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. All references to the Company,  unless otherwise indicated, at or
before December 26, 1995 refer to the Bank.
<TABLE>
<CAPTION>
                                                             December 31,
                                        1998         1997         1996        1995        1994
                                     ---------     ---------    ---------   ---------   ---------
     Selected Consolidated                                 (In Thousands)
     Financial Condition Data:
<S>                                  <C>          <C>          <C>         <C>         <C>
Total assets .....................   $ 735,472    $ 510,444    $ 472,421   $ 438,944   $ 343,334  
Securities available for sale ....     244,241      205,808      200,539      74,422        --    
Investment securities ............        --           --           --          --        53,390  
Loans receivable, net ............     420,933      281,123      248,094     249,991     261,581  
Deposits .........................     461,413      333,265      298,082     311,239     293,152  
Borrowed funds ...................     173,810      111,550      108,780        --        19,000  
Shareholders' equity .............      85,893       61,202       61,518      76,015      27,414  
                                                  
                                                        Years Ended December 31,
                                         1998        1997         1996        1995        1994
                                      ---------    ---------    ---------   --------  -----------
    Selected Consolidated                   (Dollars in thousands, except per share data)
    Operations Data:
Total interest and dividend income    $38,973     $  35,566    $  32,348   $  25,582   $  23,806 
Total interest expense ...........     22,441        19,654       16,435      12,746      10,192 
                                      -------     ---------    ---------   ---------   --------- 
Net interest income ..............     16,532        15,912       15,913      12,836      13,614 
Provision for loan losses ........        900         1,088        9,450       1,522       1,107 
                                      -------     ---------    ---------   ---------   --------- 
Net interest income after                                                                         
 provision for loan losses .......     15,632        14,824        6,463      11,314      12,507 
Other income .....................      1,144         1,819          908       1,512         905 
Other expenses ...................     15,075        12,190       13,136      11,383      11,340 
                                      -------     ---------    ---------   ---------   --------- 
Income (loss) before taxes .......      1,701         4,453       (5,765)      1,443       2,072 
Income tax expense (benefit) .....        670         1,693       (1,929)        586         122 
                                      -------     ---------    ---------   ---------   --------- 
Net income (loss) ................    $ 1,031     $   2,760    ($  3,836)  $     857   $   1,950 
                                      =======     =========    =========   =========   ========= 
                                                                                                  
Basic earnings (loss) per share* .    $  0.26     $    0.70    ($   0.81)        N/A         N/A 
                                      =======     =========    =========   =========   ========= 
Diluted earnings (loss) per share*    $  0.26     $    0.69    ($   0.81)        N/A         N/A 
                                      =======     =========    =========   =========   ========= 
Dividend payout ratio ............       96.1%         14.3%         N/A         N/A         N/A 
                                      =======     =========    =========   =========   ========= 
</TABLE>                                          
     *Earnings  per share were not  calculated  for 1995 and prior periods since
the  Company  had no stock  outstanding  prior to its  initial  public  offering
completed on December 26, 1995.

<PAGE>


<TABLE>
<CAPTION>
                                                    At or for the years ended December 31,
                                                   1998    1997     1996      1995     1994
                                                   ------------------------------------------
Selected Consolidated Financial
Ratios and Other Data:
<S>                                                <C>     <C>        <C>      <C>      <C>
Performance Ratios:
Return (loss) on average assets (1) .......        0.18%   0.56%   (0.84)%    0.25%    0.59%    
Return (loss) on average equity (1) .......        1.64    4.52    (5.24)     3.00     7.36  
Interest rate information:                                                             
   Average interest rate spread during year        2.32    2.58     2.74      3.36     4.01  
   Average net interest margin during year (2)     3.04    3.36     3.66      3.87     4.34  
Efficiency ratio (3) ......................       74.44   69.81    62.50     68.18    63.46  
Ratio of average earning assets to 
   average interest-bearing liabilities ...      117.28  118.93   124.26    113.31   110.24  
                                                                                              
Asset Quality Ratios:                                                                         
Non-performing assets to total assets (1) .        0.45    0.67     1.18      2.72     4.15  
Non-performing loans to total loans .......        0.68    1.16     1.94      3.48     3.97  
Allowance for loan losses to                                                                  
  non-performing loans ....................      168.42  117.07    70.47     30.10    21.42  
Allowance for loan losses to total loans ..        1.15    1.34     1.37      1.05     0.85  
                                                                                              
Capital Ratios:                                                                               
Equity to total assets at end of period (1)       11.68   11.99    13.02     17.32     7.98  
Average equity to average assets (1) ......       11.18   12.42    15.95      8.30     7.96  
                                                                                              
Other Data:                                                                                   
Number of full-service offices ............        18       12       9         9        7     
<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 earning assets.

(3) The efficiency ratio represents other expenses  (excluding real estate owned
and repossessed assets expenses,  net, the amortization of goodwill, and certain
non-recurring  expenses in 1998 totaling  approximately $1.7 million,  primarily
related  to  costs  associated  with  the  merger,   costs  asociated  with  the
termination and consulting agreements entered into with the former President and
CEO, costs  incurred to defend  against and settle legal actions  initiated by a
shareholder,  and costs associated with the core system  conversion)  divided by
the sum of net interest income and other income (excluding net gains (losses) on
securities transactions).
</FN>
</TABLE>


<PAGE>

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


General

     Ambanc Holding Co., Inc.  ("Ambanc" or the "Company") is a savings and loan
holding  company.  Ambanc  was formed as a  Delaware  corporation  to act as the
holding company for the former Amsterdam  Savings Bank, FSB (now known as Mohawk
Community Bank) upon the completion of Amsterdam  Savings Bank's conversion from
the mutual to stock form on December 26, 1995 (the  "Conversion").  As such, the
Company had no material  results of  operations  during 1995.  Accordingly,  any
discussion  herein for periods  prior to 1996  relates  primarily  to the Bank's
results of operations.

     On November 16, 1998, the Company acquired AFSALA Bancorp,  Inc. ("AFSALA")
and its wholly owned subsidiary,  Amsterdam Federal Bank. Pursuant to the merger
agreement,  AFSALA  was merged  with and into  Ambanc  Holding  Co.,  Inc.,  and
Amsterdam  Federal  Bank was merged with and into the former  Amsterdam  Savings
Bank,  FSB. The combined  bank now  operates as one  institution  under the name
"Mohawk Community Bank" (the "Bank"). See "Acquisition of AFSALA Bancorp, Inc."

     The  Bank's  results  of  operations  are  primarily  dependent  on its net
interest  income,  which is the  difference  between the  interest  and dividend
income earned on its assets,  primarily loans and  securities,  and the interest
expense on its  liabilities,  primarily  deposits and  borrowings.  Net interest
income  may be  affected  significantly  by  general  economic  and  competitive
conditions and policies of regulatory agencies,  particularly those with respect
to market  interest  rates.  The results of  operations  are also  significantly
influenced by the level of non-interest expenses,  such as employee salaries and
benefits, other income, such as fees on deposit-related services, and the Bank's
provision for loan losses.

     The Bank has been,  and  intends to  continue  to be, a  community-oriented
financial  institution  offering a variety of financial  services.  Management's
strategy has been to try to achieve a high loan to asset ratio with  emphasis on
originating traditional one- to four-family residential mortgage and home equity
loans in its  primary  market  area.  At  December  31,  1998,  the Bank's  loan
receivable,  net, to assets ratio was 57.2%, up from 55.1% at December 31, 1997.
In  addition,  the Bank's  portfolio  of loans  secured  by one- to  four-family
residential  mortgage  and home equity  loans has grown as a  percentage  of the
Bank's  total loan  portfolio  to 84.3% of total loans at December 31, 1998 from
77.6% at December 31, 1997.


