EXHIBIT 13

1996 ANNUAL REPORT

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TABLE OF CONTENTS
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                                                                          PAGE
                                                                          ----

President's Message to Stockholders ....................................     1

Selected Consolidated Financial Information ............................     2

Management's Discussion and Analysis of Financial Condition and
   Results of Operations ...............................................     4

Independent Auditors' Report ...........................................    22

Consolidated Statements of Financial Condition .........................    23

Consolidated Statements of Income ......................................    24

Consolidated Statements of Changes in Shareholders' Equity .............    25

Consolidated Statements of Cash Flows ..................................    26

Notes to Consolidated Financial Statements .............................    28

Corporate and Stockholder Information ..................................    58

Directors and Executive Officers .......................................    60


<PAGE>
A MESSAGE FROM THE PRESIDENT
----------------------------

To Our Stockholders

     I am pleased to present  the 2nd Annual  Report to  Stockholders  of Ambanc
Holding Co., Inc., the parent holding  company of Amsterdam  Savings Bank,  FSB.
Last year I told you that we would remain focused on providing a positive return
on your  investment.  As you review the Annual  Report you will see that we have
been  faithful to that  promise.  Two stock  repurchases  during 1996,  totaling
1,030,227 shares,  have reduced the company's  outstanding  shares to 4,392,023.
This has given added value to the investor, and represents a solid investment in
the company's future. The Proxy Statement contains a graph which will illustrate
the increase in market  price per share of the  company's  stock which  occurred
during 1996. We believe that this is an  indication  of the positive  results of
our efforts.

     I also  told you last  year that we are  committed  to a solid  and  steady
future and that we would use the capital raised in the initial stock offering to
expand customer  services and utilize new  technological  developments.  We have
also kept that promise. Three new branch locations were secured in 1996, and all
three  will  be  opening  for  business  in  1997.  The  new  branch  office  in
Guilderland,  New York will be  strategically  located  to serve our  Albany and
Schenectady  customer  base,  in a newly  constructed  building,  equipped  with
state-of-the-art   electronic  facilities  and  customer  friendly  furnishings.
Construction  is  expected to be  complete  by mid-May  1997.  The other two new
locations will be in our Saratoga market area and will be super  marketbranches.
The  opening  date for both of these  branches is April 14,  1997.  We have also
confirmed our commitment to the  utilization of new technology by establishing a
home  page on the  Internet.  Our  customers  are now  able  to  obtain  current
information about the bank's products and services "on-line" without leaving the
comfort of their homes.

     Our biggest challenge for the future is to successfully compete with larger
institutions  for a profitable  share of the Capital  District  market area.  We
believe that the key to meeting this challenge is to continue to do what we have
always done the best -- deliver  competitively  priced  products and services to
our customers on a  person-to-person  basis.  In our first full year as a single
bank holding company we have built on the bank's heritage  (dating back to 1886)
of strength,  stability and personal service. We have stood the test of time and
boldly face the future with pride and confidence that we will meet the challenge
of providing maximum  shareholder  value,  growth,  improvement and focus on the
future.

     The support of our  shareholders  (many of whom are also our customers) and
their  continuous  referrals of friends and neighbors is important to our growth
and profitability.  I would like to express my heartfelt gratitude to all of you
and to our employees, officers, directors and customers for your ongoing loyalty
and support.

Very truly yours,

Robert J. Brittain
President and Chief Executive Officer


                                       1
<PAGE>
                  SELECTED CONSOLIDATED FINANCIAL INFORMATION

     Set forth below are selected  consolidated  financial and other data of the
Company.  This  financial  data is derived  in part from,  and should be read in
conjunction  with,  the  Consolidated  Financial  Statements  and  Notes  to the
Consolidated  Financial  Statements of the Company  presented  elsewhere in this
Annual Report.
<TABLE> 
<CAPTION>
                                                        December 31,
                                    ------------------------------------------------------
                                       1996       1995       1994      1993       1992
                                    ------------------------------------------------------
                                                       (In thousands)
Selected Consolidated 
Financial Condition Data:
-------------------------
<S>                                   <C>        <C>        <C>       <C>        <C>
Total assets                          $472,421   $438,944   $343,334  $332,902   $323,492
Loans receivable, net                  248,094    249,991    261,581   220,647    244,437
Securities, available for sale         200,539     74,422      ---        ---       ---
Securities, held to maturity             ---        ---       53,390    57,797     36,767
Deposits                               298,082    311,239    293,152   294,780    297,849
Total borrowings                       108,780      ---       19,000      ---       ---
Total equity                            61,518     76,015     27,414    25,464     22,783
</TABLE>
<TABLE>
<CAPTION>
                                                   Years Ended December 31,
                                    ------------------------------------------------------
                                       1996       1995       1994      1993       1992
                                    ------------------------------------------------------
                                                       (In thousands)
Selected Consolidated 
Operations Data:
---------------------
<S>                                    <C>        <C>        <C>       <C>        <C>
Total interest income                  $32,348    $25,582    $23,806   $23,789    $26,661
Total interest expense                  16,435     12,746     10,192    10,885     14,332
                                      --------   --------   --------   -------   --------
Net interest income                     15,913     12,836     13,614    12,904     12,329
Provision for loan losses                9,450      1,522      1,107     1,689        490
                                      --------   --------   --------   -------   --------
Net interest income after provision
   for loan losses                       6,463     11,314     12,507    11,215     11,839
Fees and service charges                   764        783        642       679        605
Gain (loss) on sales and
  redemptions of securities               (102)       225      ---        ---           5
Other noninterest income                   258        504        263       517        451
                                      --------   --------   --------   -------   --------
Total noninterest income                   920      1,512        905     1,196      1,061
Total noninterest expense               13,148     11,383     11,340     9,659      8,833
                                      --------   --------   --------   -------   --------
Income (loss) before taxes and
  cummulative effect of a change
  in accounting principle               (5,765)     1,443      2,072     2,752      4,067
Income tax provision (benefit)          (1,929)       586        122       671      1,568
Cummulative effect of a change
  in accounting principle related to
  SFAS No. 109                           ---        ---        ---         600      ---
                                      --------   --------   --------   -------   --------
Net income (loss)                      ($3,836)      $857     $1,950    $2,681     $2,499
                                      ========   ========   ========   =======   ========
(Loss) per share (1)                    ($0.81)       N/A        N/A       N/A        N/A
<FN>
(1) Loss per share was  calculated  net of unearned ESOP shares.  Average shares
outstanding  for the year  1996 were  4,761,393.  Per  share  earnings  were not
calculated for the comparable periods since the Company had no stock outstanding
prior to its initial public offering completed on December 26, 1995.
</FN>
</TABLE>

                                       2
<PAGE>
<TABLE>
<CAPTION>
                                                          Years Ended December 31,
                                         ------------------------------------------------------
                                            1996       1995      1994       1993       1992
                                         ------------------------------------------------------

Selected Consolidated Financial 
Ratios and Other Data:
<S>                                              <C>         <C>       <C>        <C>        <C>
Performance Ratios:
Return on average assets                         (0.84%)     0.25%     0.59%      0.83%      0.79%
Return on average equity (1)                     (5.24)      3.00      7.36      11.00      11.68
Interest rate spread information:
  Average during period                           2.74       3.36      4.01       3.85       3.66
  Net interest margin (2)                         3.66       3.87      4.34       4.19       4.08
Efficiency Ratio (3)                             62.88      68.18     63.46      61.06      60.88
Ratio of operating expense to average
    total assets                                  2.86       3.37      3.38       2.97       2.74
Ratio of average interest-earning assets
    to average interest-bearing liabilities     124.26     113.31    110.24     109.53     108.84

Asset Quality Ratios:
Non-performing assets to total assets
    at end of period                              1.18       2.72      4.15       5.06       4.76
Non-performing loans to total loans               1.94       3.48      3.97       5.07       4.23
Allowance for loan losses to non-
    performing loans                             70.47      30.10     21.42      28.59      29.52
Allowance for loan losses to total
    loans receivable                              1.37       1.05      0.85       1.47       1.27

Capital Ratios:
Equity to total assets at end of period (1)      13.02      17.32      7.98       7.65       7.04
Average equity to average assets (1)             15.95       8.30      7.96       7.52       6.76

Other Data:
Number of full-service offices                    9          9         7          6          6
--------------------------------------
<FN>
(1) Period end and average asset and equity amounts reflect securities available
for sale at fair value, with net unrealized  gains/losses,  net of tax, included
as a component of equity.

(2) Net interest income divided by average interest-earning assets

(3) The efficiency ratio represents  operating  expenses  (excluding real estate
owned and repossessed asset expense of $2.6 million, $1.6 million, $2.1 million,
$1.0 million and $534,000  for the fiscal years ended  December 31, 1996,  1995,
1994,  1993, and 1992  respectively),  divided by the sum of net interest income
and non-interest income.
</FN> 
</TABLE>
                                       3
<PAGE>

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

      The  most  significant  events  of the  1996  fiscal  year  were:  (i) the
completion of the Company's two 10% stock repurchase programs, which resulted in
the buy-back of 1,030,227 shares of common stock; (ii) the bulk sales of certain
performing and  non-performing  loans and foreclosed real estate;  and (iii) the
filing for Chapter 11 bankruptcy  protection  by the Bennett  Funding  Group,  a
lease finance  company that had a $3.6 million  aggregate  lending  relationship
with the Company at the time of the bankruptcy filing.


      All  references to the Company prior to December 26, 1995,  the conversion
date, except where otherwise indicated, are to Amsterdam Savings Bank, FSB. (the
"Bank"),  the Company's wholly owned bank  subsidiary.  As of December 31, 1995,
the Company had no material  results of operations;  accordingly,  the following
discussion  relates  primarily to the Bank's  results of operations  for periods
prior to fiscal year 1996.

      When  used in this  annual  report,  the  words or  phrases  "will  likely
result",  "are expected to",  "will  continue",  "is  anticipated",  "estimate",
"project"  or similar  expressions  are  intended to  identify  "forward-looking
statements" within the meaning of the Private  Securities  Litigation Reform Act
of 1995.  Such  statements  are subject to certain  risks and  uncertainties  --
including,  changes in economic conditions in the Company's market area, changes
in policies by regulatory  agencies,  fluctuations in interest rates, demand for
loans in the  Company's  market area and  competition  that could  cause  actual
results  to differ  materially  from  historical  earnings  and those  presently
anticipated  or projected.  The Company  wishes to caution  readers not to place
undue reliance on any such  forward-looking  statements,  which speak only as of
the date made.  The Company  wishes to advise  readers  that the factors  listed
above  could  affect the  Company's  financial  performance  and could cause the
Company's  actual  results  for  future  periods to differ  materially  from any
opinions or statements  expressed  with respect to future periods in any current
statements.

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

Management Strategy

     Management's  primary goal is to improve the Company's  profitability while
minimizing its risks. To meet these goals,  the Company's  strategies  focus on:
(i) emphasizing one- to four- family residential  mortgage lending,  home equity
loans,  and consumer loans,  especially  automobile  loans;  (ii) asset quality;
(iii)  increasing the Company's  subsidiary  Bank's  presence in its market area
primarily through the establishment of low-cost supermarket  branches;  and (iv)
managing interest rate risk.

                                       4
<PAGE>
     Emphasizing Lending Secured by One- to Four-Family  Residential  Mortgages,
     Home Equity and Consumer Products

     The  Company's  bank  subsidiary  has  emphasized  and plans to continue to
emphasize originating traditional one- to four-family residential mortgage, home
equity and consumer loans in its primary market area.


      During 1996,  1995, and 1994,  the Bank  originated  $47.7  million,  $8.3
million and $56.0 million,  respectively, of loans secured by one-to-four-family
residences,  home equity loans of $14.3 million,  $7.9 million and $7.9 million,
respectively,  and $7.7 million, $18.4 million and $17.2 million,  respectively,
of consumer  loans.  At December 31, 1996,  the Bank had $158.2 million of loans
secured by one- to  four-family  residences,  $22.8 million of home equity loans
and  $26.0  million  of  consumer  loans  representing  63.1%,  9.1% and  10.3%,
respectively, of the Bank's gross loan portfolio.


     Asset  Quality

     The  Bank's  loan  portfolio  consists  primarily  of one-  to  four-family
residential  and home equity loans,  which are considered to have less risk than
commercial  and  multi-family  real  estate  or  consumer  loans.  The  Bank has
de-emphasized  its commercial and  multi-family  real estate  lending,  with the
portfolio shrinking from $50.1 million at December 31, 1995, to $34.7 million at
December 31, 1996. During the same period, the Bank's portfolio of loans secured
by one- to  four-family  and home  equity  mortgage  loans has grown from $151.0
million to $181.0 million.


      The Bank's  non-performing  assets consist of non-accruing loans, accruing
loans delinquent more than 90 days,  troubled debt restructurings and foreclosed
assets. The Bank has established a high priority for its loan collection efforts
and has aggressively  marketed real estate owned properties in order to increase
operating  earnings.  


     At the end of the first quarter of 1996, non-performing loans increased due
to the  Chapter 11  bankruptcy  filing by the  Bennett  Funding  Group,  a lease
financing company that had a $3.6 million  aggregate  lending  relationship with
the  Company at the time of the filing.  During  1996,  the  Company  recorded a
provision for loan losses related to the Bennett relationship of $2.8 million on
a loan relationship exposure of $3.6 million. During December 1996, $1.7 million
of Bennett's total loan balance was  charged-off  against the allowance for loan
losses previously established through charges to earnings. Negotiations with the
Bennett bankruptcy trustee related to the Bank's total Bennett  relationship are
in process,  and,  based upon  discussions  to date,  the Bank believes that the
remaining $1.1 million loan loss reserve for Bennett is adequate.

                                       5
<PAGE>

     The  Company   has  been   severely   handicapped   by  the  level  of  its
non-performing assets,  resulting in significant resources allocated to managing
these assets,  as well as reduced  earnings.  The Company  decided to dispose of
certain  non-performing  assets in a bulk sale versus  continuing to resolve the
problems on an asset specific basis in order to accelerate the reduction in loan
portfolio  credit risk,  reduce the drag on earnings  that  resulted  from these
assets, enhance overall asset quality and better position the Company to achieve
its strategic goals. Accordingly, during the fourth quarter of 1996, the Company
sold certain  non-performing  commercial  type loans  totaling $13.8 million and
other performing loans with relatively high credit risk (primarily  manufactured
home loans)  totaling  $10.7  million and other real estate owned  totaling $2.5
million.  The net sales proceeds  totaled $20.4 million,  resulting in a loss of
$6.6  million,   which  was  charged  against  the  allowance  for  loan  losses
(approximately   $5.6   million)  and  to  other  real  estate   owned   expense
(approximately   $1.0  million).   Primarily  as  a  result  of  the bulk  sale,
non-performing  assets as a  percentage  of total  assets  improved  to 1.18% at
December 31, 1996,  from 2.72% at December  31,  1995.  In addition,  the Bank's
ratios of non-performing  loans to total loans and the allowance for loan losses
to  non-performing  loans also improved.  The ratio of  non-performing  loans to
total loans  declined to 1.94% at December  31, 1996 from 3.48% at December  31,
1995.  The  ratio of the  allowance  for loan  losses  to  non-performing  loans
increased to 70.47% at December  31, 1996 from 30.10% at December 31, 1995.  See
"--Selected Consolidated Financial Ratios and Other Data, Asset Quality Ratios,"
herein.


      Increasing the Bank's  Presence in its Market Area  Primarily  through the
      Establishment of Low-Cost Supermarket Branches

     Since   November  1994,  the  Bank  has  opened  three  branch  offices  in
supermarkets,  with one located in each of  Schenectady,  Albany and  Montgomery
Counties,  New York.  The Bank will be opening its fourth and fifth  supermarket
branches in April of 1997. These branch offices will both be located in Saratoga
County,  New  York,  one of the  fastest  growing  counties  in New York  State.
Management  believes that these supermarket  branch offices are an effective way
to service its  customers due to their size,  efficiency  and  convenient,  high
traffic locations.


      In addition to the two new supermarket branch offices,  the Bank will also
open a  "traditional"  branch office in 1997. This branch office will be located
in the Town of  Guilderland,  Albany County,  New York, in a new shopping center
being  constructed  at the  intersection  of N.Y.S.  Routes  20 and 155,  a high
traffic area.


      With the opening of its three new branch offices in 1997, the Bank will be
operating 12  full-service  branch  locations in its primary market area, all of
which provide customers with 24-hour access to ATMs.

      Managing  Interest Rate Risk.

     The Bank has an  asset/liability  management  committee ("ALCO") that meets
weekly to develop,  implement and review  policies to manage interest rate risk.
The Bank has endeavored to manage its interest rate risk through the pricing and
diversification of its loans,  including the introduction of new, first mortgage
loan  products with shorter  terms to maturity or with  different  interest rate
adjustment periods, the origination of consumer loans with shorter average lives
or which reprice at shorter  intervals  than fixed and  adjustable-rate  one- to
four-family  residential loans and, from time to time, the purchase of short- to
intermediate-term securities available for sale.

                                       6
<PAGE>

Financial Condition

     Comparison  of  Financial  Condition  at December 31, 1996 and December 31,
1995.  Total assets at December 31, 1996,  were $472.4  million,  an increase of
$33.5 million,  or 7.6%,  compared to total assets of $438.9 million at December
31, 1995.  The growth in total  assets was  primarily  attributable  to a $126.1
million  increase  in  securities  available  for sale,  mainly  mortgage-backed
securities which increased $103.1 million.  The growth of $33.5 million in total
asset was funded by an increase in borrowed funds of $108.8  million,  primarily
securities  sold under  agreements to repurchase,  which  increased to $102.8 at
December 31, 1996, from zero at December 31, 1995. Before committing the Company
to a significant  change in the  composition  of its balance  sheet,  management
completed  an analysis  to measure the  projected  impact on the  Company's  net
interest  income  and the net  interest  margin.  On the basis of its  analysis,
management  determined that the benefit of a projected  significant  increase in
net interest income,  although at a spread lower than the Company's  traditional
spread  between   interest-earning  assets  and  interest-bearing   liabilities,
outweighed the negative  impact from a projected  narrowing in the Company's net
interest  margin.  See "Net Interest  Income" and  "Asset/Liability  Management"
herein.


