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

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.

<TABLE>
<CAPTION>

Selected Financial Condition Data:
At December 31,                      1996        1995        1994        1993         1992
---------------                      ----        ----        ----        ----         ----
<S>                               <C>         <C>         <C>         <C>         <C>       
Total assets                      $1,516,016  $1,548,301  $1,565,095  $1,635,870  $1,698,440
Securities held-to-maturity/held-
  for-investment, net                460,509     592,060     728,630     859,909     902,350
Loans receivable, net                854,774     768,245     711,295     668,376     642,074
Deposits                           1,144,393   1,163,446   1,204,424   1,273,917   1,323,546
Employee Stock Ownership
 Plan (ESOP) obligation                 -           -           -          1,045       4,303
Retained income                      289,588     276,317     266,361     251,959     232,436
Total stockholders' equity           335,299     340,107     327,634     325,207     332,844

Selected Operating Data:
Years Ended December 31,             1996        1995        1994        1993         1992
------------------------             ----        ----        ----        ----         ----

Interest income                   $  107,611  $  107,726  $  103,027  $  108,205   $ 130,020
Interest expense                      40,217      40,707      36,619      39,740      53,516
                                  ----------  ----------  ----------  ----------   ---------
Net interest income                   67,394      67,019      66,408      68,465      76,504
Provision for possible
 loan losses                             640         636         608         600         601
(Recovery of) provision for
 possible other credit losses         (2,040)      2,040        -            -          -
                                  ----------   ---------  ----------  ----------   ------
Net interest income after
 provision for possible
 credit losses                        68,794      64,343      65,800       67,865     75,903
Non-interest income                    5,081       3,995       6,752        2,239      3,999
Non-interest expense                  27,598      29,561      30,937       33,657     34,726
                                  ----------  ----------   ---------   ----------  ---------
Income before provision for
 income taxes and cumulative
 effect of accounting changes         46,277      38,777      41,615       36,447     45,176
Provision for income taxes            19,552      16,603      18,018       15,798     18,733
                                  ----------  ----------  ----------   ----------  ---------
Income before cumulative effect
 of accounting changes                26,725      22,174      23,597       20,649     26,443
Cumulative effect of accounting
 changes, net                           -           -           -           7,688        -
                                  ----------  ----------  ----------   ----------   --------
     Net income                   $   26,725  $   22,174  $   23,597   $   28,337   $ 26,443
                                  ==========  ==========  ==========   ==========   ========
Income per share before cumulative
 effect of accounting changes         $2.54       $1.99       $2.02        $1.57       $1.89
Cumulative effect of accounting
 changes, net                           -           -           -            .59         -
                                      -----       -----       -----        -----       -----
Net income per share                  $2.54       $1.99       $2.02        $2.16       $1.89
                                      =====       =====       =====        =====       =====
Cash dividends per share              $1.20       $1.00       $ .72        $ .60       $ .52
                                      =====       =====       =====        =====       =====

</TABLE>


<PAGE>

Quarterly Results
(In Thousands, Except Per Share Amounts and Yields)

<TABLE>
<CAPTION>



                                                            1996 Quarter Ended
                                                            ------------------
                                          March 31,    June 30,   September 30,   December 31,
                                          ---------    --------   -------------   ------------
<S>                                         <C>         <C>             <C>            <C>    
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
                                            =======     =======         =======        =======
Net income per share                          $ .56       $ .63           $ .64          $ .71
                                              =====       =====           =====          =====

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 share               $  .30      $  .30          $  .30         $  .30
      Dividend yield(1)                        3.66%       3.57%           3.43%         3.24%



                                                              1995 Quarter Ended
                                                              ------------------
                                            March 31,    June 30,   September 30,   December 31,
                                            ---------    --------   -------------   ------------
Interest income                               $26,720     $27,050         $26,978        $26,978
Interest expense                                9,755      10,293          10,342         10,317
                                              -------     -------        --------        -------
Net interest income                            16,965      16,757          16,636         16,661
Provision for possible loan losses                156         159             160            161
Provision for possible other credit losses       -          2,040            -              -
                                               ------     -------         -------       --------
Net interest income after provision
 for possible credit losses                    16,809      14,558          16,476         16,500
Non-interest income                               814       1,041           1,143            997
Non-interest expense                            7,771       7,980           6,682          7,128
                                              -------     -------         -------        -------
Income before provision for income taxes        9,852       7,619          10,937         10,369
Provision for income taxes                      4,245       3,228           4,676          4,454
                                              -------     -------         -------        -------
Net income                                    $ 5,607     $ 4,391         $ 6,261        $ 5,915
                                              =======     =======         =======        =======
Net income per share                            $ .50       $ .39           $ .56          $ .54
                                                =====       =====           =====          =====

Stock prices, Dividends and Yields:
      High                                     $32.00      $31.63          $31.75         $34.25
      Low                                      $23.75      $28.88          $28.88         $30.63
      Close                                    $31.00      $28.88          $31.38         $31.63
      Cash dividends per share                  $ .25       $ .25           $ .25          $ .25
      Dividend yield(1)                          3.59%       3.31%           3.30%         3.08%

<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
-------

     1996 marked the sixth full year of operation for JSB  Financial,  Inc. as a
publicly held company.  Net income for the year was $26.7 million,  or $2.54 per
share. The Company paid cash dividends on its common stock,  which totaled $1.20
per  share,  or 47.2% of net  income per  share.  During  1996,  under two stock
repurchase  programs,  the Company reacquired 845,000 shares of its common stock
at an  aggregate  cost of $27.7  million,  or at an average  price of $32.72 per
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 from its net interest  income.  The  operating  results of the Bank are
also affected to a lesser extent by the amount of its non-interest  income, such
as loan servicing  income,  results of real estate  operations and miscellaneous
income. The principal non-interest expenses of the Bank include compensation and
employee  benefits,   occupancy  costs  and  other  general  and  administrative
expenses.

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

     Management  aims at maintaining a stable net interest  margin,  through its
asset/liability  structure,  to  minimize  the effects of market  interest  rate
fluctuations on net interest income.  Rates offered on interest bearing deposits
are  established  to control levels of change in deposits.  Assets  decreased by
$32.3 million,  or 2.1% at December 31, 1996, compared to assets at December 31,
1995,  while  liabilities  decreased by $27.5  million,  or 2.3%,  over the same
period.  The Company  maintains  asset quality  through its  investment and loan
underwriting policies.

     At December 31, 1996,  investments in U.S. Government and agency securities
were $299.6 million and  investments in CMOs were $155.3  million,  representing
19.8% and 10.2% of total assets,  respectively.  During 1996, all investments in
U.S.  Government and 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 have a
material  impact  on 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 fair value.  At December 31, 1996,  these
securities,  which had a cost  basis of $11.7  million,  were  carried  at their
aggregated fair value of $51.0 million.

     During 1996, investments in CMOs increased,  as purchases of $124.3 million
were made,  while payments of $114.1  million were received from  maturities and
amortization.  CMOs  meeting the Bank's CMO  investment  guidelines  became more
readily available on the secondary market during 1996,  compared to 1995. 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, 1996,  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

<PAGE>

Institutions  Examination  Council.  At December 31, 1996, the estimated average
remaining  maturity  of the CMO  portfolio  was  approximately  fifteen  months.
Management  plans to  continue  to  purchase  CMOs  which  meet  its  investment
guidelines, when available.

     The Bank offers  adjustable-rate and fixed-rate mortgages secured by one-to
four-family properties,  apartment buildings, underlying cooperative properties,
commercial real estate and offers various other consumer type loans that conform
to its  lending  requirements.  During  the  first  quarter  of  1996,  the Bank
re-established  its FHA Title I Home Improvement Loan Program.  During 1996, the
Bank sold $1.7 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, 1996,  there were no mortgage loans
held for sale.

     Non-performing  loans  to total  loans  at  December  31,  1996 was  1.64%,
compared to 1.78% at December  31,  1995.  Non-performing  loans at December 31,
1996 and 1995 included a $12.8 million underlying  cooperative  mortgage loan on
which the Bank has commenced foreclosure proceedings. At December 31, 1995, this
loan was 60 days in arrears and placed on  non-accrual  status.  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.

    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 as a
result of foreclosure or obtained by receiving a deed in lieu of foreclosure. At
December  31,  1996,  the  Bank  held  shares  to  34  residential   cooperative
apartments,  (33 of which were attributable to one property), that comprised the
Bank's ORE of $647,000. Management closely monitors the value of properties that
are  obtained  through  foreclosure  actions.  (See Note 12 to the  Consolidated
Financial Statements.)

     Non-performing  assets  to total  assets  at  December  31,  1996 was .98%,
compared to 1.50% at December 31, 1995.  The decrease in this ratio reflects the
recovery of the Bank's  investments  with  Nationar  Trust  Company  (Nationar).
During  1995,  the  Superintendent  of Banks  for the  State of New York  seized
Nationar, a check-clearing and trust company, freezing all of Nationar's assets.
On that date,  the Bank had:  federal  funds sold to Nationar of $10.0  million;
demand accounts of $200,000 and $38,000 of Nationar capital stock. In accordance
with  the  Company's  internal  procedures  for  monitoring  asset  quality  and
information  available,  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  established  during  1995.  During  1996,  the Bank
received distributions from the Nationar estate for all amounts invested, except
the $38,000 of capital stock. Therefore,  during the fourth quarter of 1996, the
Bank fully recovered the $2.0 million reserve.

     Deposits  at  December  31,  1996,  decreased  by $19.1  million,  or 1.6%,
compared to deposits at December 31, 1995. The most significant dollar change in
deposit  composition  was  experienced in the Bank's  passbook  accounts,  which
decreased by $32.9 million,  or 5.2%.  Money market  accounts  decreased by $3.7
million,  or 4.0%, during 1996.  However,  certificate  accounts increased $16.8
million,  or 4.5%. Other interest bearing deposit accounts  remained  relatively
stable. In general,  market interest rates decreased during 1996. Interest rates
on the various accounts  offered by the Bank remained  competitive with those of
other depository institutions in the Bank's market.

<PAGE>

    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 controls  deposit levels,  and composition
through its interest rate  structure.  While the highest  percentage of deposits
has historically remained in passbook and lease security accounts,  the trend of
deposit  shifts has  continued  towards  certificate  accounts.  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.

     Net 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 the current scenario,  will not adversely affect the Company.
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.  During the past year the Bank has expanded  services  offered to its
depositors.  Automated  telephone  banking is now  available 24 hours a day, 365
days a year. The Bank also began offering its customers credit cards. The credit
cards are issued and owned by an  unrelated  bank  which  manages  and bears all
credit risk.

