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

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


Selected Financial Condition Data:
At December 31,                      1997        1996        1995        1994         1993
---------------                      ----        ----        ----        ----         ----
<S>                               <C>         <C>         <C>         <C>         <C>       
Total assets                      $1,535,031  $1,516,016  $1,548,301  $1,565,095  $1,635,870
Securities held-to-maturity/held-
  for-investment, net                352,967     460,509     592,060     728,630     859,909
Loans receivable, net                999,745     854,774     768,245     711,295     668,376
Deposits                           1,121,203   1,144,393   1,163,446   1,204,424   1,273,917
Employee Stock Ownership
 Plan (ESOP) obligation                 -           -           -           -          1,045
Retained income                      311,436     289,588     276,317     266,361     251,959
Total stockholders' equity           367,514     335,299     340,107     327,634     325,207

Selected Operating Data:
Years Ended December 31,             1997        1996        1995        1994         1993
------------------------             ----        ----        ----        ----         ----

Interest income                   $  107,742  $  107,611  $  107,726  $  103,027   $ 108,205
Interest expense                      39,874      40,217      40,707      36,619      39,740
                                  ----------  ----------  ----------  ----------   ---------
Net interest income                   67,868      67,394      67,019      66,408      68,465
Provision for possible
 loan losses                             648         640         636         608         600
(Recovery of) provision for
 possible other credit losses           -         (2,040)      2,040         -          -
                                  ----------   ---------  ----------  ----------   ---------
Net interest income after
 provision for possible
 credit losses                        67,220      68,794      64,343      65,800      67,865
Non-interest income                   21,929       5,081       3,995       6,752       2,239
Non-interest expense                  27,434      27,598      29,561      30,937      33,657
                                  ----------  ----------   ---------  ----------   ---------
Income before provision for
 income taxes and cumulative
 effect of accounting changes         61,715      46,277      38,777      41,615      36,447
Provision for income taxes            24,625      19,552      16,603      18,018      15,798
                                  ----------  ----------  ----------  ----------   ---------
Income before cumulative effect
 of accounting changes                37,090      26,725      22,174      23,597      20,649
Cumulative effect of accounting
 changes, net                          _-___        -           -           -          7,688
                                  ----------  ----------  ----------  ----------    --------
     Net income                   $   37,090  $   26,725  $   22,174  $   23,597    $ 28,337
                                  ==========  ==========  ==========  ==========    ========


Basic earnings per common share
 before cumulative effect of
 accounting changes                    $3.76       $2.66       $2.09       $2.13       $1.65
Cumulative effect of accounting
 changes, net                            -__         -           -           -           .62
                                       -----       -----       -----       -----       -----
Basic earnings per common share        $3.76       $2.66       $2.09       $2.13       $2.27
                                       =====       =====       =====       =====       =====

Diluted earnings per common share
 before cumulative effect of
 accounting changes                    $3.64       $2.56       $2.01       $2.04       $1.58
Cumulative effect of accounting
 changes, net                            -__         -           -           -           .59
                                       -----       -----       -----       -----       -----
Diluted earnings per common share      $3.64       $2.56       $2.01       $2.04       $2.17
                                       =====       =====       =====       =====       =====


Cash dividends per common share        $1.40       $1.20       $1.00       $ .72       $ .60
                                       =====       =====       =====       =====       =====
</TABLE>


<PAGE>

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



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

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



                                                          1996 Quarter Ended
                                                          ------------------
                                           March 31,    June 30,   September 30,   December 31,
                                           ---------    --------   -------------   ------------
Interest income                             $26,905     $26,958         $26,948        $26,800
Interest expense                             10,147      10,041          10,060          9,969
                                            -------     -------        --------        -------
Net interest income                          16,758      16,917          16,888         16,831
Provision for possible loan losses              161         160             160            159
Recovery of possible other credit losses       -           -               -            (2,040)
                                            -------     -------         -------        -------
Net interest income after provision
 for possible credit losses                  16,597      16,757          16,728         18,712
Non-interest income                           1,215       1,135           1,646          1,085
Non-interest expense                          7,266       6,062           6,965          7,305
                                            -------     -------         -------        -------
Income before provision for income taxes     10,546      11,830          11,409         12,492
Provision for income taxes                    4,468       5,032           4,847          5,205
                                            -------     -------         -------        -------
Net income                                  $ 6,078     $ 6,798         $ 6,562        $ 7,287
                                            =======     =======         =======        =======
Basic earnings per common share               $ .58       $ .66           $ .67          $ .75
                                              =====       =====           =====          =====
Diluted earnings per common share             $ .56       $ .64           $ .65          $ .72
                                              =====       =====           =====          =====


Stock prices, Dividends and Yields:
      High                                   $34.00      $35.00          $37.13         $38.38
      Low                                    $31.50      $32.25          $32.75         $35.63
      Close                                  $33.63      $33.13          $36.13         $38.00
      Cash dividends per common share        $  .30      $  .30          $  .30         $  .30
      Dividend yield1                          3.66%       3.57%           3.43%         3.24%
<FN>

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


<PAGE>


MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS

General
-------

     1997 marked the seventh full year of operations for JSB Financial,  Inc. as
a publicly held company. Net income for the year was $37.1 million, or $3.64 per
diluted share. The Company paid cash dividends on its common stock which totaled
$1.40 per share, or 38.5% of diluted earnings per common share.

     The Company's results of operations are most significantly  affected by the
results of operations of its wholly owned subsidiary,  Jamaica Savings Bank. The
Bank's  results of operations are affected by general  economic and  competitive
conditions, particularly changes in market interest rates, as well as government
policies and actions of  regulatory  authorities.  The Bank's core  earnings are
provided by its net interest income.  The operating results of the Bank are also
affected, generally to a lesser extent, by the amount of its non-interest income
and non-interest expense.  Items comprising  non-interest income are, results of
real estate  operations,  gains or losses on the sale of equity  securities,  if
any,  loan  servicing  income and various other items  comprising  miscellaneous
income. The principal non-interest expense of the Bank includes compensation and
employee  benefits,   occupancy  costs  and  other  general  and  administrative
expenses.

Asset/Liability Management
--------------------------

     Management  aims at maintaining a stable net interest margin and minimizing
the effects of market interest rate  fluctuations on net interest income through
its  asset/liability  structure.  Rates offered on interest bearing deposits are
established  to  influence  changes in levels of deposits.  Assets  increased by
$19.0 million,  or 1.3%, to $1.535  billion  during 1997,  compared to assets of
$1.516  billion at December  31,  1996,  while  liabilities  decreased  by $13.2
million,  or 1.1%, to $1.168  billion from $1.181  billion over the same period.
The Company maintains asset quality through its investment and loan underwriting
policies.

     At December 31, 1997,  net mortgage loans were $970.7  million,  comprising
63.2% of  total  assets,  investments  in U.S.  Government  and  federal  agency
securities  were $244.9  million and  investments  in CMOs were $104.0  million,
representing  16.0% and 6.8% of total  assets,  respectively.  During 1997,  all
investments  in  U.S.  Government  and  federal  agency  securities,  CMOs,  and
mortgage-backed  securities (MBS), were designated  held-to-maturity and carried
at  amortized  cost.  Unrealized  gains and losses in these  portfolios  are not
expected  to impact  future  results  of  operations,  as these  securities  are
intended to be held until maturity.  Marketable equity securities are designated
as available-for-sale and carried at estimated fair value. At December 31, 1997,
these securities, which had a cost basis of $10.9 million, were carried at their
aggregated  fair  value  of  $62.2  million.  Unrealized  gains  and  losses  on
available-for-sale  securities  are excluded from earnings and reported as a net
amount in a separate component of stockholders' equity until realized.


<PAGE>

     During 1997,  investments in CMOs decreased,  as payments of $106.5 million
were received from  maturities and  amortization  and purchases of $55.0 million
were made. All of the Bank's CMOs are First Tranche - Planned Amortization Class
Bonds that are collateralized by Federal National Mortgage  Association  (FNMA),
Federal Home Loan Mortgage  Corporation (FHLMC), or Government National Mortgage
Association (GNMA), mortgage-backed securities which are collateralized by whole
loans.  At  December  31,  1997,  the Bank did not have any CMOs  that  would be
classified  as "high risk"  securities  as defined by a policy  statement by the
Federal Financial  Institutions  Examination  Council. At December 31, 1997, the
estimated  average  remaining  maturity of the CMO portfolio  was  approximately
twenty  months.  Management  plans to continue  to purchase  CMOs which meet its
investment guidelines, when available.

     The Bank offers  fixed-rate and  adjustable-rate  mortgage loans secured by
one-to  four-family  properties,  apartment  buildings,  underlying  cooperative
properties, commercial real estate and offers various other consumer type loans.
During  1997,  the Bank  sold $1.6  million  of single  family  mortgage  loans,
originated for sale, to government agencies.  Loans held-for-sale are carried at
the lower of cost or market, in the aggregate.  At December 31, 1997, there were
no mortgage loans held-for-sale.

     Non-performing  loans  to total  loans  at  December  31,  1997 was  1.32%,
compared to 1.64% at December  31,  1996.  Non-performing  loans at December 31,
1997 and 1996 included a $12.8 million underlying  cooperative  mortgage loan on
which the Bank has  commenced  foreclosure  proceedings.  This one mortgage loan
comprised 96.1% of non-performing  loans and 92.8% of  non-performing  assets at
December 31, 1997. The mortgage is secured by a 148 unit  cooperative  apartment
building,  located in Manhattan, New York. No specific valuation allowances have
been established  against this loan, as management believes that the mortgage is
adequately  secured.  On January 28,  1998,  the Bank  entered into a settlement
agreement  with the  borrower,  that  provides  that the Bank be made  whole for
unpaid principal,  contractual  interest,  late charges and legal fees, no later
than May 28, 1998. In addition,  the borrower will be responsible  for interest,
which will  continue to accrue and for any  additional  legal fees that the Bank
incurs in  connection  with this  credit.  In  accordance  with the terms of the
agreement,  the Bank received $1.1 million from the borrower,  through  February
16, 1998, comprised of a $1.0 million payment which could be applied against any
portion of the  indebtedness  other than  principal  and,  $98,000  for  interim
interest,  which is due  monthly.  The  borrower  is  seeking to  refinance  the
mortgage elsewhere.

    In addition to  non-performing  loans,  non-performing  assets include Other
Real Estate (ORE) and any other  investment  not  performing in accordance  with
contractual  terms.  ORE represents real estate  properties owned by the Bank or
transferred  to a subsidiary  corporation as a result of foreclosure or obtained
by receiving a deed in lieu of  foreclosure.  At December 31, 1997 the Bank held
shares to 31 residential  cooperative  apartments  attributable to one property,
that comprised the Bank's ORE of $473,000. Management closely monitors the value
of properties that are obtained through foreclosure actions. (See Note 12 to the
Consolidated Financial Statements.)


<PAGE>

     Non-performing  assets  to total  assets  at  December  31,  1997 was .90%,
compared to .98% at December  31,  1996.  The  decrease in this ratio  primarily
reflected the  foreclosure  and subsequent  sale of a single family house with a
mortgage of $450,000 which was not performing at December 31, 1996.

     Deposits  at  December  31,  1997,  decreased  by $23.2  million,  or 2.0%,
compared to deposits at December 31, 1996.  While  interest rates on the various
accounts offered by the Bank remained competitive with those of other depository
institutions in the Bank's market, customers have continued to withdraw funds to
invest in alternative  instruments  and shift funds into  certificate  accounts,
both of which offered higher yields.  Management attributes this deposit outflow
and shift in deposit composition to the relatively low interest rate environment
that has prevailed  over the last several  years.  The Bank  influences  deposit
levels and composition  through its interest rate  structure.  While the highest
percentage  of deposits has  historically  been in passbook  and lease  security
accounts,  the  trend  of  deposit  shifts  has  continued  towards  certificate
accounts.  (See  Liquidity  and  Capital  Resources,   herein.)  Management  has
maintained an interest rate structure  that has allowed  deposits to continue to
shift and decline in a controlled  fashion,  rather than offering interest rates
that would result in  significantly  reducing net interest  margins and interest
rate  spreads  or  necessitate   modifying  the  existing  asset  structure  and
investment guidelines.

     Interest rate spread,  net interest  margin,  liquidity,  and related asset
quality are some of the key measures of financial  performance  that  management
focuses  on. The Bank's  assets are  structured  such that  gradual  declines in
deposits,  such as continuance  of the current trend,  is not expected to have a
material adverse affect on the Company within the foreseeable  future.  However,
if, as is the  current  trend,  the  Company's  deposits  continue  to  decline,
interest  earning  assets  may also  decline,  resulting  in a  decrease  in net
interest income, the Company's primary component of net income.

     The  Bank's  liquidity  ratios  continue  to exceed all short and long term
minimum  regulatory  requirements.  Management  is focused on providing  quality
customer service as its main strategy for maintaining its relationships with its
customers.  Within recent years,  the Bank has expanded  services offered to its
depositors,  including  automated  telephone  banking 24 hours a day, 365 days a
year.  The Bank also  offers  credit  cards,  which are  issued  and owned by an
unrelated bank that manages and bears all credit risk.

<PAGE>

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,  1997,  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 MBS based upon the remaining term to contractual
maturity were as follows: (a) 27% if less than six months; (b) 11% if six months
to one year and for five to ten years;  (c) 8% if one to three years;  (d) 9% if
three to five years and for ten to twenty years; and (e) 17% if beyond 20 years.
Adjustable-rate  mortgages are assumed to prepay at 15% and second  mortgages at
18%. All other fixed rate first  mortgage loans are assumed to prepay at 3%. All
deposit accounts,  which are subject to immediate  withdrawal/repricing,  except
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>

<TABLE>

     The  following  table  sets  forth,  as of  December  31,  1997,  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 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.

<CAPTION>

                                                             At December 31, 1997
                                  ----------------------------------------------------------------------
                                              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..........   24,354   $ 28,993 $ 118,719  $ 186,235   $482,160 $ 98,503  $ 37,514  $  976,478
  Debt and equity securities and
   other investments, net 2....... 179,888    124,922     9,981       -          -        -         -        314,791
  CMOs, net......................    3,287     16,969    77,250      6,534       -        -         -        104,040
  MBS, net.......................     -           196       959       -          -       2,869      -          4,024
  Other loans, net 1.............       63        640    12,741      4,142     11,561     -         -         29,147
  Federal funds sold.............   62,000       -         -          -          -        -         -         62,000
                                  --------   --------  --------  ---------   -------- --------  --------  ----------

    Total interest earning assets  269,592    171,720   219,650    196,911    493,721  101,372    37,514   1,490,480
                                  --------   --------  --------  ---------   -------- --------  --------  ----------


Interest bearing deposit accounts:
  Passbook and lease
   security accounts.............  565,130       -         -          -          -        -         -        565,130
  Certificate accounts...........  141,365    203,527    50,011     14,630       -        -         -        409,533
  Money market accounts..........   79,007       -         -          -          -        -         -         79,007
  Negotiable order of withdrawal3   35,401       -         -          -          -        -         -         35,401
                                  --------   -------- ---------  ---------   -------- --------  --------  ----------


    Interest bearing liabilities.  820,903    203,527    50,011     14,630       -        -         -      1,089,071
                                  --------   -------- ---------  ---------   -------- --------  --------  ----------


Interest sensitivity gap
  per period.................... $(551,311)  $(31,807)$ 169,639  $ 182,281   $493,721 $101,372  $ 37,514  $  401,409
                                 =========   ======== =========  =========   ======== ========  ========  ==========


Cumulative interest
  sensitivity gap............... $(551,311) $(583,118)$(413,479) $(231,198)  $262,523 $363,895  $401,409  $     -
                                 =========  ========= =========  =========   ======== ========  ========  ==========

Percentage of gap per period to
    total assets.................  (35.92%)    (2.07%)   11.05%     11.87%     32.16%    6.60%     2.44%

Percentage of cumulative gap to
     total assets................  (35.92%)   (37.99%)  (26.94%)   (15.07%)    17.09%   23.69%    26.13%

<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 $51.4 million, before tax.

