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


                                    FORM 10-K

            [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
                 SECURITIES EXCHANGE ACT OF 1934 [FEE REQUIRED]

                      For the year ended December 31, 1996

                                       OR

          [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
                SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]

                         Commission file number 0-18620

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


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

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

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

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

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


     Indicate  by check mark  whether the  Registrant  (1) has filed all reports
     required to be filed by Section 13 or 15(d) of the Securities  Exchange Act
     of 1934 during the preceding 12 months (or for such shorter period that the
     registrant was required to file such reports),  and (2) has been subject to
     such filing requirements for the past 90 days.

                              Yes    X     No
                                   -----      -----

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

     The aggregate  market value of voting stock held by  non-affiliates  of the
     registrant  as of March 11,  1997:  Common  stock par value $.01 per share,
     $346,934,107. This figure is based on the closing price by the Nasdaq Stock
     Market  for a share of the  registrant's  common  stock on March 11,  1997,
     which was $41.50 as reported in the Wall Street Journal on March 12, 1997.

     The number of shares of the  registrant's  Common Stock  outstanding  as of
     March 17, 1997 was 9,824,884 shares.


     DOCUMENTS  INCORPORATED  BY  REFERENCE:  Portions of the  definitive  Proxy
     Statement for the Annual Meeting of Stockholders to be held on May 13, 1997
     and portions of the 1996 Annual  Report to  Stockholders  are  incorporated
     herein by reference Parts I, II and III.



<PAGE>



                         FORM 10-K CROSS-REFERENCE INDEX

PART I                                                                   Page
Item  1.  Business .....................................................   3
Item  2.  Properties....................................................  33
Item  3.  Legal Proceedings.............................................  33
Item  4.  Submission of Matters to a Vote of Security Holders...........  33
Additional Item.  Executive Officers....................................  34

PART II
Item  5.  Market for JSB Financial Inc.'s Common Equity
            and Related Stockholders' Matters...........................  35
Item  6.  Selected Financial Data.......................................  35
Item  7.  Management's Discussion and Analysis of Financial Condition
            and Results of Operations...................................  35
Item  8.  Financial Statements and Supplementary Data ..................  35
Item  9.  Changes in and Disagreements with Accountants on Accounting
            and Financial Disclosure....................................  35

PART III
Item 10.  Directors and Executive Officers..............................  36
Item 11.  Executive Compensation........................................  36
Item 12.  Security Ownership of Certain Beneficial Owner6
            and Management..............................................  36
Item 13.  Certain Relationships and Related Transactions................  36

PART IV
Item 14.  Exhibits, Financial Statement Schedules and Reports on
            Form 8-K....................................................  37

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



<PAGE>


                                     PART I

ITEM 1.  BUSINESS
         --------
                             DESCRIPTION OF BUSINESS

General
-------

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

     In addition to the Company's investment in the Bank, the Company invests in
U.S. Government and agency securities, federal funds sold (through the Bank) and
holds  first  mortgage  loans.  The Company  received  the  mortgage  loans as a
dividend from the Bank. (See Note 27 to the Consolidated  Financial  Statements,
included on pages 41 and 42 in the 1996 Annual Report to Stockholders.)

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

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

     Since 1990, the Company has maintained stock  repurchase  programs and paid
quarterly cash dividends to stockholders.  During 1996, the Company  repurchased
845,000 shares of its common stock at an average price of $32.72 per share,  and
paid total cash dividends of $12.1 million, or $1.20 per common share.

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

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

     Local Economy - The primary market area for the Bank is concentrated in the
neighborhoods surrounding its thirteen full service offices. Management believes
that its  branch  offices  are  located in  communities  that can  generally  be
characterized as stable, residential  neighborhoods,  comprised predominantly of
one-to  four-family  residences  and  middle  income  families,  except  for the
Manhattan branch which is in urban New York City.  During the late 1980's to the
early 1990's, the New York metropolitan area experienced reduced employment as a
result of the general  decline in the local economy and other factors.  The area
experienced a general  decline in real estate values and a decline in home sales
and  construction  and, sharp  decreases in the value of commercial  properties,
land, as well as cooperatives and condominiums.  Currently there are a number of
encouraging  signs in the local  economy  and the Bank's  real  estate  markets;
however, it is unclear how these factors will affect the Company's asset quality
in the future.

<PAGE>

     These  negative  trends have  stabilized  somewhat in more recent  periods;
however,  there can be no assurances  that  conditions in the regional  economy,
national  economy,  or real estate  market in general  will not  deteriorate.  A
weakness or  deterioration  in the  economic  conditions  of the Bank's  primary
lending area in the future could  result in the Bank  experiencing  increases in
non-performing  loans.  Such increases would likely result in higher  provisions
for possible loan losses, reduced levels of earning assets which would lower the
net interest  income and possibly  result in higher  levels of other real estate
owned ("ORE") expense.

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

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

     General - The Bank  offers a variety of loans to serve the credit  needs of
the  communities  in which it operates.  The Bank's loan  portfolio is comprised
primarily of first mortgage loans secured by:  multi-family  rental  properties;
cooperative  buildings;  one-to four-family residences (which is almost entirely
comprised  of mortgages  secured by one-to  two-family  residences);  commercial
property and to a lesser extent,  construction loans. The Bank also offers other
loans,  including:  property  improvement;  loans  secured by deposit  accounts;
student loans;  automobile  loans and personal  loans. At December 31, 1996, the
loan  portfolio  was $854.8  million,  net of  allowances  of $5.3  million  and
unearned  fees and discounts of $3.8  million.  At December 31, 1996,  net loans
represented  56.4% of the Company's  total assets.  During 1996,  mortgage loans
originated for portfolio  were $136.2  million  compared to $77.8 million during
1995. The Bank does not offer any loans that provide for negative  amortization.
(See "Loan  Portfolio" and "Maturities and  Sensitivities of Loans to Changes in
Interest  Rates"  page 25,  herein.)  Management  monitors  the economy and real
estate  market in which the Bank  operates and modifies its lending  policies as
considered appropriate.

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

<PAGE>

     In  addition,  the Bank makes 6 month  construction  loans to a builder who
constructs  one and  two-family  houses in the Bank's market area. The loans are
approved on a per  building  basis and the Bank holds the first  mortgage on the
premises  and obtains a personal  guarantee  from the  builder.  At December 31,
1996, the Bank held a total $1.8 million in construction loans.

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

     Multi-family, Underlying Cooperative and Commercial Real Estate Lending The
Bank originates mortgage loans secured by multi-family  dwellings of 50 units or
more,  cooperative  buildings and income  producing  properties such as shopping
centers.  At December 31, 1996, 51.8% of total gross mortgage loans were secured
by multi-family  rental properties,  31.4% by cooperative  buildings and 7.4% by
commercial  real  estate.  At that date,  the Bank's ten largest  loans  totaled
$112.4 million.  These ten mortgage loans were comprised of: five loans totaling
$57.2 million secured by multi-family  rental  properties;  three loans totaling
$31.6 million  secured by underlying  cooperative  buildings;  one $12.8 million
mortgage loan secured by the land underlying a luxury  Manhattan  hotel; and one
$10.8  million loan  secured by a shopping  center.  At December  31, 1996,  the
Bank's  largest  loan  was an  $18.5  million  mortgage  loan  secured  by a 684
apartment complex.  The Bank's largest  underlying  cooperative loan which had a
balance of $12.8  million  at  December  31,  1996 was under  foreclosure.  (See
"Delinquencies and Classified Assets" page 26, herein.)

     Substantially  all  of  the  Bank's  mortgage  loans  on  income  producing
properties  are secured by  properties  located  within the Bank's  market area.
Mortgages currently offered on income producing  properties are underwritten for
terms that  generally  do not exceed 10 years.  Since  amortization  (if any) on
multi-family  rental,  underlying  cooperative and commercial  mortgage loans is
over significantly  longer periods than the terms to maturity,  balloon payments
are due at  maturity.  In  establishing  interest  rates,  origination  fees and
amortization terms for these types of loans, management considers current market
conditions,  competition and the risks associated with the property securing the
loan. The interest rates on such loans are usually between 1.25% and 1.75% above
the five to ten year U.S. Treasury  Constant Maturity Index,  depending upon the
term to maturity and level of risk associated with the loan.

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

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

<PAGE>

     Mortgage lending on multi-family,  cooperative,  and commercial  properties
poses  significant  additional  risks to the  lender  as  compared  with  one-to
four-family mortgage lending. At December 31, 1996, the largest concentration of
loans to any one borrower  consisted  of nine  mortgage  loans in the  aggregate
amount of $27.9 million,  of which $12.7 million were held by the Bank and $15.2
million  were held by the Company.  This  concentration  was  comprised of eight
mortgage loans totaling $24.8 million,  secured by income producing multi-family
properties and one $3.1 million loan, secured by a commercial office property.

     Management  continually  monitors the loan  portfolios in order to identify
trends that may affect  future  collectibility.  Specific  attention is given to
concentrations of credit based on the loan collateral and  concentrations to any
one borrower or category of borrower. (See "Delinquencies and Classified Assets"
and "Potential  Problem Loans and Subsequent  Developments"  page 26 through 28,
herein.)

     One-to  Four-Family  Lending - The Bank offers first mortgage loans secured
by one-to four-family residences and condominium units in complexes which are at
least 90% sold and  cooperative  apartment share loans where at least 65% of the
total  cooperative  shares are sold.  While three-to  four-family  mortgages are
offered by the Bank, minimal demand has been experienced.  At December 31, 1996,
one-to four-family  mortgages totaled $76.8 million, of which $68.3 million were
fixed rate mortgage loans and $8.5 million were adjustable rate mortgage ("ARM")
loans. Loan  applications are received from existing  customers and generated by
referrals,  branch and newspaper advertising.  One-to four-family mortgage loans
are generally  underwritten  according to Federal National Mortgage  Association
("FNMA") and Federal Home Loan Mortgage Corporation ("FHLMC") guidelines, except
as to limitations on loan amount.

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

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

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


<PAGE>

     During 1996,  the Bank  originated  $1.6 million of mortgages  for sale and
sold $1.7  million (a $94,000  mortgage was  originated  during  1995),  without
recourse,  on which the Bank retained  servicing rights and income.  Included in
the loan sales were  mortgage  loans of $556,000 to SONYMA  originated  and sold
pursuant to a program aimed at assisting prospective first time home buyers with
low to moderate  income.  As part of the Bank's  agreement  with the  government
agencies,  the Bank  offers  mortgage  loans,  for up to 95% of the lower of the
purchase  price or appraised  value,  on single family  principal  residences to
credit qualified home buyers. In addition, the borrower must have not had income
greater  than 115 percent of the area family  median  income as published by the
U.S.  Department  of  Housing  and Urban  Development  annually  in the  report,
"Estimated  Median  Family  Incomes".  During  1996,  the Bank  entered  into an
agreement to originate  and sell  qualifying  mortgages and FHA Title I loans to
FNMA.  During 1996,  the Bank sold $1.2 million to FNMA.  Management  expects to
enter into an agreement during 1997 to sell up to $1.0 million (which amount may
be modified at the Bank's request) of qualifying mortgages and FHA Title I Loans
to FNMA. The Bank plans to originate and sell, without recourse,  other mortgage
loans in the secondary market and retain servicing.

     On March 1, 1996,  the Bank  reestablished  its FHA Home  Improvement  Loan
Program.  The maximum loan amount for one-to  four-family  properties is $25,000
with a  repayment  term of five or ten years.  Loan  amounts in excess of $7,500
must be  secured.  No equity is required on owner  occupied  properties.  Equity
equal  to the loan  amount  is  required  for  properties  that  are:  non-owner
occupied; income producing; and, not completed structures occupied for less than
six  months.  Loans over  $15,000,  in this  category,  must have an  appraisal.
Inspections  are  required  on all loans in excess of $7,500 or if the  borrower
fails to submit a  completion  certificate.  The Bank plans to sell these loans,
without recourse, to FNMA, and retain servicing.