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,  for the periods  indicated,  information
relating to the Company's Consolidated  Statements of Income for the years ended
December  31, 1996,  1995 and 1994 and  reflects  the average  yield on interest
earning  assets and average  cost of interest  bearing  liabilities.  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,
                          -----------------------------------------------------------------------------------
                                     1996                        1995                       1994
                          --------------------------  --------------------------  ---------------------------
                                    Interest Average           Interest  Average           Interest Average
                           Average   Income/ Yield/   Average   Income/  Yield/   Average   Income/  Yield/
                           Balance   Expense  Cost    Balance   Expense   Cost    Balance   Expense  Cost
 Assets                                                              (Dollars in Thousands)
 <S>                      <C>        <C>      <C>    <C>        <C>      <C>     <C>        <C>      <C>
 Interest earning assets:
   Mortgage loans, net...$  792,579 $ 69,113  8.72% $  702,252 $ 64,309  9.16%  $  656,694 $ 61,142  9.31%
   Debt and equity
    securities, net(1)...   361,106   21,695  6.01     456,581   27,545  6.03      392,210   19,088  4.87
   CMOs, net.............   179,336   10,063  5.61     209,537    9,572  4.57      398,353   17,951  4.51
   MBS, net..............     6,540      739 11.30       8,650      969 11.20       11,773    1,288 10.94
   Other loans, net......    28,393    2,138  7.53      28,977    2,299  7.93       26,665    1,988  7.45
   Federal funds sold....    72,221    3,863  5.35      52,432    3,032  5.78       38,337    1,570  4.10
                         ---------- ---------       ---------- --------         ---------- ---------
 Total interest earning
  assets1................ 1,440,175  107,611  7.47   1,458,429  107,726  7.39    1,524,032  103,027  6.76
 Non-interest earning
  assets.................    93,539                     80,701                      88,899
                         ----------                 ----------                  ----------
    Total assets.........$1,533,714                 $1,539,130                  $1,612,931
                         ==========                 ==========                  ==========

 Liabilities and stockholders' equity
 Interest bearing
   liabilities:
  Passbook and other.....$  743,526 $ 20,440  2.75% $  797,445 $ 23,058  2.89%  $  925,312 $ 25,599  2.77%
  Certificate accounts...   383,215   19,777  5.16     343,229   17,649  5.14      292,762   10,995  3.75
                         ---------- --------        ---------- --------         ---------- --------
                          1,126,741   40,217  3.57   1,140,674   40,707  3.57    1,218,074   36,594  3.00
  ESOP obligation........      -        -      -          -        -      -            394       25  6.35
                         ---------- --------        ---------- --------         ---------- --------
 Total interest
  bearing liabilities.... 1,126,741   40,217  3.57   1,140,674   40,707  3.57    1,218,468   36,619  3.01
  Non-interest bearing
    liabilities..........    74,928                     65,963                      66,150
                         ----------                 ----------                  ----------
    Total liabilities.... 1,201,669                  1,206,637                   1,284,618
    Total stockholders'
     equity..............   332,045                    332,493                     328,313
                         ----------                 ----------                  ----------
    Total liabilities
     and stockholders'
     equity..............$1,533,714                 $1,539,130                  $1,612,931
                         ==========                 ==========                  ==========
 Net interest income/
  interest rate spread(2)           $ 67,394  3.90%            $ 67,019  3.82%             $ 66,408  3.75%
                                    ========  ====             ========  ====              ========  ====
 Net interest earning
  assets/net interest
  margin(3)..............$  313,434           4.68% $  317,755           4.60%  $  305,564           4.36%
                         ==========           ====  ==========           ====   ==========           ====
 Ratio of interest
  earning assets to
  interest bearing
  liabilities............                     1.28x                      1.28x                       1.25x
                                              =====                      ====                        ====


<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, 1996                Year Ended December 31, 1995
                                                  Compared to                                 Compared to
                                          Year Ended December 31, 1995                Year Ended December 31, 1994
                                          ----------------------------                ----------------------------
                                          Volume       Rate        Net                Volume       Rate        Net
                                          ------       ----        ---                ------       ----        ---
                                                                       (In Thousands)

<S>                                      <C>         <C>         <C>                 <C>         <C>        <C>

Interest earning assets:
  Mortgage loans, net ..............     $ 7,997     $ (3,193)   $  4,804            $ 4,169     $(1,002)   $ 3,167
  Debt and equity securities .......      (5,759)         (91)     (5,850)             3,450       5,007      8,457
  CMOs, net.........................      (1,499)       1,990         491             (8,615)        236     (8,379)
  Other loans, net .................         (46)        (115)       (161)               178         133        311
  MBS, net..........................        (239)           9        (230)              (349)         30       (319)
   Federal funds sold ..............       1,070         (239)        831                692         770      1,462
                                         -------     --------    --------            -------     -------    -------

        Total ......................       1,524       (1,639)       (115)              (475)      5,174      4,699
                                         -------     --------    --------            --------    -------    -------


Interest bearing liabilities:
  Passbook and other ...............      (1,400)      (1,218)     (2,618)            (3,603)      1,062     (2,541)
  Certificate accounts..............       2,059           69       2,128              2,113       4,541      6,654
  ESOP obligation...................        -            -           -                   (25)       -           (25)
                                         -------     --------    --------            -------     -------    -------

        Total.......................         659       (1,149)       (490)            (1,515)      5,603      4,088
                                         -------     --------    --------           --------     -------    -------


Net change in net interest income...     $   865      $  (490)   $    375            $ 1,040     $  (429)   $   611
                                         =======      =======    ========            =======     =======    =======

</TABLE>


<PAGE>


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 $2.54
per share,  compared with $22.2 million,  or $1.99 per 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,  from $64.3 million. 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 reflects 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
gains of $4,000  and  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 its
aggregate  market  value  of  $51.0  million,  which  exceeds  its cost of $11.7
million.

     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  and  will  continue  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.
<PAGE>

Interest Expense

     Interest expense on deposits decreased to $40.2 million,  or 1.2%, for 1996
from $40.7  million  for 1995.  This  decrease  reflects  a decrease  in average
interest bearing deposits of $13.9 million,  or 1.2%, to $1.13 billion for 1996,
from $1.14 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.

     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  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.

     Prior information  indicated that the Bank was likely to incur some loss in
connection  with its investments at Nationar.  At the time of seizure,  the Bank
had invested with Nationar  $10.0 million of federal funds sold,  cash in demand
accounts  of $200,000  and  $38,000 of capital  stock.  In  accordance  with the
Company's  internal  procedures for monitoring asset quality,  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 during 1995.

<PAGE>

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 New
York Cash Exchange (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 and Mastercard  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
reflects 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.

     Income on loaned  securities  decreased  by  $21,000,  to $37,000 for 1996,
compared to $58,000 for 1995.  Lower  market  demand for loaned  securities  was
experienced  during 1996.  Management does not expect income from security loans
to contribute substantially to non-interest income in the near future.

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,  office  occupancy,  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
Bank  Insurance  Fund (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 includes a pretax 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  reflects  increased  costs as a
result of the renovations at the Company's headquarters.  The renovations, which
began  during 1995 and  continued  through  1996,  are 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.

<PAGE>

     Compensation and benefit expenses  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.

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 42.2% for 1996 compared to 42.8% for 1995.  (See Note 15 to the  Consolidated
Financial Statements.)

<PAGE>

Comparison of Operating Results for the Years Ended December 31, 1995 and 1994
------------------------------------------------------------------------------

General

     Net income for the year ended December 31, 1995 was $22.2 million, or $1.99
per share,  compared with $23.6 million,  or $2.02 per share, for 1994. Comments
regarding the components of net income are detailed in the following paragraphs.

Interest Income

     Income on mortgage  loans  increased  by $3.2  million,  or 5.2%,  to $64.3
million,  from $61.1 million. The average investment in mortgage loans increased
by $45.6 million,  or 6.9%, to $702.3 million for 1995,  from $656.7 million for
1994.  The amount  invested in mortgage loans has continued to increase over the
past six years.  Mortgages  originated  for the  Bank's  portfolio  during  1995
remained relatively unchanged at $77.8 million,  from $78.0 million during 1994.
Mortgage  originations  for 1994  included  an $18.5  million  mortgage  made in
connection  with the sale of a real estate  property,  which was included in the
Company's real estate held for sale  portfolio.  Market interest rates decreased
during 1995 compared to 1994. The mortgage  portfolio  yield  decreased to 9.16%
for 1995 from 9.31% for 1994.

     Income on debt and equity securities  increased $8.5 million,  or 44.3%, to
$27.5  million for 1995,  compared to $19.1  million for 1994.  The  increase in
income reflects an increase in the yield to 6.03% for 1995, from 4.87% for 1994,
coupled with a $64.4 million, or 16.4%, (excluding the Statement 115 adjustments
for marketable equity  securities),  increase in the average  investment in this
portfolio. During 1995, activity in the investment securities portfolio included
purchases of $300.0  million and  maturities  of $265.0  million.  There were no
sales of debt or equity securities during 1995. At December 31, 1995, the $439.9
million debt  securities  portfolio  had net  unrealized  gains of $1.3 million,
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 its aggregate market value of $40.1 million,
which exceeds its original cost of $11.7 million.

     Income on CMOs  decreased by $8.4 million,  or 46.7% to $9.6 million,  from
$18.0 million.  The average  investment in CMOs decreased by $188.8 million,  or
47.4%,  to $209.5  million for 1995.  Principal  payments on CMOs  increased  to
$237.1  million  during 1995 from $181.0  million  during 1994.  The increase in
principal  payments  reflects  more CMO payments  coming due during 1995 than in
1994. During 1995, the market availability of CMOs meeting the Bank's investment
guidelines  remained  limited,  resulting  in fewer  CMO  purchases.  For  1995,
purchases  totaled $67.9 million,  compared with $79.5 million for 1994.  During
1995, the CMO portfolio  yielded 4.57% compared with 4.51% for 1994. At December
31,  1995,  the  $144.6  million  CMO  portfolio  had net  unrealized  losses of
$203,000,  which are not expected to impact future income,  as these  securities
are designated as held-to-maturity.

     During  1995,   MBS  continued  and  will  continue  to  amortize   without
replacement,  as the Bank had previously  discontinued  purchasing  MBS.  Income
earned on MBS decreased to $969,000  during 1995 from $1.3 million  during 1994,
reflecting  the  declining  balance.  There were no sales of MBS during  1995 or
1994.  At December  31,  1995,  there were  unrealized  gains of $847,000 and no
unrealized  losses  in the $7.6  million  MBS  portfolio.  These  gains  are not
expected  to  impact  future  income,   as  MBS  securities  are  designated  as
held-to-maturity.


<PAGE>

     Income from federal funds sold increased to $3.0 million for 1995 from $1.6
million for 1994. The average  balance  invested in federal funds sold increased
to $52.4 million during 1995, compared to $38.3 million during 1994. The average
yield on federal  funds sold  increased  to 5.78%  during 1995 from 4.10% during
1994. Liquidity,  provided by federal funds sold, is necessary to fund: mortgage
lending;  deposit withdrawals;  dividend payments on and make repurchases of the
Company's common stock; and meet obligations for non-interest expense.

Interest Expense

     Interest expense on deposits increased to $40.7 million, or 11.2%, for 1995
from $36.6 million for 1994. This increase reflects a 57 basis point increase in
the average cost of funds,  partially  offset by a decrease in average  interest
bearing  deposits of $77.4  million,  or 6.4%, to $1.14  billion for 1995,  from
$1.22 billion for 1994.  The increase in market  interest  rates during 1994 and
the continued  shift of the Bank's  deposits  from  passbook and lease  security
accounts  into  certificate  accounts,  contributed  to the increase in interest
expense for 1995.  Management  continues to monitor  deposit levels and interest
rates offered by competitors.

     The obligation on the leveraged ESOP,  which was satisfied during 1994, had
related interest expense of $25,000. The Bank continued to make contributions to
a non-leveraged ESOP during 1995.

Net Interest Income

     Net interest  income  increased by $611,000,  to $67.0 million,  from $66.4
million for 1994.  For 1995,  the net  interest  margin  increased to 4.60% from
4.36% for 1994,  and the net interest  spread  increased to 3.82% from 3.75% for
1994.  The yield on interest  earning  assets  increased  to 7.39% for 1995 from
6.76% for 1994.  The cost of interest  bearing  deposits  increased to 3.57% for
1995 from 3.00% for 1994.  The average  balance of interest  earning  assets and
interest  bearing  deposits  decreased  by  $65.6  million  and  $77.4  million,
respectively.  As  interest  rates  began to decrease  during  1995,  management
reinvested  proceeds from maturing  investments in shorter-term  securities than
those investments made during 1994.

     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.

Provision For Possible Loan Losses

     The  provision  for  possible  loan losses for 1995  increased  slightly to
$636,000  compared to $608,000 for 1994.  During 1995 and 1994  management  made
general  mortgage loan provisions of $600,000.  Provisions of $36,000 and $8,000
were made against the other loan portfolio  during 1995 and 1994,  respectively.
Future  additions  to the loan  loss  allowances  will be based on  management's
continuing  evaluations  of the  loan  portfolio  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.

<PAGE>

Provision For Possible Other Credit Losses

     On February 6, 1995, the  Superintendent of Banks for the State of New York
seized Nationar, a check-clearing and trust company,  freezing all of Nationar's
assets.  On that date,  the Bank had:  federal  funds sold to  Nationar of $10.0
million;  demand accounts of $200,000 and $38,000 of Nationar  capital stock. In
accordance with the Company's internal  procedures for monitoring asset quality,
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
established during 1995.

Non-Interest Income

     Non-interest  income  decreased by $2.7 million,  or 40.8%, to $4.0 million
compared to $6.7  million in 1994.  The $2.3 million net decrease in income from
real estate  operations  reflects a $2.6  million  non-recurring  gain  realized
during  1994,  from the sale of a 684 unit  rental  property,  known as Bay Hill
Gardens.  (See Note 13 to the Consolidated  Financial  Statements.) During 1995,
$587,000 of gains were realized from the sale of 31 cooperative apartments owned
by the Bank's real estate  subsidiaries.  At December 31, 1995, 183  cooperative
apartments, which are carried at a zero basis, remained available for sale.

