value of the
Bank's  assets  allocable  to NYS (and to NYC for the  City  tax)  with  certain
modifications, (2) 3% of the Bank's "Alternative Entire Net Income" allocable to
NYS (and to NYC for the City tax) or (3) A minimum tax of $325 ($300 in the case
of the NYC tax).

<PAGE>  20

        For purposes of the NYS and NYC taxes on banking  corporations,  "Entire
Net  Income"  is  similar  to  federal  taxable   income,   subject  to  certain
modifications  (including  the fact that net operating  losses cannot be carried
back or carried  forward),  and  "Alternative  Entire Net  Income" is similar to
"Entire Net Income", subject to certain further modifications.

Bad Debt Reserves
-----------------
     Under the Federal law that existed  prior to 1996,  the Bank was  generally
allowed a special bad debt deduction in determining income for tax purposes. The
deduction was based on either an  experience  formula or a percentage of taxable
income before such deduction ("reserve method").  The reserve method was used in
preparing  the income tax  returns for 1995.  Legislation  was enacted in August
1996 which repealed the reserve method for tax purposes.  As a result,  the Bank
must instead use the direct charge-off method to compute its bad debt deduction.

         Pursuant to Statement of Financial  Accounting  Standards Statement No.
109,  the Bank is  generally  not  required  to provide  deferred  taxes for the
difference  between  book and tax bad debt  expense  taken in years prior to, or
ending at December 31, 1987, the base year  reserves.  The base year reserves of
$85.1 million and supplemental reserve are frozen, not forgiven.  These reserves
continue to be segregated as they are subject to recapture penalty if one of the
following occurs:  (a) the Bank's retained earnings  represented by this reserve
are used for purposes  other than to absorb  losses on loans,  including  excess
dividends or distributions  in liquidation;  (b) the Bank redeems its stock; (c)
the Bank fails to meet the  definition  provided by the Code for a Bank.  Future
changes in the Federal tax law, could further affect the status of the base year
reserve. (See Notes 14 and 17 to the Consolidated Financial Statements, included
on pages 33 through 35 in the 1997 Annual Report to Stockholders.)

        New York State and the City of New York  adopted  legislation  to reform
the  franchise  taxation of thrift  reserves  for loan losses.  The  legislation
applies to taxable years  beginning  after December 31, 1995.  The  legislation,
among other things, retains the reserve method for bad debt deductions.  The New
York State and the City of New York bad debt deduction are no longer  predicated
on the Federal deduction.

Delaware  Taxation
------------------
     As a Delaware  holding company not earning income in Delaware,  the Company
is exempted from Delaware corporate income tax but is required to file an annual
report  with  and pay an  annual  franchise  tax of  $150,000  to the  State  of
Delaware.


<PAGE>  21


                                STATISTICAL DATA

        The detailed  statistical  data which follows is presented in accordance
with Guide 3,  prescribed  by the SEC.  This data should be read in  conjunction
with the financial statements and related notes and Management's  Discussion and
Analysis of Financial Condition and Results of Operations incorporated herein by
reference to the 1997 Annual Report to Stockholders as Exhibit 13.01.

I.       Distribution of Assets, Liabilities and Stockholders' Equity:  Interest
           Rates and Interest Differential

A, B. Page 11 of the Company's 1997 Annual Report to  Stockholders  (portions of
which are filed herewith as Exhibit 13.01) presents the  distribution of assets,
liabilities  and  stockholders'  equity  and  interest  differential,  under the
caption "Average Balance Sheet" and is incorporated herein by reference.

C.    Interest Differential

      Page 12 of the Company's 1997 Annual Report to  Stockholders  (portions of
which are included herewith as Exhibit 13.01) presents the interest differential
under  the  caption  "Rate/Volume   Analysis"  and  is  incorporated  herein  by
reference.

      Interest Rate Sensitivity Analysis

      Pages 8 through 10 of the  Company's  1997 Annual  Report to  Stockholders
(portions of which are filed  herewith as Exhibit  13.01)  presents the interest
rate  sensitivity  analysis,   under  the  caption  "Interest  Rate  Sensitivity
Analysis" and is incorporated herein by reference.


<PAGE>  22


                              INVESTMENT PORTFOLIO

<TABLE>

A. The following  table sets forth certain  information  regarding the Company's
investment portfolio at the dates indicated:
<CAPTION>

                                                                             At December 31,
                                                                   1997         1996         1995
                                                                   ---------------------------------
                                                                            (In Thousands)
           <S>                                                    <C>          <C>          <C>  
           Securities Available-for-Sale:
             Marketable equity securities, at fair value .....    $ 62,243     $ 51,021     $ 40,071
                                                                  ========     ========     ========

           Securities Held-to-Maturity:
             U.S Government and federal agency securities ....    $244,903     $299,645     $439,896

             CMOs, net .......................................     104,040      155,272      144,607

             Mortgage-backed securities:
               Ginnie Mae, net ...............................       3,640        4,999        6,667
               Fannie Mae, net ...............................         106          152          235
               Freddie Mac, net ..............................         278          441          655
                                                                  --------     --------     --------

               Total .........................................    $352,967     $460,509     $592,060
                                                                  ========     ========     ========


           Other investments:
             FHLB-NY stock (investment required by law) ......    $  7,615     $  6,829     $  6,272
             Other stock......................................          30           30           30
                                                                  --------     --------     --------
               Total other investments........................    $  7,645     $  6,859     $  6,302
                                                                  ========     ========     ========
</TABLE>

Contractual Maturity Distribution
---------------------------------

     The table  below sets forth  certain  information  regarding  the  carrying
value,  weighted  average  yields and  maturities  of the  Company's  securities
held-to-maturity at December 31, 1997. The table does not reflect prepayments or
scheduled amortization on CMOs or MBS. For MBS, the maturities indicated are the
dates the final payments are due. For CMOs,  the  maturities  reflect the "final
payment  dates",  which as defined by the issuer,  represent  the latest date by
which the CMO will be retired. The assumptions used by the issuer in calculating
the final payment dates are highly  conservative,  and the actual retirement may
occur earlier than its final payment date. The estimated actual average maturity
on the entire  CMO  portfolio  at  December  31,  1997 was  twenty  months.  For
principal reduction on these securities,  for the years ended December 31, 1997,
1996 and 1995:  See the  "Consolidated  Statements  of Cash Flows",  included on
pages 24 and 25 of the 1997 Annual Report to Stockholders.
<TABLE>

