FORM 10-Q

                       SECURITIES AND EXCHANGE COMMISSION

                             Washington, D.C. 20549

(Mark One)

x QUARTERLY  REPORT  PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES  EXCHANGE
ACT OF 1934

For the quarterly period ended 09/30/96

                                       OR

o 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: 000-20809

                                SIS BANCORP, INC.
               (Exact Name of Issuer as Specified in its Charter)

Massachusetts                                                    04-3303264

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


SIS BANCORP, INC.
1441 Main Street
Springfield, Massachusetts                             01102
(Address of Principal Executive Offices)             (Zip Code)

                                 (413) 748-8000
                 (Issuers Telephone Number, Including Area Code)

         Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the  Securities  Exchange  Act of
1934  during  the  preceding  12 months  (or for such  shorter  period  that the
registrant was required to file such reports),  and (2) has been subject to such
filing requirements for the past 90 days. Yes X No ____

         Indicate the number of shares  outstanding of the  registrant's  common
stock, as of the latest  practicable  date:  5,722,600 shares as of November 12,
1996.


<PAGE>



                    CAUTIONARY STATEMENT FOR PURPOSES OF THE
                PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995


This Report contains certain  "forward-looking  statements" including statements
concerning plans,  objectives,  future events or performance and assumptions and
other  statements  which are other  than  statements  of  historical  fact.  SIS
Bancorp,  Inc. and its  subsidiaries  (the "Company")  wishes to caution readers
that the following important factors,  among others, may have affected and could
in the future affect the Company's  actual results and could cause the Company's
actual results for subsequent  periods to differ materially from those expressed
in any forward-looking statement made by or on behalf on the Company herein: (i)
the effect of  changes  in laws and  regulations,  including  federal  and state
banking  laws and  regulations,  with which the  Company  must  comply,  and the
associated  costs of compliance with such laws and regulations  either currently
or in the  future as  applicable;  (ii) the  effect  of  changes  in  accounting
policies and practices,  as may be adopted by the regulatory agencies as well as
by the  Financial  Accounting  Standards  Board,  or of changes in the Company's
organization,  compensation and benefit plans; (iii) the effect on the Company's
competitive  position  within its market  area of the  increasing  consolidation
within the banking and financial  services  industries,  including the increased
competition from larger regional and out-of-state banking  organizations as well
as  nonbank  providers  of  various  financial  services;  (iv)  the  effect  of
unforeseen  changes  in  interest  rates;  and (v) the  effect of changes in the
business cycle and downturns in the local, regional or national economies.

<PAGE>



                       SIS BANCORP, INC. AND SUBSIDIARIES


                                    FORM 10-Q

                                      INDEX


                                                                            PAGE
NO.

   PART I.     FINANCIAL INFORMATION

   Item 1.     Financial Statements (Unaudited)

   Condensed Consolidated Statements of Operations for the
   three and nine months ended September 30, 1996 and 1995.....................1

   Condensed Consolidated Statements of Financial Condition
   at September 30, 1996 and December 31, 1995.................................2

   Condensed Consolidated Statements of Cash Flows for the
   nine months ended September 30, 1996 and 1995...............................3

   Condensed Consolidated Statements of Changes in Stockholders' Equity
   for the nine months ended September 30,  1996 and 1995......................5

   Notes to the Unaudited Financial Statements.................................6


   Item 2.     Management's Discussion and Analysis of
               Financial Condition and Results of Operations...................7


   PART II     OTHER INFORMATION

   Item 1.     Legal Proceedings..............................................27

   Item 2.     Changes in Securities..........................................27

   Item 3.     Default upon Senior Securities.................................27

   Item 4.     Submission of Matters to a Vote of Security Holders............27

   Item 5.     Other Information..............................................27

   Item 6.     Exhibits and Reports on Form 8-K...............................27



   SIGNATURES.................................................................28



<PAGE>


<TABLE>
<CAPTION>
                                                 SIS BANCORP, INC. AND SUBSIDIARIES
                                           CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
                                               (In Thousands Except Per Share Amounts)

                                                                          (Unaudited)                   (Unaudited)
                                                                      Three Months Ended             Nine Months Ended
                                                                  ----------------------------   ---------------------------
                                                                   September      September       September      September
                                                                     1996            1995           1996           1995
                                                                  ------------   -------------   ------------   ------------
<S>                                                               <C>            <C>             <C>            <C>  
Interest and dividend income
        Loans                                                     $    12,472    $     11,868    $    35,946    $    33,897
        Investment securities available for sale                        5,934           3,154         15,230          8,484
        Investment securities held to maturity                          3,279           2,912          9,494          7,965
        Federal funds sold and interest bearing deposits                  121             353            380            970
                                                                  ------------   -------------   ------------   ------------
                       Total interest and dividend income              21,806          18,287         61,050         51,316
                                                                  ------------   -------------   ------------   ------------
Interest expense
        Deposits                                                        8,270           8,014         24,338         22,258
        Borrowings                                                      2,291             834          5,439          1,108
                                                                  ------------   -------------   ------------   ------------
                       Total interest expense                          10,561           8,848         29,777         23,366
                                                                  ------------   -------------   ------------   ------------
Net interest and dividend income                                       11,245           9,439         31,273         27,950
Less: Provision for possible loan losses                                  750           1,002          2,200          3,357
                                                                  ------------   -------------   ------------   ------------
Net interest and dividend income after provision
        for possible loan losses                                       10,495           8,437         29,073         24,593

Noninterest income:
        Net gain (loss) on sale of loans                                  105              72            537             62
        Net gain (loss) on sale of securities                              62               -             64             14
        Fees and other income                                           2,761           2,099          7,645          6,335
                                                                  ------------   -------------   ------------   ------------
                       Total noninterest income                         2,928           2,171          8,246          6,411
                                                                  ------------   -------------   ------------   ------------

Noninterest expense:
        Operating expenses:
                 Salaries and employee benefits                         4,408           3,966         12,900         11,674
                 Occupancy expense of bank premises, net                  810             887          2,387          2,592
                 Furniture and equipment expense                          558             482          1,614          1,398
                 Other operating expenses                               3,846           3,356         10,617         10,671
                                                                  ------------   -------------   ------------   ------------
                        Total operating expenses                        9,622           8,691         27,518         26,335
                                                                  ------------   -------------   ------------   ------------
        Foreclosed real estate expense                                     29              93            252            535
        Net expense of real estate operations                              (8)            (38)          (170)            88
                                                                  ------------   -------------   ------------   ------------
                        Total noninterest expense                       9,643           8,746         27,600         26,958
Income before income tax expense                                        3,780           1,862          9,719          4,046
Income tax (benefit) expense                                           (6,421)             50         (5,931)           164
                                                                  ------------   -------------   ------------   ------------
                        Net income                                $    10,201    $      1,812    $    15,650    $     3,882
                                                                  ============   =============   ============   ============

Earnings per share and pro forma earnings per share: (1)
         Primary                                                  $      1.85    $       0.35    $      2.86    $      0.76
         Fully diluted                                            $      1.84    $       0.34    $      2.82    $      0.75

Weighted average and pro forma weighted average shares
outstanding: (1)
         Primary                                                    5,511,554       5,244,741      5,475,422      5,139,672
         Fully diluted                                              5,556,512       5,264,355      5,543,980      5,180,213

<FN>
(1)  Net income per share for the three and nine months ended  September  30, 1996 and the three months ended  September 30, 1995 is
     computed on weighted  average shares  outstanding for the period.  Net income per share for the nine months ended September 30,
     1995 is computed on a pro forma basis as if the  conversion of the Bank from mutual to stock form had been  completed as of the
     beginning of the period presented.

                                    See accompanying Notes to the Unaudited Financial Statements
</FN>
</TABLE>

                                        1



<PAGE>


<TABLE>
<CAPTION>
                                                 SIS BANCORP, INC. AND SUBSIDIARIES
                                      CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
                                                 (In Thousands Except Share Amounts)


                                                                                  (Unaudited)
                                                                                 September 30,       December 31,
                                                                                       1996               1995
                                                                                -----------------   ----------------
<S>                                                                             <C>                 <C>
ASSETS

Cash and due from banks                                                          $        34,709     $       30,377
Federal funds sold and interest bearing deposits                                          17,545              8,045
Investment securities available for sale                                                 386,050            246,984
Investment securities held to maturity (fair value: $193,819 at September
  30, 1996 and $172,930 at December 31, 1995)                                            194,132            172,793
Loans receivable, net of allowance for possible losses
  ($ 15,488 at September 30, 1996 and $ 14,986 at December 31, 1995)                     592,051            558,663
Accrued interest and dividends receivable                                                  8,440              7,109
Investments in real estate and real estate partnerships                                    4,858              6,092
Foreclosed real estate, net                                                                  512              1,529
Bank premises, furniture and fixtures, net                                                25,660             25,706
Other assets                                                                              20,609             13,680
                                                                                -----------------   ----------------
    Total asset                                                                  $     1,284,566     $    1,070,978
                                                                                =================   ================

LIABILITIES AND STOCKHOLDERS' EQUITY

Deposits                                                                         $       954,132     $      885,386
Federal Home Loan Bank advances                                                           48,189             41,500
Securities sold under agreements to repurchase                                           151,144             31,101
Loans payable                                                                              3,026              5,470
Mortgage escrow                                                                            6,294              4,193
Accrued expenses and other liabilities                                                    24,721             21,859
                                                                                -----------------   ----------------
      Total liabilities                                                                1,187,506            989,509
                                                                                -----------------   ----------------

Stockholders' equity:
Preferred stock ($.01 par value; 5,000,000 shares
  authorized: no shares issued and outstanding)                                                -                  -
Common Stock ($.01 par value; 25,000,000 shares authorized; shares
issued and outstanding: 5,722,600 in 1996 and 5,710,700 in 1995)                              57                 57
Unearned compensation                                                                     (4,282)            (4,937)
Additional paid in capital                                                                42,469             41,790
Retained earnings                                                                         58,483             42,833
Net unrealized gain (loss) on investment securities available for sale                       333              1,726
                                                                                -----------------   ----------------
      Total stockholders' equity                                                          97,060             81,469
                                                                                -----------------   ----------------
Total liabilities and stockholders' equity                                       $     1,284,566     $    1,070,978
                                                                                =================   ================