Forward-Looking Statements

     When used in this  Annual  Report on Form  10-K,  in future  filings by the
Company with the  Securities  and Exchange  Commision,  in the  Company's  press
releases or other public or shareholder  communications,  and in oral statements
made with the approval of an authorized  executive officer, 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  that  could  cause  actual  results  to  differ  materially  from
historical results  and those presently anticipated or projected, including, but
not limited to,  changes in economic  conditions in the  Company's  market area,

<PAGE>

changes in policies by  regulatory  agencies,  fluctuations  in interest  rates,
demand for loans in the Company's market area and  competition,  the possibility
that expected cost savings from the merger with AFSALA cannot be fully  realized
or  realized  within the  expected  time  frame,  the  possiblity  that costs or
difficulties  related to the  integration  of the  businesses of the Company and
AFSALA may be greater than expected and the possibility that revenues  following
the merger with AFSALA may be lower than expected. 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  publicly  release  the  result of any  revisions  which may be made to any
forward-looking  statements to reflect events or circumstances after the date of
such  statements or to reflect the occurrence of  anticipated  or  unanticipated
events.


Acquisition of AFSALA Bancorp, Inc.

     On November 16, 1998, the Company  acquired  AFSALA  Bancorp,  Inc. and its
wholly owned  subsidiary,  Amsterdam  Federal  Bank.  At the date of the merger,
AFSALA had approximately  $167.1 million in assets,  $144.1 million in deposits,
and $19.2 million in  shareholders'  equity.  Pursuant to the merger  agreement,
AFSALA was merged with and into Ambanc Holding Co., Inc., and Amsterdam  Federal
Bank was merged  with and into the  former  Amsterdam  Savings  Bank,  FSB.  The
combined bank now operates as one institution  under the name "Mohawk  Community
Bank" .

     Upon  consummation  of the merger,  each share of AFSALA  common  stock was
converted into the right to receive 1.07 shares of Ambanc common stock. Based on
the 1,249,727  shares of AFSALA common stock issued and outstanding  immediately
prior to the merger,  the Company issued 1,337,207 shares of common stock in the
merger. Of the 1,337,207 shares issued in the merger, 1,327,086 were issued from
the Company's  treasury stock and 10,121 were newly-issued  shares. In addition,
under the  merger  agreement,  the  Company  assumed  unexercised,  fully-vested
options to purchase  144,118 shares of AFSALA common stock which  converted into
fully-vested options to purchase 154,206 shares of Ambanc common stock.

     The acquisition  was accounted for using purchase  accounting in accordance
with APB Opinion No. 16,  "Business  Combinations"  (APB No. 16). Under purchase
accounting,  the purchase price is allocated to the respective  assets  acquired
and liabilities assumed based on their estimated fair values. The acquisition of
AFSALA resulted in approximately  $8.0 million in excess of cost over net assets
acquired  ("goodwill").  Goodwill is being amortized to expense over a period of
fifteen  years using the  straight-line  method.  The results of  operations  of
AFSALA have been  included  in the  Company's  1998  consolidated  statement  of
operations  from  the  date  of  acquisition.  See  Note 2 to  the  Consolidated
Financial  Statements  for further  information  regarding  the  acquisition  of
AFSALA.


<PAGE>

Financial Condition

     Comparison  of Financial  Condition  at December  31, 1998 and 1997.  Total
assets at December 31, 1998 were $735.5 million,  an increase of $225.0 million,
or 44.1%,  over the  December  31,  1997 amount of $510.4  million.  The primary
reason for the increase in total assets was the previously discussed acquisition
of AFSALA Bancorp,  Inc.  (AFSALA),  which had total assets of $167.1 million at
the date of the acquisition.

     Federal funds sold  increased to $30.2 million at December 31, 1998 from $0
at December 31, 1997,  due primarily to the balances  acquired  from AFSALA.  In
addition,  given the low interest rate  environment  that existed during most of
1998, the Company  maintained  greater liquidity at year-end 1998 as compared to
year-end 1997 to take  advantage of any favorable  movements in interest  rates.
Securities available for sale increased by $38.6 million, from $205.8 million at
December 31, 1997 to $244.2  million at December 31, 1998,  due primarily to the
$56.0  million in  securities  (at fair value)  acquired  from  AFSALA.  The net
decrease in securities of $17.6 million after  consideration  of the  securities
acquired  from  AFSALA  was  due to the  Company's decision to maintain  greater
liquidity to take  advantage of any  movements in interest  rates.  Federal Home
Loan Bank of New York (FHLB) stock increased $3.9 million,  or 119.2%,  due to a
combination  of  purchases  of  additional  stock of $3.4  million  and the $565
thousand in FHLB stock acquired from AFSALA.

     Loans  receivable,  net increased  $139.8  million,  or 49.7%,  from $281.1
million at December  31,  1997,  to $420.9  million at December  31,  1998,  due
primarily  to the  $82.9  million  in net loans (at fair  value)  acquired  from
AFSALA.  The majority of the loans acquired from AFSALA were one -to four-family
residential  mortgage and home equity loans. The Company also experienced growth
in its  own  portfolio,  primarily  due to the  purchase  of  $31.9  million  in
residential  real  estate  loans  during  the first  and  second  quarters.  The
remaining growth in the Company's loan portfolio was mainly in home equity loans
due to the offering of a product with low closing costs and competitive rates.

     Premises and  equipment,  net  increased  $1.4 million due primarily to the
acquisition of assets from AFSALA.

     The  acquisition  of AFSALA  resulted  in  approximately  $8.0  million  in
goodwill,  which represents the excess of the purchase price over the fair value
of the net assets acquired. Goodwill is being amortized over fifteen years using
the straight-line  method.  During 1998, $67 thousand of goodwill was amortized,
leaving a balance of $7.9 million at December 31, 1998.



     Deposits at December  31, 1998 were $461.4  million,  an increase of $128.1
million,  or 38.5%, over the balance of $333.3 million at December 31, 1997. The
main reason for the  increase  was the deposits  assumed in the  acquisition  of
AFSALA,  which totaled $144.8 million (at fair value) at the  acquisition  date.
Excluding  the  AFSALA  acquisition,   deposits  decreased  $16.6  million,  due
primarily to the competitive rate environment on time deposits and the Company's
use of borrowings as an alternative funding source.

<PAGE>

     Total borrowings (including FHLB overnight and term advances and securities
sold under agreements to repurchase)  increased $62.3 million from year-end 1997
to year-end 1998. The only borrowings  assumed from AFSALA were $1.4 million (at
fair value) in FHLB term  advances.  The primary  increase in borrowings  was in
securities sold under  agreements to repurchase,  which increased $53.2 million,
or 53.6%,  from $99.3 million at December 31, 1997 to $152.4 million at December
31, 1997.

     The proceeds from the securities  sold under  agreements to repurchase were
used mainly to fund the loan growth,  including the purchase of the  residential
real estate loans noted above. In addition,  the Company  borrowed $20.0 million
in adjustable  rate FHLB term advances  during 1998. See Note 10 of the Notes to
Consolidated   Financial  Statements  for  further  information   regarding  the
Company's borrowings.

     Shareholders'  equity increased $24.7 million, or 40.3%, from $61.2 million
at December 31, 1997 to $85.9 million at December 31, 1998, due primarily to the
acquisition  of AFSALA noted above.  In  connection  with the  acquisition,  the
Company issued  1,337,207 shares of common stock. Of the 1,337,207 shares issued
in the acquisition,  1,327,086 were issued from the Company's treasury stock and
10,121 were  newly-issued  shares.  The  acquisition of AFSALA had the impact of
increasing  shareholders'  equity  by $26.9  million.  Other  significant  items
impacting  shareholders'  equity  during 1998 were  purchases of treasury  stock
($4.1 million),  cash dividends paid ($1.1 million), and net income for the year
($1.0 million).



Comparison of Operating Results for the Years Ended December 31, 1998 and 1997.