3 Negotiable order of withdrawal (NOW) accounts.


Note:  Certain  shortcomings 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.  In the 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>

     The Bank's  interest  rate  sensitivity  is also  monitored  by  management
through the use of a model which internally generates estimates of the change in
the net portfolio  value (NPV) over a range of interest  rate change  scenarios.
NPV is the present  value of expected  cash flows from assets,  liabilities  and
off-balance sheet contracts. The NPV ratio, under any interest rate scenario, is
defined as the NPV in that scenario divided by the market value of assets in the
same scenario.  The Office of Thrift  Supervision  (OTS) also produces a similar
analysis using its own model,  based upon data submitted on the Bank's quarterly
Thrift Financial Reports, the results of which may vary from the Bank's internal
model  primarily due to differences in assumptions  utilized  between the Bank's
internal model and the OTS model,  including  estimated loan  prepayment  rates,
reinvestment  rates and  deposit  decay  rates.  For  purposes of the NPV table,
prepayment speeds similar to those used in the Gap table were used, reinvestment
rates were those in effect for similar  products  currently  being offered,  and
rates on deposits were modified to reflect  recent trends.  The following  table
sets forth the Bank's NPV as of December 31, 1997, as calculated by the Bank.
<TABLE>
<CAPTION>


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

   <S>                    <C>       <C>          <C>               <C>               <C>             
   +200                   $317,949  $(42,954)    (11.90)%          21.35%            (3.10)%
   +100                    338,813   (22,090)     (6.12)           22.40             (1.59)
      0                    360,903      -           -              23.48               -
   -100                    391,417    30,514       8.45            24.94              2.14
   -200                    437,804    76,901      21.31            27.05              5.32

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

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


<PAGE>


Analysis of Net Interest Income
-------------------------------

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

Average Balance Sheet
---------------------

     The  following  table  sets forth  information  relating  to the  Company's
Consolidated  Statements of Financial Condition and the Consolidated  Statements
of Operations for the years ended December 31, 1997,  1996 and 1995 and reflects
the average  yield on assets and  average  cost of  liabilities  for the periods
indicated.  Yields and costs are  derived by  dividing  income or expense by the
average  balance of the related  assets or  liabilities,  respectively,  for the
periods shown.  Average  balances are derived from average daily  balances.  The
yields  and costs  include  fees  which are  considered  adjustments  to yields.
Average balances and yields include non-accruing loans.

<PAGE>

<TABLE>
<CAPTION>

                                                     Year Ended December 31,
                          ---------------------------------------------------------------------------------
                                     1997                        1996                       1995
                          --------------------------  --------------------------  -------------------------
                                    Interest Average           Interest  Average           Interest Average
                           Average   Income/ Yield/   Average   Income/  Yield/   Average   Income/  Yield/
                           Balance   Expense  Cost    Balance   Expense   Cost    Balance   Expense  Cost
                                                (Dollars in Thousands)
 <S>                     <C>        <C>      <C>    <C>        <C>      <C>     <C>        <C>      <C>        
 Assets
 Interest earning assets:
   Mortgage loans, net...$  878,697 $ 74,149  8.44% $  792,579 $ 69,113  8.72%  $  702,252 $ 64,309  9.16%
   Debt and equity
    securities, net1.....   325,964   19,584  6.01     361,106   21,695  6.01      456,581   27,545  6.03
   CMOs, net.............   133,418    7,937  5.95     179,336   10,063  5.61      209,537    9,572  4.57
   MBS, net..............     4,855      499 10.28       6,540      739 11.30        8,650      969 11.20
   Other loans, net......    28,119    2,070  7.36      28,393    2,138  7.53       28,977    2,299  7.93
   Federal funds sold....    64,345    3,503  5.44      72,221    3,863  5.35       52,432    3,032  5.78
                         ---------- --------        ---------- --------         ---------- ---------
 Total interest earning
  assets1................ 1,435,398  107,742  7.51   1,440,175  107,611  7.47    1,458,429  107,726  7.39
 Non-interest earning
  assets.................    99,180                     93,539                      80,701
                         ----------                 ----------                  ----------
    Total assets.........$1,534,578                 $1,533,714                  $1,539,130
                         ==========                 ==========                  ==========

 Liabilities and stockholders' equity
 Interest bearing
   liabilities:
  Passbook and other.....$  699,715 $ 19,106  2.73% $  743,526 $ 20,440  2.75%  $  797,445 $ 23,058  2.89%
  Certificate accounts...   397,832   20,768  5.22     383,215   19,777  5.16      343,229   17,649  5.14
                         ---------- --------        ---------- --------         ---------- --------
 Total interest
  bearing liabilities.... 1,097,547   39,874  3.63   1,126,741   40,217  3.57    1,140,674   40,707  3.57
  Non-interest bearing
    liabilities..........    88,423                     74,928                      65,963
                         ----------                 ----------                  ----------
    Total liabilities.... 1,185,970                  1,201,669                   1,206,637
    Total stockholders'
     equity..............   348,608                    332,045                     332,493
                         ----------                 ----------                  ----------
    Total liabilities
     and stockholders'
     equity..............$1,534,578                 $1,533,714                  $1,539,130
                         ==========                 ==========                  ==========
 Net interest income/
  interest rate spread2..           $ 67,868  3.88%            $ 67,394  3.90%             $ 67,019  3.82%
                                    ========  ====             ========  ====              ========  ====
 Net interest earning
  assets/net interest
  margin3................$  337,851           4.73% $  313,434           4.68%  $  317,755           4.60%
                         ==========           ====  ==========           ====   ==========           =====
 Ratio of interest
  earning assets to
  interest bearing
  liabilities............                     1.31x                      1.28x                       1.28x
                                              ====                       ====                        ====

<FN>

  1  Average balances for debt and equity  securities and total interest earning
     assets,  exclude the net market appreciation  recognized in connection with
     Statement 115 and is not included in deriving the yield.

  2  Interest rate spread represents the difference between the average yield on
     average  interest  earning assets and the average cost of average  interest
     bearing liabilities.

  3  Net  interest  margin  represents  net interest  income  divided by average
     interest earning assets.

</FN>
</TABLE>


<PAGE>


Rate Volume Analysis
--------------------

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


<TABLE>
<CAPTION>

                                          Year Ended December 31, 1997                Year Ended December 31, 1996
                                                  Compared to                                 Compared to
                                          Year Ended December 31, 1996                Year Ended December 31, 1995
                                          ----------------------------                ----------------------------
                                          Volume       Rate        Net                Volume       Rate        Net
                                          ------       ----        ---                ------       ----        ---
                                                                       (In Thousands)


<S>                                      <C>         <C>         <C>                 <C>         <C>        <C>
Interest earning assets:
  Mortgage loans, net ..............     $ 7,313     $ (2,277)   $  5,036            $ 7,997     $(3,193)   $ 4,804
  Debt and equity securities .......      (2,111)        -         (2,111)            (5,759)        (91)    (5,850)
  CMOs, net.........................      (2,705)         579      (2,126)            (1,499)      1,990        491
  MBS, net..........................        (177)         (63)       (240)              (239)          9       (230)
  Other loans, net .................         (21)         (47)        (68)               (46)       (115)      (161)
  Federal funds sold ...............        (424)          64        (360)             1,070        (239)       831
                                         -------     --------    --------            -------     -------    -------

        Total ......................       1,875       (1,744)        131              1,524      (1,639)      (115)
                                         -------     --------    --------            -------     -------    --------


Interest bearing liabilities:
  Passbook and other ...............      (1,186)        (148)     (1,334)            (1,400)     (1,218)    (2,618)
  Certificate accounts..............         759          232         991              2,059          69      2,128
                                         -------     --------    --------            -------     -------   --------

        Total.......................        (427)          84        (343)               659      (1,149)      (490)
                                         -------     --------    --------           --------     -------    -------


Net change in net interest income...     $ 2,302      $(1,828)   $    474            $   865     $  (490)   $   375
                                         =======      =======    ========            =======     =======    =======

</TABLE>


<PAGE>

Liquidity and Capital Resources
-------------------------------

     The Company's funds are primarily  obtained  through  dividends paid by the
Bank. The Company is provided with the long-term liquidity resources of the Bank
as well as the liquidity  provided by its own  investments.  The Bank's  primary
sources  of  funds  are  deposits,   proceeds  from   maturities  of  securities
held-to-maturity,  amortization  on and  maturities of loans and cash flows from
operations. Overall liquidity is affected by activity in general interest rates,
economic conditions and competition.

     The Company's  investments,  excluding  investments  made by the Bank,  are
primarily in federal agency securities. The Company expects to utilize its funds
to  continue  investing  in  U.S.  Government  and  federal  agency  securities,
repurchasing  shares of the Company's  common stock and paying  dividends on its
common stock,  as management  deems  appropriate.  The Company  presently has no
plans to expand its activities; however, should the Company decide to expand its
investment  activities,  the  Bank  may pay  additional  cash  dividends  to the
Company,  subject to certain  regulatory  limitations,  to fund such activities.
(See Note 26 to the Consolidated Financial Statements.)

     During  1997,  the net  deposit  outflows  of $23.2  million  and  dividend
payments of $13.8  million,  contributed  to the net cash outflow from financing
activities.  The most  significant  dollar  change in  deposit  composition  was
experienced in the Bank's passbook  accounts,  which decreased by $34.8 million,
or 5.8%,  followed by a $10.1 million  decrease in money market  accounts and an
$855,000 decrease in NOW accounts. However, certificate accounts increased $22.4
million, or 5.8% and demand accounts increased $192,000.

     During 1997, the most significant  investing  activities for which cash was
used  included  purchases of debt  securities  held-to-maturity  and  securities
available-for-sale,  originations  of mortgage  loans and purchases of CMOs. The
most  significant  investing  activities  which provided cash were maturities of
debt securities and principal payments on CMOs.

     The Bank is required to maintain minimum levels of liquid assets as defined
by the OTS regulations.  This requirement,  which may be varied at the direction
of the OTS, is based upon a percentage  of deposits and  short-term  borrowings.
The required ratio at December 31, 1997 was 4.0%. The Bank's  liquidity ratio is
significantly  in excess of the required  level.  The Bank's  average  liquidity
ratios  were 29.9% and 34.0% for the years  ended  December  31,  1997 and 1996,
respectively.  The Bank's  high  liquidity  reflects  management's  strategy  of
investing  funds in  short-term  CMOs and U.S.  Government  and  federal  agency
securities.  Management has structured the assets and liabilities of the Company
to enable the Bank to meet its regulatory liquidity  requirements.  In addition,
the asset/liability  structure serves to provide funds for operating,  investing
and financing  activities of the Company,  while holding securities,  other than
marketable equity securities, to maturity.


<PAGE>

     Liquidity management for the Bank is both a daily and a long-term function.
Management  expects the Bank to be able to maintain  high levels of liquidity in
the future due to its investment strategy and projected  earnings.  Excess funds
are  generally  invested in short-term  investments  such as federal funds sold.
Investments in the U.S.  Government and federal agency securities  portfolio had
an  average  remaining  maturity  of five  months and the CMO  portfolio  had an
average anticipated remaining maturity of twenty months as of December 31, 1997.
The Bank's  most  liquid  assets  are cash and cash  equivalents  which  include
investments  in federal funds sold.  The levels of these assets are dependent on
the  Bank's  operating,  financing  and  investing  activities  during any given
period.  (See the  Consolidated  Statements  of Cash Flows which are part of the
Consolidated Financial Statements.)

     Management  monitors the deposit  outflow and has taken a series of actions
aimed at curtailing the erosion of the Bank's deposit base. Management considers
the Bank's  relationship  with its  long-term  customers  vital to enabling  the
Company to continue to enhance future stockholder value. If the current trend of
deposit  shifts and  outflows  were to continue  in the  long-term  future,  the
Company's  future  interest  rate  spreads,  margins  and net income will likely
decline.  To  address  these  concerns,   management:  (1)  established  a  more
aggressive  interest  rate  structure,  in order to retain the  Bank's  customer
relationships;  (2) has placed  emphasis on  expanding  fee income as a means of
offsetting  future decreases in net interest income;  and (3) is focusing on the
use of available  technology in order to continue to reduce banking staff, which
will be accomplished  through attrition.  To generate additional fee income, the
Bank  participates in the New York Cash Exchange (NYCE) automated teller system,
and receives  additional fee income for issuing  credit cards.  The credit cards
issued  with the Bank's  name are owned and  managed by an  unrelated  financial
institution, which incurs all risk of loss.

     In the  event  that the Bank  should  require  funds  beyond  its  internal
ability,  it may take  Federal Home Loan Bank (FHLB) of New York  advances.  The
Bank has not utilized FHLB advances to meet its liquidity needs.

Impact of Inflation and Changing Prices
---------------------------------------

     The Consolidated  Financial  Statements and Notes thereto  presented herein
have been prepared in accordance with generally accepted accounting  principles,
which require the  measurement  of financial  position and operating  results in
terms of  historical  dollars  without  considering  the changes in the relative
purchasing power of money over time due to inflation. The impact of inflation is
reflected  in  the  Company's  non-interest  expense.   Unlike  most  industrial
companies, nearly all the assets and liabilities of the Company are monetary. As
a result, interest rates have a greater impact on the Company's performance than
do the effects of general levels of inflation. Interest rates do not necessarily
move in the same  direction  or to the same  extent  as the  price of goods  and
services.

<PAGE>

Year 2000
---------

     In the early  1990's,  the  Bank's  existing  staff  began  converting  its
computer  system to be Year 2000  compliant.  At December 31, 1997,  100% of the
Bank's  mainframe  programs  and 50% of other  critical  systems  were year 2000
compliant,  with the remainder  expected to be compliant by the end of 1998. The
system  upgrades  and/or  programming  changes  have been made within the normal
course of  business,  therefore,  no  material  costs  specific to the year 2000
upgrades have been incurred.  Management does not expect  implementation  of the
remaining  computer  system  upgrades to have a material affect on the Company's
financial  condition or results of  operations.  Management  has  contacted  all
outside vendors  inquiring as to the status of year 2000 compliance.  Management
will  continue  to require  updates  from all  vendors who are not yet year 2000
compliant.

<PAGE>


Impact of New Accounting Standards To Be Adopted
------------------------------------------------

        Effective  January 1, 1997, the Company  adopted  Statement of Financial
Accounting  Standards (SFAS) No. 125, "Accounting for Transfers and Servicing of
Financial Assets and Extinguishments of Liabilities" (Statement 125), except for
those transactions that are governed by SFAS No. 127, "Deferral of the Effective
Date of Certain  Provisions  of  Financial  Accounting  Standards  Board  (FASB)
Statement  125"  (Statement  127).  Statement 127 was issued in December 1996 to
extend the effective  date of the provisions of Statement 125, as they relate to
secured  borrowings,   collateral  and  repurchase  agreements,   dollar  rolls,
securities lending and similar transactions for one year. Statement 125 provides
accounting  and  reporting  standards  for  transfers and servicing of financial
assets and  extinguishments  of  liabilities  occurring  after December 31, 1996
based on consistent application of a financial-components  approach that focuses
on control. Under this approach, after a transfer of financial assets, an entity
recognizes the financial and servicing assets it controls and the liabilities it
has incurred,  derecognizes  financial assets when control has been surrendered,
and  derecognizes   liabilities  when  extinguished.   This  statement  provides
consistent  standards for distinguishing  transfers of financial assets that are
sales from transfers that are secured borrowings. This statement supersedes SFAS
No. 76, "Extinguishment of Debt", and SFAS No. 77, "Reporting by Transferors for
Transfers of  Receivables  with  Recourse,"  and SFAS No. 122,  "Accounting  for
Mortgage  Servicing  Rights," and amends SFAS No. 115,  "Accounting  for Certain
Investments in Debt and Equity  Securities,"  and SFAS No. 65,  "Accounting  for
Certain  Mortgage  Banking  Activities."  The adoption of  Statement  125 had no
material effect on the  consolidated  financial  statements of the Company,  nor
does the Company  expect the  amendments to Statement 125 contained in Statement
127 to have a material effect on the financial statements.