      Total deposits at December 31, 1996,  were $298.1  million,  a decrease of
$13.2 million,  or 4.2%, compared to $311.2 million the prior year. The decrease
was  primarily  due to  declines  in  certificates  of deposit of $5.4  million,
passbook and statement  savings accounts  ("savings  accounts") of $4.7 million,
and  money  market  accounts  of  $2.4  million.  On the  basis  of  the  Bank's
statistical  and  anecdotal   monitoring  reports  of  withdrawals  and  account
closeouts,  management  believes that the declines in deposit balances resulted,
in part,  from a shift by some of the  Bank's  depositors  of a portion of their
investable  funds into  alternative  investment  vehicles,  such as stock mutual
funds, during 1996.

      Total stockholders' equity decreased $14.5 million to $61.5 million mainly
as the result of the Company's  stock  buy-backs  totaling $11.2 million and the
net  loss of $3.8  million  recorded  for the  year  ended  December  31,  1996,
partially offset by a $527,000 decrease in unearned shares held by the Company's
Employee Stock Ownership Plan ("ESOP").

                                       7
<PAGE>

Results of Operations

Comparison of Fiscal Years Ended December 31, 1996 and 1995

      General.

     For the fiscal year ended  December  31, 1996,  the Company  recorded a net
loss of $3.8 million  compared to net income of $857,000 for the prior year. The
net loss for 1996 was attributable primarily to the provision for loan losses of
$9.5 million; which was primarily related to the bulk sale of certain performing
and non-performing  loans and the Company's aggregate lending  relationship with
the Bennett Funding Group ("Bennett"). See "--Provision for Loan Losses."

      Interest  Income.

     Interest income increased $6.8 million,  or 26.4%, to $32.3 million in 1996
from $25.6  million in 1995.  The increase in interest  income  resulted  from a
$103.2 million,  or 31.2%,  increase in the Company's  average  interest-earning
assets, primarily securities available for sale, which increased $106.5 million,
or 214% in 1996,  to $156.1  million at  December  31,  1996,  compared to $49.6
million of securities  held to maturity in 1995. The average yield earned on the
Company's  securities  increased  89 basis  points to 7.00% in 1996  compared to
6.11% in 1995.


     However,  overall  the  average  yield  earned on  interest-earning  assets
decreased  28 basis  points to 7.44% in 1996 from 7.72% in the prior  year.  The
decrease in the average  yield earned was mainly the result of the change in the
mix of average  interest-earning assets with lower yielding securities available
for sale  increasing as a percent of the total mix,  rising to 36.4% during 1996
from  15.5% in 1995,  while the  percentage  of higher  yielding  loans to total
interest-earning assets declined to 60.3% from 78.9% for the same periods.

      Interest Expense.

     Interest expense  increased by $3.7 million,  or 28.9%, to $16.4 million in
1996 compared to $12.7  million in 1995.  Average  interest-bearing  liabilities
increased $57.3 million,  or 19.6%, to $349.7 million in 1996 compared to $292.4
million during the prior year. During the same periods, the average rate paid on
interest-bearing  liabilities  increased by 34 basis points to 4.70% from 4.37%.
The increase in interest  expense was due primarily to a $62.7 million  increase
in the average  outstanding balance of borrowed funds to $67.6 million from $4.9
million in 1995,  mainly  resulting  from an increase in  securities  sold under
agreements to repurchase, which grew $56.8 million to $57.8 million in 1996 from
$1.0 million in 1995.  Average  borrowed  funds,  with an average rate of 5.94%,
increased to 19.3% of total  interest-bearing  liabilities for 1996 up from 1.7%
in 1995 while average savings  accounts,  with an average rate of 3.04% in 1996,
declined to 29.5% from 37.2% in 1995 and average  certificates of deposit,  with
an average rate of 5.65% in 1996,  decreased to 43.0% of the funding mix in 1996
from 50.4% the prior year.

                                       8
<PAGE>

      Net Interest Income.


     Net  interest  income  before  provision  for loan  losses  increased  $3.1
million,  or 24.0%,  to $15.9  million  for the year ended  December  31,  1996,
compared to $12.8  million for 1995. As a result of  implementing  the Company's
strategy to enhance net interest income through the restructuring of its balance
sheet through the use of leveraged reverse repurchase  agreements,  net interest
income increased approximately $1.4 million.  Partially offsetting the increased
net  interest  income  attributable  to average net earning  asset  growth was a
decline in the net yield on average  interest-earning  assets of 21 basis points
to 3.66% in 1996 from 3.87% in 1995,  primarily the result of the changes in the
composition  of average  interest-earning  assets and  average  interest-bearing
liabilities as discussed  above.  See "Financial  Condition","Interest  Income",
"Interest Expense" and "Asset Liability Management" herein.

 
      Provision for Loan Losses.


     The  provision  for loan losses  increased  $8.0 million to $9.5 million in
1996 from $1.5 million  during 1995.  The increase  resulted  primarily from the
Company's bulk sale of certain performing and non-performing loans in the fourth
quarter of 1996, the aggregate  lending  relationship  with the Bennett  Funding
Group  (see  "Asset  Quality"  herein),  a company  that  filed for  Chapter  11
bankruptcy  protection  on March 29, 1996,  as well as the  Company's  continual
review of its loan  portfolio.  In order to accelerate its objective of reducing
credit risk in the loan portfolio and better position the Company to achieve its
strategic  goals,  management  considered  it to be more prudent to complete the
bulk sale of certain non-performing  commercial type loans and manufactured home
loans  (which are  considered a higher  credit risk  consumer  product),  versus
continuing  to address  these  assets on an asset  specific  basis  (see  "Asset
Quality" herein).


     The Bank records a provision for loan losses based upon its analysis of the
adequacy of the allowance for loan losses. Management determines the adequacy of
the  allowance  for loan losses  based upon its  analysis of risk factors in the
loan portfolio.  This analysis includes  evaluation of concentrations of credit,
historical loss experience, current economic conditions, estimated fair value of
underlying collateral, delinquencies, and other factors.


     While the increase in the 1996  provision for loan losses was primarily due
to the Bennett  relationship  and the result of the bulk loan sale,  it was also
due to weaknesses in the economy in the Bank's primary market area, decreases in
the value of real estate (the  primary  collateral  securing  many loans) in the
region, as well as increases in charge-offs, even after excluding the effects of
the bulk loan sales and the Bennett relationship.

                                       9
<PAGE>

     At December 31, 1996,  the Bank's  allowance  for loan losses  totaled $3.4
million, or 1.4% of total loans and 70.5% of non-performing  loans,  compared to
$2.6  million,  or 1.1% of total  loans  and  30.1% of  non-performing  loans at
December 31, 1995.


      Non-interest Income.

     Non-interest  income  decreased  by $592,000 to $920,000 for the year ended
December  31,  1996,  from $1.5  million in 1995.  The  primary  reasons for the
decline in  non-interest  income were the receipt by the Bank of a non-recurring
FDIC deposit  insurance  premium  refund of $189,000 in 1995,  net losses on the
sale of securities available for sale of $102,000 in 1996 compared to a net gain
in the prior year of $225,000 and the receipt in 1995 of non-recurring insurance
proceeds related to a fire loss on a real estate owned property in the amount of
$76,000. In late 1995, the Bank's securities portfolio was yielding below market
rates. As a result, the Bank decided in early January 1996 to $34 million of its
holdings and reinvest the proceeds in then current higher  yielding  securities,
based on a  projection  that the  losses  on the  sales  would be  recovered  in
approximately six-months.


      Non-interest Expense.

     Non-interest  expense  increased $1.8 million to $13.1 million for the year
ended  December 31, 1996, an increase of 15.5%,  from $11.4 million in 1995. The
primary  reasons  for the  increase  were a $962,000  increase  in the net costs
associated  with the Bank's  real  estate  owned and  repossessed  assets and an
increase in salaries,  wages, and benefits of $694,000,  or 15.8% over the prior
year.

     The increase in the expenses  related to real estate owned and  repossessed
assets resulted  primarily from the bulk sale of certain  foreclosed real estate
properties  at  an  amount  below  book  value,   which  increased  expenses  by
approximately  $1.0  million.  Although  these  assets had been  carried at fair
value,  the Bank was  willing to accept a price lower than book value as part of
this  bulk sale in order to  reduce  the drag on  earnings  that  resulted  from
carrying these  non-performing  assets.  This increase was partially offset by a
decline in other  write-downs  of real estate  owned of $377,000 to $877,000 for
1996 compared to $1.3 million during 1995. Also contributing to the increase was
an increase in expenses related to holding these assets.


                                       10
<PAGE>

     The increase in salaries, wages, and benefits was primarily attributable to
the Company's  Employee Stock  Ownership Plan ("ESOP"),  that was established at
the time of conversion.  The year ended December 31, 1996, was the first year in
which the Company was required to recognize  compensation expense related to the
ESOP.  The amount of the expense  recorded for 1996 was $527,000.  Excluding the
ESOP expense, salaries, wages, and benefits increased $167,000, or 3.8%, to $4.6
million  from $4.4 million in 1995 due mainly to normal cost of living and merit
increases.

      All other non-interest  expenses  increased by $109,000,  or 2.0%, to $5.5
million in 1996 from $5.4 million the prior year. Increases related to occupancy
and equipment,  data  processing,  professional  fees, and certain other expense
categories  totaling  $974,000  were  offset  almost  entirely by  decreases  of
$865,000 in certain other expense  categories,  primarily FDIC deposit insurance
premiums, which declined by $531,000 from $533,000 in 1995 to $2,000 in 1996 due
to a decrease in the rates  charged to  well-capitalized,  Bank  Insurance  Fund
(BIF) member  institutions  such as the Bank, and the recording of non-recurring
expenses of  $205,000 in 1995  pertaining  to the  seizure  and  liquidation  of
Nationar by the Superintendent of Banks of N.Y.S.

      Income Tax Expense.

     Due to the  pre-tax  loss of $5.8  million  incurred in 1996 as compared to
pre-tax  income of $1.4 million in 1995,  the Company  recorded a tax benefit of
$1.9 million for 1996 compared to an expense of $586,000 in 1995.

Comparison of Fiscal Years Ended December 31, 1995 and 1994

      General.

     Net income for the year ended December 31, 1995, decreased $1.1 million, or
56.1%,  to $857,000 from $2.0 million for the year ended  December 31, 1994. The
decrease in net income resulted  primarily from a decline in net interest income
before  provision  for loan  losses of  $778,000,  or 5.7%,  an  increase in the
provision for loan losses of $415,000, or 37.5%, and an increase in non-interest
expenses of $43,000,  or 0.4%,  partially  offset by an increase in non-interest
income of $607,000, or 67.1%.


      Interest Income.

     Interest income  increased $1.8 million,  or 7.5%, to $25.6 million in 1995
from $23.8 million in 1994. The increase in interest  income was the result of a
$17.7 million, or 5.6%, increase in the Bank's average  interest-earning  assets
(primarily  loans  receivable)  for the year ended  December 31, 1995, to $331.3
million,  compared to $313.6 million during 1994. The yield earned on the Bank's
interest-earning assets increased 13 basis points to 7.72% in 1995 from 7.59% in
1994.  This  increase  was  primarily a result of an increase in rates earned on
federal funds sold by the Bank.

                                       11
<PAGE>

      Interest Expense.

     Interest expense increased by $2.5 million,  or 25.1%, to $12.7 million for
the  year  ended  December  31,  1995,  from  $10.2  million  in  1994.  Average
interest-bearing  liabilities increased $7.9 million, or 2.8%, to $292.4 million
in  1995  from   $284.5   million  in  1994  and  the   average   rate  paid  on
interest-bearing  liabilities  increased  by 75 basis points to 4.33% from 3.58%
during  the same  periods.  The  increase  in  interest  expense,  however,  was
primarily  the result of a $37.6  million  increase in the  average  outstanding
balance of the Bank's certificate accounts (approximately $14.0 million of which
represented  a shift from lower  earning  savings  accounts at the Bank) coupled
with a 118 basis  point  increase  in the rates paid on such  accounts.  In this
regard,  the Bank offered  attractive  promotional rates on certain  certificate
accounts in connection with the supermarket branch openings.

      Net Interest Income.

     Net interest income before provision for loan losses decreased $778,000, or
5.7%, to $12.8 million for the year ended  December 31, 1995,  compared to $13.6
million for 1994.  The decrease was primarily due to a 65 basis point decline in
the Bank's average net interest rate spread to 3.36% in 1995 from 4.01% in 1994,
partially  offset by an increase in average net earning  assets of $9.8 million,
or 33.6%,  to $38.9  million  in 1995 from  $29.1  million  in 1994.  The Bank's
average net yield on interest-earning assets also declined in 1995 to 3.87% from
4.34% in 1994.

      Provision  for  Loan  Losses.

     The provision for loan losses increased $415,000, or 37.5%, to $1.5 million
for the year ended  December  31,  1995,  from $1.1  million  for the year ended
December  31,  1994.  This  increase  was   attributable   mainly  to  increased
non-accruals for consumer loans secured by recreational vehicles and to a lesser
extent  manufactured homes. These types of loans typically have a higher risk of
loss  associated  with them than real  estate  loans  since  they are  generally
secured by rapidly  depreciable  assets.  Management's  decision to increase the
provision for loan losses was impacted primarily by management's analysis of the
Bank's asset quality and the level of its allowance for loan losses. At December
31, 1995,  the Bank's  allowance for loan losses totaled $2.6 million or 1.1% of
total loans and 30.1% of total non-performing loans.

      Non-interest  Income.

     Total non-interest income increased $607,000, or 67.1%, to $1.5 million for
the year ended December 31, 1995,  from $905,000 for the year ended December 31,
1994. The primary  reasons for the  improvement in  non-interest  income in 1995
were a non-recurring  FDIC deposit  insurance premium refund of $189,000 and net
gains on the sale of  securities  available  for sale of $225,000 on the sale of
securities available for sale. Also contributing to the increase in non-interest
income were a $46,000 increase in commissions from annuity and mutual fund sales
by the Bank's insurance agency subsidiary and the receipt of insurance  proceeds
related to a fire loss on real estate owned property in the amount of $76,000.

                                       12
<PAGE>

      Non-interest  Expense.

     Total non-interest expense increased $43,000, or 0.4%, to $11.4 million for
1995 compared to $11.3 million for 1994.  The increase in  non-interest  expense
was due to a $355,000,  or 8.8% increase in salaries,  wages,  and benefits as a
result of normal  cost of living  and merit  increases  and the  addition  of 13
full-time  equivalent  employees for the three supermarket branch offices opened
since  November of 1994.  Also  contributing  to the increase was an increase of
$232,000  in  data  processing  fees,  of  which  $105,000  was  related  to the
implementation of check imaging, an increase of $151,000, or 14.1%, in occupancy
and  equipment  expenses,  due mainly to the  addition of the three  supermarket
branches,  partially  offset by a decrease  in other  non-interest  expenses  of
$695,000.  The decrease in other non-interest expenses resulted primarily from a
$451,000  decline in real estate  owned and  repossessed  assets  expenses and a
$259,000  reduction in  correspondent  bank  processing  fees as a result of the
Bank's decision to no longer outsource certain  processes.  Also contributing to
the  overall  decrease in other  non-interest  expenses  was a reduction  in the
Bank's FDIC, Bank Insurance Fund  (BIF)-member,  deposit  insurance  premiums of
$188,000  due to a downward  revision  by the FDIC in its premium  schedule  for
BIF-member  institutions  in  anticipation  of the BIF  achieving  its statutory
reserve ratio. The lower premiums for BIF-member  institutions  became effective
in the third quarter of 1995. Partially offsetting these decreases were a charge
of  $175,000  for legal  costs  related  to a lawsuit  in which the Bank was the
defendant and the  establishment of loss reserves  totaling  $205,000 related to
the Bank's relationship with Nationar.

      Income Tax Expense.

     Income tax expense increased by $464,000 to $586,000 for 1995. The increase
was due to a $641,000  decrease in the  deferred tax asset  valuation  allowance
during 1994,  which reduced income tax expenses in 1994,  with no such credit in
1995.



                                       13
<PAGE>

Average Balances, Interest Rates and Yields

     The  following  table  presents for the periods  indicated the total dollar
amount of  interest  income  earned on average  interest-earning  assets and the
resultant  yields,  as well as the  total  dollar  amount  of  interest  expense
incurred on average interest-bearing liabilities and the resultant rates. No tax
equivalent  adjustments  were  made.  All  average  balances  are daily  average
balances.  Non-accruing  loans  have been  included  in the table as loans  with
interest earned on a cash basis only.