                                                       At December 31, 1997
                         One Year or Less     Over 1 to 5 Years     Over 5 to 10 Years      After 10 years
                       -------------------   -------------------   --------------------    ---------------
                                  Weighted              Weighted              Weighted              Weighted
                       Carrying   Average    Carrying   Average     Carrying  Average     Carrying   Average
                        Value     Yield       Value     Yield        Value     Yield       Value     Yield
                       -------------------------------------------------------------------------------------
                                                      (Dollars in Thousands)
<S>                    <C>        <C>        <C>          <C>       <C>         <C>       <C>          <C>  
Federal agency ......  $110,000    5.58%     $   -          -  %    $   -        -  %     $  -           - %
U.S. Government .....   124,921    6.10         9,982      6.26         -        -           -           -
CMOs ................      -        -          20,257      5.43       83,783    6.41         -           -
MBS .................       196   11.60           959     10.65         -        -          2,869      9.61
                       --------              --------               --------              -------
     Total ..........  $235,117    5.86%     $ 31,198      5.86%    $ 83,783    6.41%     $ 2,869      9.61%
                       ========              ========               ========              =======
</TABLE>


<PAGE>  23


                                 LOAN PORTFOLIO

<TABLE>
A. The following table sets forth the composition of the mortgage and other loan
portfolios in dollar amounts:
<CAPTION>



                                                                   At December 31,
                                                 -------------------------------------------------
                                                    1997      1996      1995      1994      1993
                                                    ----      ----      ----      ----      ----
                                                                   (In Thousands)
     <S>                                          <C>       <C>       <C>       <C>       <C>  
     Mortgage loans:
       Multi-family ..........................    $563,205  $433,224  $344,337  $294,003  $238,756
       Underlying cooperative ... ............     267,942   262,221   263,972   251,580   253,460
       One- to four-family ...................      73,757    76,848    82,391    86,531    95,357
       Commercial ............................      71,839    61,829    55,662    58,070    59,942
       Construction ..........................       3,067     1,836     1,492     2,518       410
                                                 ---------  --------  --------  --------  --------
          Total mortgage loans ...............     979,810   835,958   747,854   692,702   647,925
                                                 ---------  --------  --------  --------  --------


     Other loans:
       Student ...............................       5,213     6,204     7,466     9,656    11,132
       Loans secured by deposit accounts .....       8,189     8,328     8,489     9,167     9,340
       Property improvement ..................      10,744     8,775     9,165     6,762     5,599
       Consumer ..............................       4,775     4,350     4,092     1,821     1,516
       Overdraft loans .......................         227       237       220       224       210
                                                 ---------  --------  --------   -------  --------
          Total other loans ..................      29,148    27,894    29,432    27,630    27,797
                                                 ---------  --------  --------  --------  --------


          Total loans receivable .............   1,008,958   863,852   777,286   720,332   675,722
                                                 ---------  --------  --------  --------  --------


     Less:
       Unearned discounts, premiums and
        deferred loan fees, net ..............       3,333     3,751     4,344     4,952     3,210
       Allowance for possible loan losses ....       5,880     5,327     4,697     4,085     4,136
                                                  --------  --------  --------  --------  --------


          Loans receivable, net ..............    $999,745  $854,774  $768,245  $711,295  $668,376
                                                  ========  ========  ========  ========  ========
</TABLE>

<PAGE>  24


B.  Maturities and Sensitivities of Loans to Changes in Interest Rates
----------------------------------------------------------------------

<TABLE>
     The following table shows the  contractual  maturity of the loan portfolios
at December  31,  1997.  The table does not reflect  prepayments,  or  scheduled
principal  amortization  or repricing of adjustable  rate loans.  (For principal
reduction on loans,  for the years ended  December 31, 1997,  1996 and 1995: See
the "Consolidated  Statements of Cash Flows", included on pages 24 and 25 in the
1997 Annual Report to Stockholders.)
<CAPTION>

                                                                                   Other
                                                  Mortgage Loans                   Loans      Total
                              -------------------------------------------------  --------     -----
                                                           (In Thousands)
                                         Under-    One-to
                               Multi-    lying-    Four-     Commer-  Construct-
                               Family    Co-op     Family     cial       tion       Other
                               ------    -----     ------     ----       ----       -----
  <S>                         <C>       <C>       <C>       <C>       <C>         <C>        <C>
  Amounts due:
    Within 1 Year .........   $ 11,095  $ 21,099  $  7,951  $ 10,497  $     402   $ 8,797    $   59,841
                              --------  --------  --------  --------  ---------   -------    ----------
  After 1 Year:
    1 to 2 years ..........     25,915    10,610       331     1,978      2,665     1,859        43,358
    2 to 3 years ..........     42,195    35,458        79     1,763       -        2,789        82,284
    3 to 5 years ..........    110,689    58,637     1,207    16,392       -        4,142       191,067
    5 to 10 years .........    326,876   113,800    17,611    38,472       -       11,561       508,320
    10 to 20 years ........     45,929    28,338    22,090     2,737       -         -           99,094
    Over 20 years .........        506      -       24,488      -          -         -           24,994
                              --------  --------  --------  --------  ---------   -------    ----------
Total due after 1 year ....   $552,110  $246,843  $ 65,806  $ 61,342  $   2,665   $20,351    $  949,117
                              --------  --------  --------  --------  ---------   -------    ----------
      Total amounts due ...   $563,205  $267,942  $ 73,757  $ 71,839  $   3,067   $29,148    $1,008,958
                              ========  ========  ========= ========  =========   =======    ----------
  Less:
    Unearned discounts,
     premiums and deferred
     loan fees, net .......                                                                       3,333
    Allowance for possible
     loan losses ..........                                                                       5,880
                                                                                             ----------
  Loans receivable, net ...                                                                  $  999,745
                                                                                             ==========
</TABLE>