     Other  Lending  - The  Bank  offers  a  variety  of  other  loan  products,
including:  home improvement loans;  loans secured by deposit accounts;  student
loans;  personal and automobile  loans. At December 31, 1996,  total gross other
loans was $27.9 million, or 3.2% of total gross loans. At December 31, 1996, the
other loan  portfolio was comprised as follows:  property  improvement  loans of
$8.8  million,  or 31.5% of the other loan  portfolio;  loans secured by deposit
accounts,  which are 100% secured,  of $8.3 million,  or 29.9% of the other loan
portfolio;  and  student  loans,  of $6.2  million,  or 22.2% of the other  loan
portfolio.  Student loans are federally  guaranteed to varying degrees. The Bank
sells student loans that are in repayment, without recourse, to the Student Loan
Marketing Association ("SLMA");  the Bank retains servicing for these loans. The
remainder of the  portfolio  was  comprised of various  consumer  type loans and
overdraft lines of credit.

     The Bank offers fixed rate home equity  loans,  which are  reported  herein
with property  improvement  loans.  Home equity loans originated by the Bank are
disbursed at closing, and range from $10,100, to a maximum of $50,000 on one and
two-family  owner-occupied  residences only. Financing is available up to 75% of
the  property's  appraised  value  less any  outstanding  mortgage  balance.  In
connection  with  originating  these loans,  the Bank  charges fees  incurred to
perfect  the lien on the  property.  At  December  31,  1996,  the Bank had $7.1
million of home equity loans, with interest rates ranging from 5.5% to 12.0%.

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


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

     General - Federally  chartered  savings  institutions have the authority to
invest in various  types of liquid  assets,  including  United  States  Treasury
obligations,  securities of various agencies of the federal government,  certain
certificates of deposit of insured  depository  institutions,  certain  banker's
acceptances,  repurchase  agreements and federal funds sold.  Subject to various
restrictions,  federally  chartered  savings  institutions may also invest their
assets in commercial  paper,  investment  grade  corporate  debt  securities and
mutual funds whose assets conform to the investments that a federally  chartered
savings  institution  is  authorized  to make  directly.  At December  31, 1996,
securities and the other investment portfolio combined,  totaled $518.4 million,
or 34.2% of total assets,  of which $299.6  million were in U.S.  Government and
federal agency securities. (See "Investment Portfolio" page 23, herein.)

<PAGE>

     Management  formulates  the  investment  policies  of the  Company  and its
subsidiary,  the Bank, subject to approval by the Board of Directors.  The Chief
Executive Officer, or his designated alternate,  makes investment decisions on a
day-to-day basis while the Board of Directors acts in an advisory capacity.  The
Bank's investments in securities have been primarily in CMOs and short-term U.S.
Government and agency  securities  with an average term to maturity of less than
three years. In response to the low interest rate environment,  beginning during
1992,  the Bank's  purchases of investment  securities  generally  include those
maturing in one to two years. The Bank's  investment policy allows investment in
corporate  debt  securities  rated  AA  or  higher.   The  Bank  classifies  all
securities,  other than marketable  equity  securities,  as  "held-to-maturity".
Marketable equity securities are classified as "available-for-sale"  and carried
at fair value, which aggregated $51.0 million at December 31, 1996. During 1996,
the Company sold or redeemed  marketable  equity  securities  totaling  $30,000,
realizing  gross  gains of $4,000 and gross  losses of $2,000.  Activity  in the
held-to-maturity portfolio included,  purchases of $534.6 million and maturities
of $675.0 million of U.S. Government and federal agency securities and purchases
of $124.3 million and maturities and  amortization  of $114.1 million in the CMO
portfolio, during 1996.

     The Company,  excluding  activities of the Bank, invests in U.S. Government
and agency securities and through the Bank, invests in money market instruments.
By investing in short term  securities  and  maintaining  funds in cash and cash
equivalents  (investments  with an original maturity of less than three months),
the Company is able to meet its liquidity  needs.  In addition,  the Company has
mortgage  loans,  which  were $15.2  million at  December  31,  1996,  that were
received as a dividend from the Bank during 1994.

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

     The Bank purchases Planned  Amortization Class ("PAC") (also referred to as
Planned  Principal  Class) bond CMOs.  PACs are  designed  to receive  principal
payments using a predetermined  principal  balance  schedule derived by assuming
two constant prepayment rates for the underlying mortgage-backed securities. All
of the Bank's CMOs are backed by FHLMC,  FNMA or  Government  National  Mortgage
Association  ("GNMA")  mortgage-backed  securities,  which  are  backed by whole
loans.  Management  believes these securities  represent  attractive and limited
risk alternatives  relative to other investments.  During 1996, the availability
of CMOs that met the Bank's  CMO  investment  guidelines  remained  limited.  At
December 31, 1996,  $155.3  million,  or 10.2% of total assets,  was invested in
CMOs. At December 31, 1996,  the Bank's CMO  portfolio had an estimated  average
maturity of fifteen months.  (See "Contractual  Maturity  Distribution" page 23,
herein.)


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

     General  - The  Bank's  primary  source  of  funds is  deposits,  principal
payments from  maturities on debt  securities  and CMOs,  principal  payments on
mortgage and other loans.  Deposit  flows and mortgage  prepayments  are greatly
influenced  by  general   interest  rate  changes,   economic   conditions   and
competition.  The Bank has not  directly  borrowed  any funds since  1984.  (See
"Borrowings" page 33, herein and "Liquidity and Capital  Resources"  included on
pages 15 through 16 in the 1996 Annual Report to Stockholders.)

<PAGE>

     Deposits - The Bank offers a variety of deposit  accounts having a range of
interest rates and terms.  The Bank's deposits consist of the following types of
accounts:  passbook and lease security;  certificate;  money market;  negotiable
order of withdrawal  ("NOW") and  non-interest  bearing demand  deposits.  As of
December 31, 1996, passbook and lease security accounts represented 52.4% of the
Bank's  total  deposits.  The flow of deposits is  influenced  significantly  by
changes in market interest rates,  general economic  conditions and competition.
The Bank's  deposits are obtained  primarily  from the  communities in which its
branches are located. The Bank does not use brokers to obtain deposits,  relying
primarily on customer service and long-standing  relationships with customers to
attract and retain these  deposits.  Certificate  accounts in excess of $100,000
are not  actively  solicited  by the Bank  nor  does  the Bank pay  preferential
interest  rates on such  accounts.  (See Note 16 to the  Consolidated  Financial
Statements,  included  on  pages  34  and  35  in  the  1996  Annual  Report  to
Stockholders.)

     The Bank controls deposit levels and composition  through its interest rate
structure.  Management  believes that the relatively low level of interest rates
that has prevailed is the primary  cause for the  continued  decline in deposits
over the past three years. Management chose to allow deposits to decline, rather
than pay rates that would result in a lower net income or necessitate  modifying
of the Bank's existing investment structure and guidelines. Rates offered on the
Bank's  deposit  accounts  are  competitive  with those  rates  offered by other
financial  institutions  in its market area.  During 1996,  interest  rates were
relatively  stable.  While the highest  percentage  of deposits  has remained in
passbook and lease security accounts,  the trend of deposit shifts over the past
three years has been  towards  certificate  accounts.  Deposits at December  31,
1996,  decreased by $19.1 million, or 1.6%, compared to deposits at December 31,
1995. The Bank's passbook and lease security accounts,  which decreased by $32.9
million,  or 5.2%,  represented  the most  significant  decrease  of any deposit
category offered by the Bank. Money market accounts decreased by $3.7 million or
4.0%.  However,  certificate  accounts  increased  by  $16.8  million,  or 4.5%.
Management  expects, in the long term, that the Bank will continue to retain its
deposit base. (See "Deposits" pages 31 and 32, herein.)


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

     General  -  Beginning  in the  1970's,  under  its New  York  State  leeway
investment  authority,  the Bank organized a number of  wholly-owned  subsidiary
corporations,  many of which formed  partnerships.  During  those  years,  these
corporations:  (i)  took  "equity  interests"  in  the  construction  of  income
producing  properties on which the Bank made loans,  (ii) acquired and operated,
primarily multi-family properties,  as a result of foreclosure proceedings or by
obtaining  deeds  in lieu of  foreclosure,  and  (iii)  invested  in  commercial
properties in which the Bank established branch offices. In the late 1980's, one
corporation  entered into a joint venture with an unrelated party to construct a
residential  apartment  building to be sold as a  condominium.  At December  31,
1996,  the Bank had 21  subsidiary  corporations,  17 of which are active in the
ownership  or  operation  of  real  estate.  (See  "Grandfathered  Savings  Bank
Authority"  page  18,  herein,  and  Notes  11,  12 and  13 to the  Consolidated
Financial  Statements,  included on pages 32 and 33 in the 1996 Annual Report to
Stockholders.)

     The cyclical nature of real estate markets and interest rates influence the
level of financial risk to property owners.  The Bank through its  subsidiaries,
mitigates such risks through:  (1) their financial  ability to carry  properties
until  their  optimal  use and value can be  achieved;  (2) the use of  internal
property management to maintain these properties;  and (3) continuous monitoring
of properties'  condition and the  investments in properties.  Management  holds
certain  real  estate  properties  for the  production  of income and  therefore
regards them as long-term  investments and holds other  properties for sale. The
condition and estimated values of all significant  properties are monitored on a
continuous  basis.  If  management  determines  to  sell  a  property  held  for
investment,  the property is reclassified to held for sale and  adjustments,  if
any,  are made to  account  for the  property  at the  lower of cost or net fair
value.

     The activities of each of the Bank's wholly-owned  subsidiary  corporations
and the partnerships  they form are described below. Bank subsidiaries that have
converted properties to cooperative residences have done so under New York State
non-eviction plans.  Non-eviction plans provide that rent-stabilized tenants may
remain  tenants in their units after a building  has been sold to a  cooperative
association.  Due to the  uncertainty  of timing and future  sales  value of the
unsold  cooperative  shares,  for financial  statement  purposes,  unsold shares
acquired as a result of converting these properties,  are carried at zero value.

<PAGE>

Gains on the sale of these shares are included in income upon sale. However, for
income tax purposes,  the value of all cooperative  shares,  sold and unsold, in
excess  of the  Bank's  investment  in  the  property  prior  to  conversion  to
cooperative,  was  included  in  taxable  income  at the time of the sale to the
cooperative.  The tax basis of these  cooperative  shares is depreciated for tax
purposes.

     Forty-Second  & Park Corp. -  Forty-Second  & Park Corp. is a  wholly-owned
subsidiary  corporation of the Bank. At December 31, 1996, the subsidiary  owned
31.1% of the shares representing 18 units in a six-story  cooperative  apartment
building  containing 57 residential units and four professional  offices located
in Forest  Hills,  Queens,  New York City ("NYC").  The shares,  relating to the
unsold units, are carried at zero value. The building was originally acquired by
obtaining the deed in lieu of foreclosure in 1979. This building, which had been
poorly maintained prior to acquisition, was renovated. In 1982, the property was
converted to a cooperative and sold to Barclay Plaza North Owner's,  Inc. During
1996, 3 units were sold,  resulting in a net gain,  before  taxes,  of $144,000.
Rents  received  during 1996, on the unsold  apartment  units totaled  $159,000,
covering  the  $146,000  of   maintenance   charges  paid  to  the   cooperative
association.  For 1996,  Forty-Second  & Park Corp.  had net income of $122,000,
after  eliminating  intercompany  transactions.  The  Bank's net  investment  in
Forty-Second & Park Corp. was $11,000 at December 31, 1996.