<TABLE>
<CAPTION>
                                                                             Years Ended December 31,
                                             ---------------------------------------------------------------------------------------
                                                          1996                           1995                          1994
                                             ----------------------------  ---------------------------   ---------------------------
                                             Average   Interest    Yield/  Average   Interest    Yield/  Average   Interest   Yield/
                                             Balance   Inc./Exp.    Rate   Balance   Inc./Exp.    Rate   Balance   Inc./Exp.   Rate
                                             --------  ---------  -------  -------   ---------  -------  -------   ---------  ------
                                                                            (Dollars in Thousands)
<S>                                         <C>         <C>         <C>   <C>         <C>         <C>   <C>         <C>        <C>
Interest-Earning Assets:
  Loans receivable (1)                      $262,193    $20,557     7.84% $261,482    $21,385     8.18% $240,192    $19,718    8.21%
  Securities-available for sale (2)          156,093     10,921     7.00     ---        ---       ---      ---        ---      --- 
  Securities-held to maturity                  ---        ---        ---    49,598      3,028     6.11    55,890      3,360    6.01
  Federal Home Loan Bank Stock                 2,013        130     6.46     1,867        143     7.66     1,670        127    7.60
  Federal funds sold                          14,218        740     5.20    18,352      1,026     5.59    15,878        601    3.79
                                             --------  ---------           -------   ---------           -------   ---------
      Total interest-earning assets (1)(2)   434,517     32,348     7.44   331,299     25,582     7.72   313,630     23,806    7.59
                                             --------  ---------           -------   ---------           -------   ---------
Interest-Bearing Liabilities
  Savings deposits                           103,931      3,162     3.04   108,747      3,300     3.03   135,747      4,123    3.04
  NOW  deposits                               19,124        527     2.76    18,640        511     2.74    18,583        510    2.74
  Certificates of deposit                    150,300      8,492     5.65   147,348      8,272     5.61   109,713      4,861    4.43
  Money market accounts                        8,765        243     2.77    10,362        285     2.75    13,253        364    2.75
  Borrowed funds                              67,572      4,011     5.94     4,880        299     6.11     5,471        307    5.61
  Advances from borrowers for taxes and
     insurance, and stock subscription
     proceeds                                  ---        ---       ---      2,402         79     3.28     1,725         27    1.57
                                             --------  ---------           -------   ---------           -------   ---------
      Total interest-bearing liabilities     349,692     16,435     4.70   292,379     12,746     4.36   284,492     10,192    3.58
                                             --------  ---------           -------   ---------           -------   ---------
    Net interest income                                 $15,913                       $12,836                       $13,614
                                                       =========                     =========                     =========
    Net interest rate spread (1)(2)                                 2.74%                         3.36%                        4.01%
                                                                    =====                         =====                        =====
    Net earning assets  (1)(2)              $84,825                        $38,920                       $29,138
                                            ========                       =======                       =======
    Net yield on average
         interest-earning assets (1)(2)                             3.66%                         3.87%                        4.34%
                                                                    =====                         =====                        =====
    Average interest-earning assets/
      average interest-bearing liabilities   124.26%                        113.31%                       110.24%
                                            ========                        =======                       =======
---------------------------------------------
<FN>
(1) Calculated net of deferred loan fees, loan discounts and loans in process.
(2) Net of Securities available for sale pending settlement and net unrealized gains/(losses).
</FN>
</TABLE>

                                       14
<PAGE>

Rate/Volume Analysis of Net Interest Income

     The  following  table  presents  the dollar  amount of changes in  interest
income and interest expense for major components of interest-earning  assets and
interest-bearing  liabilities.  It distinguishes  between the changes related to
outstanding  balances and the changes due to changes in interest rates. For each
category   of   interest-earning   assets  and   interest-bearing   liabilities,
information is provided on changes  attributable to (i) changes in volume (i.e.,
changes  in  volume  multiplied  by old rate) and (ii)  changes  in rate  (i.e.,
changes in rate multiplied by old volume).  For purposes of this table,  changes
attributable  to both rate and volume,  which  cannot be  segregated,  have been
allocated  proportionately  to the  change  due to volume  and the change due to
rate.

<TABLE>
<CAPTION>
                                                             Year Ended December 31,
                                        -----------------------------------------------------------------
                                                1996 vs. 1995                    1995 vs. 1994
                                        -----------------------------------------------------------------
                                            Increase                           Increase
                                           (Decrease)                         (Decrease)
                                             Due to            Total            Due to           Total
                                        -----------------     Increase    ------------------    Increase
                                         Volume      Rate    (Decrease)     Volume      Rate   (Decrease)
                                        --------    ------    ---------    --------    ------   ---------
                                                              (Dollars in Thousands)
<S>                                         <C>      <C>        <C>        <C>           <C>    <C>
Interest-Earning Assets:
  Loans receivable (1)                      $58      ($886)     ($828)     $1,739       ($72)   $1,667
  Securities-available for sale (2)      10,921         --     10,921          --         --        --
  Securities-held to maturity            (3,028)        --     (3,028)       (389)        57      (332)
  Federal Home Loan Bank Stock               13        (26)       (13)         15          1        16
  Federal Funds sold                       (219)       (67)      (286)        105        320       425
                                        --------    ------    ---------    --------    ------   ---------
      Total interest-earning assets       7,745       (979)     6,766       1,470        306     1,776
                                        --------    ------    ---------    --------    ------   ---------
Interest-Bearing Liabilities
  Savings deposits                         (145)         7       (138)       (809)       (14)     (823)
  NOW  deposits                              13          3         16           2         (1)        1
  Certificates of deposit                   167         53        220       1,920      1,491     3,411 
  Money market accounts                     (44)         2        (42)        (80)         1       (79)
  Borrowed funds                          3,720         (8)     3,712         (50)        42        (8)
  Advances from borrowers for taxes and
    insurance, and stock subscription
    proceeds                                (45)       (34)       (79)         17         35        52 
                                        --------    ------    ---------    --------    ------   ---------
   Total interest-bearing liabilities    $3,666        $23      3,689      $1,000     $1,554     2,554
                                        ========    ======    ---------    ========   =======   ---------
  Net interest income                                          $3,077                            ($778)
                                                             =========                          ========
-------------------------------------
<FN>
(1) Calculated net of deferred loan fees, loan discounts and loans in process.
(2) Net of Securities available for sale pending settlement and net unrealized gains/(losses).
</FN>
</TABLE>


                                       15
<PAGE>

Asset/Liability Management

      The Bank, like other financial  institutions,  is subject to interest rate
risk to the extent that its interest-bearing  liabilities reprice on a different
basis or at a different pace from its interest-earning assets. Management of the
Bank believes it is important to manage the relationship  between interest rates
and the  effect  on the  Bank's  net  portfolio  value  ("NPV").  This  approach
calculates the difference  between the present value of expected cash flows from
assets and the present value of expected cash flows from liabilities, as well as
cash flows from off-balance sheet contracts.


     Thrift  institutions with greater than "normal" interest rate exposure must
take a deduction  from their total  capital  available to meet their  risk-based
capital  requirement.  The amount of the deduction is one-half of the difference
between (a) the institution's  actual  calculated  exposure to a 200 basis point
interest rate increase or decrease  (whichever  results in the greater pro forma
decrease in NPV) and (b) its "normal"  level of exposure  which is defined as 2%
of the present value of its assets.  The  regulation,  however,  will not become
effective until the OTS evaluates the process by which savings  associations may
appeal an interest rate risk deduction determination. It is uncertain as to when
this evaluation may be completed.  Furthermore,  the Bank, due to its asset size
and level of risk-based capital is exempt from this requirement. At December 31,
1996,  a change in  interest  rates of  positive  200 basis  points  would  have
resulted in a 4.14%  decrease (as a percentage  of the net present  value of the
Bank's  assets) in the Bank's NPV while a change in  interest  rates of negative
200 basis points would have resulted in a 2.43% increase (as a percentage of the
net  present  value of the Bank's  assets) in the Bank's NPV.  Accordingly,  the
Bank's  interest rate risk was considered  normal under OTS  regulations  and no
additional risk-based capital would have been required at December 31, 1996.

      Presented  below,  as of December 31,  1996,  is an analysis of the Bank's
interest rate risk as  calculated by the OTS,  measured by changes in the Bank's
NPV for instantaneous  and sustained  parallel shifts in the yield curve, in 100
basis points increments, up and down 400 basis points.


                                         Net Portfolio Value
                                         -------------------
            Change in
            Interest Rate           $ Amount    $ Change      % Change
            -------------           --------    --------      --------
           (Basis Points)               (Dollars in Thousands)

               +400                 $17,103     $(38,857)        (69)%
               +300                  26,503      (29,459)        (53)
               +200                  36,446      (19,514)        (35)
               +100                  46,552      ( 9,409)        (17)
               ----                  55,961        ----          ----
               -100                  62,976        7,016          13
               -200                  67,404       11,444          20
               -300                  71,920       15,959          29
               -400                  77,826       21,865          39


                                       16
<PAGE>

      Certain  assumptions  utilized by the OTS in assessing  the interest  rate
risk of thrift institutions were employed in preparing the previous table. These
assumptions  related to interest  rates,  loan prepayment  rates,  deposit decay
rates and the market  values of certain  assets under the various  interest rate
scenarios.  It was also  assumed  that  delinquency  rates  will not change as a
result of changes in interest rates although there can be no assurance that this
will be the case. Even if interest rates change in the designated amounts, there
can be no assurance that the Bank's assets and liabilities  would perform as set
forth above. In addition,  a change in Treasury rates in the designated  amounts
accompanied  by a change in the shape of the  Treasury  yield  curve would cause
significantly different changes to the NPV than indicated above.

     The Bank maintains an asset/liability committee ("ALCO") which meets weekly
to review  interest  rate risk  management  strategy  and to review  the  Bank's
investment strategy for loans and securities, monitor investment performance and
to take any actions  necessary for adjusting  future  investment  direction.  In
managing its  asset/liability  mix, and  depending on the  relationship  between
long- and short-term interest rates, market conditions and consumer  preference,
the Bank may  place  more  emphasis  on  limiting  interest  rate  risk  than on
enhancing its net interest income.  Management believes that the stability which
can be obtained by limiting interest rate risk can more than offset the benefits
which can be  derived  from  seeking  to enhance  the net  interest  margin on a
short-term basis.

      In managing its asset/liability mix, the Bank, at times,  depending on the
relationship  between long- and short-term interest rates, market conditions and
consumer  preference,  may place greater emphasis on maximizing its net interest
margin  than on  matching  the  interest  rate  sensitivity  of its  assets  and
liabilities, in an effort to improve or maintain its spread. Management believes
that the increased net income  resulting  from a mismatch in the maturity of its
asset and liability portfolios can, during periods of decline or stable interest
rates,  provide high enough  returns to justify the increased  vulnerability  to
sudden and  unexpected  increases in interest rates which can result from such a
mismatch. As a result, the Bank may at certain times be more vulnerable to rapid
increases  in  interest  rates than some other  institutions  which  concentrate
principally on matching the maturities of their assets and liabilities.

      In  evaluating  the  Bank's  exposure  to  interest  rate  risk,   certain
shortcomings inherent in the method of analysis presented in the foregoing table
must be considered.  For example,  although  certain assets and  liabilities may
have similar  maturities  or periods to  repricing,  they may react in different
degrees to changes in market interest rates. Also, the interest rates on certain
types of assets and  liabilities  may  fluctuate in advance of changes in market
interest  rates,  while  interest rates on other types may lag behind changes in
market rates.  Further, in the event of a change in interest rates,  prepayments
and early  withdrawal  levels  would  likely  deviate  significantly  from those
assumed in  calculating  the table.  Finally,  the ability of many  borrowers to
service their debt may decrease in the event of an interest rate increase.  As a
result,  the actual  effect of  changing  interest  rates may  differ  from that
presented in the foregoing table.


                                       17
<PAGE>
     In addition,  as part of its asset/liability  management process,  the Bank
subscribes as a member of the Federal Home Loan Bank of New York to the Interest
Rate Risk Service provided by the Federal Home Loan Bank of Atlanta (FHLBA). The
Bank  directly  furnishes  the FHLBA with the  starting  data  needed to run the
asset/liability  simulation model developed by the FHLBA. The required  starting
data consists of the Bank's  quarterly OTS call report.  The schedules from this
report,  provide  the FHLBA with  asset,  liability  and  capital  positions  in
addition to maturity,  rate and repricing  information.  The FHLBA's  simulation
model  identifies  the Bank's  exposure to interest  rate risk by measuring  the
estimated  interest rate  sensitivity  of the  participating  institution's  Net
Portfolio  Value (NPV),  the  estimated  sensitivity  of the  institution's  net
interest income (NII), and the institution's estimated maturity gap position. In
most  cases  the  FHLBA  has  followed  OTS  methodology,  however,  because  of
differences in modeling techniques and assumptions, the FHLBA results may differ
from estimates generated by the OTS.


     Management believes that the strategy related to the purchase of securities
with  borrowed  funds  and the  simultaneous  pledging  of those  securities  as
securities sold under agreements to repurchase does not expose the Company's net
interest income and its net interest  margin (NIM) to an  unacceptable  level of
sensitivity  to changes,  either up or down, in interest  rates.  See "Financial
Condition" and "Net Interest Income" herein.  Management is aware, however, that
by pursuing the balance sheet strategy it followed, that the Bank's NPV would be
more  sensitive  to changes in interest  rates.  Based on the FHLBA's Peer Group
Report for December 31, 1996, if rates  increased  200 basis points,  the Bank's
NPV would decline 29.6% from its base NPV (compared to the OTS calculated 35% in
the table above) while the median decline for its peers was 22.6%.  However,  if
interest rates increased 400 basis points, the Bank's NPV would decline by 67.1%
(compared to the OTS calculated 69% in the table above) while the median decline
for its peer group was estimated at 47.2%.


     When the Bank is compared to its peers in regard to changes in net interest
income and net interest  margin,  the Bank becomes less interest rate  sensitive
than its peer group.  With a 200 basis point  increase  in interest  rates,  the
Bank's NII would  decline by an  estimated  3.9%  compared  to its peer  group's
median  decline of 8.5%. If rates  increased  400 basis  points,  the Bank's NII
would decline by 9.2% compared to a median  decline of 18.6% for its peer group.


     Given a 200 basis  increase in interest  rates as of December 31, 1996, the
Bank's  NIM would  decline 13 basis  points  from its base case rate of 3.14% to
3.01%,  compared to a peer group  decline to 2.66% from  2.83%,  a decline of 17
basis points. If interest rates increased 400 basis points, the Bank's NIM would
decline 29 basis  points to 2.85% from the base  margin of 3.14%  while the peer
group's NIM would decline by 42 basis points to 2.41% from 2.83%.


Liquidity and Capital Resources

      The Bank's  primary  sources of funds for operations are deposits from its
market area,  principal and interest payments on loans and securities  available
for sale , proceeds from the maturity of securities available for sale, advances
from the FHLB of New York and proceeds  from the sale of  securities  sold under
agreements  to  repurchase  ("reverse  repo").  While  maturities  and scheduled
amortization of loans and securities are predictable  sources of funds,  deposit
flows and mortgage prepayments are greatly influenced by general interest rates,
economic conditions, and competition.

                                       18
<PAGE>

     The primary  investing  activities  of the Company are the  origination  of
loans and purchase of securities.  During,  1996,  1995 and 1994 the Bank's loan
originations   totaled  $81.4   million,   $50.2  million  and  $91.2   million,
respectively.  The Bank purchased securities held for investment during the year
ended December 31, 1994 of $12.2 million.  During 1995, the Bank purchased $47.0
million of  securities  and  classified  such  securities,  consistent  with the
reclassification  of all investment and  mortgage-backed  securities at December
31, 1995, as available for sale. In 1996, the Company  purchased  $192.6 million
of securities and classified such securities as available for sale.


     The primary  financing  activity of the Bank is the attraction of deposits.
However, during the years ended December 31, 1996 and 1994, the Bank experienced
net  decreases  in deposits of $13.2  million  and $1.6  million,  respectively.
During the year ended December 31, 1995, the Bank  experienced a net increase in
deposits of $18.1  million.  Management  believes  that the decrease in deposits
during the year ended December 31, 1996, was the result, in part, to some of the
Bank's depositors deciding to pursue alternative investment opportunities,  such
as stock  mutual  funds,  with a  portion  of their  investable  funds.  The net
increase of $18.1  million in 1995 resulted from an increase of $41.2 million in
certificates of deposit, partially offset by declines in savings and transaction
accounts.  The increase in  certificates of deposit was the result of the Bank's
aggressive 1995 marketing  campaigns related,  in part, to the three supermarket
branches that the Bank opened since November 1994.

      The Bank is  required  to  maintain a minimum  levels of liquid  assets as
defined by OTS  regulations.  This  requirement,  which may be varied by the OTS
depending upon economic conditions and deposit flows, is based upon a percentage
of deposits and short-term  borrowings.  The required minimum liquidity ratio is
currently 5% and the short-term  liquidity ratio is 1%. The Bank's average daily
liquidity  ratio for the month of  December  1996 was 7.5%,  and its  short-term
liquidity for the same month was 1.6%.

      The Bank's most liquid assets are cash and cash equivalents, which consist
of federal funds sold and bank deposits.  The level of these assets is dependent
on the Bank's  operation,  financing and investing  activities  during any given
period.  At December 31, 1996, 1995 and 1994 cash and cash  equivalents  totaled
$10.9 million, $84.6 million and $16.3 million, respectively.


      The Bank  anticipates that it will have sufficient funds available to meet
its current  commitments.  At December 31,  1996,  the Bank had  commitments  to
originate  loans of $1.9 million as well as undrawn  commitments of $5.9 million
on home  equity and other  lines of credit.  Certificates  of deposit  which are
scheduled  to mature in one year or less at December  31,  1996,  totaled  $91.1
million.  Management  believes that a significant  portion of such deposits will
remain  with  the  Bank.  However,  if the  Bank  is not  able to  maintain  its
historical  retention rate on maturing  certificates of deposit, it may consider
employing the following strategies:  (i) increase its borrowed funds position to
compensate for the deposit outflows;  (ii) increase the rates it offers on these
deposits in order to increase the  retention  rate on maturing  certificates  of
deposit   and/or  to  attract  new  deposits;   or  (iii)  attempt  to  increase
certificates  of deposit  through the use of deposit  brokers.  Depending on the
level of market  interest  rates on the  renewal  dates of the  certificates  of
deposit, the employment of one or a combination of these strategies could result
in higher or lower levels of net interest income and net income.

                                       19
<PAGE>
      The Bank is also  involved as  plaintiff  or  defendant  in various  legal
actions  in the  normal  course  of its  business.  For  additional  information
regarding such legal matters see "Business-Legal  Proceedings" and Note 13(a) of
the Notes to Consolidated Financial Statements.