         In June of 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive
Income"  (Statement  130).  Statement 130 is effective for years beginning after
December 15, 1997 and requires  reclassification  of  financial  statements  for
earlier periods  provided for comparative  purposes.  The statement  establishes
standards for reporting and display of comprehensive  income and its components.
This  statement  requires  that all items that are required to be  recognized as
components of comprehensive  income be reported in a financial statement that is
displayed with the same prominence as other financial statements.  Comprehensive
income  is  defined  as all  changes  in  equity  during a period  except  those
resulting from investments by owners and  distributions  to owners.  The Company
has not yet determined the impact of Statement 130 on its financial statements.

In June of 1997, the FASB issued SFAS No. 131, "Disclosures about Segments of an
Enterprise and Related Information"  (Statement 131). Statement 131 is effective
for financial  statements for periods  beginning after December 15, 1997. In the
initial year of application,  comparative information for earlier years is to be
restated.  The  statement  requires  that a public  business  enterprise  report
financial and descriptive  information about its reportable  operating segments.
The Company has not yet  determined the impact of Statement 131 on its financial
statements.


<PAGE>

Private Securities Litigation Reform Act Safe Harbor Statement
--------------------------------------------------------------

     In  addition to  historical  information,  this  Annual  Report may include
certain forward looking statements based on current management expectations. The
Company's   actual  results  could  differ   materially  from  those  management
expectations.  Factors  that could  cause  future  results to vary from  current
management  expectations  include,  but are not  limited  to,  general  economic
conditions,  legislative and regulatory changes, monetary and fiscal policies of
the  federal  government,  changes in tax  policies,  rates and  regulations  of
federal,  state and local tax  authorities,  changes in interest rates,  deposit
flows,  the cost of  funds,  demand  for loan  products,  demand  for  financial
services, competition,  changes in the quality or composition of the Bank's loan
and  investment  portfolios,  changes  in  accounting  principles,  policies  or
guidelines,  and other economic,  competitive,  governmental  and  technological
factors  affecting the Company's  operations,  markets,  products,  services and
prices.  Further  description of the risks and uncertainties to the business are
included in detail in Item 1, "Business" of the Company's 1997 Form 10-K.

<PAGE>

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

General

     Net income for the year ended December 31, 1997 was $37.1 million, or $3.64
per diluted share,  compared with $26.7 million, or $2.56 per diluted share, for
1996. In comparing the results of operations  for 1997 to 1996, it must be noted
that both the 1997 and 1996 results of operations were significantly improved by
items of a non-recurring  nature.  During 1997,  sales of real estate  generated
pre-tax gains of $9.3 million,  which, net of tax,  increased net income by $5.4
million and contributed $.53 to diluted earnings per share. Gains on the sale of
equity securities  during 1997 generated  pre-tax gains of $7.0 million,  which,
net of tax, increased net income by $3.9 million and contributed $.39 to diluted
earnings  per share.  The 1996  results  included a pre-tax  recovery  of a $2.0
million credit valuation  allowance against the Bank's investments with Nationar
Trust Company,  which increased net income for 1996 by $1.2 million, or $.11 per
diluted share.  Additional  comments  regarding the components of net income are
detailed in the following paragraphs.

Interest Income

     Income on mortgage  loans  increased  by $5.0  million,  or 7.3%,  to $74.1
million,  from $69.1 million. The average investment in mortgage loans increased
by $86.1 million,  or 10.9%, to $878.7 million for 1997, from $792.6 million for
1996.  The amount  invested in mortgage loans has continued to increase over the
past eight years in both dollar amount and as a percentage of assets.  Mortgages
originated for the Bank's portfolio  during 1997 increased by $69.0 million,  or
50.6%,  to $205.2  million,  from  $136.2  million  during  1996.  The  mortgage
portfolio yield decreased to 8.44% for 1997 from 8.72% for 1996.

     Income on debt and equity  securities  decreased $2.1 million,  or 9.7%, to
$19.6  million for 1997,  compared to $21.7  million for 1996.  The  decrease in
income reflected a $35.1 million, or 9.7%, decrease in the average investment in
this portfolio  while the yield  remained  unchanged at 6.01% for 1997 and 1996.
During 1997, activity in the investment  securities portfolio included purchases
of $499.9  million and maturities of $555.0  million.  At December 31, 1997, the
$244.9 million debt securities portfolio had unrealized gains of $464,000, which
are not expected to impact future income as these  securities  are designated as
held-to-maturity.  The marketable equity  securities  portfolio is designated as
available-for-sale  and was  carried  at its  aggregate  market  value  of $62.2
million at December 31, 1997,  exceeding its cost of $10.9 million.  During 1997
the Bank sold marketable equity securities having a cost of $823,000,  realizing
gains of $7.0 million.  During 1996, the Bank sold or redeemed marketable equity
securities totaling $30,000, and realized gross gains of $4,000 and gross losses
of $2,000.


<PAGE>

     Income on CMOs  decreased  by $2.1  million or 21.1%,  to $7.9  million for
1997,  from $10.1  million for 1996.  Purchases of CMOs for 1997,  totaled $55.0
million,  compared with $124.3 million for 1996. The average  investment in CMOs
decreased by $45.9 million,  or 25.6%,  to $133.4 million for 1997,  from $179.3
million for 1996.  Principal payments on CMOs decreased to $106.5 million during
1997 from $114.1  million during 1996.  During 1997,  the CMO portfolio  yielded
5.95% compared with 5.61% for 1996. At December 31, 1997, the $104.0 million CMO
portfolio had net unrealized gains of $230,000 (comprised of unrealized gains of
$295,000 and  unrealized  losses of  $65,000),  which are not expected to impact
future results of operations, as CMOs are designated as held-to-maturity.

     Income on other loans  remained  relatively  stable during 1997 compared to
1996,  decreasing by $68,000,  or 3.2% to $2.1 million for 1997.  Management has
determined to sell the student loan portfolio, which at December 31, 1997, had a
balance of $5.2  million and  comprised  17.9% of the other loan  portfolio.  At
December 31, 1997,  the portfolio,  which had an estimated  market value of $5.3
million  will  continue to be carried at the lower of cost or  estimated  market
value,  in the  aggregate,  until sold.  Management  is  reviewing  student loan
origination programs packaged by the Student Loan Marketing  Association (Sallie
Mae) and  Nellie Mae under  which the Bank  would  fund and own the  loans,  but
servicing would be provided by others.

     During  1997,   MBS  continued  and  will  continue  to  amortize   without
replacement.  Income  earned  on MBS  decreased  to  $499,000  during  1997 from
$739,000 during 1996, reflecting the amortizing balance.  There were no sales of
MBS during 1997 or 1996. At December 31, 1997,  there were  unrealized  gains of
$335,000 in the $4.0  million MBS  portfolio,  which are not  expected to impact
future   results  of   operations,   as  MBS   securities   are   designated  as
held-to-maturity.

     Income from federal funds sold decreased to $3.5 million for 1997 from $3.9
million for 1996. The average  balance  invested in federal funds sold decreased
to $64.3 million during 1997, compared to $72.2 million during 1996. The average
yield on federal  funds sold  increased  to 5.44%  during 1997 from 5.35% during
1996.  Investments  in federal  funds sold provide the  liquidity of an interest
bearing cash equivalent necessary to fund: mortgage and other loan originations;
deposit  withdrawals;  dividend  payments  on and  repurchases  (if  any) of the
Company's common stock and to meet non-interest operating expense.

Interest Expense

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


<PAGE>

Net Interest Income

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

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

Provision For Possible Loan Losses

     The  provision  for  possible  loan losses for 1997  increased  slightly to
$648,000  compared to $640,000 for 1996.  During 1997 and 1996  management  made
general mortgage loan provisions of $600,000,  while provisions made against the
other loan  portfolio  increased  to $48,000  for 1997,  compared to $40,000 for
1996. Effective January 1, 1998, management discontinued making additions to the
general valuation mortgage allowance, and therefore does not currently expect to
make any provisions for possible loan losses for the mortgage  portfolio  during
1998.  However,  future  additions to or recoveries of the loan loss  allowances
will be based on management's  continuing evaluations of the loan portfolios and
assessments  of  economic  conditions,  changes  in  portfolio  value  and  loan
performance.

Provision For Possible Other Credit Losses

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


<PAGE>

Non-Interest Income

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

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

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

<PAGE>


Non-Interest Expense

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

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

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

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

     Occupancy and equipment  expense  decreased  $651,000,  to $4.6 million for
1997  from $5.2  million  for 1996.  During  1996,  the  Company  completed  the
renovations to the Company's headquarters.  The project, which began during 1995
and  continued  through  1996,  was the first major  capital  improvement  since
completion of the building in 1974.

     Other general and administrative expense increased by $453,000, or 8.4%, to
$5.9 million for 1997,  from $5.4 million for 1996.  This increase was primarily
related to  consulting  fees  incurred in  connection  with the formation of the
Bank's real estate investment trust  subsidiary,  Tier, Inc., during 1997, while
various other administrative expenses decreased.

 Provision for Income Taxes

     Income taxes increased by $5.1 million, or 26.0%, to $24.6 million for 1997
from $19.6  million for 1996.  This  increase is reflective of the $15.4 million
increase in pre-tax  income,  partially  offset by the decrease in the Company's
effective tax rate from 42.3% for 1996,  to 39.9% for 1997.  The decrease in the
effective  tax rate for 1997,  compared to 1996  reflects  certain tax  benefits
attributable to the Bank's real estate investment trust, which was formed during
1997. (See Note 14 to the Consolidated Financial Statements.)

Comparison of Operating Results for the Years Ended December 31, 1996 and 1995
------------------------------------------------------------------------------

General

     Net income for the year ended December 31, 1996 was $26.7 million, or $2.56
per diluted share,  compared with $22.2 million, or $2.01 per diluted share, for
1995.  Comments  regarding  the  components  of net income are  detailed  in the
following paragraphs.

Interest Income

     Income on mortgage  loans  increased  by $4.8  million,  or 7.5%,  to $69.1
million  for 1996,  from $64.3  million  for 1995.  The  average  investment  in
mortgage loans increased by $90.3 million, or 12.9%, to $792.6 million for 1996,
from  $702.3  million  for 1995.  The  amount  invested  in  mortgage  loans has
continued to increase  over the past seven years in both dollar  amount and as a
percentage of assets.  Mortgages originated for the Bank's portfolio during 1996
increased by $58.4  million,  or 75.0%,  to $136.2  million,  from $77.8 million
during 1995. The mortgage portfolio yield decreased to 8.72% for 1996 from 9.16%
for 1995.

     Income on debt and equity securities  decreased $5.9 million,  or 21.2%, to
$21.7  million for 1996,  compared to $27.5  million for 1995.  The  decrease in
income reflected a $95.5 million,  or 20.9%,  decrease in the average investment
in this  portfolio and a minimal  decrease in the yield to 6.01% for 1996,  from
6.03% for 1995.  During 1996,  activity in the investment  securities  portfolio
included  purchases of $534.6 million and maturities of $675.0  million.  During
1996, the Bank sold or redeemed  marketable equity securities  totaling $30,000,
realizing gross gains of $4,000 and gross losses of $2,000.  There were no sales
of debt or equity  securities  during 1995.  At December  31,  1996,  the $299.6
million debt securities  portfolio had net unrealized  gains of $617,000,  which
are not expected to impact future income,  as these securities are designated as
held-to-maturity.    The   equity    portfolio,    which   is    designated   as
available-for-sale,  was carried at fair value of $51.0 million,  which exceeded
its cost of $11.7 million.

<PAGE>

     Income on CMOs increased by $491,000,  or 5.1%, to $10.1 million, from $9.6
million.  During 1996 an increased number of CMOs meeting the Bank's  investment
guidelines became available on the secondary market, resulting in an increase of
CMOs purchased. Purchases of CMOs for 1996 totaled $124.3 million, compared with
$67.9  million  for 1995.  The average  investment  in CMOs  decreased  by $30.2
million,  or 14.4%,  to $179.3  million  for 1996.  Principal  payments  on CMOs
decreased to $114.1 million during 1996 from $237.1 million during 1995.  During
1996, the CMO portfolio  yielded 5.61% compared with 4.57% for 1995. At December
31, 1996, the $155.3 million CMO portfolio had net unrealized gains of $149,000,
which  are not  expected  to  impact  future  results  of  operations,  as these
securities are designated as held-to-maturity.

     During 1996,  MBS continued to amortize  without  replacement,  as the Bank
discontinued purchasing MBS during the 1980's. Income earned on MBS decreased to
$739,000  during 1996 from  $969,000  during  1995,  reflecting  the  amortizing
balance.  There were no sales of MBS during 1996 or 1995.  At December 31, 1996,
there were  unrealized  gains of $509,000 and no  unrealized  losses in the $5.6
million MBS portfolio.  These gains are not expected to impact future results of
operations, as MBS securities are designated as held-to-maturity.

     Income from federal funds sold increased to $3.9 million for 1996 from $3.0
million for 1995. The average  balance  invested in federal funds sold increased
to $72.2 million during 1996, compared to $52.4 million during 1995. The average
yield on federal  funds sold  decreased  to 5.35%  during 1996 from 5.78% during
1995. Liquidity,  provided by federal funds sold, is necessary to fund: mortgage
lending;  deposit  withdrawals;  dividend  payments  on and  repurchases  of the
Company's common stock and to meet obligations for non-interest expense.

Interest Expense

     Interest expense on deposits decreased to $40.2 million,  or 1.2%, for 1996
from $40.7  million  for 1995.  This  decrease  reflected  a decrease in average
interest bearing deposits of $13.9 million, or 1.2%, to $1.127 billion for 1996,
from $1.141 billion for 1995.  Market interest rates fluctuated  during 1996 and
the Bank's deposits  continued to shift from passbook  accounts into certificate
accounts.
Management monitors deposit levels and interest rates offered by competitors.

Net Interest Income

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


<PAGE>

     Net interest  income  increased by $375,000,  to $67.4 million,  from $67.0
million for 1995.  For 1996,  the net  interest  margin  increased to 4.68% from
4.60% for 1995,  and the net interest rate spread  increased to 3.90% from 3.82%
for 1995. The yield on interest  earning assets increased to 7.47% for 1996 from
7.39% for 1995.  The cost of interest  bearing  deposits  remained  unchanged at
3.57% for 1996 and 1995.  The  average  balance of interest  earning  assets and
interest  bearing  deposits  decreased  by  $18.3  million  and  $13.9  million,
respectively.

Provision For Possible Loan Losses

     The provision for possible loan losses for 1996 remained stable at $640,000
compared to $636,000  for 1995.  During 1996 and 1995  management  made  general
mortgage  loan  provisions  of $600,000.  Provisions of $40,000 and $36,000 were
made against the other loan portfolio during 1996 and 1995, respectively. Future
additions to the loan loss allowances  will be based on management's  continuing
evaluations  of the loan  portfolios  and  assessments  of economic  conditions.
Material  changes  in  portfolio  value,  performance  and/or  general  economic
conditions, would further affect the amount of any such loan provisions.

Provision For Possible Other Credit Losses

     The Bank recovered the entire $2.0 million  allowance that was  established
during 1995 in  connection  with the seizure of Nationar (a check  clearing  and
trust  company) by the  Superintendent  of Banks for the State of New York.  The
Bank  received two  payments  from the Nationar  estate  during 1996.  The first
payment of $4.1  million was  received  during the second  quarter and the final
distribution of $6.1 million,  received  during the fourth quarter,  resulted in
the Bank recapturing the allowance.

