Selected Financial Data
(In Thousands, Except Per Share Amounts)
----------------------------------------

<TABLE>
Set forth below are selected  consolidated  financial data of the Company.  This
financial data is derived in part from, and should be read in conjunction  with,
the Consolidated Financial Statements of the Company.
<CAPTION>


Selected Financial Condition Data:
At December 31,                      1998        1997        1996        1995         1994
---------------                      ----        ----        ----        ----         ----
<S>                               <C>         <C>         <C>         <C>         <C>       
Total assets                      $1,621,649  $1,535,031  $1,516,016  $1,548,301  $1,565,095
Securities held-to-maturity/held-
  for-investment, net                208,457     352,967     460,509     592,060     728,630
Loans receivable, net              1,169,659     999,745     854,774     768,245     711,295
Deposits                           1,124,166   1,121,203   1,144,393   1,163,446   1,204,424
Federal Home Loan Bank of
  New York ("FHLB-NY") advances       50,000           -           -           -           -
Retained income                      337,474     311,436     289,588     276,317     266,361
Total stockholders' equity           382,476     367,514     335,299     340,107     327,634

Selected Operating Data:
Years Ended December 31,             1998        1997        1996        1995         1994
------------------------             ----        ----        ----        ----         ----

Interest income                   $  110,760  $  107,742  $  107,611  $  107,726   $ 103,027
Interest expense                      38,476      39,874      40,217      40,707      36,619
                                  ----------  ----------  ----------  ----------   ---------
Net interest income                   72,284      67,868      67,394      67,019      66,408
Provision for possible
 loan losses                              51         648         640         636         608
(Recovery of) provision for
 possible other credit losses              -           -      (2,040)      2,040           -
                                  ----------   ---------  ----------  ----------   ---------
Net interest income after
 provision for possible
 credit losses                        72,233      67,220      68,794      64,343      65,800
Non-interest income                   12,901      21,929       5,081       3,995       6,752
Non-interest expense                  27,458      27,434      27,598      29,561      30,937
                                  ----------  ----------   ---------  ----------   ---------
Income before provision for
 income taxes                         57,676      61,715      46,277      38,777      41,615
Provision for income taxes            13,288      24,625      19,552      16,603      18,018
                                  ----------  ----------  ----------  ----------   ---------
     Net income                   $   44,388  $   37,090  $   26,725  $   22,174   $  23,597
                                  ==========  ==========  ==========  ==========   =========



Basic earnings per common share        $4.53       $3.76       $2.66       $2.09       $2.13
                                       =====       =====       =====       =====       =====

Diluted earnings per common share      $4.41       $3.64       $2.56       $2.01       $2.04
                                       =====       =====       =====       =====       =====

Cash dividends per common share        $1.60       $1.40       $1.20       $1.00       $ .72
                                       =====       =====       =====       =====       =====
</TABLE>

<PAGE>

Quarterly Results
(In Thousands, Except Per Share Amounts and Yields)
---------------------------------------------------
<TABLE>

                                                         1998 Quarter Ended                  
                                                         ------------------                  
<CAPTION>
                                          March 31,    June 30,   September 30,   December 31,
                                          ---------    --------   -------------   ------------
<S>                                         <C>         <C>             <C>            <C>    
Interest income                             $27,398     $28,277         $27,581        $27,504
Interest expense                              9,642       9,742           9,714          9,378
                                            -------     -------        --------        -------
Net interest income                          17,756      18,535          17,867         18,126
Provision for possible loan losses               14          14              13             10
                                            -------     -------         -------        -------
Net interest income after provision
 for possible loan losses                    17,742      18,521          17,854         18,116
Non-interest income                           1,656       5,804           3,498          1,943
Non-interest expense                          6,786       6,881           7,151          6,640
                                            -------     -------         -------        -------
Income before provision for income taxes     12,612      17,444          14,201         13,419
Provision for income taxes                    4,948       2,258           2,824          3,258
                                            -------     -------         -------        -------
Net income                                  $ 7,664     $15,186         $11,377        $10,161
                                            =======     =======         =======        =======
Basic earnings per common share               $ .78       $1.54           $1.16          $1.06
                                              =====       =====           =====          =====
Diluted earnings per common share             $ .75       $1.49           $1.13          $1.03
                                              =====       =====           =====          =====


Stock Prices, Dividends and Yields:
      High                                   $57.13      $59.44          $60.00         $54.38
      Low                                    $45.75      $53.44          $44.75         $45.13
      Close                                  $55.94      $58.56          $51.31         $54.38
      Cash dividends per common share        $  .40      $  .40          $  .40         $  .40
      Dividend yield1                          3.11%       2.83%           3.05%         3.22%



                                                            1997 Quarter Ended                 
                                                            ------------------                 
                                          March 31,    June 30,   September 30,   December 31,
                                          ---------    --------   -------------   ------------
Interest income                             $26,683     $26,993         $26,796        $27,270
Interest expense                              9,738       9,932          10,094         10,110
                                            -------     -------         -------        -------
Net interest income                          16,945      17,061          16,702         17,160
Provision for possible loan losses              160         161             162            165
                                            -------     -------         -------        -------
Net interest income after provision
 for possible loan losses                    16,785      16,900          16,540         16,995
Non-interest income                           1,114       1,536           4,513         14,766
Non-interest expense                          6,884       6,751           7,063          6,736
                                            -------     -------         -------        -------
Income before provision for income taxes     11,015      11,685          13,990         25,025
Provision for income taxes                    4,567       4,576           5,436         10,046
                                            -------     -------         -------        -------
Net income                                  $ 6,448     $ 7,109         $ 8,554        $14,979
                                            =======     =======         =======        =======
Basic earnings per common share               $ .66       $ .72           $ .87          $1.51 
                                              =====       =====           =====          =====
Diluted earnings per common share             $ .63       $ .70           $ .84          $1.46
                                              =====       =====           =====          =====


Stock Prices, Dividends and Yields:
      High                                   $44.00      $47.00          $49.69         $50.63
      Low                                    $36.00      $40.00          $39.75         $46.31
      Close                                  $42.50      $43.25          $48.94         $50.06
      Cash dividends per common share        $  .35      $  .35          $  .35         $  .35
      Dividend yield1                          3.50%       3.22%           3.13%         2.89%

<FN>

1   Dividend yield is calculated by annualizing the quarterly dividend per share
    and dividing by an average of the high and low price for the quarter.
</FN>
</TABLE>



<PAGE>


Management's Discussion and Analysis of Financial
 Condition and Results of Operations
 -----------------------------------

General 

JSB Financial,  Inc. is the holding company for Jamaica Savings Bank. The Bank's
primary  business is attracting  deposits from the general  public and investing
deposits,  along with cash flows generated from  operating,  investing and other
financing  activities,  in first  mortgage  loans,  U.S.  Government and federal
agency  securities,  CMOs  and  consumer  type  loans.  The  Company's  mortgage
portfolio  is  comprised  primarily of  mortgages  secured by  multi-family  and
cooperative  apartment  buildings.  To a  lesser  extent,  the  Bank  originates
mortgages for one-to  four-family  homes,  commercial real estate properties and
construction projects.

As a  unitary  savings  and loan  holding  company,  the  Company's  results  of
operations  are  significantly  affected  by changes in market  interest  rates,
general economic and competitive conditions,  as well as government policies and
actions of regulatory  authorities.  The Company  considers net interest  income
plus loan fees and service  charges as its "core  revenue".  Management  aims at
maintaining a stable net interest  margin and  minimizing  the effects of market
interest rate  fluctuations on net interest  income through its  asset/liability
structure.

Operating  results are also  affected by  non-interest  income and  non-interest
expense.  Items  included in  non-interest  income may vary  significantly  from
period to period.  These items may, but do not  necessarily,  include results of
real estate operations,  gains or losses on the sale of equity securities,  loan
servicing  income  and  various  other  miscellaneous   income/loss  items.  The
principal  components  of  non-interest  expense are  compensation  and employee
benefits, occupancy costs and other general and administrative expenses.

Management  is focused on providing  quality  service as the Bank's key strategy
for maintaining its relationships  with its customers.  Within recent years, the
Bank has expanded products and services, including providing automated telephone
banking 24 hours a day, 365 days a year,  issuing credit cards,  which portfolio
is owned and managed by an unrelated financial  institution that incurs all risk
of loss,  and  accepting  automated  teller  machine  ("ATM")  transactions  for
MasterCard(R),  VISA(R),  NYCE(R),  CIRRUS(R),  PLUS(R),  Pulse(R)  and HONOR(R)
networks.  By offering  these  products and  services,  the Company is providing
services  essential to its  customers and earning fee income.  In addition,  the
Company has continued to invest in technology to further improve convenience and
service to its customers, while controlling costs.

Financial Condition

Assets increased by $86.6 million,  or 5.6%, to $1.622 billion at year-end 1998,
compared to assets of $1.535 billion at year-end 1997. At December 31, 1998, net
mortgage  loans  were  $1.147  billion,  comprising  70.7% of total  assets,  as
compared  to $970.7  million,  or 63.2% of total  assets at December  31,  1997.
Securities  held-to-maturity totaled $208.5 million, or 12.9% of total assets at
December 31, 1998, of which $110.0  million was invested in U.S.  Government and
federal  agency   securities,   $95.8  million  in  CMOs  and  $2.7  million  in
mortgage-backed  securities  ("MBS").  Unrealized  gains  and  losses  in  these
portfolios  are not expected to impact future  results of  operations,  as these
securities are designated as held-to-maturity.  At December 31, 1997, securities
held-to maturity totaled $353.0 million, or 23.0% of total assets. The Company's
marketable equity securities  ("MES") are designated as  available-for-sale  and
carried at estimated fair value,  with net unrealized  gains and losses excluded
from  earnings  and  reported  net of tax  effects  in a separate  component  of
stockholders'  equity,  until realized.  At December 31, 1998, these securities,
which had a cost basis of $10.9 million,  were carried at their  aggregated fair
value of $83.6 million.

During 1998,  the Company  continued  to shift  assets into fixed rate  mortgage
loans,  which  have  longer  maturities  and  produce  higher  yields  than  the
short-term investments in U.S. Government and federal agency securities and CMOs
they replaced.  Given the  combination of extended asset  maturities,  increased
yield on assets and interest rate risk, along with the deposit trend, management
decided that some degree of leveraging would be beneficial. On December 8, 1998,
the Bank took a $50.0  million  fixed  rate  advance  from the  FHLB-NY,  with a
balloon  payment due in ten years.  By lengthening  the maturity of a portion of
the Company's  funding  liabilities  at a relatively  low long-term  fixed rate,
management believes the Company's exposure to interest rate risk is mitigated.

Liabilities  increased by $71.7 million,  or 6.1%, to $1.239 billion at December
31, 1998 from $1.168  billion at December  31, 1997,  of which $50.0  million is
attributable  to the  FHLB-NY  advance.  Aside from the $3.0  million,  or 0.3%,
increase in deposits  during 1998,  year-end  deposit  levels had been declining
since  1992.  The Bank's  deposit  trend is similar to that  experienced  by the
thrift industry,  which in general,  has used non-deposit sources to fund recent
growth.  Management will continue to analyze deposit trends, mortgage demand and
market conditions,  and may consider  additional FHLB-NY advances in the future.
While the FHLB-NY  advances  are  expected to lessen the  Company's  exposure to
interest rate risk,  over time,  the higher cost  associated  with the long-term
advances  may result in  narrowing  the net  interest  rate spread and  interest
margin.   Future  movements  in  market  interest  rates,  asset  and  liability
composition,  as well  as  other  market  and  economic  conditions,  will  also
influence the Company's results of operations.

Stockholders' equity totaled $382.5 million at December 31, 1998, an increase of
$15.0 million from December 31, 1997. This increase primarily reflects: earnings
of $44.4  million  for 1998;  an  increase  in  unrealized  gains on  securities
classified as  available-for-sale,  net of tax effects,  of $12.4 million;  $3.2
million for tax benefits  related to various of the Company's  stock based plans
and $2.0  million  received in  connection  with the  exercise  of common  stock
options.  These  increases to  stockholders'  equity were partially  off-set by:
$31.5  million used to make  repurchases  of the Company's  common stock;  $15.7
million used for cash  dividends,  and other  changes to  stockholders'  equity,
primarily  related to the reissuance of treasury stock pursuant to the Company's
stock based compensation plans.

Asset Composition and Strategy

Much of the 1998  activity in the mortgage  loan  portfolio can be attributed to
the low level of interest  rates.  As mortgage  rates reached  30-year lows, the
Bank's mortgage loan originations, refinancing and satisfaction activity soared.
This scenario  fostered the Company's  goal to increase its mortgage  portfolio,
enabling it to originate loans that meet with the Bank's underwriting standards.
The increase in mortgage  loans has  generally  been funded with  proceeds  from
maturities  of U.S.  Government  and federal  agency  securities.  The Company's
multi-family and underlying cooperative mortgage loans generally have maturities
of ten years or less and  produce  higher  yields  than do similar  termed  U.S.
Government and federal agency  securities.  These mortgages  inherently  present
greater  credit risk than the securities  they replaced.  (See Asset Quality and
Allowances,  which follows.) This shift in asset  composition and the decline in
interest rates are the primary factors which contributed to the increases in the
Company's net interest margin and interest rate spread during 1998.

At December 31, 1998, 87.0% of the mortgage portfolio was comprised of mortgages
secured by multi-family and cooperative  apartment  buildings.  The repayment of
multi-family  loans is subject,  among other things,  to adverse  changes in the
real estate market and the economy to a far greater  extent than is repayment of
one-to  four-family  mortgage  loans.  Thus,  these loans generally pose greater
credit  risk to the  Bank,  compared  to loans  secured  by  one-to  four-family
dwellings.

During 1998,  investments in CMOs  decreased,  as payments of $65.4 million were
received from  maturities and  amortization  and purchases of $57.1 million were
made.  All of the Bank's  CMOs are First  Tranche - Planned  Amortization  Class
Bonds that are collateralized by Federal National Mortgage Association ("FNMA"),
Federal  Home  Loan  Mortgage  Corporation  ("FHLMC"),  or  Government  National
Mortgage Association  ("GNMA"),  MBS which are collateralized by whole loans. At
December 31, 1998, the estimated average remaining maturity of the CMO portfolio
was approximately  twenty-six  months.  Management plans to continue to purchase
CMOs which meet its investment guidelines, when available.

Asset Quality and Allowances

Non-performing  loans to total loans at December 31, 1998 was 0.04%,  well below
industry averages,  compared to 1.32% at December 31, 1997. Non-performing loans
at December 31, 1997 included a $12.8 million  underlying  cooperative  mortgage
loan on which the Bank had  commenced  foreclosure  proceedings.  This  mortgage
loan, which comprised 96.1% of non-performing  loans and 92.8% of non-performing
assets at December 31, 1997,  was satisfied  during the second  quarter of 1998,
resulting  in the Company  recovering  all  interest,  late charges and expenses
incurred in connection with this loan.

The ratio of  non-performing  assets to total  assets at December  31, 1998 also
decreased in connection  with the  satisfaction of the  non-performing  mortgage
loan,  discussed  above.  At December 31, 1998,  non-performing  assets to total
assets was 0.04%, compared to 0.90% at December 31, 1997.

In addition to non-performing  loans,  non-performing assets include ORE and any
other  investments  not performing in accordance  with  contractual  terms.  ORE
represents real estate  properties  owned as a result of foreclosure or obtained
by  receiving  a deed in lieu of  foreclosure.  At  December  31,  1998,  ORE of
$277,000 was comprised of the remaining 29  residential  cooperative  apartments
received in connection with the 1994 troubled debt  restructuring  of a mortgage
secured  by  a  cooperative  apartment  building.  Management  closely  monitors
properties that are obtained through  foreclosure actions and regularly assesses
their value.

The  Company's  increased  concentration  in mortgage  loans is  accompanied  by
management's  continued  commitment to asset  quality.  The Bank's  underwriting
standards and regular  monitoring of assets and allowances are the primary means
for identifying and limiting losses. However, 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  assets.  Such a
scenario could result in higher  provisions for possible loan losses and ORE and
related expenses, reduced levels of interest earning assets and interest income.

During 1998, no additions were made to the general valuation mortgage allowance,
as loan quality remained high and non-performing  loans declined  substantially,
as previously discussed.  Management has not modified the Company's underwriting
standards,  nor has the Company  entered  into any new  lending  category of any
significance to foster recent loan growth.  The ratio of mortgage  allowances to
mortgage  loans (net of deferred  fees and unearned  discounts)  at December 31,
1998 was 0.50%;  however,  the mortgage allowance of $5.7 million was 27.0 times
the $213,000 of non-performing mortgage loans.

Liquidity and Capital Resources

The Company's  primary source of funds is deposits.  Significant  cash flows are
provided  by  proceeds   from   maturities   of   securities   held-to-maturity,
amortization on and maturities of loans and from operations.  Overall  liquidity
is affected by the Company's operating,  financing and investing activities,  as
well as the interest rate environment, economic conditions and competition.

Due to the increased  emphasis on mortgage  loans,  which replaced a significant
portion of the  short-term  investments  in U.S.  Government  and federal agency
securities during 1998, the Company's  exposure to interest rate risk increased.
In response to this increased  interest rate risk,  management  determined  that
some degree of  leveraging  would be  beneficial.  In addition to  providing  an
alternative  source of funds to deposits,  terms  available on FHLB-NY  advances
allowed the Company to reduce  interest  rate risk by more closely  matching the
repricing of some assets with the repricing of the advance liability.  The Bank,
should  management so decide,  has the ability to take additional  advances from
the FHLB-NY.  The amount of future  advances,  if any,  would be  determined  by
management, subject to the approval and terms of the FHLB-NY.

The Company's  overall  asset/liability  structure  and level of  non-performing
assets  affects  interest  rate spreads and margins,  which are  considered  key
measures of the Company's  financial  performance.  Should deposits  continue to
migrate into higher cost term  accounts,  deposits  decrease  significantly,  or
additional  long-term advances from the FHLB-NY be taken,  interest rate spreads
and margins are likely to decline.  In determining  whether additional  advances
will be taken,  management  will assess deposit levels and trends,  loan demand,
the Company's overall liquidity and other market conditions in the future.

Management  monitors  deposit  levels and sets interest rates with the intent of
influencing  those levels and preserving the Bank's deposit base. While deposits
increased by $3.0 million, or .30%, during 1998, deposit  composition  continued
to shift. The most relevant change was the shift between  certificate of deposit
accounts ("CDs"), which increased $24.0 million, or 5.9%, and passbook accounts,
which  decreased  by $23.8  million,  or 4.4%.  In addition,  the Bank's  demand
deposits  (i.e.  checking  accounts)  increased by $13.5 million and  negotiable
order of withdrawal  ("NOW")  accounts  increased by $1.6  million,  while money
market  accounts  decreased by $14.7 million.  As part of the mortgage term, the
Bank generally  requires  mortgagees  for  multi-family  apartment  buildings to
maintain  tenants'  rent  security  accounts  with the  Bank.  The $2.3  million
increase  in  lease  security  accounts  reflects  the  growth  in  multi-family
mortgages  during 1998. (See Note 16 to the Consolidated  Financial  Statements,
herein.)

While  interest  rates on the  various  accounts  offered  by the Bank  remained
competitive  with those of other  depository  institutions in the Bank's market,
customers  have  continued to withdraw  funds and shift  deposits out of savings
accounts and into CDs,  which offer higher  yields.  Management  attributes  the
decline of deposits and  migration to CDs to the  relatively  low interest  rate
environment  and strong equities market that has prevailed over the last several
years.  Under the Company's present interest rate structure,  management expects
gradual changes in deposit composition and total deposits.

During 1998, operating activities provided $52.5 million, the greatest source of
funds, on a net basis.  The Company's  investing  activities used $26.1 million,
net. The largest uses of funds for investing  activities  included  purchases of
U.S.  Government  and  federal  agency  securities,  mortgage  originations  and
purchases of CMOs,  respectively.  Financing  activities provided $11.5 million,
net. This net increase  reflects the Company  receiving a $50.0 million  advance
from the FHLB-NY in  December,  1998.  (See  Management  of Interest  Rate Risk,
herein.)  Significant  uses of  funds  for the  Company's  financing  activities
included  $31.5 million to  repurchase  620,100  shares of the Company's  common
stock and $15.7 million to make dividend payments on its common stock.