     The Company  also has a need for, and sources of,  liquidity.  Liquidity is
required  to fund its  operating  expenses,  as well as for the  payment  of any
dividends to stockholders.  The Company  currently has no significant  liquidity
commitments  as operating  costs are modest and  dividends to  stockholders  are
discretionary  and to date no dividends  have been declared or paid. At December
31, 1996,  the Holding  Company had $469,000 in liquid assets on hand,  however,
the primary  source of liquidity on an ongoing basis is dividends from the Bank.
To date, no dividends have been paid from the Bank to the Company.

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

     At December  31,  1996,  the Bank had  tangible  and core  capital of $46.2
million and $46.2  million,  respectively,  or 10.08% of adjusted  total assets,
which was  approximately  $39.3  million  and $32.4  million  above the  minimum
requirements  of 1.5% and 3.0%,  respectively,  of the adjusted  total assets in
effect on that date. On December 31, 1996, the Bank had total risk-based capital
of $48.7  million  (including  $46.2  million  in core  capital),  or  24.61% of
risk-weighted assets of $198.0 million.  This amount was $32.9 million above the
8.0% requirement in effect on that date.


Impact Of Inflation

      The Consolidated  Financial  Statements and Notes thereto presented herein
have been prepared in accordance with generally accepted accounting  principles,
which require the  measurement  of financial  position and operating  results in
terms of  historical  dollars  without  considering  the change in the  relative
purchasing power of money over time due to inflation. The impact of inflation is
reflected in the  increased  cost of the  Company's  operations.  Nearly all the
assets sand  liabilities  of the Company are financial,  unlike most  industrial
companies.  As a result,  the  Company's  performance  is  directly  impacted by
changes in interest  rates,  which are  indirectly  influenced  by  inflationary
expectations.  The Company's  ability to match the interest  sensitivity  of its
financial assets to the interest sensitivity of its financial liabilities in its
asset/liability  management  may tend to  minimize  the  effect  of  changes  in
interest  rates on the Company's  performance.  Changes in interest rates do not
necessarily  move to the same  extent  as do  changes  in the price of goods and
services.

                                       20
<PAGE>

Unaudited Consolidated Interim Financial Information

     Following  is a  summary  of  unaudited  quarterly  consolidated  financial
information for each quarter of 1996 and 1995.
<TABLE>
<CAPTION>
                                                    1996 Quarters Ended                          1995 Quarters Ended
                                             3/31      6/30      9/30      12/31          3/31      6/30      9/30      12/31 
                                             ----      ----      ----      -----          ----      ----      ----      -----
                                                              (Dollars in thousands, except per share data)                   
<S>                                        <C>       <C>       <C>        <C>           <C>       <C>       <C>       <C>   
Interest Income                            $6,948    $7,590    $8,854     $8,956        $6,272    $6,426    $6,405    $6,479

Net Interest Income                         3,686     3,909     4,259      4,059         3,418     3,278     3,064     3,076

Provision for Loan Losses                   1,628       433       549      6,840           168     1,116        60       178

Income/(Loss) Before Income Taxes            (472)      873       963     (7,129)        1,096    (1,271)    1,031       587

Net Income/(Loss)                            (314)      510       572     (4,604)          648      (820)      665       364

Per Share:  Net Income/(Loss)*               (.06)      .10       .12      (1.05)          N/A       N/A       N/A       N/A

-----------------------------------------
<FN>
* The  summation  of the 1996  quarterly  earnings  per  share do not  equal the
December  31, 1996 year to date loss per share of ($.81) as a result of the loss
in the fourth  quarter being  applied to a smaller  average  shares  outstanding
balance for the fourth quarter (due to the two stock buy backs in December 1996)
as compared to the average on a year to date basis.
</FN>
</TABLE>

                                       21
<PAGE>

                          Independent Auditors' Report


The Board of Directors
Ambanc Holding Co., Inc.:


We have audited the accompanying  consolidated statements of financial condition
of Ambanc  Holding Co., Inc. and  subsidiaries  (the Company) as of December 31,
1996 and 1995,  and the related  consolidated  statements of income,  changes in
shareholders'  equity  and cash  flows for each of the  years in the  three-year
period ended December 31, 1996. These consolidated  financial statements are the
responsibility of the Company's management.  Our responsibility is to express an
opinion on these consolidated financial statements based on our audits.

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

In our opinion, the consolidated  financial statements referred to above present
fairly, in all material respects,  the financial position of Ambanc Holding Co.,
Inc. and  subsidiaries  at December 31, 1996 and 1995,  and the results of their
operations and their cash flows for each of the years in the  three-year  period
ended  December 31, 1996,  in  conformity  with  generally  accepted  accounting
principles.

As discussed in note 1 to the consolidated  financial statements,  as of January
1,  1995,  the  Company  adopted  the  provisions  of the  Financial  Accounting
Standards   Board's  Statement  of  Financial   Accounting   Standards  No.  114
"Accounting  by Creditors For  Impairment of a Loan," and Statement of Financial
Accounting  Standards No. 118, "Accounting by Creditors For Impairment of a Loan
- Income Recognition and Disclosures," which prescribe  recognition criteria for
loan  impairment and  measurement  methods for certain  impaired loans and loans
whose terms are  modified in a troubled  debt  restructuring  subsequent  to the
adoption of these Statements.



KPMG Peat Marwick LLP
Albany, N.Y.
February 7, 1997




                                       22
<PAGE>
                   AMBANC HOLDING CO., INC. AND SUBSIDIARIES
                 Consolidated Statements of Financial Condition
<TABLE>
<CAPTION>
                                                                             December 31,
                 Assets                                                   1996         1995
                                                                          ----         ----
                                                                            (in thousands)
<S>                                                                 <C>           <C>
Cash and due from banks   ........................................   $   6,387    $   7,513
Federal funds sold ...............................................       4,500       77,100
                                                                       -------      -------
                       Cash and cash equivalents ................       10,887       84,613

Securities available for sale,
 at fair value (note 4) ..........................................     200,539       74,422
Loans receivable, net (note 5) ...................................     248,094      249,991
Accrued interest receivable (note 6) .............................       3,201        1,827
Premises and equipment, net (note 7) .............................       2,784        3,071
Federal Home Loan Bank of New York
 stock, at cost ..................................................       2,029        1,892
Real estate owned and repossessed assets .........................         715        3,169
Other assets .....................................................       4,172        1,831
Due from broker ..................................................          --       18,128
                                                                       -------      -------
                        Total assets .............................   $ 472,421    $ 438,944
                                                                       =======      =======
                 Liabilities and Shareholders' Equity
Liabilities:
        Deposits (note 8) ........................................   $ 298,082    $ 311,239
        Advances from borrowers for taxes
          and insurance ..........................................       1,703        1,692
        Borrowed funds (note 9) ..................................     108,780           --
        Accrued interest payable .................................       1,077            2
        Accrued expenses and other liabilities ...................       1,261        3,116
        Due to broker ............................................        --         46,880
                                                                       -------      -------
                       Total liabilities .........................  $  410,903    $ 362,929
                                                                       -------      -------
Commitments and contingent liabilities (notes 10, 11 and 13)

Shareholders' equity:
        Preferred stock $.01 par value, Authorized 5,000,000
          shares; none outstanding at December 31, 1996 and 1995 .          --           --
        Common stock $.01 par value, Authorized 15,000,000 shares;
          5,422,250 shares issued and outstanding
          at December 31, 1996 and 1995 ..........................          54           54
        Additional paid-in capital ...............................      52,128       52,127
        Retained earnings, substantially restricted ..............      24,436       28,272
        Treasury stock, at cost, (1,030,227 shares
          at December 31, 1996 and none at
          December 31, 1995) .....................................     (11,208)          --
        Common stock acquired by ESOP ............................      (3,812)      (4,338)
        Net unrealized loss on securities
          available for sale, net of tax .........................         (80)        (100)
                                                                       -------      -------
                       Total shareholder's equity ................      61,518       76,015
                                                                       -------      -------
                       Total liabilities and shareholders' equity.   $ 472,421      438,944
                                                                       =======      =======
See accompanying notes to consolidated financial statements.
</TABLE>

                                       23
<PAGE>
                   AMBANC HOLDING CO., INC. AND SUBSIDIARIES
                       Consolidated Statements of Income
<TABLE>
<CAPTION>
                                                         Years ended December 31,
                                                        1996        1995      1994
                                                        ----        ----      ----
                                                 (In thousands, except per share amounts)
<S>                                                  <C>           <C>        <C>
Interest and dividend income:
     Loans .......................................   $ 20,557      21,385     19,718
     Securities available for sale ...............     10,921        --         --
     Investment securities .......................       --         3,028      3,360
     Federal funds sold ..........................        740       1,026        601
     Federal Home Loan Bank stock ................        130         143        127
                                                     --------    --------   --------
          Total interest and dividend income .....     32,348      25,582     23,806

Interest expense:
     Deposits (note 8) ...........................     12,424      12,447      9,885
     Borrowings ..................................      4,011         299        307
                                                     --------    --------   --------
          Total interest expense .................     16,435      12,746     10,192
                                                     --------    --------   --------
          Net interest income ....................     15,913      12,836     13,614

Provision for loan losses (note 5) ...............      9,450       1,522      1,107
                                                     --------    --------   --------
          Net interest income after
            provision for loan losses ............      6,463      11,314     12,507
                                                     --------    --------   --------
Other income:
     Service charges on deposit accounts .........        764         783        642
     Net gains (losses) on securities transactions       (102)        225       --
     Other .......................................        258         504        263
                                                     --------    --------   --------
          Total other income .....................        920       1,512        905
                                                     --------    --------   --------
Other expenses:
     Salaries, wages and benefits ................      5,097       4,403      4,048
     Occupancy and equipment .....................      1,328       1,219      1,068
     Data processing .............................        843         728        496
     Federal deposit insurance premium ...........          2         533        721
     Correspondent bank processing fees ..........        116         245        504
     Provision for losses on Nationar
        related receivable .......................       --           205       --
     Real estate owned and repossessed
        assets expenses, net .....................      2,563       1,601      2,052
     Professional fees ...........................        540         358        326
     Other .......................................      2,659       2,091      2,125
                                                     --------    --------   --------
          Total other expenses ...................     13,148      11,383     11,340
                                                     --------    --------   --------
Income (loss) before taxes .......................     (5,765)      1,443      2,072
Income tax expense (benefit) (note 10) ...........     (1,929)        586        122
                                                     --------    --------   --------
          Net income (loss) ......................   $ (3,836)        857      1,950
                                                     ========    ========   ========
Net loss per share ...............................   $  (0.81)        N/A        N/A
                                                     ========    ========   ========
See accompanying notes to consolidated financial statements.
</TABLE>

                                       24 
<PAGE>
                   AMBANC HOLDING CO., INC. AND SUBSIDIARIES
           Consolidated  Statements  of Changes in  Shareholders' Equity  
                  Years ended December 31, 1996, 1995 and 1994
                       (in thousands, except share data)

<TABLE>
<CAPTION>
                                                                                       Net unrealized
                                                                                       gain (loss) on
                                                                                          securities   Common
                                                         Additional                        available    stock
                                                Common     paid-in   Treasury   Retained   for sale,  acquired
                                                 stock     capital    stock     earnings  net of tax   by ESOP    Total
                                                -------  ----------  --------   -------- ------------ --------   -------
<S>                                              <C>       <C>       <C>         <C>      <C>         <C>         <C>
Balance at January 1, 1994 ...................   $  --        --        --       25,465       --         --       25,465

Net income ...................................      --        --        --        1,950       --         --        1,950

Balance at December 31, 1994 .................      --        --        --       27,415       --         --       27,415

Net income ...................................      --        --        --          857       --         --          857

Common stock issued (5,422,250 shares) .......        54    52,127      --         --         --         --       52,181

Purchase of ESOP shares (433,780 shares) .....      --        --        --         --         --       (4,338)    (4,338)

Change in net unrealized loss on securities
   available for sale, net of tax ............      --        --        --         --         (100)      --         (100)

Balance at December 31, 1995 .................        54    52,127      --       28,272       (100)    (4,338)    76,015

Net loss .....................................      --        --        --       (3,836)      --         --       (3,836)

Purchase of treasury shares (1,030,227 shares)      --        --     (11,208)      --         --         --      (11,208)

Release of ESOP shares (52,964 shares) .......      --           1      --         --         --          526        527

Change in net unrealized loss on securities
   available for sale, net of tax ............      --        --        --         --           20       --           20

Balance at December 31, 1996 .................   $    54    52,128   (11,208)    24,436        (80)    (3,812)    61,518

See accompanying notes to consolidated financial statements.
</TABLE>

                                       25
<PAGE>
                    AMBANC HOLDING CO., INC. AND SUBSIDIARIES
                      Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
                                                                           Years ended December 31,
                                                                       1996         1995         1994
                                                                       ----         ----         ----
                                                                               (In thousands)
<S>                                                              <C>            <C>           <C>
 Increase (decrease) in cash and cash equivalents:
        Cash flows from operating activities:
        Net income (loss) .....................................   $  (3,836)         857        1,950
        Adjustments to reconcile
         net income (loss) to net cash
         provided (used) by operating activities:
              Depreciation ....................................         501          438          377
              Amortization of computer software costs .........          57           58           --
              Provision for loan losses .......................       9,450        1,522        1,107
        Provision for losses and writedowns on
         real estate owned and repossessed assets .............         877        1,254        1,590
        Provisions for losses on Nationar related receivables .          --          205           --
        Loss on sale of fixed assets ..........................          64           --           --
        ESOP compensation expense .............................         527           --           --
        Net loss (gains) on sale and redemptions of
         securities available for sale ........................         102         (225)          --
        Net loss on sale of other real estate owned ...........       1,260           74          128
        Net amortization on securities ........................         475           19           39
        Deferred tax expense (benefit) ........................        (509)        (577)         360
        (Increase) decrease in accrued interest
         receivable and other assets ..........................      (2,807)          17       (1,410)
        Decrease (increase) in due from broker ................      18,128      (18,128)          --
        Increase (decrease) in accrued expenses and
         other liabilities ....................................      (1,201)       2,225       (9,144)
        Increase (decrease) in due to broker ..................     (46,880)      46,880           --
        Increase (decrease) in advances from borrowers
         for taxes and insurance ..............................          11         (762)         572
                                                                    -------       -------     -------
               Net cash provided (used) by operating activities     (23,781)      33,857       (4,431)
                                                                    -------       -------     -------
   Cash flows from investing activities:
        Proceeds from sales and redemptions of
         securities available for sale ........................      34,469       18,372          --
        Purchases of securities available for sale ............    (192,647)         --           --
        Proceeds from principal paydowns and
         maturities of securities available for sale ..........      31,508          --           --
        Proceeds from principal paydowns and maturities
         of investment securities .............................         --         7,530       16,708
        Purchase of investment securities .....................         --       (46,980)     (12,195)
        Purchase of FHLB stock ................................        (137)        (237)          --
        Proceeds from sale of loans ...........................      18,929           --           --
        Net (increase) decrease in loans made to customers ....     (28,685)       8,205      (42,714)
        Capital expenditures ..................................        (341)        (692)        (544)
        Proceeds from sales of other real estate ..............       2,519        1,340        1,378
        Proceeds from the sale of fixed assets ................          25           --            9
                                                                    -------       -------     -------
              Net cash used by investing activities ..........   $ (134,360)     (12,462)     (37,358)
                                                                    =======       =======     =======
                                                                                            (Continued)
</TABLE>

                                       26
<PAGE>
                   AMBANC HOLDING CO., INC. AND SUBSIDIARIES
                Consolidated  Statements of Cash Flows,  Continued 

                                          
<TABLE>
<CAPTION>
                                                                                 Years ended December 31,       

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

        Cash flows from financing activities:
                Purchase of ESOP shares   .............................   $     --        (4,338)          --
                Net proceeds from common stock issued
                 in stock conversion ..................................         --        52,181           --
                Purchase of treasury stock ............................     (11,208)          --           --
                Net increase (decrease) in deposits ...................     (13,157)      18,087       (1,627)
                Advances from (repayments on) FHLB
                 borrowings, net ......................................       6,000      (19,000)      19,000
                Increase in securities sold under
                 agreements to repurchase .............................     102,780           --           --
                                                                            -------      -------      -------
                      Net cash provided by financing activities .......      84,415       46,930       17,373
                                                                            -------      -------      -------
Net increase (decrease) in cash and cash equivalents ..................     (73,726)      68,325      (24,416)
Cash and cash equivalents at beginning of year ........................      84,613       16,288       40,704
                                                                            -------      -------      -------
Cash and cash equivalents at end of period ............................   $  10,887       84,613       16,288
                                                                            =======      =======      =======
Supplemental disclosures of cash flow information - 
  cash paid during the year for:

                Interest ..............................................   $  15,360       12,447        9,950
                                                                            =======      =======      =======

                Income taxes ..........................................   $     306        1,000          498
                                                                            =======      =======      =======
Noncash investing activities:
        Net reduction in loans receivable resulting
          from the transfer to real estate owned ......................   $   2,203        1,864        1,330
                                                                            =======      =======      =======
        Transfer of investment securities to investment
          securities available for sale ...............................   $      --       45,736           --
                                                                            =======      =======      =======
        Net decrease in unrealized loss on securities
         available for sale, net of tax ...............................   $      20           --           --
                                                                            =======      =======      =======

See accompanying notes to consolidated financial statements.
</TABLE>

                                       27
<PAGE>
                   AMBANC HOLDING CO., INC. AND SUBSIDIARIES
                   Notes to Consolidated Financial Statements
                           December 31, 1996 and 1995


(1)     Summary of Significant Accounting Policies

Ambanc Holding Co. Inc. (the Holding  Company) was  incorporated  under Delaware
law in June 1995 as a Holding  Company to purchase  100% of the common  stock of
Amsterdam Savings Bank, FSB (the Bank). The Bank converted from a mutual form to
a stock  institution  in December 1995,  and the Holding  Company  completed its
initial public  offering on December 26, 1995, at which time the Holding Company
purchased all the outstanding stock of the Bank.

