<PAGE>

                UNITED STATES SECURITIES AND EXCHANGE COMMISSION
                              Washington, DC 20549

                                   FORM 10-K

[X]  ANNUAL report pursuant to SECTION 13 or 15(d) of the Securities Exchange
     Act of 1934.

     For fiscal year ended September 30, 1998

[ ]  TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
     EXCHANGE ACT OF 1934.
     
     For the transition period from _______________ to __________________.

Commission file number 333-43697

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

                 Delaware                                     14-1801465
---------------------------------------------              -------------
(State or other jurisdiction of incorporation              (IRS Employer
            or organization)                             Identification No.)


                  52 North Main Street, Gloversville, NY 12078
                  --------------------------------------------
                    (Address of principal executive offices)

                                 (518) 725-6331
              ---------------------------------------------------
              (Registrants telephone number, including area code)

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

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

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

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

State the number of shares outstanding of each issuer's classes of common
equity, as of the latest practicable date.

          Class                         Outstanding as of December 22, 1998
----------------------------            -----------------------------------
Common Stock, $.01 par value                      689,055 shares

<PAGE>




                      Annual Report for 1998 on Form 10-K

                               TABLE OF CONTENTS

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

                                 PART II

Item  5.   Market for Registrant's Common Equity and Related
           Shareholder Matters                                               33
Item  6.   Selected Financial Data                                           33
Item  7.   Management's Discussion and Analysis of Financial
           Condition and Results of Operations                               33
Item  7a.  Quantitative and Qualitative Disclosures About Market Risk        33
Item  8.   Financial Statements and Supplementary Data                       34
Item  9.   Changes in and Disagreements with Accountants on
           Accounting and Financial Disclosure                               34

                                 PART III

Item  10.  Directors and Executive Officers of the Registrant                34
Item  11.  Executive Compensation
Item  12.  Security Ownership of Certain Beneficial Owners and
           Management                                                        34
Item  13.  Certain Relationships and Related Transactions                    34

                                 PART IV

Item  14.  Exhibits, Financial Statement Schedules and Reports on Form 8-K   34

           SIGNATURES                                                        36

                      DOCUMENTS INCORPORATED BY REFERENCE

Documents                               Part of 10-K into which incorporated

Portions of the Annual Report to
Shareholders for fiscal year
ended September 30, 1998                Parts II and IV

Portions of the Proxy Statement
for Annual Meeting of Shareholders
to be held March 4, 1999                Part III


                                       2
<PAGE>

ITEM 1.  Business

General

Adirondack Financial Services Bancorp, Inc. (the "Holding Company" or
"Adirondack Financial") was incorporated under Delaware law in December 1997 as
a savings and loan holding company to purchase 100% of the common stock of
Gloversville Federal Savings and Loan Association (the "Association"). On April
6, 1998, the Association converted from a mutual form to a stock institution, at
which time the Holding Company purchased all of the outstanding stock of the
Association, and the Holding Company completed its initial public offering,
issuing 661,250 shares of $.01 par value common stock at $10.00 per share. Net
proceeds to the Company were $6.0 million after conversion and stock offering
costs, and $5.5 million excluding the shares acquired by the Company's newly
formed Employee Stock Ownership Plan (the "ESOP").

The consolidated financial condition and operating results of the Company are
primarily dependent upon its wholly owned subsidiary, the Association, and all
references to the Company and its financial data prior to April 6, 1998, except
where otherwise indicated, refer to the Association and its financial data.

The Association has operated as a community-oriented financial institution,
obtaining deposits from its local community and investing those deposits
principally in residential one-to-four family mortgage loans and, to a lesser
extent, multi-family and commercial real estate, commercial business, home
equity and consumer loans. In addition, the Association invests excess funds not
used for loan originations in securities issued by the United States government
or its agencies, and mortgage backed securities. Deposits are offered at various
interest rates only within the Association's primary market area. There are no
brokered deposits maintained by the Association.

Forward Looking Statements

When used in this document, the words or phrases "will likely result", "are
expected to", "will continue", "is anticipated", "estimate", "project", or
similar expressions are intended to identify "forward looking statements" within
the meaning of the Private Securities Litigation Reform Act of 1995. In
addition, certain disclosures and information customarily provided by financial
institutions, such as analysis of the adequacy of the loan loss allowance or an
analysis of the interest rate sensitivity of the Company's assets and
liabilities, are inherently based upon predictions of future events and
circumstances. Furthermore, from time to time, the Company may publish other
forward-looking statements relating to such matters as anticipated financial
performance, business prospects, and similar matters.

The Private Securities Litigation Reform Act of 1995 provides a safe harbor for
forward-looking statements. In order to comply with the terms of the safe
harbor, the Company notes that a variety of factors cause the Company's actual
results and experience to differ materially from the anticipated results or
other expectations expressed in the Company's forward looking statements. Some
of the risks and uncertainties that may affect the operations, performance,
development and results of its assets and liabilities, and the adequacy of its
loan loss allowance include, but are not limited to, changes in economic

                                       3
<PAGE>

conditions in the Company's market area, changes in policies by regulatory
agencies, fluctuations in interest rates, demand for loans in the Company's
market area, and competition that could cause actual results to differ
materially from historical results and those presently anticipated or projected.
The Company wishes to caution readers not to place undue reliance on any such
forward looking statements, which speak only as of the date made and to advise
readers that the factors listed above could affect the Company's financial
performance and could cause the Company's actual results for future periods to
materially differ from any opinions or statements expressed with respect to
future periods in any current statements.

The Company does not undertake, and specifically disclaims any obligation, to
publicly release the result of any revisions which may be made to any
forward-looking statements to reflect events or circumstances after the date of
such statements or to reflect the occurrence of anticipated or unanticipated
events.

Regulation

The Association is a federally-chartered savings and loan association and is a
member of the Savings Association Insurance Fund ("SAIF"), which is administered
by the Federal Deposit Insurance Corporation ("FDIC"), which insures the
Association's deposits up to applicable limits. The SAIF is backed by the full
faith and credit of the United States Government. Accordingly, the Association
is subject to broad federal regulation and oversight extending to all its
operations. As a savings and loan holding company of the Association, the
Holding Company is also subject to federal regulation and oversight. The purpose
of the regulation of the Holding Company and other holding companies is to
protect subsidiary savings associations. The Association is also a member of the
Federal Home Loan Bank of New York ("FHLB") and is subject to certain limited
regulation by the Board of Governors of the Federal Reserve System ("Federal
Reserve Board").

The Office of Thrift Supervision ("OTS") has extensive supervisory authority
over the operations of savings associations. As part of this authority, the
Association is required to file periodic reports with the OTS and is subject to
periodic examinations by the OTS. The last regular OTS examination of the
Association was March 1998. Under agency scheduling guidelines, it is likely
that another examination will be initiated in the near future. When these
examinations are conducted by the OTS, the examiners may require the Association
to provide for higher general or specific loan loss reserves. All savings
associations are subject to a semi-annual assessment, based upon the savings
association's total assets, to fund the operations of the OTS. The Association's
assessment for the semi-annual period ended June 30, 1998 was $13,000.

The OTS also has extensive enforcement authority over all savings institutions
and their holding companies, including the Association and the Holding Company.
This enforcement authority includes, among other things, the ability to assess
civil money penalties, to issue cease-and-desist or removal orders and to
initiate injunctive actions. In general, these enforcement actions may be
initiated for violations of laws and regulations and unsafe or unsound
practices. Other actions or inactions may provide the basis for enforcement
action, including misleading or untimely reports filed with the OTS. Except
under certain circumstances, public disclosure of final enforcement actions by
the OTS is required.

                                       4
<PAGE>

In addition, the investment, lending and branching of the Association is
prescribed by federal laws, and it is prohibited from engaging in any activities
not permitted by such laws. For instance, no savings institution may invest in
non-investment grade corporate debt securities. In addition, the permissible
level of investment by federal associations in loans secured by non-residential
real property may not exceed 400% of total capital, except with approval of the
OTS. Federal savings associations are also generally authorized to branch
nationwide. The Association is in compliance with the noted restrictions.

The Company is a unitary savings and loan holding company, and it sole
FDIC-insured subsidiary, the Association, is a qualified thrift lender ("QTL").
Therefore, the Company generally has broad authority to engage in all types of
business activities in which business can engage. If the Company were to acquire
another insured institution as a separate subsidiary or if the Association fails
to remain a QTL, the Company's activities will be limited to those permitted of
multiple savings and loan holding companies. In general, a multiple savings and
loan holding company (or subsidiary thereof that is not an insured institution)
may, subject to OTS approval in most cases, engage in activities comparable to
those permitted for bank holding companies, certain insurance activities, and
certain activities related to the operations of its FDIC-insured subsidiaries.

Capital Requirements

Federally insured savings associations, such as the Association, are required to
maintain a minimum level of regulatory capital. The OTS has established capital
standards, including a tangible capital requirement, a leverage ratio (or core
capital) requirement and a risk-based capital requirement applicable to such
savings associations. These capital requirements must be generally as stringent
as the comparable capital requirements for national banks. The OTS is also
authorized to impose capital requirements in excess of these standards on
individual associations on a case-by-case basis.

The Association must maintain (a) tangible capital of 1.5% of tangible assets,
(b) core capital of 3.0% of adjusted tangible assets, and (c) a risk-based
capital of 8.0% of risk-weighted assets. Under current law and regulations,
there are no capital requirements directly applicable to the Company. The
Association exceeds all minimum capital standards imposed by the OTS. At
September 30, 1998, the Association had a tangible capital and core capital
ratio of 10.59% and a risk-based capital ratio of 19.62%.

OTS regulations (the implementation of which have been delayed) require that
certain institutions with more than normal interest rate risk must make a
deduction from capital before determining compliance with the minimum capital
requirements. The Association is currently exempt from the deduction requirement
because it has total assets less than $300 million and risk-based capital in
excess of 12%. However, the Association's capital ratios are high enough that
even if the rules are implemented and the exemption is withdrawn, the deduction
would not have a material effect on the Association's compliance with OTS
capital requirements.

The OTS has the authority to require that an institution take prompt corrective
action to solve problems if the institution is undercapitalized, significantly
undercapitalized or critically undercapitalized. Because of the Association's
high capital ratios, the prompt corrective action regulations are not expected
to have an effect on the Association.

                                       5
<PAGE>

Deposit Insurance Premiums

The FDIC's deposit insurance premiums are assessed through a risk-based system
under which all insured depository institutions are placed into one of nine
categories and assessed insurance premiums based upon their level of capital and
supervisory evaluation. Under the system, institutions classified as well
capitalized and considered healthy pay the lowest premium. If the Association's
capital ratios substantially deteriorate or if the Association is found to be
otherwise unhealthy, the deposit insurance premiums payable by the Association
could increase.

In September 1996, the Economic Growth and Regulatory Paperwork Reduction Act of
1996 (the "1996 Act") became law. Before the 1996 Act, SAIF insured institutions
were paying deposit insurance premiums at a rate much greater than Bank
Insurance Fund ("BIF") insured institutions. The 1996 Act imposed a one time
assessment on all SAIF institutions and then equalized the insurance premiums
for BIF and SAIF institutions. At the same time, the 1996 Act required BIF and
SAIF institutions to contribute to the costs of the "FICO" bonds sold in the
late 1980's to finance the savings and loan bailout. The "FICO" bond assessment
for the semi-annual period ended June 30, 1998 for SAIF institutions was .061%
of insured deposits or $22,000 for the Association.