     Parkway  Associates  -  Parkway  Associates  ("Parkway")  is a  partnership
between two of the Bank's wholly-owned subsidiary corporations,  Grandcet Realty
Corp. and Litneck Realty Corp., each of which has a 50% partnership interest. At
December 31, 1996, Parkway owned 21.1% of the cooperative  shares,  representing
81 unsold apartment units plus parking spaces in a 400 unit  cooperative  garden
apartment  complex  located in Floral  Park,  Queens  County,  NYC.  The shares,
relating  to the unsold  units,  are  carried at zero value.  The  property  was
originally  acquired  through  foreclosure  in 1979 and initially  operated as a
rental property.  In the early 1980's,  these apartments,  which had been poorly
maintained, were substantially renovated. In 1989, the property was converted to
a  cooperative  and sold to Floral Park Owners,  Inc.  During 1996, 7 units were
sold, resulting in a net gain, before taxes, of $231,000.  Rents received during
1996,  from the  unsold  apartments  and  garage  spaces  totaled  $609,000  and
maintenance   charges  paid  to  the  cooperative   association  and  costs  for
maintenance  employees totaled $614,000.  For 1996, Parkway Associates had a net
operating income of $188,000, after eliminating intercompany  transactions.  The
Bank's net investment in Parkway was $48,000 at December 31, 1996.

     Elmback  Associates  -  Elmback  Associates  ("Elmback")  is a  partnership
between  two of the Bank's  wholly-owned  subsidiary  corporations,  Before Real
Estate,  Inc. and Afta Real Estate,  Inc.,  each of which has a 50%  partnership
interest.  At December 31, 1996,  Elmback owned 29.8% of the cooperative  shares
representing  18 unsold  apartment  units in a six story  cooperative  apartment
building  with 61 units,  located in a low to  moderate  income area of Jamaica,
Queens  County,  NYC.  The  property,  originally  acquired  by  deed in lieu of
foreclosure  in  1980,  was  subsequently  renovated  and  operated  as a rental
property.  During 1996, 3 units were sold resulting in a net gain, before taxes,
of $57,000.  In 1988,  the property was converted to a  cooperative  and sold to
87-46 Chelsea Owners, Inc. The shares, relating to the unsold units, are carried
at zero value. Rents received during 1996, on the unsold apartment units totaled
$128,000  covering the $105,000 of maintenance  charges paid to the  cooperative
association.

     In addition,  as part of a 1994 mortgage loan workout  between the Bank and
an unrelated borrower,  Elmback took title to cooperative shares representing 57
unsold  cooperative  apartments in an 82 unit cooperative  property,  located in
Brooklyn,  New York.  During 1994 and 1995,  some of the units were improved and
marketed for sale.  During  1996,  10 units were sold and $148,000 of gains were
deferred.  The remaining 33 units are  reflected on the  Company's  consolidated
statement of financial  condition as ORE, and account for  substantially  all of
the Bank's  $647,000 of ORE. This  property  generated a net loss of $99,000 for
1996. (See "Other Real Estate" page 29, herein.)

     For 1996,  Elmback  Associates had a net operating  loss of $24,000,  after
eliminating intercompany transactions.  The Bank's net investment in Elmback was
$637,000 at December 31, 1996.

<PAGE>

     D & D  Associates  - D & D Associates  ("D&D") is a  partnership  formed by
Pendex  Real  Estate  Corp.  and Sutdex  Real  Estate,  Inc.,  two  wholly-owned
subsidiaries  of the Bank, each of which holds a 50%  partnership  interest.  At
December 31, 1996, D&D owned 27.2% of the shares representing 41 unsold units in
two six-story  cooperative  apartment buildings with 176 units. These buildings,
located in  Jamaica,  Queens  County,  NYC,  were  originally  acquired  through
foreclosure  proceedings in 1981. Subsequent to foreclosure,  the buildings were
renovated and operated as rental  properties.  During 1985, one of the buildings
was converted to a cooperative and sold to the Tyler Towers Owners Corp.  During
1988,  the second  building was converted to a cooperative  and sold to the Park
Sanford Owners Corp. The shares,  relating to the unsold  apartment  units,  are
carried at zero value. During 1996, 12 units were sold,  resulting in a net gain
before  taxes of $139,000.  Rental  income from the  buildings  for 1996 totaled
$245,000  covering the  maintenance  charges of $203,000 paid to the cooperative
association.  For 1996, D&D  Associates had a net operating  income of $166,000,
after eliminating  intercompany  transactions.  The Bank's net investment in D&D
was $68,000 at December 31, 1996.

     Bay Hill Gardens - Bay Hill Gardens is a  partnership  between  110-11 72nd
Ave.,  Corp.  and Yalcrab  Real  Estate,  Inc.,  two of the Bank's  wholly-owned
subsidiary corporations,  each of which holds a 50% interest in the partnership.
For 1996,  this  subsidiary  had net  income  before  taxes of  $462,000,  which
resulted  from a real estate tax refund from prior years.  At December 31, 1996,
the Bank had a net liability for this subsidiary of $55,000, comprised primarily
of accounts payable.

     1995  Associates - 1995  Associates is a partnership  between Jamsab Realty
Corp. and Jasthree Inc., two wholly-owned  subsidiary  corporations of the Bank,
holding 99% and 1% interests in the partnership,  respectively.  The partnership
was formed in 1973 to construct and operate an 18 story  commercial  building at
1995  Broadway,  Manhattan,  NYC,  in which the Bank leased the main floor for a
branch office.  During 1989, the Bank purchased the branch office space from the
partnership upon conversion of the property to a two-unit condominium consisting
of the  branch  office on the main floor and the office  tower.  For 1996,  this
partnership  had  net  income,  before  taxes  of  $851,000,  after  eliminating
intercompany transactions. The Bank's net investment in 1995 Associates was $5.7
million at December 31, 1996.

     Lefmet Corp. - Lefmet Corp., a wholly-owned  subsidiary  corporation of the
Bank, owns and operates  commercial  property consisting of seven stores located
in Kew Gardens,  Queens County,  NYC, one of which the Bank occupies as a branch
office. During 1996, the property generated net income, before federal taxes, of
$42,000, after eliminating intercompany transactions.  The Bank's net investment
in Lefmet Corp. was $195,000 at December 31, 1996.

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

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

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

     During 1996, 12 units were sold,  resulting in deferred  gains of $104,000,
as sales are being accounted for under the cost recovery method. At December 31,
1996, of there were 49 units remaining. For 1996, this property generated pretax
income of  $173,000.  The  Bank's  net  investment  in Jade was $4.6  million at
December 31, 1996.

<PAGE>

     Concerned Management - Concerned Management is a wholly-owned subsidiary of
the  Bank,  which  was  formed in 1979 to manage  and  operate  the real  estate
acquired by the Bank's other subsidiary corporations and partnerships. Concerned
Management operates from an office, which is leased, located in Flushing, Queens
County,  NYC. The Bank's net  investment in Concerned  Management  was $8,000 at
December 31, 1996.

     Other  Subsidiaries - Of the Bank's remaining four wholly-owned  subsidiary
corporations,  three are nominee  corporations used in the conduct of the Bank's
business.  The fourth,  Jam-Ser  Corp.,  was formed to act as agent to sell life
insurance as permitted by New York State law.


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

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


Personnel
---------

     As of December  31,  1996,  the Bank had 315  full-time  employees  and 117
part-time  employees.   The  employees  are  not  represented  by  a  collective
bargaining unit and the Bank considers its relationship with its employees to be
good.


Regulation And Supervision
--------------------------

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

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

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

<PAGE>

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

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

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

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


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

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

<PAGE>

     The  risk-based  capital  standard  for savings  institutions  requires the
maintenance of Tier I (core) and total capital (which is defined as core capital
and supplementary  capital) to risk-weighted  assets of 4% and 8%, respectively.
In determining the amount of risk-weighted assets, all assets, including certain
off-balance  sheet assets,  are  multiplied  by a risk-weight  of 0% to 100%, as
assigned  by the OTS  capital  regulation  based on the risks OTS  believes  are
inherent  in the type of asset.  The  components  of Tier I (core)  capital  are
equivalent to those discussed earlier.  The components of supplementary  capital
currently include  cumulative  preferred stock,  long-term  perpetual  preferred
stock,  mandatory  convertible  securities,  subordinated  debt and intermediate
preferred  stock and the  allowance  for loan and  lease  losses,  limited  to a
maximum of 1.25% of risk-weighted  assets.  Overall, the amount of supplementary
capital included as part of total capital cannot exceed 100% of core capital.

     The OTS regulatory  capital  requirements also incorporate an interest rate
risk  component.  Savings  institutions  with "above normal"  interest rate risk
exposure  are  subject  to a  deduction  from  total  capital  for  purposes  of
calculating  their  risk-based  capital  requirements.  A savings  institution's
interest rate risk is measured by the decline in the net portfolio  value of its
assets (i.e., the difference between incoming and outgoing discounted cash flows
from assets, liabilities and off-balance sheet contracts) that would result from
a  hypothetical  200 basis point  increase or decrease in market  interest rates
divided  by the  estimated  economic  value  of  the  institution's  assets.  In
calculating  its total  capital  under the  risk-based  capital  rule, a savings
institution whose measured interest rate risk exposure exceeds 2% must deduct an
amount equal to one-half of the difference  between the  institution's  measured
interest rate risk and 2%,  multiplied by the  estimated  economic  value of the
institution's  assets.  The  Director  of the OTS may  waive or defer a  savings
institution's  interest rate risk component on a  case-by-case  basis. A savings
institution with assets of less than $300 million and risk-based  capital ratios
in excess of 12% is not subject to the interest rate risk component,  unless the
OTS   determines   otherwise.   At  the  present  time,  the  OTS  has  deferred
implementation  of the interest rate risk  component.  At December 31, 1996, the
Bank met each of its capital requirements, in each case and on a fully phased-in
basis and it is  anticipated  that the Bank will not be subject to the  interest
rate risk component.  A table presenting the Bank's capital position at December
31,  1996 is  presented  in Note 26 to the  Consolidated  Financial  Statements,
contained  on  page  41 of  the  1996  Annual  Report  to  Stockholders,  and is
incorporated herein by reference.

     A reconciliation  between the Bank's regulatory capital and GAAP capital at
December  31, 1996 in the  accompanying  consolidated  financial  statements  is
presented below:
 <TABLE>
 <CAPTION>

                                                            Tangible Capital
                                                             (In thousands)
            <S>                                                  <C>

             GAAP capital-originally reported to
              regulatory authorities and on the Bank's
              consolidated financial statements ............     $  223,791

            Less:
             Regulatory capital adjustments:
              Investments in Non-includable Subsidiaries ...         13,687
              Adjustment for net unrealized gains,
               net of tax ..................................         21,795
                                                                 ----------

               Regulatory Capital...........................     $  188,309
                                                                 ==========

</TABLE>


<PAGE>


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

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

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

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

     Insurance  of Deposit  Accounts - Deposits  of the Bank are  insured by the
BIF.  Both the BIF and the Savings  Association  Insurance  Fund  ("SAIF"),  are
statutorily  required to be recapitalized to a 1.25% of insured reserve deposits
ratio.  Until  1995,  members of the BIF and SAIF were  paying  average  deposit
insurance  premiums of between 24 and 25 basis points.  The BIF met the required
reserve  ratio in 1995,  whereas the SAIF is not  expected to meet or exceed the
required  level until 2002 at the earliest.  This  situation is primarily due to
the statutory requirement that SAIF members make payments on bonds issued in the
late 1980s by the Financing Corporation ("FICO") to recapitalize the predecessor
to the SAIF.