<TABLE>
        The following  table sets forth at December 31, 1997,  the dollar amount
of all loans due after  December  31,  1998 and  whether  such  loans have fixed
interest rates or adjustable interest rates.
<CAPTION>
                                                     Fixed      Adjustable       Total
                                                     -----      ----------       -----
                                                             (In Thousands)
     <S>                                         <C>             <C>          <C>
     Due after December 31, 1998:
        Mortgage loans:
          Multi-family ........................  $  552,110      $  -         $  552,110
          Underlying cooperative ..............     246,843         -            246,843
          One-to four-family ..................      57,975        7,831          65,806
          Commercial ..........................      61,342         -             61,342
          Construction ........................       2,665         -              2,665
        Other loans:
          Student .............................       2,235        2,710           4,945
          Loans secured by deposit accounts ...           4         -                  4
          Property improvement ................      10,619         -             10,619
          Consumer ............................       4,556         -              4,556
          Overdraft loans .....................         227         -                227
                                                 ----------      -------      ----------
        Total loans receivable ................  $  938,576      $10,541      $  949,117
                                                 ==========      =======      ==========
</TABLE>


<PAGE>  25


C.         Delinquencies  and  Classified  Assets 
           --------------------------------------
     Delinquent  loans are  reviewed by  management  monthly and by the Board of
Directors  quarterly.  When a borrower  fails to make a scheduled  loan payment,
efforts are made to have the  borrower  cure the  delinquency.  The  borrower is
notified of the delinquency in writing and by telephone by the Bank's collection
staff. For mortgage loans, under certain circumstances, a site inspection of the
property is required.  Most  delinquencies are cured within 90 days and no legal
action is taken. If a mortgage  delinquency exceeds 90 days, the Bank institutes
measures to enforce its remedies, including commencing a foreclosure action. For
delinquent Federal Housing  Administration  ("FHA") and Veterans  Administration
("VA") mortgage loans, the Bank follows notification and foreclosure  procedures
prescribed  by FHA and VA.  Property  acquired  by the  Bank  as a  result  of a
foreclosure  is classified as "Other Real  Estate".  For uninsured  non-mortgage
loans,  delinquent  loans are charged off after 120 days and are referred to the
Bank's attorneys for collection.


<TABLE>
     At December 31, 1997, 1996 and 1995,  delinquencies  in the loan portfolios
were as follows:
<CAPTION>

                                            61-90 Days           90 Days and Over
                                        ------------------------------------------
                                        Number   Principal      Number   Principal
                                         of      balance          of      balance
                                        loans    of loans       loans    of loans
                                        -----    --------       -----    --------
                                                 (Dollars in Thousands)



<S>                                     <C> <C>  <C>            <C> <C>   <C>
At December 31, 1997
--------------------
          Delinquent loans:
           Guaranteed(1)                 48      $  221          82       $   500
           Non-guaranteed                 5          10           5        12,769
                                        ---      ------         ---       -------
                                         53      $  231          87       $13,269
                                        ===      ======         ===       =======
          Ratio of delinquent
           loans to total loans             .02%                    1.32%
                                            ===                     ====


At December 31, 1996
--------------------
          Delinquent loans:
           Guaranteed(1)                 78      $  390         144       $   692
           Non-guaranteed                 9          20          15        13,459
                                        ---      ------         ---       -------
                                         87      $  410         159       $14,151
                                        ===      ======         ===       =======
          Ratio of delinquent
           loans to total loans             .05%                    1.64%
                                            ===                     ====

At December 31, 1995
--------------------
          Delinquent loans:
           Guaranteed(1)                 91      $  476         132       $   751
           Non-guaranteed                10       8,165           8           324
                                        ---      ------         ---       -------
                                        101      $8,641         140       $ 1,075
                                        ===      ======         ===       =======
          Ratio of delinquent
           loans to total loans          1.11%                       .14%
                                           =====                     ===

<FN>
          (1) Loans which are FHA, VA or SLMA guaranteed.
</FN>
</TABLE>


<PAGE>  26

<TABLE>

        The  following  table  sets  forth  information  regarding  non-accrual,
restructured  and impaired loans and loans which are 90 days or more  delinquent
but on which the Bank is accruing interest at the dates indicated.
<CAPTION>

                                                                At December 31,
                                                ---------------------------------------------
                                                  1997     1996      1995      1994     1993
                                                  ----     ----      ----      ----     ----
                                                            (Dollars in Thousands)
<S>                                             <C>       <C>       <C>       <C>      <C> 
Mortgage loans:
---------------
 One-to four-family, multi-family and
  commercial real estate loans:
   Non-accrual loans (1) ...................    $12,754   $12,754   $20,903   $  500   $ -
                                                -------   -------   -------   ------   ------
Accruing loans 90 or more days overdue:
 Conventional mortgages ....................       -          686       311      322      326
 VA and FHA mortgages (2) ..................        335       361       557      581      937
                                                 ------    ------   -------   ------   ------
      Total ................................        335     1,047       868      903    1,263
                                                 ------    ------   -------   ------   ------

Other loans:
------------
  Non-accrual loans ........................       -          -        -        -        -
  Accruing 90 or more days overdue:
    Student loans ..........................        165       331       194      379      429
    Consumer loans .........................         15        19        13        7       19
                                                 ------    ------   -------   ------   ------
      Total ................................        180       350       207      386      448
                                                 ------    ------   -------   ------   ------



Total non-performing loans:
  Non-accrual ..............................     12,754    12,754    20,903      500     -
  Accruing 90 days or more overdue .........        515     1,397     1,075    1,289    1,711
                                                 ------    ------   -------   ------   ------
      Total ................................    $13,269   $14,151   $21,978   $1,789   $1,711
                                                =======   =======   =======   ======   ======


Non-accrual loans to total loans ...........       1.26%     1.48%     2.69%     .07%     -  %
Accruing loans 90 or more days overdue
  to total loans ...........................        .06       .16       .14      .18      .25
Non-performing loans to total loans ........       1.32      1.64      1.78(3)   .25      .25


At December 31:
---------------
Restructured loans .........................    $ 1,840   $ 1,874   $1,663    $1,828     $  -


For the years ended December 31:
--------------------------------
Income forfeited due to
 restructured loans ........................    $    62   $    62   $    62   $    6     $  -


Income unrecorded due to
 non-accrual/impaired loans ................    $ 1,180   $ 1,180   $  226    $  150     $  -

<FN>

     (1) See "Asset/Liability Management", included on pages 7 and 8 in the 1997
Annual Report to Stockholders.