     Income on loaned  securities  decreased by  $214,000,  to $58,000 for 1995,
compared to $272,000 for 1994.  Lower market  demand for loaned  securities  was
experienced  during 1995.  Management does not expect income from security loans
to contribute substantially to non-interest income in the near future.

     Loan fees and  service  charges  decreased  $272,000,  or 10.7%,  primarily
reflecting  a decrease in  prepayments  and  therefore  the  related  prepayment
charges for commercial mortgages.  During 1995, the Bank began to offer VISA and
Mastercard  credit  cards.  This  portfolio is managed by an unrelated  company,
which also assumes the risk of any loss.

Non-Interest Expense

     Non-interest  expense decreased $1.3 million, or 4.5%, to $29.6 million for
1995, compared to $30.9 million for 1994.  Included in non-interest  expense are
the  costs of  compensation  and  benefits,  office  occupancy,  FDIC  insurance
premiums,  advertising,  ORE  expenses  and  other  general  and  administrative
expense.

     Compensation  and benefit expense  decreased by $353,000,  to $16.6 million
from $16.9 million, or 2.1%. Salaries increased overall by $396,000, or 3.3% and
medical  insurance   premiums  increased   $250,000.   During  1994,  the  final
allocations of the initial grant were made from the ESOP and during 1995, awards
under the BRRPs were fully amortized,  resulting in a $941,000 net savings.  The
BRRPs  were  terminated  during  1995 and the ESOP  contributions  were fixed at
approximately 6% of base salary.

     Occupancy and equipment  expenses remained  relatively  stable,  decreasing
slightly by $44,000,  to $4.9 million for 1995 from $5.0 million for 1994.  This
decrease  reflects  the results of  management's  emphasis  on expense  control.
During  1996,  it is  expected  that  these  costs  will rise as a result of the
renovations at the Company's headquarters.

     Federal  deposit  insurance  premiums,  which rates are established by law,
decreased by $1.5 million,  or 50.5%. During the third quarter of 1995, the 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.


<PAGE>

     The cost of ORE  operations  increased  slightly to $209,000  for 1995 from
$200,000 for 1994.  Gains on the sale of ORE properties are recognized under the
cost  recovery  method.  During 1995,  $167,000 of gains on the sale of ORE were
deferred.  At December  31,  1995,  there were two  significant  mortgage  loans
totaling $20.9 million on which the Bank had commenced foreclosure proceedings.
(See "Asset/Liability Management".)

     Other general and  administrative  expense increased by $433,000,  or 9.1%,
reflecting  increased  legal  fees in  connection  with  problem  loans  and the
Nationar claim as well as the cost of upgrading the Bank's computer system.

Provision for Income Taxes

     Income taxes  decreased  by $1.4 million or 7.9% to $16.6  million for 1995
from $18.0 million for 1994. The provision for income taxes decreased due to the
decrease in pretax income before  cumulative effect of accounting  changes.  The
effective tax rate decreased to 42.8% for 1995 from 43.3% for 1994. (See Note 15
to the Consolidated Financial Statements.)


<PAGE>

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

     The Company's funds are primarily  obtained  through  dividends paid by the
Bank. During 1996, the Bank paid $20.0 million in dividends to the Company.  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 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 1996, the Company used $27.7 million to repurchase 845,000 shares of
its common  stock,  which  represents  the  largest  use of funds for  financing
activities.  In  addition,  net deposit  outflows of $19.1  million and dividend
payments of $12.1  million,  contributed  to the net cash outflow from financing
activities.  The net deposit  decline of $19.1 million  during 1996,  represents
deposit increases of $4.7 million during the first quarter,  followed by deposit
outflows of $3.8  million,  $13.3  million and $6.7  million  during the second,
third and fourth quarters, respectively.

     During 1996, 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 Office of Thrift Supervision (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, 1996 was
5.0%.  The Bank's  liquidity  ratio is  significantly  in excess of the required
level.  The Bank's average  liquidity  ratios were 34.0% and 44.0% for the years
ended  December  31,  1996 and 1995,  respectively.  The Bank's  high  liquidity
reflects  management's  strategy of investing  funds in short-term CMOs and U.S.
Government  and 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.

     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  agency  securities  portfolio  had an
average  remaining  maturity of  thirteen  months and the CMO  portfolio  had an
average  anticipated  remaining  maturity of fifteen  months as of December  31,
1996. 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.)

<PAGE>

     Management  is  carefully  monitoring  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 without management
intervention  in the  long-term,  the  Company's  future  interest rate spreads,
margins and net income  would  suffer as a result.  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 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,  who incurs  all risk of loss.  Lastly,  management  has
reduced assets to correlate with the decline in deposits,  thereby shrinking the
Company, while maintaining strong liquidity and steady earnings.

     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>

Impact of New Accounting Standards Issued, But Not Yet Adopted
--------------------------------------------------------------

Transfers and Servicing of Financial Assets and Extinguishments of Liabilities

     In June 1996,  the  Financial  Accounting  Standards  Board  (FASB)  issued
Statement of Financial  Accounting  Standards  (SFAS) No. 125,  "Accounting  for
Transfers and Servicing of Financial Assets and  Extinguishments of Liabilities"
(Statement 125).  Statement 125 establishes  accounting and reporting  standards
for  transfers  and  servicing  of  financial  assets  and   extinguishments  of
liabilities based on consistent  application of a financial  components approach
that  focuses on  control.  Under this  approach,  an  entity,  subsequent  to a
transfer of financial assets,  must recognize the financial and servicing assets
it controls and the liabilities it has incurred,  derecognize  financial  assets
when  control  has  been   surrendered,   and   derecognize   liabilities   when
extinguished.  Standards for  distinguishing  transfers of financial assets that
are sales from those that are secured  borrowings are provided in Statement 125.
A transfer  not  meeting  the  criteria  for a sale must be  accounted  for as a
secured borrowing with pledged collateral.

     Statement  125  requires  that  liabilities  and  derivatives  incurred  or
obtained by transferors  as part of a transfer of financial  assets be initially
measured at fair value, if practicable.  It additionally requires that servicing
assets  and other  retained  interests  in  transferred  assets be  measured  by
allocating  the previous  carrying  amount  between the assets sold, if any, and
retained  interests,  if any, based on their relative fair values at the date of
transfer.  Servicing  assets and liabilities  must be  subsequently  measured by
amortization  in  proportion  to and over the period of estimated  net servicing
income or loss and assessed for asset impairment, or increased obligation, based
on their fair value.

     Statement 125 requires that a liability be  derecognized  if either (a) the
debtor pays the creditor and is relieved of its  obligation for the liability or
(b) the debtor is legally  released  from being the  primary  obligor  under the
liability either judicially or by the creditor.

     Statement 125 provides  implementation  guidance for assessing isolation of
transferred  assets and for  accounting  for  transfers  of  partial  interests,
servicing of financial  assets,  securitizations,  transfers of  sales-type  and
direct financing lease receivables, securities lending transactions,  repurchase
agreements  including  "dollar  rolls",  "wash  sales",  loan  syndications  and
participations,   risk   participations  in  banker's   acceptances,   factoring
agreements,  transfers  of  receivables  with  recourse and  extinguishments  of
liabilities.

     Statement 125 supersedes FASB Statements No. 76,  "Extinguishment  of Debt"
and  No.  77,  "Reporting  by  Transferors  for  Transfer  of  Receivables  with
Recourse". Statement 125 amends Statement 115, to prohibit the classification of
a debt security as held-to-maturity if it can be prepaid or otherwise settled in
such a way that the holder of the security would not recover  substantially  all
of its recorded investment.  Statement 125 further requires that loans and other
assets  that can be prepaid or  otherwise  settled in such a way that the holder
would  not  recover  substantially  all  of its  recorded  investment  shall  be
subsequently  measured like debt securities  classified as available-for-sale or
trading under  Statement  115, as amended by Statement  125.  Statement 125 also
amends and extends to all servicing  assets and  liabilities  the accounting for
mortgage servicing rights now in Statement 65, and supersedes Statement 122.


<PAGE>

     In December 1996, the FASB issued SFAS No. 127,  "Deferral of the Effective
Date of Certain Provisions of FASB Statement 125". As amended,  Statement 125 is
effective for transfers and servicing of financial assets and extinguishments of
liabilities  occurring after December 31, 1996,  except that its provisions with
respect  to  securities  lending,   repurchase   agreements  and  "dollar  roll"
transactions are effective for transfers occurring after December 31, 1997.

     The Company does not expect the adoption of Statement  125, as amended,  to
have a material affect on its financial condition or results of operations.

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

     In  addition to  historical  information,  this  Annual  Report may include
certain forward looking statements based on 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 1996 Form 10-K.


<PAGE>

<TABLE>


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


ASSETS                                                                   1996          1995
------                                                                   ----          ----
<S>                                                                   <C>           <C>       
Cash and due from banks                                               $   12,894    $   14,893
Federal funds sold                                                        86,500        71,000
                                                                      ----------     ---------
  Cash and cash equivalents                                               99,394        85,893

Securities available-for-sale, at estimated fair value                    51,021        40,071
Securities held-to-maturity, net (estimated fair value
 of $461,784 and $593,991, respectively)                                 460,509       592,060
Other investments                                                          6,859         6,302
Mortgage loans, net                                                      827,052       739,037
Other loans, net                                                          27,722        29,208
Premises and equipment, net                                               16,829        15,157
Interest due and accrued                                                   9,310        12,907
Real estate held for investment, net                                       6,082         6,395
Real estate held for sale and Other real estate                            5,236         7,314
Claims receivable, net                                                      -            8,165
Other assets                                                               6,002         5,792
                                                                      ----------    ----------
           Total Assets                                               $1,516,016    $1,548,301
                                                                      ==========    ==========

LIABILITIES AND STOCKHOLDERS' EQUITY
Due to depositors                                                     $1,144,393    $1,163,446
Advance payments for real estate taxes and insurance                       8,265         8,231
Official bank checks outstanding                                           9,644        24,392
Accrued expenses and other liabilities                                    18,415        12,125
                                                                      ----------    ----------
           Total Liabilities                                           1,180,717     1,208,194
                                                                      ----------    ----------

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; 9,783,031 and
  10,504,775 outstanding, respectively)                                      160           160
Additional paid-in capital                                               163,500       162,566
Retained income, substantially restricted                                289,588       276,317
Net unrealized gain on securities available-for-sale,
  net of tax                                                              21,795        15,750
Common stock held by Benefit Restoration Plan
  Trust, at cost (166,848 shares)                                         (3,275)       (3,270)
Common stock held in treasury, at cost (6,216,969
  and 5,495,225 shares, respectively)                                   (136,469)     (111,416)
                                                                      ----------    ----------
           Total Stockholders' Equity                                    335,299       340,107
                                                                      ----------    ----------

           Total Liabilities and Stockholders' Equity                 $1,516,016    $1,548,301
                                                                      ==========    ==========



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

<PAGE>

<TABLE>


JSB FINANCIAL, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
Years ended December 31, 1996, 1995 and 1994
(In Thousands, Except Per Share Amounts)

<CAPTION>

                                                              1996         1995        1994
                                                              ----         ----        ----
<S>                                                        <C>          <C>         <C>   
Interest Income:
  Mortgage loans, net                                      $  69,113    $  64,309   $  61,142
  Debt & equity securities, net                               21,695       27,545      19,088
  Collateralized mortgage obligations, net (CMOs)             10,063        9,572      17,951
  Other loans, net                                             2,138        2,299       1,988
  Mortgage-backed securities, net (MBS)                          739          969       1,288
  Federal funds sold                                           3,863        3,032       1,570
                                                           ---------    ---------   ---------
   Total Interest Income                                     107,611      107,726     103,027
                                                           ---------    ---------   ---------

Interest Expense:
  Deposits                                                    40,217       40,707      36,594
  Employee Stock Ownership Plan obligation                      -            -             25
                                                           ---------    ---------   ---------
   Total Interest Expense                                     40,217       40,707      36,619
                                                           ---------    ---------   ---------
   Net Interest Income                                        67,394       67,019      66,408
Provision for Possible Loan Losses                               640          636         608
(Recovery of) Provision for Possible Other Credit Losses      (2,040)       2,040        -
                                                           ---------    ---------   ---------
  Net Interest Income After Provision
    for Possible Credit Losses                                68,794       64,343      65,800
                                                          ---------    ----------   ---------