The following is a description  of the more  significant  policies  which Ambanc
Holding Co., Inc. follows in preparing and presenting its consolidated financial
statements.

(a)     Basis of Presentation

The  accompanying  consolidated  financial  statements  include the  accounts of
Ambanc Holding Co., Inc., and its wholly owned  subsidiaries,  Amsterdam Savings
Bank FSB and A.S.B.  Insurance  Agency,  Inc.,  collectively  referred to as the
Company.  All  significant   intercompany   accounts  have  been  eliminated  in
consolidation.  The accounting and reporting  policies of the Company conform in
all material respects to generally accepted accounting principles and to general
practice within the thrift industry.

The  preparation of the  consolidated  financial  statements in conformity  with
generally accepted  accounting  principles requires management to make estimates
and assumptions  that affect the reported  amounts of assets and liabilities and
disclosure of contingent  assets and liabilities at the date of the consolidated
financial  statements and the reported  amounts of revenues and expenses  during
the reporting period. Actual results could differ from those estimates.

Material  estimates that are particularly  susceptible to significant  change in
the near-term  relate to the  determination of the allowance for loan losses and
the valuation of real estate owned and repossessed assets acquired in connection
with  foreclosures  or  in  satisfactions  of  loans.  In  connection  with  the
determination  of the  allowance  for loan losses,  the valuation of real estate
owned, and estimates of fair value for repossessed  assets,  management obtained
appraisals for significant assets.

(b)     Business

A substantial  portion of the Company's  assets are loans secured by real estate
in the  upstate  New York area.  In  addition, a significant portion of the real
estate  owned is  located  in those  same  markets.  Accordingly,  the  ultimate
collectibility of a considerable portion of the Company's loan portfolio and the
recovery of a  substantial  portion of the carrying  amount of real estate owned
are dependent upon market conditions in the upstate New York region.

                                       28
<PAGE>
(1) Summary of Significant Accounting Policies, Continued

Management  believes  that the  allowance  for loan losses is adequate  and that
other real  estate  owned and  repossessed  assets are  properly  valued.  While
management  uses available  information  to recognize  losses on loans and other
real estate owned and repossessed  assets,  future additions to the allowance or
writedowns of other real estate and repossessed assets may be necessary based on
changes in economic conditions. In addition,  various regulatory agencies, as an
integral  part of their  examination  process,  periodically  review  the Bank's
allowance  for  loan  losses  and  valuation  of other  real  estate  owned  and
repossessed assets. Such agencies may require the Bank to recognize additions to
the allowance or write downs of other real estate and  repossessed  assets based
on their  judgments  about  information  available  to them at the time of their
examination which may not be currently available to management.

(c) Securities  Available for Sale,  Investment  Securities and FHLB of New York
Stock

On January 1, 1994 the Bank adopted Statement of Financial  Accounting Standards
No. 115, "Accounting  for Certain  Investments  and Debt and Equity  Securities"
(SFAS  No.  115).  Management  determines  the  appropriate   classification  of
securities at the time of purchase.  If management  has the positive  intent and
ability to hold debt  securities  to  maturity  they are  classified  as held to
maturity and are stated at amortized cost. All other debt and marketable  equity
securities are  classified as securities  available for sale and are reported at
fair  value,  with net  unrealized  gains  and  losses  reported  as a  separate
component of  shareholders'  equity,  net of estimated income taxes. The Company
does not  maintain a trading  portfolio,  and at December  31, 1996 and 1995 the
Company had no securities classified as investment securities.

Unrealized  losses on  securities  that reflect a decline in value that is other
than temporary are charged to income.

Non- marketable  equity  securities,  such as Federal Home Loan Bank of New York
stock,  is stated at cost.  The investment in Federal Home Loan Bank of New York
stock is required for membership.

Mortgage  backed  securities,  which are guaranteed by the  Government  National
Mortgage  Association  ("GNMA"),  the  Federal  Home Loan  Mortgage  Corporation
("FHLMC")  or the Federal  National  Mortgage  Corporation  ("FNMA"),  represent
participation interests in direct pass-through pools of long-term first mortgage
loans originated and serviced by the issuers of the securities.

Gains and losses on the sale and redemption of securities available for sale are
based  on the  amortized  cost  of the  specific  security  sold.  The  cost  of
securities is adjusted for  amortization  of premium and accretion of discounts,
which is calculated on an effective interest method.

Purchases and sales are recorded on a trade date basis. Receivables and payables
from unsettled  transactions  are shown as due from brokers or due to brokers in
the consolidated financial statements.

                                       29
<PAGE>
(1) Summary of Significant Accounting Policies, Continued

(d)     Reclassification of Investment Securities

In November 1995, the Financial  Accounting  Standards Board (FASB) released its
Special  Report "A Guide to  Implementation  of Statement 115 on Accounting  for
Certain   Investments  in  Debt  and  Equity  Securities."  The  Special  Report
contained,  among other things,  a unique provision that allowed entities to, as
of one date either  concurrent  with the initial  adoption of the Special Report
(November  15,  1995),  but no  later  than  December  31,  1995,  reassess  the
appropriateness  of the  classifications of all securities held at that time. In
accordance with the FASB's Special Report,  as of December 31, 1995, the Company
reclassified all investment securities held to maturity,  with an amortized cost
of $45,735,971, to securities available for sale.

(e)     Loans Receivable and Loan Fees

Loans  receivable  are  stated  at  unpaid  principal  amount,  net of  unearned
discount,  deferred loan fees, net, and allowance for loan losses. Discounts are
amortized to income over the contractual loan life using the level-yield method.
Loan  fees  received  and the  related  direct  cost of  originations  have been
deferred  and are  being  recorded  as  yield  adjustments  over the life of the
related loans using the interest method of amortization.

Non-performing  loans include  non-accrual  loans,  restructured loans and loans
which are 90 days or more past due and still accruing interest. Loans considered
doubtful of collection by management  are placed on a nonaccrual  status for the
recording of interest.  Generally loans past due 90 days or more as to principal
or interest are placed on nonaccrual  status except for certain loans which,  in
management's  judgment,  are  adequately  secured  and for which  collection  is
probable. Previously accrued income that has not been collected is reversed from
current income.  Thereafter,  the application of payments received (principal or
interest) is dependent on the expectation of ultimate  repayment of the loan. If
ultimate repayment of the loan is expected, any payments received are applied in
accordance with  contractual  terms.  If ultimate  repayment of principal is not
expected  or  management  judges it to be  prudent,  any  payment  received on a
non-accrual  loan is applied  to  principal  until  ultimate  repayment  becomes
expected.  Loans are removed from non-accrual  status when they are estimated to
be fully  collectible  as to principal  and  interest.  Amortization  of related
deferred fees is suspended when a loan is placed on non-accrual status.

The allowance for loan losses is  maintained  at a level deemed  appropriate  by
management based on an evaluation of the known and inherent risks in the present
portfolio,  the  level of  non-performing  loans,  past  loan  loss  experience,
estimated value of underlying  collateral,  and current and prospective economic
conditions.  The allowance is increased by provisions for loan losses charged to
operations.

                                       30
<PAGE>
(1) Summary of Significant Accounting Policies, Continued

(f)     Loan Impairment

     On May 31, 1993, the Financial  Accounting Standards Board issued Statement
of  Financial  Accounting  Standards  No.  114,  "Accounting  by  Creditors  for
Impairment  of a Loan",  (SFAS  No.  114).  Statement  No.  114 was  amended  by
Statement of Financial  Accounting  Standards No. 118,  "Accounting by Creditors
for Impairment of a Loan - Income Recognition and Disclosures,"  (SFAS No. 118).
These Statements prescribe  recognition criteria for loan impairment,  generally
related to commercial  type loans and measurement  methods for certain  impaired
loans and all loans whose terms are  modified  in  troubled  debt  restructuring
subsequent to the adoption of these  Statements.  A loan is considered  impaired
when it is probable that the borrower  will not repay the loan  according to the
original  contractual  terms of the loan  agreement.  As of January 1, 1995, the
Company  adopted the  provisions of SFAS No. 114 and SFAS No. 118. The effect of
adoption was not material to the consolidated financial statements.

As a result of the  adoption  of SFAS No.  114,  the  allowance  for loan losses
related to impaired loans that are identified for evaluation in accordance  with
SFAS No.  114 is  based on  discounted  cash  flows  using  the  loan's  initial
effective  rate or the fair value of the  collateral  for  certain  loans  where
repayment  of the loan is  expected  to be  provided  solely  by the  underlying
collateral  (collateral  dependent  loans).  The  Company's  impaired  loans are
generally collateral  dependent.  The Company considers estimated costs to sell,
on a discounted  basis,  when  determining  the fair value of  collateral in the
measurement  of  impairment if those costs are expected to reduce the cash flows
available to repay or otherwise satisfy the loans.

     Impaired  loans  are  included  in  non-performing   loans,   generally  as
non-accrual  commercial type loans and all loans restructured in a troubled debt
restructuring  subsequent to January 1, 1996, and all  restructured  loans which
are  not  performing  in  accordance  with  their  restructured  terms.

(g)     Real Estate Owned and Repossessed Assets

Real  estate  owned  and   repossessed   assets  include  assets  received  from
foreclosures and in-substance  foreclosures.  In accordance with SFAS No. 114, a
loan is  classified  as an  insubstance  foreclosure  when the Company has taken
possession  of  the  collateral   regardless  of  whether   formal   foreclosure
proceedings have taken place.

Real estate owned and repossessed assets,  including in-substance  foreclosures,
are recorded on an individual  asset basis at net realizable  value which is the
lower of fair value minus estimated costs to sell or "cost" (defined as the fair
value at initial  foreclosure).  When a property is acquired  or  identified  as
in-substance  foreclosure,  the  excess of the loan  balance  over fair value is
charged to the allowance for loan losses.  Subsequent  write-downs  to carry the
property at fair value less costs to sell are included in  noninterest  expense.
Costs incurred to develop or improve  properties are capitalized,  while holding
costs are charged to expense.

                                       31
<PAGE>
(1) Summary of Significant Accounting Policies, Continued

     At December 31, 1996,  real estate owned and repossessed  assets  consisted
primarily of  residential  one to four family  properties  and mobile homes.  At
December 31, 1995, real estate owned and repossessed assets consisted  primarily
of  multi-family  and  commercial  real  estate  properties.  The Company had no
in-substance foreclosures at December 31, 1996 and 1995.

(h)     Premises and Equipment, Net

Premises  and  equipment  are  carried at cost,  less  accumulated  depreciation
applied on a straight-line  basis over the estimated useful lives of the assets.
Leasehold   improvements  are  amortized  on  a  straight-line  basis  over  the
respective original lease terms without regard to lease renewal options.

(i)     Income Taxes

Income taxes are recorded on income reported in the  consolidated  statements of
income  regardless of when such taxes are payable.  The Company  records  income
taxes in accordance with Financial  Accounting  Standards Board issued Statement
of Financial Accounting Standards No. 109, (SFAS No. 109) "Accounting for Income
Taxes."

Under the asset and  liability  method of SFAS No. 109,  deferred tax assets and
liabilities  are  recognized  for the future tax  consequences  attributable  to
differences  between financial statement carrying amounts of existing assets and
liabilities and their respective tax basis.  Deferred tax assets and liabilities
are measured  using enacted tax rates expected to apply to taxable income in the
years in which those  temporary  differences  are  expected to be  recovered  or
settled.  Under SFAS No. 109, the effect on deferred tax assets and  liabilities
of a change in tax rates is recognized in income in the period that includes the
enactment date. The Company's  policy is that deferred tax assets are reduced by
a valuation  reserve if, based on the weight of available  evidence,  it is more
likely  than  not  that  some or all of the  deferred  tax  assets  will  not be
recognized. In considering if it is more likely than not that some or all of the
deferred  tax assets  will not be  realized,  the  Company  considers  temporary
taxable differences, historical taxes and estimates of future taxable income.

(j)     Pension Plan

The  Company has a defined  benefit  pension  plan  covering  substantially  all
employees.  The Company's  actuarially  determined  annual  contribution  to the
pension plan meets or exceeds the minimum funding  requirements set forth in the
Employees Retirement Income Security Act of 1974.

(k)     Off-Balance Sheet Risk

The Company is a party to certain  financial  instruments with off-balance sheet
risk such as commitments  to extend  credit,  unused lines of credit and standby
letters of credit.  The  Company's  policy is to record  such  instruments  when
funded.

                                       32
<PAGE>
(1) Summary of Significant Accounting Policies, Continued

(l)     Cash Equivalents

For purposes of the consolidated statements of cash flows, the Company considers
all highly liquid debt instruments  with original  maturities of three months or
less to be cash equivalents.

(m)     Long Lived Assets

In May 1995,  the  Financial  Accounting  Standards  Board  issued  Statement of
Financial  Accounting  Standards  No. 121 (SFAS No.  121),  "Accounting  for the
Impairment of Long-Lived  Assets and for  Long-Lived  Assets to be Disposed of."
Various assets are excluded from the scope of SFAS No. 121, including  financial
instruments  which  constitute  the  majority  of  the  Company's  assets.   For
long-lived  assets  included in the scope of SFAS No. 121,  such as premises and
equipment,  an  impairment  loss must be  recognized  when the estimate of total
undiscounted  future  cash  flows  attributable  to the  asset is less  than the
asset's  carrying  amount.  Measurement  of  impairment  loss is  determined  by
reducing the carrying amount of the asset to its fair value.  Long-lived  assets
to be disposed of, such as real estate owned and repossessed  assets or premises
to be sold,  are  reported  at the lower of  carrying  amount or fair value less
estimated cost to sell.  The Company  adopted SFAS No. 121 in 1996. The adoption
of SFAS No. 121 did not have a  material  impact on the  Company's  consolidated
financial statements.

(n)     Earnings per share

Earnings or loss per share are computed based on the weighted  average number of
shares outstanding, less unreleased employee stock ownership plan shares, during
the  period.  Earnings  per share are not  presented  for  periods  prior to the
initial stock  offering as the Bank was a mutual savings bank at the time and no
stock was  outstanding.  The weighted  average number of shares  outstanding was
4,761,393 for the year ended December 31, 1996.

(o)     Official Bank Checks

The Company's  treasurer  checks  (including  expense checks) are drawn upon the
Bank and are ultimately paid through the Bank's Federal Reserve Bank of New York
correspondent account and are included in accrued expenses and other liabilities
in the consolidated statements of financial condition.

                                       33
<PAGE>
(1) Summary of Significant Accounting Policies, Continued

(p)   Accounting   for  Transfers   and   Servicing  of  Financial   Assets  and
Extinguishment of Liabilities

     In June 1996, the Financial  Accounting Standards Board issued Statement of
Financial  Accounting  Standards No. 125, "Accounting for Transfer and Servicing
of Financial Assets and Extinguishments of Liabilities" (SFAS No. 125). SFAS No.
125 provides  accounting and reporting  standards for transfers and servicing of
financial  assets  and   extinguishments  of  liabilities  based  on  consistent
application  of a financial  components  approach  that  focuses on control.  It
distinguishes  transfers of financial  assets that are sales from transfers that
are secured borrowings. SFAS No. 125 is effective for transfers and servicing of
financial assets and extinguishments of liabilities occurring after December 31,
1996 and will supesede SFAS No. 122, which is discussed  above.  Certain aspects
of SFAS No. 125 were amended by SFAS No. 127, "Deferral of the Effective Date of
Certain  Provision of FAS Statement No. 125." Management  believes that adoption
of SFAS No. 125, as amended,  will not have a material  impact on the  Company's
consolidated financial statements.

(q)     Reclassifications

Amounts in the prior years' consolidated  financial  statements are reclassified
whenever necessary to conform to current period presentations.


(2)     Conversion to Stock Ownership

On December 26, 1995, the Holding Company sold 5,422,250  shares of common stock
at $10.00 per share to depositors  and employees of the Bank.  Net proceeds from
the sale of stock of the Holding Company, after deducting conversion expenses of
approximately $2.0 million, were $52.2 million and are reflected as common stock
and additional  paid-in capital in the  accompanying  December 31, 1996 and 1995
consolidated  statements  of financial  condition.  The Company  utilized  $26.0
million of the net proceeds to acquire all of the capital stock of the Bank.

As part of the conversion,  the Bank  established a liquidation  account for the
benefit of eligible  depositors who continue to maintain their deposit  accounts
in the Bank after conversion. In the unlikely event of a complete liquidation of
the Bank,  each  eligible  depositor  will be entitled to receive a  liquidation
distribution from the liquidation  account,  in the proportionate  amount of the
then current adjusted balance for deposit accounts held, before distribution may
be made with respect to the Bank's  capital  stock.  The Bank may not declare or
pay a cash dividend to the Holding Company on, or repurchase any of, its capital
stock if the effect thereof would cause the retained  earnings of the Bank to be
reduced below the amount required for the liquidation  account.  Except for such
restrictions, the existence of the liquidation account does not restrict the use
or application of retained earnings.

                                       34
<PAGE>
(2) Conversion to Stock Ownership, Continued

The  Bank's  capital  exceeds  all of the  fully  phased-in  capital  regulatory
requirements. The Office of Thrift Supervision (OTS) regulations provide that an
institution  that exceeds all fully phased-in  capital  requirements  before and
after a proposed capital  distribution could, after prior notice but without the
approval by the OTS, make capital  distributions  during the calendar year of up
to 100% of its net income to date during the calendar  year plus the amount that
would reduce by one-half its "surplus  capital  ratio" (the excess  capital over
its fully phased-in capital requirements) at the beginning of the calendar year.
Any additional capital distributions would require prior regulatory approval. At
December 31, 1996,  the maximum  amount that could have been paid by the Bank to
the Holding Company was approximately $17.0 million.