Liquidity  management for the Company is both a daily and a long-term  function.
During 1998, the Company  maintained strong liquidity,  which management expects
to continue in the future.  The  Company's  most liquid assets are cash and cash
equivalents. The Company considers all short-term investments with a maturity of
three  months  or less  from  the  time  of  purchase  to be  cash  equivalents.
Historically,  the Company's  cash  equivalents  have been  comprised of federal
funds  sold.  The amount of cash and cash  equivalents  is affected by the funds
used for and generated by operating,  financing and investing  activities during
any given period.  At December 31, 1998, the U.S.  Government and federal agency
securities portfolio had an average remaining maturity of two months and the CMO
portfolio had an average  anticipated  remaining  maturity of twenty-six months.
(See  the  Consolidated  Statements  of  Cash  Flows,  which  are  part  of  the
Consolidated Financial Statements, herein.)

The Bank is required to maintain  minimum  levels of liquid assets as defined by
Office of Thrift Supervision ("OTS") regulations. This requirement, which may be
varied at the  discretion of the OTS, is based upon a percentage of deposits and
short-term  borrowings.  The required  ratio at December 31, 1998 was 4.0%.  The
Bank's  average  liquidity  ratios  were  26.2% and  29.9%  for the years  ended
December 31, 1998 and 1997,  respectively.  Management has structured the assets
and  liabilities  of the  Company  to  enable  the Bank to meet  all  regulatory
liquidity requirements.

Management of Interest Rate Risk

The  Company's  primary  market risk is interest rate  volatility.  Net interest
income is the Company's primary component of income.  Changes in interest rates,
particularly  if there is a  substantial  variation  in the timing  between  the
repricing of the Company's assets and the liabilities which fund them,  subjects
the Company's  net interest  income to  substantial  risk.  Management  seeks to
address  this risk by  monitoring  and  controlling  the  variation in repricing
intervals  between its assets and liabilities.  To a lesser extent,  the Company
also monitors its interest rate  sensitivity by analyzing the estimated  changes
in market value of its assets and  liabilities  assuming  various  interest rate
scenarios.  As discussed  below,  there are a variety of factors which influence
the repricing characteristics and market values of any given asset or liability.

The principal  objectives of the Company's  interest rate risk management are to
evaluate  the interest  rate risk  inherent in certain  assets and  liabilities,
determine the level of risk appropriate given the Company's  business  strategy,
operating  environment,  capital  and  liquidity  requirements  and  performance
objectives, and manage the risk consistent with the Board of Directors' approved
guidelines.   Through  such   management,   the  Company  seeks  to  reduce  the
vulnerability  of its operations to changes in interest rates.  The Bank's Board
of  Directors  reviews  the Bank's  interest  rate risk  position on a quarterly
basis.

Interest Rate Risk

At December 31, 1998,  70.7% of the  Company's  assets were invested in mortgage
loans,  which  were  primarily  at  fixed  rates.  Multi-family  and  underlying
cooperative  mortgage loans,  which are  predominantly  underwritten  with fixed
rates and ten year  maturities,  comprised  approximately  87.0% of the mortgage
portfolio.  In addition,  the Company remained highly liquid with 7.0% of assets
invested  in  cash  and  cash  equivalents  and  11.9%  invested  in  securities
held-to-maturity,  that  were  scheduled  to mature  within  twelve  months  and
securities available-for-sale.  The Company's investments in U.S. Government and
federal agency securities generally have maturities ranging from three months to
two years at the time of  purchase.  As  interest  rates  increase,  the Company
generally  purchases  securities with longer terms, and may purchase  securities
with maturities of up to three years.

Within  recent  years,   management  has  been  extending  asset  maturities  by
increasing   mortgages   originated  for  its  portfolio,   while  reducing  its
investments in short-term,  U.S. Government and federal agency securities.  This
strategy  has tended to improve  the  Company's  interest  rate  spreads and net
interest margins.  However,  due to the lengthening of asset maturities  without
corresponding  lengthening  of funding  liabilities,  the Company's  exposure to
interest rate risk has increased. In recognition of this risk factor, management
has closely  monitored  the pricing of its  depository  products.  Low-cost core
deposits,  which  exclude  CDs,  have  historically  displayed  a low  level  of
volatility  and help limit the  Company's  exposure  to interest  rate risk.  In
addition, management determined that terms available on fixed rate advances from
the FHLB-NY were  conducive to mitigating  some of the  increased  interest rate
risk associated with the increased  emphasis on mortgages.  On December 8, 1998,
the Bank  borrowed  $50.0  million from the FHLB-NY at a fixed rate of 5.62% for
ten years.

Interest Rate Sensitivity Analysis

The matching of assets and  liabilities  may be analyzed by examining the extent
to which such  assets and  liabilities  are  "interest  rate  sensitive"  and by
monitoring  an  institution's  interest  rate  sensitivity  "gap".  An  asset or
liability is said to be interest rate sensitive within a specific time period if
it will mature or reprice within that time period. The interest rate sensitivity
gap is defined as the difference  between the amount of interest  earning assets
maturing or repricing  within a specific  time period and the amount of interest
bearing  liabilities  maturing or repricing  within that time  period.  A gap is
considered  positive when the amount of interest rate  sensitive  assets exceeds
the amount of interest rate sensitive liabilities.  A gap is considered negative
when the amount of interest  rate  sensitive  liabilities  exceeds the amount of
interest rate  sensitive  assets.  During a period of rising  interest  rates, a
negative gap would tend to adversely affect net interest income while a positive
gap would tend to result in an increase in net interest income.  During a period
of declining  interest rates, a negative gap would tend to result in an increase
in net interest  income while a positive gap would tend to adversely  affect net
interest income. At December 31, 1998, the Company had a negative short-term (up
to one year) gap.

The following table sets forth, as of December 31, 1998,  repricing  information
on earning assets and interest bearing liabilities.  The data reflects estimated
principal  amortization  and prepayments on mortgage loans based upon historical
performance.  Approximate  prepayment  rate  assumptions  for fixed rate  one-to
four-family  mortgage  loans  and MBS  are  based  upon  the  remaining  term to
contractual maturity as follows: (a) 26% if less than six months; (b) 11% if six
months to one year, three to five years and for five to ten years; (c) 8% if one
to three years;  (d) 9% if ten to twenty years;  and (e) 17% if beyond 20 years.
Adjustable-rate  mortgages are assumed to prepay at 15% and second  mortgages at
18%. All other fixed rate first  mortgage loans are assumed to prepay at 3%. All
deposit accounts,  which are subject to immediate  withdrawal/repricing,  except
CDs,  are assumed to reprice in the  earliest  period  presented.  MES and other
investments,  which do not have a fixed  maturity  date or a stated  yield,  are
reflected as repricing in the more than five years category.  The table does not
necessarily  indicate  the  impact of general  interest  rate  movements  on the
Company's net interest  income  because the  repricing of certain  categories of
assets and  liabilities is beyond the Company's  control.  As a result,  certain
assets and liabilities indicated as repricing within a stated period may in fact
reprice at  different  times and at  different  rate  levels.  While  management
regularly  reviews  the  Company's  gap  analysis,  the  gap  is  considered  an
analytical tool, which has limited value.
<PAGE>
<TABLE>


                                                                  At December 31, 1998                                 
                                                                  --------------------                                 
                                              More       More       More       More
                                              Than       Than       Than       Than
                                             1 Year     2 Years    3 Years    4 Years   More
                                  1 Year       to         to         to         to      Than                  Fair
                                  or Less    2 Years    3 Years    4 Years    5 Years  5 Years     Total     Value 1 
                                 ------------------------------------------------------------------------------------
                                                                 (Dollars in Thousands)
<CAPTION>
<S>                              <C>        <C>       <C>       <C>        <C>       <C>        <C>         <C>       
Interest earning assets:     
  Mortgage loans, net 2..........$   49,793 $  64,055 $  66,839 $ 101,279  $  69,065 $  801,625 $ 1,152,656 $1,197,873
    Average interest rate .......      8.76%     8.78%     8.78%     8.22%      8.25%      7.61%
  U.S. Government and federal
   agency securities, net .......   109,996         -         -         -          -          -     109,996    110,026
    Average interest rate .......      5.14%        -         -         -          -          -
  Marketable equity securities
   and other investments, net 3..         -         -         -         -          -     92,514      92,514     92,514
    Average interest rate .......         -         -         -         -          -          -
  CMOs, net......................         -         -         -         -      4,401     91,389      95,790     95,997
    Average interest rate .......         -         -         -         -      5.75%      6.15%
  MBS, net.......................        17       463         -         -          -      2,191       2,671      2,883
    Average interest rate .......     12.25%    10.50%         -         -          -      9.63%
  Other loans, net 2.............       481     1,435     9,944     1,660      1,641      7,766      22,927     22,915
    Average interest rate .......      8.33%     8.22%     4.93%     7.79%      7.80%      8.07%
  Federal funds sold.............    99,000         -         -         -          -          -      99,000     99,000
    Average interest rate .......      4.74%        -         -         -          -          -                       
                                  ---------   -------   -------  --------    -------   -------- ----------- ----------


    Total interest earning assets   259,287    65,953    76,783   102,939     75,107    995,485   1,575,554  1,621,208
                                  ---------  --------  -------- ---------   --------  --------- ----------- ----------


Interest bearing deposit accounts:
  Passbook.......................   522,671         -         -         -          -         -      522,671    522,671
    Average interest rate .......      2.45%        -         -         -          -         -
  Lease security accounts........    21,031         -         -         -          -         -       21,031     21,031
    Average interest rate .......      2.42%        -         -         -          -         -
  CDs............................   367,226    37,388    10,832     9,134      8,980         -      433,560    435,545
    Average interest rate .......      4.76%     5.10%     5.12%     5.53%      5.38%        -
  Money market accounts..........    62,747         -         -         -          -         -       62,747     62,747
    Average interest rate .......      2.77%        -         -         -          -         -
  NOW accounts...................    37,005         -         -         -          -         -       37,005     37,005
    Average interest rate .......      2.10%        -         -         -          -         -
  FHLB-NY advances...............         -         -         -         -          -    50,000       50,000     50,249
    Average interest rate .......         -         -         -         -          -      5.62%                         
                                  ---------  -------- --------- ---------  ---------  --------  ----------- ----------



    Interest bearing liabilities. 1,010,680    37,388    10,832     9,134      8,980    50,000   1,127,014   1,129,248
                                 ----------  -------- --------- ---------  ---------  --------  ---------- -----------


Interest sensitivity gap
  per period.....................$(751,393) $  28,565 $  65,951 $  93,805  $  66,127 $ 945,485  $  448,540
                                 =========  ========= ========= =========  ========= =========  ==========


Cumulative interest
  sensitivity gap................$(751,393) $(722,828)$(656,877)$(563,072) $(496,945)$ 448,540  $        -
                                 =========  ========= ========= =========  ========= =========  ==========

Percentage of gap per period to
    total assets.................   (46.34%)     1.76%     4.07%     5.78%      4.08%    58.30%

Percentage of cumulative gap to
     total assets................   (46.34%)   (44.58%)  (40.51%)  (34.73%)   (30.65%)   27.65%

<FN>

1   See  Note 25 to the  Consolidated  Financial  Statements  for  the  methods,
    assumptions and limitations regarding the fair values presented.
2   Balance  includes  non-performing  loans, as amount is immaterial and is not
    reduced for the allowance for possible loan losses.
3   Securities available-for-sale are shown including the market value
    appreciation of $72.7 million, before tax.
</FN>
</TABLE>

<PAGE>

The Company's  interest rate sensitivity is also monitored by management through
the use of a model which  internally  generates  estimates of the net  portfolio
value ("NPV") over a range of interest rate change scenarios. NPV is the present
value of expected  cash flows from assets,  liabilities  and  off-balance  sheet
contracts.  The NPV ratio,  under any interest rate scenario,  is defined as the
NPV in that scenario divided by the market value of assets in the same scenario.
Based upon data  submitted on the Bank's  quarterly  Thrift  Financial  Reports,
which does not include the assets, liabilities or off-balance sheet contracts of
the  Company,  the OTS  produces  a  similar  analysis  using  its own model and
assumptions.  Due to differences in assumptions  applied for the Bank's internal
model and the OTS model, including estimated loan prepayment rates, reinvestment
rates and deposit  decay  rates,  the results of the OTS model may vary from the
Bank's  internal  model.  For  purposes of the NPV table,  the  Company  applied
prepayment  speeds  similar to those used in the Gap table.  Reinvestment  rates
applied  were  rates  offered  for  similar  products  at the  time  the NPV was
calculated.  The discount  rates  applied for CDs and  borrowings  were based on
rates that approximate the rates offered by the Bank for deposits and borrowings
of similar  remaining  maturities.  The following table sets forth the Company's
NPV as of December 31, 1998, as calculated by the Company.

<TABLE>


                             Net Portfolio Value               Portfolio Value of Assets
                             -------------------               -------------------------
Rate Changes in
Basis Points               Dollar    Dollar    Percent            NPV           Percent
(Rate Shock)               Amount    Change    Change            Ratio          Change1  
-----------------------------------------------------------------------------------------
                            (Dollars in Thousands)
<CAPTION>

   <S>                    <C>      <C>         <C>               <C>              <C>    
   +200                   $356,281 $ (60,153)  (14.44)%          21.98%           (2.59)%
   +100                    382,871   (33,563)   (8.06)           23.14            (1.43)
      0                    416,434      -         -              24.57              -
   -100                    463,902    47,468    11.40            26.50             1.93
   -200                    518,059   101,625    24.40            28.56             3.99

<FN>
1 Reflects the percentage  change in the portfolio value of the Company's assets
for each rate shock  compared to the  portfolio  value of the  Company's  assets
under the zero rate change scenario.

Note: As in the case with the Gap table,  certain  shortcomings  are inherent in
the  methodology  used in the above  interest rate risk  measurements.  Modeling
changes in NPV  require  certain  assumptions  which may or may not  reflect the
manner in which actual  yields and costs  respond to changes in market  interest
rates. In this regard,  the NPV model presented  assumes that the composition of
the  Company's  interest  sensitive  assets  and  liabilities  existing  at  the
beginning of a period  remains  constant over the period being measured and also
assumes that a particular change in interest rates is reflected uniformly across
the yield curve  regardless of the duration to maturity or repricing of specific
assets and  liabilities.  Accordingly,  although  the NPV  measurements  and net
interest income models provide an indication of the Company's interest rate risk
exposure at a particular  point in time, such  measurements  are not intended to
and do not  provide a  precise  forecast  of the  effect  of  changes  in market
interest  rates on the Company's  net interest  income,  as actual  results will
differ.
</FN>
</TABLE>

Analysis of Net Interest Income

Net interest income represents the difference between income on interest earning
assets and expense on interest bearing liabilities.  Net interest income depends
upon the  relative  amount of  interest  earning  assets  and  interest  bearing
liabilities and the interest rate earned or paid on them.

Average Balance Sheet

The  following   table  sets  forth   information   relating  to  the  Company's
Consolidated  Statements of Financial Condition and the Consolidated  Statements
of Operations for the years ended December 31, 1998,  1997 and 1996 and reflects
the average  yield on assets and  average  cost of  liabilities  for the periods
indicated.  Yields and costs are  derived by  dividing  income or expense by the
average  balance of the related  assets or  liabilities,  respectively,  for the
periods shown.  Average  balances are derived from average daily  balances.  The
yields  and  costs  include  the  amortization  of  fees  which  are  considered
adjustments  to yields.  Average loan balances and yields  include  non-accruing
loans.

<PAGE>
<TABLE>

                                                     Year Ended December 31,                              
                          --------------------------------------------------------------------------------
                                     1998                        1997                       1996           
                          --------------------------  --------------------------  -------------------------
                                    Interest Average           Interest  Average           Interest Average
                           Average   Income/ Yield/   Average   Income/  Yield/   Average   Income/  Yield/
                           Balance   Expense  Cost    Balance   Expense   Cost    Balance   Expense  Cost  
                           -------   -------  ----    -------   -------   ----    -------   -------  ----  
                                                       (Dollars in Thousands)
<CAPTION>
<S>                      <C>        <C>       <C>   <C>        <C>      <C>     <C>        <C>      <C>  
Assets
 Interest earning assets:
   Mortgage loans, net...$1,064,723 $ 87,149  8.19% $  878,697 $ 74,149  8.44%  $  792,579 $ 69,113  8.72%
   Debt and equity
    securities, net1.....   183,217   11,179  6.10     325,964   19,584  6.01      361,106   21,695  6.01
   CMOs, net.............   101,867    6,218  6.10     133,418    7,937  5.95      179,336   10,063  5.61
   Other loans, net......    25,888    1,838  7.10      28,119    2,070  7.36       28,393    2,138  7.53
   MBS, net..............     3,330      319  9.58       4,855      499 10.28        6,540      739 11.30
   Federal funds sold....    76,357    4,057  5.31      64,345    3,503  5.44       72,221    3,863  5.35
                         ---------- --------        ---------- --------         ---------- ---------
 Total interest earning
  assets................. 1,455,382  110,760  7.61   1,435,398  107,742  7.51    1,440,175  107,611  7.47
 Non-interest earning
  assets.................   105,922                     99,180                      93,539
                         ----------                 ----------                  ----------
    Total assets.........$1,561,304                 $1,534,578                  $1,533,714
                         ==========                 ==========                  ==========

 Liabilities and stockholders' equity
 Interest bearing
   liabilities:
  Passbook and other.....$  666,672 $ 16,318  2.45% $  699,715 $ 19,106  2.73%  $  743,526 $ 20,440  2.75%
  CDs....................   421,359   21,973  5.21     397,832   20,768  5.22      383,215   19,777  5.16
  FHLB-NY advances.......     3,288      185  5.63        -        -      -           -        -      -
                         ---------- --------        ---------- --------         ---------- --------
 Total interest
  bearing liabilities.... 1,091,319   38,476  3.53   1,097,547   39,874  3.63    1,126,741   40,217  3.57
  Non-interest bearing
    liabilities..........    95,791                     88,423                      74,928
                         ----------                 ----------                  ----------
    Total liabilities.... 1,187,110                  1,185,970                   1,201,669
    Total stockholders'
     equity..............   374,194                    348,608                     332,045
                         ----------                 ----------                  ----------
    Total liabilities
     and stockholders'
     equity..............$1,561,304                 $1,534,578                  $1,533,714
                         ==========                 ==========                  ==========
 Net interest income/
  interest rate spread2..           $ 72,284  4.08%            $ 67,868  3.88%             $ 67,394  3.90%
                                    ========  ====             ========  ====              ========  ====
 Net interest earning
  assets/net interest
  margin3................$  364,063           4.97% $  337,851           4.73%  $  313,434           4.68%
                         ==========           ====  ==========           ====   ==========           =====
 Ratio of interest
  earning assets to
  interest bearing
  liabilities............                     1.33x                      1.31x                       1.28x
                                              ====                       ====                        ====


<FN>

  1  Average balances for debt and equity  securities and total interest earning
     assets,  exclude the net market appreciation  recognized in connection with
     Statement 115 and is not included in deriving the yield.
  2  Interest rate spread represents the difference between the average yield on
     average  interest  earning assets and the average cost of average  interest
     bearing liabilities.
  3  Net  interest  margin  represents  net  interest  income  divided by average
     interest earning assets.
</FN>
</TABLE>

<PAGE>

Rate Volume Analysis

The following  table  presents the extent to which changes in interest rates and
changes  in  the  volume  of  interest   earning  assets  and  interest  bearing
liabilities  have affected the Company's  interest  income and interest  expense
during the periods  indicated.  Information  is provided in each  category  with
respect to (i)  changes  attributable  to changes in volume  (changes  in volume
multiplied by prior rate), (ii) changes attributable to changes in rate (changes
in rate  multiplied  by prior  volume),  and (iii) the net  change.  The changes
attributable  to the  combined  impact  of volume  and rate have been  allocated
proportionately to the changes due to volume and the changes due to rate.