<FN>
                                    See accompanying Notes to the Unaudited Financial Statements
</FN>
</TABLE>

                                       2


<PAGE>


<TABLE>
<CAPTION>
                                                 SIS BANCORP, INC. AND SUBSIDIARIES
                                           CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
                                                       (Dollars In Thousands)

                                                                                 (Unaudited)
                                                                              Nine Months Ended
                                                                                September 30,
                                                                            1996              1995
                                                                       ---------------    --------------
<S>                                                                    <C>                <C> 
Cash Flows From Operating Activities
Net income                                                              $      15,650      $      3,882
Adjustments to reconcile net income to net cash provided by/
   (used for)  operating activities
     Provision for possible loan losses                                         2,200             3,357
     Provision for foreclosed real estate                                           -               556
     Depreciation                                                               2,271             2,270
     Amortization of premium on investment securities, net                      1,585               615
     ESOP and restricted stock expenses                                         1,104               515
     Investment security (gains)                                                  (64)              (14)
     (Income) loss from equity investment in partnerships                         (47)               39
     (Gain) on sale of loans                                                     (537)              (62)
     Disbursements for mortgage loans held for sale                           (65,258)          (44,473)
     Receipts from mortgage loans held for sale                                65,795            44,535
     Loss on sale of fixed assets and real estate                                 343               158
     Changes in assets and liabilities:
         (Increase) in other assets, net                                       (8,501)           (2,351)
         Decrease (increase) in accrued expenses and other liabilities          3,092           (12,307)
                                                                       ---------------    --------------
             Net cash provided by/(used for) operating activities              17,633            (3,280)
                                                                       ---------------    --------------


Cash Flows From Investing Activities

    Proceeds from sales of investment securities  - available for sale         30,863                 -
    Proceeds from maturities and principal payments received
       on investment securities - available for sale                           90,816            73,862
    Purchase of investment securities - available for sale                   (262,977)         (105,633)
    Proceeds from maturities and principal payments received
       on investment securities - held to maturity                             37,211            15,291
    Purchase of investment securities - held to maturity                      (58,991)          (50,046)
    Proceeds from sale of investments in real estate partnerships                 475                 -
    Net change in loans receivable                                            (40,489)          (45,527)
    Net change in foreclosed real estate                                        1,862               334
    Proceeds from sale of loans                                                 4,056               912
    Proceeds from sale of fixed assets and leases                                 267                 -
    Purchase of fixed assets                                                   (2,029)           (3,834)
                                                                       ---------------    --------------
             Net cash (used for) investing activities                        (198,936)         (114,641)
                                                                       ---------------    --------------

<FN>
                                    See accompanying Notes to the Unaudited Financial Statements
</FN>
</TABLE>

                                       3

<PAGE>


<TABLE>
<CAPTION>
                                                 SIS BANCORP, INC. AND SUBSIDIARIES
                                     CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (continued)
                                                       (Dollars In Thousands)

                                                                                 (Unaudited)
                                                                              Nine Months Ended
                                                                                September 30,
                                                                            1996              1995
                                                                       ---------------    --------------
<S>                                                                    <C>                <C>   
Cash Flows from Financing Activities

  Net proceeds from stock conversion                                                -            35,911
  Net increase in deposits                                                     68,746            22,274
  Net increase in borrowings                                                  124,288            62,821
  Net increase in mortgagors' escrow deposits                                   2,101             1,536
                                                                       ---------------    --------------
        Net cash provided by financing activities                             195,135           122,542
                                                                       ---------------    --------------

Increase in cash and cash equivalents                                          13,832             4,621

Cash and cash equivalents, beginning of year                                   38,422            55,720
                                                                       ---------------    --------------

Cash and cash equivalents, end of period                                $      52,254      $     60,341
                                                                       ===============    ==============


Supplemental disclosures of cash flow information:
     Cash paid during the year for interest to depositors
             and interest on debt                                       $      29,861      $     23,348

Non-cash investing activities:
     Transfers to foreclosed real estate, net                           $         845      $        244

<FN>
                                    See accompanying Notes to the Unaudited Financial Statements
</FN>
</TABLE>

                                       4

<PAGE>


<TABLE>
<CAPTION>
                                                 SIS BANCORP, INC. AND SUBSIDIARIES
                                 CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
                                        For The Nine Months Ended September 30, 1996 and 1995
                                                       (Dollars In Thousands)

                                                                                                      Net unrealized
                                                                                                       gain (loss)
                                                                                                      on investment
                                                                            Additional                  securities
                                                  Common       Unearned      Paid-In     Retained        available
                                                   Stock     Compensation    Capital     Earnings        for sale          Total
                                                ------------ ------------- ------------ ------------ ----------------  -------------


<S>                                             <C>          <C>           <C>          <C>          <C>               <C>  
Balance at December 31, 1995                     $       57   $    (4,937)  $   41,790   $   42,833   $        1,726    $    81,469
Net income                                                -             -            -       15,650                -         15,650
Unearned compensation                                     -          (315)         297            -                -            (18)
Decrease in unearned compensation                         -           970          382            -                -          1,352
Change in unrealized gain (loss) on investment
    securities available for sale                         -             -            -            -           (1,393)        (1,393)
                                                ------------ ------------- ------------ ------------ ----------------  -------------
Balance at September 30, 1996                    $       57   $    (4,282)  $   42,469   $   58,483   $          333    $    97,060
                                                ============ ============= ============ ============ ================  =============


Balance at December 31, 1994                     $        -   $         -   $        -   $   31,624   $       (3,121)    $   28,503
Net income                                                -             -            -        3,882                -          3,882
Issuance of common stock                                 56             -       39,665         (250)               -         39,471
Unearned compensation                                     -        (3,560)           -            -                -         (3,560)
Decrease in unearned compensation                         -           312          203            -                -            515
Change in unrealized gain (loss) on investment
    securities available for sale                         -             -            -            -            4,211          4,211
                                                ------------ ------------- ------------ ------------ ----------------  -------------
Balance at September 30, 1995                    $       56   $    (3,248)  $   39,868   $   35,256   $        1,090    $    73,022
                                                ============ ============= ============ ============ ================  =============

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

                                       5
<PAGE>


                       SIS BANCORP, INC. AND SUBSIDIARIES
                   NOTES TO THE UNAUDITED FINANCIAL STATEMENTS


1. Holding Company Formation
SIS Bancorp,  Inc., a  Massachusetts  Corporation,  was organized by Springfield
Institution  for Savings (the "Bank") for the purpose of  reorganizing  the Bank
into a holding company  structure.  The Company acquired 100% of the outstanding
shares of the Bank's common stock,  par value $1.00 per share, in a 1:1 exchange
for shares of the Company's common stock, par value $.01 per share (the "Company
Common Stock").  Upon the  effectiveness of such  share-for-share  exchange (the
"Reorganization") on June 21, 1996, the Bank became the wholly-owned  subsidiary
of the Company and the Bank's former  stockholders  became  stockholders  of the
Company.  The  Reorganization  was accounted for as a pooling of interests,  and
accordingly,  the  information  included in the financial  statements  and their
accompanying  notes presents the combined results of the Bank and the Company as
if the merger had been effected on January 1, 1995.

2. Condensed Consolidated Financial Statements
The Condensed  Consolidated  Financial Statements of the Company included herein
are unaudited, and in the opinion of Management all adjustments, consisting only
of  normal  recurring  adjustments  necessary  for a  fair  presentation  of the
financial  condition,  results of operations  and cash flows,  as of and for the
periods covered herein, have been made. Certain information and note disclosures
normally  included in  Condensed  Consolidated  Financial  Statements  have been
omitted  as they are  included  in the most  recent  Federal  Deposit  Insurance
Corporation  ("FDIC")  Form F-2  Annual  Report  and  accompanying  Notes to the
Financial  Statements  (the  "Form  F-2")  filed by the Bank for the year  ended
December 31, 1995. The Form F-2 was included as Exhibit 99.3 in the registration
statement  on Form 8-A filed by the Company  with the  Securities  and  Exchange
Commission on June 3, 1996.  Management believes that the disclosures  contained
herein are adequate to make a fair presentation.

It is suggested that these unaudited condensed consolidated financial statements
be read in conjunction with the Form F-2.

The results for the three and nine month interim  periods covered hereby are not
necessarily indicative of the operating results for a full year.

3. New Accounting Pronouncements
Effective January 1, 1996, the Company adopted Statement of Financial Accounting
Standards ("SFAS") No. 122,  "Accounting for Mortgage Service Rights".  SFAS 122
amends certain  provisions of SFAS 65,  "Accounting for Certain Mortgage Banking
Activities",  to eliminate the accounting  distinction between rights to service
mortgage loans for others that are acquired through loan origination  activities
and those acquired through purchase transactions. The adoption of this statement
did not  have a  material  affect  on the  Company's  financial  position  as of
September  30, 1996 or on the results of its  operations  for the three and nine
month periods then ended.

4. Dividend Policy
While the Company does not pay a cash dividend on its common stock at this time,
the Board of Directors of the Company  periodically  reviews the appropriateness
of a cash dividend in light of the Company's existing policies.

5. Earnings Per Share and Pro Forma Earnings Per Share
Net income per share for the three and nine months ended  September 30, 1996 and
the three  months  ended  September  30, 1995 is  computed  on  weighted  shares
outstanding  for the  period.  Net  income per share for the nine  months  ended
September  30, 1995 is  computed on a pro forma basis as if the stock  issued in
the  conversion  of the Bank from mutual to stock form had been issued as of the
beginning of the period.