Unlike  the  Bank,  the  Holding  Company  is not  subject  to these  regulatory
restrictions on the payment of dividends to its stockholders.


 (3)    Reserves and Investments Required by Law

The Company is required  to  maintain  certain  reserves of cash and or deposits
with the Federal Reserve Bank. The amount of this reserve requirement,  included
in cash and due from banks,  was  approximately  $1,069,000  and  $1,005,000  at
December 31, 1996 and 1995, respectively.

The Company is required to maintain  certain levels of stock in the Federal Home
Loan Bank.  The Company has pledged  its  investment  in this stock,  as well as
certain  residential  real estate loans, to secure its advances from the Federal
Home Loan Bank of New York.


(4)     Securities Available for Sale

The amortized cost and estimated fair values of securities available for sale at
December 31, 1996 and 1995 are as follows:
<TABLE>
<CAPTION>
                                                             1996
                                       -------------------------------------------------
                                                        (in thousands)
                                                      Gross         Gross      Estimated
                                       Amortized    unrealized    unrealized     fair
                                          cost        gains         losses       value
                                          ----        -----         ------       -----
<S>                                    <C>             <C>           <C>        <C>
U.S. Government and agency securities  $  43,968         69          (264)      43,773
Mortgage-backed securities ..........    156,191        705          (635)     156,261
State and political subdivisions ....        500          5            --          505
                                        --------      -----         ------     -------
        Total .......................  $ 200,659        779          (899)     200,539
                                        ========      =====         ======     =======
</TABLE>

                                       35
<PAGE>
(4) Securities Available for Sale, Continued
<TABLE>
<CAPTION>
                                                             1995
                                       -------------------------------------------------
                                                        (in thousands)
                                                      Gross         Gross      Estimated
                                       Amortized    unrealized    unrealized     fair
                                          cost        gains         losses       value
                                          ----        -----         ------       -----
<S>                                    <C>                <C>         <C>        <C>
U.S. Government and agency securities  $  10,000          2           (35)       9,967
Mortgage-backed securities ..........     53,070          1           (38)      53,033
Financial notes .....................      6,998         --           (61)       6,937
Industrial bonds ....................        999         --            (2)         997
Public utility bonds ................      2,400         --           (10)       2,390
Floating rate notes .................      1,100         --            (2)       1,098
                                        --------      -----         ------     -------
                Total ...............  $  74,567          3          (148)      74,422
                                        ========      =====         ======     =======
</TABLE>

The amortized cost and estimated fair value of investment  securities  available
for sale at  December  31,  1996,  by  contractual  maturity,  are  shown  below
(mortgage  backed  securities  are  included  by  final  contractual  maturity).
Expected  maturities will differ from contractual  maturities  because borrowers
may have  the  right  to call or  prepay  obligations  with or  without  call or
prepayment penalties.


                                        Amortized     Estimated
                                           cost      fair value
                                           ----      ----------
                                             (In thousands)

Due after one year through five years . $  29,294        28,964
Due after five years through ten  years    19,653        19,534
Due after ten years ...................   151,712       152,041
                                          -------       -------
        Totals ........................ $ 200,659       200,539
                                          =======       =======

Proceeds  from  sales of  securities  available  for sale in 1996 and 1995  were
$34,469,000 and $18,372,251, respectively. Gross realized gains in 1996 and 1995
were $13,718 and $318,855,  respectively,  and in 1996 and 1995 there were gross
realized losses of $115,806 and $94,086, respectively.

Securities  available for sale carried at $113,828,560 on December 31, 1996 were
pledged to secure repurchase agreements and other purposes.

                                       36
<PAGE>
(5)     Loans Receivable, Net

Loans receivable consist of the following at December 31, 1996 and 1995:

                                                                   December 31,
                                                                  1996     1995
                                                                  ----     ----
                                                                  (In thousands)
Loans secured by real estate:
        1 - 4 Family .....................................   $ 158,182  133,468
        Home equity ......................................      22,817   17,519
        Multi family .....................................       4,724    8,176
        Non-residential ..................................      29,947   41,929
        Construction .....................................       2,234    1,073
                                                               -------  -------
                        Total loans secured by real estate     217,904  202,165
                                                               =======  =======
Other Loans:
        Consumer loans:
                Manufactured homes .......................         620   13,484
                Recreational vehicles ....................       9,416   12,881
                Auto loans ...............................      12,417    9,337
                Other secured ............................       1,866    2,020
                Unsecured ................................       1,445    1,299
                                                               -------  -------
                        Total consumer loans .............      25,764   39,021
                                                               =======  =======
        Commercial loans:
                Secured ..................................       6,199    9,346
                Unsecured ................................         620      350
                                                               -------  -------
                        Total commercial loans ...........       6,819    9,696
                                                               -------  -------
                                                               250,487  250,882
                                                               =======  =======
Less:
        Allowance for loan losses ........................       3,438    2,647
        Unamortized discount and deferred loan fees ......      (1,045)  (1,756)
                                                               -------  -------
                                                                 2,393      891
                                                               -------  -------
                                                             $ 248,094  249,991
                                                               =======  =======
A summary of the allowance for loan losses is as follows:

                                                             December 31,
                                                      1996       1995      1994
                                                      ----       ----      ----
                                                           (In thousands)

Balance at beginning of period                    $  2,647      2,235     3,248
Provision charged to operations                      9,450      1,522     1,107
Charge-offs ...................                     (8,718)    (1,216)   (2,460)
Recoveries ....................                         59        106       340
                                                    ------     ------    ------
Balance at end of period ......                   $  3,438      2,647     2,235
                                                    ======     ======    ======

                                       37
<PAGE>
(5) Loans Receivable, Net, Continued

The following  table sets forth the  information  with regard to  non-performing
loans:

                                                        December 31,
                                                       1996     1995
                                                       ----     ----
                                                      (In thousands)

Loans in a non-accrual status ......               $  3,123    4,499
Loans contractually past due 90 days
or more and still accruing interest                     725      261
Restructured loans ................                   1,031    4,035
                                                      -----    -----
        Total non-performing loans                 $  4,879    8,795
                                                      =====    =====

     Accumulated  interest  on  the  above  non-performing  loans  of  $375,459,
$876,524  and  $759,897  was not  recognized  as income in 1996,  1995 and 1994,
respectively.  Approximately  $229,000,  $482,000  and  $356,000  of interest on
restructured  and  non-accrual  loans was collected and  recognized as income in
1996, 1995 and 1994, respectively.

At December 31, 1996, the recorded investment in loans that are considered to be
impaired  under  Statement  No. 114  totaled  $2,638,780  for which the  related
allowance  for loan  losses is  $1,182,838.  At December  31, 1995 the  recorded
investment in loans that were considered to be impaired was $3,003,497 for which
the related allowance for loan losses was $603,127.  As of December 31, 1996 and
1995,  there were no  impaired  loans which did not have an  allowance  for loan
losses  determined in accordance  with  Statement No. 114. The average  recorded
investment in impaired  loans during the years ended  December 31, 1996 and 1995
was approximately $6,918,000 and $4,106,000,  respectively.  For the years ended
December  31, 1996 and 1995,  the Company  recognized  interest  income on those
impaired loans of $110,470 and $61,278, respectively, which included $13,633 and
$2,787, respectively,  of interest income recognized using the cash basis method
of income recognition.

Certain  directors and executive  officers of the Company were  customers of and
had other  transactions  with the Company in the  ordinary  course of  business.
Loans to these  parties  were made in the  ordinary  course of  business  at the
Company's normal credit terms,  including  interest rate and  collateralization.
The aggregate of such loans  totaled  approximately  $887,696 and  $1,154,765 at
December  31,  1996  and  1995,  respectively.  There  were no  advances  to the
directors and executive  officers during the year ended December 31, 1996. Total
payments made on these loans were $267,069.

                                       38
<PAGE>
(6)     Accrued Interest Receivable

Accrued interest receivable consists of the following:

                                                      December 31,
                                                    1996       1995
                                                    ----       ----
                                                     (In thousands)

Loans .......................................    $ 1,260      1,374
Securities available for sale ...............      1,941        453
                                                   -----      -----
                                                 $ 3,201      1,827
                                                   =====      =====
(7)     Premises and Equipment

A summary of premises and equipment is as follows:
                                                      December 31,
                                                    1996       1995
                                                    ----       ----
                                                     (In thousands)

Banking house and land .......................   $ 2,362      2,362
Leasehold improvements .......................       700        629
Furniture, fixtures and equipment ............     3,114      3,078
Construction in progress .....................        80         12
                                                  ------     ------
                                                   6,256      6,081
Less accumulated depreciation and amortization    (3,472)    (3,010)
                                                  ------     ------
                                                 $ 2,784      3,071
                                                  ======     ======

Amounts charged to depreciation expense were $500,833, $438,057 and $376,632 for
the years ended December 31, 1996, 1995 and 1994.

(8)     Deposits

Deposits are summarized as follows:
                                                     December 31,
                                                   1996       1995
                                                   ----       ----
                                                    (In thousands)
Passbook accounts (3.00% at December
 31, 1996 and 1995)                           $  99,569    104,269
                                                -------    -------
Certificates of deposit:
        3.01 to 4.00% .....................         994      1,143
        4.01 to 5.00% .....................      42,824     29,464
        5.01 to 6.00% .....................      88,042     70,172
        6.01 to 7.00% .....................      11,330     46,983
        7.01 to 8.00% .....................       8,742      9,593
        8.01 to 9.00% .....................          --          6
                                                -------    -------
                                              $ 151,932    157,361
                                                -------    -------
Money market accounts(2.86% and 2.75% at
 December31, 1996 and 1995, respectively)...      7,433      9,808
NOW accounts (2.75% at December 31 and 1995)     18,875     19,037
Demand accounts ............................     20,273     20,764
                                                -------    -------
        Total deposits .....................  $ 298,082    311,239
                                                =======    =======

                                       39
<PAGE>
(8) Deposits, Continued

The approximate amount of contractual  maturities of certificates of deposit for
the years subsequent to December 31, 1996 are as follows:

                                 (In thousands)
          Years ended December 31,
                  1997                                     $ 91,058
                  1998                                       38,397
                  1999                                       10,323
                  2000                                       10,267
                  2001                                        1,887
                                                            -------
                                                          $ 151,932
                                                            =======

The aggregate  amount of  certificates of deposits with a balance of $100,000 or
more were approximately $11.2 million and $11.1 million at December 31, 1996 and
1995, respectively.

Interest  expense on deposits for the years ended  December  31, 1996,  1995 and
1994, is summarized as follows:

                                                     1996      1995      1994
                                                     ----      ----      ----
                                 (In thousands)

Passbook accounts .............................  $  3,162     3,300     4,123
Certificate of deposits .......................     8,492     8,272     4,860
Now accounts ..................................       527       511       511
Money market accounts .........................       243       285       364
Advances from borrowers for taxes and insurance       --         --        27
Common stock subscriptions escrow .............       --         79        --
                                                   ------    ------    ------

        Total interest expense ................  $ 12,424    12,447     9,885
                                                   ======    ======    ======

(9)     Borrowed Funds

On March 29, 1996,  the Company  entered into a $22.4 million  overnight line of
credit and a $22.4  million 30 day line of credit with Federal Home Loan Bank of
New York  (FHLB).  As of  December  31, 1996 the Company had taken $6 million in
advances on these lines of credit. At December 31, 1995, the Company had a $17.4
million line of credit with the FHLB.  There were no advances  taken on the line
of credit as of December 31, 1995.

The Company enters into sales of securities  under repurchase  agreements.  Such
agreements  are  treated  as  financings,  and  the  obligations  to  repurchase
securities  sold are  reflected as  liabilities  on the  Company's  consolidated
statements of financial  condition.  During the period of such  agreements,  the
underlying  securities are transferred to a third party custodian's account that
explicitly recognizes the Company's interest in the securities.

                                       40
<PAGE>
(9) Borrowed Funds, Continued

The  following  sets  forth  certain   information   related  to  the  Company's
borrowings,  consisting of Federal Home Loan Bank (FHLB) advances and securities
sold under agreements to repurchase:
                                                        December 31,
                                                      1996        1995
                                                       (In thousands)

FHLB advances ..............................     $   6,000         --
Securities sold under agreements to repurchase     102,780         --
                                                   -------       -----
        Total borrowings ......................  $ 108,780         --
                                                   =======       =====
Weighted average interest rate of FHLB advances      5.30%         --%
                                                   =======       =====
Weighted average interest rate of securities
 sold under agreements to repurchase ..........      5.96          --%
                                                   =======       =====

The  following  table  sets  forth  the  maturities  of  securities  sold  under
agreements to repurchase, including the weighted average interest rates, and the
fair value of the securities sold under the repurchase agreements as of December
31, 1996:

                                               Weighted        Fair Value
                                  Repurchase   Average         of Securities
                                  Liability    Interest Rate   Sold

Due within 30 days .............  $  20,450       5.67%     $  21,318
Due after 30 days up to 90 days       7,700       5.61%        11,372
Due after 91 days up to 365 days     24,130       5.72%        24,847
Due after 365 days .............     50,500       6.24%        56,292
                                    -------       -----        ------
                                  $ 102,780       5.96%     $ 113,829
                                    =======       =====       =======

The  following  table sets forth the  maximum  month-end  balances  and  average
balances of FHLB advances and securities sold under agreements to repurchase for
the periods indicated.

                                                 Years Ended December 31,
                                                      1996        1995
                                                      (In thousands)
Maximum Month-end Balance:
-------------------------
FHLB advances .................................  $  28,000      15,000
                                                   =======      ======
Securities sold under agreements to repurchase     102,780       4,000
                                                   =======      ======
Average Balance:
---------------
FHLB advances .................................      9,757       3,922
                                                   =======      ======
Securities sold under agreements to repurchase      57,815         958
                                                   =======      ======
Weighted average interest rate of FHLB advances       5.35%       6.06%
                                                   =======      ======

Weighted average interest rate of securities
sold under agreement to repurchase ............       5.94%       6.30%
                                                   =======      ======

                                       41
<PAGE>
(10)    Income Taxes

The components of income tax expense (benefit) are as follows:

                                                       December 31,
                                                  1996     1995     1994
                                                  ----     ----     ----
                                                      (In thousands)
Current tax (benefit) expense:
        Federal   ........................    $ (1,421)     955      (98)
        State ............................           1      208     (140)
                                                 -----    -----    -----
                                                (1,420)   1,163     (238)
Deferred tax (benefit) expense ...........    $   (509)    (577)     360
                                                 -----    -----    -----
        Total income tax expense (benefit)      (1,929)     586      122
                                                 =====    =====    =====

Actual tax expense  (benefit)  for the years ended  December 31, 1996,  1995 and
1994  differs  from  expected  tax expense  (benefit),  computed by applying the
Federal corporate tax rate of 34% to income before taxes as follows:

                                                       December 31,
                                                  1996     1995     1994
                                                  ----     ----     ----
                                                      (In thousands)

Expected tax expense (benefit) ...........    $ (1,960)   $ 491    $ 704
State taxes, net of Federal
 income tax benefit ......................           1      103       55
Change in valuation allowance for
 deferred tax asset.......................          --       --     (641)

Other items ..............................          30       (8)       4
                                                 -----     -----   -----
                                              $ (1,929)    $ 586   $ 122

The tax effects of temporary  differences that give rise to significant portions
of the deferred tax assets and deferred tax liabilities at December 31, 1996 are
presented below:
                                                      Temporary      Temporary
                                                      Deductions     Taxable
                                                      Differences    Differences
                                                      -----------    -----------
                                 (In thousands)

Reserves for loan losses ............................ $  1,358            65
Nonqualified deferred compensation ..................      233            --
Loan accounting differences .........................      236            --
Property and equipment ..............................       --           113
Prepaid expenses ....................................       --           330
Other items .........................................       54            --
                                                         -----         -----
                                                         1,881           508

Deferred tax liability ..............................      508
                                                         -----
Net deferred tax asset at December 31, 1996 .........    1,373
Net deferred tax asset at January 1, 1996 ...........      864
                                                         -----
Deferred tax benefit for the year ended
  December 31, 1996.................................. $    509
                                                         =====
                                       42
<PAGE>
(10) Income Taxes, Continued

The tax effects of temporary  differences that give rise to significant portions
of the deferred tax assets and deferred tax liabilities at December 31, 1995 are
presented below:

                                                     Temporary       Temporary
                                                     Deductions      Taxable
                                                     Differences     Differences
                                                     -----------     -----------
                                 (In thousands)

Reserves for loan losses ..........................  $  1,206           120
Nonqualified deferred compensation ................       417            --
Loan accounting differences .......................        --           267
Property and equipment ............................        --           124
Prepaid expenses ..................................        --           361
Other items .......................................       113            --
                                                        -----          ----
                                                        1,736           872
                                                                       ====
Deferred tax liability ............................       872
                                                        -----
Net deferred tax asset at December 31, 1995 .......       864
Net deferred tax asset at January 1, 1995 .........       287
                                                        -----
Deferred tax benefit for the year ended
  December 31, 1995................................  $    577
                                                        =====

In addition to the deferred  tax items  described in the  preceding  table,  the
Company  also has a deferred tax asset of  approximately  $40,000 and $46,000 at
December 31, 1996 and 1995,  respectively,  relating to the  unrealized  loss on
securities available for sale.

There  was no  valuation  allowance  or change in the  valuation  allowance  for
deferred  tax assets as of and for the years ended  December  31, 1996 and 1995.
Management  believes that the  realization  of the  recognized  net deferred tax
asset at December  31, 1996  amounting  to  approximately  $1.4  million is more
likely than not, based on available tax planning strategies, and expectations as
to future taxable income. The change in the deferred tax asset valuation reserve
in 1994 was based on the  Company's  continuing  evaluation of the level of such
valuation  reserve and the realizability of the temporary  differences  creating
the deferred tax asset and after  considering  the  estimates of future  taxable
income.