<TABLE>

                                          Year Ended December 31, 1998                Year Ended December 31, 1997
                                                  Compared to                                 Compared to
                                          Year Ended December 31, 1997                Year Ended December 31, 1996
                                          ----------------------------                ----------------------------
                                          Volume       Rate        Net                Volume       Rate        Net
                                          ------       ----        ---                ------       ----        ---
                                                                       (In Thousands)
<CAPTION>

<S>                                      <C>         <C>         <C>                 <C>         <C>        <C>
Interest earning assets:
  Mortgage loans, net ..............     $15,259     $ (2,259)   $ 13,000            $ 7,313     $(2,277)   $ 5,036
  Debt and equity securities, net ..      (8,694)         289      (8,405)            (2,111)          -     (2,111)
  CMOs, net.........................      (1,915)         196      (1,719)            (2,705)        579     (2,126)
  MBS, net..........................        (148)         (32)       (180)              (177)        (63)      (240)
  Other loans, net .................        (161)         (71)       (232)               (21)        (47)       (68)
  Federal funds sold ...............         640          (86)        554               (424)         64       (360)
                                         -------     --------    --------            -------     -------    -------

        Total ......................       4,981       (1,963)      3,018              1,875      (1,744)       131
                                         -------     --------    --------            -------     -------    -------


Interest bearing liabilities:
  Passbook and other ...............        (942)      (1,846)     (2,788)            (1,186)       (148)    (1,334)
  CDs...............................       1,244          (39)      1,205                759         232        991
  FHLB-NY advances..................         185            -         185                  -           -          -
                                         -------     --------    --------            -------     -------   --------

        Total.......................         487       (1,885)     (1,398)              (427)         84       (343)
                                         -------     --------    --------            -------     -------    -------


Net change in net interest income...     $ 4,494     $    (78)   $  4,416            $ 2,302     $(1,828)   $   474
                                         =======     ========    ========            =======     =======    =======
</TABLE>

Comparison of Operating Results for the Years Ended December 31, 1998 and 1997
------------------------------------------------------------------------------

General

Net income for the year ended December 31, 1998 was $44.4 million,  or $4.41 per
diluted share,  compared with $37.1 million,  or $3.64 per diluted share for the
year ended December 31, 1997. In comparing the results of operations for 1998 to
1997, management notes that, as more fully discussed below, each of the 1998 and
1997  results  of  operations  were   significantly   improved  by  items  of  a
non-recurring nature.

Earnings for the year ended December 31, 1998,  were  significantly  improved by
the following non-recurring items: (1) the Company experienced a lower effective
tax rate,  principally related to the second quarter realignment of an operating
subsidiary  of the Bank,  resulting  in tax  savings  of $10.7  million;  (2) in
connection with the settlement of a $12.8 million  underlying  cooperative loan,
additional  pre-tax  income  of $4.3  million  was  realized;  (3)  the  Company
experienced a $2.1 million increase in prepayment penalties compared to 1997 and
(4) the Bank  sold  two  subsidiary  corporations,  realizing  pre-tax  gains of
$963,000.  Combined, these items contributed $14.8 million, or $1.47 per diluted
share, to net income for 1998.

Earnings for the year ended December 31, 1997,  were  significantly  improved by
the following non-recurring items: (1) pre-tax gains of $9.3 million on sales of
real estate were  realized and (2) pre-tax  gains of $7.0 million on the sale of
equity securities were realized. Combined, these items contributed $9.4 million,
or $.92 per diluted share, to net income for 1997.

Interest Income

Income on mortgage loans increased by $13.0 million,  or 17.5%, to $87.1 million
for 1998, from $74.1 million for 1997. The average  investment in mortgage loans
increased by $186.0  million,  or 21.2%, to $1.065 billion for 1998, from $878.7
million  for 1997.  The amount  invested  in  mortgage  loans has  continued  to
increase over the past nine years,  both in dollar amount and as a percentage of
assets.  During 1998, mortgages originated for the Bank's portfolio increased by
$56.0 million, or 27.3%, to $261.2 million, from $205.2 million during 1997. The
mortgage  portfolio  yield  decreased  to 8.19%  for 1998  from  8.44% for 1997,
reflecting the lower yields on new originations.

Income on debt and equity securities  decreased $8.4 million, or 42.9%, to $11.2
million for 1998,  compared to $19.6  million for 1997.  The  decrease in income
reflected a $142.7  million,  or 43.8%,  decrease in the average balance of this
portfolio,  while the yield for 1998  increased  to 6.10%  from  6.01% for 1997.
Activity in the investment  securities  portfolio during 1998 included purchases
of $379.0  million and maturities of $514.0  million.  At December 31, 1998, the
$110.0 million debt  securities  portfolio had net unrealized  gains of $30,000,
which  are not  expected  to  impact  future  income  as  these  securities  are
designated   as   held-to-maturity.   The  MES   portfolio  is   designated   as
available-for-sale  and was carried at its aggregate fair value of $83.6 million
at December 31, 1998, exceeding its cost of $10.9 million.

Income on CMOs  decreased by $1.7 million,  or 21.7%,  to $6.2 million for 1998,
from $7.9 million for 1997. Purchases of CMOs during 1998 totaled $57.1 million,
compared to $55.0 million during 1997.  Principal  payments on CMOs decreased to
$65.4  million  during  1998  from  $106.5  million  during  1997.  The  average
investment in CMOs decreased by $31.6 million,  or 23.6%,  to $101.9 million for
1998, from $133.4 million for 1997. During 1998, the CMO portfolio yielded 6.10%
compared  with 5.95% for 1997.  At  December  31,  1998,  the $95.8  million CMO
portfolio had net unrealized gains of $207,000 (comprised of unrealized gains of
$310,000 and  unrealized  losses of $103,000),  which are not expected to impact
future results of operations, as CMOs are designated as held-to-maturity.

Income on other loans decreased by $232,000, or 11.2%, to $1.8 million for 1998,
from $2.1 million for 1997.  This  decrease  reflects the decline in the average
other loan portfolio of $2.2 million,  accompanied by a decrease in the yield on
the portfolio to 7.10% for 1998, from 7.36% for 1997. During 1998, the Bank sold
the $5.1 million student loan portfolio to Sallie Mae,  realizing a pre-tax gain
of $64,000.  As part of the sale transaction,  Sallie Mae agreed to purchase all
future  student loans  originated by the Bank on which  repayment by the student
has not begun.  This allows the Bank to continue to receive interest and special
allowances (or rate subsidies) while the student is in school and eliminates the
high cost of servicing the loan once repayment begins.  Student loans, which had
a balance of $153,000 at December  31, 1998,  are carried at fair value,  in the
aggregate.

During 1998, MBS continued to amortize,  as no additional  investments have been
made in these securities. Income earned on MBS decreased to $319,000 during 1998
from  $499,000  during 1997.  There were no sales of MBS during 1998 or 1997. At
December 31, 1998,  there were unrealized  gains of $212,000 in the $2.7 million
MBS portfolio, which are not expected to impact future results of operations, as
MBS are designated as held-to-maturity.

Income from  federal  funds sold  increased  to $4.1  million for 1998 from $3.5
million for 1997. The average  balance  invested in federal funds sold increased
to $76.4 million during 1998, compared to $64.3 million during 1997. The average
yield on federal  funds sold  decreased  to 5.31%  during 1998 from 5.44% during
1997. Investments in federal funds sold, which are cash equivalents, provide the
liquidity  necessary  to fund:  mortgage  and other loan  originations;  deposit
withdrawals;  dividend  payments on and  repurchases  (if any) of the  Company's
common stock and to meet non-interest operating expense.

Interest Expense on Deposits

Interest  expense on deposits  decreased by 4.0%, to $38.3 million for 1998 from
$39.9 million for 1997. This decrease in interest expense resulted,  despite the
continued  shift from lower cost  passbook  accounts  into  higher  cost CDs. In
general,  declining  market interest rates during 1998 allowed the Bank to lower
rates on deposits. For 1998, the average cost of deposits was 3.52%, compared to
3.63% for 1997. In addition, while total deposits at year end 1998 had increased
slightly compared to year end 1997,  average interest bearing deposits decreased
by $9.5 million,  or .9%, to $1.088  billion for 1998,  from $1.098  billion for
1997.

Interest on FHLB-NY Advances

On December 8, 1998,  the Bank borrowed  $50.0 million from the FHLB-NY,  in the
form of a fixed  rate ten year  non-amortizing  advance.  As a result,  interest
expense on the advance for 1998 was  $185,000,  reflecting  an interest  rate of
5.62%. The Bank did not have any borrowed funds during 1997.

Net Interest Income

The Bank's  profitability  is  dependent to a large extent upon its net interest
income,  which is the difference  between income generated from interest earning
assets and expense  incurred for interest  bearing  liabilities.  The Bank, like
most savings  institutions,  will continue to be affected by general  changes in
levels of interest  rates,  government  regulations  and other economic  factors
beyond its control.

Net interest income  increased by $4.4 million,  to $72.3 million for 1998, from
$67.9 million for 1997.  For 1998,  the net interest  margin  increased to 4.97%
from 4.73% for 1997.  The interest rate spread  increased to 4.08% for 1998 from
3.88% for 1997. The yield on interest earning assets increased to 7.61% for 1998
from 7.51% for 1997.  These  increases are primarily the result of the increased
emphasis on mortgage loans during 1998.

The average  balance of interest  earning  assets  increased by $20.0 million or
1.4% for 1998, compared to 1997. Average interest earning assets as a percentage
of interest bearing liabilities increased to 133% for 1998, compared to 131% for
1997.  This increase  reflects the continued  decrease in  non-interest  earning
assets, such as real estate held-for-sale and ORE.

Provision for Possible Loan Losses

The provision for possible loan losses for 1998 decreased to $51,000 compared to
$648,000 for 1997.  Based on  management's  internal  loan review  analysis,  no
additions to the general valuation mortgage allowance were considered  necessary
during  1998.  During  1997,  $600,000 of  provisions  were made to increase the
general  valuation  mortgage  allowance.  Provisions made against the other loan
portfolio,  which is comprised  of consumer  type loans,  increased  slightly to
$51,000  for  1998,  compared  to  $48,000  for  1997.  Future  additions  to or
recoveries of the loan loss allowances will be based on management's  continuing
evaluations  of the loan  portfolios  and  assessments  of economic  conditions,
changes in portfolio value and loan performance.

Non-Interest Income

Non-interest  income for 1998  decreased  by $9.0  million,  or 41.2%,  to $12.9
million,  compared to $21.9  million in 1997.  The  decrease in income from real
estate operations of $9.7 million reflects the pre-tax gain realized during 1997
of $9.2  million  on the  sale of a  commercial  office  tower  located  at 1995
Broadway, Manhattan, New York. The Bank retained ownership of the first floor of
the building, which houses a branch office.

The MES portfolio is designated as  available-for-sale  and carried at estimated
fair  value,  with  changes in the fair  value of the  portfolio  recorded  to a
separate  component of stockholders'  equity.  There were no sales of MES during
1998,  however,  during  1997,  the Bank sold MES with a cost basis of $823,000,
realizing gross gains of $7.0 million.  Significant  sales of MES have been rare
in recent years, as management generally considers these securities as long-term
investments.  Management reviews many factors in determining  whether to sell or
hold MES. Among other things,  these factors  include:  the  anticipated  future
performance  of  individual  securities,  the overall  stock market and economy;
actual and  anticipated  direction  of interest  rates;  the  percentage  of MES
comprising assets; the availability of alternative  investments;  liquidity, tax
and other regulatory considerations.  Future gains/losses on the sale of MES may
be recognized; however, management can provide no assurance as to the timing or,
whether  gains or losses will  actually  result  from future  sales from the MES
portfolio.

Non-interest  income for 1998  includes a $4.3 million  recovery of prior period
expenses,  unaccrued interest and late charges on a troubled loan. This recovery
resulted from the final  settlement on a $12.8  million  underlying  cooperative
mortgage loan. (See Asset Quality and Allowances, herein.)

Loan fees and service  charges  increased  by $1.9  million to $5.9  million for
1998,  from $4.0 million for 1997. The decline in market  interest rates sparked
refinancing  and  satisfaction  activity,  which  resulted  in  an  increase  in
prepayment penalties, primarily on multi-family mortgage loans.

The net  increase of $1.5  million in  miscellaneous  income to $2.0 million for
1998, from $527,000 for 1997,  reflects gains of: $963,000 on the sale of two of
the Bank's  subsidiary  corporations;  $394,000  of real  estate tax refunds for
prior years on the  Company's  headquarters;  and a $173,000  medical  insurance
premium refund for 1997.

Non-Interest Expense

Non-interest expense remained relatively stable, increasing by $24,000, to $27.5
million for 1998,  compared to $27.4 million for 1997.  Included in non-interest
expense are the costs of  compensation  and  benefits,  occupancy  and equipment
expense, federal deposit insurance premiums,  advertising, ORE and other general
and  administrative  expense.  During 1997,  the Company  spent $1.0 million for
advertising.  After analyzing the results from various forms of advertising, the
Company  reduced certain types of advertising  during 1998,  which resulted in a
$124,000,  or 12.3% decrease in advertising  costs compared to 1997. The Company
is continuing to monitor the effectiveness to its advertising  campaigns and may
consider future spending adjustments.

Provision for Income Taxes

Income taxes  decreased by $11.3  million,  or 46.0%,  to $13.3 million for 1998
from $24.6 million for 1997.  This  decrease is  reflective  of the  significant
decrease in the  Company's  effective tax rate from 39.9% for 1997, to 23.0% for
1998. The effective tax rate for 1998, reflects tax benefits recognized from the
realignment of an operating  subsidiary of the Bank during the second quarter of
1998. (See Note 14 to the Consolidated Financial Statements.)

<PAGE>

Comparison of Operating Results for the Years Ended December 31, 1997 and 1996
------------------------------------------------------------------------------

General

Net income for the year ended December 31, 1997 was $37.1 million,  or $3.64 per
diluted  share,  compared with $26.7 million,  or $2.56 per diluted  share,  for
1996. In comparing the results of operations  for 1997 to 1996, it must be noted
that both the 1997 and 1996 results of operations were significantly improved by
items of a non-recurring  nature.  During 1997,  sales of real estate  generated
pre-tax gains of $9.3 million and sales of equity  securities  generated pre-tax
gains of $7.0 million.  Combined,  these items contributed $9.4 million, or $.92
per diluted share,  to net income for 1997. The 1996 results  included a pre-tax
recovery  of a $2.0  million  credit  valuation  allowance  against  the  Bank's
investments with Nationar Trust Company,  which increased net income for 1996 by
$1.2 million, or $.11 per diluted share.

Interest Income

Income on mortgage  loans  increased by $5.0 million,  or 7.3%, to $74.1 million
for 1997, from $69.1 million for 1996. The average  investment in mortgage loans
increased by $86.1 million,  or 10.9%,  to $878.7 million for 1997,  from $792.6
million for 1996.  Mortgages  originated  for the Bank's  portfolio  during 1997
increased by $69.0 million,  or 50.6%,  to $205.2  million,  from $136.2 million
during 1996. The mortgage portfolio yield decreased to 8.44% for 1997 from 8.72%
for 1996.

Income on debt and equity securities  decreased $2.1 million,  or 9.7%, to $19.6
million for 1997,  compared to $21.7  million for 1996.  The  decrease in income
reflected a $35.1 million,  or 9.7%,  decrease in the average investment in this
portfolio, while the yield remained unchanged at 6.01% for 1997 and 1996. During
1997,  activity in the investment  securities  portfolio  included  purchases of
$499.9  million and  maturities  of $555.0  million.  At December 31, 1997,  the
$244.9 million debt securities  portfolio had unrealized gains of $464,000.  The
MES  portfolio  is  designated  as  available-for-sale  and was  carried  at its
aggregate  fair value of $62.2 million at December 31, 1997,  exceeding its cost
of $10.9  million.  During  1997,  the Bank sold MES having a cost of  $823,000,
realizing  gains of $7.0  million.  During  1996,  the Bank sold or redeemed MES
totaling $30,000, and realized gross gains of $4,000 and gross losses of $2,000.

Income on CMOs  decreased  by $2.1  million or 21.1%,  to $7.9 million for 1997,
from $10.1 million for 1996.  Purchases of CMOs for 1997, totaled $55.0 million,
compared with $124.3 million for 1996. The average  investment in CMOs decreased
by $45.9 million,  or 25.6%, to $133.4 million for 1997, from $179.3 million for
1996.  Principal  payments on CMOs decreased to $106.5 million during 1997, from
$114.1  million  during  1996.  During 1997,  the CMO  portfolio  yielded  5.95%
compared  with 5.61% for 1996.  At December  31,  1997,  the $104.0  million CMO
portfolio had unrealized gains of $295,000 and unrealized losses of $65,000,  or
net unrealized gains of $230,000.

Income on other loans remained  relatively  stable during 1997 compared to 1996,
decreasing  by $68,000,  or 3.2% to $2.1  million  for 1997.  During  1997,  MBS
continued to amortize,  as the Bank discontinued  investing in these securities.
Income  earned on MBS  decreased to $499,000  during 1997 from  $739,000  during
1996, reflecting the amortizing balance.  There were no sales of MBS during 1997
or 1996. At December 31, 1997,  there were  unrealized  gains of $335,000 in the
$4.0 million MBS portfolio.

Income from  federal  funds sold  decreased  to $3.5  million for 1997 from $3.9
million for 1996. The average  balance  invested in federal funds sold decreased
to $64.3 million during 1997, compared to $72.2 million during 1996. The average
yield on federal  funds sold  increased  to 5.44%  during 1997 from 5.35% during
1996.

Interest Expense

Interest expense on deposits  decreased .9% to $39.9 million for 1997 from $40.2
million for 1996. This decrease reflected a decrease in average interest bearing
deposits of $29.2  million,  or 2.6%,  to $1.098  billion for 1997,  from $1.127
billion for 1996.  Market interest rates generally  declined during 1997 and the
Bank's  deposits  continued to decrease  and to shift  primarily  from  passbook
accounts into CDs. (See Asset Composition and Strategy, herein.)

Net Interest Income

Net interest income increased by $474,000, to $67.9 million for 1997, from $67.4
million for 1996.  For 1997,  the net  interest  margin  increased to 4.73% from
4.68% for 1996. The interest rate spread  decreased to 3.88% for 1997 from 3.90%
for 1996. The yield on interest earning assets  increased  slightly to 7.51% for
1997 from  7.47% for 1996.  The  average  balance  of  interest  earning  assets
decreased  by $4.8  million or .3% for 1997,  compared to 1996.  Reflecting  the
shift in deposits from lower yielding passbook deposit accounts to CDs, the cost
of interest bearing  deposits  increased to 3.63% for 1997, from 3.57% for 1996.
During 1997, the average balance of interest bearing deposits decreased by $29.2
million, as the trend of deposit outflows continued.  The slight increase in the
net interest margin during 1997,  reflected an increase in the ratio of interest
earning assets funded by interest bearing liabilities, accompanied by a decrease
in the interest rate spread.  Average interest earning assets as a percentage of
interest bearing  liabilities  increased to 131% for 1997,  compared to 128% for
1996.

Provision for Possible Loan Losses

The provision for possible loan losses for 1997  increased  slightly to $648,000
compared to $640,000  for 1996.  During 1997 and 1996  management  made  general
mortgage loan  provisions of $600,000,  while  provisions made against the other
loan portfolio increased to $48,000 for 1997, compared to $40,000 for 1996.

Provision for Possible Other Credit Losses

During 1997 and 1996, no provisions  were made for any  investments,  other than
for possible loan losses.  However,  during 1996,  the Bank recovered the entire
$2.0 million allowance  (established during 1995) in connection with investments
with, and in Nationar,  a check clearing and trust company.  Nationar was seized
by the  Superintendent  of Banks for the State of New York during  1995.  At the
time of Nationar's seizure, the Bank had invested with Nationar $10.0 million of
federal  funds sold,  cash in demand  accounts of $200,000 and owned  $38,000 of
Nationar's capital stock. In accordance with the Company's  internal  procedures
for monitoring  asset quality,  in 1995 the $38,000 stock investment was written
off and a provision for possible other credit losses of $2.0 million,  or 20% of
the remaining  investment,  was made. The Bank received  payments totaling $10.2
million from the  Nationar  estate  during  1996,  resulting in recapture of the
entire allowance.

Non-Interest Income

Non-interest  income for 1997  increased by $16.8 million,  or 331.6%,  to $21.9
million  compared  to $5.1  million in 1996.  The  increase  in income from real
estate operations  comprised $8.7 million or 51.5% of the total increase,  while
the  increase  in gains  realized  on the sale of  investments  of $7.0  million
comprised  41.5% of the total  increase.  The  increase of $1.1 million for loan
fees and service  charges  primarily  reflected  an  increase  in mortgage  loan
prepayment penalties.

The MES portfolio is designated as  available-for-sale  and carried at estimated
fair  value,  with  changes in the fair  value of the  portfolio  recorded  to a
separate component of stockholders'  equity. During 1997, the Bank sold MES with
a cost of $823,000, realizing gross gains of $7.0 million.

The increase in income from real estate  operations  of $8.7 million  includes a
pre-tax gain of $9.2 million  realized on the sale of a commercial  office tower
located at 1995 Broadway,  Manhattan,  New York. The Bank retained  ownership of
the first floor of the building which houses a branch office.  During the second
quarter   of   1997,    management    reclassified    all   real   estate   from
held-for-investment  to  held-for-sale.  The improving real estate market during
1997 in the  New  York  metropolitan  area  impacted  management's  decision  to
consider offers received on properties previously held-for-investment.

Non-Interest Expense

Non-interest  expense  decreased  $164,000,  or .6%, to $27.4  million for 1997,
compared to $27.6  million for 1996.  Included in  non-interest  expense are the
costs of compensation  and benefits,  occupancy and equipment  expense,  federal
deposit   insurance   premiums,   advertising,   ORE  and  other   general   and
administrative expense.