Non-Interest Income:
  Real estate operations, net                                  1,767        1,225       3,497
  Loan fees and service charges                                2,833        2,280       2,552
  Income on loaned securities                                     37           58         272
  Miscellaneous income                                           444          432         431
                                                           ---------    ---------   ---------
   Total Non-Interest Income                                   5,081        3,995       6,752
                                                           ---------    ---------   ---------

Non-Interest Expense:
  Compensation and benefits                                   16,412       16,579      16,932
  Occupancy and equipment expenses (net of rental
   income of $1,126, $1,199 and $1,189, respectively)          5,211        4,957       5,001
  Federal deposit insurance premiums                               2        1,477       2,983
  Advertising                                                  1,340        1,142       1,057
  Other real estate (income) expense, net                       (772)         209         200
  Other general and administrative                             5,405        5,197       4,764
                                                           ---------    ---------   ---------
   Total Non-Interest Expense                                 27,598       29,561      30,937
                                                           ---------    ---------   ---------

   Income Before Provision for Income Taxes                   46,277       38,777      41,615
   Provision for Income Taxes                                 19,552       16,603      18,018
                                                           ---------    ---------   ---------

   Net Income                                              $  26,725    $  22,174   $  23,597
                                                           =========    =========   =========

Income and Cash Dividends Per Share:
 Earnings per common and common equivalent share           $    2.54    $    1.99   $    2.02
                                                           =========    =========   =========
 Cash Dividends                                            $    1.20    $    1.00   $     .72
                                                           =========    =========   =========








<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, 1996, 1995 and 1994 (In Thousands, Except Per Share Amounts)
<CAPTION>
                                                                 1996       1995      1994
                                                                 ----       ----      ----
<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                                    162,566    160,962   159,606
  Net allocation (distribution) of common stock
   for Benefit Restoration Plan                                       5       (199)      373
  Tax benefit for stock plans                                       599      1,645       983
  Reallocation of forfeited Bank Recognition and
   Retention Plans shares                                          -           158      -
  Compensation expense for 1996 option plan                         330       -         -
                                                               --------   --------  --------
Balance at end of year                                          163,500    162,566   160,962
                                                               --------   --------  --------

Retained Income, Substantially Restricted
Balance at beginning of year                                    276,317    266,361   251,959
  Net income                                                     26,725     22,174    23,597
  Tax benefit for dividends paid to Employee Stock
   Ownership Plan (ESOP)                                           -          -           11
  Loss on reissuance of treasury stock                           (1,364)    (1,602)   (1,210)
  Cash dividends on common stock ($1.20, $1.00, $.72,
    respectively)                                               (12,090)   (10,616)   (7,996)
                                                                -------    -------   -------
Balance at end of year                                          289,588    276,317   266,361
                                                                -------    -------   -------

Net Unrealized Gain on Securities Available-for-Sale, Net of Tax
Balance at beginning of year                                     15,750      8,892      -
  Cumulative effect of a change in accounting for
   securities available-for-sale at January 1, 1994
   net unrealized gain (net of tax of $7,000)                      -          -        8,761
  Change in net unrealized gains on securities available-
   for-sale (net of tax of $4,863, $5,517 and $105,
   respectively)                                                  6,045      6,858       131
                                                               --------   --------  --------
Balance at end of year                                           21,795     15,750     8,892
                                                               --------   --------  --------

Unallocated Common Stock Held by Leveraged ESOP
Balance at beginning of year                                       -          -       (1,045)
  Allocation of Leveraged ESOP stock                               -          -        1,045
                                                               --------   --------  --------
Balance at end of year                                             -          -         -
                                                               --------   --------  --------

Unearned Common Stock Held by Bank Recognition and
 Retention Plans
Balance at beginning of year                                       -          (516)   (1,504)
  Earned during the period                                         -           516       988
                                                               --------   --------  --------
Balance at end of year                                             -          -         (516)
                                                               --------   --------  --------

Common Stock Held by Benefit Restoration Plan Trust, at Cost
Balance at beginning of year                                     (3,270)    (3,469)   (3,096)
  Common stock acquired                                             (11)        (9)     (378)
  Common stock distributed                                            6        208         5
                                                               --------    -------  --------
Balance at end of year                                           (3,275)    (3,270)   (3,469)
                                                               --------    -------  --------

Common Stock Held in Treasury, at Cost
Balance at beginning of year                                   (111,416)  (104,756)  (80,873)
  Common stock reacquired                                       (27,650)    (9,881)  (26,404)
  Common stock reissued for options exercised                     2,597      3,221     2,521
                                                               --------   --------  --------
Balance at end of year                                         (136,469)  (111,416) (104,756)
                                                               --------   --------  --------
Total Stockholders' Equity                                     $335,299   $340,107  $327,634
                                                               ========   ========  ========
<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, 1996, 1995 and 1994 (In Thousands)
<CAPTION>

CASH FLOWS FROM OPERATING ACTIVITIES:                        1996         1995          1994
                                                             ----         ----          ----
<S>                                                      <C>          <C>           <C>      
Net income                                               $  26,725    $  22,174     $  23,597
Adjustments  to  reconcile   net  income  to  net
  cash  provided  by  operating activities:
Provision for possible loan losses                             640          636           608
(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                (2)         -            -
(Decrease) increase in deferred loan fees
 and discounts, net                                           (593)        (608)        1,743
Accretion of discount (in excess of) less than
 amortization of premium on MBS and CMOs                      (578)         320           896
Accretion of discount in excess of amortization
 of premium on debt securities                                (249)        (248)         (140)
Depreciation and amortization of premises and equipment      1,826        1,920         1,847
Mortgage loans originated for sale                          (1,621)      (1,792)       (1,923)
Proceeds from sale of mortgage loans originated for sale     1,737        1,818         1,946
Gain on sale of mortgage and other loans                       (53)         (61)          (26)
Expense recognized for Bank Recognition and Retention Plans   -             675           988
Net expense recorded for leveraged ESOP                       -            -              978
Tax benefit for cash dividends paid to ESOP                   -            -               11
Tax benefit for stock plans credited to capital                599        1,645           983
Gain on sale of real estate held for sale                     (571)        (587)       (2,737)
Decrease (increase) in interest due and accrued              3,597          752        (2,272)
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                         (688)        -             -
(Increase) decrease in official bank checks outstanding    (14,748)       3,986       (2,899)
Other                                                        1,547       (1,389)        1,111
                                                         ---------    ---------     ---------
  Net cash provided by operating activities                 25,733       21,114        24,711
                                                         ---------    ---------     ---------

CASH FLOWS FROM INVESTING ACTIVITIES:
Loans originated:
 Mortgage loans                                           (136,218)     (77,826)      (59,548)
 Other loans                                               (19,032)     (25,718)      (21,426)
Purchases of CMOs held-to-maturity                        (124,275)     (67,889)      (79,458)
Purchases of debt securities held-to-maturity and
 securities available-for-sale                            (534,569)    (300,047)     (615,000)
Principal payments on:
 Mortgage loans                                             46,506       22,672        31,129
 Other loans                                                19,656       22,556        20,169
 CMOs                                                      114,105      237,060       181,024
 MBS                                                         2,047        2,324         4,900
Proceeds from maturities of U.S. Government and
 federal agency securities                                 675,000      265,000       627,000
Proceeds from sale of other loans                              934        1,372         1,391
Purchases of Federal Home Loan Bank stock                     (557)        (188)         -
Proceeds from redemption of Federal Home Loan Bank stock      -            -            4,147




                                                                                       Continued
</TABLE>

<PAGE>

<TABLE>

JSB FINANCIAL, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS - CONTINUED
Years ended December 31, 1996, 1995 and 1994  (In Thousands)
<CAPTION>


                                                             1996         1995          1994
                                                             ----         ----          ----
<S>                                                      <C>          <C>           <C>   

Proceeds from sale/redemption of equity securities              30         -             -
Purchases of premises and equipment, net of disposals       (3,498)      (2,647)       (2,212)
Net decrease (increase) in real estate held for
 investment                                                    313          168          (350)
Proceeds from sale of real estate held for sale                571          587         5,233
Proceeds from sale of Other real estate                      2,759         -             -
Net decrease in investment in real estate held for sale      1,522        1,995         1,022
                                                           -------      -------       -------
  Net cash provided by investing activities                 45,294       79,419        98,021
                                                           -------      -------       -------


CASH FLOWS FROM FINANCING ACTIVITIES:
Net decrease in due to depositors                          (19,053)     (40,978)      (69,493)
Increase (decrease) in advance payments for real
 estate taxes and insurance                                     34          (79)          889
Proceeds upon exercise of common stock options               1,233        1,619         1,311
Contributions to leveraged ESOP                               -            -           (1,011)
Cash dividends paid to common stockholders                 (12,090)     (10,616)       (7,996)
Payments to repurchase common stock                        (27,650)      (9,881)      (26,404)
                                                         ---------    ---------     ---------
   Net cash used by financing activities                   (57,526)     (59,935)     (102,704)
                                                         ---------    ---------     ---------

Net increase in cash and cash equivalents                   13,501       40,598        20,028
Cash and cash equivalents at beginning of year              85,893       45,295        25,267
                                                         ---------    ---------     ---------
Cash and cash equivalents at end of year                 $  99,394    $  85,893     $  45,295
                                                         =========    =========     =========


Supplemental Disclosures of Cash Flow Information
Cash paid for:
 Interest on deposits                                    $  40,215    $  40,721     $  36,601
                                                         =========    =========     =========
 Income taxes                                            $  22,370    $  18,216     $  21,308
                                                         =========    =========     =========
 ESOP obligation                                         $    -       $    -        $  (1,045)
                                                         =========    =========     =========

Supplemental Disclosures of Noncash Investing and
 Financing Activities
Real estate acquired through foreclosure                 $   8,190    $    -        $   1,472
                                                         =========    =========     =========

Mortgage  originated  upon sale of real estate
 from the held for sale  portfolio and Other real
 estate                                                  $   6,675    $    -        $  18,500
                                                         =========    =========     =========

January 1, 1994 transfer of securities from held-
 for-investment to available-for-sale, at estimated
 fair value                                              $    -       $    -        $  27,364
                                                         =========    =========     =========

Deferred tax liability on securities available-for-sale  $  17,534    $  12,671     $   7,154
                                                         =========    =========     =========






<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.(Company  or  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 and real estate
held for  investment  (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 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 susceptible  to 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 credit losses as presented in
these consolidated  financial statements are adequate.  Available information is
utilized to identify probable losses on loans, real estate holdings, and various
other  investments.  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 its wholly-owned
subsidiaries.  All significant  intercompany accounts and transactions have been
eliminated in consolidation.


<PAGE>

(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 date of
purchase to be cash equivalents.

(d)  Securities
     Effective  January 1, 1994,  the Company  adopted  Statement  of  Financial
Accounting Standards (SFAS) No. 115, "Accounting for Certain Investments in Debt
and Equity  Securities"  (Statement  115).  Under  Statement 115, 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.  Upon  adopting  Statement  115,  management
reviewed  the  composition  of  the  investment  portfolio  and  designated  all
securities,  other than marketable equity securities,  as  held-to-maturity.  On
January 1, 1994,  marketable equity securities  totaling  $11,577,000,  at cost,
were  designated  as  available-for-sale  and  recorded  at their  fair value of
$27,364,000. The Company does not maintain any investments for trading purposes.
The adoption of Statement 115 had no impact on net income.

     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.
<PAGE>

     On January 1, 1995,  the  Company  adopted  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). In accordance with these standards,
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.  The  adoption of
Statements 114 and 118 had no impact on net income.

     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
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",  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.

<PAGE>

(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 Held for Investment
     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.

(i)  Real Estate Held for Sale and Other Real Estate
     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.

<PAGE>


 (j)  Income Taxes
     The Company follows SFAS No. 109,  "Accounting for Income Taxes" (Statement
109),  which  requires the asset and 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 Notes 15 and 17.)

(k)  Earnings Per Share
     Earnings  per  share is  based on net  income  for the  periods  presented,
divided by the sum of the weighted average number of shares actually outstanding
plus common stock  equivalents.  Common stock equivalents are computed under the
treasury  stock method.  For the years ended  December 31, 1996,  1995 and 1994,
weighted  average  common  stock and common stock  equivalents,  used to compute
primary  earnings  per  share,  were  10,531,000,   11,138,000  and  11,663,000,
respectively.