     In view of the BIF's  achieving  the 1.25%  ratio,  the FDIC  adopted a new
assessment  rate  schedule  from 0 to 27 basis  points  under  which  92% of BIF
members paid an annual  premium of only  $2,000.  The $2,000  statutory  minimum
assessment has been eliminated.  With respect to SAIF member  institutions,  the
FDIC adopted a final rule  retaining the  previously  existing  assessment  rate
schedule  applicable to SAIF member  institutions  of 23 to 31 basis points.  As
long as the premium differential continues, it may have adverse consequences for
SAIF members, including reduced earnings and impaired the ability to raise funds
in the capital markets.  In addition,  SAIF members were placed at a substantial
competitive  disadvantage  to BIF members  with  respect to pricing of loans and
deposits and the ability to achieve lower operating costs.

     On September 30, 1996, the President signed into law the Deposit  Insurance
Funds Act of 1996 (the "Funds Act") which, among other things, imposed a special
one-time  assessment on SAIF member  institutions to  recapitalize  the SAIF. As
required by the Funds Act, the FDIC imposed a special  assessment  of 65.7 basis
points on SAIF assessable  deposits held as of March 15, 1995,  payable November
27, 1996.


<PAGE>

     The Funds Act also  spreads the  obligations  for payment of the FICO bonds
across all SAIF and BIF  members.  Effective  January 1, 1997,  BIF deposits are
assessed for the FICO  obligation of 1.3 basis points,  while SAIF deposits will
pay 6.48 basis points. Full prorata sharing of the FICO payments between BIF and
SAIF  members  will occur on the  earlier of January 1, 2000 or the date the BIF
and SAIF are  merged.  The  Funds  Act  specifies  that the BIF and SAIF will be
merged on January 1, 1999, provided no savings associations exist at that time.

     As a result of the Funds Act, the FDIC recently voted to effectively  lower
SAIF assessments  ranging from 0 to 27 basis points as of January 1, 1997, which
rates are comparable to those assessed for BIF members.  The Bank paid $2,000 in
FDIC insurance premiums during 1996, of which $500 was subsequently  refunded as
a result of legislation  eliminating the statutory minimum  assessment.  BIF and
SAIF members will continue to pay  assessments,  as described above, to fund the
FICO  obligation.   Management  cannot  predict  the  level  of  FDIC  insurance
assessments on an on-going basis,  whether the savings  association charter will
be eliminated or whether the BIF and SAIF will eventually be merged.

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

     Thrift  Rechartering  Legislation - The Funds Act provides that the BIF and
SAIF will merge on January 1, 1999 if there are no more savings  associations as
of that date.  That  legislation  also requires that the  Department of Treasury
submit a report  to  Congress  by March  31,  1997  that  makes  recommendations
regarding  a  common  financial  institutions  charter,  including  whether  the
separate  charters for thrifts and banks should be abolished.  Various proposals
to eliminate the federal thrift charter, create a uniform financial institutions
charter and abolish the OTS have been  introduced  in  Congress.  The bill would
require federal savings  institutions to convert to a national bank or some type
of state charter by a specified date (January 1, 1998 in one bill, June 30, 1998
in the other) or they  would  automatically  become  national  banks.  Converted
federal thrifts would generally be required to conform their activities to those
permitted for the charter selected and divestiture of nonconforming assets would
be required over a two year period, subject to two possible one year extensions.
State chartered  thrifts would become subject to the same federal  regulation as
applies to state commercial banks.  Holding  companies for savings  institutions
would become  subject to the same  regulation as holding  companies that control
commercial banks, with a limited  grandfather  provision for unitary savings and
loan  holding  company  activities.  The Bank is unable to predict  whether such
legislation will be enacted,  the extent to which  legislation would restrict or
disrupt its operations or whether the BIF and SAIF funds will eventually merge.

     Loans to One Borrower - Under the HOLA,  as amended,  savings  institutions
are subject to the  national  bank limits on loans to one  borrower.  Generally,
savings  institutions  may not  make a loan to a  single  or  related  group  of
borrowers in an amount greater than 15% of its  unimpaired  capital and surplus.
An  additional  amount  may be lent,  equal  to 10% of  unimpaired  capital  and
surplus,  if such loan is  secured by readily  marketable  collateral,  which is
defined to include certain  financial  instruments and bullion.  At December 31,
1996,  the  Bank was in  compliance  with  this  limitation,  with  the  highest
aggregate  loans to one  borrower  of  $25.2  million,  or 11.2 % of the  Bank's
capital.  The Company,  as a unitary  savings and loan holding  company,  is not
subject to the loan to one borrower limitation.  Management reviews the loans to
one borrower limit at the time the loan is made, however,  subsequent changes in
the Bank's capital position may cause credit concentrations to exceed 15% of the
Bank's capital.  The Bank carefully monitors the  creditworthiness  of borrowers
with high  concentrations  of credit as well as the properties that secure these
loans.

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

<PAGE>

     A  savings  institution  that  fails  the QTL test is  subject  to  certain
operating  restrictions and may be required to convert to a bank charter.  As of
December  31,  1996,  the Bank  maintained  86.3%  of its  portfolio  assets  in
qualified thrift investments and, therefore, met the QTL test.

     Limitations on Capital  Distributions - OTS regulations  impose limitations
upon all capital distributions by savings institutions,  such as cash dividends,
payments to repurchase or otherwise acquire its shares, payments to stockholders
of another  institution  in a cash-out  merger and other  distributions  charged
against  capital.  The rule establishes  three tiers of institutions,  which are
based primarily on an  institution's  capital level. An institution that exceeds
all fully phased-in  capital  requirements  before and after a proposed  capital
distribution  ("Tier 1 Bank") and has not been  advised by the OTS that it is in
need of more than normal  supervision,  could,  after  prior  notice but without
obtaining approval of the OTS, make capital distributions during a calendar year
equal to the greater of (i) 100% of its net earnings to date during the calendar
year plus the amount that would reduce by one-half its "surplus  capital  ratio"
(the  excess  capital  over its fully  phased-in  capital  requirements)  at the
beginning  of the  calendar  year or (ii) 75% of its net income for the previous
four  quarters.   Any  additional  capital  distributions  would  require  prior
regulatory  approval.  In the event a bank's  capital falls below its regulatory
requirements  or is  notified  by the OTS that it is in need of more than normal
supervision,  an institution's  ability to make capital  distributions  could be
restricted.  In addition, the OTS could prohibit a proposed capital distribution
by any institution, which would otherwise be permitted by regulation, if the OTS
determines  that  such  distribution  would  constitute  an  unsafe  or  unsound
practice.  In  December  1994,  the  OTS  proposed  amendments  to  its  capital
distribution  regulation that would  generally  authorize the payment of capital
distributions  without OTS  approval,  provided  the  payment  does not make the
institution  undercapitalized within the meaning of the prompt corrective action
regulation.  However,  institutions in a holding  company  structure would still
have a prior notice  requirement.  At December  31, 1996,  the Bank was a Tier 1
Bank.

     Liquidity  -  Information  regarding  liquidity  appears  under the caption
"Liquidity  and  Capital  Resources"  included  on pages 15 and - 16 in the 1996
Annual Report to Stockholders.

     Assessments - Savings  institutions  are required to pay assessments to the
OTS, to fund the operations of the OTS. The general assessments, to be paid on a
semiannual basis, is computed based upon the savings institution's total assets,
including  consolidated  subsidiaries,  as reported in the institution's  latest
quarterly Thrift  Financial  Report.  The Bank's total  assessments for the year
ended December 31, 1996, was $262,000.

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

     Transactions  with  Related  Parties - The  Bank's  authority  to engage in
transactions  with  related  parties or  "affiliates"  (e.g.,  any company  that
controls or is under common control with an  institution,  including the Company
and the Bank's real estate subsidiaries),  or to make loans to certain insiders,
is limited by Section 23A and 23B of the Federal  Reserve Act  ("FRA").  Section
23A limits the  aggregate  amount of covered  transactions  with any  individual
affiliate  to 10% of the capital and  surplus of the  savings  institution.  The
aggregate  amount of  transactions  with all affiliates is limited to 20% of the
savings institution's capital and surplus.  Certain transactions with affiliates
are required to be secured by collateral in an amount and of a type described in
Section 23A, and the purchase of low quality assets from affiliates is generally
prohibited.  Section 23B provides  that certain  transactions  with  affiliates,
including loans and asset purchases,  must be on terms and under  circumstances,
including  credit  standards,  that  are  substantially  the same or at least as
favorable to the  institution,  as those  prevailing at the time for  comparable
transactions  with  nonaffiliated  individuals  or  entities.  In the absence of
comparable  transactions,  such  transactions  may only  occur  under  terms and
circumstances,  including credit standards,  that in good faith would be offered
to or would  apply to  non-affiliated  individuals  or  entities.  In  addition,
savings  institutions  are  prohibited  from  lending to any  affiliate  that is
engaged in activities that are not permissible for bank holding  companies under
Section 4(c) of the Bank Holding Company Act.  Further,  no savings  institution
may invest in the securities of any affiliate other than a subsidiary.

<PAGE>

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

     Enforcement  -  Under  the  FDI  Act,  the  OTS  has  primary   enforcement
responsibility over savings  institutions and has the authority to bring actions
against the  institution  and all  "institution-affiliated  parties,"  including
stockholders,  and any attorneys,  appraisers and  accountants  who knowingly or
recklessly participate in wrongful action likely to have an adverse effect on an
insured institution.  Formal enforcement action may range from the issuance of a
capital  directive,  or cease and desist orders;  the removal of officers and/or
directors;  appointment of a receiver or conservator;  or termination of deposit
insurance.  Civil  penalties  cover a wide range of violations  and an amount to
$25,000 per day, or possibly $1 million per day in especially  egregious  cases.
Under the FDI Act,  the FDIC has the  authority  to recommend to the Director of
the OTS  enforcement  action to be taken with  respect to a  particular  savings
institution.  If action is not taken by the Director,  the FDIC has authority to
take such action  under  certain  circumstances.  Federal  law also  establishes
criminal penalties for certain violations.

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

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

        The  grandfathered  powers  include the  authority  to invest in various
types of investment securities, including corporate bonds and stock, and in real
estate development.  In addition,  the Bank has grandfathered  authority to make
leeway investments,  which include, subject to certain specific exceptions,  any
investment  not  otherwise  authorized  by the New York State Banking Law at the
time of the Bank's charter conversion,  provided that any single investment does
not exceed 1% of the Bank's assets and that all such  investments  do not exceed
5% of its assets. At December 31, 1996, the Bank's capital investments, computed
for  regulatory  purposes,  retained  under the  leeway  provisions  were  $14.1
million,  or 1.0% of the Bank's  assets.  Under  generally  accepted  accounting
principles, these assets netted to $10.7 million, on a consolidated basis. These
powers  allow  the Bank to  pursue  diversified  acquisition  opportunities  and
provide the Bank with flexibility in restructuring its assets.  The Bank intends
to continue to utilize  these  powers as  opportunities  arise and as  permitted
under applicable rules and regulations.  (See "Thrift Rechartering  Legislation"
page 16, herein.)

<PAGE>

     Federal  Home  Loan Bank  System - The Bank is a member of the FHLB  System
which  consists  of 12  regional  FHLBs.  The FHLB  provides  a  central  credit
facility,  primarily  for  member  institutions.  The  Bank,  as a member of the
FHLB-New  York  ("FHLB-NY"),  is  required to acquire and hold shares of capital
stock  in the  FHLB-NY  in an  amount  at  least  equal  to 1% of the  aggregate
principal  amount  of  its  unpaid   residential   mortgage  loans  and  similar
obligations at the beginning of each year, or 1/20 of its advances  (borrowings)
from the FHLB-NY, if any, whichever is greater.  The Bank was in compliance with
this  requirement,  with an  investment in FHLB-NY stock at December 31, 1996 of
$6.8  million.  Should the Bank obtain FHLB  advances,  these  advances  must be
secured by specified  types of collateral and may be obtained  primarily for the
purpose of providing funds for residential housing finance.