Non-Interest Income

     Non-interest  income for 1996 increased by $1.1 million,  or 27.2%, to $5.1
million  compared  to $4.0  million  in  1995.  Loan  fees and  service  charges
increased by $553,000,  or 24.3%,  primarily reflecting increases of $525,000 in
prepayment penalties;  $67,000 in mortgage loan late charges and $51,000 in NYCE
fees;  partially  offset by  decreases  of $32,000  each in NOW account  service
charges and regular  account fees.  During 1995, the Bank began to offer VISA(R)
and  Mastercard(R)  credit cards  resulting in related fee income of $38,000 for
1996. The Bank has an agreement with an unrelated financial  institution,  which
bears all costs and  credit  risk  associated  with  originating  and owning the
credit card portfolio  originated from the Bank's customer list. In general, the
Bank  receives a fee for each new account  opened or renewed and a percentage of
all finance charges paid by the cardholders.

     The $542,000 net increase in income from real estate  operations  primarily
reflected a $437,000  retroactive  property  tax refund  received for a property
that was sold during 1994. During 1996, gains of $571,000 were realized from the
sale of 25 cooperative  apartments owned by the Bank's real estate subsidiaries.
During 1995,  $587,000 of gains were  realized  from the sale of 31  cooperative
apartments. At December 31, 1996, 158 cooperative apartments,  which are carried
at a zero basis, remained available-for-sale.

<PAGE>

Non-Interest Expense

     Non-interest  expense decreased $2.0 million, or 6.6%, to $27.6 million for
1996, compared to $29.6 million for 1995.  Included in non-interest  expense are
the costs of compensation and benefits, occupancy and equipment, federal deposit
insurance  corporation  premiums,   advertising,   ORE  and  other  general  and
administrative expense.

     Federal  deposit  insurance  premiums,  which rates are established by law,
were $2,000, the statutory minimum, for 1996, compared to $1.5 million for 1995.
During 1995, the Federal Deposit Insurance Corporation (FDIC) announced that the
BIF  was  recapitalized  as of May 31,  1995,  and  issued  refunds  of  deposit
insurance  overpayments  from June 1 through  September  30, 1995. In connection
with federal legislation,  BIF members will be assessed a 1.3 basis point charge
per $100 of insurable  deposits to meet the FICO bond  obligations  beginning in
1997 and continuing through 1999. Assuming that the BIF remains fully funded, no
additional charges will be assessed.

     ORE operations generated income of $772,000 for 1996 compared to an expense
of  $209,000  for  1995.  This  income  reflected  a  pre-tax  gain of  $705,000
recognized on the sale of a property  acquired  through  foreclosure  during the
first quarter of 1996.  Gains on the sale of ORE properties are recognized under
the cost recovery  method.  During 1996,  $148,000 of gains on sales of ORE were
deferred.

     Occupancy and equipment  expenses increased  $254,000,  to $5.2 million for
1996 from $5.0 million for 1995.  This increase  reflected  increased costs as a
result of the renovations at the Company's headquarters.  The renovations, which
began  during 1995 and  continued  through  1996,  were the first major  capital
improvements since completion of the building in 1974.

     Other general and  administrative  expense increased by $208,000,  or 4.0%,
reflecting  increased  legal fees in  connection  with  foreclosure  actions for
problem loans and the Nationar claim.

     Compensation  and benefit expense  decreased by $167,000,  to $16.4 million
from $16.6 million,  or 1.0%.  Salaries increased overall by $326,000,  or 2.5%.
During 1995,  the final vesting for the Bank  Recognition  and  Retention  Plans
(BRRPs)  occurred,  resulting  in the Bank  recognizing  an expense of $594,000.
Since the BRRPs were terminated  after the final vesting in 1995, no expense was
incurred  for the BRRPs during  1996.  A  non-recurring  expense of $330,000 was
recognized  during 1996 in connection  with the 1996 Stock Option Plan,  for the
difference between the option price set on the date of grant and the stock price
on the date of stockholder  approval.  During 1996, the Bank realized savings of
$564,000  for  dental and  medical  insurance  premiums  resulting  from  excess
insurance fund reserves. The Bank does not expect such savings in the future.

<PAGE>

Provision for Income Taxes

     Income taxes increased by $2.9 million, or 17.8%, to $19.6 million for 1996
from $16.6 million for 1995. The provision for income taxes increased due to the
increase in pretax income, as the effective tax rate remained  relatively stable
at 42.3% for 1996 compared to 42.8% for 1995.  (See Note 14 to the  Consolidated
Financial Statements.)

<PAGE>

<TABLE>

JSB FINANCIAL, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
December 31, 1997 and 1996  (In Thousands, Except Share and Per Share Amounts)
<CAPTION>


ASSETS                                                                   1997          1996
------                                                                   ----          ----
<S>                                                                   <C>           <C>       
Cash and due from banks                                               $   12,924    $   12,894
Federal funds sold                                                        62,000        86,500
                                                                      ----------     ---------
  Cash and cash equivalents                                               74,924        99,394

Securities available-for-sale, at estimated fair value                    62,243        51,021
Securities held-to-maturity, net (estimated fair value
 of $353,996 and $461,784, respectively)                                 352,967       460,509
Other investments                                                          7,645         6,859
Mortgage loans, net                                                      970,737       827,052
Other loans, net                                                          29,008        27,722
Premises and equipment, net                                               17,029        16,829
Interest due and accrued                                                   9,278         9,310
Real estate held-for-investment, net                                        -            6,082
Real estate held-for-sale and Other real estate                            3,450         5,236
Other assets                                                               7,750         6,002
                                                                      ----------    ----------
           Total Assets                                               $1,535,031    $1,516,016
                                                                      ==========    ==========

LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits                                                              $1,121,203    $1,144,393
Advance payments for real estate taxes and insurance                      10,322         8,265
Official bank checks outstanding                                          10,405         9,644
Accrued expenses and other liabilities                                    25,587        18,415
                                                                      ----------    ----------
           Total Liabilities                                           1,167,517     1,180,717
                                                                      ----------    ----------

Commitments and Contingencies

STOCKHOLDERS' EQUITY
Preferred stock ($.01 par value, 15,000,000 shares
  authorized; none issued)                                                  -             -
Common stock ($.01 par value, 30,000,000 shares
  authorized; 16,000,000 issued; 9,919,927 and
  9,783,031 outstanding, respectively)                                       160           160
Additional paid-in capital                                               165,112       163,500
Retained income, substantially restricted                                311,436       289,588
Net unrealized gain on securities available-for-sale,
  net of tax                                                              28,469        21,795
Common stock held by Benefit Restoration Plan Trust,
  at cost (188,323 and 166,848 shares, respectively)                      (4,199)       (3,275)
Common stock held in treasury, at cost (6,080,073
  and 6,216,969 shares, respectively)                                   (133,464)     (136,469)
                                                                      ----------    ----------
           Total Stockholders' Equity                                    367,514       335,299
                                                                      ----------    ----------

           Total Liabilities and Stockholders' Equity                 $1,535,031    $1,516,016
                                                                      ==========    ==========
<FN>

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


<PAGE>

<TABLE>

JSB FINANCIAL, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
Years ended December 31, 1997, 1996 and 1995
(In Thousands, Except Per Share Amounts)
<CAPTION>

                                                              1997         1996        1995
                                                              ----         ----        ----
<S>                                                        <C>          <C>         <C>    
Interest Income:
  Mortgage loans, net                                      $  74,149    $  69,113   $  64,309
  Debt & equity securities, net                               19,584       21,695      27,545
  Collateralized mortgage obligations(CMOs), net               7,937       10,063       9,572
  Other loans, net                                             2,070        2,138       2,299
  Mortgage-backed securities(MBS), net                           499          739         969
  Federal funds sold                                           3,503        3,863       3,032
                                                           ---------    ---------   ---------
    Total Interest Income                                    107,742      107,611     107,726
                                                           ---------    ---------   ---------

Interest Expense:
  Deposits                                                    39,874       40,217      40,707
                                                           ---------     --------   ---------
    Net Interest Income                                       67,868       67,394      67,019
  Provision for Possible Loan Losses                             648          640         636
  (Recovery of) Provision for Possible Other Credit Losses      -          (2,040)      2,040
                                                           ---------    ---------   ---------
    Net Interest Income After Provision
     for Possible Credit Losses                               67,220       68,794      64,343
                                                           ---------    ---------   ---------

Non-Interest Income:
  Real estate operations, net                                 10,442        1,767       1,225
  Loan fees and service charges                                3,969        2,833       2,280
  Gain on sale of investments, net                             6,991            2        -
  Miscellaneous income                                           527          479         490
                                                           ---------    ---------   ---------
    Total Non-Interest Income                                 21,929        5,081       3,995
                                                           ---------    ---------   ---------

Non-Interest Expense:
  Compensation and benefits                                   15,921       16,412      16,579
  Occupancy and equipment expenses (net of rental
   income of $1,287, $1,126 and $1,199, respectively)          4,560        5,211       4,957
  Federal deposit insurance premiums                             149            2       1,477
  Advertising                                                  1,005        1,340       1,142
  Other real estate (income) expense, net                        (59)        (772)        209
  Other general and administrative                             5,858        5,405       5,197
                                                           ---------    ---------   ---------
    Total Non-Interest Expense                                27,434       27,598      29,561
                                                           ---------    ---------   ---------

   Income Before Provision for Income Taxes                   61,715       46,277      38,777
   Provision for Income Taxes                                 24,625       19,552      16,603
                                                           ---------    ---------   ---------

    Net Income                                             $  37,090    $  26,725   $  22,174
                                                           =========    =========   =========

Earnings and Cash Dividends per Common Share
 Basic earnings per common share                          $    3.76    $    2.66   $    2.09
 Diluted earnings per common share                        $    3.64    $    2.56   $    2.01


  Cash dividends per common share                         $    1.40    $    1.20   $    1.00

<FN>

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



<PAGE>

<TABLE>

JSB FINANCIAL, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
Years ended December 31, 1997, 1996 and 1995 (In Thousands, Except Per Share Amounts)
<CAPTION>
                                                                 1997       1996      1995
                                                                 ----       ----      ----
<S>                                                            <C>        <C>       <C>  
Common Stock (Par value: $.01)
Balance at beginning and end of year                           $    160   $    160  $    160
                                                               --------   --------  --------

Additional Paid-in Capital
Balance at beginning of year                                    163,500    162,566   160,962
  Net allocation (distribution) of common stock
   for Benefit Restoration Plan                                     924          5      (199)
  Tax benefit for stock plans                                       688        599     1,645
  Reallocation of forfeited Bank Recognition and
   Retention Plans shares                                          -          -          158
  Compensation expense for 1996 stock option plan                  -           330      -
                                                               --------   --------  --------
Balance at end of year                                          165,112    163,500   162,566
                                                               --------   --------  --------

Retained Income, Substantially Restricted
Balance at beginning of year                                    289,588    276,317   266,361
  Net income                                                     37,090     26,725    22,174
  Loss on reissuance of treasury stock                           (1,437)    (1,364)   (1,602)
  Cash dividends on common stock ($1.40, $1.20, $1.00,
    respectively)                                               (13,805)   (12,090)  (10,616)
                                                                -------    -------   -------
Balance at end of year                                          311,436    289,588   276,317
                                                                -------    -------   -------

Net Unrealized Gain on Securities Available-for-Sale, Net of Tax
Balance at beginning of year                                     21,795     15,750     8,892
Change in net unrealized gains on securities available-
   for-sale (net of tax change of $5,371, $4,863 and
   $5,517, respectively)                                          6,674      6,045     6,858
                                                               --------   --------  --------
Balance at end of year                                           28,469     21,795    15,750
                                                               --------   --------  --------

Unearned Common Stock Held by Bank Recognition and
 Retention Plans
Balance at beginning of year                                       -          -         (516)
  Earned during the period                                         -          -          516
                                                               --------   --------  --------
Balance at end of year                                             -          -         -
                                                               --------   --------  --------

Common Stock Held by Benefit Restoration Plan Trust, at Cost
Balance at beginning of year                                     (3,275)    (3,270)   (3,469)
  Common stock acquired                                            (934)       (11)       (9)
  Common stock distributed                                           10          6       208
                                                               --------    -------  --------
Balance at end of year                                           (4,199)    (3,275)   (3,270)
                                                               --------    -------  --------

Common Stock Held in Treasury, at Cost
Balance at beginning of year                                   (136,469)  (111,416) (104,756)
  Common stock reacquired                                          -       (27,650)   (9,881)
  Common stock reissued for options exercised                     3,005      2,597     3,221
                                                               --------   --------  --------
Balance at end of year                                         (133,464)  (136,469) (111,416)
                                                               --------   --------  --------
Total Stockholders' Equity                                     $367,514   $335,299  $340,107
                                                               ========   ========  ========
<FN>

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



<PAGE>
<TABLE>


JSB FINANCIAL, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years ended December 31, 1997, 1996 and 1995 (In Thousands)
<CAPTION>

CASH FLOWS FROM OPERATING ACTIVITIES:                        1997         1996          1995
                                                             ----         ----          ----
<S>                                                      <C>          <C>           <C>      
Net income                                               $  37,090    $  26,725     $  22,174
Adjustments  to  reconcile   net  income  to  net
  cash  provided  by  operating   activities:
Provision for possible loan losses                             648          640           636
(Recovery of) provision for possible other credit losses      -          (2,040)        2,040
Loss on Nationar capital stock                                -            -               38
Net gain on sale/redemption of equity securities            (6,991)          (2)         -
Decrease in deferred loan fees and discounts, net             (418)        (593)         (608)
Accretion of discount (in excess of) less than
 amortization of premium on MBS and CMOs                      (300)        (578)          320
Accretion of discount in excess of amortization
 of premium on debt securities                                (337)        (249)         (248)
Depreciation and amortization of premises and equipment      1,891        1,826         1,920
Mortgage loans originated for sale                          (1,612)      (1,621)       (1,792)
Proceeds from sale of mortgage loans originated for sale     1,636        1,737         1,818
Gain on sale of mortgage and other loans                       (35)         (53)          (61)
Expense recognized for Bank Recognition and Retention Plans   -            -              675
Tax benefit for stock plans credited to capital                688          599         1,645
Gain on sale of real estate held for sale                   (9,992)        (571)         (587)
Decrease in interest due and accrued                            32        3,597           752
Transfer of federal funds sold to Nationar to
 claims receivable                                            -            -          (10,205)
Payments received against Nationar claim                      -          10,205          -
Net gain on sale of other real estate                         (144)        (688)         -
Increase (decrease) in official bank checks outstanding        761      (14,748)        3,986
Other                                                          137        1,547        (1,389)
                                                         ---------    ---------     ---------
  Net cash provided by operating activities                 23,054       25,733        21,114
                                                         ---------    ---------     ---------

CASH FLOWS FROM INVESTING ACTIVITIES:
Loans originated:
 Mortgage loans                                           (205,174)    (136,218)      (77,826)
 Other loans                                               (21,010)     (19,032)      (25,718)
Purchases of CMOs held-to-maturity                         (55,035)    (124,275)      (67,889)
Purchases of debt securities held-to-maturity and
 securities available-for-sale                            (499,920)    (534,569)     (300,047)
Principal payments on:
 Mortgage loans                                             60,833       46,506        22,672
 Other loans                                                19,025       19,656        22,556
 CMOs                                                      106,545      114,105       237,060
 MBS                                                         1,590        2,047         2,324
Proceeds from maturities of U.S. Government and
 federal agency securities                                 555,000      675,000       265,000
Proceeds from sale of other loans                              681          934         1,372
Purchases of Federal Home Loan Bank stock                     (786)        (557)         (188)