Compensation  and benefits  decreased  by $491,000 or 3.0% to $15.9  million for
1997,  compared to $16.4 million for 1996. The $491,000 decrease in compensation
and benefits expense resulted  primarily from the Bank realizing income from the
pension  plan of $1.5  million for 1997,  compared to $711,000  for 1996,  or an
increase of $754,000.  At December 31, 1997,  the Bank's  pension plan was fully
funded,  which resulted in the Bank recognizing  pension plan income. The amount
of future income,  if any, will be impacted by the rate of return on the pension
plan assets and various other factors.  During 1996, a non-recurring  expense of
$330,000 was  recognized in  connection  with the 1996 Stock Option Plan for the
difference between the option price set on the date of grant and the stock price
on the date of stockholder  approval.  The cost of dental and medical  insurance
premiums  increased  by $419,000 to $1.5  million for 1997 from $1.1 million for
1996.  During 1996, the Bank received  $564,000 in premium refunds due to excess
insurance fund reserves for the dental and medical  plans.  Salaries and bonuses
increased  $206,000,  or 1.6% to $13.0 million for 1997,  from $12.8 million for
1996.  At  December  31,  1997,  the Bank had 311  full-time  and 118  part-time
workers,  compared to 315 full-time  and 117  part-time  workers at December 31,
1996.

Federal  deposit  insurance  premiums,  which  rates  are  established  by  law,
increased by $147,000 to $149,000 for 1997,  compared with $2,000 for 1996, when
the Bank  Insurance  Fund ("BIF")  became fully funded and excess  premiums were
refunded to the Bank.  During 1997,  BIF members were assessed a 1.3 basis point
charge per $100 of insurable  deposits to meet the  Financing  Corporation  bond
obligations, which assessments will continue through 1999. Provided that the BIF
remains fully funded, no additional charges will be assessed.

ORE  operations  generated  income of $59,000 for 1997  compared  with income of
$772,000  for 1996.  Included in the 1997 results  from ORE  operations  are net
gains of  $144,000 on the sale of ORE,  while  during 1996 net gains of $688,000
were  recognized  on the sale of ORE.  Gains on the sale of ORE  properties  are
recognized  under the cost recovery  method.  During 1997 and 1996,  $29,000 and
$148,000  of gains on sales of  cooperative  shares  held in ORE were  deferred,
respectively.  At December 31, 1997 and 1996,  ORE, net of deferred  gains,  was
$473,000 and $647,000, respectively.

Occupancy and equipment  expense  decreased  $505,000,  to $5.1 million for 1997
from $5.6 million for 1996.  During 1996, the Company  completed the renovations
to the  Company's  headquarters.  The  project,  which  began  during  1995  and
continued  through 1996, was the first major capital  improvement  project since
completion of the building in 1974.

Other general and administrative expense increased by $307,000, or 6.1%, to $5.3
million  for 1997,  from $5.0  million for 1996.  This  increase  was  primarily
related to  consulting  fees  incurred in  connection  with the formation of the
Bank's real estate  investment trust  subsidiary,  Tier Inc., during 1997, while
various other administrative expenses decreased.

Provision for Income Taxes

Income taxes increased by $5.1 million, or 25.9%, to $24.6 million for 1997 from
$19.6  million for 1996.  This  increase  was  reflective  of the $15.4  million
increase in pre-tax  income,  partially  offset by the decrease in the Company's
effective tax rate from 42.3% for 1996,  to 39.9% for 1997.  The decrease in the
effective  tax rate for 1997,  compared to 1996  reflected  certain tax benefits
attributable  to an operating  subsidiary  of the Bank,  which was formed during
1997. (See Note 14 to the Consolidated Financial Statements.)

Year 2000 Issues

The following discussion and tables contain certain forward-looking  information
with respect to management's expectations for implementation and compliance with
year 2000 ("Y2K") issues and requirements. Management has analyzed the Company's
internal and outsourced  computer hardware,  operating systems and applications,
both information technology systems and non-information technology systems, such
as telephone, air conditioning,  electrical,  etc. The actual readiness of these
systems may differ  materially  from what is presented  below.  Factors that may
cause  differences  between  anticipated  Y2K readiness and actual Y2K readiness
include failure of outside vendors to provide upgrades on a timely basis, and/or
failure of the Bank's hardware,  operating  systems and applications to meet Y2K
readiness  requirements as planned.  In addition,  the actions of depositors and
borrowers in anticipation of Y2K complications may adversely impact the Company,
regardless of the Company's actual state of Y2K readiness.

The Company  completed its assessment of all of its critical computer systems by
September 30, 1997,  which  included  both  information  technology  systems and
non-information  technology  systems.  In January 1999, for reasons unrelated to
Y2K, the Bank  substantially  replaced its mainframe system with a Windows NT(R)
Client/Server  system.  This new  system  had Y2K  capabilities  built  into its
design. All of the Bank's system upgrades and/or  programming  changes have been
made within the normal course of business, therefore, no material costs specific
to  attaining  Y2K  capability  have  been  incurred.  In  accordance  with  Y2K
disclosure  requirements,  the  Company  has  analyzed  the cost  impact  of Y2K
compliance issues and does not expect related future costs to be material to the
Company's future results of operations or financial condition.

A member of the  Bank's  senior  management  has  inventoried  all of the Bank's
hardware and software  programs and has contacted all outside vendors  inquiring
as to the status of Y2K  compliance.  Management  is not aware of any vendor who
does not expect to be Y2K compliant  and will  continue to require  updates from
all  vendors  who are not yet Y2K  compliant.  The Bank  has  many  non-critical
applications,  which  will  be  tested  for  Y2K  compliance  during  1999.  The
applications  will be loaded and the dates used for the tests will  include  the
majority of the dates outlined by the Federal Financial Institutions Examination
Council.

The Company believes the required upgrades and testing will ensure completion of
the Y2K  project  by  September  1999.  However,  given  the broad  spectrum  of
potential  Y2K  problems,  including  the  ultimate  state of  readiness  of the
Company's local utilities and other third parties,  including  governmental  and
quasi-governmental  agencies  on which  the  Company  relies,  a vast  amount of
uncertainty  remains  with respect to the actual  affect of Y2K.  Like all other
financial institutions, a failure to correct a material Y2K problem could result
in an interruption  in, or a failure of, certain normal  business  activities or
operations of the Company.  Such failures could  materially and adversely affect
the Company's results of operations and financial  condition.  In addition,  the
long term effect of poorly  managing Y2K problems that may arise,  or failure of
critical  computer  systems  to be Y2K  compliant  could  result in a decline in
business,  depositors and  confidence in the Company.  The Company's Y2K project
was  designed and is expected to  significantly  reduce the  Company's  level of
uncertainty  about  internal and external Y2K  implications.  Should the Company
face Y2K liability,  the Company's  Directors and Officers  Errors and Omissions
Insurance Policy may provide some relief.

<PAGE>

<TABLE>
The following  table  presents the Company's Y2K  renovation  and testing status
indicating  the Company's  state of readiness  regarding  its critical  computer
systems, as they pertain to the Company as of February 28, 1999.
<CAPTION>

                              Hardware           Operating Systems       Application   
                              --------           -----------------       -----------   
System                  Renovated   Tested      Renovated   Tested     Renovated   Tested
------                  ---------   ------      ---------   ------     ---------   ------

<S>                       <C>        <C>          <C>         <C>        <C>         <C>
Relational Data Base(1)   Yes        Yes          Yes         Yes        Yes         Yes
Local Area Network(2)     Yes        Yes          Yes         Yes        Yes         No
Accounting Systems        Yes        Yes          Yes         Yes        Yes         Yes
Federal Reserve
  Wire System(3)          Yes        No           Yes         No         Yes         No
Check Processing          Yes        No           Yes         No         Yes         No
ATMs(4)                   No         No           No          No         No          No
NYCE(4)                   No         No           No          No         No          No

<FN>
(1)    During January 1999, the Company replaced its mainframe with a relational
       data base system,  which now  supports  all of the critical  applications
       previously   supported  by  the  mainframe   system.   Only  non-critical
       applications remain supported by the mainframe system.

(2)    Application is expected to be internally tested by March 31, 1999.

(3)    Expected to be internally tested during the second quarter of 1999.

(4)    Management expects these third party systems to be upgraded and tested
       during the second quarter of 1999.
</FN>
</TABLE>

<TABLE>
The following table presents the Company's Y2K  contingency  plan for the Bank's
critical  systems  should  they  fail  to  meet  Y2K  compliance  deadlines,  or
ultimately fail to be Y2K compliant in the future.
<CAPTION>

<S>                         <C>
System                      Contingency Plan
------                      ----------------
Relational Data Base        No  contingency  plan is considered  necessary
Local Area Network          No contingency plan is considered necessary
Accounting system           Use manual system
Federal Reserve
  Wire System               Use off-line system
Check Processing            Manual processing
ATMs                        Customers to use branches
NYCE                        Customers to use the Bank's ATM's or branches

</TABLE>

Impact of New Accounting Standards To Be Adopted

In June of 1998,  the  Financial  Accounting  Standards  Board  ("FASB")  issued
Statement of Financial  Accounting Standards No. 133, "Accounting for Derivative
Instruments and Hedging Activities" ("Statement 133"). Statement 133 establishes
accounting and reporting standards for derivative instruments, including certain
derivative instruments embedded in other contracts, (collectively referred to as
derivatives) and for hedging  activities.  Statement 133 requires that an entity
recognize all  derivatives  as either assets or  liabilities in the statement of
financial  position and measure those  instruments at fair value. The accounting
for changes in the fair value of a derivative depends on the intended use of the
derivative  and the  resulting  designation.  If certain  conditions  are met, a
derivative  may be  specifically  designated  as (a) a hedge of the  exposure to
changes in the fair value of a recognized  asset or liability or an unrecognized
firm  commitment,  (b) a hedge  of the  exposure  to  variable  cash  flows of a
forecasted transaction, or (c) a hedge of the foreign currency exposure of a net
investment  in  a  foreign  operation,  an  unrecognized  firm  commitment,   an
available-for-sale  security,  or  a   foreign-currency-denominated   forecasted
transaction.

Statement  133 is effective  for all fiscal  quarters of fiscal years  beginning
after June 15, 1999.  Initial  application of this Statement should be as of the
beginning of an entity's fiscal quarter. When implemented, hedging relationships
must be designated  anew and documented  pursuant to the provisions of Statement
133.  Earlier  application  of  all  of  the  provisions  of  Statement  133  is
encouraged,  but it is permitted  only as of the beginning of any fiscal quarter
that begins after the issuance of this  Statement.  Statement  133 should not be
applied retroactively to financial statements of prior periods. The Company does
not expect  the  adoption  of  Statement  133 to have a  material  affect on its
financial condition or results of operations.

Private Securities Litigation Reform Act Safe Harbor Statement

In addition to historical  information,  this Annual Report may include  certain
forward looking  statements  based on  management's  current  expectations.  The
Company's   actual  results  could  differ   materially  from  those  management
expectations.  Factors  that could  cause  future  results to vary from  current
management  expectations  include,  but are not limited to, the actual impact of
Y2K, general economic conditions,  legislative and regulatory changes,  monetary
and fiscal policies of the federal  government,  changes in tax policies,  rates
and regulations of federal, state and local tax authorities, changes in interest
rates,  deposit flows, the cost of funds,  demand for loan products,  demand for
financial  services,  competition,  changes in the quality or composition of the
Bank's  loan  and  investment  portfolios,  changes  in  accounting  principles,
policies  or  guidelines,  and other  economic,  competitive,  governmental  and
technological  factors affecting the Company's  operations,  markets,  products,
services and prices.  Further  description of the risks and uncertainties to the
business are included in detail in Item 1, "Business" of the Company's 1998 Form
10-K.


<PAGE>

<TABLE>
JSB FINANCIAL, INC. AND SUBSIDIARY
Consolidated Statements of Financial Condition
December 31, 1998 and 1997  (In Thousands, Except Share and Per Share Amounts)
<CAPTION>


ASSETS                                                                   1998          1997
------                                                                   ----          ----
<S>                                                                   <C>           <C>       
Cash and due from banks                                               $   13,849    $   12,924
Federal funds sold                                                        99,000        62,000
                                                                      ----------     ---------
  Cash and cash equivalents                                              112,849        74,924

Securities available-for-sale, at estimated fair value                    83,592        62,243
Securities held-to-maturity, net (estimated fair value
 of $208,906 and $353,996, respectively)                                 208,457       352,967
Other investments                                                          8,922         7,645
Mortgage loans, net                                                    1,146,915       970,737
Other loans, net                                                          22,744        29,008
Premises and equipment, net                                               18,340        17,029
Interest due and accrued                                                   8,773         9,278
Real estate held-for-sale and Other real estate                              785         3,450
Other assets                                                              10,272         7,750
                                                                      ----------    ----------
           Total Assets                                               $1,621,649    $1,535,031
                                                                      ==========    ==========

LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits                                                              $1,124,166    $1,121,203
Federal Home Loan Bank of New York ("FHLB-NY") advances                   50,000             -
Advance payments for real estate taxes and insurance                      13,993        10,322
Official bank checks outstanding                                          11,604        10,405
Deferred tax liability, net                                               25,476        15,628
Accrued expenses and other liabilities                                    13,934         9,959
                                                                      ----------    ----------
           Total Liabilities                                           1,239,173     1,167,517
                                                                      ----------    ----------

Commitments and Contingencies

STOCKHOLDERS' EQUITY
Preferred stock ($.01 par value, 15,000,000 shares
  authorized; none issued)                                                     -             -
Common stock ($.01 par value, 65,000,000 shares
  authorized; 16,000,000 issued; 9,505,923 and
  9,919,927 outstanding, respectively)                                       160           160
Additional paid-in capital                                               168,663       165,112
Retained income, substantially restricted                                337,474       311,436
Accumulated other comprehensive income:
Net unrealized gain on securities available-for-sale,
  net of tax                                                              40,871        28,469
Common stock held by Benefit Restoration Plan Trust,
  at cost (193,723 and 188,323 shares, respectively)                      (4,477)       (4,199)
Common stock held in treasury, at cost (6,494,077
  and 6,080,073 shares, respectively)                                   (160,215)     (133,464)
                                                                      ----------    ----------
           Total Stockholders' Equity                                    382,476       367,514
                                                                      ----------    ----------

           Total Liabilities and Stockholders' Equity                 $1,621,649    $1,535,031
                                                                      ==========    ==========



<FN>
See accompanying Notes to Consolidated Financial Statements.
</FN>
</TABLE>



<PAGE>


<TABLE>
JSB FINANCIAL, INC. AND SUBSIDIARY
Consolidated Statements of Operations
Years ended December 31, 1998, 1997 and 1996
(In Thousands, Except Per Share Amounts)
<CAPTION>

                                                              1998         1997        1996
                                                              ----         ----        ----
<S>                                                        <C>          <C>         <C>  
Interest Income:
  Mortgage loans, net                                      $  87,149    $  74,149   $  69,113
  Debt & equity securities, net                               11,179       19,584      21,695
  Collateralized mortgage obligations("CMOs"), net             6,218        7,937      10,063
  Other loans, net                                             1,838        2,070       2,138
  Mortgage-backed securities("MBS"), net                         319          499         739
  Federal funds sold                                           4,057        3,503       3,863
                                                           ---------    ---------   ---------
    Total Interest Income                                    110,760      107,742     107,611
                                                           ---------    ---------   ---------

Interest Expense:
  Deposits                                                    38,291       39,874      40,217
  FHLB advances                                                  185            -           -
                                                           ---------     --------   ---------
    Total Interest Expense                                    38,476       39,874      40,217
                                                           ---------     --------   ---------

    Net Interest Income                                       72,284       67,868      67,394
  Provision for Possible Loan Losses                              51          648         640
  Recovery of Provision for Possible Other Credit Losses           -            -      (2,040)
                                                           ---------    ---------   ---------
    Net Interest Income After Provision
     for Possible Credit Losses                               72,233       67,220      68,794
                                                           ---------    ---------   ---------

Non-Interest Income:
  Real estate operations, net                                    714       10,442       1,767
  Loan fees and service charges                                5,859        3,969       2,833
  Recovery of prior period expenses and unaccrued
   interest on troubled loans                                  4,346            -           -
  Gain on sale of investments, net                                 -        6,991           2
  Miscellaneous income, net                                    1,982          527         479 
                                                           ---------    ---------   ---------
    Total Non-Interest Income                                 12,901       21,929       5,081
                                                           ---------    ---------   ---------

Non-Interest Expense:
  Compensation and benefits                                   15,843       15,921      16,412
  Occupancy and equipment expenses (net of rental
   income of $1,283, $1,287 and $1,126, respectively)          5,181        5,094       5,599
  Federal deposit insurance premiums                             142          149           2
  Advertising                                                    881        1,005       1,340
  Other real estate expense (income), net                         33          (59)       (772)
  Other general and administrative                             5,378        5,324       5,017
                                                           ---------    ---------   ---------
    Total Non-Interest Expense                                27,458       27,434      27,598
                                                           ---------    ---------   ---------

   Income Before Provision for Income Taxes                   57,676       61,715      46,277
   Provision for Income Taxes                                 13,288       24,625      19,552
                                                           ---------    ---------   ---------

    Net Income                                             $  44,388    $  37,090   $  26,725
                                                           =========    =========   =========


 Basic earnings per common share                          $    4.53    $    3.76   $    2.66
 Diluted earnings per common share                        $    4.41    $    3.64   $    2.56


  Cash dividends per common share                         $    1.60    $    1.40   $    1.20



<FN>
See accompanying Notes to Consolidated Financial Statements.
</FN>
</TABLE>



<PAGE>


<TABLE>
JSB FINANCIAL, INC. AND SUBSIDIARY
Consolidated Statements of Changes in Stockholders' Equity
Years ended December 31, 1998, 1997 and 1996 (In Thousands, Except Per Share Amounts)
<CAPTION>


                                                                   1998       1997      1996 
                                                                   ----       ----      -----
<S>                                                              <C>        <C>       <C>  
Common Stock (Par value: $.01)
Balance at beginning and end of year                             $    160   $    160  $    160
                                                                 --------   --------  --------

Additional Paid-in Capital
Balance at beginning of year                                      165,112    163,500   162,566
  Net allocation of common stock
   for Benefit Restoration Plan                                       278        924         5
  Tax benefit for stock plans                                       3,222        688       599
  Issuance of common stock for Directors' compensation                 51          -         -
  Compensation expense for 1996 stock option plan                       -          -       330
                                                                 --------   --------  --------
Balance at end of year                                            168,663    165,112   163,500
                                                                 --------   --------  --------

Retained Income, Substantially Restricted
Balance at beginning of year                                      311,436    289,588   276,317
  Net income                                                       44,388     37,090    26,725
  Loss on reissuance of treasury stock                             (2,634)    (1,437)   (1,364)
  Cash dividends on common stock ($1.60, $1.40, $1.20,
    respectively)                                                 (15,716)   (13,805)  (12,090)
                                                                 --------   --------  --------
Balance at end of year                                            337,474    311,436   289,588
                                                                 --------   --------  --------

Accumulated Other Comprehensive Income:
Net Unrealized Gain on Securities Available-For-Sale, Net of Tax
Balance at beginning of year                                       28,469     21,795    15,750
  Net unrealized holding gains on securities arising
   during period (net of realized gains included in income of
   $0, $6,991 and $2, respectively, and tax effect of
   $8,947, $5,371 and $4,863, respectively)                        12,402      6,674     6,045
                                                                 --------   --------  --------
Balance at end of year                                             40,871     28,469    21,795
                                                                 --------   --------  --------

Common Stock Held by Benefit Restoration Plan Trust, at Cost
Balance at beginning of year                                       (4,199)    (3,275)   (3,270)
  Common stock acquired                                              (285)      (934)      (11)
  Common stock distributed                                             _7         10         6
                                                                 --------   --------  --------
Balance at end of year                                             (4,477)    (4,199)   (3,275)
                                                                 --------   --------  --------

Common Stock Held in Treasury, at Cost
Balance at beginning of year                                     (133,464)  (136,469) (111,416)
  Common stock reacquired                                         (31,466)         -   (27,650)
  Common stock reissued for options exercised                       4,675      3,005     2,597
  Common stock reissued for Directors' compensation                    40          -         -
                                                                 --------   --------  --------
Balance at end of year                                           (160,215)  (133,464) (136,469)
                                                                 --------   --------  --------
Total Stockholders' Equity                                       $382,476   $367,514  $335,299
                                                                 ========   ========  ========