6. Income Taxes
The Company  accounts for income taxes in accordance  with FAS 109,  "Accounting
for Income Taxes." FAS 109 requires an asset and liability  method of accounting
for income taxes.  Under the asset and liability  method,  deferred income taxes
are  recognized  for the  estimated  future  tax  consequences  attributable  to
differences  between the financial statement carrying amounts of existing assets
and  liabilities  and their  respective tax bases.  In accordance  with FAS 109,
income  tax  benefits  associated  with  deductible  temporary  differences  are
evaluated  periodically  based on the weight of available evidence as to whether
it is more likely than not that the income tax benefits will be realized.

In the third quarter of 1996 the Company  recorded an income tax benefit of $8.0
resulting  primarily from two non-recurring tax events. The Company recognized a
one time gain of $2.8 million as a result of the recently enacted Small Business
Jobs   Protection  Act  of  1996.  In  addition,   Management   reevaluated  the
realizability of its deferred tax asset and determined that, based on the weight
of  available  evidence,  it was more likely than not that it would be realized.
Accordingly,  the Company  recognized the remainder of its deferred tax asset of
$5.2 million.

                                       6
<PAGE>


    ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
                               FINANCIAL CONDITION

                             (DOLLARS IN THOUSANDS)


Overview

As discussed in Note 1 of the financial  statements included in this filing, SIS
Bancorp,  Inc., a Massachusetts  corporation (the  "Company"),  was organized by
Springfield Institution for Savings (the "Bank") for the purpose of reorganizing
the Bank into a  holding  company  structure  ("the  Reorganization").  Upon the
effectiveness of the Reorganization, the Bank became the wholly-owned subsidiary
of the Company and the Bank's former  stockholders  became  stockholders  of the
Company.  The  Company's  Common Stock is quoted on the NASDAQ  National  Market
System under the symbol "SISB", which had previously been used by the Bank.

The  Bank is a  state  chartered,  stock  form  savings  bank  headquartered  in
Springfield,  MA. The Bank provides a wide variety of financial  services  which
include retail and commercial  banking,  residential  mortgage  origination  and
servicing,  commercial real estate lending and consumer lending. The Bank serves
its primary  market of Hampden and  Hampshire  Counties  through a network of 22
retail branches. The Bank completed a successful conversion from mutual to stock
form (the  "Conversion") on February 7, 1995.  Through the issuance of 5,562,500
shares of common stock,  the Bank  received  proceeds of $35.9  million,  net of
Conversion  related costs and the Company's  Employee Stock  Ownership Plan (the
"ESOP").

The Bank's revenues are derived  principally from interest  payments on its loan
portfolios  and  mortgage-backed  and other  investment  securities.  The Bank's
primary  sources of funds are  deposits,  borrowings  and principal and interest
payments on loans and mortgage-backed securities.


Results  of  Operations  for the  Three  Months  Ended  September  30,  1996 and
September 30, 1995

The Company  reported net income of $10.2 million,  or $1.84 per share,  for the
third  quarter of 1996 as compared to net income of $1.8  million,  or $0.34 per
share for the same period last year. The financial  results for the quarter were
affected by two  nonrecurring  tax events  totaling  $8.0  million.  The Company
recognized a one time gain of $2.8  million as a result of the recently  enacted
Small Business Job Protection Act of 1996. In addition,  the Company  recognized
the  remainder  of its  deferred  tax asset of $5.2  million.  The Company  also
experienced  improved results in core earnings primarily attributed to increased
net  interest  income  and  noninterest  income,   partially  offset  by  higher
noninterest expenses.

Net Interest Income
Net interest income represents the difference between income on interest-earning
assets and  expense on  interest-bearing  liabilities.  Net  interest  income is
affected by the mix and volume of assets and  liabilities,  and the movement and
level of interest rates.

The following  table sets forth,  for the period  indicated,  average  balances,
interest  income  and  expense,  and  yields  earned or rates  paid on the major
categories of assets and  liabilities.  Non-accrual  loans have been included in
the  appropriate   average  balance  loan  category,   but  unpaid  interest  on
non-accrual  loans has not been  included for purposes of  determining  interest
income. In addition,  investment  securities available for sale are reflected at
amortized cost.

                                       7

<PAGE>

<TABLE>
<CAPTION>
                                                                   Three Months Ended September 30,
                                         ---------------------------------------------------------------------------------------
                                                         1996                                             1995
                                         -----------------------------------------   -------------------------------------------
                                            Average                     Average         Average                       Average
                                            Balance       Interest    Yield/Cost        Balance        Interest     Yield/Cost
                                         --------------  -----------  ------------   ---------------  ------------  ------------
                                                                     
<S>                                      <C>             <C>          <C>            <C>              <C>           <C>
Interest-earning assets:                                             
Fed funds sold and interest-bearing                                  
deposits                                  $      9,029    $     122         5.29%     $      23,829    $      353         5.80%
Investment securities held to maturity         193,415        3,279         6.78%           199,396         2,912         5.84%
Investment securities available for sale       353,556        5,933         6.71%           182,225         3,154         6.92%
Residential real estate loans                  241,064        4,764         7.90%           273,150         5,474         8.02%
Commercial real estate loans                   119,211        2,596         8.71%           113,013         2,363         8.36%
Commercial loans                               139,128        3,053         8.59%           102,886         2,495         9.49%
Home equity loans                               87,201        1,834         8.37%            60,292         1,396         9.13%
Consumer loans                                   4,373          225        20.58%             6,354           140         8.81%
                                         --------------  -----------  ------------   ---------------  ------------  ------------
                                                                     
Total interest-earning assets                1,146,977       21,806         7.60%           961,545        18,287         7.61%
                                                                     
Allowance for loan losses                      (15,195)                                     (16,219)
Non-interest-earning assets                     86,001                                       71,154
                                         --------------                              ---------------
    Total assets                          $  1,217,783    $  21,806                   $   1,016,480        18,287
                                         ==============  ===========                 ===============  ============
                                                                     
Interest-bearing liabilities                                         
Deposits                                                             
  Savings accounts                        $    196,741   $    1,236         2.50%     $     185,510    $    1,168         2.50%
  NOW accounts                                  56,639          156         1.10%            54,436           177         1.29%
  Money market accounts                        208,641        1,740         3.32%           206,811         1,740         3.34%
  Time deposit accounts                        389,219        5,137         5.25%           359,883         4,929         5.43%
                                         --------------  -----------  ------------   ---------------  ------------  ------------
Total interest-bearing deposits                851,240        8,269         3.86%           806,640         8,014         3.94%
                                                                     
Borrowed funds                                 162,513        2,292         5.52%            53,543           834         6.10%
                                         --------------  -----------  ------------   ---------------  ------------  ------------
                                                                     
Total interest-bearing liabilities           1,013,753       10,561         4.14%           860,183         8,848         4.08%
Non-interest-bearing liabilities               115,809                                       85,959
                                         --------------                              ---------------
Total liabilities                            1,129,562                                      946,142
Stockholders' equity                            88,221                                       70,338
                                         --------------                              ---------------
    Total liabilities and stockholders'                              
       equity                             $  1,217,783    $  10,561                   $   1,016,480    $    8,848 
                                         ==============  ===========                 ===============  ============
                                                                     
Net interest income/spread                                  $11,245         3.46%                          $9,439         3.53%
                                                         ===========  ============                    ============  ============
                                                                     
Net interest margin as a % of interest-                              
earning assets                                                              3.92%                                         3.93%
                                                                      ============                                  ============
</TABLE>


Net  interest  income for the three months  ended  September  30, 1996 was $11.2
million  compared to $9.4 million for the three months ended September 30, 1995,
an increase of $1.8 million or 19.1%. This increase is primarily due to a $185.4
million increase in average interest-earning assets.

Total interest income was $21.8 million for the three months ended September 30,
1996, an increase of $3.5 million or 19.2% from the same period last year.  This
increase is attributable to higher levels of  interest-earning  assets.  Average
interest-earning  assets  totaled  $1.1  billion  in the third  quarter  of 1996
compared to $961.5  million in the third  quarter of 1995, an increase of $185.4
million or 19.3%. Total investments  increased $165.4 million and were funded by
higher deposit levels and borrowed funds. Total loans increased $34.9 million as
the  Company  continued  to  focus on the  commercial  and  home  equity  market
segments,  which  grew by $36.2  million  or 35.2% and $26.5  million  or 43.7%,
respectively.  Residential  real estate loan balances  declined $32.1 million or
11.8%,  reflecting significant  refinancing activity during the first quarter of
1996 combined with a decrease in adjustable rate mortgage  production volume for
the nine months  ended  September  30, 1996 versus the same period in 1995.  The
Company  originates  long-term  fixed rate  mortgages  for sale in the secondary
market and generally  holds  adjustable  rate  mortgages in the  Company's  loan
portfolio.

                                       8

<PAGE>


Total  interest  expense was $10.6 million for the three months ended  September
30, 1996 compared to $8.8 million during the same period in 1995, an increase of
$1.7  million  or  19.4%.   This  increase  is   attributable  to  increases  in
interest-bearing deposits and borrowed funds.  Interest-bearing deposits totaled
$851.2  million  for the quarter  ended  September  30, 1996  compared to $806.6
million for the same period in 1995, an increase of $44.6 million or 5.5%.  This
growth occurred  primarily in Time and Savings  deposits,  which increased $29.3
and $11.2 million  respectively.  Time  deposits  increased as a result of a new
nine month CD  product,  which was  introduced  in the  second  quarter of 1996.
Management  believes that savings deposit growth reflects the continued  success
of the totally free savings  account,  a key feature of the  Company's  consumer
strategy.  Borrowed  funds  averaged  $162.5  million for the three months ended
September  30,  1996  compared  to $53.5  million  for the same  period  in 1995
reflecting  the use of Federal Home Loan Bank ("FHLB")  advances and  repurchase
agreements to leverage a portion of the Company's capital.

The following table presents the changes in net interest  income  resulting from
changes in interest  rates or changes in the volume of  interest-earning  assets
and interest-bearing liabilities during the periods indicated. Changes which are
attributable  to both rate and volume  have been  allocated  evenly  between the
change in rate and volume components.