     (2) The  Bank's  FHA and VA loans are  guaranteed,  seasoned  loans.  These
loans,  including the past due loans, do not present any significant  collection
risk to the Bank and  therefore,  are  presented  separately  from  conventional
mortgages.

     (3) Does not include an $8.2  million  mortgage  loan that was current on a
cash basis,  but on non-accrual  status,  as payments were received  through the
bankruptcy court.
</FN>
</TABLE>


<PAGE>  27


        There were no loans included in the preceding  table which were modified
in a troubled debt restructuring  ("TDR").  The entire balance of impaired loans
at December 31, 1997 represents loans on non-accrual status. The average balance
of  impaired  loans  for both  1997 and 1996 was  $12.8  million.  There  was no
interest  income  recorded for impaired loans (for the period in which the loans
were identified as impaired) during 1997 and 1996. For both years ended December
31, 1997 and 1996, impaired loans resulted in foregone interest of $1.2 million.
At December 31, 1997 and 1996,  loans  restructured  in a TDR,  other than those
classified as impaired  loans and/or  non-accrual  loans,  were $1.8 million and
$1.9 million,  respectively.  Interest forfeited attributable to these loans was
$62,000 for each of the years ended December 31, 1997, 1996 and 1995.

Classified Assets
-----------------
     Federal  regulations  provide  for the  classification  of loans  and other
assets such as debt and equity securities  considered by the OTS to be of lesser
quality as  "substandard",  "doubtful" or "loss" assets.  An asset is considered
"substandard"  if it is  inadequately  protected  by the  current  net worth and
paying capacity of the obligor or of the collateral pledged, if any. Substandard
assets include those characterized by the distinct  possibility that the insured
institution will sustain some loss if the deficiencies are not corrected. Assets
classified as "doubtful" have all of the weaknesses inherent in those classified
"substandard",  with the added  characteristic  that the weaknesses present make
"collection or liquidation in full",  on the basis of currently  existing facts,
conditions, and values, "highly questionable and improbable".  Assets classified
as "loss" are those  considered  "uncollectible"  and of such little  value that
their continuance as assets without the establishment of a specific loss reserve
is not  warranted.  Pursuant  to  OTS  rules,  the  Bank  recently  discontinued
classifying assets as "special mention" if such assets possessed weakness but do
not expose the Bank to sufficient risk to warrant  classification  in one of the
aforementioned categories. However, the Bank still maintains a "special mention"
category under its internal asset review system.

        When  an  insured  institution   classifies  problem  assets  as  either
"substandard" or "doubtful",  it is required to establish general allowances for
loan  losses in an amount  deemed  prudent  by  management.  General  allowances
represent loss allowances  which have been established to recognize the inherent
risk associated with lending activities,  but which, unlike specific allowances,
have  not  been  allocated  to  particular  problem  assets.   When  an  insured
institution  classifies  problem assets as "loss", it is required to establish a
specific  allowance  for  losses  equal to 100% of the  amount  of the  asset so
classified or to charge off such amount. An insured institution's  determination
as to  the  classification  of its  assets  and  the  amount  of  its  valuation
allowances is subject to review by the OTS which can order the  establishment of
additional general or specific loss allowances. In connection with the filing of
its periodic reports with the OTS, the Bank regularly  reviews the problem loans
in its  portfolio  to  determine  whether any loans  require  classification  in
accordance with applicable regulations.

Allowances  for Possible Loan and Other Credit Losses
-----------------------------------------------------
     The  allowances  for possible loan and other credit losses are  established
through  provisions made, based on management's  evaluation of the risk inherent
in its asset  portfolios  and  changes in the  nature  and volume of  investment
activity. Such evaluation,  which includes a review of all assets for which full
collection may not be reasonably  assured,  considers  among other matters,  the
estimated  fair  value  of  the  underlying  collateral,   economic  conditions,
historical  loss  experience  and other  factors  that  warrant  recognition  in
providing for adequate credit allowances. (For a more complete discussion of the
Bank's  problem  assets see  "Provision For Possible Loan Losses" and "Provision
for Possible Other Credit Losses", included on page 16 in the 1997 Annual Report
to Stockholders.)

<PAGE>  28

        The OTS, in  conjunction  with other federal  banking  agencies,  has an
interagency  policy  statement on the allowance  for loan and lease losses.  The
policy  statement  provides  guidance  for  financial  institutions  on both the
responsibilities  of management for the assessment and establishment of adequate
allowances and guidance for banking agency  examiners to use in determining  the
adequacy  of general  valuation  allowances.  Generally,  the  policy  statement
requires that:  institutions  have  effective  systems and controls to identify,
monitor and address  asset  quality  problems;  have  analyzed  all  significant
factors that affect the  collectibility of the portfolio in a reasonable manner;
and have established  acceptable  allowance  evaluation  processes that meet the
objectives set forth in the policy statement.

Potential  Problem  Loans and Other Assets and  Subsequent  Developments
------------------------------------------------------------------------
     Non-performing  loans  at  December  31,  1997  included  a  $12.8  million
underlying  cooperative  mortgage loan which comprised  96.1% of  non-performing
loans.  This mortgage is secured by a 148 unit cooperative  apartment  building,
located in  Manhattan,  New York.  On January 28, 1998,  the Bank entered into a
settlement  agreement  with the  borrower,  that  provides that the Bank be made
whole for unpaid principal,  contractual interest,  late charges and legal fees,
no later than May 28,  1998.  In  addition,  the  borrower  is  responsible  for
interest,  which will continue to accrue and for any additional  legal fees that
the Bank incurs in connection with this credit.  In accordance with the terms of
the agreement,  the Bank received $1.2 million from the borrower,  through March
13, 1998,  comprised of a $1.0 million  payment,  which could be applied against
any portion of the  indebtedness  other than  principal and $197,000 for interim
interest, which is due monthly. The borrower is seeking to refinance elsewhere.