                                                                                  (Continued)
</TABLE>

<PAGE>
<TABLE>


JSB FINANCIAL, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS - CONTINUED
Years ended December 31, 1997, 1996 and 1995  (In Thousands)
<CAPTION>
                                                             1997         1996           1995
                                                             ----         ----           ----

<S>                                                      <C>          <C>           <C>   
Proceeds from sale/redemption of equity securities           7,813           30          -
Purchases of premises and equipment, net of disposals       (2,091)      (3,498)       (2,647)
Net decrease in real estate held-for-investment,
  excluding transfers to held-for-sale                        -             313           168
Proceeds from sale of real estate held-for-sale             17,703          571           587
Proceeds from sale of Other real estate                        688        2,759          -
Net (increase) decrease in real estate holdings,
  excluding sales                                              (16)       1,522         1,995
                                                           --------     -------       -------
  Net cash (used by) provided by investing activities      (14,154)      45,294        79,419
                                                           -------      -------       -------


CASH FLOWS FROM FINANCING ACTIVITIES:
Net decrease in deposits                                   (23,190)     (19,053)      (40,978)
Increase (decrease) in advance payments for real
 estate taxes and insurance                                  2,057           34           (79)
Proceeds upon exercise of common stock options               1,568        1,233         1,619
Cash dividends paid to common stockholders                 (13,805)     (12,090)      (10,616)
Payments to repurchase common stock                           -         (27,650)       (9,881)
                                                         ---------    ---------     ---------
   Net cash used by financing activities                   (33,370)     (57,526)      (59,935)
                                                         ---------    ---------     ---------

Net (decrease) increase in cash and cash equivalents       (24,470)      13,501        40,598
Cash and cash equivalents at beginning of year              99,394       85,893        45,295
                                                         ---------    ---------     ---------
Cash and cash equivalents at end of year                 $  74,924    $  99,394     $  85,893
                                                         =========    =========     =========


Supplemental Disclosures of Cash Flow Information
Cash paid for:
 Interest on deposits                                    $  39,881    $  40,215     $  40,721
                                                         =========    =========     =========
 Income taxes                                            $  32,036    $  22,370     $  18,216
                                                         =========    =========     =========


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

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

Deferred tax liability on securities available-for-sale  $  22,905    $  17,534     $  12,671
                                                         =========    =========     =========





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

<PAGE>




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



NOTE (1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND RELATED MATTERS

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

(a)  Basis of Financial Statement Presentation
     The consolidated financial statements have been prepared in conformity with
generally  accepted  accounting   principles.   In  preparing  the  consolidated
financial  statements,  management is required to make estimates and assumptions
that affect the  reported  amounts of assets,  liabilities  and  disclosures  of
contingent assets and liabilities as of the dates of the consolidated statements
of financial  condition  and  revenues  and expenses for the periods  presented.
Actual results could differ significantly from those estimates.

     Material estimates that are particularly  susceptible to significant change
relate  to the  determination  of the  allowances  for  credit  losses  and  the
valuation  of real  estate  held-for-sale  and other real  estate  (referred  to
collectively as real estate holdings). These estimates are primarily reactive to
actual and  anticipated  changes in the real estate  market,  the economy in the
Bank's market area and debtors'  financial  condition.  In  connection  with the
determination of allowances,  management reviews:  loan performance;  historical
trends;  appraisals of real estate holdings and properties securing  significant
mortgages;  investment ratings for equity securities;  and capital and liquidity
levels for correspondent banks, on an ongoing basis.

     The ultimate  collection  of the Bank's loan  portfolio and the recovery of
its various  real estate  holdings  is  affected by economic  conditions  in the
Bank's market area and changes  thereto.  The Bank's  mortgage loans are secured
primarily by properties located in the New York-metropolitan  area. In addition,
all real estate holdings are located in the same market area.

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

(b)  Principles of Consolidation
     The consolidated  financial  statements include the accounts of the Company
and its  wholly-owned  subsidiary,  the Bank,  as  consolidated  with the Bank's
wholly-owned   subsidiaries.   All   significant   intercompany   accounts   and
transactions have been eliminated in consolidation.

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


<PAGE>


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

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

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

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

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

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

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

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

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

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

(h)  Real Estate Holdings
     Real estate held-for-investment represents real estate properties financed,
owned and operated by the Bank's  subsidiaries.  Significant  improvements  have
been  made  to  the  properties,  thereby  increasing  the  amount  invested  in
individual  properties.  The properties were initially  recorded at the lower of
cost  or fair  value  at  acquisition  (if  foreclosed  property)  or  cost  (if
purchased) and subsequently  increased by capital  improvements and decreased by
depreciation.  Management  monitors  each  investment  on  a  continuous  basis.
Valuation allowances for estimated losses on real estate held-for-investment are
provided when a significant and permanent decline in value occurs.

     In the event of a change in classification  from  "held-for-investment"  to
"held-for-sale",  the  property's  carrying value is compared to fair value less
estimated selling costs (i.e. net fair value). If the carrying value exceeds net
fair value, the investment is adjusted down through a valuation  allowance,  and
subsequently carried at the lower of the carrying value or net fair value. As of
June 30, 1997, management  reclassified all real estate  held-for-investment  to
held-for-sale. (See Notes 11, 12 and 13.)

        Real estate held-for-sale is carried at lower of cost or net fair value.
Gains on the sale, if any, are  accounted  for using the cost  recovery  method.
Revenues and expenses from the  operations are  reflected,  as incurred,  in the
Company's operating results. (See Note 12.)

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

(i)  Income Taxes
      The Company follows SFAS No. 109, "Accounting for Income Taxes" (Statement
109), which requires the asset/liability  method of accounting for income taxes.
Under the asset/liability  method,  deferred income taxes are recognized for the
tax consequences of "temporary  differences" by applying  enacted  statutory tax
rates,  applicable  to  future  years,  to  differences  between  the  financial
statement carrying amounts and the tax basis of existing assets and liabilities.
Under  Statement  109,  deferred tax assets are  recognized if it is more likely
than not that a future benefit will be realized. It is management's position, as
currently supported by the facts and circumstances,  that no valuation allowance
is necessary against any of the Company's deferred tax assets (See Note 14.)

(j)  Stock Based Compensation
    In October,  1995, the Financial  Accounting  Standards  Board (FASB) issued
SFAS  No.  123,  "Accounting  for  Stock-Based  Compensation"  (Statement  123).
Statement 123 applies to all  transactions  in which an entity acquires goods or
services by issuing  equity  instruments or by incurring  liabilities  where the
payment  amounts  are based on the  entity's  common  stock  price,  except  for
employee stock ownership plans.

     Statement  123  established  a fair value based  method of  accounting  for
stock-based  compensation  arrangements with employees rather than the intrinsic
value based method that is contained in Accounting  Principles Board Opinion No.
25 (Opinion 25).  Statement 123 does not require an entity to adopt the new fair
value based  method for purposes of preparing  its basic  financial  statements.
While the  Statement 123 fair value based method is considered by the FASB to be
preferable  to the  Opinion 25 method,  entities  may opt to continue to use the
method  prescribed  by Opinion 25.  Entities  not  adopting the fair value based
method  under  Statement  123 are  required  to present pro forma net income and
earnings per share,  in the notes to the  financial  statements,  as if the fair
value based method had been adopted.

     The accounting requirements of Statement 123 are effective for transactions
entered  into  during  fiscal  years that begin after  December  15,  1995.  The
disclosure  requirements  became  effective for financial  statements for fiscal
years  beginning  after  December 15, 1995,  or for any earlier  fiscal year for
which Statement 123 was initially adopted for recognizing compensation cost. Pro
forma  disclosures  required for entities that elect to continue to measure cost
using the  Opinion 25 method must  include the effects of all awards  granted in
fiscal  years that begin after  December  15, 1994.  Pro forma  disclosures  for
awards granted in the first fiscal year, beginning after December 15, 1994, need
not be  included  in  financial  statements  for that  fiscal year but should be
presented  subsequently  whenever financial  statements for that fiscal year are
presented for comparative  purposes with financial  statements for a later year.
During 1996, the Company adopted the disclosure  provisions of Statement 123 and
continues  to measure cost using the Opinion 25 method for purposes of preparing
its consolidated financial statements,  therefore, the adoption of Statement 123
had no impact on the  Company's  financial  condition or results of  operations.
(See Note 22.)



<PAGE>


(k)  Earnings Per Share
        Effective December 31, 1997, the Company adopted SFAS No. 128, "Earnings
Per Share"  (Statement 128).  Statement 128 establishes  standards for computing
and  presenting  earnings per share (EPS) and applies to entities  with publicly
held common  stock or potential  common  stock.  Statement  128  simplifies  the
standards for  computing EPS  previously  found in Accounting  Principles  Board
Opinion No. 15,  "Earnings Per Share" (Opinion 15), and makes them comparable to
international EPS standards.  Statement 128 replaces the presentation of primary
EPS with a presentation of basic EPS and replaces fully diluted EPS with diluted
EPS.  Statement 128 requires dual  presentation  of basic and diluted EPS on the
face of the income  statement for all entities with complex  capital  structures
and requires a reconciliation  of the numerator and denominator of the basic EPS
computation  to the numerator and  denominator  of the diluted EPS  computation.
(See Note 15.)

        Basic EPS excludes dilution and is computed by dividing income available
to  common  stockholders  by  the  weighted-average   number  of  common  shares
outstanding  for the period.  Diluted EPS reflects the  potential  dilution that
could  occur  if  securities  or other  contracts  to issue  common  stock  were
exercised or  converted  into common stock or resulted in the issuance of common
stock that then shared in the  earnings  of the entity.  Diluted EPS is computed
similarly to fully diluted EPS pursuant to Opinion 15. This  Statement  required
restatement of all prior-period EPS data presented.

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

(m)  Reclassification
     Reclassifications  have been made to prior  year  financial  statements  to
conform with the 1997 presentation.


 NOTE (2) STOCK REPURCHASE PROGRAMS
      The Company did not repurchase any of its outstanding  common stock during
1997. For the years ended  December 31, 1996 and 1995,  the Company  repurchased
845,000 and 339,485  shares at an average  price of $32.72 and $29.11 per share,
respectively. The Company issued 136,896, 123,256 and 161,860 shares of treasury
stock for options exercised during 1997, 1996 and 1995, respectively. There were
6,080,073 and  6,216,969  shares of common stock in the treasury at December 31,
1997 and 1996, respectively.



<PAGE>


NOTE (3) SECURITIES
     The  following  tables  set  forth  information   regarding  the  Company's
securities as of December 31:
<TABLE>
<CAPTION>
                                                         1997
                                                         ----
Securities Available-for-Sale:
------------------------------
                                                Estimated        Gross Unrealized
                                      Cost      Fair Value      Gains       Losses
                                      ----      ----------      -----       ------
                                                     (In Thousands)
<S>                                 <C>         <C>            <C>          <C>    
Marketable equity securities        $ 10,869    $ 62,243       $51,462      $    88
                                    ========    ========       =======      =======

Securities Held-to-Maturity:
----------------------------

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

CMOs, net                            104,040     104,270           295           65

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

                                                         1996
                                                         ----
Securities Available-for-Sale:
------------------------------
                                                Estimated        Gross Unrealized
                                      Cost      Fair Value      Gains       Losses
                                      ----      ----------      -----       ------
                                                     (In Thousands)
Marketable equity securities        $ 11,692    $ 51,021       $39,368      $    39
                                    ========    ========       =======      =======

Securities Held-to-Maturity:
----------------------------

                                    Amortized   Estimated        Gross Unrealized
                                      Cost      Fair Value      Gains       Losses
                                      ----      ----------      -----       ------
                                                     (In Thousands)
U.S. Government and Federal
  Agency securities                 $299,645    $300,262       $   617      $  -

CMOs, net                            155,272     155,421           436          287

MBS:
  GNMA                                 4,999       5,455           456         -
  FNMA                                   152         166            14         -
 Freddie Mac                             441         480            39         -
                                    --------    --------       -------      -------
 Total MBS, net                        5,592       6,101           509         -
                                    --------    --------       -------      -------
     Total                          $460,509    $461,784       $ 1,562      $   287
                                    ========    ========       =======      =======

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


<PAGE>

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

     During 1997, the Bank sold or redeemed  marketable equity securities with a
cost of $823,000,  realizing  gross gains of  $6,991,000  and no losses.  During
1996, the Bank sold or redeemed  marketable equity securities  totaling $30,000,
realizing gross gains of $4,000 and gross losses of $2,000.  There were no sales
of securities during 1995.

<TABLE>
     Presented in the table below is the contractual maturity distribution,  for
debt securities held-to-maturity at December 31, 1997:
<CAPTION>

                                   Amortized           Estimated
                                     Cost              Fair Value
                                     ----              ----------
                                          (In Thousands)
<S>                                <C>                  <C>     
Within 1 year                      $235,117             $235,515
After 1 year through 5 years         31,198               31,332
After 5 years through 10 years       83,783               84,051
After 10 years                        2,869                3,098
                                   --------             --------
    Total                          $352,967             $353,996
                                   ========             ========
</TABLE>

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

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

<TABLE>
<CAPTION>
                                               1997              1996
                                               ----              ----
                                                   (In Thousands)

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

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

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

<PAGE>

NOTE (4)  OTHER INVESTMENTS

<TABLE>
     Other investments at December 31, 1997 and 1996 were as follows:
<CAPTION>

                                       1997                     1996
                                       ----                     ----
                                           Estimated                Estimated
                                Carrying     Fair        Carrying     Fair
                                 Value       Value        Value      Value   
                                 -----       -----        -----      -----   
                                             (In Thousands)

  <S>                          <C>          <C>             <C>       <C>     
  Investment required by law*  $  7,615     $  7,615        $  6,829  $  6,829
  Other stock                        30           30              30        30
                               --------     --------        --------  --------
   Total other investments     $  7,645     $  7,645        $  6,859  $  6,859
                               ========     ========        ========  ========

<FN>
* The Bank is required to hold shares of the Federal Home Loan Bank of New York.
</FN>
</TABLE>

NOTE (5)  LOANS

     Loans are summarized as follows:
<TABLE>
<CAPTION>
                                                   December 31,
                                                   ------------
                                           1997                   1996
                                           ----                   ----
                                                   (In Thousands)
<S>                                      <C>                    <C> 
Mortgage loans:
  One-to four-family                     $ 73,757               $ 76,848
  Multi-family                            563,205                433,224
  Underlying cooperative*                 267,942                262,221
  Commercial                               71,839                 61,829
  Construction                              3,067                  1,836
                                         --------               --------
   Total mortgage loans                   979,810                835,958
                                         --------               --------

Deferred loan fees and unearned
 discounts                                 (3,332)                (3,730)
Allowance for possible loan losses         (5,741)                (5,176)
                                         --------               --------

   Total mortgage loans, net             $970,737               $827,052
                                         ========               ========

Other loans:
  Student                                $  5,213               $  6,204
  Consumer                                  4,775                  4,350
  Loans secured by deposit accounts         8,189                  8,328
  Overdraft loans                             227                    237
  Property improvement                     10,744                  8,775
                                         --------               --------
   Total other loans                       29,148                 27,894
                                         --------               --------

Unearned discounts                             (1)                   (21)
Allowance for possible loan losses           (139)                  (151)
                                         --------               --------

   Total other loans, net                $ 29,008               $ 27,722
                                         ========               ========

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



<PAGE>


NOTE (6)  LOAN DELINQUENCIES
     Information regarding loans delinquent 90 days or more at December 31, 1997
and 1996 is summarized as follows:
<TABLE>
<CAPTION>

                                              1997                   1996
                                              ----                   ----
                                        Number   Principal     Number   Principal
                                          of      balance        of      balance
                                        loans    of loans      loans    of loans
                                        -----    --------      -----    --------
                                                  (Dollars in Thousands)

<S>                                     <C> <C>   <C>            <C> <C>  <C>
          Delinquent loans:
           Guaranteed*                   82       $   500        144      $   692
           Non-guaranteed                 5        12,769         15       13,459
                                        ---       -------        ---      -------

          Total delinquencies
           over 90 days                  87       $13,269        159      $14,151
                                        ===       =======        ===      =======

          Ratio of loans 90 days
           or more past due to
           total gross loans                1.32%                    1.64%
                                            ====                     ====

<FN>
     *These loans are guaranteed by the Federal Housing Administration, the Veterans
       Administration or the New York State Higher Education Services Corporation.
</FN>
</TABLE>

        At December 31, 1997 and December 31, 1996,  there was one mortgage loan
with a balance of  $12,754,000 on non-accrual  status.  Net interest  income was
reduced by approximately $1,180,000, $1,180,000 and $197,000 for the years ended
December 31, 1997, 1996 and 1995 in connection with non-accrual loans.