     Net Income.  Net income  decreased by $1.7 million,  or 62.6%, for the year
ended  December  31, 1998 to $1.0  million  from $2.8 million for the year ended
December 31, 1997.  Net income for the year ended  December 31, 1998 was reduced
primarily  as a result of  increased  non-interest  expenses  and a decrease  in
non-interest  income,  offset in part by  increased  net  interest  income and a
decrease in the provision for loan losses. These and other changes are discussed
in more detail below.

     Net Interest Income. Net interest income increased $620 thousand,  or 3.9%,
to $16.5 million for the year ended December 31, 1998 from $15.9 million for the
year ended December 31, 1997. The increase in net interest  income was primarily
due to an increase of $70.9 million, or 15.0%, in the average balance of earning
assets,  offset  by an  increase  in the  average  balance  of  interest-bearing
liabilities  of $66.1  million,  or 16.6%,  and a decrease in the interest  rate
spread  from 2.58% for the year ended  December  31,  1997 to 2.32% for the year
ended December 31, 1998.

     Earning assets primarily consist of loans receivable,  securities available
for sale,  federal  funds  sold,  FHLB of New York stock,  and  interest-bearing
deposits.  Interest-bearing  liabilities  primarily consist of  interest-bearing
deposits, FHLB advances and securities repurchase agreements.

<PAGE>

     The interest  rate  spread,  which is the  difference  between the yield on
average  earning  assets and the cost of average  interest-bearing  liabilities,
decreased to 2.32% for the year ended  December 31, 1998 from 2.58% for the year
ended  December 31, 1997.  The decrease in the interest rate spread is primarily
the result of the decrease in the average yield on earning  assets being greater
than the decrease in the average cost of interest-bearing liabilities.

     Ambanc Holding Co., Inc. operates in an environment of intense  competition
for deposits and loans. The competition in today's environment is not limited to
other local banks and thrifts,  but also includes a myriad of financial services
providers  that are located both within and outside the  Company's  local market
area.  Due to this  heightened  level  of  competition  to  attract  and  retain
customers,  the Company must  continue to offer  competitive  interest  rates on
loans and  deposits.  As a  consequence  of these  competitive  pressures,  from
time-to-time,  the relative  spreads between  interest rates earned and interest
rates paid will tighten,  exerting downward pressure on net interest income, net
interest rate spread and the net interest margin. This is especially true during
periods   when  the  growth  in  earning   assets  lags  behind  the  growth  in
interest-bearing  liabilities.  However, management does not want to discourage,
by  offering  noncompetitive  interest  rates,  the  creation  of  new  customer
relationships or jeopardize existing  relationships  thereby curtailing customer
base and loan  growth  and the  attendant  benefits  to be  derived  from  them.
Management  believes  that the  longer-term  benefits  to be  derived  from this
position  will  outweigh  the shorter  term costs  associated  with  attracting,
cross-selling  and retaining an expanding  customer base. The Company's  growing
customer base provides Ambanc with the potential for future, profitable customer
relationships, which should in turn increase the value of the franchise.

     Interest and Dividend  Income.  Interest and dividend  income  increased by
approximately  $3.4  million,  or 9.6%,  to  $39.0  million  for the year  ended
December 31, 1998 from $35.6 million for the year ended  December 31, 1997.  The
increase was largely the result of an increase of $70.9  million,  or 15.0%,  in
the  average  balance of  earning  assets to $544.0  million  for the year ended
December 31, 1998 as compared to $473.1  million for the year ended December 31,
1997. The increase in the average balance of earning assets consisted  primarily
of increases in the average  balance of loans  receivable of $54.6  million,  or
20.4%,  securities  available for sale of $11.9 million,  or 6.12%,  FHLB of New
York  stock  of  $2.0   million,   or  64.6  %,  and  federal   funds  sold  and
interest-bearing  deposits of $2.5 million, or 30.3%.  Partially  offsetting the
effects of the increase in the average  balance of earning assets was a 36 basis
point decrease in the average yield on total earning assets.

     The yield on the average  balance of earning assets was 7.16% and 7.52% for
the years ended December 31, 1998 and 1997, respectively.

     Interest  and fees on loans  increased  $3.6  million,  or 17.2%,  to $24.6
million for the year ended  December 31, 1998.  This  increase was primarily the
result of an increase in the average  balance of net loans  receivable  of $54.6
million partially offset by a 21 basis point decrease in the average yield.



     Interest  income on securities  available for sale decreased $478 thousand,
or 3.4%,  to $13.5  million  for the year  ended  December  31,  1998 from $14.0
million for the previous  year.  This  decrease is primarily  the result of a 65
basis point  decrease  in the average  yield on  securities  available  for sale
partially offset by an increase in the average balance of $11.9 million.


     Interest  Expense.  Total interest  expense  increased by $2.8 million,  or
14.2%,  to $22.4 million for the year ended December 31, 1998 from $19.7 million
for the year ended December 31. 1997. Total average interest-bearing liabilities
increased by $66.1  million,  or 16.6%,  to $463.9  million in 1998  compared to
$397.8  million  in 1997.  During the same  periods,  the  average  rate paid on
interest-bearing  liabilities decreased by 10 basis points to 4.84% in 1998 from
4.94% in 1997.

     Total  interest  expense for the year ended  December  31,  1998  increased
primarily due to an increase in the average  balance of total  borrowed funds to
$150.3  million from $98.9 million,  partially  offset by a decrease of 34 basis
points,  to 5.73%, in the average rate paid for these funds during the year. The
increase in the average balance of borrowed funds was used primarily to fund the
increase in loans, including the purchase of loans noted above.

<PAGE>


     Provision for Loan Losses. The Company's provision for loan losses is based
upon  its  analysis  of the  adequacy  of the  allowance  for loan  losses.  The
allowance is increased by a charge to the provision for loan losses,  the amount
of which depends upon an analysis of the changing  risks  inherent in the Bank's
loan  portfolio.  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 credit risk, historical loss experience, current
economic   conditions,   estimated   fair   value  of   underlying   collateral,
delinquencies,  and other  factors.  The  provision for loan losses for the year
ended  December 31, 1998  decreased  $188  thousand to $900  thousand  from $1.1
million for the year ended  December 31, 1997. The decrease in the provision was
due primarily to the decrease in non-performing  loans during the year from $3.3
million at December 31,  1997,  to $2.9 million at December 31, 1998, a decrease
of 10.9%.


     Non-Interest  Income. Total non-interest income decreased by $675 thousand,
or 37.1%, to $1.1 million for the year ended December 31, 1998 from $1.8 million
for the year ended  December 31, 1997  primarily due to net losses on securities
transactions  of $165 thousand in 1998 compared to net gains of $775 thousand in
1997.  This  decrease  in net gains  (losses)  on  securities  transactions  was
partially  offset by an increase in service charges on deposit  accounts of $226
thousand from 1997 to 1998. The increase in service charges on deposit  accounts
is primarily  attributable  to the  restructuring  of service charges on certain
deposit  products,  in addition to an increase in the number of deposit accounts
due to the merger.


     Non-Interest  Expenses.  Non-interest  expenses increased $2.9 million,  or
23.7%,  to $15.1 million for the year ended December 31, 1998 from $12.2 million
for the year  ended  December  31,  1997.  Non-interest  expenses  in 1998  were
impacted by  significant  non-recurring  expenses  totaling  approximately  $1.7
million  primarily  related  to  costs  associated  with the  merger  of the two
companies,  costs  associated  with the  termination  and consulting  agreements
entered into with the former President and CEO, costs incurred to defend against
and settle legal actions  initiated by a shareholder,  and costs associated with
the core system conversion. These and other changes are discussed in more detail
below.

     Salaries,  wages and benefits expense increased by $307 thousand,  or 5.0%,
due primarily to increased costs as a result of the merger, the opening of three
new branches during 1997, increased costs associated with the Company's ESOP, as
well as  general  cost of living  and  merit  raises  to  employees.  Management
believes  that  salaries,  wages and benefits  expenses may  fluctuate in future
periods as a result of the costs related to the  Company's  ESOP, as the expense
related to the ESOP is dependent on the Company's average stock price.