Other Real Estate
-----------------
     ORE represents  real estate  properties  owned by the Bank, or a subsidiary
company,  as a  result  of  foreclosure  or by  obtaining  a  deed  in  lieu  of
foreclosure. ORE is recorded at the lower of the net unpaid indebtedness, or the
property's  net  fair  value at the time of  acquisition.  Subsequent  valuation
adjustments are made if the net fair value decreases below the carrying  amount.
Gains, if any, on the sale of ORE are deferred under the cost recovery method.

        At  December  31,  1997,  ORE carried at $473,000  was  comprised  of 31
cooperative  apartments located within an 84 unit cooperative apartment building
located in Brooklyn,  New York.  The units were acquired  during 1994,  when the
Bank restructured an underlying cooperative loan. As part of the agreement,  the
Bank extended the mortgage loan for an additional  five years at 7.25%,  made an
additional five year building improvement/liquidity loan to the cooperative and,
through a subsidiary  corporation,  received  cooperative shares representing 57
apartments.  As  a  result  of  the  restructuring,  $1.6  million  (the  Bank's
proportionate share of property ownership) of the cooperative association's $2.4
million  indebtedness to the Bank was reclassified from mortgage loans to ORE on
the Company's consolidated financial statements. At December 31, 1997, the total
indebtedness  related to this  restructured  loan  reported in  mortgage  loans,
including the building improvement loan, was $1.3 million. At December 31, 1997,
of the original 57 units acquired; 26 units had been sold, resulting in deferred
gains of  $376,000,  30 units  were  rented  and,  1 unit was  vacant  and being
marketed for sale.

        During 1997, ORE operations  generated pre-tax income of $59,000,  which
included net gains of $144,000  realized on the sale of ORE  properties  and the
net cost of operations  of $85,000.  There were no loss  provisions  established
against ORE during the year ended December 31, 1997.



<PAGE>  29


                         SUMMARY OF LOAN LOSS EXPERIENCE

<TABLE>

        Activity in the allowance for possible loan losses for the mortgage loan
portfolio and the other loan portfolio are summarized as follows,  respectively,
for the years ended December 31:
<CAPTION>

Mortgage Portfolio Loan Loss Allowance:                  1997      1996      1995      1994      1993
--------------------------------------                   ----      ----      ----      ----      ----
                                                                     (Dollars in Thousands)
<S>                                                    <C>       <C>       <C>       <C>       <C>   
Balance at beginning of period                         $5,176    $4,575    $3,976    $4,000    $3,400
Provision for possible loan losses                        600       600       600       600       600
Loans charged-off                                         (35)     -           (1)     (624)     -
Recoveries of loans previously charged off               -            1      -         -         -
                                                       ------    ------    -------   ------    ------
  Balance at end of period                             $5,741    $5,176    $4,575    $3,976    $4,000
                                                       ======    ======    ======    ======    ======

Ratios:
-------

Net charge-offs to average mortgages                      -  %      -  %      -  %      .10%      -  %

Allowance for possible loan losses to
 net mortgage loans at December 31:                       .59%      .63%      .62%      .58%      .62%

Allowance for possible loan losses to mortgage
 loans delinquent 90 days or more at December 31:       43.86%    37.50%     5.27x     4.40x     3.17x

Other Loan Portfolio Loss Allowance:
------------------------------------
Balance at beginning of period                         $  151    $  122    $  109    $  136     $ 154
Provision for possible loan losses                         48        40        36         8      -
Loans charged off                                         (72)      (33)      (43)      (40)      (33)
Recoveries of loans previously charged off                 12        22        20         5        15
                                                       ------    ------    ------    ------     -----
  Balance at end of period                             $  139    $  151    $  122    $  109     $ 136
                                                       ======    ======    ======    ======     =====

Ratios:
-------

Net charge-offs to average other loans                    .21%      .04%      .08%      .13%      .06%

Allowance for possible loan losses to
 net other loans at December 31:                          .48%      .54%      .42%      .40%      .49%

Allowance for possible loan losses to other
 loans delinquent 90 days or more at December 31:       77.22%    43.14%    58.94%    28.24%    30.36%
</TABLE>


<PAGE>  30

                                    DEPOSITS

<TABLE>

Deposit balances are summarized as follows at December 31:
<CAPTION>

                             1997                     1996                    1995
                             ----                     ----                    ----
                      Stated                   Stated                  Stated
                       rate      Amount         rate       Amount       rate       Amount
                       ----      ------         ----       ------       ----       ------
                                         (Dollars in Thousands)

<S>               <C>        <C>           <C>         <C>           <C>         <C>
Balance by interest rate:
    Demand              -  % $   32,132         -  %   $   31,940         - %    $   30,711
    NOW                2.47      35,401        2.47        36,256        2.47        36,680
    Money market       2.96      79,007        2.96        89,081        2.96        92,774
    Passbook & lease
      security         2.71     565,130        2.71       599,951        2.96       632,879

    Certificates      -            -           -             -       3.70- 4.00       2,083
                  4.67- 5.00     44,646    4.14- 5.00     174,155    4.01- 5.00     135,386
                  5.01- 6.00    343,864    5.01- 6.00     187,890    5.01- 6.00     203,054
                  6.01- 7.00     21,023    6.01- 7.00      25,120    6.01- 7.00      29,016
                  7.01- 8.00       -       7.01- 8.00        -       7.01- 8.00         863
                             ----------                ----------                ----------
                                409,533                   387,165                   370,402
                             ----------                ----------                ----------
Total deposits               $1,121,203                $1,144,393                $1,163,446
                             ==========                ==========                ==========