<FN>
See accompanying Notes to Consolidated Financial Statements.
</FN>
</TABLE>



<PAGE>


<TABLE>
JSB FINANCIAL, INC. AND SUBSIDIARY
Consolidated Statements of Cash Flows
Years ended December 31, 1998, 1997 and 1996 (In Thousands)
<CAPTION>

CASH FLOWS FROM OPERATING ACTIVITIES:                        1998         1997          1996
                                                             ----         ----          ----
<S>                                                      <C>          <C>           <C>      
Net income                                               $  44,388    $  37,090     $  26,725
Adjustments to reconcile net income to net cash
  provided by operating activities:
Provision for possible loan losses                              51          648           640
(Recovery of) provision for possible other credit losses         -            -        (2,040)
Net gain on sale/redemption of equity securities                 -       (6,991)           (2)
Decrease in deferred loan fees and discounts, net             (630)        (418)         (593)
Accretion of discount in excess of
 amortization of premium on MBS and CMOs                       (46)        (300)         (578)
Accretion of discount in excess of amortization
 of premium on debt securities                                 (94)        (337)         (249)
Depreciation and amortization of premises and equipment      2,213        1,891         1,826
Mortgage loans originated for sale                          (4,839)      (1,612)       (1,621)
Proceeds from sale of mortgage loans originated for sale     4,821        1,636         1,737
Gain on sales of mortgage and other loans, net                 (47)         (35)          (53)
Tax benefit for stock plans credited to capital              3,222          688           599
Gain on sale of real estate held-for-sale                     (691)      (9,992)         (571)
Decrease in interest due and accrued                           505           32         3,597
Payments received against Nationar claim                         -            -        10,205
Net gain on sale of ORE                                          -         (144)         (688)
Increase (decrease) in official bank checks outstanding      1,199          761       (14,748)
Other                                                        2,445          137         1,547
                                                         ---------    ---------     ---------
  Net cash provided by operating activities                 52,497       23,054        25,733
                                                         ---------    ---------     ---------

Cash flows from investing activities:
Loans originated:
 Mortgage loans                                           (261,201)    (205,174)     (136,218)
 Other loans                                               (15,143)     (21,010)      (19,032)
Purchases of CMOs held-to-maturity                         (57,084)     (55,035)     (124,275)
Purchases of debt securities held-to-maturity and
 securities available-for-sale                            (379,000)    (499,920)     (534,569)
Principal payments on:
 Mortgage loans                                             85,652       60,833        46,506
 Other loans                                                16,278       19,025        19,656
 CMOs                                                       65,381      106,545       114,105
 MBS                                                         1,353        1,590         2,047
Proceeds from maturities of U.S. Government and
 federal agency securities                                 514,000      555,000       675,000
Proceeds from sale of other loans                            5,144          681           934
Purchases of FHLB-NY stock                                  (1,277)        (786)         (557)
Proceeds from sale/redemption of equity securities               -        7,813            30
Purchases of premises and equipment, net of disposals       (3,524)      (2,091)       (3,498)
Proceeds from sales of real estate held-for-sale and
 ORE, net of change in real estate holdings                  3,356       18,375         5,165
                                                           -------      -------       -------
  Net cash (used) provided by investing activities         (26,065)     (14,154)       45,294
                                                           -------      -------       -------

<FN>

                                                                                    (Continued)
</FN>
</TABLE>

<PAGE>


<TABLE>
JSB FINANCIAL, INC. AND SUBSIDIARY
Consolidated Statements of Cash Flows - Continued
Years ended December 31, 1998, 1997 and 1996  (In Thousands)
<CAPTION>


                                                             1998         1997          1996
                                                             ----         ----          ----

<S>                                                      <C>          <C>           <C>
Cash flows from financing activities:
Net increase (decrease) in deposits                          2,963      (23,190)      (19,053)
Increase in advance payments for real estate
 taxes and insurance                                         3,671        2,057            34
Proceeds upon exercise of common stock options               2,041        1,568         1,233
Cash dividends paid to common stockholders                 (15,716)     (13,805)      (12,090)
Payments to repurchase common stock                        (31,466)           -       (27,650)
FHLB-NY advances                                            50,000            -             -
                                                         ---------    ---------     ---------
   Net cash provided (used) by financing activities         11,493      (33,370)      (57,526)
                                                         ---------    ---------     ---------

Net  increase (decrease) in cash and cash equivalents       37,925      (24,470)       13,501
Cash and cash equivalents at beginning of year              74,924       99,394        85,893
                                                         ---------    ---------     ---------
Cash and cash equivalents at end of year                 $ 112,849    $  74,924     $  99,394 
                                                         =========    =========     =========


Supplemental Disclosures of Cash Flow Information
Cash paid for:
 Interest on deposits                                    $  38,333    $  39,881     $  40,215
                                                         =========    =========     =========
 Income taxes                                            $   5,825    $  32,036     $  22,370
                                                         =========    =========     =========


Supplemental Disclosures of Noncash Investing and
 Financing Activities
Real estate acquired through foreclosure                 $       -    $     540     $   8,190
                                                         =========    =========     =========
Transfer of real estate held-for-investment
  to held-for-sale                                       $       -    $   6,145     $       -
                                                         =========    =========     =========

Mortgage originated upon sale of real estate
 from the held-for-sale portfolio and other real
 estate                                                  $       -    $      33     $   6,675
                                                         =========    =========     =========

Deferred tax liability on securities available-for-sale  $  31,852    $  22,905     $  17,534   
                                                         =========    =========     =========








<FN>
See accompanying Notes to Consolidated Financial Statements.
</FN>
</TABLE>



<PAGE>


                       JSB FINANCIAL, INC. AND SUBSIDIARY
                   Notes to Consolidated Financial Statements



Note (1) Summary of Significant Accounting Policies and Related Matters

     JSB Financial, Inc.(the "Company" or the "Parent") is a unitary savings and
loan holding company.  The Company holds all of the outstanding  common stock of
its subsidiary,  Jamaica Savings Bank FSB (the "Bank" or the "Subsidiary").  The
Company is subject to the financial  reporting  requirements  of the  Securities
Exchange Act of 1934.

(a)  Basis of Presentation and Accounting Standards Adopted During 1998
     The accompanying  consolidated  financial  statements have been prepared in
conformity  with generally  accepted  accounting  principles.  The  consolidated
financial  statements  include the  accounts of the Company and its wholly owned
subsidiary, the Bank, as consolidated with the Bank's wholly owned subsidiaries.
All significant  intercompany  accounts and transactions have been eliminated in
consolidation.   Reclassifications  have  been  made  to  prior  year  financial
statements to conform with the 1998 presentation.

        In  preparing  the  consolidated  financial  statements,  management  is
required to make estimates and assumptions  that affect the reported  amounts of
assets,  liabilities and disclosures of contingent  assets and liabilities as of
the dates of the consolidated statements of financial condition and revenues and
expenses for the periods  presented.  Actual results could differ  significantly
from those estimates.  Material  estimates that are particularly  susceptible to
significant  change relate to the  determination  of the  allowances  for credit
losses.

        Effective  January 1, 1998, the Company  adopted  Statement of Financial
Accounting  Standards  ("SFAS")  No.  130,  "Reporting   Comprehensive   Income"
("Statement  130").  Comprehensive  income  represents the change in equity of a
business  enterprise  during a period  from  transactions  and other  events and
circumstances from non-owner sources. It includes all changes in equity during a
period except those resulting from  investments by owners and  distributions  to
owners. Statement 130 requires that all items that are required to be recognized
under accounting  standards as components of comprehensive income be reported in
a  financial  statement  that is  displayed  with the same  prominence  as other
financial statements.  In applying Statement 130, such items are reported in the
Consolidated Statements of Changes in Stockholders' Equity.

        Effective   January  1,  1998,  the  Company  addressed  SFAS  No.  131,
"Disclosures   About  Segments  of  an  Enterprise   and  Related   Information"
("Statement  131").  The Company  determined that it has no reportable  segments
pursuant to the criteria  presented in Statement 131, however if such reportable
segments should exist in the future, the disclosure as required by Statement 131
would be provided.

        Effective January 1, 1998, the Company adopted SFAS No. 132, "Employers'
Disclosures about Pensions and Other Postretirement Benefits" ("Statement 132").
Statement   132  revises   employers'   disclosures   about  pension  and  other
postretirement  benefit plans, it does not change the accounting for such plans.
The adoption of Statement 132 had no impact on the Company's financial condition
or results of operations. (See Note 20.)

(b)  Consolidated Statements of Cash Flows
     For the  purposes of  reporting  cash  flows,  the  Company  considers  all
short-term  investments  with a maturity of less than three months from the date
of purchase to be cash equivalents.

(c)  Securities
     The Company is  required to report  debt,  readily-marketable  equity,  and
mortgage-backed   securities   in   one  of  the   following   categories:   (i)
"held-to-maturity" (when management has a positive intent and ability to hold to
maturity)  which are reported at amortized  cost;  (ii) "trading" (when held for
current  resale)  which  are  to be  reported  at  estimated  fair  value,  with
unrealized gains and losses included in earnings; and (iii) "available-for-sale"
(all other debt and equity  securities  not  designated as  held-to-maturity  or
trading) which are reported at estimated fair value,  with unrealized  gains and
losses excluded from earnings and reported,  net of tax, as other  comprehensive
income,  a separate  component of  stockholders'  equity.  The  designation of a
security  as  held-to-maturity  or  available-for-sale  is made  at the  time of
acquisition.

     Discounts  on debt  securities  are  accreted  to income and  premiums  are
amortized  against  income over the life of the  security  using a method  which
approximates  the  level  yield  method.  Gains  and  losses  on  the  sales  of
securities,  if  any,  are  recognized  upon  realization,  using  the  specific
identification method.

(d)  Mortgage and Other Loans
     Loans are carried at unpaid  principal  balances net of any  deferred  loan
fees and  unearned  discounts.  Discounts  are accreted to income using a method
which  approximates the level yield method,  over the composite  average life of
the loans.  Loan fees  received for  commitments  to make or purchase  loans are
deferred  and  accreted  into  income  over the life of the loan using the level
yield method.

     Interest is accrued monthly on the outstanding balances of loans. Mortgages
90 days in arrears and/or loans where full  collection of principal and interest
is questionable  are placed on non-accrual  status,  at which time loan interest
due and accrued is reversed  against  interest income of the current  period.  A
non-accrual  loan is restored  to accrual  status when  principal  and  interest
payments  are current and full  payment of  principal  and interest is expected.
Cash  receipts on an  impaired  loan are applied to  principal  and  interest in
accordance  with the  contractual  terms  of the loan  unless  full  payment  of
principal is not expected,  in which case both  principal and interest  payments
received  are netted  against the loan  balance.  The Bank  continues  to accrue
interest  income on non-insured  other loans up to 120 days  delinquent,  beyond
which time the loan balance is written off.

     In accordance with SFAS No. 114, "Accounting by Creditors for Impairment of
a Loan" ("Statement 114"), and the amendment thereof,  SFAS No. 118, "Accounting
by  Creditors  for  Impairment  of a  Loan  -  Income  Recognition  Disclosures"
("Statement 118"), the Company considers a loan impaired if it is probable that,
based upon  current  information,  the  Company  will be unable to  collect  all
amounts due according to the contractual  terms of a loan  agreement.  Statement
114 does not apply to large groups of smaller-balance homogeneous loans that are
collectively evaluated for impairment including the Company's one-to four-family
mortgage  loans and consumer  loans other than those modified in a troubled debt
restructure  ("TDR").  The Company  generally  does not consider a loan impaired
when  the  delay in the  timing  of  payments  is  three  months  or less or the
shortfall  in the amount of payments is the lower of $10,000 or 1.0% of the loan
amount.

     Loans  individually  reviewed for  impairment by the Company are limited to
loans  secured  by   multi-family,   underlying   cooperative,   commercial  and
construction  properties,  loans  modified  in TDRs and  selected  large  one-to
four-family loans.  Examples of measurement  techniques  utilized by the Company
include present value of expected future cash flows, the loan's market price (if
one  exists)  and the  estimated  fair  value of the  collateral.  Reserves  are
established  against  impaired loans in amounts equal to the difference  between
the recorded  investment  in the asset and either the present  value of the cash
flows expected to be received, or the fair value of the underlying collateral if
foreclosure  is  deemed  probable  or  if  the  loan  is  considered  collateral
dependent. The Company's impaired loan identification and measurement process is
conducted  in  conjunction  with the  Company's  review of the  adequacy  of its
allowance for loan losses.

     A loan is deemed a TDR by the Company when  concessionary  modifications to
the original contractual terms are made for economic or legal reasons related to
the debtor's financial  difficulties.  Loans modified in a TDR subsequent to the
January 1, 1995 adoption of Statement  114 are  considered  impaired,  unless in
periods  subsequent to restructuring,  the loan is performing in accordance with
the new terms of the  agreement  and such  terms  reflect  those  that  would be
offered by the Bank for a new credit.  Valuation allowances associated with such
impaired loans are measured in accordance with Statement 114 throughout the loan
term. Modifications made to loans in TDRs prior to the adoption of Statement 114
that  are not  considered  impaired  based  on the  terms  of the  restructuring
agreement  continue to be  accounted  for under  Statement  15,  "Accounting  by
Debtors and Creditors for Troubled Debt Restructurings", and are not included in
the Company's impaired loan statistics.

     Loans  originated  for sale are  carried  at the lower of unpaid  principal
balance,  net of any discounts and deferred fees or estimated fair value, in the
aggregate.

(e)  Allowances for Losses
     Allowances for losses are estimates which are primarily  reactive to actual
and  anticipated  changes in the real estate  market,  the economy in the Bank's
market  area  and  debtors'   financial   condition.   In  connection  with  the
determination of allowances,  management reviews:  loan performance;  historical
trends;  appraisals of real estate  held-for-sale,  ORE and properties  securing
significant  mortgages;  investment ratings for debt and equity securities;  and
capital and liquidity levels for correspondent banks, on an ongoing basis.

     The allowance for possible loan losses is available for future  charge-offs
of loans.  The  allowance is increased by the provision for possible loan losses
made and recoveries of loans previously charged off. The allowance is reduced by
charge-offs,  in whole or in part, of problem loans.  The allowance for possible
loan losses is based on continuous  analysis of the loan  portfolio and reflects
an amount which, in management's  judgment,  is adequate to provide for possible
loan losses in the existing portfolio.  In evaluating the portfolio,  management
considers  numerous  factors,  such  as  the  Bank's  loan  growth,  prior  loss
experience,  present  and  potential  risks of the loan  portfolio  and  current
economic conditions and entails management's review of delinquency reports, loan
to value ratios, collateral condition and debt coverage ratios.

     The  ultimate  collection  of the Bank's  loan  portfolio  is  affected  by
economic  conditions in the Bank's market area and changes  thereto.  The Bank's
mortgage  loans  are  secured  primarily  by  properties   located  in  the  New
York-metropolitan area.

     Management  believes  that the  allowances  for loan losses as presented in
these consolidated  financial  statements are adequate.  Future additions to the
allowances could be necessary based on changes in debtors' financial  condition,
economic conditions or if economic conditions differ from management's  previous
assessments.   Various  regulatory  agencies,  as  an  integral  part  of  their
examination process,  periodically review the Bank's allowances for losses. Such
agencies may require the Bank to recognize  additions to the allowances based on
their  judgment  using  information  available  to  them at the  time  of  their
examination.

(f)  Premises and Equipment
        Depreciation is computed on the straight-line  method over the estimated
useful  life of the  related  assets.  Estimated  lives  are 15 to 60 years  for
buildings  and  5 to 8  years  for  furniture  and  fixtures.  Amortization  for
leasehold  improvements is computed on the straight-line  method over the lesser
of the term of the lease or the asset's  estimated  useful  life.  Premises  and
equipment are carried at cost, net of accumulated depreciation.

(g)  Real Estate Held-for-Sale and ORE
     Real  estate  held-for-sale  is  carried  at the  lower of cost or net fair
value.  Gains on the sale,  if any, are  accounted  for using the cost  recovery
method. Revenues and expenses from the operations are reflected, as incurred, in
the Company's operating results.

     Real estate  properties  acquired  through  foreclosure,  known as ORE, are
recorded at the lower of the net unpaid  loan  balance at the  foreclosure  date
plus related costs, or net fair value. Subsequent valuation adjustments are made
if the net fair value decreases below the carrying amount. Gains, if any, on the
sale of ORE are accounted for using the cost recovery method.  (See Notes 11, 12
and 13.)

(h)     Income Taxes
        The Company,  the Bank and certain of its subsidiary  corporations  file
consolidated tax returns with the federal,  state and local taxing  authorities.
Other subsidiaries file separate domestic tax returns as required.

        Deferred tax assets and  liabilities  are  recognized for the future tax
consequences  attributable  to the differences  between the financial  statement
carrying  amounts of existing assets and  liabilities  and their  respective tax
bases (temporary differences).  Deferred tax assets and liabilities are measured
using  enacted  tax rates  expected  to apply to taxable  income in the years in
which temporary differences are expected to be recovered or settled. A valuation
allowance  is  provided  for  deferred  tax  assets  where  realization  is  not
considered "more likely than not". The effect of changes in tax laws or rates on
deferred tax assets and  liabilities  is  recognized in the period that includes
the enactment date. (See Note 14.)

(i)  Stock Based Compensation
        SFAS No. 123 "Accounting for Stock-Based Compensation" ("Statement 123")
permits either the recognition of compensation cost for the estimated fair value
of employee stock-based  compensation  arrangements on the date of grant, or the
disclosure in the notes to the financial  statements of the pro forma effects on
net income and earnings per share,  determined as if the fair value-based method
had been applied in  measuring  compensation  cost.  The Company has adopted the
disclosure option and continues to apply Accounting  Principles Bulletin Opinion
No. 25,  "Accounting for Stock Issued to Employees" in accounting for its plans.
Accordingly,  no  compensation  cost has been recognized for the Company's stock
option plans. (See Note 22.)

(j)  Earnings Per Share
        Basic earnings per share ("EPS") is calculated by dividing net income by
the weighted average number of common shares outstanding,  with no consideration
given to potential outstanding shares.  Diluted EPS is calculated using the same
method as basic EPS,  but reflects the  potential  dilution  that would occur if
stock options outstanding were exercised and converted into common stock. Common
stock equivalents are computed using the treasury stock method. (See Note 15.)

(k)  Treasury Stock
     Repurchases  of common  stock  are  accounted  for  under the cost  method,
whereby shares  repurchased are recorded in a contra-equity  account.  (See Note
2.)


 Note (2) Repurchases of Common Stock
     For the year ended December 31, 1998 the Company repurchased 620,100 shares
of its outstanding  common stock at an average price of $50.74.  The Company did
not repurchase any shares during 1997 and repurchased 845,000 shares during 1996
at an average price of $32.72 per share. The Company issued 204,296, 136,896 and
123,256 shares of treasury  stock for options  exercised  during 1998,  1997 and
1996, respectively. In addition, during 1998, the Company issued 1,800 shares of
treasury stock pursuant to the  Directors'  Stock Program.  (See Note 23.) There
were 6,494,077 and 6,080,073  shares of common stock in the treasury at December
31, 1998 and 1997, respectively.

<PAGE>

Note (3) Securities
<TABLE>
     The  following  tables  set  forth  information   regarding  the  Company's
securities portfolios as of December 31:
<CAPTION>
                                                         1998
                                                         ----
Securities Available-for-Sale:
                                                Estimated        Gross Unrealized
                                      Cost      Fair Value      Gains       Losses
                                      ----      ----------      -----       ------
                                                     (In Thousands)

<S>                                 <C>         <C>            <C>          <C>    
Marketable equity securities        $ 10,869    $ 83,592       $72,746      $    23
                                    ========    ========       =======      =======

Securities Held-to-Maturity:

                                    Amortized   Estimated         Gross Unrealized
                                      Cost      Fair Value       Gains       Losses
                                    ---------   ----------       -----       ------
                                                     (In Thousands)
U.S. Government and federal
  agency securities                 $109,996    $110,026       $    38      $     8

CMOs, net                             95,790      95,997           310          103

MBS:
  GNMA*                                2,464       2,659           195         -
  FNMA*                                   53          57             4         -
  Freddie Mac*                           154         167            13         -   
                                    --------    --------       -------      -------
Total MBS, net                         2,671       2,883           212         -   
                                    --------    --------       -------      -------
     Total                          $208,457    $208,906       $   560      $   111
                                    ========    ========       =======      =======


                                                         1997
                                                         ----
Securities Available-for-Sale:

                                                Estimated        Gross Unrealized
                                      Cost      Fair Value      Gains       Losses
                                      ----      ----------      -----       ------
                                                     (In Thousands)

Marketable equity securities        $ 10,869    $ 62,243       $51,462      $    88
                                    ========    ========       =======      =======

Securities Held-to-Maturity:

                                    Amortized   Estimated        Gross Unrealized
                                      Cost      Fair Value      Gains       Losses
                                    ---------   ----------      -----       ------
                                                     (In Thousands)
U.S. Government and federal
  agency securities                 $244,903    $245,367       $   464      $  -

CMOs, net                            104,040     104,270           295           65

MBS:
  GNMA                                 3,640       3,944           304         -
  FNMA                                   106         115             9         -
  Freddie Mac                            278         300            22         -   
                                    --------    --------       -------      -------
Total MBS, net                         4,024       4,359           335         -   
                                    --------    --------       -------      -------
     Total                          $352,967    $353,996       $ 1,094      $    65
                                    ========    ========       =======      =======


<FN>
* Definitions:  GNMA - Government National Mortgage Association;  FNMA - Federal
National  Mortgage  Association;  Freddie  Mac  -  Federal  Home  Loan  Mortgage
Corporation
</FN>
</TABLE>

<PAGE>

     CMOs represent participating interests in pools of long-term first mortgage
loans originated and serviced by the issuers of the securities.  All of the CMOs
held by the Company consist of First  Tranche-Planned  Amortization  Class Bonds
collateralized by FNMA, Freddie Mac and GNMA mortgage-backed  securities,  which
in turn are  collateralized  by whole loans. MBS represent  securities issued by
governmental mortgage agencies and collateralized by mortgage loans.