<TABLE>
<CAPTION>
                                                             Three months ended September 30,
                                                                        1996 versus 1995
                                                    ---------------------------------------------------
                                                                Increase (Decrease) Due to
                                                    ---------------------------------------------------
                                                       Volume             Rate               Net
                                                    --------------    --------------    ---------------

<S>                                                 <C>               <C>               <C>
Interest-earning assets:
  Federal funds sold and
     interest bearing deposits                       $       (210)     $        (21)     $        (231)
  Investment securities held to maturity                      (94)              461                367
  Investment securities available for sale                  2,922              (142)             2,780
  Residential real estate loans                              (640)              (71)              (711)
  Commercial real estate loans                                132               101                233
  Commercial loans                                            837              (279)               558
  Home equity loans                                           584              (146)               438
  Consumer loans                                              (73)              158                 85
                                                    --------------    --------------    ---------------

Total interest-earning assets                               3,458                61              3,519
                                                    --------------    --------------    ---------------

Interest-bearing liabilities:
Deposits:
  Savings accounts                                             71                 -                 71
  NOW accounts                                                  7               (28)               (21)
  Money market accounts                                        15               (15)                 -
  Time deposit accounts                                       394              (189)               205
                                                    --------------    --------------    ---------------

Total deposits                                                487              (232)               255

Borrowed funds                                              1,617              (159)             1,458
                                                    --------------    --------------    ---------------

Total interest-bearing liabilities                          2,104              (391)             1,713
                                                    --------------    --------------    ---------------

Change in net interest income                        $      1,354      $        452      $       1,806
                                                    ==============    ==============    ===============
</TABLE>

                                       9



<PAGE>


Provision for Possible Loan Losses
The Company  added $0.8 million to its provision for possible loan losses in the
third quarter of 1996 compared to $1.0 million in the third quarter of 1995. The
provision  for possible loan losses is based upon  Management's  judgment of the
amount  necessary to maintain the  allowance for possible loan losses at a level
which is considered adequate.  For further discussion of this topic please refer
to "Balance  Sheet  Analysis - Comparison  of September 30, 1996 to December 31,
1995 - Allowance for Possible Loan Losses."

Non-interest Income
Non-interest  income is  composed of fee income for bank  services  and gains or
losses from the sale of assets.  The components of  non-interest  income for the
periods presented are as follows:

                                                 Three months ended
                                                    September 30,
                                          ----------------------------------
                                              1996                 1995
                                          -------------        -------------

Net gain (loss) on sale of loans           $       105          $        72

Net gain (loss) on sale of securities               62                    -

Loan charges and fees                              948                  726

Deposit related fees                             1,592                1,269

Other charges and fees                             221                  104
                                          -------------        -------------

                                           $     2,928          $     2,171
                                          =============        =============



Loan charges and fees  increased $0.2 million  primarily due to commercial  loan
prepayment fees.

Deposit service charges  increased $0.3 million due primarily to fees associated
with the Company's larger noninterest bearing account base.

Other  charges  and fees  increased  $0.1  million  reflecting  an  increase  in
brokerage fees.

Salaries and Benefits Expense
Salaries and benefits expense totaled $4.4 million for the third quarter of 1996
compared  to $4.0  million  for the same  period in 1995,  an  increase  of $0.4
million  reflecting  standard wage increases,  higher ESOP and restricted  stock
expenses as a result of increases in the Company's stock price,  and an increase
in staffing  related to new branch  openings and branch related  support for the
Company's consumer strategy.

                                       10


<PAGE>


Other Operating Expense
The  components  of other  operating  expense for the periods  presented  are as
follows:


                                                 Three months ended
                                                    September 30,
                                          ----------------------------------
                                              1996                1995
                                          -------------      ---------------

Marketing and public relations             $       752        $         337

Insurance                                           93                  752

Professional services                              854                  643

Outside processing                               1,035                  541

Other                                            1,112                1,083
                                          -------------      ---------------

                                           $     3,846        $       3,356
                                          =============      ===============



Marketing and public relations  expense  increased $0.4 million,  reflecting the
expanded use of television  advertising  directed towards the Company's consumer
strategy.

Insurance  expense  includes FDIC deposit  insurance  expense,  which totaled $1
thousand  in the third  quarter  of 1996  compared  to $0.6  million in the same
period in 1995. This decrease is attributable to a significant reduction in FDIC
premiums.

Professional  services  increased $0.2 million due to legal expenses  related to
the  Reorganization  and  litigation  matters  occurring in the normal course of
business.

Outside  processing  increased $0.5 million,  reflecting higher  transaction and
account volume  associated with increased  account  activity  resulting from the
Company's consumer strategy, as well as costs associated with the outsourcing of
the Company's item processing operations in 1996.

Net Expense of Real Estate Operations
The  Company has certain  subsidiaries  that are engaged in various  real estate
investments,  directly or in joint  ventures  with  unaffiliated  partners.  The
Company has  terminated  its real estate  development  activities  and is in the
process of selling its remaining  real estate  investments.  Net expense of real
estate  operations  reflects  the net  operating  results  of these  activities,
writedowns  on real  estate  properties  and  gains/losses  on  sales  of  these
properties.  Net expense of real estate  operations  for the three  months ended
September 30, 1996 remained  consistent with levels in the comparable prior year
quarter.

Income Taxes
For the three month  period  ended  September  30, 1996 the Company  recorded an
income tax  benefit of $6.4  million  compared  with  income tax expense of $0.1
million for the three month period  ended  September  30, 1995.  The decrease in
income tax expense  was the result of two  non-recurring  tax events  totaling a
benefit of $8.0 million.  The Company recognized a one time gain of $2.8 million
as a result of the recently  enacted Small Business Jobs Protection Act of 1996.
In addition, during the quarter, Management reevaluated the realizability of its
deferred  tax asset  and  determined  that,  based on the  weight  of  available
evidence,  it was more likely than not that it would be  realized.  Accordingly,
the Company  recognized the remainder of its deferred tax asset of $5.2 million.
The increase in income tax expense exclusive of these two items is the result of
increased pre-tax earnings in 1996.

                                       11
<PAGE>


Results of Operations for the Nine Months Ended September 30, 1996 and September
30, 1995

The Company  reported net income of $15.7 million,  or $2.82 per share,  for the
nine months ended  September 30, 1996 as compared to net income of $3.9 million,
or $0.75 per share,  on a pro forma  basis,  for the same period last year.  The
financial  results were affected by two  nonrecurring  tax events  totaling $8.0
million which  occurred in the third quarter of 1996.  The Company  recognized a
one time gain of $2.8 million as a result of the recently enacted Small Business
Job Protection Act of 1996. In addition, the Company recognized the remainder of
its deferred tax asset of $5.2 million.  The Company also  experienced  improved
results in core earnings  primarily  attributed to increased net interest income
and noninterest income as well as lower provisions for possible loan losses.

Net Interest Income
Net interest income represents the difference between income on interest-earning
assets and  expense on  interest-bearing  liabilities.  Net  interest  income is
affected by the mix and volume of assets and  liabilities,  and the movement and
level of interest rates.

The following  table sets forth,  for the period  indicated,  average  balances,
interest  income  and  expense,  and  yields  earned or rates  paid on the major
categories of assets and  liabilities.  Non-accrual  loans have been included in
the  appropriate   average  balance  loan  category,   but  unpaid  interest  on
non-accrual  loans has not been  included for purposes of  determining  interest
income. In addition,  investment  securities available for sale are reflected at
amortized cost.

                                       12
<PAGE>

<TABLE>
<CAPTION>
                                                                        Nine Months Ended September 30,
                                             -------------------------------------------------------------------------------------
                                                                 1996                                      1995
                                             -----------------------------------------    ----------------------------------------

                                                Average                     Average         Average                     Average
                                                Balance       Interest    Yield/Cost        Balance      Interest     Yield/Cost
                                             --------------  -----------  ------------    ------------  ------------  ------------
                                                                                       
<S>                                          <C>             <C>          <C>             <C>           <C>           <C>
Interest-earning assets:                                                               
Fed funds sold and interest-bearing                                                    
deposits                                      $      9,404    $     380         5.31%      $   21,913    $      971         5.84%
Investment securities held to maturity             186,354        9,494         6.79%         181,658         7,965         5.85%
Investment securities available for sale           312,169       15,230         6.51%         171,893         8,484         6.58%
Residential real estate loans                      246,932       14,557         7.86%         267,122        15,738         7.86%
Commercial real estate loans                       119,139        7,613         8.52%         118,590         7,320         8.23%
Commercial loans                                   126,587        8,386         8.70%          92,321         6,535         9.33%
Home equity loans                                   77,748        4,911         8.44%          55,939         3,865         9.25%
Consumer loans                                       6,103          479        10.48%           6,542           438         8.93%
                                             --------------  -----------  ------------    ------------  ------------  ------------
                                                                                       
Total interest-earning assets                    1,084,436       61,050         7.51%         915,878        51,316         7.47%
                                                                                       
Allowance for loan losses                          (15,255)                                   (16,425)
Non-interest-earning assets                         83,851                                     70,128
                                             --------------                               ------------
Total assets                                  $  1,153,032    $  61,050                    $  969,581    $   51,316
                                             ==============  ===========                  ============  ============
                                                                                       
Interest-bearing liabilities                                                           
Deposits                                                                               
  Savings accounts                            $    193,874    $   3,631         2.50%      $  185,019    $    3,447         2.49%
  NOW accounts                                      56,101          485         1.15%          53,612           550         1.37%
  Money market accounts                            206,425        5,137         3.32%         214,432         5,212         3.25%
  Time deposit accounts                            377,253       15,085         5.34%         344,830        13,049         5.06%
                                             --------------  -----------  ------------    ------------  ------------  ------------
Total deposits                                     833,653       24,338         3.90%         797,893        22,258         3.73%
                                                                                       
Borrowed funds                                     129,272        5,439         5.53%          23,220         1,108         6.29%
                                             --------------  -----------  ------------    ------------  ------------  ------------
                                                                                       
Total interest-bearing liabilities                 962,925       29,777         4.13%         821,113        23,366         3.80%
Non-interest-bearing liabilities                   106,574                                     84,263
                                             --------------                               ------------
Total liabilities                                1,069,499                                    905,376
Total stockholders' equity                          83,533                                     64,205
                                             --------------                               ------------
    Total liabilities and stockholders'                                                
       equity                                 $  1,153,032    $  29,777                    $  969,581    $   23,366
                                             ==============  ===========                  ============  ============
                                                                                       
Net interest income/spread                                      $31,273         3.38%                       $27,950         3.67%
                                                             ===========  ============                  ============  ============
                                                                                       
Net interest margin as a % of interest-                                                
earning assets                                                                  3.85%                                       4.07%
                                                                          ============                                ============
</TABLE>

Net  interest  income for the nine  months  ended  September  30, 1996 was $31.3
million  compared to $28.0 million for the nine months ended September 30, 1995,
an increase of $3.3 million or 11.9%. This increase is primarily due to a $168.6
million  increase in average  interest-earning  assets  partially offset by a 22
basis point decrease in net interest margin.