Time certificates in
 excess of $100,000          $   41,551                $   32,676                $   27,039
                             ==========                ==========                ==========

</TABLE>

<TABLE>
     The  following  table sets forth the  maturity of  certificate  accounts in
amounts of $100,000 or more at December 31:
<CAPTION>

                                             1997
                                             ----
                                        (In Thousands)
 
     <S>                                    <C>    
     Three months or less                   $18,067
     Over three months through six months     8,288
     Over six months through twelve months    9,430
     Over twelve months                       5,766
                                            $41,551

</TABLE>


<PAGE>  31


<TABLE>
        The following  table sets forth certain of the Bank's  average  interest
bearing deposit  categories and the related average interest rates for the years
ended December 31:
<CAPTION>

                             1997                 1996                 1995
                             ----                 ----                 ----
                                         (Dollars in Thousands)

                       Amount    Rate      Amount     Rate      Amount     Rate
                       ------    ----      ------     ----      ------     ----

<S>                 <C>          <C>    <C>           <C>      <C>         <C>
Passbook and lease
 security           $  580,050   2.70%  $  615,591    2.72%    $  661,356  2.88%
Certificates           397,832   5.22      383,215    5.16        343,229  5.14
Money Market            83,731   3.04       91,597    3.08         99,016  3.08
NOW                     35,934   2.45       36,338    2.47         37,073  2.55
                    ----------          ----------             ----------
                    $1,097,547   3.63%  $1,126,741    3.57%    $1,140,674  3.57%
                    ==========          ==========             ==========

<FN>
        The FDIC,  an agency of the U.S.  Government,  insures each  depositor's
savings up to $100,000 through the BIF.
</FN>
</TABLE>


<TABLE>

Financial Highlights
<CAPTION>

For the Years Ended December 31:          1997     1996      1995
-------------------------------           ----     ----      ----
<S>                                       <C>      <C>       <C>  
Return on average assets                  2.42%    1.74%     1.44%
Return on average equity                 10.64     8.05      6.67
Dividend payout ratio(1)                 37.23    47.24     50.25
Average equity to average assets         22.72    21.65     21.60
Equity to total assets                   23.94    22.12     22.01
Interest rate spread                      3.88     3.90      3.82
Net interest margin                       4.73     4.68      4.60
Non-interest expense to
 average assets                           1.79     1.80      1.92
Non-performing loans to total loans(2)    1.32     1.64      1.78
Non-performing assets to total assets(2)  0.90     0.98      1.50
Efficiency ratio(3)                      38.27    40.40     42.36
Ratio of net interest income to
 non-interest expense                     2.47x    2.44x    2.27x
Average interest earning assets to
 average interest bearing liabilities     1.31x    1.28x    1.28x

<FN>

(1)  Dividend  payout ratio is  calculated  by dividing  dividends  declared per
     share by net income per share.

(2)  See also  "Asset/Liability  Management",  included  on pages 7 and 8 in the
     1997 Annual Report to Stockholders.

(3)  Amount is determined by dividing non-interest expense, excluding Other Real
     Estate (income) expense,  by net interest income plus loan fees and service
     charges.
</FN>
</TABLE>

<PAGE>  32

                                   BORROWINGS

        The Bank has not directly  borrowed  funds since 1984,  however,  in the
event that the Bank should  require  funds beyond its internal  ability,  it may
take advances from the Federal Home Loan Bank, New York.

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

        The Bank conducts its business  through 13 full-service  branch offices,
10 located in the  borough of Queens,  one in the borough of  Manhattan  and one
each in Nassau  and  Suffolk  counties.  The  Company  believes  that the Bank's
current facilities are adequate to meet the present and immediately  foreseeable
needs of the Bank and the  Company.  (See Note 9 to the  Consolidated  Financial
Statements, included on page 32 in the 1997 Annual Report to Stockholders.)

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

        The Bank is a defendant  in several  lawsuits  arising out of the normal
conduct of business. In the opinion of management, after consultation with legal
counsel,  the  ultimate  outcome  of these  matters  is not  expected  to have a
material adverse effect on the results of operations, business operations or the
consolidated financial condition of the Company.

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

        None.



<PAGE>  33


ADDITIONAL ITEM.  EXECUTIVE OFFICERS
------------------------------------

<TABLE>
     The  following  table sets forth certain  information  with respect to each
executive officer of the Company who is not also a director of the Company.  The
Board of Directors appoints or reaffirms the appointment of all of the Company's
Executive Officers each April. The term of each Executive Officer of the Company
is  generally  one  year,  or  until  a  respective  successor  is  elected  (or
appointed).
<CAPTION>

                          Age at          Position held
Name                December 31, 1997     with the Company
----                -----------------     ----------------
<S>                        <C>            <C>                     
John F. Bennett            63             Senior Vice President
Ronald C. Spielberger      60             Senior Vice President
Jack Connors               48             Senior Vice President
John Conroy                51             Senior Vice President
Bernice Glaz               56             Senior Vice President
Lawrence J. Kane           44             Senior Vice President
Thomas R. Lehmann          47             Chief Financial Officer
Robert A. Neumuth          54             Senior Vice President
Joseph J. Hennessy         55             Asst. Treasurer/Comptroller

</TABLE>

<TABLE>

     The  following  table sets forth certain  information  with respect to each
executive officer of the Bank who is not a director of the Bank.
<CAPTION>

                          Age at          Position held
Name                December 31, 1997     with the Bank
----                -----------------     -------------
<S>                        <C>            <C>                     
John F. Bennett            63             Senior Vice President
Ronald C. Spielberger      60             Senior Vice President
Jack Connors               48             Senior Vice President
John Conroy                51             Senior Vice President
Bernice Glaz               56             Senior Vice President
Thomas R. Lehmann          47             Chief Financial Officer
                                          Treasurer and Comptroller
Lawrence J. Kane           44             Senior Vice President
Robert A. Neumuth          54             Senior Vice President

</TABLE>




<PAGE>  34


                                     PART II



ITEM 5.  MARKET FOR JSB FINANCIAL INC.'S COMMON EQUITY AND RELATED
          STOCKHOLDERS' MATTERS
         ---------------------------------------------------------

        JSB  Financial,  Inc.  common  stock is  traded  on the New  York  Stock
Exchange under the symbol "JSB".  Prior to August 7, 1997, the Company's  common
stock was traded on the Nasdaq National Market under the symbol "JSBF".