     The FHLBs are  required to provide  funds for the  resolution  of insolvent
thrifts  and  to  contribute  funds  for  affordable  housing  programs.   These
requirements  have  limited  the  FHLB-NY's  ability to pay  dividends  to their
members and could also result in the FHLBs  imposing  higher  interest  rates on
advances to their members. Further, there can be no assurance that the impact of
FIRREA on the FHLBs will not also cause a decrease  in the value of the  FHLB-NY
stock held by the Bank.  For the years ended  December 31, 1996,  1995 and 1994,
dividends  from the FHLB-NY to the Bank were  $438,000,  $481,000  and  $514,000
respectively.  Changes in the  dividends  paid by the FHLB affect the Bank's net
interest income.

     Federal  Reserve  System - The Federal  Reserve Board  ("FRB")  regulations
require savings  institutions to maintain  non-interest earning reserves against
their transaction accounts (primarily NOW and regular checking accounts). During
1996, the FRB regulations generally required that reserves be maintained against
aggregate  transaction  accounts  as follows:  for  accounts  aggregating  $52.0
million or less (subject to adjustment by the FRB) a reserve  requirement of 3%;
and for  accounts  greater than $52.0  million,  a reserve  requirement  of $1.6
million plus 10% (subject to  adjustment  by the FRB between 8% and 14%) against
that portion of total transaction accounts in excess of $52.0 million. The first
$4.3 million of otherwise  reservable  balances  (subject to  adjustments by the
FRB) were exempted from the reserve requirements. The Bank is in compliance with
the foregoing requirements.

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


Taxation
--------

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

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

     Bad Debt  Reserves:  The Bank, as a "qualifying  thrift",  was permitted to
establish a reserve for bad debts and to make annual  additions  thereto,  which
additions  may,  within  specified  formula  limits,  be deducted in arriving at
taxable  income.  The Bank will be a  qualifying  thrift  only if,  among  other
requirements,  at least  60% of its  assets  are  assets  described  in  Section
7701(a)(19)(C)  of the Internal  Revenue Code of 1986,  as amended (the "Code").
These assets  generally  include  cash,  obligations  of the United States or an
agency or instrumentality  thereof,  certain obligations of a state or political
subdivision  thereof,  residential  real estate loans and related  loans,  loans
secured by savings accounts,  student loans and property used by the Bank in the
conduct of its business.

<PAGE>

     Recently,  the federal law was amended to eliminate the reserve method. The
new law  eliminated  the reserve  method,  including  the  percentage of taxable
income  method of computing  the federal bad debt  deduction  for taxable  years
beginning  after  December  31,  1995.  The  legislation  requires  recapture of
reserves accumulated after 1987 (the base year). The Bank's base year reserve is
equal to the Bank's bad debt reserve at December 31, 1995 for federal income tax
purposes and accordingly there is no excess to recapture. The base year reserves
and supplemental reserve are frozen, not forgiven. These reserves continue to be
segregated  as they are subject to recapture if used for purposes  other than to
absorb losses on loans.

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

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

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

     New York State  adopted  legislation  to reform the  franchise  taxation of
thrift  reserves for loan  losses.  The act applies to taxable  years  beginning
after December 31, 1995. The  legislation,  among other things,  "decouples" New
York  State's  thrift bad debt  provisions  from the federal tax law,  discussed
above and continues to allow a percentage of taxable income bad debt  deduction,
subject to certain  overall  limitations.  The New York State bad debt deduction
will no longer be predicated on the Federal deduction.

     In addition  to the  foregoing,  the New York State Tax Law also  imposes a
temporary  surcharge  equal  to 17% of that  portion  of the NYS  franchise  tax
otherwise  payable which is attributable to the Bank's  activities in NYC and in
several other New York counties in the NYC  Metropolitan  Area.  This  surcharge
currently applies to taxable years ending before December 31, 1997. Further, for
years ending after June 30, 1989 and before July 1, 1997, New York State imposes
a  surcharge.  This  surcharge is equal to 2.5% of the  franchise  tax after the
deduction  of credits for calendar  year 1996.  This credit is reduced to 0% for
years ending after June 30, 1997.

     New York City  adopted  legislation  to reform the  franchise  taxation  of
thrift  reserves for loan  losses.  The act applies to taxable  years  beginning
after December 31, 1995. The  legislation,  among other things,  "decouples" New
York City's thrift bad debt provisions from the federal tax law, discussed above
and  continues  to allow a  percentage  of taxable  income  bad debt  deduction,
subject to certain  overall  limitations.  The New York City bad debt  deduction
will no longer be  predicated on the Federal  deduction.  The New York State and
New York City law allows the percentage of taxable income  deduction  subject to
certain overall limitations.

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



<PAGE>


                                STATISTICAL DATA

     The detailed statistical data which follows is presented in accordance with
Guide 3, prescribed by the SEC. This data should be read in conjunction with the
financial statements and related notes and Management's  Discussion and Analysis
of  Financial  Condition  and  Results  of  Operations  incorporated  herein  by
reference to the 1996 Annual Report to Stockholders as Exhibit 13.01.

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

A, B. Page 9 of the Company's  1996 Annual Report to  Stockholders  (portions of
which are filed herewith as Exhibit 13.01) presents the  distribution of assets,
liabilities  and  stockholders'  equity  and  interest  differential,  under the
caption "Average Balance Sheet" and is incorporated herein by reference.

C.   Interest Differential

     Page 10 of the Company's  1996 Annual Report to  Stockholders  (portions of
which are included herewith as Exhibit 13.01) presents the interest differential
under  the  caption  "Rate/Volume   Analysis"  and  is  incorporated  herein  by
reference.

     Interest Rate Sensitivity Analysis

     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 falling 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,  1996,  the  Company  had a negative  short-term  gap. In
general, the lower the level of market interest rates (on a relative basis), the
shorter  (term) the  Company's  investments.  The Company  generally  invests in
securities with  maturities  ranging from three months to two years. As interest
rates  increase the Company  purchases  securities  with longer  terms,  and may
purchase  securities  with  maturities  of up to three years.  While  management
regularly  reviews  the  Company's  gap  analysis,  the  gap  is  considered  an
analytical   tool  which  has  limited  value.   Management  has  long  followed
short-term,  high quality  standards  for the Company's  interest-earning  asset
portfolios,  resulting  in high  liquidity.  This  strategy  enables the Company
flexibility to reprice assets and liabilities  over a relatively short period of
time.

     The following prepayment rate assumptions for mortgage loans are based upon
historical  performance.  Prepayment  rate  assumptions  for fixed  rate  one-to
four-family mortgage loans and mortgage-backed securities ("MBS") based upon the
remaining term to contractual maturity were as follows: (a) 30% if less than six
months;  (b) 12% if beyond six  months to one year or beyond  five to ten years;
(c) 10% if beyond one year to three  years or beyond ten years to twenty  years;
(d) 8% if beyond three years to five years;  and (e) 19% if beyond 20 years. All
other mortgage loans are assumed to prepay at 3%. Adjustable-rate  mortgages are
assumed to prepay at 15% and second  mortgages  at 18%.  All  deposit  accounts,
which are subject to immediate  withdrawal/repricing,  except certificates,  are
assumed   to   reprice   in   the   earliest   period   presented.    Securities
available-for-sale, which are comprised entirely of marketable equity securities
which do not have a fixed  maturity date, are reflected as repricing in the five
to ten year category.

<PAGE>

         The  following  table sets forth,  as of December 31,  1996,  repricing
information  on  earning  assets  and  interest  bearing  liabilities.  The data
reflects estimated principal amortization and prepayments on mortgage loans, and
estimated attrition of deposit accounts based as previously discussed. The table
does not necessarily  indicate the impact of general  interest rate movements on
the Bank's net interest  income  because the repricing of certain  categories of
assets and liabilities is beyond the Bank'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.

<TABLE>
<CAPTION>

                                                              At December 31, 1996
                                                              --------------------
                                              More      More      More       More      More
                                              Than      Than      Than       Than      Than
                                               3       1 Year    3 Years    5 Years  10 Years    More
                                    0-3      Months     to 3      to 5       to 10    to 20      Than
                                   Months   to 1 Year  Years      Years      Years    Years    20 Years      Total
                                  -------   ---------  ------    -------    -------  --------  --------     ------
                                                                 (Dollars in Thousands)
<S>                               <C>        <C>      <C>        <C>       <C>       <C>        <C>        <C>
Interest earning assets:
  Mortgage loans ,net (1)........ $ 77,153   $157,456 $236,821   $151,854  $163,351  $  31,602  $ 13,991   $  832,228
  Debt and equity securities and
   other investments, net (2)....  101,859     84,829  119,816       -       51,021       -         -         357,525
  CMOs, net......................   29,174     76,756   46,436      2,906      -          -         -         155,272
  MBS, net.......................      301        873    1,748        889     1,081        700      -           5,592
  Other loans, net (1)...........      153        701   12,235      4,291    10,493       -         -          27,873
  Federal funds sold.............   86,500       -        -          -         -          -         -          86,500
                                  --------   -------- --------   --------  --------  ---------  --------   ----------

    Total interest earning assets  295,140    320,615  417,056    159,940   225,946     32,302    13,991    1,464,990
                                  --------   -------- --------   --------  --------  ---------  --------   ----------


Interest bearing liabilities:
  Passbook and lease
   security accounts......... ...  599,951       -        -          -         -          -         -         599,951
  Certificate accounts...........  130,340    193,448   48,391     14,969        17       -         -         387,165
  Money market accounts..........   89,081       -        -          -         -          -         -          89,081
  NOW accounts...................   36,256       -        -          -         -          -         -          36,256
                                  --------   -------- --------   --------  --------  ---------  --------   ----------


    Interest bearing liabilities.  855,628    193,448   48,391     14,969        17       -         -       1,112,453
                                  --------   -------- --------   --------  --------  ---------  --------   ----------


Interest sensitivity gap
  per period.................... $(560,488)  $127,167 $368,665   $144,971  $225,929  $  32,302  $ 13,991   $  352,537
                                 =========   ======== ========   ========  ========  =========  ========   ==========


Cumulative interest
  sensitivity gap............... $(560,488) $(433,321)$(64,656)  $ 80,315  $306,244   $338,546  $352,537   $     -
                                 =========  ========= ========   ========  ========   ========  ========   =======

Percentage of gap per period to
    total assets.................  (36.97%)     8.39%    24.32%     9.56%    14.90%      2.13%     0.92%

Percentage of cumulative gap to
     total assets................  (36.97%)   (28.58%)   (4.26%)    5.30%    20.20%     22.33%    23.25%

<FN>
(1) Includes  non-performing  loans and excludes the allowance for possible loan
losses. 

(2) Securities  available-for-sale  are shown including the market value
appreciation of $39.3 million, before tax, from Statement 115.