     During  1998,  the  Company  incurred  certain  non-recurring   termination
benefits totaling  approximately  $608 thousand.  The non-recurring  termination
benefits related to the termination and consulting  agreements entered into with
the Company's former President and CEO, and severance  packages for three former
officers.

<PAGE>

     Occupancy and equipment increased $270 thousand, or 17.5%, primarily due to
the  acceleration  of depreciation  and  amortization of equipment and leasehold
improvements  as a result  of the  merger.  In  addition,  rent and  maintenance
expense  increased as a result of the branch offices opened in 1997 and the four
additional branches acquired through the merger.

     Data  processing  increased  $520  thousand,  or  44.5%,  primarily  due to
non-recurring  expenses related to the core system conversion  subsequent to the
merger.  The non-recurring  expenses relate to the conversion of the core system
(loans and deposits) and the  termination of the network  contract for automated
teller machine (ATM) processing.  The non-recurring expenses associated with the
conversion of the core system and the termination of the ATM processing contract
were  approximately  $368 thousand.  Also  contributing  to the increase in data
processing  expense was the increase in the number of loan and deposit  accounts
due to the merger.

     Professional  fees  increased  $306  thousand,  or 71.3%,  primarily due to
charges of $219 thousand related to legal costs incurred to defend against legal
actions initiated by a shareholder.

     Real estate owned and repossessed  assets expenses decreased $294 thousand,
or 82.8%, to $61 thousand in 1998 as compared to $355 thousand in 1997 primarily
due to a decrease in net costs associated with foreclosed real estate properties
and  repossessed  assets.  This decrease was largely the result of a decrease of
$298  thousand,  or 69.1%,  in the  average  balance  of real  estate  owned and
repossessed assets during the year.

     Non-interest  expenses  for 1998  included  the  amortization  of  goodwill
totaling  approximately  $67 thousand.  As noted  previously,  goodwill is being
amortized to expense over fifteen years using the straight-line method.

     Other non-interest expenses increased approximately $1.1 million, or 43.4%,
to $3.6 million for the year ended December 31, 1998 when compared to 1997. This
increase was primarily due to  merger-related  costs which included  advertising
related to promoting the new bank, the replacement of supplies and the write-off
of software duplication between the banks, additional courier services for check
processing due to the added branches,  and an increase in postage due to special
mailings to  depositors  and  shareholders  related to the merger.  In addition,
costs   associated  with  the  settlement  of  legal  actions   initiated  by  a
shareholder,  and costs  related to a one-time  charge to  substantially  modify
repurchase agreements contributed to this increase.

     Income Tax Expense. Income tax expense decreased by $1.0 million, or 60.4%,
to $670 thousand for the year ended  December 31, 1998 from $1.7 million for the
year ended  December 31, 1997.  The  decrease  was  primarily  the result of the
decrease in income before taxes.



<PAGE>

Results of Operations

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


     General.  The Company  recorded  net income of $2.8  million for the fiscal
year ended  December  31, 1997  compared  to a net loss of $3.8  million for the
prior  year.  Net  interest  income  for 1997 and  1996 was  unchanged  at $15.9
million.  The net loss in 1996 was due  primarily to the $9.5 million  provision
for loan losses and the $2.6 million of expenses incurred in connection with the
Company's  real estate owned and  repossessed  assets.  The large  provision was
necessitated  to replenish and increase the Company's  allowance for loan losses
which was depleted as a result of write-offs  associated with the Company's bulk
sale  of  certain  loans  in  1996  and  the  commercial  bankruptcy  of a large
commercial  borrower.  

     Interest and Dividend  Income.  Interest and dividend income increased $3.2
million,  or 9.9%,  to $35.6  million  in 1997 from $32.3  million in 1996.  The
increase in interest income resulted from a $38.5 million,  or 8.9%, increase in
the Company's average earning assets,  primarily  securities available for sale,
which increased $38.0 million,  or 24.3% in 1997, to $194.1 million  compared to
$156.1  million in 1996.  The  increase  in  securities  available  for sale was
primarily funded with increased borrowings.

     The average yield earned on earning  assets  increased by 8 basis points to
7.52% in 1997 from 7.44% in the prior year.  The  increase in the average  yield
earned was attributable primarily to a change in the composition, or mix, of the
Company's  earning assets,  mainly average  securities  available for sale which
increased  in 1997 to 41.0% of total  earning  assets  from  35.9% in 1996.  The
average  yield earned on the  Company's  securities  also  increased by 19 basis
points to 7.19% in 1997 compared to 7.00% in 1996.

     Interest Expense.  Interest expense increased by $3.2 million, or 19.6%, to
$19.6   million  in  1997   compared   to  $16.4   million   in  1996.   Average
interest-bearing  liabilities  increased by $48.1 million,  or 13.8%,  to $397.8
million in 1997  compared to $349.7  million  during the prior year.  During the
same periods, the average rate paid on interest-bearing liabilities increased by
24 basis points to 4.94% from 4.70%.

     The  increase in interest  expense was  attributable  primarily  to a $31.3
million,  or 46.4%,  increase in the average  balance of borrowed funds to $98.9
million from $67.6  million in 1996 and an increase in average  certificates  of
deposit which grew by $22.0  million,  or 14.7%,  to $172.3  million from $150.3
million.  The average rates paid on borrowed funds and  certificates  of deposit
during 1997 also  increased over 1996 by 13 basis points on borrowed funds and 8
basis  points on  certificates  of deposit.  Borrowings  consisted  primarily of
securities sold under agreements to repurchase,  with an increase in the average
balance of $37.5 million,  or 64.9%, to $95.3 million in 1997 from $57.8 million
in 1996, partially offset by a decline in average advances from the Federal Home
Loan Bank ("FHLB") of New York.  These borowings were primarily used to fund the
growth in the Company's securities available for sale.


<PAGE>

     Net Interest  Income.  Net interest income before provision for loan losses
was $15.9 million for 1997 and 1996.  During 1997, the Company's average earning
assets grew by $38.5 million,  or 8.9%, to $473.1 million.  The average yield on
these assets also increased  when compared to 1996,  improving by 8 basis points
to  7.52%  from  7.44%.  However,  the  increase  in  average   interest-bearing
liabilities  exceeded the growth in average earning assets,  increasing by $48.1
million  to  $397.8  million.  The  increase  in  the  average  interest-bearing
liabilities  was  accompanied  by a 24 basis point  increase in the average rate
paid on these funds to 4.94% for 1997 from 4.70% for 1996.


     Provision for Loan Losses.  The provision  for loan losses  decreased  $8.4
million  to $1.1  million  in 1997 from $9.5  million  during  1996.  The higher
provision in 1996 resulted  primarily  from the  Company's  bulk sale of certain
performing  and  non-performing  loans  in the  fourth  quarter  of 1996 and the
aggregate  lending  relationship  with the Bennett Funding Group, a company that
filed for  Chapter  11  bankruptcy  protection  on March 29,  1996.  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 prudent to complete the bulk sale of certain  non-performing
and  performing   commercial  loans  and  manufactured  home  loans  (which  are
considered a higher credit risk consumer  product) at a loss,  versus continuing
to address these problem assets on an asset specific basis.


<PAGE>

     At December 31, 1997,  the Bank's  allowance  for loan losses  totaled $3.8
million, or 1.3% of total loans and 117.1% of non-performing  loans, compared to
$3.4  million,  or 1.4% of total  loans  and  70.5% of  non-performing  loans at
December 31, 1996.

     Other Income.  Other income increased  $906,000,  or 98.5%, to $1.8 million
for the year ended December 31, 1997,  from $920,000 in 1996. The primary reason
for the increase in other income was the net gains on securities transactions of
$775,000,  compared to a net loss of $102,000 in 1996.  As the general  level of
interest rates declined during 1997, management decided that it would be prudent
to sell securities and record the net gains on the  transactions.  One condition
adhered to in determining  the selection and timing of the securities to be sold
was that the yield obtained on the  reinvestment  of the sale proceeds would not
be significantly  lower than the foregone yield. A second condition was that the
credit rating of the replacement  securities  would be no lower than the quality
of the securities sold.