     There were no sales of securities  during 1998.  During 1997, the Bank sold
or redeemed  marketable  equity  securities  with a cost of $823,000,  realizing
gross gains of $6,991,000 and no losses.  During 1996, the Bank sold or redeemed
marketable equity securities  totaling $30,000,  realizing gross gains of $4,000
and gross losses of $2,000.

<TABLE>
     Presented in the table below is the contractual  maturity  distribution for
debt securities held-to-maturity at December 31, 1998:
<CAPTION>


                                   Amortized           Estimated
                                     Cost              Fair Value  
                                   ---------           ----------  
                                          (In Thousands)
<S>                                <C>                  <C>     
Within 1 year                      $110,013             $110,044
After 1 year through 5 years          4,864                4,913
After 5 years through 10 years       81,730               82,046
After 10 years                       11,850               11,903
                                   --------             --------
    Total                          $208,457             $208,906
                                   ========             ========
</TABLE>

     Actual  maturities  of CMOs  and  MBS may  differ  substantially  from  the
presentation,  due to prepayment activity. The table reflects the balance of the
entire security in the category in which the final contractual payment is due.

     The Company loans securities to specified  brokerage  houses.  These loaned
securities  are  collateralized  at a minimum  of 102% of their  fair value with
government  securities  and/or cash.  To protect the Company's  investment,  the
agreements  contain provisions to increase the collateral  obtained,  should the
fair value of the  collateral  decline or the fair value of the security  loaned
increase.  Upon termination of the agreement,  securities loaned are returned to
the Company.  The  following  table  reflects the carrying  value of  securities
loaned  and their  estimated  fair  value and the  estimated  fair  value of the
collateral at December 31:
<TABLE>

                                               1998              1997
                                               ----              ----
                                                   (In Thousands)

<CAPTION>
<S>                                           <C>              <C>     
Amortized cost - Securities loaned            $  9,996         $ 79,970
                                              ========         ========

Estimated fair value - Securities loaned      $ 10,034         $ 80,188
                                              ========         ========

Estimated fair value - Collateral             $ 10,422         $ 82,069
                                              ========         ========
</TABLE>

<PAGE>

Note (4)  Other Investments
<TABLE>

     Other investments at December 31, 1998 and 1997 were as follows:
<CAPTION>

                                       1998                     1997
                                       ----                     ----
                                           Estimated                Estimated
                                Carrying     Fair        Carrying     Fair
                                 Value       Value        Value       Value
                               -----------------------------------------------
                                             (In Thousands)

  <S>                          <C>          <C>             <C>       <C>     
  Investment required by law*  $  8,892     $  8,892        $  7,615  $  7,615
  Other stock                        30           30              30        30
                               --------     --------        --------  --------
   Total other investments     $  8,922     $  8,922        $  7,645  $  7,645
                               ========     ========        ========  ========

<FN>
* The Bank is required to hold shares of the FHLB-NY.
</FN>
</TABLE>

Note (5)  Loans
<TABLE>

     Loans are summarized as follows:
<CAPTION>
                                                   December 31,
                                                   ------------
                                           1998                   1997
                                         -------------------------------
                                                   (In Thousands)
<S>                                      <C>                  <C> 
Mortgage loans:
  Multi-family                           $  702,914           $  563,205
  Underlying cooperative*                   302,494              267,942
  One-to four-family                         75,773               73,757
  Commercial                                 69,001               71,839
  Construction                                5,176                3,067
                                         ----------           ----------
   Total mortgage loans                   1,155,358              979,810
                                         ----------           ----------

Deferred loan fees and unearned
 discounts                                   (2,702)              (3,332)
Allowance for possible loan losses           (5,741)              (5,741)
                                         ----------           ----------

   Total mortgage loans, net             $1,146,915           $  970,737
                                         ==========           ==========

Other loans:
  Property improvement                   $   10,652           $   10,744
                                          ---------            ---------
  Loans secured by deposit accounts           8,166                8,189
  Consumer                                    3,754                4,775
  Overdraft loans                               202                  227
  Student                                       153                5,213
                                         ----------           ----------
   Total other loans                         22,927               29,148
                                         ----------           ----------

Unearned discounts                             -                      (1)
Allowance for possible loan losses             (183)                (139)
                                         ----------           ----------

   Total other loans, net                $   22,744           $   29,008
                                         ==========           ==========
<FN>

*  Underlying  cooperative  loans  are  first  liens  on  cooperative  apartment
buildings  and are  senior  to loans on the  individual  units  commonly  called
cooperative share loans.
</FN>
</TABLE>

<PAGE>

Note (6)  Loan Delinquencies
<TABLE>
     Information regarding loans delinquent 90 days or more at December 31, 1998
and 1997 is summarized as follows:
<CAPTION>

                                              1998                   1997
                                              ----                   ----
                                        Number   Principal     Number   Principal
                                          of      balance        of      balance
                                        loans    of loans      loans    of loans
                                        -----------------------------------------
                                                  (Dollars in Thousands)

          <S>                            <C> <C>  <C>             <C><C>  <C>
          Delinquent loans:
           Guaranteed*                   10       $   233         82      $   500
           Non-guaranteed                 5           216          5       12,769
                                        ---       -------        ---      -------

          Total delinquencies
           over 90 days                  15       $   449         87      $13,269
                                        ===       =======        ===      =======

          Ratio of loans 90 days
           or more past due to
           total gross loans                 .04%                    1.32%
<FN>
 *These loans are guaranteed by the Federal Housing Administration, the Veterans
   Administration or the New York State Higher Education Services Corporation.
</FN>
</TABLE>


Impaired and Non-accrual loans

         At December 31, 1998,  the Bank had one impaired  mortgage  loan with a
$213,000 balance and a $27,000 specific valuation allowance.  The Bank had a net
investment in this loan of $186,000,  which comprised total non-accrual loans at
December 31, 1998.  At December  31,  1997,  the Bank had one impaired  mortgage
loan, secured by a cooperative apartment building, with a balance of $12,754,000
and no related  valuation  allowance.  This loan  comprised the total balance of
non-accrual loans at December 31, 1997.

        If all  non-accrual  loans had been  performing in accordance with their
original terms, the Company would have recorded interest income, with respect to
such loans, of $509,000,  $1,180,000 and $1,180,000 for the years ended December
31,  1998,  1997 and 1996,  respectively.  This  compares  to $397,000 of actual
payments  recorded for 1998, no interest  income was recognized  with respect to
such loans for 1997 and 1996.

        On May 28, 1998, the $12,754,000  underlying  cooperative mortgage loan,
discussed  above,  was satisfied.  Upon  satisfaction,  $4,346,000 of previously
unrecorded  prior years' interest and legal fees, as well as late charges,  were
recovered and included in non-interest  income.  The average balance of impaired
loans  for  calendar  1998,  1997  and  1996  was  $5,491,000,  $12,754,000  and
$12,754,000, respectively.

        At December 31, 1998 and 1997, loans restructured in a TDR, all of which
are  performing in  accordance  with their  contractual  terms and therefore not
considered  impaired,  were  $1,842,000 and $1,840,000,  respectively.  Interest
forfeited  attributable to these loans was $73,000,  $62,000 and $62,000 for the
years ended December 31, 1998, 1997 and 1996, respectively.

<PAGE>

Note (7)  Allowance for Possible Loan Losses

     Activity  in the  allowance  for  possible  loan losses for the years ended
December 31, 1998, 1997 and 1996 is summarized as follows:
<TABLE>

                                                    Mortgage loans
                                                    --------------
                                              1998       1997       1996
                                              ----       ----       ----
                                                    (In Thousands)
<CAPTION>

<S>                                           <C>        <C>       <C>   
Balance at beginning of period                $5,741     $5,176    $4,575
Provision for possible loan losses              -           600       600
Loans charged off                               -           (35)     -
Recoveries of loans previously
   charged off                                  -  _       -            1
                                              ------     ------    ------
Balance at end of period                      $5,741     $5,741    $5,176
                                              ======     ======    ======
</TABLE>


<TABLE>
                                                     Other loans
                                                     -----------
                                              1998       1997       1996
                                              ----       ----       ----
                                                    (In Thousands)
<CAPTION>
<S>                                           <C>        <C>       <C>
Balance at beginning of period                $139       $151      $122
Provision for possible loan losses              51         48        40
Loans charged off                              (25)       (72)      (33)
Recoveries of loans previously
   charged off                                  18         12        22
                                              ----       ----      ----
Balance at end of period                      $183       $139      $151
                                              ====       ====      ====

</TABLE>

Note (8)  Mortgage Loan Servicing

<TABLE>
     A summary of principal  balances,  servicing income and the number of loans
serviced  for others by the Bank at and for the years ended  December  31, 1998,
1997 and 1996 were as follows:
<CAPTION>

                                    1998       1997      1996
                                    ----       ----      ----
                                      (Dollars in Thousands)

         <S>                       <C>        <C>       <C>    
         Principal balances        $16,509    $14,467   $16,016
                                   =======    =======   =======

         Servicing income          $    40    $    46   $    59
                                   =======    =======   =======

         Number of loans               534        906     1,494
                                   =======    =======   =======
</TABLE>

<PAGE>

     The balance of loans sold with full recourse was  $4,414,000 and $5,441,000
at  December  31, 1998 and 1997,  respectively.  The Bank has not sold any loans
with recourse since 1985. The Bank sold mortgage loans without  recourse  during
1998 and 1997,  receiving  proceeds of $4,821,000 and $1,636,000,  respectively.
The Bank  retained  servicing  for  these  loans,  which  did not  result in the
recording of any servicing assets.

Note (9)  Premises and Equipment
<TABLE>
     Premises  and  equipment  at December  31, 1998 and 1997  consisted  of the
following:
<CAPTION>

                                     1998       1997
                                     ----       ----
                                     (In Thousands)

<S>                                <C>        <C>    
Banking houses and land            $22,253    $21,709
Furniture, fixtures and equipment   19,813     16,911
Safe deposit vaults                  1,016      1,016
                                   -------    -------
                                    43,082     39,636
Less accumulated depreciation and
 amortization                       24,742     22,607
                                   -------    -------
Premises and equipment, net        $18,340    $17,029
                                   =======    =======
</TABLE>

     Depreciation  and  amortization  expense for the years ended  December  31,
1998, 1997 and 1996 was $2,213,000, $1,891,000 and $1,826,000, respectively.

Note (10)  Interest Due and Accrued
<TABLE>

     Interest  due and accrued at December  31, 1998 and 1997  consisted  of the
following:
<CAPTION>

                                              1998       1997
                                              ----       ----
                                               (In Thousands)

<S>                                        <C>        <C>    
U.S. Government and federal agencies       $ 1,042    $ 2,354
CMOs                                           489        540
MBS                                             23         36
Mortgage and other loans                     7,219      6,348
                                           -------    -------
Total interest due and accrued             $ 8,773    $ 9,278
                                           =======    =======

</TABLE>

Note (11)  Real Estate Held-for-Investment

        On  June   30,   1997,   management   reclassified   all   real   estate
held-for-investment   to   held-for-sale.   There   has  been  no  real   estate
held-for-investment  subsequent to this  reclassification  and  accordingly,  no
results of operations for 1998 are presented.  A commercial office tower located
at 1995  Broadway,  New  York,  was  sold in  October  1997,  subsequent  to its
reclassification  to  held-for-sale,  resulting in a pre-tax gain of $9,163,000.
(See Note 12.)

<PAGE>

<TABLE>
        The  summarized  statements  of operations  for the Bank's  wholly-owned
subsidiaries that comprised real estate held-for-investment, for the years ended
December 31, 1997 and 1996 were as follows:
<CAPTION>


                                              1997       1996
                                              ----       ----
                                              (In Thousands)

<S>                                          <C>        <C>   
Rental income                                $1,478     $4,020
Net interest income                               2          4
Other income                                     17        652 
                                             ------     ------
    Total income                              1,497      4,676
                                             ------     ------

Real estate taxes                               246        566
Operating and other expenses                    647      3,087
                                             ------     ------
    Total expenses                              893      3,653
                                             ------     ------

Income from real estate held-
  for-investment                             $  604    $ 1,023
                                             ======    =======

</TABLE>

Note (12)  Real Estate Held-for-Sale and ORE
<TABLE>
      The following  summarizes real estate properties owned by the Bank through
its real estate subsidiaries at December 31:
<CAPTION>

                                                   1998         1997
                                                   ----         ----
                                                    (In Thousands)
     <S>                                         <C>          <C>
     Real Estate Held-for-Sale:1 
       Condominium property2                     $ -          $2,752
       Land                                         130          130
       Buildings                                     50          140
       Accrued interest and other assets            641          372
       Liabilities                                 (313)        (417)
                                                 ------       ------
     Net Assets                                     508        2,977
                                                 ------       ------

     ORE:
       Cooperative apartments                       277          473
                                                 ------       ------

     Total Real Estate Held-for-Sale and ORE     $  785       $3,450
                                                 ======       ======

<FN>
1 On June 30, 1997,  all real estate  held-for-investment  was  reclassified  to
held-for-sale.  (See Note 11.) In addition to the  cooperative  apartments  that
comprised ORE, several of the Bank's  wholly-owned  subsidiaries own cooperative
apartments in various buildings, which are carried at zero cost and are included
in Real Estate  Held-for-Sale.  At December 31, 1998 and 1997,  126 and 138 such
cooperative apartments remained held-for-sale, respectively.

2 The condominium property resulted from a joint venture formed in the 1980's to
construct and  subsequently  sell an 84 unit condominium  complex.  The property
became  troubled and the Bank  ultimately  attained 100% ownership of the unsold
units.  Sales of the units  were  accounted  for  under  the full cost  recovery
method.  During 1998, 28 units were sold, which resulted in the full recovery of
amounts  invested and $299,000 of realized  gains.  At December 31, 1998,  the 6
units  held-for-sale were carried at zero cost, compared to 34 units at December
31 1997.
</FN>
</TABLE>

<PAGE>

NOTE (13)  Real Estate Operations, Net
<TABLE>
        Results of real estate operations for the years ended December 31, 1998,
1997 and 1996 were as follows:
<CAPTION>

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

<S>                                           <C>               <C>             <C>
Income from real estate held-
 for-investment, net  (See Note 11.)          $  -              $   604         $1,023
                                              -------           -------         ------

Real estate held-for-sale:
  Rental income, net of expenses                   23              (154)           173
  Gain on sale1                                   691             9,992            571
                                              -------           -------         ------
                                                  714             9,838            744
                                              -------           -------         ------

  Real estate operations, net                 $   714           $10,442         $1,767
                                              =======           =======         ======

<FN>
1 Includes gains on the sale of cooperative apartments,  owned by various of the
Bank's wholly-owned subsidiaries, which are carried at zero cost. The 1997 gains
include a $9,163,000 pre-tax gain on the sale of an office tower. (See Note 11.)
</FN>
</TABLE>

NOTE (14)  Income Taxes
<TABLE>
      The 1998,  1997 and 1996  provisions  for income tax were comprised of the
following amounts:
<CAPTION>

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

<S>                            <C>               <C>                <C>
Current:
  Federal                      $ 8,791           $18,877            $12,870
  State and local                3,597             5,652              5,630
                               -------           -------            -------
                                12,388            24,529             18,500
                               -------           -------            -------

Deferred:
  Federal                          465                66                703
  State and local                  435                30                349
                               -------           -------            -------
                                   900                96              1,052
                               -------           -------            -------

Provision for income taxes     $13,288           $24,625            $19,552
                               =======           =======            =======
</TABLE>

     For the  years  ended  December  31,  1998,  1997  and  1996,  the  Company
recognized  tax benefits  relating to its stock  option and other stock  benefit
plans of $3,222,000,  $688,000 and $599,000,  respectively,  which were credited
directly to stockholders' equity.

<PAGE>

<TABLE>
     A  reconciliation  of the statutory  U.S.  federal income tax provision and
rate,  to the  actual  tax  provision  and  effective  rate for the years  ended
December 31, 1998, 1997 and 1996 were as follows:
<CAPTION>

                                 1998                 1997               1996
                                 ----                 ----               ----
                                    % of                 % of                % of
                                   Pre Tax              Pre Tax             Pre Tax
                           Amount  Earnings     Amount  Earnings    Amount  Earnings
                           ---------------------------------------------------------
                                             (Dollars in Thousands)

<S>                        <C>      <C>          <C>        <C>      <C>       <C>   
Statutory Federal rate     $20,187   35.00%      $21,600    35.00%   $16,197   35.00%
Dividends received
 exclusion                    (247)   (.43)         (246)    (.40)      (235)   (.51)
State and local income
 taxes, net of Federal
 income tax benefit          2,621    4.54         3,693     5.98      3,886    8.40
Benefits realized from
 realignment of operating
 subsidiary                (10,667) (18.49)         -         -         -        -
Other, net                   1,394    2.42          (422)    (.68)      (296)   (.64)
                           -------   -----       -------    -----    -------   -----

Provision for income taxes $13,288   23.04%      $24,625    39.90%   $19,552   42.25%
                           =======   =====       =======    =====    =======   =====
</TABLE>

<PAGE>

<TABLE>
     At December  31, 1998 and 1997,  deferred tax assets and  liabilities  were
comprised of the following:
<CAPTION>
                                                    1998          1997   
                                                    ----          ----   
                                                       (In Thousands)
<S>                                               <C>           <C>
Deferred Tax Assets:
Deferred profits on unsold cooperative shares     $  1,582      $  1,955
Allowance for possible loan losses                   2,594         2,621
Benefit plan costs                                   4,684         4,400
Loan fees and mortgage discounts                       294           415
Other                                                  657           561
                                                  --------       -------
  Deferred tax assets                                9,811         9,952
                                                  --------       -------

Deferred Tax Liabilities:
Securities available-for-sale                      (31,852)      (22,905)
Benefit plan costs                                  (3,435)       (2,570)
Other                                                 -             (105)
                                                  --------       -------
  Deferred tax liabilities                         (35,287)      (25,580)
                                                  --------       -------

  Deferred tax liability, net                     $(25,476)     $(15,628)
                                                  ========      ========

</TABLE>

     Pursuant  to SFAS  No.  109  "Accounting  for  Income  Taxes",  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, referred to as base year reserves. The Bank did not have any post 1987 tax
reserves.  The base year reserves of $85,107,000  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 of course  further  affect the status of the base year reserve.  (See
Note 18.)

     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, retained the reserve method for bad debt deductions.  The New York State
and the City of New  York bad debt  deduction  is no  longer  predicated  on the
Federal deduction which is now computed on the direct charge-off method.