Total interest  income was $61.1 million for the nine months ended September 30,
1996, an increase of $9.7 million or 19.0% from the same period last year.  This
increase is primarily attributable to higher levels of interest-earning  assets.
Average  interest-earning  assets totaled $1.1 billion for the nine months ended
September  30, 1996  compared to $915.9  million for the same period in 1995, an
increase of $168.6 million or 18.4%. Total investments  increased $145.0 million
and were  funded by higher  deposit  levels  and  borrowed  funds.  Total  loans
increased $36.1 million as the Company  continued to focus on the commercial and
home  equity  market  segments,  which grew by $34.3  million or 37.1% and $21.9
million or 39.2%,  respectively.  Residential real estate loan balances declined
$20.2 million or 7.6%, reflecting significant refinancing activity to fixed rate
products  during the first  quarter of 1996,  as well as a decline in production
for adjustable rate mortgage products.  The Company  originates  long-term fixed
rate mortgages for sale in the secondary  market and generally holds  adjustable
rate mortgages in the Company's loan portfolio.

                                       13
<PAGE>
Total interest expense was $29.8 million for the nine months ended September 30,
1996  compared to $23.4  million  during the same period in 1995, an increase of
$6.4  million  or  27.4%.   This  increase  is   attributable  to  increases  in
interest-bearing   deposits,   rates  paid  on  deposits  and  borrowed   funds.
Interest-bearing  deposits  totaled  $833.7  million for the nine  months  ended
September  30, 1996  compared to $797.9  million for the same period in 1995, an
increase  of $35.8  million or 4.5%.  This  growth  occurred  primarily  in Time
deposits,  which increased $32.4 million.  The average rate paid on deposits was
3.90% for the nine months  ended  September  30, 1996  compared to 3.73% for the
nine months ended  September  30,  1995,  an increase of 17 basis points or 4.6%
principally  reflecting repricing of the existing portfolio as well as continued
competitive  pricing  pressures.  Borrowed funds averaged $129.3 million for the
nine months ended  September 30, 1996,  reflecting  the use of FHLB advances and
repurchase agreements to leverage a portion of the Company's capital.

The following table presents the changes in net interest  income  resulting from
changes in interest  rates or changes in the volume of  interest-earning  assets
and interest-bearing liabilities during the periods indicated. Changes which are
attributable  to both rate and volume  have been  allocated  evenly  between the
change in rate and volume components.

<TABLE>
<CAPTION>
                                                           Nine months ended September 30,
                                                                   1996 versus 1995
                                                  ---------------------------------------------------
                                                              Increase (Decrease) Due to
                                                  ---------------------------------------------------
                                                     Volume             Rate               Net
                                                  --------------    --------------    ---------------

<S>                                               <C>               <C>               <C>  
Interest-earning assets:
  Federal funds sold and
     interest bearing deposits                     $       (529)     $        (61)     $        (590)
  Investment securities held to maturity                    223             1,306              1,529
  Investment securities available for sale                6,884              (138)             6,746
  Residential real estate loans                          (1,190)                9             (1,181)
  Commercial real estate loans                               34               259                293
  Commercial loans                                        2,347              (497)             1,850
  Home equity loans                                       1,450              (404)             1,046
  Consumer loans                                            (32)               73                 41
                                                  --------------    --------------    ---------------
Total interest-earning assets                             9,187               547              9,734
                                                  --------------    --------------    ---------------

Interest-bearing liabilities:
Deposits:
  Savings accounts                                          165                19                184
  NOW accounts                                               24               (89)               (65)
  Money market accounts                                    (197)              122                (75)
  Time deposit accounts                                   1,262               774              2,036
                                                  --------------    --------------    ---------------
Total deposits                                            1,254               826              2,080
Borrowed funds                                            4,761              (430)             4,331
                                                  --------------    --------------    ---------------
Total interest-bearing liabilities                        6,015               396              6,411
                                                  --------------    --------------    ---------------
Change in net interest income                      $      3,172      $        151      $       3,323
                                                  ==============    ==============    ===============
</TABLE>

                                       14
<PAGE>
Provision for Possible Loan Losses
The Company added $2.2 million to its provision for possible loan losses for the
nine  months  ended  September  30, 1996  compared to $3.4  million for the same
period in 1995.  This decrease of $1.2 million  reflects an  improvement  in the
credit quality  profile of the loan  portfolio.  The provision for possible loan
losses is based upon  Management's  judgment of the amount necessary to maintain
the allowance for possible loan losses at a level which is considered  adequate.
For further  discussion  of this topic please refer to "Balance  Sheet  Analysis
Comparison  of September  30, 1996 to December 31, 1995 - Allowance for Possible
Loan Losses."

Non-interest Income
Non-interest  income is  composed of fee income for bank  services  and gains or
losses from the sale of assets.  The components of  non-interest  income for the
periods presented are as follows:

                                                Nine months ended
                                                  September 30,
                                       -------------------------------------
                                            1996                  1995
                                       ---------------       ---------------

Net gain/(loss) on sale of loans        $         537         $          62

Net gain/(loss) on sale of securities              64                    14

Loan charges and fees                           2,428                 2,321

Deposit related fees                            4,539                 3,558

Other charges and fees                            678                   456
                                       ---------------       ---------------
                                        $       8,246         $       6,411
                                       ===============       ===============



Net gain on sale of loans  increased  $0.5  million  due to an  increase  in the
amount of loans sold on a servicing released basis.

Deposit service charges  increased $1.0 million due primarily to fees associated
with the Company's larger noninterest bearing account base.

Other  charges  and fees  increased  $0.2  million  reflecting  an  increase  in
brokerage fees.

Salaries and Benefits Expense
Salaries and benefits  expense  totaled  $12.9 million for the nine months ended
September  30, 1996  compared to $11.7  million for the same period in 1995,  an
increase of $1.2 million reflecting standard wage increases, the introduction of
new benefit  programs  including ESOP,  restricted  stock and 401(k) plans,  and
higher  ESOP and  restricted  stock  expenses  as a result of  increases  in the
Company's stock price.

Occupancy Expense
Total occupancy expense was $2.4 million for the nine months ended September 30,
1996,  a decrease of $0.2  million  from the same period in 1995  primarily as a
result of the improved operating results of SIS Center, the Company's  corporate
headquarters.

                                       15
<PAGE>


Other Operating Expense
The  components  of other  operating  expense for the periods  presented  are as
follows:

                                                 Nine months ended
                                                   September 30,
                                     ------------------------------------------
                                           1996                     1995
                                     -----------------        -----------------

Marketing and public relations        $         1,629          $         1,009
Insurance                                         287                    2,444
Professional services                           2,344                    2,115
Outside processing                              3,090                    2,240
Other                                           3,267                    2,863
                                     -----------------        -----------------
                                      $        10,617          $        10,671
                                     =================        =================



Marketing and public relations  expense  increased $0.6 million,  reflecting the
expanded use of television  advertising  directed towards the Company's consumer
strategy.

Insurance  expense  includes FDIC deposit  insurance  expense,  which totaled $2
thousand for the nine months ended  September  30, 1996 compared to $2.0 million
in the same period in 1995.  This  decrease  is  attributable  to a  significant
reduction in FDIC premiums.

Professional  services  increased $0.2 million due to legal expenses  related to
the  Reorganization  and  litigation  matters  occurring in the normal course of
business.

Outside  processing  increased $0.9 million,  reflecting higher  transaction and
account volume  associated with increased  account  activity  resulting from the
Company's consumer strategy, as well as costs associated with the outsourcing of
the Company's item processing operations in 1996.

Other operating  expenses  increased $0.4 million  primarily due to supplies and
postage costs associated with growth in consumer deposit accounts as a result of
the Company's consumer strategy.

Foreclosed Real Estate Expense
Foreclosed  real estate  expense  reflects  losses on sales,  writedowns and net
operating results of foreclosed properties. These expenses were $0.3 million for
the nine months ended  September  30, 1996 compared to $0.5 million for the same
period in 1995. This $0.2 million  decrease  reflects lower levels of foreclosed
properties.

Net Expense of Real Estate Operations
The  Company has certain  subsidiaries  that are engaged in various  real estate
investments,  directly or in joint  ventures  with  unaffiliated  partners.  The
Company has  terminated  its real estate  development  activities  and is in the
process of selling its remaining  real estate  investments.  Net expense of real
estate  operations  reflects  the net  operating  results  of these  activities,
writedowns  on real  estate  properties  and  gains/losses  on  sales  of  these
properties.  Net expense of real  estate  operations  for the nine months  ended
September 30, 1996 remains  consistent  with the levels in the comparable  prior
year period.

Income Taxes
For the nine month  period  ended  September  30, 1996 the  Company  recorded an
income tax benefit of $5.9 million  compared with income tax expense of $0.2 for
the nine month  period  ended  September  30,  1995.  The decrease in income tax
expense was the result of two  non-recurring  tax events in the third quarter of
1996 totaling a benefit of $8.0 million.  The Company recognized a one time gain
of $2.8  million  as a  result  of the  recently  enacted  Small  Business  Jobs
Protection Act of 1996. In addition, during the quarter,  Management reevaluated
the  realizability  of its deferred tax asset and determined  that, based on the
weight  of  available  evidence,  it was more  likely  than not that it would be
realized.  Accordingly, the Company recognized the remainder of its deferred tax
asset of $5.2 million. The increase in income tax expense exclusive of these two
items is the result of increased pre-tax earnings in 1996.