<TABLE>
     The following table summarizes information regarding the Company's impaired
loans at December 31:
<CAPTION>
                                                        1997
                                                        ----
                                                      Allowance
                                         Recorded     for Loan        Net
                                        Investment     Losses     Investment
                                        ----------     ------     ----------
                                                    (In Thousands)
<S>                                      <C>           <C>         <C> 
Underlying Cooperative:
  With a related allowance               $  -          $  -        $  -
  Without a related allowance             12,754          -         12,754
                                         -------       -------     -------
 Total Impaired Loans                    $12,754       $  -        $12,754
                                         =======       =======     =======

                                                        1996
                                                        ----
                                                      Allowance
                                         Recorded     for Loan        Net
                                        Investment     Losses     Investment
                                        ----------     ------     ----------
                                                    (In Thousands)
Underlying Cooperative:
  With a related allowance               $  -          $  -        $  -
  Without a related allowance             12,754          -         12,754
                                         -------       -------     -------
 Total Impaired Loans                    $12,754       $  -        $12,754
                                         =======       =======     =======
</TABLE>

         There were no loans  included in the above table which were modified in
a TDR.  The entire  balance of impaired  loans at December 31, 1997 and December
31, 1996  represents  one loan on  non-accrual  status.  The average  balance of
impaired loans for both 1997 and 1996 was $12,754,000 and for 1995 was $208,000.
There was no interest  income  recorded  for  impaired  loans (for the period in
which the loans were  identified  as  impaired)  during 1997 and 1996.  For both
years ended  December  31, 1997 and 1996,  impaired  loans  resulted in foregone
interest of $1,180,000.  At December 31, 1997 and 1996, loans  restructured in a
TDR,  other than those  classified as impaired loans and/or  non-accrual  loans,
were $1,840,000 and $1,874,000, respectively. Interest forfeited attributable to
these loans was $62,000,  each for the years ended  December 31, 1997,  1996 and
1995.



<PAGE>


NOTE (7)  ALLOWANCE FOR POSSIBLE LOAN LOSSES
<TABLE>
     Activity  in the  allowance  for  possible  loan losses for the years ended
December 31, 1997, 1996 and 1995 is summarized as follows:
<CAPTION>
                                          Mortgage loans               Other loans
                                    1997       1996      1995      1997   1996   1995
                                    ----       ----      ----      ----   ----   ----
                                                     (In Thousands)

<S>                                 <C>        <C>       <C>       <C>    <C>    <C> 
Balance at beginning of period      $5,176     $4,575    $3,976    $151   $122   $109
Provision for possible loan losses     600        600       600      48     40     36
Loans charged off                      (35)      -           (1)    (72)   (33)   (43)
Recoveries of loans previously
   charged off                        -             1      -         12     22     20
                                    ------     ------    ------    ----   ----   ----
Balance at end of period            $5,741     $5,176    $4,575    $139   $151   $122
                                    ======     ======    ======    ====   ====   ====
</TABLE>

NOTE (8)  MORTGAGE LOAN SERVICING
<TABLE>
     A summary of principal  balances,  servicing income and the number of loans
serviced  for others by the Bank at and for the years ended  December  31, 1997,
1996 and 1995 were as follows:
<CAPTION>

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

         <S>                       <C>        <C>       <C>    
         Principal balances        $14,467    $16,016   $18,381
                                   =======    =======   =======

         Servicing income          $    25    $    39   $    47
                                   =======    =======   =======

         Number of loans               906      1,494     2,023
                                   =======      =====   =======
</TABLE>

     The balance of loans sold with full recourse was  $5,441,000 and $7,366,000
at  December  31, 1997 and 1996,  respectively.  The Bank has not sold any loans
with  recourse  since 1985.  The Bank sold,  without  recourse,  $1,612,000  and
$1,715,000  of  mortgage  loans to FNMA  and/or  the State of New York  Mortgage
Association  (SONYMA)  during  1997 and 1996,  respectively.  The Bank  retained
servicing  for  these  loans,  which  did not  result  in the  recording  of any
servicing assets.


<PAGE>


NOTE (9)  PREMISES AND EQUIPMENT
<TABLE>
     Premises  and  equipment  at December  31, 1997 and 1996  consisted  of the
following:
<CAPTION>
                                    1997       1996
                                    ----       ----
                                     (In Thousands)

<S>                                <C>        <C>    
Banking houses and land            $21,709    $21,493
Furniture, fixtures and equipment   16,911     15,086
Safe deposit vaults                  1,016      1,016
                                    39,636     37,595
Less accumulated depreciation and
 amortization                       22,607     20,766

Premises and equipment, net        $17,029    $16,829
</TABLE>

     Depreciation  and  amortization  expense for the years ended  December  31,
1997, 1996 and 1995 was $1,891,000, $1,826,000 and $1,920,000, respectively.



<PAGE>


NOTE (10)  INTEREST DUE AND ACCRUED

<TABLE>

     Interest  due and accrued at December  31, 1997 and 1996  consisted  of the
following:
<CAPTION>
                                              1997       1996
                                              ----       ----
                                               (In Thousands)

<S>                                        <C>        <C>    
U.S. Government and Federal Agencies       $ 2,354    $ 2,655
CMOs                                           540        739
MBS                                             36         51
Mortgage and other loans                     6,348      5,865
                                           -------    -------
Total interest due and accrued             $ 9,278    $ 9,310
                                           =======    =======
</TABLE>

NOTE (11)  REAL ESTATE HELD-FOR-INVESTMENT
     Through its  wholly-owned  subsidiaries,  the Bank has  investments in real
estate.   On  June  30,   1997,   management   reclassified   all  real   estate
held-for-investment to held-for-sale. As of December 31, 1996, the components of
the net asset amounts of real estate held-for-investment were as follows:
<TABLE>
<CAPTION>

                                          1996
                                          ----
                                     (In Thousands)
<S>                                     <C>    
Buildings, net                          $ 4,000
Land                                      1,561
Accrued interest and other assets         1,385
Other liabilities                          (864)
                                        -------
       Net assets                       $ 6,082
                                        =======
</TABLE>

<TABLE>
     The  summarized  statements  of  operations  for  the  Bank's  wholly-owned
subsidiaries that comprise real estate held-for-investment,  for the years ended
December 31, 1997, 1996 and 1995 were as follows:
<CAPTION>


                                      1997        1996       1995
                                      ----        ----       ----
                                              (In Thousands)

<S>                                  <C>        <C>        <C>   
Rental income                        $1,478     $4,020     $4,236
Net interest income                       2          4          5
Other income                             17        652        210
                                     ------     ------     ------
    Total income                      1,497      4,676      4,451
                                     ------     ------     ------

Real estate taxes                       246        566        574
Operating and other expenses            647      3,087      3,376
                                     ------     ------     ------
    Total expenses                      893      3,653      3,950
                                     ------     ------     ------

Income from real estate held-
  for-investment 1                   $  604     $1,023    $   501
                                     ======     ======    =======

<FN>
1 On June 30, 1997, management reclassified all real estate  held-for-investment
to  held-for-sale.  In October,  1997, a commercial office tower located at 1995
Broadway,  New York and  previously  classified  held-for-investment  was  sold,
resulting in a pre-tax gain of $9,163,000.
</FN>
</TABLE>



<PAGE>


NOTE (12)  REAL ESTATE HELD-FOR-SALE AND OTHER REAL ESTATE
<TABLE>
      The following  summarizes real estate properties owned by the Bank through
its real estate subsidiaries at December 31:
<CAPTION>

                                                   1997         1996
                                                   ----         ----
                                                    (In Thousands)
     <S>                                          <C>          <C>
     Real Estate Held-for-Sale1
     Condominium Property                         $2,752       $4,589
     Land                                            130         -
     Buildings                                       140         -
     Accrued interest and other assets               372         -
     Liabilities                                    (417)        -
                                                  ------       ------
        Net Assets                                 2,977        4,589
                                                  ------       ------
     Other Real Estate
     Cooperative apartments                          473          647
                                                  ------       ------

     Total Real Estate Held-for-Sale and ORE      $3,450       $5,236
                                                  ======       ======
<FN>

1  During  1997,  all  real  estate   held-for-investment  was  reclassified  to
held-for-sale.  (See Note 11.) In addition to the  cooperative  apartments  that
comprised ORE,  several of the Bank's wholly owned  subsidiaries own cooperative
apartments in various buildings, which are carried at zero cost and are included
in Real Estate  Held-for-Sale.  At December 31, 1997 and 1996,  138 and 158 such
cooperative apartments remained available-for-sale, respectively.
</FN>
</TABLE>


NOTE (13)  REAL ESTATE OPERATIONS, NET
<TABLE>
        Results of real estate operations for the years ended December 31, 1997,
1996 and 1995 were as follows:
<CAPTION>

                                                1997             1996            1995
                                                ----             ----            ----
                                                            (In Thousands)

<S>                                           <C>               <C>             <C> 
Income from real estate held
 for investment, net  (See Note 11.)          $   604           $1,023          $  501
                                              -------           ------          ------

Real estate held for sale:
  Rental income, net of expenses                 (154)             173             137
  Gain on sale1                                 9,992              571             587
                                              -------           ------          ------
                                                9,838              744             724
                                              -------           ------          ------

  Real estate operations, net                 $10,442           $1,767          $1,225
                                              =======           ======          ======
<FN>

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


<PAGE>


NOTE (14)  INCOME TAXES
<TABLE>
      The 1997,  1996 and 1995  provisions  for income tax were comprised of the
following amounts:
<CAPTION>

                                 1997              1996               1995
                                 ----              ----               ----
                                              (In Thousands)

<S>                            <C>               <C>                <C>  
Current:
  Federal                      $18,877           $12,870            $11,657
  State and local                5,652             5,630              5,344
                               -------           -------            -------
                                24,529            18,500             17,001
                               -------           -------            -------

Deferred:
  Federal                           66               703               (133)
  State and local                   30               349               (265)
                               -------           -------            -------
                                    96             1,052               (398)
                               -------           -------            -------

Provision for income taxes     $24,625           $19,552            $16,603
                               =======           =======            =======
</TABLE>

     For the  years  ended  December  31,  1997,  1996  and  1995,  the  Company
recognized  tax benefits  relating to its stock  option and other stock  benefit
plans of $688,000,  $599,000 and $1,645,000,  respectively,  which were credited
directly to stockholders' equity.

<TABLE>
     A  reconciliation  of the statutory  U.S.  federal income tax provision and
rate,  to the  actual  tax  provision  and  effective  rate for the years  ended
December 31, 1997, 1996 and 1995 were as follows:
<CAPTION>

                                 1997                 1996               1995
                                 ----                 ----               ----
                                    % of                 % of                % of
                                   pre tax              pre tax             pre tax
                           Amount  earnings     Amount  earnings    Amount  earnings
                           ------  --------     ------  --------    ------  --------
                                             (Dollars in Thousands)

<S>                        <C>       <C>         <C>        <C>      <C>       <C>   
Statutory rate             $21,600   35.00%      $16,197    35.00%   $13,572   35.00%
Dividends received
 exclusion                    (246)   (.40)         (235)    (.51)      (218)   (.56)
State and local income
 taxes, net of Federal
 income tax benefit          3,693    5.98         3,886     8.40      3,301    8.51
Other, net                    (422)   (.68)         (296)    (.64)       (52)   (.13)
                           -------   -----       -------    -----    -------   -----

Provision for income taxes $24,625   39.90%      $19,552    42.25%   $16,603   42.82%
                           =======   =====       =======    =====    =======   =====
</TABLE>



<PAGE>


<TABLE>
        At December 31, 1997 and 1996,  deferred tax assets and liabilities were
comprised of the following:
<CAPTION>

                                                    1997          1996
                                                    ----          ----
                                                       (In Thousands)
<S>                                               <C>           <C>
Deferred Tax Assets:
Deferred profits on unsold cooperative shares     $  1,955      $  2,308
Allowance for possible loan losses                   2,621         2,375
Benefit plan costs                                   1,830         1,877
Loan fees and mortgage discounts                       415           517
Other                                                  561           485
                                                  --------       -------
  Deferred tax assets                                7,382         7,562
                                                  --------       -------

Deferred Tax Liabilities:
Securities available-for-sale                      (22,905)      (17,534)
Depreciation                                           (21)          (46)
Cash basis mortgages                                   (84)         (144)
                                                  --------       -------
  Deferred tax liabilities                         (23,010)      (17,724)
                                                  --------       -------

  Deferred tax liability, net                     $(15,628)     $(10,162)
                                                  ========      ========
</TABLE>


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

     Pursuant to Statement  109,  the Bank is generally  not required to provide
deferred taxes for the difference between book and tax bad debt expense taken in
years  prior to,  or  ending at  December  31,  1987,  referred  to as base year
reserves.  The  recapture tax on post 1987 reserves must be paid over a six year
period  starting in 1996.  The payment of the tax was deferred in 1996 and 1997,
as the Bank  originated  at least the same average  annual  principal  amount of
mortgage  loans that it originated in the six years prior to 1996. The base year
reserves of $85,107,000 and supplemental reserve are frozen, not forgiven. These
reserves  continue to be segregated as they are subject to recapture  penalty if
one of the following  occurs:  (a) the Bank's retained  earnings  represented by
this  reserve  are used for  purposes  other  than to  absorb  losses  on loans,
including excess dividends or distributions in liquidation; (b) the Bank redeems
its stock; (c) the Bank fails to meet the definition  provided by the Code for a
Bank.  Future changes in the Federal tax law, could of course further affect the
status of the base year reserve. (See Note 17.)