        Information regarding JSB Financial, Inc. common stock and its price for
the  1997  calendar  year  appears  on  page  6 of the  1997  Annual  Report  to
Stockholders,  portions of which are filed herewith as Exhibit 13.01,  under the
caption "Quarterly Results" and is incorporated herein by reference.

        As of February 17, 1998, JSB  Financial,  Inc. had  approximately  2,143
shareholders of record,  not including the number of persons or entities holding
stock in nominee or street name through various brokers and banks.

        During 1997, the Company declared four cash dividends totaling $1.40 per
share each on its common stock.  Although the Company cannot guarantee  dividend
payments,  management  expects to continue to pay cash dividends,  provided that
dividend  payments  are in the  best  interest  of the  Company's  stockholders.
Certain  restrictions  exist  regarding the amount of dividends that the Company
may  declare and pay.  (See Note 17 to the  Consolidated  Financial  Statements,
included on page 35 in the 1997 Annual Report to  Stockholders.)  Dividends were
paid during calendar 1997 to stockholders as follows:
<TABLE>
<CAPTION>

     Declaration Date        Record Date           Payment Date         Dividend Per Share
     ----------------        -----------           ------------         ------------------
     <S>                   <C>                   <C>                          <C>             <C> 
     January 7, 1997       February 5, 1997      February 19, 1997            $.35
     April 8, 1997         May 7, 1997           May 21, 1997                 $.35
     July 8, 1997          August 6, 1997        August 20, 1997              $.35
     October 21, 1997      November 5, 1997      November 19, 1997            $.35
</TABLE>

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

        Information  regarding  selected financial data appears on pages 2 and 5
of the Company's 1997 Annual Report to Stockholders,  and is incorporated herein
by reference.

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

        Pages 7 through 19, of the Company's 1997 Annual Report to Stockholders,
are incorporated herein by reference.

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

        Pages  21  through  43,  of  the   Company's   1997  Annual   Report  to
Stockholders, are incorporated herein by reference.

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

         None.

<PAGE>  35


                                    PART III



        Certain information  required by Part III is omitted from this Report in
that  the  Registrant  has  filed  a  definitive  proxy  statement  pursuant  to
Regulation 14A (the "Proxy Statement"), and certain information included therein
is incorporated herein by reference.  Only those sections of the Proxy Statement
which  specifically  address  the items set forth  herein  are  incorporated  by
reference.  Such  incorporation  does not include the Report of the Compensation
Committee or the Stock Performance Graph included in the Proxy Statement.


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

        Information  presented  under the heading  "Information  With Respect to
Nominees  and  Continuing  Directors"  on pages 4 and 5 in the  Company's  Proxy
Statement for its Annual Meeting of  Stockholders to be held on May 12, 1998, is
incorporated herein by reference.  Information concerning Executive Officers who
are not  directors is  contained in Part I of this report  pursuant to paragraph
(b) of Item 401 of Regulation S-K in reliance on Instruction G.

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

        Information  included under the headings  "Directors'  Compensation" and
"Executive  Compensation"  on pages 9 through  12  (excluding  the Report of the
Compensation  Committee on pages 10 and 11) in the Company's Proxy Statement for
its Annual Meeting of  Stockholders  to be held on May 12, 1998, is incorporated
herein by reference.

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

        Information  included under the headings "Security  Ownership of Certain
Beneficial  Owners" and "Stock  Ownership of Management" on pages 3 and 8 in the
Company's  Proxy  Statement for its Annual Meeting of Stockholders to be held on
May 12, 1998, is incorporated herein by reference.

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

        Information included under the headings  "Indebtedness of Management and
Transactions  with Certain  Related  Persons" on page 18 in the Company's  Proxy
Statement for its Annual Meeting of  Stockholders to be held on May 12, 1998, is
incorporated herein by reference.


<PAGE>  36


                                     PART IV

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

(a) 1.  Financial Statements

        The following  Consolidated  Financial  Statements  of the Company,  its
subsidiary,  Jamaica  Savings Bank FSB,  and the  independent  auditors'  report
thereon, included on pages 21 through 43, of the Company's 1997 Annual Report to
Stockholders, are incorporated herein by reference:

-    Consolidated  Statements  of  Financial  Condition at December 31, 1997 and
     1996 -  Consolidated  Statements of Operations for each of the years in the
     three year period ended December 31, 1997
-    Consolidated  Statements of Changes in Stockholders' Equity for each of the
     years in the three year period ended December 31, 1997
-    Consolidated  Statements  of Cash  Flows for each of the years in the three
     year period ended December 31, 1997
-    Notes to the Consolidated Financial Statements
-    Independent Auditors' Report

        The  remaining  information  appearing  in the  1997  Annual  Report  to
Stockholders  is not  deemed  to be  filed  as part of this  report,  except  as
expressly provided herein.

      2. Financial Statement Schedules

        Financial  Statement  Schedules  have been omitted  because they are not
applicable or the required  information is shown in the  Consolidated  Financial
Statements or Notes thereto.