     Other  Expenses.  Other  expenses  decreased  $951,000,  or 7.2%,  to $12.2
million for the year ended December 31, 1997 from $13.1 million in the same 1996
period. The primary reason for the improvement was a $2.2 million decline in the
net costs  associated  with the  Company's  real  estate  owned and  repossessed
assets.  The decrease in these expenses  resulted from one-time  charges in 1996
related to the bulk sale of certain  foreclosed real estate  properties.

     Excluding the expenses related to real estate owned and repossessed assets,
other expenses  increased $1.2 million,  or 11.9%, to $11.8 million in 1997 from
$10.6  million in 1996,  mainly  due to a higher  level of  salaries,  wages and
benefits which increased  $989,000,  or 19.4%, to $6.1 million from $5.1 million
in the prior year.  Salaries,  wages and benefits increased $250,000 as a result
of the opening of three branch  offices in May 1997.  Also  contributing  to the
higher  level of salaries,  wages and  benefits  was a $239,000  increase in the
compensation  costs related to the Employee  Stock  Ownership  Plan (ESOP) and a
$137,000  expense  associated  with  awards of Company  common  stock  under the
Recognition and Retention Plan (RRP) to officers.  The remainder of the increase
was attributable to higher payroll taxes, employee insurance premiums and normal
cost of living and merit increases.

     Occupancy and equipment  expenses  increased  $211,000,  or 15.9%,  to $1.5
million,  as a  result  of the  opening  of three  branch  offices  in 1997.  In
addition,  other  expenses  increased  $135,000 in 1997 as a result of awards of
Company Common Stock under the RRP to directors.

     Income Tax  Expense.  Income tax  expense  increased  $3.6  million to $1.7
million  in 1997  due to a  pre-tax  loss of $5.8  million  incurred  in 1996 as
compared to pre-tax income of $4.5 million in 1997.


<PAGE>

Asset Quality

     The  Bank's  loan  portfolio   consists  primarily  of  one-to  four-family
residential  mortgage and home equity loans,  which are generally  considered to
have less credit 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  declining as a percentage of the Bank's total loan
portfolio  to 6.5% of total loans at  December  31, 1998 from 10.8% and 13.8% at
December 31, 1997 and 1996,  respectively.  During the same  period,  the Bank's
portfolio of loans secured by one- to four-family  residential mortgage and home
equity  loans has grown as a percentage  of the Bank's  total loan  portfolio to
84.3% of total loans at December  31, 1998 from 77.6% and 72.3% at December  31,
1997 and 1996, respectively.


     The Bank's  non-performing  assets consist of non-accruing loans,  accruing
loans delinquent more than 90 days,  troubled debt restructurings and foreclosed
and  repossessed  assets.  Prior to 1997,  the  Company's  performance  had been
significantly  hampered by the level of its non-performing  assets. During 1996,
the Bank  decided to dispose of certain  non-performing  and higher  credit risk
performing  assets in a bulk  sale,  as  opposed to  continuing  to resolve  the
problems on an asset specific basis.  The bulk sale strategy was chosen in order
to accelerate  the reduction in loan portfolio  credit risk,  reduce the drag on
earnings that resulted from carrying these assets, enhance overall asset quality
and better position the Bank to achieve its strategic goals.


     Primarily as a result of the bulk sale in 1996, the ratio of non-performing
assets to total  assets  declined  from 2.72% at  December  31, 1995 to 1.18% at
December 31, 1996. This ratio experienced  further improvement in 1997 and 1998,
dropping to 0.67% at December 31, 1997 and to 0.45% at December 31, 1998.


     In addition,  the Bank's ratios of non-performing  loans to total loans and
the allowance for loan losses to  non-performing  loans have also improved.  The
ratio of  non-performing  loans to total  loans at  December  31, 1998 was 0.68%
compared to 1.16% and 1.94% at December  31,  1997 and 1996,  respectively.  The
ratio of the  allowance  for loan losses to  non-performing  loans  increased to
168.4% at December 31,  1998,  compared to 117.1% and 70.5% at December 31, 1997
and 1996, respectively.



Market Risk

     Interest  rate  risk is the most  significant  market  risk  affecting  the
Company. Other types of market risk, such as foreign currency exchange rate risk
and  commodity  price risk,  do not arise in the normal  course of the Company's
business activities.

     The  Company  does  not  currently  engage  in  trading  activities  or use
derivative  instruments,  such as caps,  collars or floors,  to control interest
rate risk. Even though such activities may be permitted with the approval of the
Board of Directors,  the Company does not intend to engage in such activities in
the immediate future.

<PAGE>

     The Bank's net interest  income is sensitive to changes in interest  rates,
as the rates paid on its  interest-bearing  liabilities  generally change faster
than the rates earned on its interest-earning  assets. As a result, net interest
income will frequently  decline in periods of rising interest rates and increase
in periods of decreasing interest rates.

     To  mitigate  the impact of  changing  interest  rates on its net  interest
income,  the Bank  manages its interest  rate  sensitivity  and  asset/liability
products through its asset/liability  management committee.  The asset/liability
management  committee  meets weekly to determine the rates of interest for loans
and deposits and consists of the  President  and Chief  Executive  Officer,  the
Senior Vice  President and Chief  Commercial  Lending  Officer,  the Senior Vice
President  and Chief  Consumer  Lending  Officer,  and the  Treasurer  and Chief
Financial Officer. Rates on deposits are primarily based on the Bank's needs for
funds and on a review of rates offered by other  financial  institutions  in the
Bank's market areas. Interest rates on loans are primarily based on the interest
rates offered by other financial institutions in the Bank's primary market areas
as well as the Bank's cost of funds.

     In an effort to reduce  interest  rate  risk and  protect  itself  from the
negative  effects of rapid or prolonged  changes in interest rates, the Bank has
instituted  certain  asset and  liability  management  measures,  including  (i)
originating,  for its portfolio,  a large base of  adjustable-rate  loans, which
include residential  mortgage and home equity loans, which at December 31, 1998,
totaled 23.8% of total loans, and (ii) maintaining substantial levels of federal
funds sold and debt securities with one to five year terms to maturity.

     The committee manages the interest rate sensitivity of the Bank through the
determination  and  adjustment  of   asset/liability   composition  and  pricing
strategies. The committee then monitors the impact of the interest rate risk and
earnings  consequences  of such  strategies  for  consistency  with  the  Bank's
liquidity needs, growth, and capital adequacy.  The Bank's principal strategy is
to reduce the interest rate  sensitivity of its earning assets and to match,  as
closely as possible,  the  maturities  of earning  assets with  interest-bearing
liabilities.

     The  Bank  is  subject  to  interest  rate  risk  to the  extent  that  its
interest-bearing  liabilities  reprice on a different  basis or a different pace
from its earning  assets.  Management  of the Bank  believes it is  important to
manage the effect  interest rates have on the Bank's net portfolio value ("NPV")
and net interest income. NPV helps measure interest rate risk by calculating 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.


<PAGE>

     Presented  below,  as of December  31,  1998,  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.