As a  qualifying  thrift  institution  under IRS  guidelines,  the Bank has been
eligible to claim special tax deductions  substantially in excess of actual loss
experience  as a tax bad debt  reserve  which has not been  subject to  deferred
taxes through  December 31, 1987, in accordance with SFAS No. 109.  Accordingly,
no deferred  tax  liability  has been  recorded  for the tax bad debt reserve at
December 31, 1987. This reserve,  which approximated  $3,294,000 at December 31,
1987,  will not be subject to tax as long as the Bank does not (i) redeem  stock
or have  excess  distributions  to  shareholders,  or (ii)  fail to  maintain  a
specified  qualifying  assets ratio or meet other  definition tests for New York
State purposes.

                                       43
<PAGE>
(10) Income Taxes, Continued

As a result of tax  legislation  passed by Congress  in 1996,  the Company is no
longer eligible to claim the special  deduction for Federal income tax purposes.
The Federal tax bad debt reserve,  aggregating  approximately $3,456,000 million
at December 31, 1996,  exceeds the base year reserve by  approximately  $162,000
(the "excess reserve"). The excess reserve is to be recaptured as taxable income
over a  defined  number of years.  The  Company  had  previously  established  a
deferred tax liability  for this excess  reserve such that there is no impact on
total tax expense (benefit) for the Company in 1996 or any future year.


(11)    Employee Benefit Plans

(a)     Pension Plan

The Bank  maintains  a  non-contributory  pension  plan with the RSI  Retirement
Trust,  covering  substantially  all  employees  aged 21 and over with 1 year of
service with the  exception of hourly paid  employees.  Benefits are computed as
two percent of the highest  three year average  annual  earnings  multiplied  by
credited service up to a maximum of 35 years.

The amounts  contributed to the plan are determined annually on the basis of (a)
the maximum  amount that can be deducted for Federal  income tax purposes or (b)
the  amount  certified  by  a  consulting  actuary  as  necessary  to  avoid  an
accumulated  funding  deficiency  as defined by the Employee  Retirement  Income
Security  Act of  1974.  Contributions  are  intended  to  provide  not only for
benefits  attributed to service to date but also for those expected to be earned
in the future.  Assets of the plan are primarily invested in pooled equity funds
and fixed income funds.

The following  table sets forth the plan's funded status and amounts  recognized
in the Company's consolidated  statements of financial condition at December 31,
1996 and 1995:

                                                                1996       1995
                                                                ----       ----
                                                                 (In thousands)
Actuarial present value of benefit obligations:
Accumulated benefit obligation, including vested
benefits of $3.1 million in 1996 and $3.0 million in 1995   $ (3,324)    (3,171)
                                                               =====      =====
Projected benefit obligation .............................    (4,060)    (3,833)
Plan assets at fair value ................................     5,093      4,553
                                                               -----      -----
Projected plan assets in excess of benefit obligation ....     1,033        720
Unrecognized net loss ....................................      (301)       (28)
Unrecognized prior service cost ..........................        52         61
Unrecognized net asset being recognized over 10.71 years .      (132)      (178)
                                                               -----       -----
Prepaid pension cost .....................................  $    652        575
                                                               =====       =====

                                       44
<PAGE>
(11) Employee Benefit Plans, Continued

Net pension costs  recognized in the  consolidated  statements of income for the
years ended December 31, 1996, 1995 and 1994 are summarized as follows:

                                                           1996    1995    1994
                                                           ----    ----    ----
                                                               (In thousands)
Components of net pension cost:
Service cost - benefits earned during the period ......   $ 187     141     169
Interest cost on estimated projected benefit obligation     288     268     251
Actual return on plan assets ..........................    (627)   (783)     21
Net amortization and deferral .........................     222     437    (366)
                                                           ----    ----    ----
Net pension cost ......................................   $  70      63      75
                                                           ====    ====    ====

Significant  assumptions used in determining the actuarial  present value of the
projected benefit obligation are as follows:

                                                           1996    1995    1994
                                                           ----    ----    ----
Weighted average discount rate ........................    7.50%   7.50%   8.25%
Increase in future compensation .......................    5.50%   5.50%   6.00%
Expected long term rate of return .....................    8.00%   8.00%   8.00%

(b)     401(k) Savings Plan

The Bank maintains a defined contribution 401(k) savings plan, covering all full
time  employees  who  have  attained  age 21 and  have  completed  one  year  of
employment. The Bank matches 50% of employee contributions that are less than or
equal to 3% of the employee's salary.  Total expense recorded during 1996, 1995,
and 1994 was $37,671, $33,181 and $27,514, respectively.

(c)     Employee Stock Ownership Plan

As part of the conversion  discussed in note 2, an employee stock ownership plan
(ESOP) was established to provide substantially all employees of the Company the
opportunity  to become  stockholders.  The ESOP  borrowed  $4.3 million from the
Company and used the funds to purchase 433,780 shares of the common stock of the
Company issued in the conversion.  The loan will be repaid  principally from the
Company's discretionary contributions to the ESOP over a period of ten years. At
December 31, 1996 and 1995, the loan had an outstanding  balance of $3.9 million
and  $4.3  million,  respectively  and an  interest  rate  of  6.21%.  The  loan
obligation is reduced by the amount of loan repayments made by the ESOP.  Shares
are released for allocation and unearned compensation is amortized over the loan
repayment  period based on the amount of principal and interest paid on the loan
as a percentage of the total  principal and interest to be paid on the loan over
its entire term.  Shares purchased with the loan proceeds are held in a suspense
account for allocation among  participants as the loan is repaid.  Contributions
to the ESOP and shares  released from the suspense  account are allocated  among
participants on the basis of compensation in the year of allocation.

                                       45
<PAGE>
(11) Employee Benefit Plans, Continued

The Company  accounts for the ESOP in accordance with the American  Institute of
Certified  Public  Accountants'  Statement  of  Position  No.  93-6  "Employees'
Accounting  For Stock  Ownership  Plans"  (SOP  93-6).  Accordingly,  the shares
pledged as collateral are reported as unallocated  ESOP shares in  shareholders'
equity. As shares are released from collateral, the Company reports compensation
expense equal to the average  market price of the shares  (during the applicable
service  period),  and the shares  become  outstanding  for  earnings  per share
computations. Unallocated ESOP shares are not included in the earnings per share
computations.  The  Company  recorded  approximately  $527,000  of  compensation
expense under the ESOP during the year ended December 31, 1996.

The ESOP shares as of December 31, 1996 were as follows:

Allocated shares ........................................          --
Shares released for allocation ..........................      52,964
Unallocated shares ......................................     380,816
                                                            ---------
                                                              433,780
                                                            =========
Market value of unallocated shares at December 31, 1996.. $ 4,284,180
                                                            =========
(d)     Post Retirement  Benefits

The Company  accounts for  postretirement  benefits under Statement of Financial
Accounting Standards No. 106, "Employers' Accounting for Postretirement Benefits
Other  Than  Pensions"  (SFAS  No.  106).  Under  SFAS  No.  106,  the  cost  of
postretirement  benefits  other than  pensions  must be recognized on an accrual
basis  as  employees  perform  services  to  earn  the  benefits.  Based  on the
transition  provisions of SFAS No. 106, the accumulated  postretirement  benefit
obligation at the date of adoption (the transition obligation) may be recognized
in income as the  cumulative  effect of an  accounting  change in the  period of
adoption or delayed and amortized as a component of net periodic  postretirement
benefit cost.  The Company  adopted SFAS No. 106 as of January 1, 1995 and opted
to amortize the transition obligation into expense. The adoption of SFAS No. 106
did  not  have  a  material  effect  on  the  Company's  consolidated  financial
statements.

Certain postretirement health insurance benefits have been committed to a closed
group of twelve retired employees.  The Company has formally adopted measures to
not  offer  these  benefits  to any  additional  employees.  The  annual  health
insurance increase and discount rate used to calculate the transition obligation
were  6% and  8.5%,  respectively.  There  are no  plan  assets.  The  estimated
transition  obligation  at  January  1,  1995  was  $260,000.  The net  periodic
postretirement benefit costs in 1996 and 1995 were approximately $26,000.

                                       46
<PAGE>
(12)    Retained Earnings

As a qualifying thrift institution,  the Bank has been eligible to claim special
Federal tax deductions  substantially  in excess of actual loss  experience as a
tax bad debt reserve.  Such  reserve,  aggregating  approximately  $3,456,000 at
December 31, 1996, is included  within equity in the  accompanying  consolidated
statement  of financial  condition.  Federal tax law  restricts  the use of such
reserves to charges for bad debts.  If this reserve is charged for amounts other
than bad  debts,  taxable  income  of an  identical  amount  is  created.  Since
ineligible  charges to the reserve are not  anticipated,  no provision  has been
made for Federal income taxes thereon.

See also note 2.


(13)    Commitments and Contingent Liabilities

(a)     Legal Proceedings

The Company and its subsidiaries  may, from time to time, be defendants in legal
proceedings relating to the conduct of their business.  In the best judgments of
management,   the  consolidated  financial  position  of  the  Company  and  its
subsidiaries will not be affected materially by the outcome of any pending legal
proceedings.

     The Bank was a  defendant  in an  action  by the  current  owners  of F. H.
Doherty Associates,  Inc. (the Bank sold F. H. Doherty  Associates,  Inc. to the
current  owners),  seeking to rescind the sale of stock,  recover any additional
capital contributions made by the plaintiffs, and punitive damages in the amount
of $1,000,000, and indemnification on a potential claim in the amount of $67,500
resulting from a subsequent  transfer of a portion of the stock by plaintiffs to
a third party.  During 1996,  the Bank  stipulated to a settlement and agreed to
pay $262,500 to the plaintiffs.  The Bank charged $175,000 against the allowance
for probable loss which was  established  for this matter in 1995. The remaining
$87,500 was charged against current year operations.

(b)     Nationar Receivables

     On February 6, 1995, the  Superintendent of Banks for the State of New York
("Superintendent") seized Nationar, a check-clearing and trust company, freezing
all of Nationar's  assets.  On that date, the Bank had: a demand account balance
of $233,000, and a Nationar debenture of $100,000 collateralized by a $1,000,000
investment  security.  On September 26, 1995, the Company entered into a standby
letter of credit with the  Superintendent  for  $1,086,250  which  replaced  the
$1,000,000  security  that was pledged as collateral  for the capital  debenture
bonds. As of December 31, 1995, the Company  charged off the Nationar  debenture
of $100,000 and  established  an  additional  reserve of $105,000 for  potential
losses of the demand account and potential losses related to the stand by letter
of credit.

                                       47
<PAGE>
(13) Commitments and Contingent Liabilities, Continued

During  1996  the  Company   received  a  cash  payment  of  $233,000  from  the
Superintendent relating to its Nationar claim. In addition, on June 10, 1996 the
Company   issued  a  new   standby   letter  of  credit  for   $150,000  to  the
Superintendent,  and  the  initial  standby  letter  of  credit  was  cancelled.
Concurrent  with the new standby  letter of credit,  the Company was required to
pay $58,000 under the original standby letter of credit  agreement.  This amount
was  charged  against  the  reserve  the  Company  had  previously  established.
Subsequently,  the Company was informed by the Superintendent's  Office that the
$150,000 standby letter of credit was canceled and that the Company will have no
further liability in connection with its agreement with the Superintendent.

(c)     Lease Commitments

The Company  leases office space and  equipment  under  noncancelable  operating
leases. Minimum rental commitments under these leases are as follows:

  Years ended December 31,
                                (In thousands)

        1997                       $   289
        1998                           307
        1999                           230
        2000                           202
        2001                           146
        2002 and thereafter          1,994
                                     -----
                                   $ 3,168
                                     =====

Amounts  charged to rent  expense  were  approximately  $225,000,  $203,000  and
$141,000 for the years ended December 31, 1996, 1995 and 1994.

(d)     Off-Balance Sheet Financing and Concentrations of Credit

The Company is a party to certain  financial  instruments with off-balance sheet
risk in the  normal  course  of  business  to meet  the  financing  needs of its
customers.  These financial  instruments  include  commitments to extend credit,
unused lines of credit and standby letters of credit. These instruments involve,
to varying degrees,  elements of credit risk in excess of the amount  recognized
on the consolidated  statement of financial  condition.  The contract amounts of
these  instruments  reflect  the  extent  of  involvement  the  Company  has  in
particular classes of financial instruments.

The  Company's  exposure  to credit loss in the event of  nonperformance  by the
other party to the  commitments  to extend  credit,  unused  lines of credit and
standby letters of credit is represented by the  contractual  notional amount of
these  instruments.  The  Company  uses  the  same  credit  policies  in  making
commitments as it does for on-balance sheet instruments.

Unless  otherwise  noted,  the  Company  does not  require  collateral  or other
security to support off-balance sheet financial instruments with credit risk.

                                       48
<PAGE>
(13) Commitments and Contingent Liabilities, Continued

Commitments  to extend  credit are  agreements  to lend to a customer as long as
there is no violation of any condition established in the contract.  Commitments
generally  have fixed  expiration  dates or other  termination  clauses  and may
require  payment of a fee. Since many of the  commitments are expected to expire
without being fully drawn upon, the total commitment  amounts do not necessarily
represent  future cash  requirements.  The  Company  evaluates  each  customer's
creditworthiness  on a case-by-case  basis.  The amount of  collateral,  if any,
required by the Company upon the  extension  of credit is based on  management's
credit evaluation of the customer.  Mortgage  commitments are secured by a first
lien on real estate.  Collateral on extensions  of credit for  commercial  loans
varies but may  include  property,  plant and  equipment,  and income  producing
commercial property.

Standby letters of credit are conditional  commitments  issued by the Company to
guarantee the performance of a customer to a third party.  Those  guarantees are
primarily issued to support borrowing arrangements.  The credit risk involved in
issuing  standby  letters of credit is essentially  the same as that involved in
extending loan facilities to customers.

Contract amounts of financial instruments that represent the future extension of
credit as of December 31, 1996 and 1995 at fixed and variable interest rates are
as follows:

                                                   1996
                                       ---------------------------
                                         Fixed   Variable   Total
                                         -----   --------   -----
                                              (In thousands)
Financial  instruments  whose
contract  amounts represent
Credit risk:
Commitments to extend credit           $ 1,076       826    1,902
Unused lines of credit .....               914     4,981    5,895
Standby letters of credit ..               --        100      100
                                         -----     -----    -----
                                       $ 1,990     5,907    7,897
                                         =====     =====    =====

                                                   1995
                                       ---------------------------
                                         Fixed   Variable   Total
                                         -----   --------   -----
                                              (In thousands)
Financial  instruments  whose
contract  amounts represent
Credit risk:
Commitments to extend credit           $   426     1,528    1,954
Unused lines of credit .....               864     5,723    6,587
Standby letters of credit ..                --     1,236    1,236
                                         -----     -----    -----
                                       $ 1,290     8,487    9,777
                                         =====     =====    =====

The range of interest on fixed rate commitments was 7.0% to 8.5% at December 31,
1996, and 7.5% to 8.5% at December 31, 1995.

The range of interest on adjustable rate commitments was 5.5% to 9.75% and 8.50%
to 10.0% at December 31, 1996 and 1995, respectively.

                                       49
<PAGE>
(14)    Fair Values

The Financial Accounting Standards Board issued SFAS No. 107, "Disclosures about
Fair Value of Financial  Instruments"  (SFAS No. 107),  which  requires that the
Company disclose estimated fair values for certain financial  instruments.  SFAS
No. 107 defines fair value of financial  instruments  as the amount at which the
instrument could be exchanged in a current  transaction  between willing parties
other than in a forced or  liquidation  sale.  SFAS No. 107  defines a financial
instrument as cash,  evidence of ownership  interest in an entity, or a contract
that imposes on one entity a  contractual  obligation to deliver cash or another
financial  instrument  to  a  second  entity  or  to  exchange  other  financial
instruments on potentially unfavorable terms with a second entity and conveys to
that second  entity a  contractual  right to receive  cash or another  financial
instrument from the first entity or to exchange other  financial  instruments on
potentially favorable terms with the first entity.

Fair value  estimates  are made at a specific  point in time,  based on relevant
market  information  and  information  about  the  financial  instrument.  These
estimates do not reflect any premium or discount that could result from offering
for sale at one time the  Company's  entire  holdings of a particular  financial
instrument.  Because no market exists for a significant portion of the Company's
financial  instruments,  fair value  estimates are based on judgments  regarding
future   expected   net  cash   flows,   current   economic   conditions,   risk
characteristics  of various  financial  instruments,  and other  factors.  These
estimates  are  subjective  in nature and involve  uncertainties  and matters of
significant judgment and therefore cannot be determined with precision.  Changes
in assumptions could significantly affect the estimates.

Fair value  estimates are based on existing on-and  off-balance  sheet financial
instruments  without  attempting  to estimate  the value of  anticipated  future
business  and the  value of  assets  and  liabilities  that  are not  considered
financial   instruments.   Significant  assets  and  liabilities  that  are  not
considered  financial  assets or liabilities  include the deferred tax asset and
property,  plant, and equipment.  In addition,  the tax ramifications related to
the realization of the unrealized gains and losses can have a significant effect
on fair value  estimates  and have not been  considered in the estimates of fair
value under SFAS No. 107.

In addition there are significant  intangible  assets that SFAS No. 107 does not
recognize,  such as the value of "core  deposits," the Company's  branch network
and other items generally referred to as "goodwill."

                                       50
<PAGE>
(14) Fair Values, Continued

The specific  estimation  methods and  assumptions  used can have a  substantial
impact on the  resulting  fair values  ascribed to  financial  instruments.  The
following is a brief summary of the significant methods and assumptions used:

Securities Available for Sale

The carrying amounts for short-term  investments  approximate fair value because
they mature in 90 days or less and do not present unanticipated credit concerns.
The fair value of longer-term investments and mortgage-backed securities, except
certain  state  and  municipal  securities,  is  estimated  based on bid  prices
published in financial  newspapers or bid  quotations  received from  securities
dealers. The fair value of certain state and municipal securities is not readily
available  through  market sources other than dealer  quotations,  so fair value
estimates are based on quoted market prices of similar instruments, adjusted for
differences between the quoted instruments and the instruments being valued. See
note 4 for detail disclosure of securities available for sale.