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


<PAGE>


NOTE (15)  EARNINGS PER SHARE
<TABLE>
        The  following  is a  reconciliation  of the  denominators  of basic and
diluted EPS  computations  for net income.  The numerator for  calculating  both
basic and diluted earnings per share for the Company is net income.
<CAPTION>
                                            For the Year Ended December 31,
                                            1997         1996*        1995*
                                            -------------------------------
                                           (In Thousands, Except EPS Amounts)

<S>                                        <C>          <C>          <C>    
Numerator -  Net Income                    $37,090      $26,725      $22,174

Basic EPS: Denominator
  Weighted Average Shares                    9,858       10,062       10,604

Basic EPS                                    $3.76        $2.66        $2.09
                                             =====        =====        =====

Diluted EPS: Denominator
  Weighted Average Shares                    9,858       10,062       10,604
  Incremental shares-options                   332          374          449
                                            ------       ------       ------
                                            10,190       10,436       11,053

Diluted EPS                                  $3.64        $2.56        $2.01
                                             =====        =====        =====
<FN>

*  Earnings  per  share  for 1996  and 1995  have  been  restated,  as required,
 for the adoption of Statement 128. (See Note 1(k).)
</FN>
</TABLE>


<PAGE>


NOTE (16)  DEPOSITS
<TABLE>
      Deposits at December 31, 1997 and 1996 are summarized as follows:
<CAPTION>

                                        1997                            1996
                          ------------------------------     ----------------------------
                          Stated                             Stated
                           rate       Amount     Percent      rate       Amount   Percent
                           ----       ------     -------      ----       ------   -------
                                                (Dollars in Thousands)
<S>                    <C>         <C>            <C>      <C>        <C>         <C>
Balance by interest rate:

    Demand                 -  %    $   32,132       2.87%      -  %   $   31,940    2.79%
    Negotiable order of
     withdrawal (NOW)     2.47         35,401       3.16      2.47        36,256    3.17
    Money market          2.96         79,007       7.05      2.96        89,081    7.78
    Passbook and lease
     security             2.71        565,130      50.40      2.71       599,951   52.43

    Certificates:      4.67- 5.00      44,646       3.98   4.14- 5.00    174,155   15.22
                       5.01- 6.00     343,864      30.67   5.01- 6.00    187,890   16.42
                       6.01- 7.00      21,023       1.87   6.01- 7.00     25,120    2.19
                                   ----------     ------              ----------  ------
                                      409,533      36.52                 387,165   33.83
                                   ----------     ------              ----------  ------
Deposits                           $1,121,203     100.00%             $1,144,393  100.00%
                                   ==========     ======              ==========  ======
</TABLE>

<TABLE>
        At December 31, 1997 and 1996,  the scheduled  maturities of certificate
accounts were as follows:
<CAPTION>

                                     1997                        1996
                                     ----                        ----
                              Amount      Percent          Amount     Percent
                              ------      -------          ------     -------
                                          (Dollars in Thousands)

   <S>                       <C>          <C>             <C>         <C>   
   12 months or less         $344,893      84.22%         $323,788     83.63%
   13 to 24 months             35,437       8.65            34,452      8.90
   25 to 36 months             14,573       3.56            13,939      3.60
   37 to 48 months             14,630       3.57            14,969      3.87
   49 to 60 months               -           -                  17       -
                             --------     ------          --------    ------
                             $409,533     100.00%         $387,165    100.00%
                             ========     ======          ========    ======
</TABLE>

        At  December  31,  1997 and  1996,  certificate  accounts  in  excess of
$100,000,  were $41,551,000 and $32,676,000,  respectively.  The Federal Deposit
Insurance Corporation, an agency of the U.S. Government,  generally insures each
depositor's savings up to $100,000, through the Bank Insurance Fund.

<TABLE>
     Interest expense on deposit balances is summarized as follows for the years
ended December 31, 1997, 1996 and 1995:
<CAPTION>

                                       1997        1996       1995
                                       ----        ----       ----
                                             (In Thousands)
<S>                                   <C>         <C>        <C>    
Passbook and lease security           $15,677     $16,722    $19,063
Certificates                           20,768      19,777     17,649
Money market                            2,549       2,819      3,051
NOW                                       880         899        944
                                      -------     -------    -------

Total interest expense                $39,874     $40,217    $40,707
                                      =======     =======    =======
</TABLE>

<PAGE>


NOTE (17)  RETAINED INCOME, SUBSTANTIALLY RESTRICTED
         In the unlikely  event of a complete  liquidation of the Bank (and only
in such an event) eligible depositors who continue to maintain accounts shall be
entitled  to receive a  distribution  from the  liquidation  account,  which was
established in connection with the Company's initial public stock offering.  The
total  amount of the  liquidation  account may be  decreased  if the balances of
eligible deposits decrease on the annual determination dates. The balance of the
liquidation  account was  $63,709,000  at December 31, 1997 and  $71,589,000  at
December 31, 1996.

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

     Retained income at December 31, 1997 and 1996 includes  $85,107,000,  which
has been  segregated for federal income tax purposes as a bad debt reserve.  Any
use of this amount for purposes  other than to absorb losses on loans may result
in taxable income, under federal regulations, at current rates. The Bank did not
recognize any tax bad debt  deductions  during the year ended December 31, 1997.
For the  years  ending  December  31,  1996  and  December  31,  1995,  the Bank
recognized tax bad debt deductions of $661,000 and $52,000, respectively.
(See Note 14.)

NOTE (18) COMMITMENTS AND CONTINGENCIES
     Lease Commitments
     The Bank occupies premises covered by noncancelable  leases with expiration
dates through  October 31, 2002 (exclusive of renewal  options).  Rental expense
under these  leases for the years ended  December  31,  1997,  1996 and 1995 was
$272,000,  $267,000  and  $262,000,  respectively.  At December  31,  1997,  the
projected minimum rental payments (exclusive of possible rent escalation charges
and  normal  recurring  charges  for  maintenance,  insurance  and taxes) are as
follows:
<TABLE>
<CAPTION>

                    Years Ending
                    December 31,     Amount
                    ------------     ------
                          (In Thousands)

                       <S>           <C>   
                       1998          $  197
                       1999             191
                       2000             166
                       2001             100
                       2002              50
                       Thereafter       -  
                                     ------
                       Total         $  704
                                     ======
</TABLE>

     Loan Commitments
     ----------------
     At December 31, 1997 and 1996,  commitments to originate  mortgage loans at
fixed rates were  $54,810,000  with stated rates ranging from 7.05% to 7.68% and
$34,376,000 with stated rates ranging from 7.38% to 8.00%,  respectively.  There
were no commitments to originate  adjustable rate mortgages at December 31, 1997
and 1996.  At  December  31,  1997 and 1996,  deposit  account  overdraft  lines
available  were $821,000 and $745,000,  respectively,  with stated rates ranging
from  10.00% to 12.00% and unused  business  lines of credit  were  $16,000  and
$16,000, respectively,  with a stated rate of 15.00%. At December 31, 1997 there
were $233,000 of student loans held for sale.  There were no loans held for sale
at December 31, 1996.

     Security Purchase Commitments
     -----------------------------
     At December 31, 1997,  there were  commitments  to purchase  $15,000,000
federal  agency  securities  at par with a three month term to maturity and a 
yield of 5.62%.

     Litigation
     ----------
     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  Company's  results  of  operations,  business
operations or the consolidated financial condition of the Company.



<PAGE>


NOTE (19)  PENSION PLAN

                     Retirement Plan of Jamaica Savings Bank
                     ---------------------------------------
     The Bank sponsors a trusteed  non-contributory defined benefit pension plan
(the Pension Plan) covering substantially all of its full-time employees.  It is
the policy of the Bank to fund current and past service  pension costs  accrued.
The  following  table sets forth the Pension  Plan's  funded  status and amounts
recognized in the Company's consolidated financial statements at December 31:
<TABLE>
<CAPTION>

                                                        1997          1996
                                                        ----          ----
                                                         (In Thousands)
<S>                                                  <C>           <C>    
Actuarial present value of benefit obligations:
  Accumulated benefit obligation, including
   vested benefits of $28,527,000 and
   $25,451,000 at December 31, 1997 and 1996,
   respectively                                      $(29,190)     $(26,001)
                                                     ========      ========

Projected benefit obligation for services
   rendered to date                                   (42,405)      (36,701)
Plan assets at fair value, primarily listed
   stocks and U.S. bonds                               63,711        52,873
                                                     --------      --------
Plan assets in excess of projected benefit
   obligation                                          21,306        16,172
Unrecognized net gain from past experience
   different from that assumed and effects of
   changes in assumptions                             (13,779)       (9,801)
Unrecognized prior service cost                         1,576         1,721
Unrecognized net asset being amortized over
   18.35 years                                         (3,340)       (3,794)
                                                     --------      --------
Prepaid pension cost                                 $  5,763      $  4,298
                                                     ========      ========
</TABLE>


<TABLE>
        The  components  of net  periodic  pension  income  for the years  ended
December 31, 1997, 1996, and 1995, are as follows:
<CAPTION>

                                                       1997          1996         1995
                                                       ----          ----         ----
                                                                 (In Thousands)

<S>                                                  <C>           <C>           <C>    
     Service cost-benefits earned                    $    998      $  1,078      $   619
     Interest cost on projected
       benefit obligation                               2,295         2,239        2,066
     Actual return on plan assets                     (12,475)       (7,140)     (10,631)
     Net amortization and deferral                      7,717         3,112        7,184
                                                     --------      --------      -------

Net periodic pension (income)                        $ (1,465)     $   (711)     $  (762)
                                                     ========      ========      =======
</TABLE>

<TABLE>

        The expected  long-term rate of return on assets was 8.00% for the years
ended December 31, 1997, 1996 and 1995. The following actuarial assumptions have
been made to determine  the actuarial  present  value of the  projected  benefit
obligation for the years ended December 31:
<CAPTION>

                                                       1997          1996         1995
                                                       ----          ----         ----
<S>                                                    <C>           <C>          <C>  
Rate of increase in future compensation                6.50%         6.50%        6.50%
Weighted average discount rate                         5.75%         6.50%        6.00%
</TABLE>



<PAGE>


              Jamaica Savings Bank Benefit Restoration Plan-Pension
              -----------------------------------------------------

     The Bank sponsors a pension benefit restoration plan (Pension Restore Plan)
to provide retirement  benefits which would have been provided under the Pension
Plan  except  for  limitations  imposed  by Section  415 and  401(a)(17)  of the
Internal Revenue Code.  Payments under the Pension Restore Plan will be paid out
of the general assets of the Bank.

<TABLE>
     The  following  sets forth the Pension  Restore  Plan's  status and amounts
recognized in the Company's consolidated financial statements at December 31:
<CAPTION>

                                                     1997          1996
                                                     ----          ----
                                                       (In Thousands)
<S>                                                <C>            <C>
Actuarial present value of benefit obligations:
Accumulated benefit obligation, all of which
 are vested                                        $(4,036)       $(3,936)
                                                   =======        =======
Projected benefit obligation for service
 rendered to date                                   (4,728)        (4,607)
Plan assets at fair value                             -              -
                                                   -------        -------

Projected benefit obligations in excess of
 plan assets                                        (4,728)        (4,607)
Unrecognized net loss from past experience
 different from that assumed and effects of
 changes in assumptions                                831          1,003
Unrecognized prior service cost                         (4)            (4)
Additional minimum liability                          (135)          (328)
                                                   -------        -------
Accrued pension cost                               $(4,036)       $(3,936)
                                                   =======        =======
</TABLE>


<TABLE>
     The components for the net periodic Pension Restore Plan cost for the years
ended December 31, 1997, 1996 and 1995, are as follows:
<CAPTION>
                                                      1997           1996           1995
                                                      ----           ----           ----
                                                                  (In Thousands)

<S>                                                <C>            <C>            <C>    
Interest cost on projected benefit obligation      $   273        $   274        $   264
Net amortization and deferral                           54            252             41
                                                   -------        -------        -------

Net periodic Pension Restore Plan cost             $   327        $   526        $   305
                                                   =======        =======        =======
</TABLE>

<TABLE>

        The  following  actuarial  assumptions  have been made to determine  the
projected benefit obligation for the years ended December 31:
<CAPTION>

                                                   1997          1996         1995
                                                   ----          ----         ----
     <S>                                           <C>           <C>          <C>  
     Rate of increase in future compensation       6.50%         6.50%        6.50%
     Weighted average discount rate                5.75%         6.50%        6.00%
</TABLE>



<PAGE>


NOTE (20)  POST RETIREMENT BENEFITS, OTHER THAN PENSIONS
     The Bank's life insurance benefit plan provides for continued  coverage for
retirees  with fifteen  years of credited  service.  The coverage at the time of
retirement  is  reduced  by 20% per year  over a five  year  period to a minimum
coverage  of $5,000,  which  remains in force until  death.  The retiree has the
option each time the coverage is reduced to convert all or part of the reduction
to whole-life  coverage at the retiree's cost based on his/her  attained age and
without medical examination.

         The net  periodic  cost,  before  income  taxes,  related to the Bank's
postretirement  life  insurance  benefits for the years ended December 31, 1997,
1996 and 1995,  was $69,000,  $70,000 and $64,000,  respectively.  This periodic
cost is included in the current cost of compensation and benefits.

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

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

NOTE (22)  STOCK OPTION PLANS
     Effective  upon the  conversion of the Bank, in 1990,  from mutual to stock
form of ownership  (the  Conversion),  the Company  adopted the Incentive  Stock
Option Plan (the Stock  Option  Plan) and the Option Plan for Outside  Directors
(the Directors' Option Plan).

Stock Option Plan
------------------
     Under the Stock Option Plan,  1,430,000  common stock options (which expire
ten years from the date of grant,  June 27, 1990) were granted to the  executive
officers and employees of the Company and its subsidiary,  the Bank. Each option
entitles  the holder to purchase one share of the  Company's  common stock at an
exercise  price equal to $10.00 per share (the initial public  offering  price).
Options became exercisable on a cumulative basis in equal installments at a rate
of 20% per year commencing one year from the date of grant.  Simultaneously with
the grant of these options,  "limited rights" with respect to the shares covered
by the options were  granted.  Limited  rights  granted are subject to terms and
conditions  and can be exercised only in the event of a change in control of the
Company.  Upon  exercise of a limited  right,  the holder shall receive from the
Company a cash payment equal to the difference between the exercise price of the
option  ($10.00)  and the fair market value of the  underlying  shares of common
stock. During the years ended December 31, 1997, 1996 and 1995, 122,646, 121,256
and  161,860  options  granted  under the  Stock  Option  Plan  were  exercised,
respectively.  At December 31, 1997, the remaining 324,140 options granted under
the Stock Option Plan were exercisable.

Directors' Option Plan
-----------------------
     Each member of the Board of Directors, who is not an officer or employee of
the  Company or the Bank,  was  granted  nonstatutory  common  stock  options to
purchase  25,000  shares of the common  stock.  In  addition,  active  Directors
Emeritus were each granted  nonstatutory common stock options to purchase 10,000
shares of the common stock. In the aggregate,  members of the Board of Directors
and active  Directors  Emeritus of the Company were granted  options to purchase
170,000  shares of the common stock of the Company at an exercise price equal to
$10.00 per share (the initial public offering  price) with limited  rights.  All
options granted, including limited rights attached thereto, under the Directors'
Option Plan expire upon the earlier of 10 years  following  the date of grant or
one year  following  the date the optionee  ceases to be a Director.  During the

<PAGE>

years ended December 31, 1997 and 1996,  6,250,  and 2,000 options granted under
the Directors' Option Plan were exercised.  There were no options exercised from
the Directors'  Option Plan during 1995. At December 31, 1997,  146,750  options
granted under the Directors' Option Plan were exercisable.

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

         Under the 1996 Option Plan,  each of the  Company's  Directors,  who is
neither an  officer  nor an  employee  of the  Company  or the Bank,  is granted
annually,  nonstatutory  common  stock  options to purchase  4,000 shares of the
common  stock,  each  active  Director  Emeritus  is granted  2,000  options and
individuals  who become  directors are granted 5,000  options.  Options  granted
under the 1996 Option Plan are granted at an exercise  price equal to the market
closing price of the Company's  common stock on the business day prior to grant.
The option period during which an individual  granted  options may exercise such
option will commence six months after the date of grant and will expire no later
than ten years from the date of the grant.  During 1997,  8,000 options  granted
from the 1996 Option Plan were exercised.  At December 31, 1997,  326,000 of the
332,000  options  outstanding  under  the 1996  Option  Plan  were  exercisable.
Effective  January 1, 1998,  an  additional  164,000  options were granted at an
exercise price of $50.0625 per share.