The 1996 Act contemplates a merger of the SAIF and BIF funds, with the
elimination of the federal savings bank charter by January 1, 1999. The exact
manner in which the elimination will be accomplished has not yet been
established, but commentators have suggested that all federal thrift
institutions, such as the Association, will be required to convert either to a
national bank, state commercial bank or state savings bank charter. A change in
the charter of the Association could also affect the flexibility accorded to the
Company as a unitary savings and loan holding company. The effect that the
forced conversion will have on the Association and the Company cannot be
determined at this time and there can be no assurance that a charter conversion
will not have an adverse impact on the Company or the Association.

Limitations on Dividends and Other Capital Distributions

OTS regulations impose limits on dividends or other capital distributions by
savings institutions based on capital levels and net income. An institution,
such as the Association, that meets or exceeds all of its capital requirements
(both before and after giving effect to the distribution) and is not in need of
more than normal supervision, may make capital distributions during a calendar
year of up to the greater of (i) 100% of net income for the current calendar
year plus 50% of its capital surplus (capital in excess of regulatory
requirements) or (ii) 75% of its net income over the most recent four quarters.
Any additional capital distributions require prior regulatory approval.

The Association's capital levels exceed regulatory minimums to such an extent
that the substantive restrictions on dividends are not expected to have a
material effect on the Association. However, OTS regulations also impose
procedural restrictions. The OTS must receive at least 30 days' written notice
before making any capital distributions. All such capital distributions are
subject to the OTS' right to object to a distribution on safety and soundness
grounds. The OTS has proposed regulations that would eliminate the notice
requirement for the highest rated institutions so that advance notice would not
be required for most normal dividends. The Association expects that it will not
be required to give notice under normal circumstances if the new proposal is
adopted in its current form.



                                       6
<PAGE>

Qualified Thrift Lenders

A savings association will be a QTL if its qualified thrift investments equal or
exceed 65% of its portfolio assets on a monthly average basis in nine of every
12 months. Qualified thrift investments include, among others, (i) certain
housing-related loans and investments (notably including residential one-to-four
family mortgage loans), (ii) certain federal government and agency obligations,
(iii) loans to purchase or construct churches, schools, nursing homes and
hospitals (subject to certain limitations), (iv) shares of stock issued by any
Federal Home Loan Bank, and (vi) shares of stock issue by the FHLMC or the FNMA
(subject to certain limitations). At September 30, 1998, the Association
satisfied the QTL test.

If the Association fails to remain a QTL, it must either convert to a national
bank charter or be subject to restrictions on its activities specified by law
and the OTS regulations, which restrictions would generally limit activities to
those permitted for national banks. Also, three years after the savings
institution ceases to be a QTL, it would be prohibited from retaining any
investment or engaging in any activity not permissible for a national bank and
would be required to repay any outstanding borrowings from any Federal Home Loan
Bank.

Community Reinvestment Act

Under the Community Reinvestment Act (the "CRA"), as implemented by OTS
regulations, the Association has a continuing and affirmative obligation
consistent with its safe and sound operation to help meet the credit needs of
its entire community, including low and moderate income neighborhoods. The
Association is periodically examined by the OTS for compliance with the CRA.
Subject to certain exceptions and elections, the Association's CRA performance
will be evaluated based upon the lending, investment and service activities of
the Association. In the last CRA examination performed by the OTS, the
Association received a rating of satisfactory.

Federal Reserve System

The Federal Reserve Board requires all depository institutions to maintain
non-interest bearing reserves at specified levels against their transaction
accounts (primarily checking, NOW and Super NOW checking accounts). The balances
maintained to meet the reserve requirements imposed by the Federal Reserve Board
may be used to satisfy liquidity requirements that may be imposed by the OTS.
The Association was in compliance with the reserve requirements at September 30,
1998.

Savings associations are authorized to borrow from the Federal Reserve
Association "discount window," but Federal Reserve Board regulations require
associations to exhaust other reasonable alternative sources of funds, including
FHLB borrowings, before borrowing from the Federal Reserve Association.

Taxation

The Company pays federal and New York State income taxes on its income. The
Holding Company will file a consolidated income tax return with the Association
for the taxable year ending December 31, 1998. As a Delaware holding company,
the Holding Company is exempted from Delaware corporate income tax but is
required to file an annual report with and pay an annual fee to the State of


                                       7
<PAGE>

Delaware. The Holding Company is also subject to an annual franchise tax imposed
by the State of Delaware.

Market Area

The Association conducts business through its main office located at 52 North
Main Street, Gloversville, New York and a branch office located at 295 Broadway,
Saratoga Springs, New York. The Association's market area for deposits consists
primarily of Fulton and Saratoga Counties. The Association's primary market area
for lending activities consist of communities within Fulton and Saratoga
Counties, as well as portions of Hamilton and Montgomery Counties, New York.

Gloversville, New York is located in Fulton County approximately 50 miles
Northwest of Albany, New York. Gloversville and the surrounding communities
include a population of low- and moderate-income neighborhoods. Gloversville has
undergone significant economic hardships as the major leather industries that
were once the focal point of industrial strength for the region have relocated
to other parts of the world. Gloversville, with its neighboring city Johnstown,
have recently experienced some revitalization as a number of manufacturing
entities have opened manufacturing plants in the area, capitalizing on the
region's lower labor and operating costs. The housing in the Gloversville area
consists mainly of one-to-four family residences within the city limits. Outside
Gloversville, in the rural areas leading into the Adirondack Mountains, there
are many nonconforming properties which are generally used as summer homes and
camps. Real estate values in these areas have experienced a steady decline in
recent years.

Saratoga Springs, New York is located in Saratoga County approximately 40 miles
North of Albany, New York. Saratoga Springs and the surrounding communities
include a diverse population of low income neighborhoods, as well as middle
class and more affluent neighborhoods. The housing market has been very strong
in the Saratoga County and expectations are that the trend will continue. This
part of the Association's market also includes substantial commercial areas
supporting small to large manufacturing, industrial and professional service
companies.

Lending Activities

Historically, the Association originated 30-year, fixed-rate mortgage loans
secured by one-to-four family residences. In fiscal 1995, the Association began
to diversify its portfolio by more actively originating multi-family and
commercial real estate loans and commercial business loans; however, subsequent
to the end of fiscal 1998, the Board determined to reduce its origination of
such loans. Currently, all loans originated by the Association are held to
maturity as portfolio loans. At September 30, 1998, the Association's gross loan
portfolio totaled $51.8 million.

Pursuant to Federal law the aggregate amount of loans that the Association is
permitted to make to any one borrower or a group of related borrowers is
generally limited to 15% of unimpaired capital and surplus. At September 30,
1998, based on the above, the Association's loans-to-one borrower limit was
approximately $1.6 million. On the same date, the Association had no borrowers
with balances in excess of this amount. As of September 30, 1998, the largest
dollar amount outstanding to one borrower, or group of related borrowers, was
$528,000 and was secured by commercial real estate and building located in
Saratoga County. This loan was performing in accordance with its terms at
September 30, 1998, and the Association has obtained personal guarantees (or
direct personal liability) form the principals on this loan. As of September 30,


                                       8
<PAGE>

1998, there were 11 other multi-family and commercial real estate or commercial
business loans with carrying values in excess of $300,000. See also
"Multi-family and Commercial Real Estate Lending."

The Association's lending is subject to its written underwriting standards and
to loan origination procedures. Decisions on loan applications are made on the
basis of detailed applications and property valuations (consistent with the
Association's appraisal policy) by the Association's independent appraisers. The
loan applications are designed primarily to determine the borrower's ability to
repay and the more significant items on the application are verified through use
of credit reports, financial statements, tax returns and/or confirmations.

Association employees with lending authority are designated, and their lending
limit authority defined, by the Board of Directors of the Association. The
lending authority limits are applied based on aggregate loan balances due the
Association, including any pending loan requests. The approval of the
Association's Board of Directors is required for any loans where the aggregate
borrowings of the subject entity or individual exceed $250,000. Loan Committee
approval is required for all loans where the aggregate borrowings of the subject
entity or individual exceed $150,000 but are less than $250,000. The Loan
Committee includes the President, the Vice President of Commercial Lending, two
outside Board members and two other Association officers.

For multi-family and commercial real estate and commercial business loans, the
President and Vice President of Commercial Lending has the authority to approve
secured loans up to $100,000 and unsecured loans up to $50,000. Joint approval
by the President and Vice President of Commercial Lending is required for
multi-family and commercial real estate and commercial business loans greater
than $100,000 ($50,000 for unsecured loans) but not exceeding $150,000.

The President or the Vice President of Commercial Lending have the authority to
approve residential mortgages up to $150,000. The President also has the
authority to approve secured consumer loans up to $150,000 and unsecured
consumer loans up to $50,000. The Vice President of Commercial Lending has the
authority to approve secured consumer loans up to $50,000 and unsecured consumer
loans up to $10,000. 

                                       9
<PAGE>
                                                                                
The following table sets forth the composition of the Association's loan
portfolio by loan type at the dates indicated:
<TABLE>
<CAPTION>

                                                                            At September 30,
                                     -----------------------------------------------------------------------------------------------
                                           1998             1997                 1996               1995                1994
                                    -----------------   --------------     -----------------   ---------------    ----------------
                                                                        (Dollars in Thousands)
                                      Amount  Percent   Amount  Percent    Amount    Percent   Amount   Percent   Amount    Percent
                                      ------  -------   ------  -------    ------    -------   ------   -------   ------    -------
<S>                                    <C>    <C>       <C>     <C>        <C>       <C>        <C>       <C>      <C>       <C>  
Real Estate Loans:
------------------
One-to-four family                   $35,706  68.91%  $36,891   71.92%   $40,262     78.80%   $42,578    86.41%  $42,973   91.89%
Multi-family and commercial            8,614  16.62%    7,950   15.50%     4,635      9.07%     1,712     3.47%      878    1.88%
Construction                             606   1.17%      539    1.05%       938      1.84%       742     1.51%      701    1.50%
                                     -------  -----   -------   -----    -------     -----    -------    -----    -------   ----- 
       Total real estate loans:       44,926  86.70%   45,380   88.47%    45,835     89.71%    45,032    91.39%   44,552   95.27%
                                     -------  -----   -------   -----    -------     -----    -------    -----    -------   ----- 
Other Loans:
------------
Commercial business                    2,624   5.06%    1,422    2.77%     1,230      2.41%     1,052     2.14%       --       --
Home equity                            3,143   6.07%    3,379    6.59%     2,869      5.62%     2,265     4.60%    1,352    2.89%
Other consumer                         1,122   2.17%    1,111    2.17%     1,154      2.26%       920     1.87%      861    1.84%
                                     -------  -----   -------   -----    -------     -----    -------    -----    -------   ----- 
       Total other loans               6,889  13.30%    5,912   11.53%     5,253     10.29%     4,237     8.61%    2,213    4.73%
                                     -------  -----   -------   -----    -------     -----    -------    -----    -------   ----- 

       Gross loans                    51,815 100.00%   51,292  100.00%    51,088    100.00%    49,269   100.00%   46,765  100.00%
                                             ======            ======               ======              ======            ====== 

Less:
-----
Net deferred loan fees                  (118)            (153)              (201)                (251)              (264)
Allowance for loan losses             (1,496)          (1,613)            (1,251)                (779)              (856)
                                      ------          -------             ------               ------              ----- 
 
       Total loans receivable, net  $ 50,201         $ 49,526           $ 49,636             $ 48,239           $ 45,645
                                    ========         ========           ========             ========           ========


</TABLE>

                                       10
<PAGE>


The following table presents the composition of the Association's loan portfolio
by fixed and adjustable rate at the dates indicated:

<TABLE>
<CAPTION>

                                                                            At September 30,
                                     -----------------------------------------------------------------------------------------------
                                           1998             1997                 1996               1995                1994
                                    -----------------   --------------     -----------------   ---------------    ----------------
                                                                        (Dollars in Thousands)
                                      Amount  Percent   Amount  Percent    Amount    Percent   Amount   Percent   Amount    Percent
                                      ------  -------   ------  -------    ------    -------   ------   -------   ------    -------
<S>                                    <C>    <C>       <C>     <C>        <C>       <C>        <C>       <C>      <C>       <C>  
Fixed Rate Loans
----------------
Real estate:
One-to-four family                  $ 31,539   60.86%  $ 31,732   61.86% $ 34,929     68.37%   $ 37,356   75.82%  $ 39,632   84.75%
Multi-family and commercial              884    1.71%     1,206    2.35%      924      1.81%      1,527    3.10%       878    1.88%
Construction                             606    1.17%       392    0.76%      423      0.83%        293    0.59%       485    1.04%
                                    --------- -------- ---------------------------  --------- ---------- -------- --------- --------
       Total real estate loans        33,029   63.74%    33,330   64.97%   36,276     71.01%     39,176   79.51%    40,995   87.67%
Commercial business                      703    1.36%       283    0.55%       23      0.05%          -        -         -        -
Home equity                            1,331    2.57%     1,244    2.43%      645      1.26%         14    0.03%         -        -
Other consumer                         1,046    2.02%     1,056    2.06%    1,058      2.07%        916    1.86%       861    1.84%
                                    --------  -------  -------- -------- --------   --------  ---------  -------  --------  -------
       Total fixed rate loans         36,109   69.69%    35,913   70.01%   38,002     74.39%     40,106   81.40%    41,856   89.51%


Adjustable Rate Loans
---------------------
Real estate:
One-to-four family                     4,167    8.04%     5,159   10.06%    5,333     10.44%      5,222   10.60%     3,341    7.14%
Multi-family and commercial            7,730   14.92%     6,744   13.15%    3,711      7.26%      1,052    2.14%         -        -
Construction                               -    0.00%       147    0.29%      515      1.01%        449    0.91%       216    0.46%
                                    --------- -------- --------   -------  -------  ---------   --------  -------   -------  -------
       Total real estate loans        11,897   22.96%    12,050   23.50%    9,559     18.71%      6,723   13.65%     3,557    7.60%
Commercial business                    1,921    3.71%     1,139    2.22%    1,207      2.36%        185    0.38%         -        -
Home equity                            1,812    3.50%     2,135    4.16%    2,224      4.35%      2,251    4.56%     1,352    2.89%
Other consumer                            76    0.14%        55    0.11%       96      0.19%          4    0.01%         -        -
                                    --------- -------- ---------  ------  --------  ---------   --------  -------   -------  -------
       Total adjustable rate loans    15,706   30.31%    15,379   29.99%   13,086     25.61%      9,163   18.60%     4,909   10.49%

       Gross loans                    51,815  100.00%    51,292  100.00%   51,088    100.00%     49,269  100.00%    46,765  100.00%
                                              ======             ======              ======              ======             ======

Less
----
Net deferred loan fees                  (118)              (153)             (201)                 (251)              (264)
Allowance for loan losses             (1,496)            (1,613)           (1,251)                 (779)              (856)
                                    ---------            ------            -------              --------            ------
       Total loans receivable, net  $ 50,201           $ 49,526          $ 49,636              $ 48,239           $ 45,645
                                    ========           ========           ========              ========          ========

</TABLE>

                                       11
<PAGE>

The following schedule illustrates the interest rate sensitivity of the
Association's loan portfolio at September 30, 1998. Mortgages which have
adjustable or renegotiable interest rates are shown as maturing in the period
during which the contracts are due. The schedule does not reflect the effects of
possible prepayments or enforcement of due-on-sale clauses.
<TABLE>
<CAPTION>

                                                       Real Estate
                               ----------------------------------------------------------
                                                      Multi-family and                                             Home Equity and
                                 One-to-four family      Commercial        Construction     Commercial Business      Other Consumer
                               --------------------  ------------------   ----------------  --------------------   -----------------
                                          Weighted             Weighted           Weighted            Weighted              Weighted
                                           Average             Average             Average             Average               Average
                                 Amount     Rate     Amount      Rate     Amount     Rate    Amount     Rate       Amount      Rate
                                 ------   --------  --------  -------    -------   ------    ------      -------    -----    ------
                                                                       (Dollars in Thousands)
        Due During
       Years Ending
       September 30,
-----------------------

<S>                               <C>      <C>        <C>       <C>       <C>       <C>       <C>          <C>       <C>      <C>  
1999                              $ 374    7.04%      $ 139     10.16%    $ 606     7.38%     $ 835        9.52%     $ 233    7.32%
2000                                 91    9.30%          -          -        -        -          -            -       111   10.47%
2001                                265    8.50%          -          -        -        -        219       10.25%       283    9.86%
2002 and 2003                     1,041    8.70%          -          -        -        -        819        9.57%       295    9.38%
2004 and 2008                     6,413    8.23%      2,391      9.78%        -        -        716        9.59%       511    8.61%
2009 to 2023                     16,998    8.34%      6,084      9.51%        -        -         13       10.50%     2,832    9.21%
2024 and following               10,524    7.92%          -          -        -        -         22       11.02%         -        -
                               ---------            --------              ------             --------               --------

          Total                $ 35,706             $ 8,614               $ 606              $ 2,624                $ 4,265
                               =========            ========              ======             ========               ========

</TABLE>

                                       12
<PAGE>

One-to-four Family Residential Real Estate Lending

The cornerstone of the Association's lending program has historically been the
origination of loans secured by mortgages on owner-occupied one-to-four family
residences at both fixed and adjustable rates. At September 30, 1998, $35.7
million, or 68.9%, of the Association's loan portfolio consisted of mortgage
loans on one-to-four family residences. Substantially all of the residential
loans originated by the Association are secured by properties located in the
AssociationOs primary lending area. All loans originated by the Association are
retained and serviced by it.

The Association offers conventional fixed-rate loans with maximum terms of up to
30 years. The interest rate on these loans are established on a regular basis
according to market conditions. The Association underwrites its fixed-rate
one-to-four family loans in accordance with Federal Home Loan Mortgage
Corporation ("FHLMC") and Federal National Mortgage Association ("FNMA")
standards. As of September 30, 1998, the Association had $31.5 million of fixed
rate loans secured by one-to-four family residential properties. During fiscal
1998, the Association began originating fixed-rate Federal Home Authority
("FHA") guaranteed loans. These loans are underwritten based on standards
established by FHA which are generally less stringent than conventional
guidelines. These loans carry the guarantee of the FHA if the customer defaults
on the loan, provided the Association complies with all collection procedures
established by the FHA. At September 30, 1998, the Association had $908,000 in
FHA loans outstanding.

The Association also offers ARMs which carry interest rates which adjust
annually at a margin (generally 275 basis points) over the yield on the One Year
Average Monthly U.S. Treasury Constant Maturity Index ("one year CMT"). Such
loans may carry terms to maturity of up to 30 years. The ARM loans currently
offered by the Association provide for up to 200 basis point annual interest
rate change cap and a lifetime cap generally 600 basis points over the initial
rate. Initial interest rates offered on the Association's ARMs may be 100 to 350
basis points below the fully indexed rate, although borrowers are generally
qualified at the fully indexed rate. As a result, the risk of default on these
loans may increase as interest rates increase. In addition, the Association's
ARMs typically do not adjust below the initial rate. At September 30, 1998,
one-to-four family ARMs totaled $4.2 million or 8.0% of the Association's total
loan portfolio.

The Association also originates loans secured by non-conforming second homes and
vacation homes. The rates charged for these loans are generally at higher rates
than those offered for conventional one-to-four family loans. Generally, the
same underwriting criteria is used when evaluating applications made for
mortgages on second homes and vacation homes as used for applications taken for
mortgages on one-to-four family residences.

The Association will generally lend up to 97% of the lesser of the sales price
or appraised value of the security property on owner occupied one-to-four family
loans. For loans exceeding an 80% loan-to-value ratio, the Association requires
private mortgage insurance in amounts intended to reduce the Association's
exposure to 80% or less. Borrowers are required to purchase the mortgage
insurance protection provided by the FHA for FHA mortgages where loan-to-value
ratios exceed 80%. The maximum loan-to-value ratio for non-owner occupied
one-to-four family residences that are non-owner occupied is 75% (65% where
there is a cash out refinancing). For mortgages on second homes and vacation
homes, the loan-to-value ratio cannot exceed 80% for one-family residences and
75% for two-to-four family residences. Mortgages on non-owner occupied second
homes and vacation homes cannot exceed 70% loan-to-value, and non-owner occupied
cash out refinances for non-conforming second homes and vacation homes cannot
exceed 50% loan-to-value.

                                       13
<PAGE>

In underwriting one-to-four family residential real estate loans, the
Association currently evaluates the borrower's ability to make principal,
interest and escrow payments, and the value of the property that will secure the
loan.

Residential loans do not currently include prepayment penalties, are
non-assumable and do not produce negative amortization. Although the Association
currently originates mortgage loans only for its portfolio, the Association's
loans are now generally underwritten according to secondary market standards.

While the Association seeks to originate most of its one-to-four family
residential loans in amounts which are less than or equal to the applicable
FHLMC maximum, the Association may, on an exception basis, make one-to-four
family residential loans in amounts in excess of such maximum.

The Association's residential mortgage loans customarily include due-on-sale
clauses giving the Association the right to declare the loan immediately due and
payable in the event that, among other things, the borrower sells or otherwise
disposes of the property subject to the mortgage.

Multi-family and Commercial Real Estate Lending

In order to increase the yield on its loan portfolio and to complement the
residential lending opportunities, since fiscal 1995, the Association has
significantly increased it originations of permanent multi-family and commercial
real estate loans secured by properties in its primary market area; however,
subsequent to the end of fiscal 1998, as a result of an increase in
nonperforming commercial real estate loans, the Board determined to reduce the
Association's originations of such loans. At September 30, 1998, the Association
had $8.6 million in multi-family and commercial real estate loans, representing
16.6% of the gross loan portfolio.

The Association's multi-family and commercial real estate loan portfolio
includes loans secured by apartment buildings, office buildings, warehouses and
other income producing properties located in its market area. In addition, at
September 30, 1998, the Association had $139,000 of commercial construction
loans.

The Association's multi-family and commercial real estate loans generally carry
a maximum term of 20 years and, more often than not, have interest rates which
are fixed for three to five years and adjust periodically thereafter.

The Association's multi-family and commercial real estate loans are generally
made in amounts up to 75% of the lesser of the appraised value or the purchase
price of the property, with a projected debt service coverage ratio of at least
120%. The Association's current multi-family and commercial real estate loan
originations generally include operating covenants requiring the borrower to
maintain specified debt coverage, liquidity and other ratios, although most
multi-family and commercial real estate loans originated in years prior to
fiscal 1995 did not have such operating covenants, which could reduce the
Association's leverage in the event of delinquency.

Appraisals on properties securing multi-family and commercial real estate loans
are performed by independent appraisers designated by the Association at the
time the loan is made. All appraisals on multi-family and commercial real estate
loans are reviewed by the Association's management. In addition, the
Association's underwriting procedures require verification of the borrower's
credit history, income and financial statements, banking relationships,
references and income projections for the property. Where feasible, the


                                       14
<PAGE>

Association seeks to obtain personal guarantees on these loans and key man life
insurance on individuals critical to the success of the borrower's business.

Set forth below is a summary of the Association's multi-family and commercial
real estate loans which had an outstanding principal balance in excess of
$300,000 at September 30, 1998:
<TABLE>
<CAPTION>

  Date of          Collateral                              Maturity     Personal       Balance at
Origination       Description            Loan Terms          Date      Guarantee   September 30, 1998          Status
-----------       -----------            ----------       ---------    ---------   ------------------   ----------------------------

<S>             <C>                     <C>               <C>          <C>         <C>                  <C>
July 1996      Warehouse located in     Interest rate     July 2016       Yes           528,439         Current; $250,000 SBA second
               Saratoga County.         adjusts every                                                   lien on same collateral.
                                        five years.