                                                 NPV as % of PV
              Net Portfolio Value                   of Assets
         -------------------------------   ------------------------------

          Change                                        NPV
         in Rates   $Amount   $Change(1)   $Change(2)  Ratio(3) Change(4)
         --------  --------   ----------   ----------  -------- ---------

                                (Dollars in thousands)

          +400 bp    19,875   (56,041)       (74)%       2.99%   -732 bp
          +300 bp    34,369   (41,548)       (55)        5.03    -528 bp
          +200 bp    49,099   (26,817)       (35)        7.00    -331 bp
          +100 bp    63,278   (12,638)       (17)        8.79    -152 bp
             0 bp    75,916                             10.31
          -100 bp    85,127     9,211         12        11.36     105 bp
          -200 bp    94,711    18,795         25        12.41     210 bp
          -300 bp   106,432    30,516         40        13.66     335 bp
          -400 bp   118,319    42,403         56        14.89     458 bp

-------------------------------------------------------------------------------
(1)   Represents  the excess  (deficiency)  of the  estimated  NPV  assuming the
      indicated  change in interest  rates minus the  estimated  NPV assuming no
      change in interest rates.
(2)   Calculated  as the amount of change in the  estimated  NPV  divided by the
      estimated NPV assuming no change in interest rates.
(3)   Calculated as the estimated NPV divided by present value of total assets.
(4)   Calculated  as the  excess  (deficiency)  of the NPV  ratio  assuming  the
      indicated  change in interest  rates over the estimated NPV ratio assuming
      no change in interest rates.

     Certain assumptions utilized by the OTS in assessing the interest rate risk
of savings  associations  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, certain shortcomings are inherent in the preceding NPV
table   since  the  data  reflects   hypothetical  changes  in  NPV  based  upon
assumptions used by the OTS to evaluate the Bank as well as other  institutions.
The  experience  of the Bank has been that net  interest  income  declines  with
increases  in  interest  rates  and  that net  interest  income  increases  with
decreases in interest rates.  Generally,  during periods of increasing  interest
rates, the Bank's interest rate sensitive  liabilities would reprice faster than
its interest rate sensitive assets causing a decline in the Bank's interest rate
spread and  margin.  This would  result  from an  increase in the Bank's cost of
funds  that  would  not be  immediately  offset by an  increase  in its yield on

<PAGE>

earning assets. An increase in the cost of funds without an equivalent  increase
in the yield on earning  assets  would tend to reduce net interest  income.  The
Bank's  interest rate spread  decreased to 2.32% for the year ended December 31,
1998 from 2.58% for the year ended  December  31,  1997.  The  reduction  in the
interest rate spread was due primarily to the  leveraging  strategy  employed by
the Company during 1998.

     In times of decreasing  interest rates, fixed rate assets could increase in
value and the lag in  repricing  of  interest  rate  sensitive  assets  could be
expected to have a positive effect on the Bank's net interest income.

     During 1998,  proceeds  from FHLB term advances and  repurchase  agreements
totaled  approximately  $162.6  million,  offset  by  repayments  of  repurchase
agreements of  approximately  $89.4 million.  These funds were primarily used to
fund the purchase of residential real estate loans and securities  available for
sale,  in addition to funding the home equity and  residential  real estate loan
growth during the year.  Management  believes  that the strategy  related to the
purchase of loans and securities with borrowed funds causes the bank's NPV to be
more  sensitive to changes in interest  rates.  Although  this  strategy did not
expose the  Company's  net  interest  income and its net  interest  margin to an
unacceptable  level  of  sensitivity  to  changes  in  interest  rates  in 1998,
management plans to de-emphasize this strategy in 1999.

<PAGE>

Average Balances, Interest Rates and Yields

     The  following  table  presents for the periods  indicated the total dollar
amount of interest and dividend  income earned on average 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. Securities available for sale are included
at amortized cost.
<TABLE>
<CAPTION>
                                                                1998                      1997                       1996
                                                   --------------------------- -------------------------  --------------------------
                                                   Average    Interest  Yield/ Average  Interest  Yield/  Average  Interest   Yield/
                                                   Balance    Inc./Exp. Rate   Balance  Inc./Exp.  Rate   Balance  Inc./Exp.   Rate
                                                   -------    --------- ------ -------  --------- ------  -------  ---------  ------
Earning Assets                                                                (Dollars in Thousands)
<S>                                              <C>        <C>         <C>   <C>        <C>        <C>   <C>      <C>         <C>  
  Loans receivable (1) .......................   $ 322,335  $  24,623  7.64% $ 267,726  $  21,011   7.85% $ 262,193  $20,557   7.84%
  Securities available for sale (AFS) (2).....     205,995     13,479  6.54%   194,111     13,957   7.19%   156,093   10,921   7.00%
  Federal Home Loan Bank Stock ...............       5,048        364  7.21%     3,066        204   6.65%     2,013      130   6.46%
  Federal funds sold and interest-
    bearing deposits .........................      10,632        507  4.70%     8,162        394   4.76%    14,218      740   5.12%
                                                   -------     ------          -------     ------           -------   ------        
      Total earning assets ...................     544,010     38,973  7.16%   473,065     35,566   7.52%   434,517   32,348   7.44%
                                                   -------     ------          -------     ------           -------   ------        
Allowance for Loan Losses ....................      (4,220)                     (3,846)                      (3,686)                
Due from Brokers .............................       5,265                       7,121                       14,221                 
Unrealized Gain/(Loss) on AFS Securities .....         225                        (884)                      (1,475)                
Other Assets .................................      15,926                      16,150                       15,616                 
                                                   -------                   ---------                    ---------                
Total Average Assets .........................   $ 561,206                   $ 491,606                    $ 459,193                
                                                 =========                   =========                    =========                
Interest-Bearing Liabilities
  Savings deposits ...........................   $ 103,513      3,119  3.01%  $ 99,389    $ 3,016   3.03%  $103,931  $ 3,162   3.04%
  NOW  deposits ..............................      25,410        549  2.16%    19,990        543   2.72%    19,124      527   2.76%
  Certificates of deposit ....................     176,136      9,882  5.61%   172,319      9,882   5.73%   150,300    8,492   5.65%
  Money Market Accounts ......................       8,481        272  3.21%     7,159        204   2.85%     8,765      243   2.77%
  Borrowed Funds .............................     150,335      8,619  5.73%    98,927      6,009   6.07%    67,572    4,011   5.94%
                                                   -------     ------          -------     ------           -------   ------        
      Total interest-bearing liabilities .....     463,875     22,441  4.84%   397,784     19,654   4.94%   349,692   16,435   4.70%
                                                   -------     ------          -------     ------           -------   ------        
Other Liabilities ............................      34,590                      32,757                       36,255                 
                                                   -------                      ------                       ------                 
Total Liabilities ............................     498,465                     430,541                      385,947                 
Shareholders' Equity .........................      62,741                      61,065                       73,246                 
                                                   -------                      ------                       ------                 
Total Average Liabilities & Equity ...........   $ 561,206                   $ 491,606                    $ 459,193                 
                                                 =========                   =========                    =========                 
    Net interest income ......................              $  16,532                    $ 15,912                   $ 15,913        
                                                              =======                     =======                    ========       
    Interest rate spread .....................                         2.32%                        2.58%                      2.74%
                                                                      ======                       ======                     ======
    Net earning assets .......................    $  80,135                  $  75,281                    $  84,825                 
                                                  =========                  =========                    =========                 
    Net interest margin ......................                         3.04%                        3.36%                      3.66%
                                                                      ======                       ======                     ======
    Average earning assets/Average                                                                                                 
      interest-bearing liabilities ...........       117.28%                    118.93%                      124.26%                
                                                  ==========                 ==========                   ==========                
<FN>
(1) Calculated net of deferred loan fees, loan discounts and loans in process.
(2) Securities available for sale exclude securities pending settlement.
</FN>
</TABLE>                                                                     