                                       16
<PAGE>



BALANCE SHEET ANALYSIS - COMPARISON OF SEPTEMBER 30, 1996 TO DECEMBER 31, 1995

Total assets increased from $1.1 billion at December 31, 1995 to $1.3 billion at
September  30, 1996.  This  increase  reflects  growth in loans and  investments
funded through an increase in deposits and wholesale borrowings.

Investments
The Company's  investment portfolio increased $160.4 million from $419.8 million
at December 31, 1995 to $580.2 million at September 30, 1996.

The Company  engages in investment  activities for both investment and liquidity
purposes.  The  Company  maintains  an  investment  securities  portfolio  which
consists  primarily  of  U.S.   Government  and  Agency  securities,   corporate
obligations,   asset-backed  securities,  collateralized  mortgage  obligations,
Federal Home Loan Bank stock, and marketable equity securities. Other short-term
investments held by the Company periodically include  interest-bearing  deposits
and federal funds sold. The Company also maintains a mortgage-backed  securities
portfolio consisting of securities issued and guaranteed by the Federal National
Mortgage  Association  ("FNMA")  and the  Federal  Home  Loan  Mortgage  Company
("FHLMC") in addition to publicly traded  mortgage-backed  securities  issued by
private  financial  intermediaries  which  are  rated  "AA" or  higher by rating
agencies of national prominence.

Securities  which the Company has the intent and ability to hold until  maturity
are  classified as  held-to-maturity  and are carried at amortized  cost,  while
those  securities which have been identified as assets that may be sold prior to
maturity or assets for which there is not a positive  intent to hold to maturity
are  classified  as  available-for-sale  and are  carried  at fair  value,  with
unrealized  gains and losses  excluded  from earnings and reported as a separate
component of stockholders' equity.

The table below sets forth certain information  regarding the amortized cost and
fair value of the Company's investment portfolio at the dates indicated.


<TABLE>
<CAPTION>
                                                                            September 30, 1996
                                                  ------------------------------------------------------------------------
                                                        Available for Sale                       Held to Maturity
                                                  --------------------------------        --------------------------------


                                                    Amortized                              Amortized
                                                      Cost            Fair Value              Cost            Fair Value
                                                  --------------     -------------        -------------      -------------

<S>                                               <C>                <C>                  <C>                <C>
U.S. government and agency obligations             $     22,062       $    22,049          $         -        $         -
Mortgage-backed securities                              337,668           338,075              159,060            158,803
Other bonds and short term obligations                   11,289            11,240               35,072             35,016
Other securities                                         14,681            14,686                    -                  -
                                                  --------------     -------------        -------------      -------------
    Total                                          $    385,700       $   386,050          $   194,132        $   193,819
                                                  ==============     =============        =============      =============
</TABLE>



<TABLE>
<CAPTION>
                                                                            December 31, 1995
                                                  ------------------------------------------------------------------------
                                                        Available for Sale                       Held to Maturity
                                                  --------------------------------        --------------------------------


                                                    Amortized                              Amortized
                                                      Cost            Fair Value              Cost            Fair Value
                                                  --------------     -------------        -------------      -------------

<S>                                               <C>                <C>                  <C>                <C>
U.S. government and agency obligations             $      7,700       $     7,699          $         -        $         -
Mortgage-backed securities                              222,673           224,101              161,168            161,481
Other bonds and short term obligations                    9,300             9,300               11,625             11,449
Other securities                                          5,884             5,884                    -                  -
                                                  --------------     -------------        -------------      -------------
    Total                                          $    245,557       $   246,984          $   172,793        $   172,930
                                                  ==============     =============        =============      =============
</TABLE>

                                       17
<PAGE>


Loan Portfolio Composition
Gross loans  comprised  $606.6  million or 47.2% of total assets as of September
30, 1996. The following  table sets forth  information  concerning the Company's
loan portfolio in dollar amounts and  percentages,  by type of loan at September
30, 1996 and at December 31, 1995.



<TABLE>
<CAPTION>
                                              September 30, 1996                  December 31, 1995
                                         -----------------------------       -----------------------------
                                                         Percent of                           Percent of
                                            Amount          Total               Amount          Total
                                         -------------  --------------       -------------   -------------

<S>                                      <C>            <C>                  <C>             <C>
Residential real estate loans             $   244,067          40.24%         $   263,551          45.99%
Commercial real estate loans                  121,803          20.08%             118,005          20.59%
Commercial loans                              144,431          23.81%             117,674          20.53%
Home equity loans                              91,554          15.09%              67,657          11.81%
Consumer loans                                  4,707           0.78%               6,196           1.08%
                                         -------------  --------------       -------------   -------------
   Total loans receivable, gross              606,562         100.00%             573,083         100.00%
Less:
Unearned income and fees                         (977)                               (566)
Allowance for possible loan losses             15,488                              14,986
                                         -------------                       -------------
   Total loans receivable, net            $   592,051                         $   558,663
                                         =============                       =============
</TABLE>




The Company continues to actively  originate loans secured by first mortgages on
one to four family residences, and offers a variety of fixed and adjustable rate
mortgage loan products.  The Company  originates  long-term fixed rate mortgages
for sale in the secondary  market and generally holds  adjustable rate mortgages
in the  Company's  loan  portfolio.  During the nine months ended  September 30,
1996, the Company  experienced an increase in prepayments in its adjustable rate
mortgage  portfolio due to lower interest rates.  These  prepayments  offset new
originations and resulted in a $19.5 million decrease in residential real estate
loans between December 31, 1995 and September 30, 1996.

During the nine months  ended  September  30,  1996,  commercial  loan  balances
increased  $26.8 million,  reflecting the Company's  continued  focus on lending
activities in the local business market.

Home equity loans  outstanding  have increased  $23.9 million since December 31,
1995 resulting from the Company's pricing strategy,  the waiver of closing costs
and the active promotion of these products.

The decrease in the Company's  consumer loan portfolio from December 31, 1995 to
September 30, 1996 reflects the July 10, 1996 sale of the Company's student loan
portfolio and a runoff in personal installment loan balances partially offset by
an increase of $0.8 million in overdraft  protection  lines.  Effective  July 1,
1996, the Company  discontinued  the  origination of student loans.  The Company
will provide applications to prospective  borrowers and refer these customers to
the Student Loan Marketing  Association.  The Company has discontinued  offering
most types of personal  installment  loans.  This decision was made based on the
low  volumes  achieved  by the  Company  and the  highly  competitive  nature of
consumer products offered by bank and non-bank competitors.

                                       18
<PAGE>


Non-performing Assets
Non-performing  assets totaled $7.6 million as of September 30, 1996 compared to
$13.9 million as of December 31, 1995, a decrease of $6.3 million or 45.2%.

The  following  table  sets  forth  information   regarding  the  components  of
non-performing assets for the periods presented:



<TABLE>
<CAPTION>
                                                         September 30, 1996                December 31, 1995
                                                         --------------------             --------------------


<S>                                                      <C>                              <C>
Non-accrual loans (1):
   Residential real estate loans                          $            1,149               $            2,553
   Commercial real estate loans                                        2,805                            5,745
   Commercial loans                                                      859                              638
   Home equity loans                                                     221                               90
   Consumer loans                                                         27                               11
                                                         --------------------             --------------------
      Total non-accrual loans                                          5,061                            9,037
                                                         --------------------             --------------------

Loans past due 90 days still accruing (2)                              1,143                              587
                                                         --------------------             --------------------
      Total non-performing loans                                       6,204                            9,624
Foreclosed real estate (3)                                               512                            1,529
Restructured loans on accrual status (4)                                 887                            2,732
                                                         --------------------             --------------------
      Total non-performing assets                         $            7,603               $           13,885
                                                         ====================             ====================

Total non-performing loans to total
   gross loans                                                         1.05%                            1.72%

Total non-performing assets to total
   assets                                                              0.59%                            1.30%

Allowance for possible losses to
   non-performing loans                                              249.65%                          155.71%



<FN>
(1)  Non-accrual  loans are loans that are  contractually  past due in excess of 90 days,  for which the Bank has  discontinued  the
accrual of  interest,  or loans  which are not past due but on which the Bank has  discontinued  the  accrual of  interest  based on
Management's assessment of the circumstances surrounding these loans.

(2) Accruing loans past due 90 days or more are loans which have not been placed on non-accrual status as, in Management's  opinion,
the collection of the loan, in full, is not in doubt.

(3) Foreclosed real estate includes OREO,  defined as real estate  acquired  through  foreclosure or acceptance of a deed in lieu of
foreclosure.  The Bank carries  foreclosed real estate at net realizable value, which approximates fair value less estimated selling
costs.

(4) Restructured loans are loans for which concessions,  including  reduction of interest rates or deferral of interest or principal
payments have been granted due to the borrower's financial  condition.  Restructured loans on non-accrual status are reported in the
non-accrual  loan category.  Restructured  loans on accrual status are those loans that have complied with terms of a  restructuring
agreement for a satisfactory period (generally six months).
</FN>
</TABLE>



Potential Problem Loans
The Bank  maintains  a "watch  list"  of  potential  problem  loans,  which  are
performing  loans  that have  potential  weaknesses  that  require  Management's
attention.  These  potential  weaknesses  may stem  from a  variety  of  factors
including, among other things, economic or market conditions,  adverse trends in
the obligor's  operations or balances sheet weaknesses.  Potential problem loans
totaled  $15.6 million or 1.2% of total assets at September 30, 1996 compared to
$20.7 million or 1.9% of total assets at December 31, 1995.

                                       19
<PAGE>


Allowance for Possible Loan Losses
The allowance for possible loan losses  reflects an amount that, in Management's
judgment, is adequate to provide for potential losses in the loan portfolio.  In
addition,  examinations  of the adequacy of the loan loss reserve are  conducted
periodically by various regulatory agencies.