July 1996      Office building          Interest rate     April 2017      Yes           517,161         Current; "Of concern" as
               located in               adjusts every                                                   retail business of      
               Saratoga County.         year.                                                           borrower not meeting    
                                                                                                        projections; building   
                                                                                                        fully occupied with     
                                                                                                        assignment of leases to 
                                                                                                        Association.            
                                                                                                        
June 1997     Land located in Albany    Interest rate     June 2007       Yes           441,507         Current; $760,000       
              County.                   adjusts every                                                   mortgage on building    
                                        year.                                                           subordinated to         
                                                                                                        Association loan; direct
                                                                                                        assignment of monthly   
                                                                                                        rental income, which is 
                                                                                                        double amount required  
                                                                                                        for debt service.       
                                                                                                        
July 1995     Trooper barracks in       Interest rate     August 2010     Yes           421,091         Current; loan represents
              Saratoga County and       adjusts every                                                   a refinance of subject  
              12 unit residential       five years.                                                     properties to fund new  
              complex in Saratoga                                                                       venture which is not    
              County                                                                                    subject to the          
                                                                                                        Association's lien.     
                                                                                                        
June 1997     Warehouse/office          Interest rate     October 2007    Yes           411,000         Nonaccrual at September  
              located in Saratoga       adjusts every                                                   30, 1998; substandard    
              County and                three years.                                                    classification; property 
              warehouse/office in                                                                       obtained by Association  
              Albany County                                                                             through deed-in-lieu of  
                                                                                                        foreclosure October 1998.
                                                                                                        
June 1997    Newly renovated takeout    Interest rate     November 2017    Yes           389,195        Current; substandard     
             restaurant in              adjusts every                                                   classification due to    
             Saratoga County            year.                                                           poor cash flow and high  
                                                                                                        LTV; foreclosure process 
                                                                                                        begun December 1998.     
                                                                                                                                 
                                                                                                        
April 1996   3-story, 16 unit           Interest rate     May 2016         Yes           381,994        Current; 100% occupancy  
             apartment complex          adjusts every                                                   at September 30, 1998.   
             in Saratoga County         five years.                                                     

October 1996 Restaurant/marina          Interest rate     October 2008     Yes           358,187        Current; borrower      
             located in Fulton          adjusts every                                                   prepaying principal;   
             County                     five years.                                                     exclusive location on  
                                                                                                        major lake.            
                                                                                                                               
October 1996 39 unit adult home         Interest rate     December 2016    Yes           341,684        Current; 95% occupancy at
             in Saratoga County         adjusts every                                                   February 28, 1998.      
                                        two years.                                                      

April 1994   Three residential          Interest rate     May 2009         Yes           322,105        Current; 100% occupancy 
             rental units located       is fixed.                                                       at September 30, 1998.  
             in Saratoga County                                                                         
</TABLE>

                                        


                                       15
<PAGE>


Multi-family and commercial real estate loans are generally believed to present
a higher level of risk than loans secured by one-to-four family residences. This
greater risk is due to several factors, including the concentration of principal
in a limited number of loans and borrowers, the effects of general economic
conditions on income producing properties and the increased difficulty of
evaluating and monitoring these types of loans. Furthermore, the repayment of
loans secured by multi-family and commercial real estate is dependent upon the
successful operation of the related real estate project. If the cash flow from
the project is reduced (for example, if leases are not obtained or renewed), the
borrower's ability to repay the loan may be impaired. In addition, the
Association's multi-family and commercial real estate loans, particularly those
originated when the Association first expanded this product line, may be subject
to additional risks related to the Association's relative inexperience with this
type of lending (including the absence of tested procedures with respect
thereto). The Association's portfolio is relatively unseasoned and no assurance
can be given that the Association will not experience losses or unsatisfactory
results on it. As a result of the above as well as financial concerns with
respect to the borrowers, the Association rated $641,000 of its multi-family and
commercial real estate loans as "of concern" at September 30, 1998. In addition,
there were $896,000 in nonperforming multi-family and commercial real estate
loans at September 30, 1998.

Construction

The Association offers residential single family construction loans to persons
who intend to occupy the property upon completion of construction. Upon
completion of construction, these loans are automatically converted into
permanent residential mortgage loans and classified as such. The proceeds of the
construction loan are advanced in stages on a percentage of completion basis as
construction progresses. The loans generally provide for a construction period
of not more than twelve months during which the borrower pays interest only. In
recognition of the risks involved with such loans, the Association carefully
monitors construction through regular inspections and the borrower must qualify
for the permanent mortgage loan before the construction loan is made. At
September 30, 1998, the Association had $606,000 in construction loans
outstanding, or 1.2% of gross loans. There are no nonperforming construction
loans at September 30, 1998.

Construction lending is generally considered to involve a higher level of credit
risk than permanent one-to-four family residential lending. The nature of these
loans is such that they are more difficult to evaluate and monitor. The
Association's risk of loss on a construction loan is dependent largely upon the
accuracy of the initial estimate of the property's value upon completion of the
project and the essential cost (including interest) of the project. If the cost
estimate proves to be inaccurate, the Association may be required to advance
funds beyond the amount originally committed in order to permit completion of
the project.

Commercial Business

Subject to the restrictions contained in federal laws and regulations, the
Association is authorized to make secured or unsecured commercial business
loans. At September 30, 1998, $2.6 million, or 5.1%, of the Association's total
loan portfolio consisted of commercial business loans. The Association has
recently increased its commercial business loans to qualified borrowers as part
of its policy of servicing customers and consolidating banking relationships,
and also to further its market risk analysis goals; however, subsequent to the
end of fiscal 1998, the Board determined to reduce its originations of
commercial business loans.



                                       16
<PAGE>

The commercial business loans are generally structured as short-term time notes
and term loans. Time notes generally have terms of less than one year to
accommodate seasonal peaks and valleys in the borrower's business cycle.
Commercial business term loans generally have terms of ten years or less and,
more often than not, have adjustable interest rates.

The Association's commercial business loans generally are secured by equipment,
machinery or other corporate assets including real estate and inventory. Like
the multi-family and commercial real estate loans discussed above, the
Association's current commercial business loan originations generally have
covenants requiring the borrowers to maintain certain financial ratios, although
many loans originated prior to fiscal 1995 do not have such covenants, which
could reduce the Association's leverage in the event of a credit deterioration.
In addition, the Association generally obtains personal guarantees from the
principals of the borrower with respect to all commercial business loans.

Generally, the Association's commercial business lending has been limited to
borrowers headquartered, or doing business, in the Association's market area.

Unlike residential mortgage loans, which are generally made on the basis of the
borrower's ability to make repayment from his or her employment and other
income, and which are secured by real property whose value tends to be more
easily ascertainable, commercial business loans are of higher risk and typically
are made on the basis of the borrower's ability to make repayment from the cash
flow of the borrower's business. As a result, the availability of funds for the
repayment of commercial business loans may be substantially dependent on the
success of the business itself, which in turn may be dependent on the local
economy, which is currently not performing at a high level. Further, the
collateral securing the loans, if any, may depreciate over time, may be
difficult to appraise and may fluctuate in value based on the success of the
business. In addition, commercial business lending generally requires
substantially greater oversight efforts compared to residential real estate
lending. Finally, the Association's relative inexperience with this type of
lending (including the relatively untested nature of its new procedures related
to this type of lending) may be deemed to add to the risks of this type of
lending. At September 30, 1998, $6,000 in commercial business loans were
classified as nonperforming, and $18,000 were rated "of concern."

Set forth below is a description of the Association's only commercial business
loan which had an outstanding principal balance in excess of $300,000 at
September 30, 1998:

<TABLE>
<CAPTION>

     Date of       Collateral                            Maturity       Personal         Balance at
   Origination    Description       Loan Terms             Date         Guarantee   September 30, 1998           Status
   -----------    -----------       ----------           --------       ---------   ------------------     ------------------------
<S>              <C>                <C>                 <C>              <C>         <C>                   <C>                     
   May 1997      11 fully equipped  Interest adjusts    November 1998      Yes            418,251          Current; insurance on    
                 1998/99 29-foot    daily based on                                                         vehicles with Association
                 Recreational       established                                                            as beneficiary; quarterly
                 vehicles           index                                                                  inspections performed on 
                                                                                                           collateral by            
                                                                                                           Association; loan renewed
                                                                                                           with new maturity of     
                                                                                                           December 1999.           
                                                                                                           
</TABLE>
                                                       
Home Equity Loans and Lines

Home equity loans are secured by second mortgages on one-to-four family
owner-occupied residences. These loans are of two types. The Association's home
equity loans are written so that the total commitment amount, when combined with
the balance of the first mortgage lien, may not exceed 80% of the appraised


                                       17
<PAGE>

value of the property or $50,000. These loans are written with fixed terms of up
to 15 years and carry fixed interest rates. Home equity lines of credit
("HELOCs") are written so that the total commitment amount, when combined with
the balance of the first mortgage lien, may not exceed 80% of the appraised
value of the property, with a maximum of $100,000. HELOCs are written for terms
up to 25 years (with the first 5 year period requiring only interest payments
and the last 20 year period being fully amortized) and carry a prime-based
floating rate of interest after the first year. At September 30, 1998, the
Association's home equity loans and HELOCs totaled $3.1 million or 6.1% of the
gross loans outstanding. At September 30, 1998, $30,000 in home equity loans are
nonperforming.

Consumer Lending

Management believes that offering consumer loan products helps to expand the
Association's customer base and to create stronger ties to its existing customer
base. In addition, because consumer loans generally have shorter terms to
maturity and carry higher rates of interest than do residential mortgage loans,
they can be valuable market risk analysis tools. The Association originates a
variety of different types of consumer loans, including automobile, mobile home
and deposit account loans for household and personal purposes. At September 30,
1998, consumer loans totaled $1.1 million or 2.2% of total loans outstanding.

Consumer loan terms vary according to the type and value of collateral, length
of contract and credit worthiness of the borrower. The Association's consumer
loans are made with fixed or adjustable interest rates, with terms of up to 25
years.

The underwriting standards employed by the Association for consumer loans
include a determination of the applicant's payment history on other debts and
ability to meet existing obligations and payments on the proposed loan. Although
credit worthiness of the applicant is of primary consideration, the underwriting
process also includes a comparison of the value of the security, if any, in
relation to the proposed loan amount. Consumer loans may entail greater credit
risk than do residential mortgage loans, particularly in the case of consumer
loans which are unsecured or are secured by rapidly depreciable assets, such as
automobiles. In such cases, any repossessed collateral for a defaulted consumer
loan may not provide an adequate source of repayment of the outstanding loan
balance as a result of the greater likelihood of damage, loss or depreciation.
In addition, consumer loan collections are dependent on the borrower's
continuing financial stability, and thus are more likely to be affected by
adverse personal circumstances. Furthermore, the application of various federal
and state laws, including bankruptcy and insolvency laws, may limit the amount
which can be recovered on such loans.

At September 30, 1998, there were no nonperforming consumer loans.

Origination of Loans

The lending activities of the Association are subject to the written,
non-discriminatory, underwriting standards and loan origination procedures
established by the Association's Board of Directors and management. Loan
originations come from a number of sources. Residential loan originations can be
attributed to depositors, retail customers, telephone inquiries, advertising,
the efforts of the Association's loan officers and referrals from other
borrowers, real estate brokers and builders. The Association originates loans
through its own efforts and does not compensate mortgage brokers, mortgage
bankers or other loan finders. However, the Association frequently obtains
multi-family and commercial real estate and commercial business loans through
commercial loan brokers paid by the borrower. Beginning in fiscal 1998, an
Association employee was assigned the task of solely originating residential
mortgages and home equity loans.