<TABLE>
         The following table presents option transactions  summarized for all of
the Company's stock option plans for the years ended December 31, 1995, 1996 and
1997.
<CAPTION>

                                                                         Weighted
                                                                          Average
                                                       Number of         Exercise
                                                        Shares             Price
                                                        ------             -----
      <S>                                              <C>                <C>   
      Options outstanding at December 31, 1994          889,892           $10.00
      1995 Grants                                          -                 -
      1995 Forfeitures                                      (61)           10.00
      1995 Exercises                                   (161,860)           10.00
                                                        -------            -----

      Options outstanding at December 31, 1995          727,971            10.00
      1996 Grants                                       165,000            31.63
      1996 Forfeitures                                   (4,929)           10.00
      1996 Exercises                                   (123,256)           10.00
                                                        -------            ----- 

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

      Options outstanding at December 31, 1997          802,890           $20.40
                                                        =======            =====

      Options exercisable at December 31, 1997          796,890           $20.20
                                                        =======            =====
</TABLE>

<PAGE>

         The range of  exercise  prices on options  outstanding  were  $10.00 to
$47.88,  $10.00 to $31.63,  and all at $10.00,  for the years ended December 31,
1997, 1996 and 1995,  respectively.  The weighted average remaining  contractual
life for all stock options outstanding at December 31, 1997 was five years.

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

                                                1997           1996
                                                ----           ----
<S>                                           <C>            <C>  
Dividend yield                                  3.63%          3.63%
Expected volatility                            20.93          21.92
Risk-free interest rate                         6.28           5.44
Expected option lives                         6 Years        6 Years
</TABLE>

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

                                                   1997      1996
                                                   ----      ----

               <S>                                <C>       <C>    
               Net income (as reported)           $37,090   $26,725
               Pro forma net income               $36,288   $26,188

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

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

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

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

NOTE (23)  STOCK PLANS
Employee Stock Ownership Plan
------------------------------
     Since 1990 the Bank has  maintained an ESOP.  For 1995,  1996 and 1997, the
Board of Directors  authorized  contributions  to the ESOP, to purchase  shares,
based on approximately 6.0% of employees' base salary.

     ESOP  benefits  generally  become  20% vested  after each year of  credited
service,  becoming  100%  vested  after  five  years of  service  with the Bank.
Forfeitures  are  reallocated  among  participating   employees,   in  the  same
proportion as contributions.  Benefits are payable upon death, retirement, early
retirement,  disability or separation from service and may be payable in cash or
stock.  The Bank  recorded a net  expense of  $566,000,  $550,000  and  $533,000
related  to the ESOP for the  years  ended  December  31,  1997,  1996 and 1995,
respectively.  There were three unallocated  shares in the ESOP Plan at December
31, 1997 and none at December 31, 1996 and 1995.

     The  trustee  for the ESOP must vote all  allocated  stock held in the ESOP
trust in accordance  with the  instructions  of the  participants.  Common stock
allocated  to  participants  was  15,342,  17,633 and 21,583 for the years ended
December  31,  1997,  1996 and 1995,  respectively.  The Bank  bears the cost of
administering the ESOP.


<PAGE>

Directors' Stock Program
------------------------
     To  further  align  the  outside  Directors'  interest  with  those  of the
Company's  stockholders,  on December  9, 1997,  the Board of  Directors  of the
Company  authorized the issuance of up to 20,000 shares of the Company's  common
stock to the Company's non-employee  directors,  pursuant to the Jamaica Savings
Bank FSB Directors'  Stock Program (the Directors'  Stock Program).  Pursuant to
the Directors Stock Program, each year,  non-employee Directors of the Bank will
receive shares of the Company's common stock having a fair market value equal to
approximately  one-third of the annual  directorship  fees during such year. The
stock will be issued in lieu of a cash payment of such fees. Shares  distributed
thereunder  will be from the  Company's  treasury  stock.  The  operation of the
Directors' Stock Program is automatic, with the determination of the appropriate
number of shares to be issued to each director based on the fair market value of
the  common  stock at the  close  of  business  prior  to the date of  issuance.
Directors do not have the option to receive cash rather than stock in payment of
the portion of their fees subject to the Directors'  Stock Program.  The maximum
number  of  shares to be issued  to any  eligible  director  during  1998 is not
expected to exceed 200 shares.

Bank Recognition and Retention Plans and Trusts
----------------------------------------------
     In connection with the Company's initial public stock offering during 1990,
to provide  employees,  officers and  directors  of the Bank with a  proprietary
interest in the Company and in a manner designed to retain such individuals, the
Bank  established the Bank  Recognition  and Retention  Plans (BRRPs).  The Bank
contributed  a total of $6.4  million  to the BRRPs  during  1990 to  acquire an
aggregate  of 640,000  shares of the  Company's  common  stock in the  Company's
initial public stock offering, all of which have been awarded. Awards vested 20%
per year  commencing  one year from the date of the award,  and vested 100% upon
termination  of  employment  due to  death,  disability  or  normal  retirement.
Unvested  amounts  represented  deferred  compensation  and were  reflected as a
reduction of stockholders'  equity. Awards under the BRRPs were fully vested and
the BRRPs were terminated during 1995. The Bank recorded an expense of $594,000,
for the BRRPs for the year  ended  December  31,  1995.  Pursuant  to the BRRPs,
51,631  shares of common  stock were vested  during the year ended  December 31,
1995.

NOTE (24)  BENEFIT RESTORATION PLAN
     The Bank maintains a non-qualified  Benefit  Restoration  Plan (the Restore
Plan),  to compensate  participants in the Bank's benefit plans that are limited
by Section 415 of the  Internal  Revenue  Code.  With  certain  exceptions,  the
Restore Plan is unfunded.  However,  in connection with the ESOP, which entitles
participants to shares of the Company's common stock and the Savings Plan, which
entitles  participants  to direct  amounts,  if any,  invested in the  Company's
stock,  the Bank  established a trust. The purpose of this trust is to purchase,
on an ongoing basis,  shares of the Company's common stock to which participants
of the Restore Plan are entitled. By establishing this trust, the Bank fixed the
amount of cash  expended  for amounts  payable in shares of common  stock of the
Company or its equivalent cash value at the time of payout. The shares of common
stock held by the trust are reflected as  contra-equity  and additional  paid-in
capital on the Consolidated Statements of Financial Condition of the Company. At
December 31, 1997 and 1996,  the trust held 188,323 and 166,848 shares of common
stock,  respectively,  at  an  aggregate  cost  of  $4,199,000  and  $3,275,000,
respectively. The expense recognized for the Restore Plan in connection with the
ESOP for 1997, 1996 and 1995 was $113,000, $105,000 and $35,000, respectively.

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


        The  following  methods and  assumptions  were utilized by management to
estimate the fair value of each class of financial  instruments  at December 31,
1997 and 1996:

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

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

     Mortgage and other loans: For certain homogeneous categories of loans, such
as some residential  mortgages and student loans,  fair value is estimated using
the quoted market prices for securities  backed by similar  loans,  adjusted for
differences  in loan  characteristics.  In  addition,  it is assumed that one-to
four-family  fixed rate mortgage loans are FNMA qualifying,  and could therefore
be  packaged  into a MBS.  The  estimated  fair value for the  remainder  of the
mortgage and other loan  portfolios was computed by discounting  the contractual
future cash flows at rates offered by the Bank, which approximate  market rates,
at December 31, 1997 and 1996 on loans with terms similar to the remaining  term
to maturity and to borrowers  with similar  credit  quality.  The estimated fair
value of  non-performing  loans,  if material,  are  calculated on an individual
basis, applying a discount commensurate with the credit risk.

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

     Deposits: All deposits, except certificates, are subject to rate changes at
any time,  and  therefore  are  considered  to be  carried  at fair  value.  The
estimates  of fair  value for  certificates  reflect  the  present  value of the
contractual  future  cash flow for each  certificate.  The  present  value rates
utilized were the rates offered by the Bank (which  approximate market rates) at
December 31, 1997 and 1996, respectively,  on a certificate with an initial term
to  maturity   equal  to  the  remaining   term  to  maturity  of  the  existing
certificates.

     Commitments:  Commitments  to originate  loans and purchase  securities are
derived by applying the fees currently charged to enter into similar agreements,
taking into account the remaining terms of the agreements and the present credit
worthiness of the  counterparties.  For fixed-rate loan  commitments,  estimated
fair value also considers the difference between interest rates on the reporting
date and the committed  rates.  The  estimated  fair value of lines of credit is
based on the fees charged for similar  agreements  or on the  estimated  cost to
terminate them or otherwise  settle the obligations with the  counterparties  at
the reporting  dates.  The  commitments  existing at December 31, 1997 and 1996,
would have been offered at substantially the same rates and under  substantially
the same terms that would have been offered at December 31, 1997 and 1996 to the
counterparties;  therefore the estimated fair value of the  commitments was zero
at those dates.



<PAGE>


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

                                      1997                    1996
                               -------------------    --------------------
                                         Estimated               Estimated
                               Carrying     Fair      Carrying      Fair
                                 Value     Value        Value      Value
                                 -----     -----        -----      -----
                                             (In Thousands)
<S>                             <C>        <C>         <C>        <C>  
Financial assets
   Cash and cash equivalents    $   74,924 $   74,924  $   99,394 $   99,394
   Securities available-for-sale    62,243     62,243      51,021     51,021
   Securities held-to-maturity     352,967    353,996     460,509    461,784
   Other investments                 7,645      7,645       6,859      6,859
   Mortgage loans, gross           979,810  1,031,586     835,958    846,508
   Other loans, gross               29,148     29,256      27,894     27,970
   Interest due and accrued          9,278      9,278       9,310      9,310

Financial liabilities
   Deposits                     $1,121,203 $1,121,903  $1,144,393 $1,144,690
</TABLE>


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



<PAGE>


     Quantitative  measures established by regulation to ensure capital adequacy
require the Bank to maintain minimum capital amounts and ratios. The most recent
notification  from the Office of Thrift  Supervision  (OTS),  as of December 31,
1996,  categorized the Bank as "well capitalized" under the regulatory framework
for prompt  corrective  action.  There are no  conditions  or events  since that
notification that management  believes have changed the institution's  category.
The  following  table sets forth the required  ratios and amounts and the Bank's
actual capital amounts and ratios at December 31:
<TABLE>
<CAPTION>

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

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

1996
  Total risk-based capital
    (to risk weighted assets) $182,345  19.96%  $ 73,074   8.00%    $ 91,343   10.00%
  Tangible capital
    (to tangible assets)       188,309  13.54     20,866   1.50         N/A     N/A
  Tier I leverage (core)
   capital (to adjusted
   tangible assets)            188,309  13.54     41,733   3.00       69,555    5.00

</TABLE>

<PAGE>

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

     OTS regulations  generally  require that  institutions  deduct from capital
their  investment in and advances to  subsidiaries  engaged,  as  principal,  in
activities not permissible for national banks, such as real estate  development.
OTS regulations  also require that all equity and direct  investments  including
all loans and advances in which a legally  binding  commitment  existed at April
12,  1989 be deducted  from  capital for the  purposes of  computing  regulatory
capital  ratios.  As a result of this  regulation,  the Bank  excluded  from its
regulatory  capital  $6,827,000  and  $13,687,000 at December 31, 1997 and 1996,
respectively.

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



<PAGE>


NOTE (27)  PARENT ONLY FINANCIAL INFORMATION
     The following  condensed  statements of financial condition at December 31,
1997 and 1996 and the condensed  statements of operations and cash flows for the
years ended December 31, 1997,  1996 and 1995, for JSB Financial,  Inc.  (Parent
company only) present the Company's  investment in its wholly-owned  subsidiary,
the Bank, using the equity method of accounting.
<TABLE>
<CAPTION>

                   Condensed Statements of Financial Condition
                           December 31, 1997 and 1996
                                 (In Thousands)

                                                      1997            1996
                                                      ----            ----
<S>                                                <C>             <C>
ASSETS                                                                    
Cash and cash equivalents                          $ 17,164        $ 15,582
Securities held-to-maturity, net (estimated fair
  value of $70,000 and $80,028, respectively)        70,000          80,007
Mortgage loans, net                                  15,195          15,239
Other assets, net                                       691             680
Investment in the Bank                              264,464         223,791
                                                   --------        --------
      Total Assets                                 $367,514        $335,299
                                                   ========        ========

LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities, net                                   $   -           $   -
Stockholders' equity                                367,514         335,299
                                                   --------        --------
       Total Liabilities and Stockholders' Equity  $367,514        $335,299
                                                   ========        ========
</TABLE>


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

                                                            1997        1996       1995
                                                            ----        ----       ----
<S>                                                      <C>         <C>        <C>    
Dividends from the Bank                                  $  -        $20,000    $43,000
Interest income                                            6,080       6,589      7,275
Other income                                                  13          18         15
                                                         -------     -------    -------
      Total income                                         6,093      26,607     50,290
                                                         -------     -------    -------

Expenses                                                     531         451        437
                                                         -------     -------    -------

Income Before Income Taxes and Equity in
  Undistributed Earnings of the Bank                       5,562      26,156     49,853

Provision for Income Taxes                                 1,781       2,100      2,557
                                                         -------     -------    -------

Income Before Equity in Undistributed Earnings
  of the Bank                                              3,781      24,056     47,296
Equity in Undistributed Earnings of the Bank,
  Net of Provision for Income Taxes                       33,309       2,669    (25,122)1
                                                         -------     -------    -------  
      Net Income                                         $37,090     $26,725    $22,174
                                                         =======     =======    =======
<FN>

  1 Represents excess of dividends over net income.
</FN>
</TABLE>



<PAGE>


<TABLE>
<CAPTION>

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

                                                          1997         1996        1995
                                                          ----         ----        ----
<S>                                                    <C>         <C>         <C>
CASH FLOWS FROM OPERATING ACTIVITIES:                                                         
Net income                                             $ 37,090    $  26,725   $  22,174
Adjustments to reconcile net income to cash
 provided by operating activities:
(Equity in undistributed earnings) excess of
 dividends over net income of the Bank                  (33,309)      (2,669)     25,122
(Increase) decrease in other assets                         (11)         697        (247)
Other                                                        (2)        -           -
                                                       --------    ---------   ---------
   Net cash provided by operating activities              3,768       24,753      47,049
                                                       --------    ---------   ---------

CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of securities held-to-maturity               (260,000)    (205,021)   (190,000)
Proceeds from maturities of securities held-
 to-maturity                                            270,000      215,000     170,000
Principal payments on mortgage loans                         44           40          38
Accretion of discount in excess of amortization of
 premium on debt securities                                   7           14        -
                                                       --------    ---------   ---------
   Net cash provided (used) by investing activities      10,051       10,033     (19,962)
                                                       --------    ---------   ---------

CASH FLOWS FROM FINANCING ACTIVITIES:
Cash dividends paid to common stockholders              (13,805)     (12,090)    (10,616)
Payments to repurchase common stock                        -         (27,650)     (9,881)
Proceeds upon exercise of common stock options            1,568        1,233       1,619
                                                       --------    ---------   ---------
   Net cash used by financing activities                (12,237)     (38,507)    (18,878)
                                                       --------    ---------   ---------

Net increase (decrease) in cash and cash equivalents      1,582       (3,721)      8,209
Cash and cash equivalents at beginning of year           15,582       19,303      11,094
                                                       --------    ---------   ---------
Cash and cash equivalents at end of year               $ 17,164    $  15,582   $  19,303
                                                       ========    =========   =========
</TABLE>



<PAGE>




KPMG Peat Marwick LLP





INDEPENDENT AUDITORS' REPORT




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

We have audited the accompanying  consolidated statements of financial condition
of JSB Financial,  Inc. and subsidiary as of December 31, 1997 and 1996, and the
related consolidated  statements of operations,  changes in stockholders' equity
and cash flows for each of the years in the three year period ended December 31,
1997. These  consolidated  financial  statements are the  responsibility  of the
Company's  management.  Our  responsibility  is to  express  an opinion on these
consolidated financial statements based on our audits.

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

In our opinion, the consolidated  financial statements referred to above present
fairly, in all material respects, the financial position of JSB Financial,  Inc.
and  subsidiary  at  December  31,  1997  and  1996,  and the  results  of their
operations  and their cash flows for each of the years in the three year  period
ended  December 31, 1997,  in  conformity  with  generally  accepted  accounting
principles.



                              KPMG Peat Marwick LLP

Jericho, New York
January 29, 1998