Note:
Certain  short  comings are inherent in the method of analysis  presented in the
foregoing table.  For example,  although certain assets and liabilities may have
similar maturities or periods to repricing,  they may react in different degrees
to changes in market interest  rates.  Also, the interest rates on certain types
of assets and liabilities may fluctuate in advance of changes in market interest
rates,  while  interest  rates on other  types may lag behind  changes in market
rates.  Additionally,  certain  assets,  such as ARM loans,  have features which
limit changes in interest  rates on a short-term  basis and over the life of the
asset.  Further,  in event of a change in interest  rates,  prepayment and early
withdrawal  levels may deviate  significantly  from those assumed in calculating
the table.
 </FN>
 </TABLE>



<PAGE>


                              INVESTMENT PORTFOLIO


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

                                                                            At December 31,
                                                                   1996         1995          1994
                                                                   ----         ----          ----
                                                                           (In Thousands)
           <S>                                                    <C>          <C>          <C>
           Securities Available-for-Sale:
             Marketable equity securities, at fair value .....    $ 51,021     $ 40,071     $ 27,646
                                                                  ========     ========     ========

           Securities Held-to-Maturity:
             U.S Government and federal agency securities ....    $299,645     $439,896     $404,651

             CMOs, net .......................................     155,272      144,607      314,180

             Mortgage-backed securities:
               GNMA, net .....................................       4,999        6,667        8,597
               FNMA, net .....................................         152          235          325
               FHLMC, net ....................................         441          655          877
                                                                  --------     --------     --------

               Total .........................................    $460,509     $592,060     $728,630
                                                                  ========     ========     ========


           Other investments:
             FHLB-NY stock (investment required by law) ......    $  6,829     $  6,272     $  6,082
             Other stock......................................          30           30           70
                                                                  --------     --------     --------
               Total other investments........................    $  6,859     $  6,302     $  6,152
                                                                  ========     ========     ========
</TABLE>

Contractual Maturity Distribution

     The table  below sets forth  certain  information  regarding  the  carrying
value,  weighted  average  yields and  maturities  of the  Company's  securities
held-to-maturity at December 31, 1996. The table does not reflect prepayments or
scheduled amortization on CMOs or MBS. For MBS, the maturities indicated are the
dates the final payments are due. For CMOs,  the  maturities  reflect the "final
payment  dates",  which as defined by the issuer,  represent  the latest date by
which the CMO will be retired. The assumptions used by the issuer in calculating
the final payment dates are highly  conservative,  and the actual retirement may
occur earlier than its final payment date. The estimated actual average maturity
on the entire CMO  portfolio  at  December  31,  1996 was  fifteen  months.  For
principal reduction on these securities,  for the years ended December 31, 1996,
1995 and 1994:  See the  "Consolidated  Statements  of Cash Flows",  included on
pages 22 and 23 of the 1996 Annual Report to Stockholders.

<TABLE>
<CAPTION>

                                                           At December 31, 1996
                                                       ------------------------
                         One Year or Less     Over 1 to 5 Years     Over 5 to 10 Years      After 10 years
                       -------------------   -------------------   --------------------    ---------------
                                  Weighted              Weighted              Weighted              Weighted
                       Carrying   Average    Carrying   Average     Carrying  Average     Carrying   Average
                        Value     Yield       Value     Yield        Value     Yield       Value     Yield
                        -----     -----       -----     -----        -----     -----       -----     -----
                                                      (Dollars in Thousands)
<S>                    <C>         <C>       <C>          <C>       <C>         <C>       <C>          <C>
Federal agency ......  $ 95,000    5.29%     $   -          -  %    $   -        -  %     $  -           - %
U.S. Government .....    84,829    5.75       119,816      6.14         -        -           -           -
CMOs ................      -        -          55,649      5.47       99,623    5.82         -           -
MBS .................      -        -           2,152     10.94         -        -          3,440      9.61
                       --------              --------               --------   -----      -------
     Total ..........  $179,829    5.51%     $177,617      5.99%    $ 99,623    5.82%     $ 3,440      9.61%
                       ========              ========               ========   =====      =======
</TABLE>


<PAGE>


                                 LOAN PORTFOLIO

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

<TABLE>
<CAPTION>

                                                                   At December 31,
                                                  ------------------------------------------------
                                                    1996      1995      1994      1993      1992
                                                    ----      ----      ----      ----      ----
                                                                   (In Thousands)
     <S>                                          <C>       <C>       <C>       <C>       <C>
     Mortgage loans:
       Multi-family ..........................    $433,224  $344,337  $294,003  $238,756  $207,192
       Underlying cooperative ... ............     262,221   263,972   251,580   253,460   235,439
       One- to four-family ...................      76,848    82,391    86,531    95,357   113,948
       Commercial ............................      61,829    55,662    58,070    59,942    63,373
       Construction ..........................       1,836     1,492     2,518       410      -
                                                  --------  --------  --------  --------  --------
          Total mortgage loans ...............     835,958   747,854   692,702   647,925   619,952
                                                  --------  --------  --------  --------  --------


     Other loans:
       Student ...............................       6,204     7,466     9,656    11,132    11,504
       Loans secured by deposit accounts .....       8,328     8,489     9,167     9,340    10,076
       Property improvement ..................       8,775     9,165     6,762     5,599     5,624
       Consumer ..............................       4,350     4,092     1,821     1,516     1,892
       Overdraft loans .......................         237       220       224       210       181
                                                  --------  --------  --------   -------  --------
          Total other loans ..................      27,894    29,432    27,630    27,797    29,277
                                                  --------  --------  --------  --------  --------


          Total loans receivable .............     863,852   777,286   720,332   675,722   649,229
                                                  --------  --------  --------  --------  --------


     Less:
       Unearned discounts, premiums and
        deferred loan fees, net ..............       3,751     4,344     4,952     3,210     3,601
       Allowance for possible loan losses ....       5,327     4,697     4,085     4,136     3,554
                                                  --------  --------  --------  --------  --------


          Loans receivable, net ..............    $854,774  $768,245  $711,295  $668,376  $642,074
                                                  ========  ========  ========  ========  ========
                                            
</TABLE>

<PAGE>


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

     The following table shows the  contractual  maturity of the loan portfolios
at December  31,  1996.  The table does not reflect  prepayments,  or  scheduled
principal  amortization  or repricing of adjustable  rate loans.  (For principal
reduction on loans,  for the years ended  December 31, 1996,  1995 and 1994: See
the "Consolidated  Statements of Cash Flows", included on pages 22 and 23 in the
1996 Annual Report to Stockholders.)

 <TABLE>
 <CAPTION>
                                                                                   Other
                                                  Mortgage Loans                   Loans      Total
                                                  --------------                   -----      -----
                                                           (In Thousands)
                                         Under-    One-to
                               Multi-    lying-    Four-     Commer-  Construct-
                               Family    Co-op     Family     cial       tion       Other
                               ------    -----     ------     ----       ----       -----
<S>                           <C>       <C>       <C>       <C>       <C>         <C>        <C>
  Amounts due:
    Within 1 Year .........   $ 35,340  $ 19,603  $  9,053  $ 21,870  $   1,613   $ 8,505    $ 95,984
                              --------  --------  --------  --------  ---------   -------    --------
  After 1 Year:
    1 to 2 years ..........     12,844    22,283       356     6,723       -        1,886      44,092
    2 to 3 years ..........     30,900    12,723       615     2,045        223     2,719      49,225
    3 to 5 years ..........    105,074    73,539     1,227     5,449       -        4,291     189,580
    5 to 10 years .........    218,096   106,368     5,777    22,006       -       10,493     362,740
    10 to 20 years ........     30,516    27,705    36,866     3,736       -         -         98,823
    Over 20 years .........        454      -       22,954      -          -         -         23,408
                              --------  --------  --------  --------  ---------   -------    --------
Total due after 1 year ....   $397,884  $242,618  $ 67,795  $ 39,959  $     223   $19,389    $767,868
                              --------  --------  --------  --------  ---------   -------    --------
      Total amounts due ...   $433,224  $262,221  $ 76,848  $ 61,829  $   1,836   $27,894    $863,852
                              ========  ========  ========= ========  =========   =======    --------
  Less:
    Unearned discounts,
     premiums and deferred
     loan fees, net .......                                                                     3,751
    Allowance for possible
     loan losses ..........                                                                     5,327
                                                                                             --------
  Loans receivable, net ...                                                                  $854,774
                                                                                             ========
</TABLE>


     The following  table sets forth at December 31, 1996,  the dollar amount of
all loans due after December 31, 1997 and whether such loans have fixed interest
rates or adjustable interest rates.
<TABLE> 
<CAPTION>
                                                     Fixed      Adjustable       Total
                                                     -----      ----------       -----
                                                              (In Thousands)
     <S>                                         <C>             <C>          <C>
     Due after December 31, 1996:
        Mortgage loans:
          Multi-family ........................  $  397,884      $  -         $  397,884
          Underlying cooperative ..............     242,618         -            242,618
          One-to four-family ..................      59,302        8,493          67,795
          Commercial ..........................      39,959         -             39,959
          Construction ........................         223         -                223
        Other loans:
          Student .............................       3,319        2,659           5,978
          Loans secured by deposit accounts ...         421         -                421
          Property improvement ................       8,568         -              8,568
          Consumer ............................       4,185         -              4,185
          Overdraft loans .....................         237         -                237
                                                 ----------      -------      ----------
        Total loans receivable ................  $  756,716      $11,152      $  767,868
                                                 ==========      =======      ==========
</TABLE>


<PAGE>


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


     At December 31, 1996, 1995 and 1994,  delinquencies  in the loan portfolios
were as follows:

<TABLE>
<CAPTION>
                                            61-90 Days           90 Days and Over
                                            ----------           ----------------
                                        Number   Principal      Number   Principal
                                         of      balance          of      balance
                                        loans    of loans       loans    of loans
                                        -----    --------       -----    --------
                                                 (Dollars in Thousands)
         <S>                            <C><C>   <C>            <C><C>    <C>
         At December 31, 1996
         --------------------
            Delinquent loans:
            Guaranteed1                  78      $  390         144       $   692
            Non-guaranteed                9          20          15        13,459
                                        ---      ------         ---       -------
                                         87      $  410         159       $14,151
                                        ===      ======         ===       =======
           Ratio of delinquent
             loans to total loans           .05%                   1.64%
                                            ===                    ====

         At December 31, 1995
         --------------------
            Delinquent loans:
            Guaranteed1                  91      $  476         132       $   751
            Non-guaranteed               10       8,165           8           324
                                        ---      ------         ---       -------
                                        101      $8,641         140       $ 1,075
                                        ===      ======         ===       =======
           Ratio of delinquent
             loans to total loans          1.11%                    .14%
                                           =====                    ===


         At December 31, 1994
         --------------------
           Delinquent loans:
           Guaranteed(1)                101      $  585         247       $   960
           Non-guaranteed                 9         119           9           329
                                        ---      ------         ---       -------
                                        110      $  704         256       $ 1,289
                                        ===      ======         ===       =======
           Ratio of delinquent
             loans to total loans           .10%                    .18%
                                            ===                     ===


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


<PAGE>


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

                                                                At December 31,
                                                                ---------------
                                                  1996     1995      1994     1993     1992
                                                  ----     ----      ----     ----     ----
                                                            (Dollars in Thousands)
<S>                                             <C>       <C>       <C>      <C>      <C>
Mortgage loans:
 One-to four-family, multi-family and
  commercial real estate loans:
   Non-accrual loans (1) ...................    $12,754   $20,903   $  500   $ -      $ -
                                                -------   -------   ------   ------   ------
Accruing loans 90 or more days overdue:
 Conventional mortgages ....................        686       311      322      326    1,615
 VA and FHA mortgages (2) ..................        361       557      581      937    1,174
                                                 ------    ------   ------   ------   ------
      Total ................................      1,047       868      903    1,263    2,789
                                                 ------    ------   ------   ------   ------

Other loans:
  Non-accrual loans ........................       -          -       -        -        -
  Accruing 90 or more days overdue:
    Student loans ..........................        331       194      379      429      280
    Consumer loans .........................         19        13        7       19        5
                                                 ------    ------   ------   ------   ------
      Total ................................        350       207      386      448      285
                                                 ------    ------   ------   ------   ------



Total non-performing loans:
  Non-accrual ..............................     12,754    20,903      500     -        -
  Accruing 90 days or more overdue .........      1,397     1,075    1,289    1,711    3,074
                                                 ------    ------   ------   ------   ------
      Total ................................    $14,151   $21,978   $1,789   $1,711   $3,074
                                                =======   =======   ======   ======   ======


Non-accrual loans to total loans ...........       1.48%     2.69%     .07%     -  %     -  %
Accruing loans 90 or more days overdue
  to total loans ...........................        .16       .14      .18      .25      .47
Non-performing loans to total loans ........       1.64      1.78(3)   .25      .25      .47


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


For the years ended 12/31:
Income forfeited due to
 restructured loans ........................    $    62   $    62   $    6    $ -     $  -


Income unrecorded due to
 non-accrual/impaired loans ................    $ 1,180   $   226   $  150(4) $ -     $  -


<FN>

(1) See  "Asset/Liability  Management",  included  on  pages 7 and 8 in the 1996
Annual Report to Stockholders.