                                       18
<PAGE>

All loans held in portfolio at September 30, 1998 were originated by the
Association. The Association does not purchase whole loans. There have been no
loan sales made by the Association, and it is the Association's intention that
all loans originated be held in portfolio until maturity. Management may
consider selling loans in the future depending on market conditions and the
asset/liability management requirements of the Association.

While the Association originates both fixed and adjustable rate loans, its
ability to originate loans is dependent upon the relative customer demand for
loans in its market. Demand is affected by the local economy and the interest
rate environment. From time to time, in order to supplement loan demand in the
Association's market area, the Association has acquired mortgage-backed
securities which are held in the "available for sale" portfolio. See
"-Investment Activities - Mortgage-Backed Securities."

The following table shows the loan origination and repayment activities of the
Association for the periods indicated:
<TABLE>
<CAPTION>

                                                                     Year Ended September 30,
                                                            -------------------------------------------
                                                               1998            1997           1996
                                                            ------------    ------------   ------------
                                                                          (In Thousands)
<S>                                                              <C>             <C>            <C>   
Fixed rate:
-----------
Real estate:           One- to four-family                       $4,989          $1,577         $2,140
                       Multi-family and commercial                  428             978            955
                       One-to four-family construction            1,472             683            428
Non-real estate:       Commercial business                          135             436             76
                       Home equity                                  331             215            865
                       Other consumer                               584             348            449
                                                            ------------    ------------   ------------
                       Total fixed rate                           7,939           4,237          4,913
                                                            ------------    ------------   ------------

Adjustable rate:
----------------
Real estate:           One- to four-family                            -              24            243
                       Multi-family and commercial                1,742           3,115          1,795
                       One-to four-family construction                -              40            125
Non-real estate:       Commercial business                          890             456          1,078
                       Home equity                                  275             773            530
                       Other consumer                                40             206             97
                                                            ------------    ------------   ------------
                       Total adjustable rate                      2,947           4,614          3,868
                                                            ------------    ------------   ------------

                       Total loans originated                    10,886           8,851          8,781

Principal repayments                                             (9,146)         (7,670)        (6,173)
Decrease in other terms, net                                     (1,217)           (977)          (552)
                                                            ============    ============   ============
                       Net increase                               $ 523           $ 204         $2,056
                                                            ============    ============   ============
</TABLE>



                                       19
<PAGE>

Asset Quality

Delinquency Procedures. When a borrower fails to make a required payment on a
loan, the Association attempts to cause the deficiency to be cured by contacting
the borrower. Late notices are generally sent when a payment on a residential or
consumer loan is more than 15 days past due and a late charge is generally
assessed at that time. For multi-family and commercial real estate loans and
commercial business loans, the Association sends a late notice on the 11th day
after payment is due, and a late fee is assessed at that time. For residential
and consumer loans, the Association's asset review officer attempts to contact
personally any borrower who is more than 30 days past due. For multi-family and
commercial real estate and commercial business loans, the Vice President
Commercial Loans telephones the borrower when payment is 15 days delinquent. For
all loans past due 60 days or more principal and interest, and, beginning in
July 1997, all loans where the borrower is delinquent in the payment of real
estate taxes regardless of payment status, the asset review officer or the Vice
President - Commercial Loans contacts the borrower on a regular basis to seek to
cure the delinquency. If a loan becomes past due 90 days, the Association refers
the matter to an attorney, who first seeks to obtain payment without litigation
and, if unsuccessful, generally commences a foreclosure action or other
appropriate legal action to collect the loan. The Association also seeks to
recover any shortfall by pursuing the borrower on the note. A foreclosure
action, if the default is not cured, typically leads to a judicial sale of the
mortgaged real estate. The judicial sale is normally delayed if the borrower
files a bankruptcy petition because the foreclosure action cannot be continued
unless the Association first obtains relief from the automatic stay provided by
the Bankruptcy Code.

If the Association acquires the mortgaged property at foreclosure sale or
accepts a voluntary deed in lieu of foreclosure, the acquired property is then
classified as Other Real Estate Owned ("OREO") until it is sold. When OREO is
acquired, the property is recorded at the lower of cost (defined as fair value
of the foreclosed property at initial foreclosure) or fair value of the asset
acquired less estimated costs to sell the property. The shortfall (if any)
between the fair value of the property and the carrying value of the loan is
charged to the allowance for loan losses. The Association also seeks to recover
any shortfall by pursuing the borrower on the note. Thereafter, changes in the
value of the OREO are taken as current expenses.

The Association is permitted to finance sales of OREO by "loans to facilitate,"
which may involve a lower down payment or a longer repayment term or other more
favorable features than generally would be granted under the Association's
underwriting guidelines. At September 30, 1998, there was one "loan to
facilitate" outstanding for $128,000 which was classified as substandard and
non-accruing at September 30, 1998, as the borrower was more than 90 days
delinquent as to payments. The "loan to facilitate" was originated December 1993
and has been classified as substandard since that time.

It is the Association's policy to discontinue accruing interest on a loan when
it becomes 90 days or more delinquent, regardless of the collateral supporting
the loan or sooner if management believes it is prudent to do so. Once the
accrual of interest is discontinued, the Association generally records interest
as and when received until the loan is restored to accruing status. The loan
remains on nonaccrual until such time that the borrower has repaid all
delinquency and has maintained the loan in a current status for at least three
consecutive months, provided management concludes that full payment of principal
and interest is reasonably assured in the future.

                                       20
<PAGE>

The following table sets forth the Company's loan delinquencies as to principal
and interest payments by type, by number, amount and by percentage of type at
September 30, 1998.
<TABLE>
<CAPTION>

                                                           Loan Delinquencies at September 30, 1998
------------------------------------------------------------------------------------------------------------------------------------
                                      60-89 Days                      90 Days and Over                   Total Delinquent Loans
                            ------------------------------   -----------------------------------   ---------------------------------
                                                    % of                                 % of                                % of
                              Number     Amount   Category    Number      Amount       Category     Number      Amount     Category
                            --------   ---------  --------   --------   --------      ----------   ----------  --------   ----------
                                                                    (Dollars in Thousands)
<S>                          <C>        <C>        <C>       <C>         <C>           <C>         <C>          <C>       <C>
Real Estate:
------------
Multi-family and commercial    -           -           -        1           411        4.77%         1            411       4.77%
One-to-four family             -           -           -        7           326        0.91%         7            326       0.91%
                                                                                                             
                            =====       =======             =========    ======                   =======     ========
Total                          -         $ -           -        8         $ 737        1.42%         8          $ 737       1.42%
                            =====       =======             =========    ======                   =======     ========
</TABLE>

Classification of Assets. Federal regulations require that each savings
institution classify its own assets on a regular basis. In addition, in
connection with examinations of savings institutions, OTS examiners have
authority to identify problem assets and, if appropriate, require them to be
classified. The Association classifies all of its loans monthly based on
delinquency status. Multi-family and commercial real estate and commercial
business loans are reviewed annually regardless of delinquency status. There are
three classifications for problem assets: Substandard, Doubtful and Loss.
Substandard assets have one or more defined weaknesses and are characterized by
the distinct possibility that the Association will sustain some loss if the
deficiencies are not corrected. Doubtful assets have the weaknesses of
Substandard assets, with the additional characteristics that the weaknesses make
collection or liquidation in full on the basis of currently existing facts,
conditions and values questionable, and there is a high possibility of loss. An
asset classified Loss is considered uncollectible and of such little value that
continuance as an asset on the balance sheet of the institution is not
warranted. Assets classified as Substandard or Doubtful require the institution
to establish prudent general allowances for loan losses. If an asset or portion
thereof is classified as a loss, the institution charges off such amount against
the loan loss allowance. If an institution does not agree with an examiner's
classification of an asset, it may appeal this determination to the District
Director of the OTS. As of September 30, 1998, the Association had $1.8 million
of loans classified as substandard. At that time, the Association also had
$142,000 of loans classified as "special mention." As of the same date, the
Association had no assets classified as doubtful or loss.

                                       21
<PAGE>

Nonperforming assets. The table below sets forth the amounts and categories of
the Association's nonperforming assets. Foreclosed assets include assets
acquired in settlement of loans.
<TABLE>
<CAPTION>
                                                   Non-Performing Assets

                                                                       At September 30,
                                                --------------------------------------------------------------
                                                  1998         1997          1996          1995          1994      
                                                ------        ------        ------        ------        ------       
                                                                     (Dollars in Thousands)

<S>                                             <C>           <C>           <C>           <C>           <C>          
Non-accruing loans:
One- to four-family(1)                          $  894        $3,730        $2,212        $2,576        $3,438       
Multi-family and commercial                        896            --            --            --            --         
Commercial business                                  6            --            --            --            --         
Home equity(2)                                      30            63            --            --            --         
Other consumer                                      --            --            --             5            80       
                                                ------        ------        ------        ------        ------       
Total non-performing loans(3)                    1,826         3,793         2,212         2,581         3,518       
                                                ------        ------        ------        ------        ------       

Foreclosed assets:
One- to four-family                                256           313            70           182           334       

                                                ------        ------        ------        ------        ------    
Total non-performing assets                     $2,082        $4,106        $2,282        $2,763        $3,852       
                                                ======        ======        ======        ======        ======       

Total non-performing assets
  as a percentage of total assets                 3.05%         6.73%         3.74%         4.38%         5.53%      
                                                ======        ======        ======        ======        ======

Allowance as a percentage of
  non-performing loans (end of period)           81.91%        42.53%        56.53%        30.20%        24.34%      
                                                ======        ======        ======        ======        ======       

</TABLE>

(1)  Includes $535,000 and $1,598,000 of nonaccruing, restructured loans at
     September 30, 1998 and 1997, respectively.
(2)  Includes $15,000 of restructured loans that are also non-accruing loans at
     September 30, 1998.
(3)  There are no loans past due greater than 90 days and accruing interest or
     restructured loans accruing interest.


For the year ended  September 30, 1998,  gross interest  income which would have
been recorded had the  non-accruing  loans been current in accordance with their
original  terms  amounted to $174,000.  The amount that was included in interest
income on such loans was $143,000.

At September 30, 1998, the Association's nonperforming loans consisted of 17
loans secured by one-to-four family residences totaling $924,000 (two of these
loans were secured solely by second mortgages while the remaining 15 loans were
secured, at a minimum, by a first mortgage on the collateral), three loans
secured by commercial real estate totaling $896,000 and two unsecured commercial
business loans totaling $6,000. At September 30, 1998, there were four
one-to-four family properties held as OREO with a net carrying value of
$256,000. Three of these OREO properties were either sold or under contract for
sale by December 31, 1998 without material loss.

In fiscal 1998 and 1997, the Association noted delinquent real estate taxes on a
number of loans which were not previously classified as nonperforming. The
Association contacted all of the borrowers of such loans and, in cases where the
taxes were not promptly paid by the borrower, advanced funds for the payment of
the taxes and rewrote such loans to add the advanced funds to the loan principal
and to include tax escrow provisions. Such rewritten loans were classified as
troubled debt restructurings where deemed appropriate based on the financial
position of the borrower. As of September 30, 1998, the Association's troubled
debt restructurings were $550,000. While all such loans were classified as
nonperforming at September 30, 1998, none were 90 days or more delinquent as of
such date. Since these loans were written at market interest rates, it is
anticipated that, provided that these loans continue to perform in accordance


                                       22
<PAGE>

with their new terms, they will become performing loans, generally after one
year of performance. All current originations by the Association provide for tax
escrows.