(l)  Reclassification
     Reclassifications  have been made to prior  year  financial  statements  to
conform with the 1996 presentation.

(m)  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.)

<PAGE>

(n)  Adoption of Accounting Standards
        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 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 is 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, Statement 123 had no impact on
the Company's financial condition or results of operation. (See Note 22.)

    Impairment of Long-Lived  Assets and Long-Lived  Assets to Be Disposed Of
    -------------------------------------------------------------------------
     In March 1995, the FASB issued SFAS No. 121, "Accounting for the Impairment
of Long-Lived  Assets and for  Long-Lived  Assets to Be Disposed Of"  (Statement
121). This statement  requires that long-lived  assets and certain  identifiable
intangibles,  and  goodwill  related  to  those  assets  to be held and used and
long-lived  assets and certain  identifiable  intangibles  to be disposed of, be
reviewed for impairment  whenever  events or changes in  circumstances  indicate
that the carrying amount of an asset may not be recoverable.


<PAGE>

     In performing the review for recoverability, the entity should estimate the
future cash flows  expected to result from the use of the asset and its eventual
disposition.  If the sum of the  expected  future cash flows  (undiscounted  and
without  interest  charges) is less than the  carrying  amount of the asset,  an
impairment loss is recognized.  Otherwise, an impairment loss is not recognized.
Measurement  of an  impairment  loss  for  long-lived  assets  and  identifiable
intangibles  that an entity  expects to hold and use should be based on the fair
value of the asset.

        Statement 121  generally  requires  that  long-lived  assets and certain
identifiable  intangibles to be disposed of be reported at the lower of carrying
amount or fair value less cost to sell.

        Statement 121 became effective for fiscal years beginning after December
15, 1995,  applied  prospectively.  The  Company's  adoption of  Statement  121,
effective January 1, 1996, had no material impact on its financial  condition or
results of operations.

     Mortgage Servicing Rights
     -------------------------
        In May 1995,  the FASB  issued SFAS No. 122,  "Accounting  for  Mortgage
Servicing Rights" (Statement 122). Statement 122 amends SFAS No. 65, "Accounting
for Certain  Mortgage  Banking  Activities"  (Statement  65), to require  that a
company  recognize,  as separate  assets,  rights to service  mortgage loans for
others,  regardless of how those servicing  rights are acquired.  A company that
acquires mortgage servicing rights through either the purchase or origination of
mortgage  loans and sells or  securitizes  those  loans  with  servicing  rights
retained  should  allocate the total cost of the mortgage  loans to the mortgage
servicing rights and the loans (without the mortgage  servicing rights) based on
their  relative fair values if it is  practicable to estimate those fair values.
This  statement  also requires that a company  assess its  capitalized  mortgage
servicing  rights  for  impairment  based on an  estimated  fair  value of those
rights.

     Statement 122 became  effective for fiscal years  beginning  after December
15, 1995,  applied  prospectively.  The  Company's  adoption of  Statement  122,
effective  January  1, 1996 has not  resulted  in the  recognition  of  mortgage
servicing  rights as separate  assets,  as the Company's sales of mortgage loans
with servicing retained have been immaterial.



<PAGE>


(o)  Impact of New Accounting Standards Not Yet Adopted
     Transfers and Servicing of Financial Assets and Extinguishments of
     Liabilities
     -----------
     In June 1996, the FASB issued SFAS No. 125,  "Accounting  for Transfers and
Servicing of Financial  Assets and  Extinguishments  of Liabilities"  (Statement
125). Statement 125 establishes accounting and reporting standards for transfers
and servicing of financial assets and  extinguishments  of liabilities  based on
consistent  application  of a  financial  components  approach  that  focuses on
control.  Under this approach, an entity,  subsequent to a transfer of financial
assets,  must  recognize the financial and servicing  assets it controls and the
liabilities it has incurred,  derecognize financial assets when control has been
surrendered,  and  derecognize  liabilities  when  extinguished.  Standards  for
distinguishing  transfers of financial assets that are sales from those that are
secured  borrowings  are provided in  Statement  125. A transfer not meeting the
criteria for a sale must be accounted  for as a secured  borrowing  with pledged
collateral.

     Statement  125  requires  that  liabilities  and  derivatives  incurred  or
obtained by transferors  as part of a transfer of financial  assets be initially
measured at fair value, if practicable.  It additionally requires that servicing
assets  and other  retained  interests  in  transferred  assets be  measured  by
allocating  the previous  carrying  amount  between the assets sold, if any, and
retained  interests,  if any, based on their relative fair values at the date of
transfer.  Servicing  assets and liabilities  must be  subsequently  measured by
amortization  in  proportion  to and over the period of estimated  net servicing
income or loss and assessed for asset impairment, or increased obligation, based
on their fair value.

        Statement  125 requires that a liability be  derecognized  if either (a)
the debtor pays the creditor and is relieved of its obligation for the liability
or (b) the debtor is legally  released from being the primary  obligor under the
liability either judicially or by the creditor.

     Statement 125 provides  implementation  guidance for assessing isolation of
transferred  assets and for  accounting  for  transfers  of  partial  interests,
servicing of financial  assets,  securitizations,  transfers of  sales-type  and
direct financing lease receivables, securities lending transactions,  repurchase
agreements  including  "dollar  rolls",  "wash  sales",  loan  syndications  and
participations,   risk   participations  in  banker's   acceptances,   factoring
agreements,  transfers  of  receivables  with  recourse and  extinguishments  of
liabilities.

     Statement 125 supersedes FASB Statements No. 76,  "Extinguishment  of Debt"
and  No.  77,  "Reporting  by  Transferors  for  Transfer  of  Receivables  with
Recourse". Statement 125 amends Statement 115, to prohibit the classification of
a debt security as held-to-maturity if it can be prepaid or otherwise settled in
such a way that the holder of the security would not recover  substantially  all
of its recorded investment.  Statement 125 further requires that loans and other
assets  that can be prepaid or  otherwise  settled in such a way that the holder
would  not  recover  substantially  all  of its  recorded  investment  shall  be
subsequently  measured like debt securities  classified as available-for-sale or
trading under  Statement  115, as amended by Statement  125.  Statement 125 also
amends and extends to all servicing  assets and  liabilities  the accounting for
mortgage servicing rights now in Statement 65, and supersedes Statement 122.


<PAGE>

     In December 1996, the FASB issued SFAS No. 127,  "Deferral of the Effective
Date of Certain Provisions of FASB Statement 125". As amended,  Statement 125 is
effective for transfers and servicing of financial assets and extinguishments of
liabilities  occurring after December 31, 1996,  except that its provisions with
respect  to  securities   lending,   repurchase   agreements   and   dollar-roll
transactions are effective for transfers occurring after December 31, 1997.

     The Company does not expect that the adoption of Statement 125, as amended,
will have a material affect on its financial condition or results of operations.

 NOTE (2) STOCK REPURCHASE PROGRAMS
      During the years  ended  December  31,  1996,  1995 and 1994,  the Company
repurchased 845,000, 339,485 and 1,116,515 shares at an average price of $32.72,
$29.11 and $23.65 per share,  respectively.  The Company issued 123,256, 161,860
and 131,104 shares of treasury stock for options exercised during 1996, 1995 and
1994, respectively. There were 6,216,969 and 5,495,225 shares of common stock in
the treasury at December 31, 1996 and 1995, respectively.


<PAGE>


NOTE (3) SECURITIES
     The  following  tables  set  forth  information   regarding  the  Company's
securities as of December 31:
<TABLE>
<CAPTION>
                                                         1996
                                                         ----
Securities Available-for-Sale:
------------------------------

                                                Estimated        Gross Unrealized
                                      Cost      Fair Value      Gains       Losses
                                      ----      ----------      -----       ------
                                                     (In Thousands)
<S>                                 <C>         <C>            <C>          <C>    
Marketable equity securities        $ 11,692    $ 51,021       $39,368      $    39
                                    ========    ========       =======      =======


Securities Held-to-Maturity:
----------------------------
                                                Estimated
                                    Amortized     Fair           Gross Unrealized
                                      Cost       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         -
  FHLMC                                  441         480            39         -
                                    --------    --------       -------      -------
 Total MBS, net                        5,592       6,101           509         -
                                    --------    --------       -------      -------

     Total                          $460,509    $461,784       $ 1,562      $   287
                                    ========    ========       =======      =======

                                                          1995
                                                          ----
Securities Available-for-Sale:
------------------------------

                                                Estimated        Gross Unrealized
                                      Cost      Fair Value      Gains       Losses
                                      ----      ----------      -----       ------
                                                     (In Thousands)
Marketable equity securities        $ 11,650    $ 40,071       $28,488     $    67
                                    ========    ========       =======     =======


Securities Held-to-Maturity:
----------------------------
                                                Estimated
                                    Amortized     Fair           Gross Unrealized
                                      Cost       Value          Gains       Losses
                                      ----       -----          -----       ------
                                                     (In Thousands)
U.S. Government and Federal
  Agency securities                 $439,896    $441,183       $ 1,311      $    24

CMOs, net                            144,607     144,404           212          415

MBS:
  GNMA                                 6,667       7,428           761         -
  FNMA                                   235         260            25         -
  FHLMC                                  655         716            61         -
                                    --------    --------       -------      -------
 Total MBS, net                        7,557      _8,404           847         -
                                    --------    --------       -------      -------

     Total                          $592,060    $593,991       $ 2,370      $   439
                                    ========    ========       =======      =======

<FN>

  GNMA - Government National Mortgage Association
  FNMA - Federal National Mortgage Association
  FHLMC - 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, FHLMC 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  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 the years ended  December 31, 1995 or
1994.

     Presented in the table below is the contractual maturity distribution,  for
debt securities held-to-maturity at December 31, 1996:

<TABLE>
<CAPTION>
                                                       Estimated
                                   Amortized             Fair
                                    Cost                 Value
                                    ----                 -----
                                          (In Thousands)
<S>                                <C>                  <C>     
Within 1 year                      $179,829             $179,918
After 1 year through 5 years        177,617              178,374
After 5 years through 10 years       99,623               99,769
After 10 years                        3,440                3,723
                                   --------             --------
    Total                          $460,509             $461,784
                                   ========             ========
</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>

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

<S>                                           <C>              <C>     
Amortized cost - Securities loaned            $  -             $ 18,500
                                              ========         ========

Estimated fair value - Securities loaned      $  -             $ 18,557
                                              ========         ========

Estimated fair value - Collateral             $  -             $ 19,256
                                              ========         ========
</TABLE>


<PAGE>


NOTE (4)  OTHER INVESTMENTS
<TABLE>
<CAPTION>

     Other investments at December 31, 1996 and 1995 were as follows:

                                       1996                     1995
                                       ----                     ----
                                           Estimated                Estimated
                                Carrying     Fair        Carrying     Fair
                                 Value       Value        Value      Value   
                                 -----       -----        -----      -----   
                                             (In Thousands)

  <S>                          <C>       <C>             <C>       <C>     
  Investment required by law*  $  6,829  $  6,829        $  6,272  $  6,272
  Other stock                        30        30              30        30
                               --------  --------        --------  --------
   Total other investments     $  6,859  $  6,859        $  6,302  $  6,302
                               ========  ========        ========  ========
<FN>

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

NOTE (5)  LOANS
<TABLE>
<CAPTION>

     Loans are summarized as follows:
                                                   December 31,
                                                   ------------
                                           1996                   1995
                                           ----                   ----
<S>                                      <C>                    <C>
                                                   (In Thousands)
Mortgage loans:
  One-to four-family                     $ 76,848               $ 82,391
  Multi-family                            433,224                344,337
  Underlying cooperative*                 262,221                263,972
  Commercial                               61,829                 55,662
  Construction                              1,836                  1,492
                                         --------               --------
   Total mortgage loans                   835,958                747,854
                                         --------               --------

Deferred loan fees and unearned
 discounts                                 (3,730)                (4,242)
Allowance for possible loan losses         (5,176)                (4,575)
                                         --------               --------

   Total mortgage loans, net             $827,052               $739,037
                                         ========               ========

Other loans:
  Student                                $  6,204               $  7,466
  Consumer                                  4,350                  4,092
  Loans secured by deposit accounts         8,328                  8,489
  Overdraft loans                             237                    220
  Property improvement                      8,775                  9,165
                                         --------               --------
   Total other loans                       27,894                 29,432
                                         --------               --------

Unearned discounts                            (21)                  (102)
Allowance for possible loan losses           (151)                  (122)
                                         --------               --------

   Total other loans, net                $ 27,722               $ 29,208
                                         ========               ========
<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, 1996
and 1995 is summarized as follows:
<TABLE>
<CAPTION>

                                              1996                   1995
                                              ----                   ----
                                        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*                  144       $   692        132       $  751
           Non-guaranteed                15        13,459          8          324
                                        ---       -------        ---       ------

          Total delinquencies
           over 90 days                 159       $14,151        140       $1,075
                                        ===       =======        ===       ======

          Ratio of loans 90 days
           or more past due to
           total gross loans                 1.64%                    .14%
                                             ====                     ===
<FN>

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

        At December  31,  1996,  there was one  mortgage  loan with a balance of
$12,754,000  on  non-accrual  status.  At December 31, 1995 there were two loans
totaling $20,903,000 on non-accrual status comprised of a $12,754,000 underlying
cooperative mortgage which was 60 days in arrears and an $8,149,000 multi-family
property  mortgage which was current and being accounted for on a cash basis, as
payments were received  through the bankruptcy  court.  Net interest  income was
reduced by approximately  $1,180,000,  $197,000 and $150,000 for the years ended
December 31, 1996, 1995 and 1994 in connection with non-accrual loans.