NOTE (15)  Earnings Per Share
<TABLE>
        The  following  is a  reconciliation  of the  denominators  of basic and
diluted EPS  computations  for net income.  The numerator for  calculating  both
basic and diluted earnings per share for the Company is net income.
<CAPTION>
                                              For the Year Ended December 31,
                                              1998         1997          1996
                                              -------------------------------
                                             (In Thousands, Except EPS Amounts)

<S>                                          <C>          <C>          <C>    
Net Income - (Numerator)                     $44,388      $37,090      $26,725

Basic EPS: (Denominator)
  Weighted Average Shares                      9,793        9,858       10,062

Basic EPS                                      $4.53        $3.76        $2.66
                                               =====        =====        =====

Diluted EPS: (Denominator)
  Weighted Average Shares                      9,793        9,858       10,062
  Incremental shares-options                     281          332          374
                                              ------       ------       ------
  Weighted Average and Incremental Shares     10,074       10,190       10,436

Diluted EPS                                    $4.41        $3.64        $2.56
                                               =====        =====        =====
</TABLE>

<PAGE>

NOTE (16)  Deposits
<TABLE>
      Deposits at December 31, 1998 and 1997 are summarized as follows:
<CAPTION>
                                        1998                            1997              
                          ------------------------------     -----------------------------
                          Stated                             Stated
                           rate       Amount     Percent      rate       Amount   Percent
                           ----       ------     -------      ----       ------   -------
                                                (Dollars in Thousands)
<S>                    <C>         <C>            <C>      <C>        <C>          <C>
Balance by interest rate:
    Demand                 -  %    $   47,152       4.20%      -  %   $   33,662     3.00%
    Negotiable order of
     withdrawal ("NOW")   1.24         37,005       3.29      2.47        35,401     3.16
    Money market          2.32         62,747       5.58      2.96        77,477     6.92
    Passbook              2.22        522,671      46.49      2.71       546,447    48.74
    Lease security        2.22         21,031       1.87      2.71        18,683     1.66

    Certificates:      4.07- 5.00     200,635      17.85   4.67- 5.00     44,646     3.98
                       5.01- 6.00     213,121      18.96   5.01- 6.00    343,864    30.67
                       6.01- 6.82      19,804       1.76   6.01- 6.82     21,023     1.87
                                   ----------     ------              ----------   ------
                                      433,560      38.57                 409,533    36.52
                                   ----------     ------              ----------   ------
Total deposits                     $1,124,166     100.00%             $1,121,203   100.00%
                                   ==========     ======              ==========   ======
</TABLE>

<TABLE>
        At December 31, 1998 and 1997,  the scheduled  maturities of certificate
accounts were as follows:
<CAPTION>
                                     1998                        1997
                                     ----                        ----
                              Amount      Percent          Amount     Percent
                              ------      -------          ------     -------
                                          (Dollars in Thousands)

   <S>                       <C>          <C>             <C>         <C>   
   12 months or less         $367,226      84.70%         $344,893     84.22%
   13 to 24 months             37,388       8.62            35,437      8.65
   25 to 36 months             10,832       2.50            14,573      3.56
   37 to 48 months              9,134       2.11            14,630      3.57
   49 to 60 months              8,980       2.07              -          -  
                             --------     ------          --------    ------
                             $433,560     100.00%         $409,533    100.00%
                             ========     ======          ========    ======
</TABLE>

        At  December  31,  1998 and  1997,  certificate  accounts  in  excess of
$100,000,  were $48,517,000 and $41,551,000,  respectively.  The Federal Deposit
Insurance Corporation, an agency of the U.S. Government,  generally insures each
depositor's savings up to $100,000 through the Bank Insurance Fund.

<TABLE>
     Interest expense on deposit balances is summarized as follows for the years
ended December 31, 1998, 1997 and 1996:
<CAPTION>
                                        1998        1997       1996
                                        ----        ----       ----
                                              (In Thousands)
<S>                                   <C>         <C>        <C>    
NOW                                   $   733     $   880    $   899
Money market                            2,092       2,549      2,819
Passbook                               13,011      15,186     16,267
Lease security                            482         491        455
Certificates                           21,973      20,768     19,777
                                      -------     -------    -------
Total interest expense                $38,291     $39,874    $40,217
                                      =======     =======    =======
</TABLE>

NOTE (17)  FHLB-NY Advances
         On December 8, 1998,  the Bank borrowed  $50.0 million from the FHLB-NY
at a fixed rate of 5.62% for ten years. Interest expense on FHLB-NY advances for
the year ended  December 31, 1998 was $185,000.  Prior to 1998, the Bank had not
borrowed  funds for its direct  activities  since  1984.  Pursuant  to a blanket
collateral  agreement  with the  FHLB-NY,  advances  are  secured by  qualifying
mortgage  loans  owned by the Bank in an  amount  at least  equal to 110% of the
advances outstanding.

<PAGE>

NOTE (18)  Retained Income, Substantially Restricted
     In the unlikely  event of a complete  liquidation  of the Bank (and only in
such an event)  eligible  depositors who continue to maintain  accounts shall be
entitled  to receive a  distribution  from the  liquidation  account,  which was
established in connection with the Company's initial public stock offering.  The
total amount of the liquidation account is decreased if the balances of eligible
deposits  decrease  on  the  annual  determination  dates.  The  balance  of the
liquidation  account was  $57,358,000  at December 31, 1998 and  $63,709,000  at
December 31, 1997.

     The  Bank  is not  permitted  to  declare  or pay a cash  dividend  on,  or
repurchase  any of its stock if the effect  thereof would cause its net worth to
be reduced below either (i) the amount required for the  liquidation  account or
(ii) the amount of applicable regulatory capital requirements.

     Retained income at December 31, 1998 and 1997 includes  $85,107,000,  which
has been  segregated for federal income tax purposes as a bad debt reserve.  Any
use of this amount for purposes  other than to absorb losses on loans may result
in taxable income, under federal regulations, at current rates. The Bank did not
recognize any tax bad debt  deductions  during the years ended December 31, 1998
or 1997, and recognized $661,000 for the year ended December 31, 1996. (See Note
14.)

Note (19) Commitments and Contingencies
    
     Lease Commitments
     The Bank occupies premises covered by noncancelable  leases with expiration
dates through  October 31, 2002 (exclusive of renewal  options).  Rental expense
under these  leases for the years ended  December  31,  1998,  1997 and 1996 was
$270,000,  $272,000  and  $267,000,  respectively.  At  December  31,  1998  the
projected minimum rental payments (exclusive of possible rent escalation charges
and normal  recurring  charges  for  maintenance,  insurance  and taxes) were as
follows for the years ended December 31:
<TABLE>
                                     Amount
                                 (In Thousands)
                                 --------------
<CAPTION>
                       <S>           <C>   
                       1999          $  191
                       2000             166
                       2001             100
                       2002              50
                       Thereafter       -  
                                     ------
                       Total         $  507
                                     ======
</TABLE>

     Loan Commitments
     At December 31, 1998, commitments to originate mortgage loans, all of which
were at fixed rates,  were  $40,915,000 with stated rates ranging from 6.125% to
7.25%.  At December 31, 1998,  deposit  account  overdraft  lines available were
$832,000,  with stated rates  ranging from 10.00% to 12.00% and unused  business
lines of credit  were  $16,000,  with a stated rate of 15.00%.  At December  31,
1998, there were $175,000 of mortgage loans held-for-sale.

     Security Purchase Commitments
     At December 31, 1998,  there were  commitments  to purchase  $40,000,000 of
federal  agency  securities  at par with a three  month term to  maturity  and a
stated yield of 4.87%. There was a commitment to purchase $10,000,000 of CMOs at
101.07  of par.  This  security  had a stated  rate of 6.00%  and a  contractual
maturity of approximately  eight years. The anticipated  maturity of this CMO is
approximately  forty-eight  months and the  anticipated  yield is  approximately
5.50%.

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


NOTE (20)  Pension Plans and Other Postretirement Benefit Plans
        The Bank sponsors a trusteed  non-contributory  defined  benefit pension
plan (the "Pension Plan") covering substantially all of its full-time employees.
It is the policy of the Bank to fund  current  and past  service  pension  costs
accrued.  In addition,  the Bank  sponsors a pension  benefit  restoration  plan
("Pension  Restore Plan") to provide  retirement  benefits which would have been
provided  under the Pension Plan except for  limitations  imposed by Section 415
and 401(a)(17) of the Internal Revenue Code.  Payments under the Pension Restore
Plan will be paid out of the general assets of the Bank.

<PAGE>

     The Bank's life insurance benefit plan provides for continued  coverage for
retirees  with fifteen  years of credited  service.  The coverage at the time of
retirement,  or age 65, whichever comes first, is reduced by 20% per year over a
five year period to a minimum  coverage of $5,000,  which remains in force until
death.  The retiree has the option each time the  coverage is reduced to convert
all or part of the  reduction to whole-life  coverage at the retiree's  cost. In
accordance  with SFAS No.  106,  costs of  postretirement  benefits  are accrued
during an employee's active working career.

     In accordance with Statement 132, the following tables set forth the Bank's
benefit obligations,  fair values of plan assets and funded status recognized in
the Company's consolidated financial statements for the Pension Plan and Pension
Restore Plan, as combined,  and other  postretirement  benefit plans at December
31:

<TABLE>
                                               Pension Benefits     Other Benefits
                                               ----------------     --------------
                                                1998      1997      1998    1997
                                                ----      ----      ----    ----
                                                          (In Thousands)
<CAPTION>
<S>                                           <C>      <C>       <C>       <C>
Change in benefit obligation
Balance at beginning of year                  $47,133  $ 41,308  $  1,596  $  1,527
  Service cost                                  1,239       998        24        24
  Interest cost                                 2,624     2,568        96        96
  Actuarial (gain)/loss                        (1,150)    3,930         -         -
  Benefits paid                                (1,745)   (1,671)      (53)      (51)
                                              -------------------------------------
Balance at end of year                        $48,101  $ 47,133  $  1,663  $  1,596
                                              =====================================

Change in plan assets
Balance at beginning of year                  $63,711  $ 52,873  $      -  $      -

  Actual return on plan assets,
   net of expenses                              9,020    12,475         -         -
  Employer contribution                            34        34        53        51
  Benefits paid                                (1,745)   (1,671)      (53)      (51)
                                              -------------------------------------
Balance at end of year                        $ 71,020 $ 63,711  $      -  $      -  
                                              =====================================

Funded status                                   22,919   16,578    (1,663)   (1,596)
Unrecognized net asset                          (2,885)  (3,340)        -         -

Unrecognized prior service cost                  1,428    1,572         -         -
Unrecognized actuarial (gain)/loss)            (17,658) (12,948)        -         -
                                              --------------------------------------
Net amount recognized                         $  3,804 $  1,862  $ (1,663) $ (1,596)
                                              ======================================

Amounts recognized in the statement of
 Financial position consist of:
 Prepaid benefit cost                         $  7,917 $  5,763  $      -  $      -

 Accrued benefit liability                      (4,113)  (4,036)   (1,663)   (1,596)
 Accumulated other comprehensive income              -      135         -         -
                                              --------------------------------------
 Net amount recognized                        $  3,804 $  1,862  $ (1,663) $ (1,596)
                                              ======================================
</TABLE>

<TABLE>

     Weighted-average assumptions were as follows as of December 31:

                                                       Pension Benefits              Other Benefits    
                                                   ------------------------     ------------------------
                                                   1998      1997     1996      1998     1997      1996
                                                   ----      ----     ----      ----     ----      ----
<CAPTION>
<S>                                                <C>       <C>      <C>       <C>       <C>       <C>  
Discount rate                                      5.75%     5.75%    6.50%     8.00%     8.00%     8.00%
Expected return on plan assets                     8.00%     8.00%    8.00%      N/A       N/A       N/A
Rate of compensation increase                      6.50%     6.50%    6.50%     6.50%     6.50%     6.50%
</TABLE>

<PAGE>

     The  components of net periodic  benefit cost were as follows for the years
ended December 31:
<TABLE>
                                                           Pension Benefits             Other Benefits      
                                                ----------------------------      -------------------------      
                                                   1998       1997      1996      1998       1997      1996
                                                   ----       ----      ----      ----       ----      ----
                                                                       (In Thousands)
<CAPTION>
<S>                                             <C>       <C>        <C>       <C>       <C>       <C>     
Service cost                                    $  1,239  $    998   $  1,078  $     24  $     24  $     24
Interest cost                                      2,624     2,568      2,513        96        96        97
Expected return on plan assets                    (5,032)   (4,167)    (3,719)        -         -         -
Amortization of unrecognized net asset              (454)     (454)      (454)        -         -         -

Amortization of prior service cost                   145       145        145         -         -         -
Recognized actuarial (gain)/loss                    (429)     (228)       253         -         -         -
                                                -----------------------------------------------------------
Net periodic benefit cost                       $ (1,907) $ (1,138)  $   (184) $    120  $    120  $    121
                                                ===========================================================
</TABLE>


         The projected benefit  obligation,  accumulated  benefit obligation and
fair  value  of plan  assets  for the  pension  plan  with  accumulated  benefit
obligations  (i.e.  the  Pension  Restore  Plan) in excess of plan  assets  were
$4,043,000,  $3,544,000  and $0,  respectively,  as of December  31,  1998,  and
$4,728,000, $4,036,000 and $0, respectively, as of December 31, 1997.

Note (21)  Incentive Savings Plan
     The Incentive  Savings Plan (the "Savings Plan") is a defined  contribution
and thrift  savings plan subject to the  provisions  of the Employee  Retirement
Income  Security Act of 1974 ("ERISA"),  as amended.  Prior to the suspension of
the Savings  Plan  during  1990,  all  full-time  employees  were  eligible  for
voluntary  participation after one year of continuous service.  The Savings Plan
continues to earn income on the Savings Plan's  investments.  The Bank bears the
costs of administering the Savings Plan.

     In connection  with the Bank's adoption of an Employee Stock Ownership Plan
("ESOP")  during 1990, in order to comply with the  limitations set forth by the
Internal Revenue Code regarding  qualified plans, no further  contributions have
been made to the Savings Plan.  Management  has  determined to continue the ESOP
and that contributions to the Savings Plan will remain suspended indefinitely.

Note (22)  Stock Option Plans
     Effective  upon the  conversion of the Bank, in 1990,  from mutual to stock
form of  ownership,  the Company  adopted the  Incentive  Stock Option Plan (the
"Stock Option Plan") and the Option Plan for Outside  Directors (the "Directors'
Option Plan").

    Stock Option Plan. Pursuant to the Stock Option Plan, 1,430,000 common stock
options  (which  expire  ten years from the date of grant,  June 27,  1990) were
granted  to the  executive  officers  and  employees  of  the  Company  and  its
subsidiary,  the Bank.  Each option entitles the holder to purchase one share of
the Company's  common stock at an exercise  price equal to $10.00 per share (the
initial public offering price). Options became exercisable on a cumulative basis
in equal  installments  at a rate of 20% per year  commencing  one year from the
date of grant.  Simultaneously with the grant of these options, "limited rights"
with respect to the shares  covered by the options were granted.  Limited rights
granted are subject to terms and  conditions  and can be  exercised  only in the
event of a change in control of the Company.  Upon exercise of a limited  right,
the holder shall receive from the Company a cash payment equal to the difference
between the exercise  price of the option  ($10.00) and the fair market value of
the underlying shares of common stock. During the years ended December 31, 1998,
1997 and 1996,  98,046,  122,646 and  121,256  options  granted  under the Stock
Option Plan were  exercised,  respectively.  At December 31, 1998, the remaining
226,094 options granted under the Stock Option Plan were exercisable.

      Directors' Option Plan.  Each  member of the  Board of  Directors,  who is
neither an officer  nor an  employee  of the  Company or the Bank,  was  granted
nonstatutory common stock options to purchase 25,000 shares of the common stock.
In addition,  active Directors  Emeritus were each granted  nonstatutory  common
stock options to purchase  10,000 shares of the common stock.  In the aggregate,
members of the Board of Directors and active  Directors  Emeritus of the Company
were granted  options,  with limited rights,  to purchase  170,000 shares of the
common stock of the Company at an exercise price equal to $10.00 per share,  the
initial public offering price.  All options  granted,  including  limited rights
attached thereto, under the Directors' Option Plan expire upon the earlier of 10
years  following  the date of grant or one year  following the date the optionee
ceases to be a Director.  During the years ended  December  31,  1998,  1997 and
1996, 106,250, 6,250, and 2,000 options granted under the Directors' Option Plan
were  exercised.  At  December  31,  1998,  40,500  options  granted  under  the
Directors' Option Plan were exercisable.

      The 1996 Stock Option Plan. The JSB Financial, Inc. 1996 Stock Option Plan
(the  "1996  Option  Plan"),  became  effective  January  1,  1996,  subject  to
stockholder  approval,  which was obtained on May 14, 1996. The Company reserved
800,000  shares of common stock of the Company for issuance upon the exercise of
options.  The 1996 Option Plan  provides  for: (1) the grant of stock options to
directors on an annual basis pursuant to a specified  formula;  (2) the grant of
stock options to officers at the discretion of the Employee  Benefits  Committee
of the Bank;  (3) if  certain  events,  which are  likely to lead to a change in
control of the Company or the Bank, should occur,  stock options relating to any
shares of the  Company  reserved  for  issuance  that were not  previously  made
subject to options,  will be granted to all current  directors  and officers who
were previously  granted stock options under the 1996 Option Plan; (4) the grant
of limited  rights  relating  to all of the  foregoing  options,  which shall be
exercisable  only  upon a change  of  control;  and (5) the  grant  of  dividend
equivalent  rights ("DER") relating to all of the foregoing  options,  which may
provide for a cash payment to the optionee upon exercise of the option, based on
the difference  between the percentage of earnings per share paid by the Company
as cash dividends  compared to the percentage of earnings per share paid as cash
dividends by the  twenty-five  largest  stock owned thrift  institutions  in the
United States, calculated on an annual basis.

         Pursuant to the 1996 Option Plan, each of the Company's Directors,  who
is neither an officer nor an  employee  of the  Company or the Bank,  is granted
annually,  nonstatutory  common  stock  options to purchase  4,000 shares of the
common  stock,  each  active  Director  Emeritus  is granted  2,000  options and
individuals  who become  directors are granted 5,000  options.  Options  granted
under the 1996 Option Plan are granted at an exercise  price equal to the market
closing price of the Company's  common stock on the business day prior to grant.
The option period during which an individual  granted  options may exercise such
option will commence six months after the date of grant and will expire no later
than ten years from the date of the grant.  There were no options exercised from
the 1996 Option Plan during 1998.  During 1997,  8,000 options  granted from the
1996  Option  Plan were  exercised.  At December  31,  1998,  all of the 496,000
options  outstanding  under the 1996  Option  Plan were  exercisable.  Effective
January 1, 1999,  an additional  154,000  options were granted at an exercise of
$54.375 per share.

<TABLE>
         The following table presents option transactions  summarized for all of
the Company's stock option plans for the years ended December 31, 1996, 1997 and
1998.
<CAPTION>
                                                                          Weighted
                                                                          Average
                                                       Number of          Exercise
                                                        Shares             Price
                                                        ------            ---------
      <S>                                              <C>                <C>   
      Options outstanding at December 31, 1995          727,971           $10.00
      1996 Grants                                       165,000            31.63
      1996 Forfeitures                                   (4,929)           10.00
      1996 Exercises                                   (123,256)           10.00
                                                        -------

      Options outstanding at December 31, 1996          764,786            14.67
      1997 Grants                                       175,000            38.48
      1997 Forfeitures                                     -                 -
      1997 Exercises                                   (136,896)           11.45
                                                        -------

      Options outstanding at December 31, 1997          802,890            20.40
      1998 Grants                                       164,000            50.06
      1998 Forfeitures                                     -                 -
      1998 Exercises                                   (204,296)           10.00
                                                        -------

      Options outstanding at December 31, 1998          762,594           $29.57
                                                        =======

      Options exercisable at December 31, 1998          762,594           $29.57
                                                        =======
</TABLE>
         The range of  exercise  prices on options  outstanding  were  $10.00 to
$50.06, $10.00 to $47.88, and $10.00 to $31.63, for the years ended December 31,
1998, 1997 and 1996,  respectively.  The weighted average remaining  contractual
life for all stock options outstanding at December 31, 1998 was 5.4 years.

<TABLE>
         In accordance  with Statement  123, the Company used the  Black-Scholes
option-pricing  model to  determine  the fair  value of the 1998,  1997 and 1996
option grants, using the following weighted average assumptions:
<CAPTION>

                                                1998          1997          1996
                                                ----          ----          ----
<S>                                           <C>           <C>           <C>  
Dividend yield                                  3.07%         3.63%         3.63%
Expected volatility                            20.75         20.93         21.92
Risk-free interest rate                         5.74          6.28          5.44
Expected option lives                         5.7 Years     6 Years       6 Years

</TABLE>

<PAGE>

         On a pro forma basis, had  compensation  expense for the Company's 1996
Stock Option Plan been determined based on the fair value at the grant dates for
awards made under that plan, in accordance  with the expense method of Statement
123, the  Company's net income and earnings per share would have been reduced as
follows for the years ended December 31:
<TABLE>

                                                    1998       1997       1996
                                                    ----       ----       ----
<CAPTION>
            <S>                                <C>        <C>        <C>    
            Net income (as reported)           $44,388    $37,090    $26,725
            Pro forma net income               $43,378    $36,288     26,188

            Basic EPS (as reported)              $4.53      $3.76      $2.66
            Pro forma Basic EPS                  $4.43      $3.68      $2.60

            Diluted EPS (as reported)            $4.41      $3.64      $2.56
            Pro forma Diluted EPS                $4.31      $3.56      $2.51
</TABLE>

         The pro forma results  presented above may not be representative of the
effects reported in pro forma net income for future years, because Statement 123
was not applied to all outstanding, non-vested awards, as Statement 123 does not
apply to awards prior to January 1, 1996.