Other Loans of Concern. In addition to the nonperforming assets set forth in the
table above, as of September 30, 1998, there were $659,000 of other loans, all
of which were multi-family and commercial real estate or commercial business
loans, with respect to which known information about the possible credit
problems of the borrowers or the cash flows of the security pro perties
have caused management to have concerns as to the ability of the borrowers to
comply with present loan repayment terms and which may result in the future
inclusion of such items in the nonperforming asset categories. While none of
these loans were 60 days or more delinquent as of the date hereof, weak or
negative cash flows, failure to attain budgeted income projections or declines
in collateral values have been the primary reasons which have caused the
Association to monitor such loans more carefully.

The largest other loan of concern is a $517,000 commercial real estate loan
secured by an office building located in Saratoga County. Although this loan has
experienced no delinquency greater than 60 days since origination in July 1996,
the Association has classified it as "of concern" because the borrower's
business, which commenced operations in March 1997 and occupies a major portion
of the property, is not meeting financial projections. The loan is guaranteed by
the business principals and was current at September 30, 1998.

Other loans of concern at September 30, 1998 consisted of three multi-family and
commercial real estate loans totaling $142,000 and one commercial business loan
totaling $18,000. All other loans of concern were less than 60 days delinquent
at September 30, 1998 but were classified because of lower than expected debt
service coverage. The Association's loans of concern have been considered by
management in conjunction with the analysis of the adequacy of the allowance for
loan losses.

Allowance for Loan Losses

The allowance for loan losses is established through a provision for loan losses
charged to earnings based on the Association's evaluation of the risks inherent
in its entire loan portfolio. Such evaluation, which includes a review of all
loans for which full collectibility may not be reasonably assured, considers the
market value of the underlying collateral, growth and composition of the loan
portfolio, delinquency trends, adverse situations that may affect the borrower's
ability to repay, prevailing and projected economic conditions and other factors
that warrant recognition in providing for an adequate allowance for loan losses.

Management believes its allowance for loan losses is adequate at September 30,
1998. While the Association believes that it uses the best information available
to determine the allowance for loan losses, unforeseen economic and market
conditions could result in adjustments to the allowance for loan losses, and net
earnings could be significantly affected, if circumstances differ substantially
from the assumptions used in making the final determination.



                                       23
<PAGE>

The following table sets forth an analysis of the Association's allowance loan
losses:

<TABLE>
<CAPTION>
                                              Allowance for Loan Loss Analysis

                                                                                 Years Ended September 30,
                                                             ----------------------------------------------------------------------
                                                                1998           1997           1996           1995          1994
                                                             ------------   -----------   ------------  -------------  ------------
                                                                                     (Dollars in Thousands)

<S>                                                            <C>            <C>            <C>            <C>            <C>    
Balance at beginning of period                                 $ 1,613        $ 1,251        $   779        $   856        $   875

Charge-offs:
One- to four-family                                               (258)          (417)          (218)          (160)          (115)
Commercial business                                                (24)            (7)            (4)            --             --
Home equity                                                         --            (10)            --             --             --
Other consumer                                                     (34)           (32)           (32)           (50)          (142)
                                                               -------        -------        -------        -------        -------
Total charge-offs                                                 (316)          (466)          (254)          (210)          (257)
                                                               -------        -------        -------        -------        -------

Recoveries:
One- to four-family                                                 61             21              3              1             13
Commercial business                                                  7             --             --             --             --
Other consumer                                                      11             15              9              3             14
                                                               -------        -------        -------        -------        -------
Total recoveries                                                    79             36             12              4             27
                                                               -------        -------        -------        -------        -------

Net charge-offs                                                   (237)          (430)          (242)          (206)          (230)
Provisions charged to operations                                   120            792            714            129            211
                                                               -------        -------        -------        -------        -------
Balance at end of period                                         1,496          1,613          1,251            779            856
                                                               =======        =======        =======        =======        =======

Ratio of net charge-offs during the period to
 average gross loans outstanding during the period                0.85%          0.84%          0.49%          0.42%          0.53%
                                                               =======        =======        =======        =======        =======

Ratio of net charge-offs during the period to
 average non-performing assets                                   13.89%         13.46%          9.64%          6.23%          7.11%
                                                               =======        =======        =======        =======        =======

Ratio of allowance to gross loans outstanding
 at end of period                                                 2.89%          3.14%          2.45%          1.58%          1.83%
                                                               =======        =======        =======        =======        =======

</TABLE>

                                       24
<PAGE>
Allocation of the Allowance for Loan Losses

The following table sets forth the allocation of the allowance for loan losses
by category as prepared by the Association. This allocation is based on
management's assessment as of a given point in time of the risk characteristics
of each of the component parts of the total loan portfolio and is subject to
changes as and when the risk factors of each such component part change. The
allocation is not indicative of either the specific amounts or the loan
categories in which future charge-offs may be taken, nor should it be taken as
an indicator of future loss trends. The allocation of the allowance to each
category does not restrict the use of the allowance to absorb losses in any
category.
<TABLE>
<CAPTION>
                                               September 30, 1998                  September 30, 1997         
                                       ---------------------------------  ----------------------------------  
                                                                 (Dollars in Thousands)
                                                                Percent                             Percent   
                                                               of Loans                             of Loans  
                                         Amount      Loan       in Each      Amount       Loan      in Each   
                                        of loan     Amounts    Category     of loan     Amounts     Category  
                                          loss        by       of Total       loss         by       of Total  
                                       Allowance   Category      Loans     Allowance    Category     Loans    
                                       ---------   --------    --------    ---------    --------     -----    
<S>                                     <C>      <C>           <C>          <C>       <C>            <C>        
One- to four-family                     $ 441     $ 35,706      68.91%       $ 932     $ 36,891      71.92%     
Multi-family and commercial               627        8,614      16.62%         238        7,950      15.50%     
Construction and development                4          606       1.17%           3          539       1.05%     
Commercial business                        76        2,624       5.06%          43        1,422       2.77%     
Home equity                                25        3,143       6.07%          36        3,379       6.59%     
Other consumer                             64        1,122       2.17%          87        1,111       2.17%     
Unallocated                               259            -           -         274            -          -     
                                      -------     --------     ------      -------     --------      ------      
Total                                 $ 1,496     $ 51,815     100.00%     $ 1,613     $ 51,292     100.00%     
                                      =======     ========     ======      =======     ========     =======   
</TABLE>
<TABLE>
<CAPTION>
                                                  September 30, 1996                  September 30, 1995          
                                        ----------------------------------   ------------------------------------ 
                                                                      (Dollars in Thousands)
                                                                   Percent                              Percent
                                                                  of Loans                             of Loans
                                            Amount      Loan       in Each      Amount       Loan       in Each   
                                           of loan     Amounts    Category     of loan     Amounts     Category   
                                             loss        by       of Total       loss         by       of Total   
                                          Allowance   Category      Loans     Allowance    Category      Loans    
                                          ---------   --------    --------    ---------    --------      -----    
<S>                                        <C>      <C>           <C>          <C>       <C>             <C>        
One- to four-family                        $ 770     $ 40,262      78.81%       $ 592     $ 42,578       86.41%     
Multi-family and commercial                   93        4,635       9.07%          52        2,579        5.23%     
Construction and development                   4          938       1.84%           3          742        1.51%     
Commercial business                           27        1,230       2.41%           4          185        0.38%     
Home equity                                   19        2,869       5.62%           9        2,265        4.60%     
Other consumer                                84        1,154       2.26%          72          920        1.87%     
Unallocated                                  254            -          -           47            -           -     
                                         -------     --------     ------        -----     --------      ------      
Total                                    $ 1,251     $ 51,088     100.00%       $ 779     $ 49,269      100.00%     
                                         =======     ========     ======        =====     ========      ======      
</TABLE>
<TABLE>
<CAPTION>
                                               September 30, 1994
                                       --------------------------------
                                             (Dollars in Thousands)
                                                                Percent       
                                                               of Loans       
                                         Amount      Loan       in Each          
                                        of loan     Amounts    Category     
                                          loss        by       of Total     
                                       Allowance   Category      Loans      
                                       ---------   --------      -----      
<S>                                     <C>      <C>          
One- to four-family                     $ 706    $ 42,973       91.89%  
Multi-family and commercial                18         878        1.88%
Construction and development                3         701        1.50%  
Commercial business                         -           -           -
Home equity                                 5       1,352        2.89%  
Other consumer                            108         861        1.84
Unallocated                                16           -           -   
                                        -----    --------      ------   
Total                                   $ 856    $ 46,765      100.00%  
                                        =====    ========      ======   
                                                               
</TABLE>

                                       25
<PAGE>

Investment Activities

The Association must maintain minimum levels of investments and other assets
that qualify as liquid assets under OTS regulations. Liquidity may increase or
decrease depending upon the availability of funds and comparative yields on
investments in relation to the return on loans. At September 30, 1998, the
Association's liquidity ratio for regulatory purposes (liquid assets as a
percentage of net withdrawable savings deposits and current borrowings) was
15.5%.

Securities. At September 30, 1998, the Company's securities totaled $7.2
million, or 10.5% of total assets. All securities held by the Company are
classified as "available for sale." Generally, the investment policy of the
Company is to invest funds among categories of investments and maturities based
upon the Company's market risk analysis policies, investment quality, loan and
deposit volume, liquidity needs and performance objectives. To date, the
Company's investment strategy has been directed toward callable government
agency obligations with terms not exceeding 15 years and certificates of deposit
with maturities of one year or less. At September 30 ,1998, the weighted average
term to maturity of the security portfolio, excluding marketable equity
securities, was 5.71 years. See Note 2 of the Notes to the Consolidated
Financial Statements for information regarding the maturities of the Company's
securities available for sale portfolio.

Mortgage-Backed Securities. In order to supplement its lending activities and
achieve its market risk analysis goals, the Association from time to time
invests in mortgage-backed securities. As of September 30, 1998, all of the
mortgage-backed securities owned by the Association were issued, insured or
guaranteed either directly or indirectly by a federal agency. However, it should
be noted that, while a (direct or indirect) federal guarantee may indicate a
high degree of protection against default, they do not indicate that the
securities will be protected from declines in value based on changes in interest
rates or prepayment speeds.

The Association primarily invests in fixed-rate mortgage backed securities with
average lives of seven years or less and variable rate mortgage-backed
securities with rate reset intervals not to exceed three years and average lives
of seven years or less. The average lives of the Association's mortgage-backed
securities are determined by reference to industry standard tables which take
into account historical prepayments on mortgage loans with specified interest
rates and terms to maturity. At September 30, 1998, all of the Association's
mortgage backed securities were issued or guaranteed by FHLMC, GNMA or FNMA, and
all were pass-through securities. On that date, $749,000 of the mortgage backed
securities were at fixed rates with a weighted average rate of 6.00% and
weighted average life of 2.58 years. The remaining $3.2 million of mortgage
backed securities had adjustable rates with a weighted average rate of 6.22% and
weighted average period to rate reset of 6 months.

Mortgage-backed securities generally have higher yields than investment
securities because of the longer terms and the uncertainties associated with the
timing of mortgage repayments. In addition, mortgage- backed securities are more
liquid than individual mortgage loans and may be used to collateralize
borrowings of the Association. However, these securities generally yield less
than the loans that underlie them because of the cost of payment guarantees or
credit enhancements that reduce credit risk. For information regarding the
Association's mortgage-backed securities portfolio, see Note 2 of the
Consolidated Financial Statements.