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


(3) Does not  include the $8.2  million  mortgage  loan that was on  non-accrual
status, as payments were received through the bankruptcy court.


(4) As part of restructuring  interest was waived,  therefore loan was placed on
non-accrual status.
</FN>
</TABLE>


<PAGE>


     There were no loans included in the preceding  table which were modified in
a troubled debt  restructure  ("TDR").  The entire  balance of impaired loans at
December 31, 1996 represents loans on non-accrual status. The average balance of
impaired  loans for 1996 and 1995 was  $12,754,000  and $208,000,  respectively.
There was no interest  income  recorded  for  impaired  loans (for the period in
which the loans were identified as impaired) during 1996 and 1995. For the years
ended December 31, 1996 and 1995,  impaired loans resulted in foregone  interest
of $1,180,000 and $29,000,  respectively.  At December 31, 1996 and 1995,  loans
restructured  in a TDR,  other than those  classified  as impaired  loans and/or
non-accrual  loans,  were  $1,874,000  and  $1,663,000,  respectively.  Interest
forfeited  attributable  to these loans was $62,000,  $62,000 and $6,000 for the
years ended December 31, 1996, 1995 and 1994, respectively.

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

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

     Allowances  for Possible Loan and Other Credit Losses - The  allowances for
possible  credit  losses  are  established  through  provisions  made,  based on
management's evaluation of the risk inherent in its asset portfolios and changes
in the nature and volume of investment activity. Such evaluation, which includes
a review of all assets for which full collection may not be reasonably  assured,
considers  among  other  matters,  the  estimated  fair value of the  underlying
collateral,  economic  conditions,  historical loss experience and other factors
that warrant  recognition in providing for adequate  credit  allowances.  (For a
more  complete  discussion  of the  Bank's  problem  assets see  "Provision  For
Possible Loan Losses" and "Provision For Possible Other Credit Losses", included
on page 11 in the 1996 Annual Report to Stockholders.)

<PAGE>

    A  savings  institution's  determination  as to the  classification  of its
assets and the amount of its  valuation  allowances  is subject to review by the
OTS, which can order the  establishment  of additional  general or specific loss
allowances. The OTS, in conjunction with other federal banking agencies, have an
interagency  policy  statement on the allowance  for loan and lease losses.  The
policy  statement  provides  guidance  for  financial  institutions  on both the
responsibilities  of management for the assessment and establishment of adequate
allowances and guidance for banking agency  examiners to use in determining  the
adequacy  of general  valuation  allowances.  Generally,  the  policy  statement
requires that:  institutions  have  effective  systems and controls to identify,
monitor and address  asset  quality  problems;  have  analyzed  all  significant
factors that affect the  collectibility of the portfolio in a reasonable manner;
and have established  acceptable  allowance  evaluation  processes that meet the
objectives set forth in the policy statement.

     Potential  Problem  Loans  and Other  Assets  and  Subsequent  Developments
Management has identified underlying  cooperative loans, which are less than 51%
sold and have loan to value ratios  greater than 30% as having a level of credit
risk greater than underlying  cooperative  loans not meeting these criteria.  At
December 31, 1996, two underlying  cooperative loans,  totaling $3.6 million met
both of these conditions.

     Other Real Estate - During  1994,  as part of the  restructuring  of a $1.9
million  mortgage loan secured by a cooperative  building,  the Bank,  through a
subsidiary  corporation,  took  title  to  cooperative  shares  representing  57
apartments in an 82 unit cooperative property, located in Brooklyn, New York. As
part of the  agreement,  the  Bank  made an  additional  five  year  loan to the
cooperative  to  make  improvements  to the  building  and pay  expenses  of the
cooperative  association,  In  addition,  on  February  1, 1994,  the  scheduled
maturity of the mortgage,  the loan was extended for an additional five years at
7.25%.  This  additional  loan is scheduled to be repaid over a five year period
commencing  March  1,  1994  through  maintenance  charged  to  the  cooperative
shareholders.  At December  31,  1996,  the balance of the  additional  loan was
$386,000.

     In  connection  with this  transaction  $1.6  million  of the $2.4  million
cooperative indebtedness was reclassified from mortgage loans to ORE. The amount
classified as ORE is based on the percentage of cooperative  shares owned by the
Bank, compared to the building's total cooperative shares. At December 31, 1996,
the Bank  included  $1.3  million  in  mortgage  loans  and  $607,000  in ORE in
connection  with this  property.  The  carrying  amount of ORE is  increased  by
capitalized improvements,  not to exceed net fair value, and reduced by deferred
gains. At December 31, 1996, a deferred  cumulative gain of $347,000 on the sale
of 24  units  was  deferred;  of the  remaining  33 units  owned  by the  Bank's
subsidiary,  32 units were rented,  and 1 unit was vacant and being marketed for
sale.  This  property  accounted  for all but $40,000 of the  $647,000 in ORE at
December 31, 1996.

     ORE operations generated income of $772,000 for the year ended December 31,
1996. This income reflects a pre-tax gain of $705,000  recognized on the sale of
a property  acquired through  foreclosure  during the first quarter of 1996. The
$705,000  gain  reflects the  recovery of $529,000  for legal fees,  expensed in
prior periods,  incurred in connection with the foreclosure process.  There were
no provisions established against ORE during the year ended December 31, 1996.

     Claims  Receivable - On February 6, 1995, the  Superintendent  of Banks for
the State of New York  seized  Nationar,  a  check-clearing  and trust  company,
freezing all of Nationar's  assets.  On that date,  the Bank had:  Federal funds
sold to  Nationar of  $10,000,000;  demand  accounts of $200,000  and $38,000 of
Nationar  capital  stock  In May,  1995,  management,  in  accordance  with  the
Company's  standard  procedures  for  monitoring  asset  quality  established  a
$2,040,000,  or 20%, valuation  allowance against the claims receivable.  During
1995, the Bank wrote off the $38,000 stock investment.

     During 1996, the Bank received  distributions from the Nationar estate, for
all  amounts  invested,  except the $38,000 of  capital.  Therefore,  during the
fourth quarter of 1996, the Bank fully recovered the $2,040,000 reserve.


<PAGE>


                         SUMMARY OF LOAN LOSS EXPERIENCE


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

Mortgage Portfolio Loan Loss Allowance:                  1996      1995      1994      1993      1992
--------------------------------------                   ----      ----      ----      ----      ----
                                                                     (Dollars in Thousands)
<S>                                                    <C>       <C>       <C>       <C>       <C>
Balance at beginning of period                         $4,575    $3,976    $4,000    $3,400    $2,800
Provision for possible loan losses                        600       600       600       600       600
Loans charged-off                                        -           (1)     (624)     -         -
Recoveries of loans previously charged off                  1      -         -         -         -
                                                       ------    ------    -------   ------    ------
  Balance at end of period                             $5,176    $4,575    $3,976    $4,000    $3,400
                                                       ======    ======    ======    ======    ======

Ratios:

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

Allowance for possible loan losses to
 net mortgage loans at December 31:                       .63%      .62%      .58%      .62%      .55%

Allowance for possible loan losses to mortgage
 loans delinquent 90 days or more at December 31:       37.50%     5.27x     4.40x     3.17x     1.22x

Other Loan Portfolio Loss Allowance:
------------------------------------
Balance at beginning of period                         $  122    $  109    $  136    $  154     $ 176
Provision for possible loan losses                         40        36         8      -            1
Loans charged off                                         (33)      (43)      (40)      (33)      (41)
Recoveries of loans previously charged off                 22        20         5        15        18
                                                       ------    ------    ------    ------     -----
  Balance at end of period                             $  151    $  122    $  109    $  136     $ 154
                                                       ======    ======    ======    ======     =====

Ratios:
-------

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

Allowance for possible loan losses to
 net other loans at December 31:                          .54%      .42%      .40%      .49%      .53%

Allowance for possible loan losses to other
 loans delinquent 90 days or more at December 31:       43.14%    58.94%    28.24%    30.36%    54.04%
</TABLE>


<PAGE>

<TABLE>
<CAPTION>

                                    DEPOSITS

     Deposit balances are summarized as follows at December 31:

                           1996                     1995                    1994
                           ----                     ----                    ----
                      Stated                   Stated                  Stated
                       rate      Amount         rate       Amount       rate       Amount
                       ----      ------         ----       ------       ----       ------
                                         (Dollars in Thousands)
<S>               <C>        <C>           <C>         <C>           <C>         <C>

Balance by interest rate:
    Demand              -  % $   31,940         -  %   $   30,711         - %    $   28,818
    NOW                2.47      36,256        2.47        36,680        2.66        36,866
    Money market       2.96      89,081        2.96        92,774        2.81       109,603
    Passbook & lease
      security         2.71     599,951        2.96       632,879        2.96       717,988

    Certificates:     -            -           -             -       2.95- 3.00         384
                      -            -       3.70- 4.00       2,083    3.01- 4.00     132,837
                  4.14- 5.00    174,155    4.01- 5.00     135,386    4.01- 5.00     131,177
                  5.01- 6.00    187,890    5.01- 6.00     203,054    5.01- 6.00      34,034
                  6.01- 7.00     25,120    6.01- 7.00      29,016    6.01- 7.00       9,063
                  7.01- 8.00       -       7.01- 8.00         863    7.01- 8.00       3,045
                  8.01- 9.00       -       8.01- 9.00        -       8.01- 9.00         609
                  9.01-10.00       -  _    9.01-10.00        -       9.01-10.00        -
                             ----------                ----------                -------
                                387,165                   370,402                   311,149
                             ----------                ----------                ----------
Total deposits               $1,144,393                $1,163,446                $1,204,424
                             ==========                ==========                ==========

Time certificates in
 excess of $100,000          $   32,676                $   27,039                $   19,663
                             ==========                ==========                ==========
</TABLE>




     The  following  table sets forth the  maturity of  certificate  accounts in
amounts of $100,000 or more at December 31:
<TABLE>
<CAPTION>
                                                       1996 
                                                       ---- 
                                                  (In Thousands)
     <S>                                              <C>

     Three months or less                             $11,792
     Over three months  through six months             10,132
     Over six months through twelve months              5,816
     Over twelve months                                 4,936
                                                      -------
                                                      $32,676
                                                      =======
</TABLE>


<PAGE>


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

<TABLE>
<CAPTION>
                             1996                 1995                 1994
                             ----                 ----                 ----
                                         (Dollars in Thousands)

                       Amount    Rate      Amount     Rate      Amount     Rate
                       ------    ----      ------     ----      ------     ----
<S>                 <C>          <C>    <C>           <C>      <C>         <C>

Passbook and lease
 security           $  615,591   2.72%  $  661,356    2.88%    $  765,098  2.77%
Certificates           383,215   5.16      343,229    5.14        292,762  3.75
Money Market            91,597   3.08       99,016    3.08        122,277  2.78
NOW                     36,338   2.47       37,073    2.55         37,937  2.56
                    ----------          ----------             ----------
                    $1,126,741   3.57%  $1,140,674    3.57%    $1,218,074  3.00%
                    ==========          ==========             ==========
</TABLE>

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


<TABLE>
<CAPTION>

Financial Highlights

For the Years Ended December 31:          1996     1995      1994
-------------------------------           ----     ----      ----
<S>                                      <C>      <C>       <C>
Return on average assets                  1.74%    1.44%     1.46%
Return on average equity                  8.05     6.67      7.19
Dividend payout ratio(1)                 47.24    50.25     35.64
Average equity to average assets         21.65    21.60     20.36
Equity to total assets                   22.12    22.01     20.93
Interest rate spread                      3.90     3.82      3.75
Net interest margin                       4.68     4.60      4.36
Non-interest expense to
 average assets                           1.80     1.92      1.92
Non-performing loans to total loans(2)    1.64     1.78      0.25
Non-performing assets to total assets(2)  0.98     1.50      0.22
Efficiency ratio(3)                      40.40    42.36     44.57
Ratio of net interest income to
 non-interest expense                     2.44x    2.27x    2.15x
Average interest earning assets to
 average interest bearing liabilities     1.28x    1.28x    1.25x

<FN>

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

(2)  See also  "Asset/Liability  Management",  included  on pages 7 and 8 in the
     1996 Annual Report to Stockholders.