<TABLE>
<CAPTION>

     The following table summarizes information regarding the Company's impaired
loans at December 31:
                                                       1996
                                                       ----
                                                      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
                                         =======       =======     =======
</TABLE>

        There were no impaired loans at December 31, 1995.

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

<PAGE>


NOTE (7)  ALLOWANCE FOR POSSIBLE LOAN LOSSES

     Activity  in the  allowance  for  possible  loan losses for the years ended
December 31, 1996, 1995 and 1994 is summarized as follows:
<TABLE>
<CAPTION>

                                          Mortgage loans               Other loans
                                          --------------               -----------
                                    1996       1995      1994      1996   1995   1994
                                    ----       ----      ----      ----   ----   ----
                                                     (In Thousands)

<S>                                 <C>        <C>       <C>       <C>    <C>    <C> 
Balance at beginning of period      $4,575     $3,976    $4,000    $122   $109   $136
Provision for possible loan losses     600        600       600      40     36      8
Loans charged off                     -            (1)     (624)    (33)   (43)   (40)
Recoveries of loans previously
   charged off                           1       -         -         22     20      5
                                    ------     ------    ------    ----   ----   ----
Balance at end of period            $5,176     $4,575    $3,976    $151   $122   $109
                                    ======     ======    ======    ====   ====   ====

</TABLE>

NOTE (8)  MORTGAGE LOAN SERVICING
     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, 1996,
1995 and 1994 were as follows:
<TABLE>
<CAPTION>

                                    1996       1995      1994
                                    ----       ----      ----
                                      (Dollars in Thousands)

         <S>                       <C>        <C>       <C>    
         Principal balances        $16,016    $18,381   $21,605
                                   =======    =======   =======

         Servicing income          $    39    $    47   $    81
                                   =======    =======   =======

         Number of loans             1,494      2,023     2,623
                                     =====      =====   =======
</TABLE>

     The balance of loans sold with full recourse was $7,366,000 and $10,330,000
at  December  31, 1996 and 1995,  respectively.  The Bank has not sold any loans
with  recourse  since 1985.  The Bank sold,  without  recourse,  $1,715,000  and
$1,792,000  of  mortgage  loans to FNMA  and/or  the State of New York  Mortgage
Association  (SONYMA)  during  1996 and 1995,  respectively.  The Bank  retained
servicing for these loans, which did not result in any servicing assets.

NOTE (9)  PREMISES AND EQUIPMENT
     Premises  and  equipment  at December  31, 1996 and 1995  consisted  of the
following:

<TABLE>
<CAPTION>
                                    1996       1995
                                    ----       ----
                                     (In Thousands)

<S>                                <C>        <C>    
Banking houses and land            $21,493    $20,542
Furniture, fixtures and equipment   15,086     14,179
Safe deposit vaults                  1,016      1,016
                                   -------    -------
                                    37,595     35,737
Less accumulated depreciation and
 amortization                       20,766     20,580
                                   -------    -------
 
Premises and equipment, net        $16,829    $15,157
                                   =======    =======
</TABLE>

     Depreciation  and  amortization  expense for the years ended  December  31,
1996, 1995 and 1994 was $1,826,000, $1,920,000 and $1,847,000, respectively.



<PAGE>


NOTE (10)  INTEREST DUE AND ACCRUED

     Interest  due and accrued at December  31, 1996 and 1995  consisted  of the
following:
<TABLE>
<CAPTION>

                                    1996       1995
                                    ----       ----
                                     (In Thousands)
<S>                                <C>        <C>

U.S. Government and Agencies       $ 2,655    $ 6,455
CMOs                                   739        641
MBS                                     51         71
Mortgage and other loans             5,865      5,740
                                   -------    -------
                                   $ 9,310    $12,907
                                   =======    =======
</TABLE>

NOTE (11)  REAL ESTATE HELD FOR INVESTMENT
     Through its  wholly-owned  subsidiaries,  the Bank has  investments in real
estate.  At December 31, 1996 and 1995,  components  of the net asset amounts of
real estate held for investment were as follows:
<TABLE>
<CAPTION>

                                    1996       1995
                                    ----       ----
                                     (In Thousands)
<S>                                <C>        <C>    
Buildings, net                     $ 4,000    $ 4,033
Land                                 1,561      1,561
Accrued interest and other assets    1,385      1,708
Other liabilities                     (864)      (907)
                                   -------    -------
       Net assets                  $ 6,082    $ 6,395
                                   =======    =======
</TABLE>


     The summarized statements of income of the Bank's wholly-owned subsidiaries
that comprise real estate held for investment,  for the years ended December 31,
1996, 1995 and 1994 were as follows:

<TABLE>
<CAPTION>

                                      1996         1995        1994
                                      ----         ----        ----
                                              (In Thousands)

<S>                                  <C>         <C>         <C>    
Rental income                        $ 4,020     $ 4,236     $ 4,040
Net interest income                        4           5           4
Other income                             652         210         317
                                     -------     -------     -------
    Total income                       4,676       4,451       4,361
                                     -------     -------     -------

Real estate taxes                        566         574         576
Operating and other expenses           3,087       3,376       3,640
                                      ------     -------     -------
    Total expenses                     3,653       3,950       4,216
                                      ------     -------     -------

Income from real estate held
  for investment                      $1,023     $   501    $    145
                                      ======     =======    ========

</TABLE>


<PAGE>


NOTE (12)  REAL ESTATE HELD FOR SALE AND OTHER REAL ESTATE
     Real Estate Held for Sale

     Condominium  Property:  The Bank, through its wholly-owned  subsidiary Sher
Park Realty  Corp.  (Sher  Park),  was  originally  a 50% partner with a general
contractor  in Jade  Associates  (Jade).  Jade  was a joint  venture  formed  to
construct and subsequently sell an 84 unit condominium complex in Flushing,  New
York.  During 1993,  Jamlyn  Realty  Corp.,  another of the Bank's  wholly owned
subsidiaries, acquired the general contractor's ownership share. During 1996, 12
units were sold,  resulting  in  deferred  gains of  $104,000,  as sales in this
property are being accounted for under the cost recovery method. At December 31,
1996,  of the  remaining  49  units,  42 were  rented  and 7 were  vacant.  On a
consolidated  basis,  for the years ended December 31, 1996, 1995 and 1994, this
investment   generated  pretax  income  of  $173,000,   $137,000  and  $240,000,
respectively.  At December 31, 1996 and 1995, the net investment in the property
was $4,589,000 and $6,111,000, respectively.

        Cooperative Apartments:  Several of the Bank's wholly owned subsidiaries
own cooperative apartments in various buildings, which are carried at zero cost.
At  December  31, 1996 and 1995,  158 and 183  cooperative  apartments  remained
available for sale, respectively.

 Other Real Estate
     ORE at  December  31,  1996  and  1995  totaled  $647,000  and  $1,203,000,
respectively. The aggregate (income from)/cost of ORE operations was ($772,000),
$209,000  and $200,000 for the years ended  December 31, 1996,  1995,  and 1994,
respectively.  During 1996, two ORE properties were sold,  generating a net gain
of $688,000,  comprised  of a $705,000  gain and a $17,000  loss.  There were no
sales of ORE during 1995 or 1994. There were no provisions  established  against
ORE during the years ended December 31, 1996, 1995 or 1994.

    During 1994, as part of the workout of a $1,877,000 mortgage loan secured by
a cooperative building, the Bank, through a subsidiary  corporation,  took title
to  cooperative  shares  representing  57 apartments  in an 82 unit  cooperative
property, located in Brooklyn, New York. As part of the agreement, the Bank made
an additional  five year loan to the  cooperative  to make  improvements  to the
building and pay expenses of the cooperative  association.  At December 31, 1996
and  1995,  the  balance  of the  additional  loan was  $386,000  and  $491,000,
respectively. In addition, the mortgage loan was extended for an additional five
years at 7.25% on February 1, 1994, the scheduled maturity.

     In  connection  with  this   transaction,   $1,622,000,   representing  the
proportionate  share  of  the  Bank's  interest  in the  $2,379,000  cooperative
indebtedness  to the Bank,  was  reclassified  from mortgage loans to ORE on the
Company's  consolidated financial statements as of December 31, 1994. The amount
included in ORE is based on the  percentage of  cooperative  shares owned by the
Bank's subsidiary to the total cooperative shares  outstanding.  The amount that
remained  included in mortgage  loans was  $1,311,000 and $1,092,000 at December
31,  1996 and  1995,  respectively.  The  carrying  amount of this  property  is
increased  by  capitalized  improvements,  not to  exceed  net fair  value,  and
reported  net of deferred  gains.  At December  31,  1996,  cumulative  gains of
$347,000 on the sale of 24 units were  deferred.  At December 31, 1996, 33 units
were owned by the Bank's  subsidiary,  of which 32 were  rented and 1 was vacant
and being  marketed  for sale.  This  property  accounted  for  $607,000  of the
$647,000 in ORE at December 31, 1996.



<PAGE>


NOTE (13)  REAL ESTATE OPERATIONS, NET

     Results of real estate  operations  for the years ended  December 31, 1996,
1995 and 1994 were as follows:
<TABLE>
<CAPTION>

                                                1996             1995            1994
                                                ----             ----            ----
                                                            (In Thousands)

<S>                                            <C>              <C>             <C> 
Income from real estate held
 for investment, net  (See Note 11.)           $1,023           $  501          $  145
                                               ------           ------          ------

Real estate held for sale:
  Rental income                                   173              137             615
  Gain on sale1                                   571              587           2,737
                                               ------           ------          ------
                                                  744              724           3,352
                                               ------           ------          ------

  Real estate operations, net                  $1,767           $1,225          $3,497
                                               ======           ======          ======

<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. During
1994,  the Company  sold a 684  apartment  complex,  known as Bay Hill  Gardens,
recognizing a pre-tax gain of $2,609,000.
</FN>
</TABLE>



NOTE (14)  CLAIMS RECEIVABLE, NET
     On February 6, 1995, the  Superintendent of Banks for the State of New York
seized Nationar, a check-clearing and trust company,  freezing all of Nationar's
assets.  On  that  date,  the  Bank  had:  Federal  funds  sold to  Nationar  of
$10,000,000;  demand accounts of $200,000 and $38,000 of Nationar capital stock.
In May, 1995,  management,  in accordance with the Company's standard procedures
for  monitoring  asset  quality  established  a  $2,040,000,  or 20%,  valuation
allowance  against the claims  receivable.  During 1995,  the Bank wrote off the
$38,000 stock investment.

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

<PAGE>


NOTE (15)  INCOME TAXES

     The 1996,  1995 and 1994  provisions  for income tax were  comprised of the
following amounts:
<TABLE>
<CAPTION>

                                 1996              1995               1994
                                 ----              ----               ----
                                              (In Thousands)

<S>                            <C>               <C>                <C>
Current:
  Federal                      $12,870           $11,657            $12,724
  State and local                5,630             5,344              5,379
                               -------           -------            -------
                                18,500            17,001             18,103
                               -------           -------            -------

Deferred:
  Federal                          703              (133)               (57)
  State and local                  349              (265)               (28)
                               -------           -------            -------
                                 1,052              (398)               (85)
                               -------           -------            -------

Provision for income taxes     $19,552           $16,603            $18,018
                               =======           =======            =======
</TABLE>

     For the  years  ended  December  31,  1996,  1995  and  1994,  the  Company
recognized  tax benefits  relating to its stock  option and other stock  benefit
plans of $599,000,  $1,645,000 and $994,000,  respectively,  which were credited
directly to stockholders' equity.