                                       26
<PAGE>

The following table sets forth the composition of the Association's securities
 and other earning assets at the dates indicated: 
<TABLE>
<CAPTION>


                                                                                At September 30,
                                                ------------------------------------------------------------------------------------
                                                            1998                       1997                        1996
                                                -------------------------   -------------------------   ----------------------------
                                                  Amortized     % of        Amortized      % of         Amortized         % of
                                                    Cost        Total         Cost         Total           Cost           Total
                                                -------------  -----------  ------------  -----------   ------------- --------------
                                                                                   (Dollars in Thousands)
<S>                                                 <C>         <C>           <C>          <C>             <C>            <C>   
Securities available for sale:                                                                           
      US Government agency obligations              6,252       56.32%        2,998        42.50%          2,998          39.43%
                                                  -------      ------        ------       ------           -----         ------
                                                                                                         
      Mortgage-backed securities:                                                                        
                   FNMA                             1,420       12.79%          753        10.66%            766          10.07%
                   FHLMC                            1,552       13.98%        2,843        40.30%          3,379          44.44%
                   GNMA                               967        8.71%           --           --              --             --
                                                  -------      ------        ------       ------           -----         ------
      Total mortgage-backed securities AFS          3,939       35.48%        3,596        50.96%          4,145          54.51%
                                                  -------      ------        ------       ------           -----         ------
                                                                                                         
      Certificates of deposit                         400        3.60%           --           --              --             --
      Common Stock                                     50        0.45%           --           --              --             --
      FHLB Stock                                      461        4.15%          461         6.54%            461           6.06%
                                                  -------      ------        ------       ------           -----         ------
Total securities available for sale               $11,102      100.00%       $7,055       100.00%         $7,604         100.00%
                                                  =======      ======        ======       ======          ======         ======
                                                                                                         
Average remaining life of securities:                   12.5 years                 10.88 years                  12.03 years
                                                                                                         
                                                                                                         
Other interest-earning assets:                                                                           
      Term deposit with FHLB                      $    --          --        $   --           --          $   --             --
      Reverse repurchase agreement                  1,500       60.00%           --           --              --             --
      Federal funds sold                            1,000       40.00%           --           --             100         100.00%
                                                  -------      ------        ------       ------          ------         ------
                   Total                          $ 2,500      100.00%       $   --         0.00%         $  100         100.00%
                                                  =======      ======        ======       ======          ======         ======
                                                                                                       
</TABLE>


The Association's securities portfolio at September 30, 1998 did not contain
securities of any issuer with an aggregate book value in excess of 10% of the
Association's equity, excluding those issued by federal agencies.

The composition and maturities of the available for sale portfolio as of
September 30, 1998, excluding FHLB and common stock, are indicated in the
following table:

<TABLE>
<CAPTION>
                                                                              At September, 30 1998
                                                ------------------------------------------------------------------------------------
                                                  Less Than      1 to 5        5 to 10        Over
                                                    1 Year        Years         Years       10 Years          Total Securities
                                                  ----------    ----------    ----------   ----------    ---------------------------
                                                  Book Value    Book Value    Book Value   Book Value    Book Value    Market Value
                                                  ----------    ----------    ----------   ----------    ----------    ------------
                                                                              (Dollars in Thousands)

<S>                                                <C>            <C>          <C>            <C>            <C>            <C>    
US Government agency obligations                   $2,500         $ --         $3,002         $  750         $ 6,252        $ 6,302
Mortgage-backed securities                             --          749             --          3,190           3,939          3,959
Certificates of Deposit                               400           --             --             --             400            400
                                                   ------         ----         ------         ------         -------        -------

Total securities AFS                               $2,900         $749         $3,002         $3,940         $10,591        $10,661
                                                   ======         ====         ======         ======         =======        =======

Weighted average yield                               5.92%        6.00%          6.47%          6.27%           6.23%          

</TABLE>

                                       27
<PAGE>

The following table sets forth the final contractual maturities of the
Association's mortgage-backed securities portfolio at September 30, 1998:

<TABLE>
<CAPTION>
                                  Less Than      1 to           3 to 5        5 to 10      10 to 20       Over 20
                                    1 Year      3 Years          Years         Years        Years          Years
                                 -----------    ----------   --------------   --------     --------      ----------
                                                        (Dollars in Thousands)
<S>                             <C>              <C>            <C>            <C>           <C>           <C>  
FNMA                                --              --             --             -            -            1,419
FHLMC                               --             749             --             -            -              803
GNMA                                --              --             --             -            -              968
                                   ---            ----           ----          -----        ------         ------

Total                             $ --             749           $ --             -            -           $3,190
                                  ====            ====           ====          =====        ======         ======

Weighted average yield              --            6.00%            --             -            -             6.22%

</TABLE>

The following table shows mortgage-backed securities purchase, sale and
repayment activities of the Association for the periods indicated:
<TABLE>
<CAPTION>

                                                Year Ended September 30,
                                      ------------------------------------------------
                                         1998             1997              1996
                                      -------------   --------------   ---------------
                                                     (In Thousands)

<S>                                        <C>                  <C>           <C>    
     Purchases:
     ----------
      
        Adjustable rate                    $ 2,026              $ -           $ 2,281
        Fixed rate                               -                -             1,301
                                      -------------   --------------   ---------------

            Total purchases                  2,026                -             3,582

     Sales:
     ------

        Adjustable rate                          -                -                 -
        Fixed rate                               -                -                 -
                                      -------------   --------------   ---------------

            Total sales                          -                -                 -

     Principal repayments                   (1,678)            (550)             (431)
     Discount/premium
        accretion/amortization                  (5)               1                 2
     Fair value net change                      54               66              (101)    
                                      -------------   --------------   ---------------

            Net increase (decrease)          $ 397           $ (483)          $ 3,052
                                      =============   ==============   ===============
</TABLE>

Sources of Funds

General. Although deposits are the primary source of funds for the Association's
lending and investment activities and for its general business purposes, the
Association has occasionally relied upon borrowed funds or repurchase agreements
to supplement them. The Association has borrowed funds, either through direct
borrowings or through the sale of securities under agreements to repurchase,
when the cost of borrowings was attractive when compared to the rate required to
be paid on deposits plus the deposit insurance premium required to be paid.



                                       28
<PAGE>

Borrowings. The Association may borrow under a line of credit agreement with the
FHLB of New York. FHLB advances typically are collateralized by all of the
assets of the Association. There were $2.0 million in FHLB advances outstanding
at September 30, 1998.

Under an agreement with the Association's investment portfolio safekeeping
agent, the Association may from time to time enter into security repurchase
agreements brokered through such agent whereby the Association obtains funds
from the sale of securities held in the securities portfolio with an agreement
to repurchase the securities either the next day or a set number of days
following the sale. There were no borrowings represented by repurchase
agreements at September 30, 1998.

See Note 7 of the Consolidated Financial Statements for information pertaining
to the maximum month-end balance, average balance and rates of the Association's
borrowings for years ended September 30, 1998 and 1997.

Deposits. The Association offers a variety of deposit programs to its customers,
including passbook and statement savings accounts, NOW accounts, money market
deposit accounts, checking accounts and time deposits. Deposit account terms
vary according to the minimum balance required, the time periods the funds must
remain on deposit and the interest rate, among other factors. The Association's
deposit are obtained predominantly from its Fulton County market area. The
Association relies primarily on customer service and long-standing relationships
with customers to attract and retain deposits; however, market interest rates
and rates offered by competing financial institutions significantly affect the
Association's ability to attract and retain deposits. The Association does not
generally pay premium rates for time deposits in excess of $100,000 nor does the
Association use brokers to obtain deposits.

The Association prices its deposit offerings based upon market and competitive
conditions in its market area. Based on its experience, the Association believes
that its checking, savings and money market accounts are relatively stable
sources of deposits. However, the ability of the Association to attract and
maintain certificates of deposit and the rates paid on those deposits has been
and will continue to be significantly affected by market conditions.

The following table sets forth the dollar amount of deposits in various types of
deposit programs offered by the Association as of the dates indicated:
<TABLE>
<CAPTION>

                                                                          At September 30,
                                          -----------------------------------------------------------------------------------------
                                                    1998                          1997                             1996
                                          --------------------------    --------------------------     ----------------------------
                                                         Percent                       Percent                          Percent
                                           Amount        of Total        Amount        of Total           Amount        of Total
                                          -----------  -------------    -----------  -------------     -------------  -------------
                                                                         (Dollars in Thousands)
<S>                                         <C>              <C>          <C>              <C>             <C>              <C>   
Transaction and savings accounts
--------------------------------
Passbook and statement savings              $ 11,296         19.89%       $ 12,004         21.40%          $ 13,140         23.58%
Demand and N.O.W. accounts                     5,742         10.11%          5,148          9.17%             5,174          9.29%
Money market accounts                         12,564         22.12%         10,950         19.51%            10,392         18.65%
                                          -----------  -------------    -----------  -------------     -------------  -------------
Total transaction and savings accounts        29,602         52.12%         28,102         50.08%            28,706         51.52%
                                          -----------  -------------    -----------  -------------     -------------  -------------

Time Deposits
-------------
Under 4.00%                                        -              -              3              -                 -              -
4.00  -  4.99 %                                2,721          4.79%          3,994          7.12%            11,357         20.38%
5.00  -  5.99 %                               23,257         40.95%         21,942         39.10%            11,101         19.93%
6.00  -  6.99 %                                1,181          2.08%          2,046          3.65%             4,525          8.12%
7.00  -  7.99 %                                   32          0.06%              -              -                 -              -
8.00  -  and over                                  -              -             30          0.05%                27          0.05%
                                          -----------  -------------    -----------  -------------     -------------  -------------
Total time deposits                           27,191         47.88%         28,015         49.92%            27,010         48.48%
                                          -----------  -------------    -----------  -------------     -------------  -------------

Total deposits                              $ 56,793        100.00%       $ 56,117        100.00%          $ 55,716        100.00%
                                          ===========  =============    ===========  =============     =============  =============
</TABLE>



                                       29
<PAGE>

The following table sets forth the savings flows at the Association during the
periods indicated:

<TABLE>
<CAPTION>
                                                       Year Ended September 30,
                                     ---------------------------------------------------------
                                           1998              1997                 1996
                                     ---------------   ------------------   ------------------
                                                    (Dollars In Thousands)

<S>                                   <C>                   <C>                   <C>      
Opening balance                       $  56,117             $  55,716             $  57,866
Deposits                                134,900               143,875               116,344
Withdrawals                            (136,624)             (145,899)             (120,910)
Interest credited                         2,400                 2,425                 2,416
                                      ---------             ---------             ---------
Ending balance                        $  56,793             $  56,117             $  55,716
                                      =========             =========             =========

Net increase (decrease)               $     676             $     401             $  (2,150)
                                      =========             =========             =========

Percent increase (decrease)                1.20%                 0.72%                (3.72%)
                                      =========             =========             =========

</TABLE>
The following table indicates the amount of the Association's certificates of
deposit and other deposits by time remaining until maturity as of September 30,
1998:
<TABLE>
<CAPTION>

                                                                           Maturity
                                              ---------------------------------------------------------------
                                                                      Over            Over
                                                   3 Months          3 to 6          6 to 12          Over
                                                   or Less           Months          Months        12 Months          Total
                                              ---------------    ---------------  -------------   -----------       ------------
                                                                                   (In Thousands)

<S>                                                 <C>              <C>             <C>             <C>             <C>   
      Certificates of deposit less than
         $100,000                                   6,750            3,777           8,587           5,794           24,908
                                                                                                                   
      Certificates of deposit $100,000                                                                             
      or more                                       1,185              452               -             646            2,283
                                                  --------         --------        --------        --------        ---------
                                                                                                                   
      Total certificates of deposit                 7,935            4,229           8,587           6,440           27,191
                                                  ========         ========        ========        ========        =========
</TABLE>