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

<PAGE>


                                   BORROWINGS

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

     The final payment on the Employee Stock Ownership Plan ("ESOP")  obligation
was made during 1994,  through the Bank's  contributions of $1.0 million.  Total
interest  expense incurred on the obligation  during 1994 was $25,000.  The Bank
has continued to make contributions to a non-leveraged ESOP.



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

     The Bank conducts its business through 13 full-service  branch offices,  10
located in the borough of Queens,  one in the borough of Manhattan  and one each
in Nassau and Suffolk  counties.  The Company  believes that the Bank's  current
facilities are adequate to meet the present and immediately foreseeable needs of
the Bank and the Company. (See Note 9 to the Consolidated  Financial Statements,
included on page 31 in the 1996 Annual Report to Stockholders.)



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

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



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

     None.


<PAGE>


ADDITIONAL ITEM.  EXECUTIVE OFFICERS
                  ------------------
     The  following  table sets forth certain  information  with respect to each
executive officer of the Company who is not also a director of the Company.  The
Board of Directors appoints or reaffirms the appointment of all of the Company's
Executive Officers each April. The term of each Executive Officer of the Company
is  generally  one  year,  or  until  a  respective  successor  is  elected  (or
appointed).
<TABLE>
 <CAPTION>
                          Age at          Position held
Name                December 31, 1996     with the Company
----                -----------------     ----------------
<S>                        <C>            <C>
John F. Bennett            62             Senior Vice President
Ronald C. Spielberger      59             Senior Vice President
Jack Connors               47             Senior Vice President
John Conroy                50             Senior Vice President
Bernice Glaz               55             Senior Vice President
Lawrence J. Kane           43             Senior Vice President
Thomas R. Lehmann          46             Chief Financial Officer
Robert A. Neumuth          53             Senior Vice President
Joseph J. Hennessy         54             Asst. Treasurer/Comptroller
</TABLE>

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

                          Age at          Position held
Name                December 31, 1996     with the Bank
----                -----------------     -------------
<S>                        <C>            <C>
John F. Bennett            62             Senior Vice President
Ronald C. Spielberger      59             Senior Vice President
Jack Connors               47             Senior Vice President
John Conroy                50             Senior Vice President
Bernice Glaz               55             Senior Vice President
Thomas R. Lehmann          46             Chief Financial Officer
                                          Treasurer and Comptroller
Lawrence J. Kane           43             Senior Vice President
Robert A. Neumuth          53             Senior Vice President
</TABLE>


<PAGE>


                                     PART II



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

     JSB Financial,  Inc.  common stock is traded on the Nasdaq  National Market
and quoted under the symbol "JSBF".

     Information  regarding JSB Financial,  Inc.  common stock and its price for
the  1996  calendar  year  appears  on  page  6 of the  1996  Annual  Report  to
Stockholders,  portions of which are filed herewith as Exhibit 13.01,  under the
caption "Quarterly Results" and is incorporated herein by reference.

     As of February 13,  1997,  JSB  Financial,  Inc.  had  approximately  2,228
shareholders of record,  not including the number of persons or entities holding
stock in nominee or street name through various brokers and banks.

     During 1996, the Company  declared four cash  dividends  totaling $1.20 per
share each on its common stock.  Although the Company cannot guarantee  dividend
payments,  management  expects to continue to pay cash dividends,  provided that
dividend  payments  are in the  best  interest  of the  Company's  stockholders.
Certain  restrictions  exist  regarding the amount of dividends that the Company
may  declare and pay.  (See Note 17 to the  Consolidated  Financial  Statements,
included on page 35 in the 1996 Annual Report to  Stockholders.)  Dividends were
paid during calendar 1996 to stockholders as follows:
<TABLE>
 <CAPTION>
     Declaration Date        Record Date           Payment Date         Dividend Per Share
     ----------------        -----------           ------------         ------------------
     <S>                   <C>                   <C>                          <C>                   <C> <C>             <C>
     January 10, 1996      February 7, 1996      February 21, 1996            $.30
     April 9, 1996         May 8, 1996           May 22, 1996                 $.30
     July 9, 1996          August 7, 1996        August 21, 1996              $.30
     October 14, 1996      November 6, 1996      November 20, 1996            $.30
</TABLE>

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

     Information  regarding  selected financial data appears on pages 2 and 5 of
the Company's 1996 Annual Report to Stockholders,  and is incorporated herein by
reference.

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

     Pages 7 through 17, of the Company's  1996 Annual  Report to  Stockholders,
are incorporated herein by reference.

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

     Pages 19 through 42, of the Company's  1996 Annual Report to  Stockholders,
are incorporated herein by reference.

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

     None.



<PAGE>


                                    PART III



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


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

     Information  presented  under the  heading  "Information  With  Respect  to
Nominees  and  Continuing  Directors"  on pages 4 and 5 in the  Company's  Proxy
Statement for its Annual Meeting of  Stockholders to be held on May 13, 1997, is
incorporated herein by reference.  Information concerning Executive Officers who
are not  directors is  contained in Part I of this report  pursuant to paragraph
(b) of Item 401 of Regulation S-K in reliance on Instruction G.

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

     Information  included  under the  headings  "Directors'  Compensation"  and
"Executive  Compensation"  on pages 9 through  12  (excluding  the Report of the
Compensation  Committee on pages 10 and 11) in the Company's Proxy Statement for
its Annual Meeting of  Stockholders  to be held on May 13, 1997, is incorporated
herein by reference.

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

     Information  included  under the  headings  "Security  Ownership of Certain
Beneficial  Owners" and "Stock  Ownership of Management" on pages 3 and 8 in the
Company's  Proxy  Statement for its Annual Meeting of Stockholders to be held on
May 13, 1997, is incorporated herein by reference.

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

     Information  included  under the headings  "Indebtedness  of Management and
Transactions  with Certain  Related  Persons" on page 19 in the Company's  Proxy
Statement for its Annual Meeting of  Stockholders to be held on May 13, 1997, is
incorporated herein by reference.



<PAGE>


                                     PART IV

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

(a) 1.  Financial Statements

     The  following  Consolidated  Financial  Statements  of  the  Company,  its
subsidiary,  Jamaica  Savings Bank FSB,  and the  independent  auditors'  report
thereon, included on pages 19 through 43, of the Company's 1996 Annual Report to
Stockholders, are incorporated herein by reference:

      -  Consolidated  Statements  of Financial  Condition at December 31,
          1996 and 1995
      -  Consolidated  Statements  of Income for each of the years in the three
          year period ended December 31, 1996
      -   Consolidated Statements of Changes in Stockholders' Equity for each of
          the years in the three year period ended December 31, 1996
      -    Consolidated  Statements  of Cash  Flows for each of the years in the
           three year period ended December 31, 1996
      -  Notes to the Consolidated Financial Statements
      -  Independent Auditors' Report

     The  remaining   information   appearing  in  the  1996  Annual  Report  to
Stockholders  is not  deemed  to be  filed  as part of this  report,  except  as
expressly provided herein.

    2. Financial Statement Schedules

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

(b) Reports on Form 8-K filed during the last quarter of 1996:  None

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

<TABLE>
<CAPTION>
     Exhibit No.  Description
     -----------  -----------
       <S>        <C>                                                                  <C>                                       
       3.01       Articles of Incorporation                                            (1)
       3.02       Bylaws                                                               (2)
       4.01       Stock Certificate of JSB Financial, Inc.                             (1)

                  Employment Agreement between the Company and:
      10.01        Park T. Adikes                                                      (3)
      10.02        Edward P. Henson                                                    (3)
      10.04        Ronald C. Spielberger                                               (3)
      10.05        Joanne Corrigan                                                     (3)

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

                                                                      Continued
</TABLE>


<PAGE>

<TABLE>
<CAPTION>

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

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

                Special Termination  Agreements between the Bank,  guaranteed by
                 the Company, and:
    10.19        Teresa DiRe-Covello                                                 (4)
    10.20        Joseph J. Hennessy                                                  (4)
    10.21        Philip Pepe                                                         (5)

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



                                                                       Continued
</TABLE>


<PAGE>
<TABLE>
<CAPTION>


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

(1)  Incorporated herein by reference to Exhibits filed with the Registration Statement on Form S-1,
      Registration No. 33-33821.
(2)   Incorporated  herein by reference to Exhibits filed with the  Registration
      Statement on Form S-1,  Registration No. 33-33821,  as amended by Form 8-K
      on January 14, 1992.
(3)  Incorporated herein by reference to Exhibits filed with the Form 10-K for the Year Ended December 31, 1990.
(4)  Incorporated herein by reference to Exhibits filed with the Form 10-Q for the Quarter Ended June 30, 1995.
(5)  Incorporated herein by reference to Exhibits filed with the Form 10-K for the year ended December 31, 1993.
(6)  Incorporated herein by reference to Exhibits filed with the Form 10-K for the Year Ended December 31, 1994.
(7)  Incorporated herein by reference to Exhibits filed with the Form 10-K for the Year Ended December 31, 1992.
(8)  Incorporated herein by reference to Exhibits filed with the Pre-Effective Amendment No.1 to Form S-1,
      Registration No. 33-33821, filed on April 2, 1990.
(9)  Incorporated herein by reference to Appendix A (pages 21 through 33) of the Proxy Statement, dated March
      29, 1996.
(10)  To be filed.
</FN>
</TABLE>


<PAGE>



                                   SIGNATURES

Pursuant to the requirements of Section 13 or 15 (d) of the Securities  Exchange
Act of 1934,  the Company has duly caused this report to be signed on its behalf
by the undersigned, thereunto duly authorized.

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

/s/  Park T. Adikes          3/21/97
------------------------------------
     Park T. Adikes
     Chairman of the Board and
     Chief Executive Officer

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

/s/  Park T. Adikes          3/21/97        /s/ Thomas R. Lehmann      3/21/97
---------------------------  -------        ----------------------------------
     Park T. Adikes                             Thomas R. Lehmann
     Chief Executive Officer                    Chief Financial Officer
     Chairman and Director                      (Principal Accounting Officer)





/s/  James E. Gibbons, Jr.   3/21/97         /s/  Paul R. Screvane     3/21/97
---------------------------  -------         ------------------------  -------
     James E. Gibbons, Jr.                        Paul R. Screvane
     Director                                     Director



/s/  Arnold B. Pritcher      3/21/97         /s/  Alfred F. Kelly      3/24/97
---------------------------  -------         ------------------------  -------
     Arnold B. Pritcher                           Alfred F. Kelly
     Director                                     Director


/s/  Howard J. Dirkes, Jr.   3/24/97         /s/  Edward P. Henson     3/21/97
---------------------------- -------         ------------------------  -------
     Howard J. Dirkes, Jr.                        Edward P. Henson
     Director                                     President and Director



/s/  Joseph C. Cantwell      3/24/97
---------------------------  -------
     Joseph C. Cantwell
     Director