         The Company modified the 1996 Stock Option Plan, as originally adopted,
to allow for the cash  payment for the DER to option  holders;  rather than have
the DER reduce the exercise price of the option.  This change separated the cost
of the DER  from the cost of the  option,  and is  expected  to  result  in less
expense  volatility.  The Company  recognized  $270,000,  $73,000 and $99,000 of
expense related to the DER for the years ended December 31, 1998, 1997 and 1996,
respectively.  For 1996 the  Company  recognized  $330,000  in  expense  for the
difference  in market  closing  price  between the option grant date and date of
stockholder approval.

Note (23)  Stock Plans
     Employee Stock  Ownership Plan. Since 1990 the Bank has maintained an ESOP.
For 1996, 1997 and 1998, the Board of Directors authorized  contributions to the
ESOP, to purchase shares, based on approximately 6.0% of employees' base salary.

     ESOP  benefits  generally  become  20% vested  after each year of  credited
service,  becoming  100%  vested  after  five  years of  service  with the Bank.
Forfeited  shares are  reallocated  among  participating  employees  in the same
proportion as contributions.  Benefits are payable upon death, retirement, early
retirement,  disability or separation from service and may be payable in cash or
stock.  The Bank  recorded a net  expense of  $574,000,  $566,000  and  $550,000
related  to the ESOP for the  years  ended  December  31,  1998,  1997 and 1996,
respectively.  There were eight and three unallocated shares in the ESOP Plan at
December 31, 1998 and 1997, respectively, and none at December 31, 1996.

     The  trustee  for the ESOP must vote all  allocated  stock held in the ESOP
trust in accordance  with the  instructions  of the  participants.  Common stock
allocated  to  participants  was  12,451,  15,342 and 17,633 for the years ended
December  31,  1998,  1997 and 1996,  respectively.  The Bank  bears the cost of
administering the ESOP.

     Directors' Stock Program. To further align the outside Directors'  interest
with those of the  Company's  stockholders,  on December  9, 1997,  the Board of
Directors of the Company  authorized  the issuance of up to 20,000 shares of the
Company's common stock to the Company's non-employee directors,  pursuant to the
Jamaica  Savings  Bank FSB  Directors'  Stock  Program  (the  "Directors'  Stock
Program").  Pursuant to the Directors'  Stock Program,  each year,  non-employee
Directors of the Bank will receive shares of the Company's common stock having a
fair market value equal to  approximately  one-third of the annual  directorship
fees  during  such year.  The stock will be issued in lieu of a cash  payment of
such fees.  Shares  distributed  thereunder will be from the Company's  treasury
stock.  The operation of the  Directors'  Stock  Program is automatic,  with the
determination of the appropriate  number of shares to be issued to each director
based on the fair  market  value of the  common  stock at the close of  business
prior to the date of issuance.  Directors do not have the option to receive cash
rather  than  stock in  payment  of the  portion  of their  fees  subject to the
Directors' Stock Program.  During 1998, the Company issued 1,800 shares pursuant
to this program.

Note (24)  Benefit Restoration Plan
     The Bank maintains a non-qualified  Benefit  Restoration Plan (the "Restore
Plan"), to compensate  participants in the Bank's benefit plans that are limited
by Section 415 of the  Internal  Revenue  Code.  With  certain  exceptions,  the
Restore Plan is unfunded.  However,  in connection with the ESOP, which entitles
participants to shares of the Company's common stock and the Savings Plan, which
entitles  participants  to direct  amounts,  if any,  invested in the  Company's
stock,  the Bank  established a trust. The purpose of this trust is to purchase,
on an ongoing basis,  shares of the Company's common stock to which participants
of the Restore Plan are entitled. By establishing this trust, the Bank fixed the
amount of cash  expended for  benefits  payable in shares of common stock of the
Company or its equivalent cash value at the time of payout. The shares of common
stock held by the trust are reflected as  contra-equity  and additional  paid-in
capital on the Consolidated Statements of Financial Condition of the Company. At
December 31, 1998 and 1997,  the trust held 193,723 and 188,323 shares of common
stock,  respectively,  at  an  aggregate  cost  of  $4,477,000  and  $4,199,000,
respectively. The expense recognized for the Restore Plan in connection with the
ESOP for 1998, 1997 and 1996 was $7,000, $113,000 and $105,000, respectively.

Note (25)  Fair Value of Financial Instruments
     SFAS No.  107  "Disclosures  about  Fair  Value of  Financial  Instruments"
("Statement 107") defines the fair value of a financial instrument as the amount
at which the  instrument  could be  exchanged in a current  transaction  between
willing  parties.  Statement 107 provides  limited guidance for calculating fair
value estimates when quoted prices are not available,  therefore the Company has
disclosed the valuation  approach and the material  assumptions  which have been
made. The relevance and  reliability  of the estimates of fair values  presented
are limited, given the dynamic nature of market conditions, including changes in
interest rates, the real estate market,  existing borrowers' financial condition
and numerous other factors over time.

        The  following  methods and  assumptions  were utilized by management to
estimate the fair value of each class of financial  instruments  at December 31,
1998 and 1997:

     Cash and cash  equivalents,  interest due and accrued:  The carrying values
approximate fair value because of the short-term nature of these instruments.

     Securities   available-for-sale,   securities  held-to-maturity  and  other
investments:  The estimated fair values are based on quoted market prices at the
reporting date for those or similar investments, except for FHLB-NY stock, which
is reflected at cost.

     Mortgage and other loans: For certain homogeneous categories of loans, such
as some residential  mortgages and student loans,  fair value is estimated using
the quoted market prices for securities  backed by similar  loans,  adjusted for
differences  in loan  characteristics.  In  addition,  it is assumed that one-to
four-family  fixed rate mortgage loans are FNMA qualifying,  and could therefore
be  packaged  into a MBS.  The  estimated  fair value for the  remainder  of the
mortgage and other loan  portfolios was computed by discounting  the contractual
future cash flows at rates offered by the Bank, which approximate  market rates,
at December 31, 1998 and 1997 on loans with terms similar to the remaining  term
to maturity and to borrowers  with similar  credit  quality.  The estimated fair
value of  non-performing  loans,  if material,  are  calculated on an individual
basis, applying a discount commensurate with the credit risk.

        Techniques  for  estimating  fair value are  extremely  sensitive to the
assumptions  and  estimates  used.   While   management  has  attempted  to  use
assumptions  and  estimates  which it believes are most  reflective  of the loan
portfolio and the current  market,  a greater degree of subjectivity is inherent
in these values than those determined in formal trading  marketplaces.  As such,
readers are cautioned in using this  information  for purposes of evaluating the
financial  condition  and/or  value  of  the  Company  in and  of  itself  or in
comparison with any other company.

     Deposits: All deposits, except certificates, are subject to rate changes at
any time,  and  therefore  are  considered  to be  carried  at fair  value.  The
estimates  of fair  value for  certificates  reflect  the  present  value of the
contractual  future  cash flow for each  certificate.  The  present  value rates
utilized were the rates offered by the Bank (which  approximate market rates) at
December 31, 1998 and 1997, respectively,  on a certificate with an initial term
to  maturity   equal  to  the  remaining   term  to  maturity  of  the  existing
certificates.

        FHLB-NY   Advances:   Fair  value  estimates  are  based  on  discounted
contractual  cash flows  using  rates which  approximate  the rates  offered for
borrowings of similar remaining maturities.

     Commitments:  Commitments  to originate  loans and purchase  securities are
derived by applying the fees currently charged to enter into similar agreements,
taking into account the remaining terms of the agreements and the present credit
worthiness of the  counterparties.  For fixed-rate loan  commitments,  estimated
fair value also considers the difference between interest rates on the reporting
date and the committed  rates.  The  estimated  fair value of lines of credit is
based on the fees charged for similar  agreements  or on the  estimated  cost to
terminate them or otherwise  settle the obligations with the  counterparties  at
the reporting  dates.  The  commitments  existing at December 31, 1998 and 1997,
would have been offered at substantially the same rates and under  substantially
the same terms that would have been offered at December 31, 1998 and 1997 to the
counterparties;  therefore the estimated fair value of the  commitments was zero
at those dates.

<PAGE>

<TABLE>
        The following  table presents  carrying values and estimated fair values
of financial instruments at December 31:
<CAPTION>

                                           1998                      1997          
                                   --------------------      ----------------------
                                              Estimated                   Estimated
                                   Carrying     Fair          Carrying      Fair
                                     Value      Value           Value       Value  
                                   -------    ---------       --------    ---------
                                                   (In Thousands)
<S>                              <C>          <C>           <C>          <C>
Financial assets
   Cash and cash equivalents     $  112,849   $  112,849    $   74,924   $   74,924
   Securities available-for-sale     83,592       83,592        62,243       62,243
   Securities held-to-maturity      208,457      208,906       352,967      353,996
   Other investments                  8,922        8,922         7,645        7,645
   Mortgage loans, gross          1,155,358    1,197,873       979,810    1,031,586
   Other loans, gross                22,927       22,915        29,148       29,256
   Interest due and accrued           8,773        8,773         9,278        9,278

Financial liabilities
   Deposits                      $1,124,166   $1,126,151    $1,121,203   $1,121,903
   FHLB-NY advances                  50,000       50,249             -            -

</TABLE>

NOTE (26)  Regulatory Capital
     The Bank is subject to various regulatory capital requirements  established
by the federal banking  agencies.  Failure to meet minimum capital  requirements
can initiate certain mandatory and possibly additional  discretionary actions by
regulators  that,  if  undertaken,  could have a direct  material  effect on the
Bank's  financial   statements.   Under  capital  adequacy  guidelines  and  the
regulatory  framework for prompt corrective  action, the Bank must meet specific
capital  guidelines  that involve  quantitative  measures of the Bank's  assets,
liabilities and certain off  balance-sheet  items as calculated under regulatory
accounting  practices.  The Bank's capital amounts and  classification  are also
subject to  qualitative  judgments  by the  regulators  about  components,  risk
weightings and other factors. (See also Note 18.)

     Quantitative  measures established by regulation to ensure capital adequacy
require the Bank to maintain minimum capital amounts and ratios. The most recent
notification  from the  Office of Thrift  Supervision  ("OTS"),  as of March 31,
1998,  categorized the Bank as "well capitalized" under the regulatory framework
for prompt  corrective  action.  There are no  conditions  or events  since that
notification  that  management  believes  have changed the  institution's  "well
capitalized"  status.  The  following  table sets forth the required  ratios and
amounts and the Bank's actual capital ratios and amounts at December 31:
<TABLE>

                                                                   To be Well Capitalized
                                                  For Capital     Under Prompt Corrective
                                  Actual       Adequacy Purposes      Action Provisions  
                              --------------   -----------------  -----------------------
                              Amount   Ratio    Amount    Ratio      Amount    Ratio
                              ------   -----    ------    -----      ------    -----
                                                (Dollars in Thousands)
<CAPTION>

<S>                           <C>       <C>     <C>        <C>      <C>        <C> 
1998
  Total risk-based capital
    (to risk weighted assets) $302,663  24.62%  $ 98,362   8.00%    $122,953   10.00%
  Tangible capital
    (to tangible assets)       276,364  18.25     22,717   1.50        N/A      N/A
  Tier I leverage (core)
   capital (to adjusted
   tangible assets)            276,364  18.25     45,434   3.00       75,723    5.00

1997
  Total risk-based capital
    (to risk weighted assets) $224,444  21.66%  $ 82,889   8.00%    $103,612   10.00%
  Tangible capital
    (to tangible assets)       229,168  16.35     21,020   1.50         N/A     N/A
  Tier I leverage (core)
   capital (to adjusted
   tangible assets)            229,168  16.35     42,040   3.00       51,806    5.00
</TABLE>

     The OTS regulatory capital  requirements  incorporate an interest rate risk
("IRR")  component.  Savings  institutions  with "above normal" IRR exposure are
subject to a deduction from regulatory capital for purposes of calculating their
risk-based  capital  requirements.  Implementation of the IRR component has been
delayed by the OTS.

     OTS regulations  generally  require that  institutions  deduct from capital
their  investment in and advances to  subsidiaries  engaged,  as  principal,  in
activities not permissible for national banks, such as real estate  development.
OTS regulations  also require that all equity and direct  investments  including
all loans and advances in which a legally  binding  commitment  existed at April
12,  1989 be deducted  from  capital for the  purposes of  computing  regulatory
capital  ratios.  As a result of this  regulation,  the Bank  excluded  from its
regulatory  capital  $4,588,000  and  $6,827,000  at December 31, 1998 and 1997,
respectively.

     Distributions charged against an institution's  capital accounts,  such as,
the upstreaming of funds to holding companies are subject to certain limitations
under OTS regulations.  An institution,  such as the Bank, which meets its fully
phased-in capital requirements is able to pay dividends to the Company,  upon 30
days notice to the OTS, in an amount that would reduce its surplus capital ratio
by one-half at the beginning of the year, plus all of its net income  determined
on the basis of generally accepted accounting principles for that calendar year.
The institution must continue to meet all fully phased-in  capital  requirements
after the proposed capital distribution.

Note (27)  Parent Only Financial Information
     The following  condensed  statements of financial condition at December 31,
1998 and 1997 and the condensed  statements of operations and cash flows for the
years ended December 31, 1998,  1997 and 1996, for JSB Financial,  Inc.  (parent
company-only)  present the Company's investment in its wholly-owned  subsidiary,
the Bank, using the equity method of accounting.
<TABLE>

                   Condensed Statements of Financial Condition
                           December 31, 1998 and 1997
                                 (In Thousands)
<CAPTION>
                                                      1998            1997
                                                      ----            ----
<S>                                                <C>             <C>
ASSETS
Cash and cash equivalents                          $ 21,102        $ 17,164
Securities held-to-maturity, net (estimated fair
  value of $39,995 and $70,000, respectively)        40,000          70,000
Mortgage loans, net                                    -             15,195
Other assets, net                                       410             726
Investment in subsidiary                            321,155         264,464
                                                   --------        --------
      Total Assets                                 $382,667        $367,549
                                                   ========        ========

LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities, net                                   $     30        $     35
Stockholders' equity                                382,637         367,514
                                                   --------        --------
       Total Liabilities and Stockholders' Equity  $382,667        $367,549
                                                   ========        ========
</TABLE>

<TABLE>
                       Condensed Statements of Operations
                        For the Years Ended December 31,
                                 (In Thousands)
<CAPTION>
                                                            1998        1997        1996
                                                            ----        ----        ----
<S>                                                      <C>         <C>         <C>    
Dividends from subsidiary                                $  -        $  -        $20,000
Interest income                                            4,596       6,080       6,589
Other income                                               1,087          13          18
                                                         -------     -------     -------
      Total income                                         5,683       6,093      26,607
                                                         -------     -------     -------

Expenses                                                     661         531         451
                                                         -------     -------     -------

Income Before Income Taxes and Equity in
  Undistributed Earnings of the Bank                       5,022       5,562      26,156

Provision for Income Taxes                                 1,542       1,781       2,100
                                                         -------     -------     -------

Income Before Equity in Undistributed Earnings
  of the Bank                                              3,480       3,781      24,056
Equity in Undistributed Earnings of the Bank,
  Net of Provision for Income Taxes                       40,908      33,309       2,669
                                                         -------     -------     -------
      Net Income                                         $44,388     $37,090     $26,725
                                                         =======     =======     =======
</TABLE>


<PAGE>

<TABLE>
                       Condensed Statements of Cash Flows
                        For the Years Ended December 31,
                                 (In Thousands)
<CAPTION>

                                                          1998         1997         1996
                                                          ----         ----         ----

<S>                                                    <C>          <C>          <C>
Cash flows from operating activities:
Net income                                             $ 44,388     $ 37,090     $ 26,725
Adjustments to reconcile net income to cash
 provided by operating activities:
Equity in undistributed earnings of the Bank            (40,908)     (33,309)      (2,669)
Decrease (increase) in other assets                         316          (11)         697
Other                                                        88           (2)           - 
                                                       --------    ---------    ----------
   Net cash provided by operating activities              3,884        3,768       24,753
                                                       --------    ---------    ---------

Cash flows from investing activities:
Purchases of securities held-to-maturity               (205,000)    (260,000)    (205,021)
Proceeds from maturities of securities held-
 to-maturity                                            235,000      270,000      215,000
Principal payments on mortgage loans                     15,195           44           40
Accretion of discount in excess of amortization of
 premium on debt securities                                -               7           14
                                                       --------    ---------    ---------
   Net cash provided by investing activities             45,195       10,051       10,033
                                                       --------    ---------    ---------

Cash flows from financing activities:
Cash dividends paid to common stockholders              (15,716)     (13,805)     (12,090)
Payments to repurchase common stock                     (31,466)        -         (27,650)
Proceeds upon exercise of common stock options            2,041        1,568        1,233
                                                       --------    ---------    ---------
   Net cash used by financing activities                (45,141)     (12,237)     (38,507)
                                                       --------    ---------    ---------

Net increase (decrease) in cash and cash equivalents      3,938        1,582       (3,721)
Cash and cash equivalents at beginning of year           17,164       15,582       19,303
                                                       --------    ---------    ---------
Cash and cash equivalents at end of year               $ 21,102    $  17,164    $  15,582
                                                       ========    =========    =========
</TABLE>

<PAGE>


KPMG LLP LOGO


INDEPENDENT AUDITORS' REPORT


To The Stockholders
  and The Board of Directors of JSB Financial, Inc.

We have audited the accompanying  consolidated statements of financial condition
of JSB Financial,  Inc. and subsidiary as of December 31, 1998 and 1997, and the
related consolidated  statements of operations,  changes in stockholders' equity
and cash flows for each of the years in the three year period ended December 31,
1998. These  consolidated  financial  statements are the  responsibility  of the
Company's  management.  Our  responsibility  is to  express  an opinion on these
consolidated financial statements based on our audits.

We  conducted  our  audits  in  accordance  with  generally   accepted  auditing
standards.  Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement.  An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements.  An audit also includes
assessing the  accounting  principles  used and  significant  estimates  made by
management,  as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated  financial statements referred to above present
fairly, in all material respects, the financial position of JSB Financial,  Inc.
and  subsidiary  at  December  31,  1998  and  1997,  and the  results  of their
operations  and their cash flows for each of the years in the three year  period
ended  December 31, 1998,  in  conformity  with  generally  accepted  accounting
principles.


                                    KPMG LLP

Melville, New York
January 28, 1999


REPORT OF MANAGEMENT RESPONSIBILITY

To the Stockholders:

Management is responsible for the preparation and integrity of the  Consolidated
Financial  Statements and all other information  included in this Annual Report.
The financial  statements  were prepared in conformity  with generally  accepted
accounting  principles and reflect,  in all material respects,  the substance of
events and transactions  reported in the statements and  management's  judgments
and estimates  with respect to such  matters.  The other  financial  information
included in the Annual Report is consistent with the financial statements.

Management has established and maintains an internal control structure  designed
to provide  reasonable  assurance as to the  integrity  and  reliability  of the
financial  statements,  the  protection  of  assets  from  unauthorized  use  or
disposition,  the  execution of  transactions  in accordance  with  management's
authorizations,   and  the  prevention  and  detection  of  improper   financial
reporting.  Management  monitors the internal control  structure for compliance,
adequacy and cost effectiveness. Management believes that the Company's internal
control structure is adequate to accomplish the objectives discussed herein.

JSB Financial, Inc.'s independent auditors have been engaged to perform an audit
of the Consolidated  Financial  Statements in accordance with generally accepted
auditing  standards and the auditors'  report  expresses their opinion as to the
fair presentation of the Consolidated  Financial Statements and their conformity
with generally accepted accounting principles.  The Audit Committee of the Board
of Directors is responsible for overseeing the Company's financial reporting and
internal control  structure.  The Board of Directors' Audit Committee,  which is
composed  entirely of directors who are not employees of JSB Financial,  Inc. or
Jamaica Savings Bank, meets periodically with the independent auditors, internal
auditors and with management to discuss audit,  internal accounting controls and
financial reporting matters.

                                           Park T. Adikes
                                           Chairman of the Board and
                                           Chief Executive Officer


                                           Thomas R. Lehmann
                                           Chief Financial Officer and
                                           Executive Vice President