     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, 1996, 1995 and 1994 is as follows:
<TABLE>
<CAPTION>

                                 1996                 1995               1994
                                 ----                 ----               ----
                                    % 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             $16,197   35.00%      $13,572    35.00%   $14,565   35.00%
Dividends received
 exclusion                    (235)   (.51)         (218)    (.56)      (201)   (.48)
State and local income
 taxes, net of Federal
 income tax benefit          3,886    8.40         3,301     8.51      3,478    8.36
Other, net                    (296)   (.64)          (52)    (.13)       176     .42
                           -------   -----       -------    -----    -------   -----

Provision for income taxes $19,552   42.25%      $16,603    42.82%   $18,018   43.30%
                           =======   =====       =======    =====    =======   =====
</TABLE>


<PAGE>
<TABLE>

        At December 31, 1996 and 1995,  deferred tax assets and liabilities were
comprised of the following:
<CAPTION>

                                                    1996          1995
                                                    ----          ----
                                                       (In Thousands)
<S>                                               <C>            <C>
Deferred Tax Assets:
Deferred profits on unsold cooperative shares     $  2,308       $ 2,775
Allowance for possible loan losses                   2,375         2,094
Benefit plan costs                                   1,877         1,898
Loan fees and mortgage discounts                       517           699
Other                                                  485         1,297
                                                  --------       -------
  Deferred tax assets                                7,562         8,763
                                                  --------       -------

Deferred Tax Liabilities:
Securities available-for-sale                      (17,534)      (12,671)
Depreciation                                           (46)         (102)
Cash basis mortgages                                  (144)         (237)
                                                  --------       -------
  Deferred tax liabilities                         (17,724)      (13,010)
                                                  --------       -------

  Deferred tax liability, net                     $(10,162)      $(4,247)
                                                  ========       =======
</TABLE>

     Recently Enacted Tax Legislation
     --------------------------------

     Federal  legislation  regarding bad debt  recapture was enacted into law on
August 20, 1996.  The  legislation  requires  recapture of reserves  accumulated
after 1987 (the base year). The recapture tax on post 1987 reserves must be paid
over a six year period  starting in 1996. The payment of the tax can be deferred
in each of 1996 and 1997 if an institution  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 and supplemental  reserve are frozen,  not
forgiven.  These  reserves  continue  to be  segregated  as they are  subject to
recapture penalty if used for purposes other than to absorb losses on loans.

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

     Management   has   evaluated  the  new  Federal  and  New  York  State  tax
legislation,  and does not expect a material adverse impact on the operations or
financial  condition  of the  Company  or the Bank as a result  of these tax law
changes.

     To date, New York City has not changed its law regarding taxation of thrift
reserves  for loan  losses  and  accordingly  will  follow the new  federal  law
discussed above.


<PAGE>


NOTE (16)  DUE TO DEPOSITORS
<TABLE>
      Due to depositors at December 31, 1996 and 1995 are summarized as follows:
<CAPTION>

                                        1996                            1995
                          ------------------------------     ----------------------------
                          Stated                             Stated
                           rate       Amount     Percent      rate       Amount   Percent
                           ----       ------     -------      ----       ------   -------
                                                (Dollars in Thousands)
<S>                    <C>         <C>            <C>      <C>         <C>         <C>
Balance by interest rate:

    Demand                 -  %    $   31,940       2.79%      -  %   $   30,711     2.64%
    N.O.W.                2.47         36,256       3.17      2.47        36,680     3.15
    Money market          2.96         89,081       7.78      2.96        92,774     7.97
    Passbook and lease
     security             2.71        599,951      52.43      2.96       632,879    54.40

    Certificates:          -             -           -     3.70- 4.00      2,083      .18
                       4.14- 5.00     174,155      15.22   4.01- 5.00    135,386    11.64
                       5.01- 6.00     187,890      16.42   5.01- 6.00    203,054    17.45
                       6.01- 7.00      25,120       2.19   6.01- 7.00     29,016     2.49
                       7.01- 8.00        -           -     7.01- 8.00        863      .08
                                   ----------     ------              ----------   ------
                                      387,165      33.83                 370,402    31.84
                                   ----------     ------              ----------   ------
Due to depositors                  $1,144,393     100.00%             $1,163,446   100.00%
                                   ==========     ======              ==========   ======
</TABLE>

<TABLE>

        At December 31, 1996 and 1995,  the scheduled  maturities of certificate
accounts were as follows:
<CAPTION>

                                     1996                        1995
                                     ----                        ----
                              Amount      Percent          Amount     Percent
                              ------      -------          ------     -------
                                          (Dollars in Thousands)

   <S>                       <C>           <C>            <C>          <C>   
   12 months or less         $323,788      83.63%         $305,599     82.51%
   13 to 24 months             34,452       8.90            31,738      8.57
   25 to 36 months             13,939       3.60            14,039      3.79
   37 to 48 months             14,969       3.87            10,270      2.77
   49 to 60 months                 17        -               8,756      2.36
                             --------     ------          --------    ------
                             $387,165     100.00%         $370,402    100.00%
                             ========     ======          ========    ======
</TABLE>

        At  December  31,  1996 and  1995,  certificate  accounts  in  excess of
$100,000,  were $32,676,000 and $27,039,000,  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, 1996, 1995 and 1994:
<CAPTION>

                                       1996        1995       1994
                                       ----        ----       ----
                                             (In Thousands)
<S>                                   <C>         <C>        <C>    
Passbook and lease security           $16,722     $19,063    $21,230
Certificates                           19,777      17,649     10,995
Money market                            2,819       3,051      3,397
N.O.W.                                    899         944        972
                                      -------     -------    -------

Total interest expense                $40,217     $40,707    $36,594
                                      =======     =======    =======
</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  $71,589,000  at December 31, 1996 and  $80,230,000  at
December 31, 1995.

     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, 1996 and 1995  includes  $85,107,000  and
$84,457,000,  respectively,  which has been  segregated  for federal  income tax
purposes as a bad debt reserve. Any use of these amounts for purposes other than
to  absorb  losses  on  loans  may  result  in  taxable  income,  under  federal
regulations,  at current  rates.  The Bank  recognized  $661,000 in tax bad debt
deductions  during the year ended  December  31,  1996,  $52,000  for 1995,  and
$66,000 for 1994. (See Note 15, regarding recently enacted tax legislation.)

<PAGE>


NOTE (18) COMMITMENTS AND CONTINGENCIES

     Lease Commitments
     -----------------
     The Bank occupies premises covered by noncancelable  leases with expiration
dates through June 24, 2002 (exclusive of renewal options). Rental expense under
these leases for the years ended December 31, 1996,  1995 and 1994 was $267,000,
$262,000 and $256,000, respectively. At December 31, 1996, 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>   
                       1997          $  182
                       1998             147
                       1999             142
                       2000             115
                       2001              50
                       Thereafter         9
                                     ------
                       Total         $  645
                                     ======
</TABLE>

     Loan Commitments
     ----------------
     At December 31, 1996 and 1995,  commitments to originate  mortgage loans at
fixed rates were  $34,376,000  with stated rates ranging from 7.38% to 8.00% and
$41,678,000 with stated rates ranging from 6.50% to 8.38%,  respectively.  There
were no commitments to originate  adjustable rate mortgages at December 31, 1996
and 1995.  At  December  31,  1996 and 1995,  deposit  account  overdraft  lines
available  were $745,000 and $723,000,  respectively,  with stated rates ranging
from  10.00% to 12.00% and unused  business  lines of credit  were  $16,000  and
$14,000,  respectively,  with a stated rate of 15.00%.  There were no loans held
for sale at December 31, 1996 and $94,000 at December 31, 1995.

     Security Purchase Commitments
     -----------------------------
     At December 31, 1996,  there were  commitments  to purchase  $45,000,000 of
federal agency securities and no commitments to purchase equity securities, CMOs
or MBS.

        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>

                                                        1996          1995
                                                        ----          ----
                                                         (In Thousands)
<S>                                                  <C>           <C>    
Actuarial present value of benefit obligations:
  Accumulated benefit obligation, including
   vested benefits of $24,451,000 and
   $24,962,000 at December 31, 1996 and 1995,
   respectively                                      $(26,001)     $(25,976)
                                                     ========      ========

Projected benefit obligation for services
   rendered to date                                   (36,701)      (36,374)
Plan assets at fair value, primarily listed
   stocks and U.S. bonds                               52,873        47,322
                                                     --------      --------
Plan assets in excess of projected benefit
   obligation                                          16,172        10,948
Unrecognized net gain from past experience
   different from that assumed and effects of
   changes in assumptions                              (9,801)       (4,980)
Unrecognized prior service cost                         1,721         1,867
Unrecognized net asset being amortized over
   18.35 years                                         (3,794)       (4,248)
                                                     --------      --------
Prepaid pension cost                                 $  4,298      $  3,587
                                                     ========      ========
</TABLE>

<TABLE>

        The  components  of net  periodic  pension  income  for the years  ended
December 31, 1996, 1995, and 1994, are as follows:
<CAPTION>

                                                       1996          1995         1994
                                                       ----          ----         ----
                                                                      (In Thousands)

     <S>                                              <C>          <C>           <C>    
     Service cost-benefits earned                     $ 1,078      $    619      $   913
     Interest cost on projected
       benefit obligation                               2,239         2,066        1,962
     Actual return on plan assets                      (7,140)      (10,631)       1,184
     Net amortization and deferral                      3,112         7,184       (4,719)
                                                     --------      --------      -------

Net periodic pension (income)                        $   (711)     $   (762)     $  (660)
                                                     ========      ========      =======
</TABLE>

        The expected  long-term rate of return on assets was 8.00% for the years
ended December 31, 1996, 1995 and 1994. The following actuarial assumptions have
been made to determine  the actuarial  present  value of the  projected  benefit
obligation for the years ended December 31:
<TABLE>
<CAPTION>

                                                       1996          1995         1994
                                                       ----          ----         ----
<S>                                                    <C>           <C>          <C>  
Rate of increase in future compensation                6.50%         6.50%        6.50%
Weighted average discount rate                         6.50%         6.00%        8.00%
</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 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>

                                                     1996          1995
                                                     ----          ----
                                                       (In Thousands)
<S>                                                <C>            <C> 
Actuarial present value of benefit obligations:
Accumulated benefit obligation, including
 vested benefits of $3,936,000 and $3,468,000
 at December 31, 1996 and 1995, respectively       $(3,936)       $(3,468)
Projected benefit obligation for service
 rendered to date                                   (4,607)        (4,204)
Plan assets at fair value                             -              -
                                                   -------        -------

Projected benefit obligations in excess of
 plan assets                                        (4,607)        (4,204)
Unrecognized net loss from past experience
 different from that assumed and effects of
 changes in assumptions                              1,003          1,092
Unrecognized prior service cost                         (4)            (4)
Additional minimum liability                          (328)          -
                                                   -------        -------
Accrued pension cost                               $(3,936)       $(3,116)
                                                   =======        =======
</TABLE>

<TABLE>

     The components for the net periodic Pension Restore Plan cost for the years
ended December 31, 1996, 1995 and 1994, are as follows:
<CAPTION>
                                                      1996           1995           1994
                                                      ----           ----           ----
                                                                   (In Thousands)

<S>                                                <C>            <C>            <C>    
Interest cost on projected benefit obligation      $   274        $   264        $   232
Net amortization and deferral                          252             41            184
                                                   -------        -------        -------

Net periodic Pension Restore Plan cost             $   526        $   305        $   416
                                                   =======        =======        =======
</TABLE>

<TABLE>

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

                                                   1996          1995         1994
                                                   ----          ----         ----
     <S>                                           <C>           <C>          <C>  
     Rate of increase in future compensation       6.50%         6.50%        6.50%
     Weighted average discount rate                6.50%         6.00%        8.00%
</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 regular life  insurance 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, 1996,
1995 and 1994,  was $70,000,  $64,000 and $74,000,  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 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.
During 1994,  management  determined to continue the ESOP and that contributions
to the Savings Plan would 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, 1996,
1995 and 1994,  121,256,  161,860 and 128,604  options  granted  under the Stock
Option Plan were  exercised,  respectively.  At December 31, 1996, the remaining
446,786 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. There were 2,000 options exercised under the Directors' Option
Plan during 1996, no options  exercised during 1995 and 2,500 options  exercised
during  calendar  1994,  respectively.  At December  31, 1996,  153,000  options
granted under the Directors' Option Plan were exercisable.