                                       30
<PAGE>

The following table shows the rate and maturity information for the
Association's time deposits as of September 30, 1998:
<TABLE>
<CAPTION>
                                  Under            4.00 -       5.00 -       6.00 -   7.00 -   8.00 -                      Percent
                                  4.00%            4.99%        5.99%        6.99%    7.99%    8.99%         Total         of Total
                               -----------       -------      --------      -------   -----   --------      --------       --------
                                                                                             (Dollars In Thousands)
<S>                             <C>          <C>           <C>            <C>           <C>           <C>          <C>      <C>
 Time deposit accounts
  maturing in quarter ending:

 December 31, 1998                  $ -          $ 1,801       $ 6,043        $ 91     $ -       $ -          $ 7,935        29.18%
 March 31, 1999                       -            1,251         2,977           -       -         -            4,228        15.55%
 June 30, 1999                        -               10         3,458           -       -         -            3,468        12.75%
 September 30, 1999                   -               60         5,059           -       -         -            5,119        18.83%
 December 31, 1999                    -                -           735         259       -         -              994         3.66%
 March 31, 2000                       -                -           408         260       -         -              668         2.46%
 June 30, 2000                        -                -           515         275       -         -              790         2.91%
 September 30, 2000                   -                1         1,166         259       -         -            1,426         5.24%
 December 31, 2000                    -                -           199           8       -         -              207         0.76%
 March 31, 2001                       -                -           184           -       -         -              184         0.68%
 June 30, 2001                        -                -           131           -       -         -              131         0.48%
 September 30, 2001                   -                -           544           -       -         -              544         2.00%
 December 31, 2001                    -                -           286           -       -         -              286         1.05%
 Thereafter                           -                -         1,179           -       -        32            1,211         4.45%

                                  ------         --------     --------     --------   -----    ------       ---------
      Total                         $ -          $ 3,123      $ 22,884     $ 1,152     $ -      $ 32         $ 27,191       100.00%
                                  ======         ========     ========     ========   =====    ======       =========
                                                                                                                         
      Percent of total                -            11.49%        84.15%       4.24%      -      0.12%          100.00%    
</TABLE>



                                       31
<PAGE>

Subsidiary Activities

As a federally chartered savings and loan association, the Association is
permitted by OTS regulations to invest up to 2% of its assets in the stock of,
or loans to, service corporation subsidiaries, and may invest an additional 1%
of its assets in service corporations where such additional funds are used for
inner-city or community development purposes. In addition to investments in
service corporations, federal institutions are permitted to invest an unlimited
amount in operating subsidiaries engaged solely in activities which a federal
savings association may engage directly. At September 30, 1998, the Association
did not have any subsidiaries.

Competition

The Association faces strong competition both in originating real estate loans
and in attracting deposits. Competition in originating loans comes primarily
from commercial banks, credit unions, mortgage bankers and other savings
institutions, which also make loans secured by real estate located in the
Association's market area. The Association competes for loans principally on the
basis of the interest rates and loan fees it charges, the types of loans it
originates and the quality of services it provides to borrowers.

Competition for deposits is principally from commercial banks, credit unions,
mutual funds, securities firms and other savings institutions located in the
same communities. The ability of the Association to attract and retain deposits
depends on its ability to provide an investment opportunity that satisfies the
requirements of investors as to rate of return, liquidity, risk, convenient
locations and other factors. The Association competes for these deposits by
offering competitive rates, maintaining close ties within its local community,
advertising and marketing programs, convenient business hours and a
customer-oriented staff.

Employees

At September 30, 1998, the Association had a total of 27 employees including 2
part-time employees. None of the Association's employees are represented by any
collective bargaining agreement. Management considers its employee relations to
be good.

ITEM 2.  PROPERTIES

The following table sets forth information concerning the main office and the
branch office of the Association at September 30, 1998. At September 30, 1998,
the Association's premises had an aggregate net book value of approximately
$780,000.
<TABLE>
<CAPTION>

                                                                             Net Book Value at
Location                 Year Acquired            Owned or Leased           September 30, 1998
--------                 -------------            ---------------           ------------------

<S>                           <C>                 <C>                           <C>     
Main Office:                  1962                      own                     $550,000
52 North Main Street
Gloversville, NY  12078

Full Service Branch:          1983                      own                     $230,000 
295 Broadway                                                                    
Saratoga Springs, NY  12866                             
                                                        
</TABLE>

                                       32
<PAGE>

The Association believes that its current facilities are adequate to meet the
present and foreseeable future needs of the Association and the Holding Company.

The Association's depositor and borrower customer files are maintained in-house.
The net book value of the data processing and computer equipment utilized by the
Association at September 30, 1998 was approximately $230,000.

ITEM 3. LEGAL PROCEEDINGS

From time to time, the Company is involved as plaintiff or defendant in various
legal proceedings arising in the normal course of business. While the ultimate
outcome of these various legal proceedings cannot be predicted with certainty,
it is the opinion of management that the resolution of these legal actions
should not have a material effect on the Company's financial position or results
of operations.

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

During the fourth quarter of fiscal 1998, there were no matters submitted to
vote of shareholders of Adirondack Financial Services Bancorp, Inc.

                                    PART II

ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED SHAREHOLDER MATTERS

The following information included in the Annual Report to Shareholders for the
fiscal year ended September 30, 1998, (the "Annual Report"), is incorporated
herein by reference: "Shareholder Information - Common Stock," which appears on
page XX of the Annual Report.

ITEM 6. SELECTED FINANCIAL DATA

The following information included in the Annual Report is incorporated herein
by reference: "Selected Consolidated Financial Information" which appears on
page XX of the Annual Report.

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

The following information included in the Annual Report is incorporated herein
by reference: "Management's Discussion and Analysis of Financial Condition and
Results of Operations," which appears on pages XX through XX of the Annual
Report.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The following information included in the Annual Report is incorporated herein
by reference: "Management's Discussion and Analysis of Financial Condition and
Results of Operations - Asset/Liability Management," which appears on pages XX
through XX of the Annual Report.



                                       33
<PAGE>

ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

The following information included in the Annual Report is incorporated herein
by reference: The consolidated statements of financial condition of Adirondack
Financial Services Bancorp, Inc. and Subsidiary as of September 30, 1998 and
1997, and the related consolidated statements of operations, shareholders'
equity and cash flows for each of the years in the three-year period ended
September 30, 1998, together with the related notes and independent auditors'
report thereon, all of which appears on pages 22 through 50 of the Annual Report
and "Summary of Unaudited Consolidated Quarterly Financial Information" which
appears on page 52 of the Annual Report.

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

None.

                                   PART III.

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

Information concerning directors of the Registrant is incorporated herein by
reference from the Company's definitive Proxy Statement for the Annual Meeting
of Stockholders to be held in 1999, a copy of which will be filed not later than
120 days after the close of the fiscal year.

ITEM 11. EXECUTIVE COMPENSATION

Information concerning executive compensation is incorporated herein by
reference from the Company's definitive Proxy Statement for the Annual Meeting
of Stockholders to be held in 1999, a copy of which will be filed not later than
120 days after the close of the fiscal year.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

Information concerning security ownership of certain beneficial owners and
management is incorporated herein by reference from the Company's definitive
Proxy Statement for the Annual Meeting of Stockholders to be held in 1999, a
copy of which will be filed not later than 120 days after the close of the
fiscal year.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

Information concerning certain relationships and related transactions is
incorporated herein by reference from the Company's definitive Proxy Statement
for the Annual Meeting of Stockholders to be held in 1999, a copy of which will
be filed not later than 120 days after the close of the fiscal year.

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

(a) Listed below are all financial statements and exhibits filed as part of this
report:

     (1)  The consolidated statements of financial condition of Adirondack
          Financial Services Bancorp, Inc. and subsidiary as of September 30,
          1998 and 1997, and the related consolidated statements of operations,
          shareholders' equity and cash flows for each of the years in the
          three-year period ended September 30, 1998, together with the related
          notes and the independent auditors' report thereon, appearing in the
          Annual Report on pages 22 through 50 are incorporated herein by
          reference.

                                       34
<PAGE>

     (2)  Schedules omitted as they are not applicable

     (3)  Exhibits

The following exhibits are either filed as part of this report or are
incorporated herein by reference: Regulation S-K Exhibit

Reference 
  Number                      Description

     3.1       Certificate of Incorporation of Adirondack Financial Services
               Bancorp, Inc. (Incorporated by reference to Exhibit 3.1 to the
               Registration Statement on Form S-1 No. #333-43697, of Adirondack
               Financial Services Bancorp, Inc., filed on February 9, 1998,
               (hereinafter "Form S-1")

     3.2       By laws of Adirondack Financial Services Bancorp, Inc.
               (Incorporated by reference to Exhibit 3.2 to Form 8-K filed on
               November 19, 1998.)

     4         Specimen Stock Certificate (Incorporated by reference to Exhibit
               4 to Form S-1.)

     10.1      Adirondack Financial Services Bancorp, Inc. 1998 Stock Option and
               Incentive Compensation Plan (Incorporated by reference to Proxy
               Statement for Special Meeting of Stockholders of Adirondack
               Financial Services Bancorp, Inc. held on October 7, 1998.)

     10.2      Adirondack Financial Services Bancorp, Inc. 1998 Management
               Recognition Plan (Incorporated by reference to Proxy Statement
               for Special Meeting of Stockholders of Adirondack Financial
               Services Bancorp, Inc. held on October 7, 1998.)

     10.3      Change-In-Control Severance Agreement between Lewis E. Kolar and
               Adirondack Financial Services Bancorp, Inc. (Incorporated by
               reference to Exhibit 10.3 to Forms S-1.)

     10.4      Change-In-Control Severance Agreement between Menzo D. Case and
               Adirondack Financial Services Bancorp, Inc. (Incorporated by
               reference to Exhibit 10.3 to Forms S-1.)

     10.5      Amended Adirondack Financial Services Bancorp, Inc. Employee
               Stock Ownership Plan on October 7, 1998

     13        1998 Annual Report to security holders

     21        Subsidiaries of the registrant



                                       35
<PAGE>

SIGNATURES

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

                  Adirondack Financial Services Bancorp, Inc.
                            (registrant)
                 
                 
                  By: /s/ Lewis E. Kolar 
                  -------------------------------------------------- 
                  Lewis E. Kolar
                  Director, President & Chief Executive Officer
                 
                  Date:  December 29, 1998
        
Pursuant to the requirements of the Securities and Exchange Act of 1934, this
report has been signed below by the following persons
on behalf of the registrant and in the capacities and on the dates indicated.


Signature                     Title                         Date
---------                     -----                         ----



/s/ Lewis E. Kolar            Director, President & Chief     December 29, 1998
------------------------      Executive Officer              
    Lewis E. Kolar                                           
                                                             
                                                             
/s/ Menzo D. Case             Chief Financial Officer         December 29, 1998
------------------------      (Principal Financial           
    Menzo D. Case             Officer & Principal            
                              Accounting Officer)            
                                                             
                                                             
/s/ Richard R. Ruby           Chairman of the Board           December 29, 1998
------------------------                                     
    Richard R. Ruby                                          
                                                             
/s/ Dr. Priscilla J. Bell     Director                        December 29, 1998
-------------------------                                    
    Dr. Priscilla J. Bell                                    
                                                             
                                                             
/s/ Timothy E. Delaney        Director                        December 29, 1998
-------------------------                                    
    Timothy E. Delaney                                       
                                                             
                                                             
/s/ Donald I. Lee             Director                        December 29, 1998
-------------------------                                    
    Donald I. Lee                                            
                                                             
                                                             
/s/ Dr. Robert J. Sofarelli   Director                        December 29, 1998
-------------------------                                    
    Dr. Robert J. Sofarelli                                  
                                                             
                                                          



                                       36