<PAGE>

Rate/Volume Analysis of Net Interest Income


     The following  table  presents the dollar amount of changes in interest and
dividend income and interest  expense for major components of 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 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>
                                           ----------------------------------------------------------------------------
                                                          1998 vs. 1997                       1997 v. 1996
                                           ---------------------------------    ---------------------------------------
                                                   Increase                            Increase
                                                  (Decrease)                          (Decrease)                 
                                                    Due to           Total              Due to            Total
                                              -----------------     Increase    ------------------       Increase
                                              Volume       Rate    (Decrease)   Volume        Rate      (Decrease)
                                           ----------   -------    ---------   --------    ---------   -----------       
Earning Assets                                                    (Dollars in thousands)
<S>                                        <C>         <C>         <C>         <C>         <C>         <C>      
  Loans receivable .....................   $ 4,154     $  (542)    $  3,612     $    434    $     20    $    454  
  Securities available for sale (AFS) ..     1,018      (1,496)        (478)       2,726         310       3,036  
  Federal Home Loan Bank Stock .........       142          18          160           70           4          74  
  Federal funds sold and interest-                                                                                
    bearing deposits ...................       118          (5)         113         (298)        (48)       (346) 
                                           -------      -------     -------      -------    --------    --------  
      Total earning assets .............     5,432      (2,025)       3,407        2,932         286       3,218  
                                           -------      -------     -------      -------    --------    --------  
                                                                                                                  
Interest-Bearing Liabilities                                                                                      
  Savings deposits .....................       124         (21)         103         (138)         (9)       (147) 
  NOW  deposits ........................        24         (18)           6           23          (6)         17  
  Certificates of deposit ..............       216        (216)          --        1,261         129       1,390  
  Money Market Accounts ................        40          28           68          (46)          7         (39) 
  Borrowed Funds .......................     2,926        (316)       2,610        1,902          96       1,998  
                                           -------      -------     -------      -------    --------    --------  
      Total interest-bearing liabilities   $ 3,330      $ (543)     $ 2,787     $  3,003    $    216    $  3,219  
                                           -------      -------     -------      -------    --------    --------  
                                                                                                                  
    Net interest income ................                            $   620                              $    (1) 
                                                                    =======                             ========  
</TABLE>                                                                        


<PAGE>

Liquidity and Capital Resources


     The Bank is required by OTS  regulations  to  maintain,  for each  calendar
month, a daily average  balance of cash and eligible  liquid  investments of not
less than 4% of the average  daily balance of its net  withdrawable  savings and
borrowings (due in one year or less) during the preceding  calendar month.  This
liquidity  requirement may be changed from time to time by the OTS to any amount
within the range of 4% to 10%. The Bank's average liquidity ratio was 31.97% and
27.15% at December 31, 1998 and 1997, respectively.

     The  Company's  sources of liquidity  include  cash flows from  operations,
principal  and  interest  payments  on  loans,  mortgage-backed  securities  and
collateralized mortgage obligations,  maturities of securities, deposit inflows,
borrowings  from the FHLB of New York and proceeds  from the sale of  securities
under agreements to repurchase.

     While maturities and scheduled amortization of loans and securities are, in
general, a predictable  source of funds,  deposit flows and prepayments on loans
and  securities  are greatly  influenced  by general  interest  rates,  economic
conditions  and  competition.  In  addition,  the Bank  invests  excess funds in
overnight deposits which provide liquidity to meet lending requirements.

     In addition to deposit  growth,  the Company borrows funds from the FHLB of
New York or may utilize  other types of borrowed  funds to  supplement  its cash
flows.  During 1998,  borrowed  funds from the FHLB of New York  increased  $7.7
million  and  borrowings  under  securities   repurchase   agreements  ("repos")
increased $56.2 million.  Since March 31, 1998, $100.0 million in callable repos
with the  Federal  Home Loan Bank have been added to  borrowed  funds  while the
Company  has  reduced  its  obligation  with other repo  counterparties  to take
advantage of the lower rates offered by the Federal Home Loan Bank.  The Federal
Home Loan Bank repos all mature within 10 years with call dates ranging from one
year to five years and fixed  rates that range from 5.01% to 5.59%.  These repos
were used primarily to fund the  origination  and purchase of loans. At December
31,  1998  and  1997,   the  Company  had  $21.4  million  and  $12.3   million,
respectively, in outstanding term borrowings (advances) from the FHLB and $152.4
million  and  $99.3  million,   respectively,  in  borrowings  under  securities
repurchase agreements.  See Note 10 to the Consolidated Financial Statements for
further information regarding the Company's borrowings.

     As of December 31, 1998 and 1997, the Company had $244.2 million and $205.8
million of  securities,  respectively,  classified  as available  for sale.  The
liquidity of the securities  available for sale  portfolio  provides the Company
with additional potential cash flows to meet loan growth and deposit flows.

     Liquidity  may  be  adversely  affected  by  unexpected  deposit  outflows,
excessive interest rates paid by competitors,  adverse publicity relating to the
banking industry,  and similar matters.  Management monitors projected liquidity
needs  and  determines  the  level  desirable,  based  in part on the  Company's
commitments to make loans and management's  assessment of the Company's  ability
to generate funds.

<PAGE>

     The Bank is subject to federal  regulations  that  impose  certain  minimum
capital requirements.  At December 31, 1998, the Bank's capital exceeded each of
the regulatory  capital  requirements of the OTS. The Bank is "well capitalized"
at December 31, 1998 according to regulatory  definition.  At December 31, 1998,
the Bank's  tangible and core capital  levels were both $63.5 million  (8.83% of
total adjusted assets) and its total risk-based  capital level was $67.4 million
(21.99% of total  risk-weighted  assets).  The minimum  regulatory capital ratio
requirements of the Bank are 1.5% for tangible  capital,  3.0% for core capital,
and 8.0% for total risk-based capital.

     During 1998, the Company repurchased 215,320 shares of stock in open-market
transactions at a total cost of $4.1 million.  However, upon consummation of the
merger with AFSALA Bancorp,  Inc., the Company issued 1,337,207 shares of common
stock of which 1,327,086 shares were issued from the Company's treasury stock.


Impact of the Year 2000

     The  Year  2000  issue  confronting  the  Company,  its  vendors,  and  its
customers,  centers on the  inability of computer  systems to recognize the year
2000.  Many existing  computer  programs and systems  originally were programmed
with six digit dates that provided only two digits to identify the calendar year
in the date  field.  With the  impending  new  millennium,  these  programs  and
computers might recognize "00" as the year 1900 rather than the year 2000.

     Financial  institution  regulators recently have increased their focus upon
Y2K compliance issues and have issued guidance  concerning the  responsibilities
of  senior  management  and  directors.   The  Federal   Financial   Institution
Examination  Council has issued  several  interagency  statements on Y2K project
management awareness.  These statements require financial institutions to, among
other things,  examine the Y2K  implications  of their  reliance on vendors with
respect  to data  exchange  and the  potential  impact of the Y2K issue on their
customers, suppliers and borrowers. These statements also require each federally
regulated  financial  institution  to survey its exposure,  measure its risk and
plan to address the Y2K issue. In addition,  the federal banking regulators have
issued  safety and  soundness  guidelines  to be followed by insured  depository
institutions  to assure  resolution  of any Y2K  problems.  The federal  banking
agencies  have  assured that Y2K testing and  certification  is a key safety and
soundness  issue  in  conjunction  with  regulatory  exams  and  thus,  that  an
institution's  failure to address  appropriately  the Y2K issue could  result in
supervisory  action,  including the reduction of the  institution's  supervisory
ratings,  the denial of applications for approval of mergers or  acquisitions or
the imposition of civil money penalties.

     The Company has formulated a plan  addressing the Y2K issue and established
a seven  member  steering  committee  consisting  of  three  officers  and  four
employees of the Bank.  The steering  committee  meets  monthly and reports on a
quarterly  basis to the  Board of  Directors  as to the  Company's  progress  in
resolving any Y2K problems.  The committee  created an action plan that includes
milestones, budget, estimates, strategies, and methodologies to track and report
the status of the project. Members of the committee attended conferences to gain
more insight into the Y2K issue and  potential  strategies  for  addressing  it.
These strategies were further developed with respect to how the objectives of

<PAGE>

the Y2K plan would be achieved,  and a Y2K business risk  assessment was made to
quantify the extent of the Company's Y2K exposure. A Company inventory was taken
to  identify  and monitor  Y2K  readiness  for  information  systems,  including
hardware,  software,  and vendors, as well as environmental  systems,  including
security  systems  and  facilities.  The  Company  inventory  revealed  that Y2K
upgrades were available for all vendor supplied  mission critical  systems,  and
these  Y2K-ready  versions have been  delivered,  installed and have entered the
validation process. The action plan includes a validation phase designed to test
the ability of hardware and software to accurately  process date sensitive data.
During the validation  testing process to date, no significant Y2K problems have
been identified relating to any modified or upgraded mission critical systems.