<PAGE>

         The 1996 Stock Option Plan On December 12, 1995, the Board of Directors
adopted the JSB  Financial,  Inc. 1996 Stock Option Plan (the 1996 Option Plan),
which 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 member of the Board of Directors,  who
is  not an  officer  or  employee  of  the  Company  or  the  Bank,  is  granted
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.  In the  aggregate,  members of the
Board of Directors and the active Director  Emeritus of the Company were granted
options,  with  limited  rights,  to purchase  39,000  shares and the  Company's
officers were granted options to purchase  126,000 shares of the common stock of
the Company. All options granted on January 1, 1996, were granted at an exercise
price of $31.625,  the market closing price of the Company's common stock on the
business day before 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.  At
December 31, 1996, all 165,000  options  granted under the 1996 Option Plan were
exercisable  and had a remaining  contractual  life of 9 years, as none of these
options  expired or were exercised or forfeited.  Effective  January 1, 1997, an
additional  160,000  options  were  granted at an  exercise  price of $38.00 per
share.

<TABLE>
         The following  summarizes the pro forma net income as if the fair value
method of  accounting  for awards had been adopted for grants  after  January 1,
1995:
<CAPTION>

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

            Net income per share (as reported)           $2.54
            Pro forma net income per share               $2.49
</TABLE>

         The pro forma results  presented above may not be representative of the
effects reported in pro forma net income for future years.

         The  fair  value of the 1996  option  grant  was  estimated  using  the
Black-Scholes  option  pricing  model on the date of grant,  using the following
assumptions:  dividend yield of 3.63%,  expected volatility of 21.9%,  risk-free
interest rate of 5.44% and an expected option term of six years.

         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.  During 1996,  the Company  recognized  $330,000 in expense
related to the options (for the difference in market closing price between grant
date and subsequent  stockholder  approval) and $99,000 of compensation  expense
related to the DER.


<PAGE>

NOTE (23)  STOCK PLANS
      Employee Stock Ownership Plan In connection with the Conversion,  the Bank
established an ESOP. The ESOP borrowed $12,800,000 from an unrelated third party
lender to purchase  1,280,000  shares of the Company's  common stock.  The final
payment of the ESOP loan was made during 1994, through the Bank's contributions.
Interest expense for the ESOP obligation was $25,000 for the year ended December
31, 1994.

     During  1994,  the  Board of  Directors  adopted a  resolution  authorizing
additional  contributions  to the ESOP which  commenced in 1995. Such additional
contributions to purchase shares are 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  $550,000,  $533,000  and  $978,000
related  to the ESOP for the  years  ended  December  31,  1996,  1995 and 1994,
respectively.  There were no  unallocated  shares at December 31, 1996 and 1995.
Dividends  paid on the  unallocated  ESOP shares were $33,000 for the year ended
December 31, 1994, and were used to make principal payments on the obligation.

     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 17,633,  21,583 and 104,472 for the years ended
December  31,  1996,  1995 and 1994,  respectively.  The Bank  bears the cost of
administering the ESOP.

      Bank  Recognition  and Retention  Plans and Trusts In connection  with the
Conversion,  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 to enable
them to acquire an aggregate of 640,000 shares of the Company's  common stock in
the Company's  Conversion,  all of which have been  awarded.  Awards vested at a
rate of 20% per year  commencing  one year  from the date of the  award.  Awards
became 100% vested upon  termination of employment  due to death,  disability or
normal retirement,  or following a change in control of the Bank or the Company.
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
and  $835,000,  for the BRRPs for the years  ended  December  31, 1995 and 1994,
respectively.  Pursuant to the BRRPs,  51,631 and 98,815  shares of common stock
were vested during the years ended December 31, 1995 and 1994, respectively.

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, 1996 and 1995, the trust held 166,848 shares of common stock, at an
aggregate  cost  of  $3,275,000  and  $3,270,000,   respectively.   The  expense
recognized for the Restore Plan in connection  with the ESOP for 1996,  1995 and
1994 was $105,000, $35,000 and $281,000, respectively.


<PAGE>

NOTE (25)  FAIR VALUE OF FINANCIAL INSTRUMENTS
     SFAS  Statement  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.

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

                                      1996                    1995
                               -----------------      --------------------
                                         Estimated               Estimated
                               Carrying     Fair      Carrying      Fair
                                 Value     Value        Value      Value
                                 -----     -----        -----      -----
                                             (In Thousands)
<S>                           <C>        <C>        <C>        <C>   
Financial assets
   Cash and cash equivalents    $ 99,394   $ 99,394    $ 85,893  $ 85,893
   Securities available-for-sale  51,021     51,021      40,071    40,071
   Securities held-to-maturity   460,509    461,784     592,060   593,991
   Other investments               6,859      6,859       6,302     6,302
   Mortgage loans, gross         835,958    846,508     747,854   785,742
   Other loans, gross             27,894     27,970      29,432    29,517
   Interest due and accrued        9,310      9,310      12,907    12,907

Financial liabilities
   Deposits                   $1,144,393 $1,144,690 $1,163,446 $1,164,354

</TABLE>

The following  methods and  assumptions  were utilized by management to estimate
the fair value of each class of financial  instruments  at December 31, 1996 and
1995:

     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.  (FHLB  stock is  recorded 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, 1996 and 1995 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, 1996 and 1995, respectively,  on a certificate with an initial term
to  maturity   equal  to  the  remaining   term  to  maturity  of  the  existing
certificates.

<PAGE>

     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, 1996 and 1995,
would have been offered at substantially the same rates and under  substantially
the same terms that would have been offered at December 31, 1996 and 1995 to the
counterparties;  therefore the estimated fair value of the  commitments was zero
at those dates.

NOTE (26)  REGULATORY CAPITAL
     The Office of Thrift  Supervision  (OTS) rules regarding stock  repurchases
and redemptions, cash-out mergers, the upstreaming of funds to holding companies
and any other distributions  charged against an institution's  capital accounts,
are subject to certain  limitations.  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.

     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.  As of December
31, 1996,  the most recent  notification  from the OTS  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>

   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

   1995
   ----

  Total risk-based capital
    (to risk weighted assets) $180,648  21.30%  $ 67,834   8.00%    $ 84,793   10.00%
  Tangible capital
    (to tangible assets)       187,202  13.16     21,344   1.50        N/A      N/A
  Tier I leverage (core)
   capital (to adjusted
   tangible assets)            187,202  13.16     42,688   3.00       71,147    5.00

</TABLE>


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

     OTS regulations  generally  require that  institutions  deduct from capital
their  investment in and advances to  subsidiaries  engaged,  as  principal,  in
activities not permissible for national banks, such as real estate  development.
OTS regulations  also require that all equity and direct  investments  including
all loans and advances in which a legally  binding  commitment  existed at April
12,  1989 be deducted  from  capital for the  purposes of  computing  regulatory
capital  ratios.  At December 31, 1996,  the Bank excluded  from its  regulatory
capital $13.7 million as a result of this regulation.


<PAGE>


NOTE (27)  PARENT ONLY FINANCIAL INFORMATION
     The following  condensed  statements of financial condition at December 31,
1996 and 1995 and the  condensed  statements  of income  and cash  flows for the
years ended December 31, 1996,  1995 and 1994, for JSB Financial,  Inc.  (parent
company only) present the Company's  investment in its wholly-owned  subsidiary,
the Bank, using the equity method of accounting.
<TABLE>

                   Condensed Statements of Financial Condition
                           December 31, 1996 and 1995
                                 (In Thousands)
<CAPTION>

ASSETS                                                1996            1995
                                                      ----            ----
<S>                                                <C>             <C>     
Cash and cash equivalents                          $ 15,582        $ 19,303
Securities held-to-maturity (estimated fair
  value of $80,028 and $90,177, respectively)        80,007          90,000
Mortgage loans, net                                  15,239          15,279
Other assets, net                                       680           1,377
Investment in the Bank                              223,791         214,148
                                                   --------        --------
      Total Assets                                 $335,299        $340,107
                                                   ========        ========

LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities, net                                   $   -           $   -
Stockholders' equity                                335,299         340,107
                                                   --------        --------
       Total Liabilities and Stockholders' Equity  $335,299        $340,107
                                                   ========        ========

</TABLE>

<TABLE>

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

                                                          1996        1995        1994
                                                          ----        ----        ----
<S>                                                    <C>         <C>         <C>    
Dividends from the Bank                                $20,000     $43,000     $44,000
Interest income                                          6,589       7,275       4,337
Other income                                                18          15          51
                                                       -------     -------     -------
                                                        26,607      50,290      48,388
                                                       -------     -------     -------

Expenses                                                   451         437         412
                                                       -------     -------     -------

Income Before Income Taxes and Equity in
  Undistributed Earnings of the Bank                    26,156      49,853      47,976

Provision for Income Taxes                               2,100       2,557       1,471
                                                       -------     -------     -------

Income Before Equity in Undistributed Earnings
  of the Bank                                           24,056      47,296      46,505
Equity in Undistributed Earnings of the Bank,
  Net of Provision for Income Taxes                      2,669     (25,122)(1) (22,908)(1)
                                                       -------     -------     -------
      Net Income                                       $26,725     $22,174     $23,597
                                                       =======     =======     =======
<FN>

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


<PAGE>

<TABLE>


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

CASH FLOWS FROM OPERATING ACTIVITIES:                    1996         1995         1994
                                                         ----         ----         ----
<S>                                                    <C>          <C>          <C>     
Net income                                             $ 26,725     $ 22,174     $ 23,597
Adjustments to reconcile net income to cash provided
 by operating activities:
(Equity in undistributed earnings) excess of
 dividends over net income of the Bank                   (2,669)      25,122       22,908
Non-cash dividends from the Bank (mortgage loans)          -            -         (15,340)
Decrease (increase) in other assets                         697         (247)        (491)
Tax benefit for cash dividends paid to ESOP                -            -              11
Decrease in other liabilities                              -            -             (30)
                                                       --------    ---------    ---------
   Net cash provided by operating activities             24,753       47,049       30,655
                                                       --------    ---------    ---------

CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of securities held-to-maturity               (205,021)    (190,000)    (160,000)
Proceeds from maturities of securities held-
 to-maturity                                            215,000      170,000      165,000
Principal payments on mortgage loans                         40           38           24
Accretion of discount in excess of amortization of
 premium on debt securities                                  14         -            -
                                                       --------    ---------    ---------
   Net cash provided (used) by investing activities      10,033      (19,962)       5,024
                                                       --------    ---------    ---------

CASH FLOWS FROM FINANCING ACTIVITIES:
Cash dividends paid to common stockholders              (12,090)     (10,616)      (7,996)
Payments to repurchase common stock                     (27,650)      (9,881)     (26,404)
Proceeds upon exercise of common stock options            1,233        1,619        1,311
                                                       --------    ---------    ---------
   Net cash used by financing activities                (38,507)     (18,878)     (33,089)
                                                       --------    ---------    ---------

Net (decrease) increase in cash and cash equivalents     (3,721)       8,209        2,590
Cash and cash equivalents at beginning of year           19,303       11,094        8,504
                                                       --------    ---------    ---------
Cash and cash equivalents at end of year               $ 15,582    $  19,303    $  11,094
                                                       ========    =========    =========

</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, 1996 and 1995, and the
related consolidated  statements of income,  changes in stockholders' equity and
cash flows for each of the years in the three year  period  ended  December  31,
1996. 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,  1996  and  1995,  and the  results  of their
operations  and their cash flows for each of the years in the three year  period
ended  December 31, 1996,  in  conformity  with  generally  accepted  accounting
principles.

As discussed in note 1(d) to the consolidated financial statements,  the Company
adopted the provisions of Statement of Financial  Accounting  Standards No. 115,
"Accounting for Certain  Investments in Debt and Equity  Securities",  effective
January 1, 1994.



                              KPMG Peat Marwick LLP

Jericho, New York
January 30, 1997