The  Company's  loan  loss  reserve  methodology  emphasizes  an  evaluation  of
non-performing  loans and those  loans  that  have been  identified  as having a
higher  risk  of  becoming  non-performing  loans.  The  overall  analysis  is a
continuing  process  that gives  consideration  to such factors as size and risk
characteristics  of the loan portfolio,  the risk rating of individual  credits,
general economic conditions,  historical  delinquency and charge-off  experience
and  the  borrowers'  financial  capabilities  and  the  underlying  collateral,
including,  when appropriate,  independent appraisals of real estate properties.
In addition,  Management  periodically  reviews the  methodology  of  allocating
reserves to the various loan categories based on similar factors.

The  Company's   allowance  for  possible  loan  losses  is  decreased  by  loan
charge-offs  and increased by provisions for possible loan losses and recoveries
on loans  previously  charged-off.  When commercial and residential  real estate
loans are  foreclosed,  the loan balance is compared  with the fair value of the
property.  If the net  carrying  value of the  loan at the  time of  foreclosure
exceeds  the fair  value of the  property  less  estimated  selling  costs,  the
difference  is charged to the  allowance  for possible  loan losses and the fair
value of the property  becomes the new cost basis of the real estate owned.  The
Company has or obtains  current  appraisals  on real estate owned at the time it
obtains possession of the property. Real estate owned is subsequently carried at
the lower of cost or fair value less  estimated  selling  costs with any further
adjustments  reflected as a charge against operations.  The Company assesses the
value of real estate owned on a periodic basis.

The allowance for possible loan losses at September 30, 1996 was $15.5  million,
compared to $16.6 million at September  30, 1995.  The activity in the allowance
for possible  loan losses for the nine months ended  September 30, 1996 and 1995
was as follows:


                                                 Nine Months ended September 30,
                                                  -----------------------------
                                                     1996             1995
                                                  ------------     ------------

Balance at beginning of period                     $   14,986       $   15,844
Provision for possible loan losses                      2,200            3,357
Charge-offs:
  Residential real estate loans                          (755)            (414)
  Commercial real estate loans                         (2,255)          (2,048)
  Commercial loans                                       (355)            (489)
  Home equity loans                                      (190)             (25)
  Consumer loans                                          (61)            (182)
                                                  ------------     ------------
     Total charge-offs                                 (3,616)          (3,158)
                                                  ------------     ------------
Recoveries:
  Residential real estate loans                           594               51
  Commercial real estate loans                           1036              242
  Commercial loans                                        163              141
  Home equity loans                                        98               68
  Consumer loans                                           27               71
                                                  ------------     ------------
    Total recoveries                                    1,918              573
                                                  ------------     ------------
Net charge-offs                                        (1,698)          (2,585)
                                                  ------------     ------------

Balance, end of period                             $   15,488       $   16,616
                                                  ============     ============

Ratio of allowance for possible loan losses
to total loans at the end of the period                  2.55%            2.99%

Ratio of allowance for possible loan losses to
non-performing loans at the end of the period          249.65%          123.94%

                                       20


<PAGE>


At September  30, 1996,  the recorded  investment  in loans that are  considered
impaired  under  SFAS 114 was $9.0  million.  Included  in this  amount  is $0.4
million of  impaired  loans for which the  related  SFAS 114  allowance  is $0.1
million and $8.6 million of impaired  loans for which the SFAS 114  allowance is
zero.  The average  recorded  investment in impaired  loans during the three and
nine months ended  September  30, 1996 was  approximately  $7.2 million and $9.0
million,  respectively. For the three and nine month periods ended September 30,
1996,  the Company  recognized  interest  income on these impaired loans of $0.1
million and $0.3 million, respectively.

The  following  table shows the  allocation  of the  allowance for possible loan
losses to the various types of loans as well as the  percentage of loans in each
category to total loans.


<TABLE>
<CAPTION>
                                          September 30, 1996                 December 31, 1995
                                    -------------------------------    -------------------------------
                                                     % of Total                         % of Total
                                                      Allowance                          Allowance
                                                         for                                for
                                      Amount         Loan Losses         Amount         Loan Losses
                                    -----------    ----------------    ------------   ----------------

<S>                                 <C>            <C>                 <C>            <C>   
Residential real estate loans           $1,561              10.08%          $1,881             12.55%
Commercial real estate loans             6,872              44.37%           6,784             45.27%
Commercial loans                         5,814              37.54%           5,480             36.57%
Home equity loans                          964               6.22%             672              4.48%
Consumer loans                             277               1.79%             169              1.13%
                                    -----------    ----------------    ------------   ----------------

   Total allowance for
     possible loan losses              $15,488             100.00%         $14,986            100.00%
                                    ===========    ================    ============   ================
</TABLE>

                                       21
<PAGE>
Deposit Distribution
The principal  source of funds for the Company are deposits from local consumers
and  businesses.  There were no brokered  deposits at September  30,  1996.  The
Company's  deposits  consist of demand and NOW accounts,  passbook and statement
savings accounts, Money Market accounts and Time deposit accounts.

Total  deposits  were $954.1  million at September  30, 1996  compared to $885.4
million at December 31, 1995, an increase of $68.7 million. This growth occurred
primarily  in  Demand  deposits,  Savings  accounts  and Time  deposits.  Demand
deposits  and  Savings  accounts  increased  $28.8  million  and  $9.6  million,
respectively,  as  customers  continue  to take  advantage  of free  savings and
checking accounts offered as a result of the Company's consumer deposit strategy
to attract and retain core deposits, which provide the Company with a lower cost
source of funds.  Also  contributing to the growth of Demand deposit balances is
an increase in business  checking  accounts of $16.1 million  resulting from the
Company's  focus on small  business  banking.  The  growth in Time  deposits  is
primarily  attributable to the introduction of a new nine month CD in June 1996.
As of  September  30,  1996,  total  balances  for this new  product  were $15.2
million.

The  following  table  presents  the  composition  of  deposits  for the periods
indicated:


<TABLE>
<CAPTION>
                                            September 30, 1996                     December 31, 1995
                                       ------------------------------        -----------------------------
                                                           Percent                              Percent
                                                             of                                   of
                                          Amount            Total               Amount           Total
                                       --------------    ------------        --------------   ------------

<S>                                    <C>               <C>                 <C>              <C>
Demand deposits                         $    100,334          10.52%          $     71,539          8.08%
NOW accounts                                  56,542           5.93%                57,271          6.47%
Savings accounts                             195,150          20.45%               185,555         20.96%
Money market accounts                        210,887          22.10%               203,313         22.96%
Time deposits                                391,219          41.00%               367,708         41.53%
                                       --------------    ------------        --------------   ------------
   Total deposits                       $    954,132         100.00%               885,386        100.00%
                                       ==============    ============        ==============   ============
</TABLE>

                                       22
<PAGE>
Regulatory Capital
Under  current  Federal  Reserve  Board (the "FRB")  capital  regulations,  bank
holding  companies,  such as the  Company,  are  required  to comply  with three
separate minimum capital requirements: a "Tier 1 leverage capital ratio" and two
"risk-based" capital requirements:  "Tier 1 risk-based capital ratio" and "Total
risk-based capital ratio".

The Tier 1 leverage capital ratio is expressed as a percentage of Tier 1 capital
to total quarterly  average  assets.  Tier 1 capital  generally  includes common
stockholders'  equity (including  retained earnings),  qualifying  noncumulative
perpetual  preferred stock and any related surplus and minority interests in the
equity accounts of fully consolidated  subsidiaries.  In addition,  deferred tax
assets  are  allowable  up to a certain  limit.  Intangible  assets,  other than
properly valued  purchased  mortgage  servicing  rights up to certain  specified
limits,  must be deducted from Tier 1 capital.  The  unrealized  gain or loss on
securities  available  for sale is not included as a component of Tier 1 capital
under the current guidelines.

The Tier 1 risk-based  capital  ratio is  expressed  as a  percentage  of Tier 1
capital to total risk-weighted  assets.  Risk-weighted  assets are calculated by
assigning  assets to one of several  broad  categories  (0%,  20%, 50%, or 100%)
based primarily on credit risk. The aggregate dollar value of the amount in each
category is then  multiplied by the  risk-weight  associated  with the category.
Risk  weights  for all  off-balance  sheet  items are  determined  by a two-step
process.  First, the "credit  equivalent  amount" of off-balance  sheet items is
determined in most cases by multiplying the  off-balance  sheet item by a credit
conversion  factor.  Second,  the credit  equivalent  amount is treated like any
balance sheet asset and generally is assigned to the appropriate  risk category.
The  resulting  weighted  values  from  each of the risk  categories  are  added
together, and this sum is the Company's total risk-weighted assets that comprise
the denominator of the risk-based capital ratios.

The Total  risk-based  capital ratio is expressed as a percentage of "Qualifying
total capital" to total risk-weighted assets.  Qualifying total capital consists
of the sum of Tier 1 capital plus Tier 2 capital,  which  consists of cumulative
perpetual preferred stock,  mandatory  convertible debt, term subordinated debt,
and a certain  portion of the allowance for loan losses up to a maximum of 1.25%
of risk-weighted assets.

The following table reflects the regulatory  capital  position of the Company as
of September  30, 1996 and December 31, 1995 as well as the  September  30, 1996
minimum FRB capital requirements.


                                   September 30,   December 31,        FRB
                                        1996           1995        Requirement
                                   -------------   ------------    ------------

Tier 1 leverage capital ratio           7.31%          7.57%           3.00% (1)
Tier 1 risk-based capital ratio        12.13%         12.52%           4.00%
Total risk-based capital ratio         13.39%         13.77%           8.00%


(1) The FRB expects most bank holding companies,  including those  organizations
experiencing or anticipating  significant  growth, to operate with an additional
cushion of Tier 1 leverage capital of at least 100 to 200 basis points.