(b) Reports on Form 8-K filed during the last quarter of 1997:  None

(c) Exhibits Required by Securities and Exchange Commission Regulation S-K:

     Exhibit No.  Description
     -----------  -----------
       3.01       Articles of Incorporation                                  (1)
       3.02       Bylaws (Amended and Restated, filed herewith)
       4.01       Stock Certificate of JSB Financial, Inc.                   (1)

                  Employment Agreement between the Company and:
      10.01        Park T. Adikes                                            (2)
      10.02        Edward P. Henson                                          (2)
      10.04        Ronald C. Spielberger                                     (2)
      10.05        Joanne Corrigan                                           (2)

      10.06       Supplemental Employment Agreement entered into on
                   July 9, 1996 between the Company and:
                   Park T. Adikes                                            (3)
                   Edward P. Henson                                          (3)
                   Ronald C. Spielberger                                     (3)
                   Joanne Corrigan                                           (3)

                                                                      Continued

<PAGE>  37


  Exhibit No.   Description
  -----------   -----------
                Employment Agreement between the Bank and:
    10.07        Park T. Adikes                                              (2)
    10.08        Edward P. Henson                                            (2)
    10.09        Ronald C. Spielberger                                       (2)
    10.10        Joanne Corrigan                                             (2)
    10.11        John F. Bennett                                             (2)
    10.12        Jack Connors                                                (4)
    10.13        John J. Conroy                                              (4)
    10.14        Bernice Glaz                                                (4)
    10.15        Thomas R. Lehmann                                           (4)
    10.16        Lawrence J. Kane, filed herewith
    10.17        Robert A. Neumuth                                           (3)

    10.18       Supplemental Employment Agreement entered into on
                 July 9, 1996 between the Bank and:
                 Park T. Adikes                                              (3)
                 Edward P. Henson                                            (3)
                 Ronald C. Spielberger                                       (3)
                 Joanne Corrigan                                             (3)
                 John F. Bennett                                             (3)
                 Jack Connors                                                (3)
                 John J. Conroy                                              (3)
                 Bernice Glaz                                                (3)
                 Thomas R. Lehmann                                           (3)
                 Lawrence J. Kane                                            (3)
                 Robert A. Neumuth                                           (3)

                Special Termination Agreements between the Bank, guaranteed
                 by the Company and:
    10.19        Teresa DiRe-Covello                                         (2)
    10.20        Joseph J. Hennessy                                          (2)
    10.21        Philip Pepe                                                 (5)

    10.22       Supplemental Special Termination  Agreements entered into
                 on July 9, 1996 between the Bank and:
                 Teresa DiRe-Covello                                         (3)
                 Joseph J. Hennessy                                          (3)
                 Philip Pepe                                                 (3)


                                                                      Continued



<PAGE>  38


  Exhibit No.   Description
  -----------   -----------
    10.23      Jamaica Savings Bank FSB Benefit Restoration Plan
                (Amended and Restated)                                       (6)
    10.24      JSB Financial, Inc. 1990 Incentive Stock Option Plan
                (Amended and Restated)                                       (7)
    10.25      JSB Financial, Inc. 1990 Stock Option Plan
                For Outside Directors (Amended and Restated)                 (7)
    10.26      Jamaica Savings Bank FSB Employee Severance
               Compensation Plan                                             (1)
    10.27      Jamaica Savings Bank FSB Outside Directors' Consultation
                and Retirement Plan                                          (8)
    10.28      Incentive Savings Plan of Jamaica Savings Bank FSB            (8)
    10.29      The JSB Financial, Inc. 1996 Stock Option Plan                (9)
    11.01      Statement regarding computation of per share
                earnings, filed herewith
    13.01      Portions of the 1997 Annual Report to Stockholders,
                filed herewith
    23.01      Consent of KPMG Peat Marwick LLP, filed herewith
    27.00      Financial Data Schedule for the Period Ended December 31,
                1997, filed herewith
    27.01      Financial Data Schedule for the Period Ended December 31,
                1996, Restated, filed herewith
    99.01      Form 11-K for calendar year 1997 for the Incentive Savings
                Plan of Jamaica Savings Bank FSB                            (10)

(1)   Incorporated  herein by reference to Exhibits filed with the  Registration
      Statement on Form S-1, Registration No. 33-33821.
(2)  Incorporated herein by reference to Exhibits filed with the Form 10-K
      for the Year Ended December 31, 1990.
(3)  Incorporated herein by reference to Exhibits filed with the Form 10-K
      for the Year Ended December 31, 1996.
(4)  Incorporated herein by reference to Exhibits filed with the Form 10-Q
      for the Quarter Ended June 30, 1995.
(5)  Incorporated herein by reference to Exhibits filed with the Form 10-K
      for the year ended December 31, 1993.
(6)  Incorporated herein by reference to Exhibits filed with the Form 10-K
      for the Year Ended December 31, 1994.
(7)  Incorporated herein by reference to Exhibits filed with the Form 10-K
      for the Year Ended December 31, 1992.
(8)  Incorporated herein by reference to Exhibits filed with the Pre-Effective
      Amendment No.1 to Form S-1, Registration No. 33-33821,
      filed on April 2, 1990.
(9)  Incorporated herein by reference to Appendix A (pages 21 through 33)
      of the Proxy Statement, dated March 29, 1996.
(10) To be filed.


<PAGE>  39


                                   SIGNATURES
                                   ----------

Pursuant to the requirements of Section 13 or 15 (d) 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.

    JSB Financial, Inc.
    -------------------
       (Registrant)

/s/  Park T. Adikes          3/20/98
---  --------------          -------
     Park T. Adikes
     Chairman of the Board and
     Chief Executive Officer

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

/s/  Park T. Adikes          3/20/98        /s/ Thomas R. Lehmann      3/23/98
---  --------------          -------        ---------------------      -------
     Park T. Adikes                             Thomas R. Lehmann
     Chief Executive Officer                    Chief Financial Officer
     Chairman and Director                      (Principal Accounting Officer)





/s/  Joseph C. Cantwell      3/26/98         /s/  James E. Gibbons, Jr.  3/26/98
---------------------------  -------         --------------------------  -------
     Joseph C. Cantwell                           James E. Gibbons, Jr.
     Director                                     Director



/s/  Edward P. Henson        3/24/98         /s/  Richard W. Meyer       3/26/98
---------------------------  -------         --------------------------  -------
     Edward P. Henson                                    Richard W. Meyer
     President and Director                              Director



/s/  Arnold B. Pritcher      3/26/98         /s/  Paul R. Screvane       3/26/98
---------------------------  -------         --------------------------  -------
     Arnold B. Pritcher                           Paul R. Screvane
     Director                                     Director