Loans

Fair  values  are  estimated  for  portfolios  of loans with  similar  financial
characteristics.  Loans are  segregated  by type such as  single  family  loans,
consumer loans and  commercial  loans.  Each loan category is further  segmented
into  fixed  and   adjustable   rate  interest   terms  and  by  performing  and
nonperforming categories.

The fair value of performing loans  is calculated by discounting  scheduled cash
flows through the estimated  maturity using estimated market discount rates that
reflect the credit and interest rate risk inherent in the loan.  The estimate of
maturity is based on the  contractual  term of the loans to maturity taking into
consideration certain prepayment assumptions.

Fair  value for  significant  non-performing  loans is based on recent  external
appraisals and  discounting  of cash flows.  Estimated cash flows are discounted
using a rate  commensurate  with the risk  associated  with the  estimated  cash
flows.  Assumptions  regarding  credit risk, cash flows,  and discount rates are
judgmentally determined using available market information and specific borrower
information.

Deposit Liabilities

Under SFAS No. 107, the fair value of deposits with no stated maturity,  such as
non-interest bearing demand deposits,  passbook accounts, NOW accounts and money
market  accounts must be stated at the amount payable on demand.  The fair value
of certificates of deposit is based on the discounted  value of contractual cash
flows.  The discount  rate is estimated  using the rates  currently  offered for
deposits of similar remaining maturities.

The fair value  estimates above do not include the benefit that results from the
low-cost  funding  provided by the deposit  liabilities  compared to the cost of
borrowing funds in the market.

                                       51
<PAGE>
(14) Fair Values, Continued

Borrowed Funds

The fair value of borrowed  funds due in 90 days or less,  or that reprice in 90
days or less is estimated to approximate the carrying amounts. The fair value of
longer term  borrowed  funds is estimated by  discounting  scheduled  cash flows
based on current  rates  available to the Company for similar types of borrowing
arrangements.

Other Items

The following  items are considered to have a fair value equal to book value due
to the nature of the financial instrument and the period within which it will be
settled or  repriced:  cash and due from  banks,  federal  funds  sold,  accrued
interest  receivable,  due to/from broker,  investments  required by law, due to
broker,  advances from borrowers for taxes and insurance,  and accrued  interest
payable.

Table of Financial Instruments

The carrying  values and estimated  fair values of financial  instruments  as of
December 31, 1996 and 1995 were as follows:

                                       December 31, 1996      December 31, 1995
                                       -----------------      -----------------
                                        Estimated              Estimated
                                        Carrying    Fair       Carrying    Fair
                                        Value       Value      Value       Value
                                         -----      -----       -----      -----
                                                     (in thousands)
Financial assets:
  Cash and cash equivalents .......... $ 10,887    10,887      84,613     84,613
  Securities available for sale ......  200,539   200,539      74,422     74,422
  Federal Home Loan Bank of New York
         stock .......................    2,029     2,029       1,892      1,892
  Loans ..............................  251,532   249,665     252,638    248,936
  Less:  Allowance for loan losses ...   (3,438)       --      (2,647)        --
                                        -------   -------     -------    -------
         Net loans ...................  248,094   249,665     249,991    248,936
  Due from broker ....................       --        --      18,128     18,128
  Accrued interest receivable ........    3,201     3,201       1,827      1,827
Financial liabilities:
  Deposits:
         Demand, passbook, money
         market,and NOW accounts .....  146,150   146,150     153,878    153,878
         Certificates of deposit .....  151,932   152,797     157,361    159,852
  Borrowed funds .....................  108,780   108,806          --         --
  Accrued interest payable ...........    1,077     1,077           2          2
  Advances from borrowers for tax
         and insurance................    1,703     1,703       1,692      1,692
  Due to broker ......................      --         --      46,880     46,880

                                       52
<PAGE>
(14) Fair Values, Continued

Commitments  to  Extend  Credit,   Standby  Letters  of  Credit,  and  Financial
Guarantees Written

The fair  value of  commitments  to extend  credit is  estimated  using the fees
currently  charged to enter into  similar  agreements,  taking into  account the
remaining  terms of the  agreements  and the present  credit  worthiness  of the
counterparties.  For fixed rate loan commitments,  fair value also considers the
difference between current levels of interest rates and the committed rates. The
fair value of  financial  guarantees  written  and letters of credit is based on
fees  currently  charged  for similar  agreements  or on the  estimated  cost to
terminate  them or otherwise  settle the  obligations  with the  counterparties.
Fees,  such as these are not a major part of the  Company's  business and in the
Company's  business territory are not a "normal business  practice."  Therefore,
based upon the above  facts the  Company  believes  that book value  equals fair
value and the amounts are not significant.


(15)    Regulatory Capital Requirements

OTS capital regulations require savings  institutions to maintain minimum levels
of regulatory capital. Under the regulations in effect at December 31, 1996, the
Bank was  required  to  maintain a minimum  ratio of  tangible  capital to total
tangible  assets of 1.5%; a minimum  leverage  ratio of core (Tier 1) capital to
total  adjusted  tangible  assets of 3.0%;  and a minimum ratio of total capital
(core capital and  supplementary  capital) to  risk-weighted  assets of 8.0%, of
which 4.0% must be core (Tier 1) capital.

Under the prompt  corrective  action  regulations,  the OTS is  required to take
certain supervisory actions (and may take additional discretionary actions) with
respect to an  undercapitalized  institution.  Such actions  could have a direct
material  effect  on an  institution's  financial  statements.  The  regulations
establish a framework for the  classification of savings  institutions into five
categories:   well  capitalized,   adequately   capitalized,   undercapitalized,
significantly undercapitalized,  and critically undercapitalized.  Generally, an
institution  is considered  well  capitalized  if it has a core (Tier 1) capital
ratio  of at least  5.0%  (based  on  average  total  assets);  a core  (Tier 1)
risk-based  capital ratio of at least 6.0%; and a total risk-based capital ratio
of at least 10.0%.

The foregoing capital ratios are based in part on specific quantitative measures
of assets,  liabilities and certain  off-balance sheet items as calculated under
regulatory  accounting  practices.  Capital amounts and classifications are also
subject to  qualitative  judgments  by the OTS about  capital  components,  risk
weightings and other factors.

Management  believes  that,  as a December 31, 1996,  the Bank meets all capital
adequacy  requirements  to which it is  subject.  Further,  the most  recent OTS
notification  categorized the Bank as a  well-capitalized  institution under the
prompt  corrective action  regulations.  There have been no conditions or events
since that notification that management believes have changed the Bank's capital
classification.

                                       53
<PAGE>
(15) Capital Requirements, Continued

The following is a summary of the Bank's actual capital amounts and ratios as of
December 31, 1996, compared to the OTS minimum capital adequacy requirements and
the OTS  requirements  for  classification  as a  well-capitalized  institution.
Although the OTS capital regulations apply at the Bank level only, the Company's
consolidated  capital  amounts and ratios are also  presented.  The OTS does not
have a holding company capital requirement.

                                           Minimum Capital   For Classification
                             Actual            Adequacy      as Well Capitalized
                          ---------------  ---------------  --------------------
                          Amount    Ratio      Ratio                Ratio
                          ------    -----      -----                -----
Bank
----
Tangible capital ....   $ 46,225    10.08%     1.50%                  --
Tier 1 (core) capital     46,225    10.08      3.00                 5.00%
Risk-based capital:
        Tier 1 ......     46,225    23.35        --                 6.00
        Total .......     48,712    24.61      8.00                10.00

                               Actual
                          ---------------
                          Amount    Ratio
                          ------    -----
Consolidated
------------
Tangible capital ....   $ 61,598    13.04
Tier 1 (core) capital     61,598    13.04
Risk-based capital:
        Tier 1 ......     61,598    30.66
        Total .......     64,098    31.90


                                       54
<PAGE>
(16)    Holding Company Financial Information

The Holding  Company began  operations on December 26, 1995 in conjunction  with
the Bank's mutual-to-stock  conversion and the Company's initial public offering
of its common stock. The Holding Company's  statements of financial condition as
of December  31, 1996 and 1995 and related  statements  of income and cash flows
for the year ended December 31, 1996 and for the period from inception (December
26, 1995) to December 31, 1995 are as follows (the Holding  Company did not have
any income or expenses  for the period from  December  26, 1995 to December  31,
1995):

                        Statements of Financial Condition

                                                               At December 31,
                                                               ---------------
                                                                1996     1995
                                                                ----     ----
                                                                (in thousands)
        Assets

Cash and cash equivalents ................................  $    469   21,752
Securities available for sale* ...........................    13,956       --
Loan receivable from subsidiary ..........................     3,904    4,338
Accrued interest receivable ..............................       163       --
Investment in subsidiary .................................    46,312   49,925
Other assets .............................................        85       --
                                                              ------   ------
                Total assets .............................  $ 64,889   76,015
                                                              ======   ======
        Liabilities and Shareholders' Equity

Liabilities:
        Security sold under agreement to repurchase** ....  $  3,000       --
        Other liabilities ................................       371       --
                                                              ------   ------
Shareholders' Equity .....................................    61,518   76,015
                                                              ------   ------
                Total liabilities and shareholders' equity  $ 64,889   76,015
                                                              ======   ======

* The Holding Company's securities available for sale consist of U.S. Government
Agency and mortgage backed  securities with a weighted  average  maturity of 5.0
years.

** Weighted  average rate at December 31, 1996 is 5.60% with a maturity  date of
March 26, 1997.

                                       55
<PAGE>
(16) Holding Company Financial Information, Continued

                              Statements of Income
                For the Year Ended December 31, 1996, and for the
       Period From Inception (December 26, 1995) Through December 31, 1995

                                                     1996      1995
                                                     ----      ----
                                                     (in thousands)

Interest income   .............................  $  1,128        --
Interest expense ..............................         2        --
                                                    -----     -----
        Net interest income ...................     1,126        --

Non interest expense ..........................       309        --
                                                    -----     -----
Income before income taxes and equity
 in undistributed earnings (loss) of subsidiary       817        --
                                                    -----     -----
Income tax expense ............................       328        --
                                                    -----     -----
Income before equity in undistributed
 earnings (loss) of subsidiary ................       489        --
Equity in undistributed (loss) earnings
 of subsidiary ................................    (4,325)      857
                                                    -----     -----
Net income (loss) .............................  $ (3,836)      857
                                                    =====     =====

                                       56
<PAGE>
(16) Holding Company Financial Information, Continued


                            Statements of Cash Flows
    For the Year ended December 31, 1996, and for the Period From Inception
                 (December 26, 1995) Through December 31, 1995

                                                              1996       1995
                                                              ----       ----
                                                              (in thousands)
Cash flows from operating activities:
        Net income (loss) ................................  $  (3,836)      857
        Adjustment to reconcile net
          income (loss) to net cash provided
          by operating activities:
          Equity in undistributed loss
            (earnings) of subsidiary .....................     4,325       (857)
          Increase in other liabilities ..................       371         --
          Increase in accrued interest receivable ........      (163)        --
                                                             -------    -------
                 Net cash provided by operating activities       697         --
                                                             -------    -------
Cash flows from investing activities:
        Decrease (increase) in loans receivable
          from subsidiary .................................      434     (4,338)
        Investment in common stock of subsidiary ..........       --    (26,090)
        Purchases of securities available for sale ........  (19,985)        --
        Proceeds from principal paydowns and
          maturities of securities available for sale .....    3,984         --
        Proceeds from sales of available for sale
          securities ......................................    1,795         --
                                                             -------    -------
                  Net cash used in investing activities ...  (13,772)   (30,428)
                                                             -------    -------
Cash flows from financing activities:
        Net increase in borrowed funds ....................    3,000         --
        Net proceeds from issuance of common stock ........      --      52,180
        Purchase of treasury stock ........................  (11,208)        --
                                                             -------    -------
                  Net cash provided by (used in)
                    financing activities ..................   (8,208)    52,180
                                                             -------    -------
Net increase (decrease) in cash and cash equivalents ......  (21,283)    21,752

Cash and cash equivalents:
        Beginning of period ...............................   21,752         --
                                                             -------    -------
        End of period ..................................... $    469     21,752
                                                             =======    =======

These  financial  statements  should be read in  conjunction  with the Company's
consolidated financial statements and notes thereto. 30

                                       57
<PAGE>
                    CORPORATE AND STOCKHOLDER INFORMATION

Company and Bank Address

11 Division Street
Amsterdam, New York 12010-4303
Telephone:        (518) 842-7200
Fax:              (518) 842-7500

Stock Price Information

The  Company's  stock is traded on The Nasdaq  National  Market System under the
symbol "AHCI".  The table below shows the range of high and low bid prices since
the Company's  common Stock began trading on December 27, 1995. The  information
set forth in the table  below was  provided  by The Nasdaq  Stock  Market.  Such
information  reflects interdealer prices,  without retail mark-up,  mark-down or
commission, and may not represent actual transactions.
                               High                 Low
1995 Fourth Quarter (1)      $10.500             $ 9.500
1996 First Quarter            10.500               9.375
1996 Second Quarter           10.000               9.375
1996 Third Quarter            10.625               9.500
1996 Fourth Quarter           11.750              10.000

(1) Reflects the period from December 27, 1995 through December 31, 1995
-------------------------------------

No cash  dividends  have been paid on Ambanc  Holding Co., Inc.  common stock to
date. For  information  regarding  restriction  on dividends,  see Note 2 to the
Notes to Consolidated Financial Statements.

As of April 9, 1997, the Company had approximately  1,225 stockholders of record
and 4,392,023 outstanding shares of Common Stock.

Investor Relations

Stockholders,  investors and analysts  interested in additional  information may
contact:

      Harold A. Baylor, Jr.
      Ambanc Holding Co., Inc.
      11 Division Street
      Amsterdam, New York 12010-4303
      (518) 842-1445

Annual Report on Form 10-K

Copies of Ambanc  Holding Co.,  Inc.'s Annual Report for year ended December 31,
1996 on Form  10-K  filed  with  the  Securities  and  Exchange  Commission  are
available without charge to stockholders upon written request to:

      Investor Relations
      Ambanc Holding Co., Inc.
      11 Division Street
      Amsterdam, New York 12010-4303

                                       58
<PAGE>
Annual Meeting

The annual meeting of stockholders  will be held at 10:00 a.m.,  Amsterdam,  New
York time,  on Friday,  May 23, 1997 at the Best  Western,  formerly the Holiday
Inn, located at 10 Market Street, Amsterdam, New York.

Stock Transfer Agent and Registrar

Ambanc  Holding Co.,  Inc.'s  transfer  agent,  American Stock Transfer & Trust,
maintains  all  stockholder  records  and can  assist  with stock  transfer  and
registration  address changes,  changes or corrections in social security or tax
identification numbers and 1099 tax reporting questions.  If you have questions,
please contact the stock transfer agent at the address below:

      American Stock Transfer & Trust
      40 Wall Street, 46th Floor
      New York, New York  10005
      Telephone:  (718) 921-8290

Amsterdam Savings Bank, FSB Offices

Corporate              11 Division Street
                       Amsterdam, N.Y. 12010
                       (518) 842-7200

Amsterdam              Route 30N
                       Amsterdam, N.Y. 12010

                       Price Chopper Supermarket
                       Sanford Farms Plaza
                       Amsterdam, N.Y. 12010

Ballston Spa           Grand Union Plaza, Rte. 50
                       Ballston Spa, N.Y.  12020

Clifton Park           Village Plaza
                       Clifton Park, N.Y.  12065

Fort Plain             19 River Street
                       Fort Plain, N.Y. 13339

Gloversville           Arterial at Fifth Avenue
                       Gloversville, N.Y. 12078

Latham                 Price Chopper Supermarket
                       873 New Loudon Road
                       Latham, N.Y.  12110

Schenectady            Price Chopper Supermarket
                       1640 Eastern Parkway
                       Schenectady, N.Y.  12309

Operations Center      35 East Main Street
                       Amsterdam, N.Y. 12010

                                       59
<PAGE>
                            DIRECTORS AND OFFICERS


Board of Directors                                                     Year
(Ambanc Holding Co., Inc. and                                       appointed
 Amsterdam Savings Bank, FSB)                                     to Bank Board
----------------------------------------------------------------- --------------
Paul W. Baker, Chairman of the Board                                  1963
Robert J. Brittain, President and Chief Executive Officer             1988
Lauren T. Barnett, Barnett Agency, Inc.                               1966
John J. Daly, Alpin Haus                                              1988
Robert J. Dunning D.D.S., Dentist                                     1972
Lionel H. Fallows, Retired, Lieutenant Colonel                        1981
Marvin R.  LeRoy, Alzheimers Association, Northeastern NY Chapter     1996
Charles S. Pedersen, Independent Manufacturers' Representative        1977
Carl A. Schmidt, Jr., Sofco, Inc.                                     1974
William A. Wilde, Jr., Amsterdam Printing and Litho Corp.             1966



Executive Officers of Ambanc Holding Co., Inc.
----------------------------------------------
Robert J. Brittain, President/Chief Executive Officer
Harold A. Baylor, Jr., Vice President/Treasurer
Robert Kelly, Vice President/General Counsel/Secretary


Executive Officers of Amsterdam Savings Bank, FSB
--------------------------------------------------
Robert J. Brittain, President/Chief Executive Officer
Harold A. Baylor, Jr., Vice President/Treasurer
Robert Kelly, Vice President/General Counsel/Secretary
Nancy S. Virkler, Vice President of Operations
Richard C. Edel, Vice President
Cynthia M. Proper, Vice President/Director of Lending
Michelle G. Brown, Vice President/Director of Human Resources

                                       60