                                       23
<PAGE>


Interest Rate Risk Management
The  operations  of the  Company  are  subject  to the  risk  of  interest  rate
fluctuations to the extent that there is a substantial  difference in the amount
of the Company's  assets and  liabilities  repricing or maturing within specific
time  periods.  An  asset-sensitive  position  indicates  that  there  are  more
rate-sensitive  assets than  rate-sensitive  liabilities  repricing  or maturing
within specific time horizons, which would generally imply a favorable impact on
net interest income in periods of rising interest rates and a negative impact in
periods  of  falling  interest  rates.  A  liability-sensitive   position  would
generally  imply a negative  impact on net interest  income in periods of rising
interest rates and a positive impact in periods of falling interest rates.

The  objective of the  Company's  interest  rate risk  management  process is to
identify, manage and control its interest rate risk within established limits in
order to produce  consistent  earnings that are not  contingent  upon  favorable
trends in interest rates.  This is attained by monitoring the levels of interest
rates, the relationships  between the rates paid on assets and the rates paid on
liabilities,  the absolute  amount of assets and  liabilities  which  reprice or
mature  over  similar  periods,  and the  effect of all of these  factors on the
estimated level of net interest income.

There  are  a  number  of  industry   standards  used  to  measure  a  financial
institution's  interest  rate risk  position.  Most  common  among  these is the
one-year  gap  which  is  the  difference  between  assets,   liabilities,   and
off-balance  sheet  instruments  that will  mature or  reprice  within  one year
expressed as a percentage of total assets. Using Management's estimates of asset
prepayments  and core deposit decay in its  computation,  the Company  estimates
that its cumulative  one-year gap position was a positive $40.1 million or 3.13%
of total  assets at  September  30,  1996.  The  Company  also  utilizes  income
simulation  modeling  in  measuring  its  interest  rate risk and  managing  its
interest rate  sensitivity.  Income  simulation not only considers the impact of
changing market interest rates on forecasted net interest income, but also takes
into consideration other factors such as yield curve  relationships,  the volume
and mix of assets and  liabilities,  customer  preferences  and  general  market
conditions.

The following table sets forth the amounts of assets and liabilities outstanding
at September 30, 1996, which are anticipated by the Company to mature or reprice
in each of the future time periods shown using certain  assumptions based on its
historical  experience,  the current interest rate  environment,  and other data
available to Management.  Management believes that these assumptions approximate
actual  experience  and considers  such  assumptions  reasonable,  however,  the
interest rate  sensitivity of the Company's  assets and  liabilities  could vary
substantially if different  assumptions were used or actual  experience  differs
from  the  assumptions   used.   Management   periodically   reviews  and,  when
appropriate, changes assumptions used in creating this table.

                                       24
<PAGE>

<TABLE>
<CAPTION>
                                                                                  GAP Position
                                                                             at September 30, 1996
                                                ---------------------------------------------------------------------------------

                                                                  More than six
                                                  Less than       months less
                                                 six months      than one year     1 - 5 Years      Over 5 Yrs         TOTAL
                                                --------------   --------------  ---------------  ---------------  --------------
<S>                                             <C>              <C>             <C>              <C>              <C>   
Assets:
Federal funds sold and
   interest bearing deposits                     $     17,545    $           -    $           -    $           -    $     17,545
Investment securities                                 330,844          109,229          105,354           34,755         580,182
Residential real estate loans                          73,957           68,579           85,441           15,248         243,225
Commercial real estate loans                           49,151           10,645           59,201                -         118,997
Commercial loans                                       62,985           11,478           66,691            2,638         143,792
Home equity loans                                      71,789            1,022           11,632            7,399          91,842
Consumer loans                                          3,835              192              380              215           4,622
Other assets                                                -                -                -           84,361          84,361
                                                --------------   --------------   --------------  ---------------  --------------

Total assets                                     $    610,106     $    201,145     $    328,699    $     144,616    $  1,284,566
                                                ==============   ==============   ==============  ===============  ==============


Liabilities & stockholders' equity:
Savings accounts                                 $     29,272     $     29,272     $    136,606    $           -    $   195,150
NOW accounts                                            8,482            8,482           39,578                -         56,542
Money market accounts                                  63,266           63,266           84,355                -         210,887
Time deposits                                         219,250          110,528           61,441                -         391,219
Borrowed funds                                        174,223           25,053              497            2,586         202,359
Other liabilities & stockholders' equity               20,006           20,006           60,021          128,376         228,409
                                                --------------   --------------   --------------  ---------------  --------------

Total liabilities & stockholders' equity         $    514,499     $    256,607     $    382,498    $     130,962    $  1,284,566
                                                ==============   ==============   ==============  ===============  ==============

Period GAP position                              $     95,607     $    (55,462)    $    (53,799)   $      13,654

Net period GAP as a percentage of total assets           7.44%           -4.32%           -4.19%            1.06%

Cumulative GAP                                   $     95,607     $     40,145      $   (13,654)               -

Cumulative GAP as a percentage of total
   assets                                                7.44%            3.13%           -1.06%               -

<FN>
For purposes of the above interest sensitivity analysis:

            Residential  loans held for sale at September  30, 1996  totaling  $4.5 million are in the less than six month  interest
            sensitivity period.

            Fixed rate assets are scheduled by contractual maturity and adjustable rate assets are scheduled by their next repricing
            date. In both cases, assets that have prepayment optionality are adjusted for the Bank's estimate of prepayments.

            Loans do not include non-accrual loans of $5.1 million.

            Loans do not include the allowance for loan loss of $15.5 million.

            In certain deposit categories where there is no contractual maturity, Management assumed the sensitivity characteristics
            listed below based on the current interest rate environment and the Company's historical experience.  Management reviews
            these assumptions on a quarterly basis and may modify them as circumstances dictate.

                                 - Savings accounts are assumed to decay at an annual rate of 30%.
                                 - NOW accounts are assumed to decay at an annual rate of 30%.
                                 - Money market accounts are assumed to decay at an annual rate of 60%.
                                 - Non-interest bearing accounts of $100.3 million are included in other liabilities
                                   and are assumed to decay at an annual rate of 40%.
</FN>
</TABLE>

Certain  shortcomings  are  inherent in the method of analysis  presented in the
foregoing  table.  For example,  while certain assets and  liabilities  may have
similar  contractual  maturities  or  periods  to  repricing,  they may react in
different ways to changes in market interest rates.  Further,  in the event of a
change in interest rates,  prepayment and early  withdrawal  levels would likely
deviate significantly from those assumed in calculating the table. Additionally,
certain assets, such as adjustable rate mortgages,  have features which restrict
changes in interest rates on a short-term  basis and over the life of the asset.
Finally, the ability of borrowers to service their adjustable rate mortgages may
decrease in the event of an interest rate increase.

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<PAGE>
Liquidity
Liquidity  measures the ability of the Company to meet its maturing  obligations
and existing commitments,  to withstand  fluctuations in deposit levels, to fund
its operations and to provide for customer credit needs.

The Company's principal sources of funds are deposits, advances from the FHLB of
Boston,   repurchase   agreements,   repayments  and  maturities  on  loans  and
securities,  proceeds  from the  sale of  securities  in the  available-for-sale
portfolio,  and funds provided by operations.  While scheduled loan and security
amortization and maturities are relatively predictable sources of funds, deposit
flows and loan and  security  prepayments  are  greatly  influenced  by economic
conditions,  the general level of interest  rates and  competition.  The Company
utilizes   particular   sources  of  funds  based  on   comparative   costs  and
availability.  The Company  generally  manages  the  pricing of its  deposits to
maintain a steady deposit balance,  but has from time to time decided not to pay
rates  on  deposits  as  high  as its  competition,  and  when  necessary,  will
supplement  deposits with longer term and/or less expensive  alternative sources
of funds such as advances from the FHLB and repurchase agreements.

Liquidity management is both a daily and long-term responsibility of Management.
The Company  adjusts its  investments  in cash and cash  equivalents  based upon
Management's assessment of expected loan demand,  projected security maturities,
expected deposit flows, yields available on interest-bearing  deposits,  and the
objectives of its  asset/liability  management  program. If the Company requires
funds  beyond  its  ability  to  generate  them  internally,  it has  additional
borrowing  capacity  with  the  FHLB  and  collateral  eligible  for  repurchase
agreements.  Because the Company has a stable retail  deposit  base,  Management
believes  that  significant  borrowings  will not be  necessary  to maintain its
current liquidity position.

The Company's ongoing principal use of capital resources remains the origination
of  single-family  residential  mortgage  loans,  commercial  real estate loans,
commercial loans, and consumer loans secured by residential real estate.


                                       26
<PAGE>


      PART II. OTHER INFORMATION

Item 1. Legal Proceedings

        The Company is involved in  litigation  arising in the normal  course of
business. Management does not believe that the ultimate liabilities arising from
such  litigation,  if any,  would be material  in  relation to the  consolidated
results of operations or financial position of the Company.

Item 2. Changes in Securities

        Not applicable

Item 3. Defaults upon Senior Securities

        Not applicable

Item 4. Submission of Matters to a Vote of Security Holders

        Not applicable

Item 5. Other Information

        Not applicable

      Item 6. Exhibits and Reports on Form 8-K

        (a) Exhibits

           Exhibit
           Number                                   Description

             11.                 Computation of Earnings per Share and Pro Forma
                                 Earnings per Share

         (b) Reports on Form 8-K

               On September 26, 1996, the Company filed a current report on Form
         8-K regarding an  announcement of the Company's  intended  treatment of
         certain tax benefits.



                                       27
<PAGE>


                                   SIGNATURES


Under the requirements of the Securities  Exchange Act of 1934, as amended,  the
Company  has  duly  caused  this  report  to be  signed  on  its  behalf  by the
undersigned thereunto duly authorized.


                                SIS BANCORP, INC.
                                  (Registrant)


November 14, 1996                          /s/ F. William Marshall, Jr.
-------------------                        -----------------------------------
Date                                       F. William Marshall, Jr.
                                           President and Chief Executive Officer




November 14, 1996                          /s/ John F. Treanor
-------------------                        -----------------------------------
Date                                       John F. Treanor
                                           Executive Vice President and Chief
                                           Financial Officer



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