     During the  assessment  phase,  the  Company  began to  develop  back-up or
contingency plans for each of its mission critical systems.  The majority of the
Company's  mission  critical  systems are  dependent  upon third  party  service
providers or vendors, therefore, contingency plans include using or reverting to
manual systems until system problems can be corrected or selecting a new vendor.
In the event a current vendor's system fails during the validation phase, and it
is determined that the vendor is unable or unwilling to correct the failure, the
Company will convert to a new system from a list of prospective vendors.

     The  Company  has  identified  a worst case  scenario  that  envisions  the
possibility of the lack of power or communication  services for a period of time
in excess of a day.  Contingency  planning is an integral  part of the Company's
Y2K readiness plan. Key operating personnel are actively analyzing services that
will be  supported  during  extended  outages and  preparing  written  plans and
procedures to train Bank personnel.

     Until  and  after  the Year  2000  rollover  takes  place,  there can be no
assurance that Year 2000-related  problems will not occur. Despite the Company's
efforts to identify and address Year 2000 issues,  such issues present  risks to
the Company, including business disruptions and financial losses.

     The costs  incurred by the Company  during fiscal 1998 to address Year 2000
compliance were approximately $41 thousand.  The Company estimates it will incur
up to approximately  $125 thousand in direct costs during fiscal 1999 to support
its compliance  initiatives.  Although the Company  anticipates that its systems
will be Year 2000  compliant on or before  December 31, 1999, it cannot  predict
with  certainty  the  outcome or the success of its Year 2000  program,  or that
third  party  systems  are or will be Year  2000  complaint,  or that the  costs
required  to  address  the Year 2000  issue,  or that the impact of a failure to
achieve  substantial  Year 2000  compliance,  will not have a  material  adverse
effect on the Company's business, financial condition or results of operations.


<PAGE>

Effect of Inflation and Changing Prices


     The Company's  consolidated financial statements and related data 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  changes in the
relative purchasing power of money over time due to inflation. Unlike industrial
companies,   virtually  all  of  the  assets  and  liabilities  of  a  financial
institution  are  monetary in nature.  As a result,  interest  rates have a more
significant impact on a financial institution's  performance than the effects of
general levels of inflation.  Interest rates do not necessarily move in the same
direction or with the same magnitude as the prices of goods and services.


 Recent Accounting Pronouncements

     The Company has adopted  SFAS No. 130,  "Reporting  Comprehensive  Income,"
which  establishes  standards  for the  reporting  and display of  comprehensive
income  and  its  components  in  financial  statements.   Comprehensive  income
represents  the sum of net  income  and items of "other  comprehensive  income,"
which are reported  directly in  shareholders'  equity,  net of tax, such as the
change in the net  unrealized  gain or loss on  securities  available  for sale.
While SFAS No. 130 does not require a specific reporting format, it does require
that an enterprise display an amount representing total comprehensive income for
each period for which an income statement is presented.  In accordance with SFAS
No. 130, the Company has reported  comprehensive  income and its  components for
1998, 1997 and 1996 in the  consolidated  statements of changes in shareholders'
equity.   Accumulated  other   comprehensive   income,   which  is  included  in
shareholders'  equity, net of tax, represents the net unrealized gain or loss on
securities available for sale.

     In June 1997, the FASB issued SFAS No. 131,  "Disclosures about Segments of
an Enterprise and Related  Information." SFAS No. 131 establishes  standards for
the way that public  business  enterprises  report  information  about operating
segments.  For the  Company,  the  statement  became  effective  for its  annual
financial  statements for the year ended December 31, 1998. The Company  engages
in the traditional operations of a community banking enterprise, principally the
delivery of loan and deposit products and other financial  services.  Management
makes operating decisions and assesses performance based on an ongoing review of
the Company's community banking operations,  which constitute the Company's only
operating  segment  for  financial  reporting  purposes.  The  Company  operates
primarily  in upstate New York in  Montgomery,  Fulton,  Schenectady,  Saratoga,
Albany, Otsego, Chenango and Schoharie counties and surrounding areas.

     In February  1998,  the FASB issued SFAS No. 132,  "Employers'  Disclosures
about  Pensions  and Other  Postretirement  Benefits,"  which amends and, to the
extent practicable, standardizes the financial statement disclosure requirements
applicable to such  benefits.  This  Statement is applicable to all entities and
addresses disclosures only. The Statement does not change any of the measurement
or recognition  provisions provided for in the applicable  accounting standards.
The Company has provided the required  disclosures under SFAS No. 132 in Note 12
to the  consolidated  financial  statements.  

<PAGE>

     In June 1988,  the FASB  issued SFAS No. 133,  "Accounting  for  Derivative
Instruments and Hedging Activities," which establishes  accounting and reporting
standards for derivative  instruments,  including certain derivative instruments
embedded in other  contracts,  and for hedging  activities.  This  Statement  is
effective for all fiscal quarters of fiscal years beginning after June 15, 1999.
Management is currently evaluating the impact of this Statement on the Company's
consolidated financial statements.


<PAGE>





<TABLE>
<CAPTION>

Unaudited Consolidated Quarterly Financial Information   
                                                                1998                                        1997
                                           -----------------------------------------   ------------------------------------------
                                              3/31       6/30      9/30       12/31      3/31       6/30        9/30       12/31  
                                           --------   --------   --------   --------   --------   --------   --------    --------
                                                              (In thousands, except share and per share data)
<S>                                         <C>        <C>        <C>        <C>        <C>        <C>        <C>         <C>   
Interest and Dividend Income .......        $9,009     $9,095     $9,955    $10,914      $8,675     $8,773     $8,827     $9,291 
                                                                                                                                 
Net Interest Income ................         3,862      3,848      4,085      4,737       4,020      4,008      3,881      4,003 
                                                                                                                                 
Provision for Loan Losses ..........           225        225        225        225         363        275        225        225 
                                                                                                                                 
Income (Loss) Before Taxes .........           808        169        779       ( 55)      1,076        889      1,188      1,300 
                                                                                                                                 
Net Income .........................           446         97        478         10         652        572        736        800 
                                                                                                                                 
Earnings per share - Basic .........          0.12       0.03       0.13       0.00        0.16       0.14       0.19       0.21 
Earnings per share - Diluted .......          0.11       0.03       0.13       0.00        0.16       0.14       0.19       0.20 
                                                                                                                                 
Average Shares Outstanding - Basic .     3,828,636  3,759,045  3,701,018  4,371,881   4,011,349  4,024,536  3,897,492  3,832,531 
Average Shares Outstanding - Diluted     3,927,904  3,861,896  3,745,764  4,417,751   4,011,349  4,030,013  3,957,434  3,929,747 
</TABLE>                                                                       

<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,
1998 and 1997, and the related consolidated statements of operations, changes in
shareholders'  equity  and cash  flows for each of the  years in the  three-year
period ended December 31, 1998. 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 as of December 31, 1998 and 1997, and the results of their
operations and their cash flows for each of the years in the  three-year  period
ended  December 31, 1998,  in  conformity  with  generally  accepted  accounting
principles.



/s/ KPMG LLP

Albany, New York
February 12, 1999



<PAGE>
AMBANC HOLDING CO., INC. AND SUBSIDIARIES
<TABLE>
<CAPTION>
Consolidated Statements of Financial Condition


                                                                        December 31,
                                                                     1998         1997
                                                                      (In thousands)
<S>                                                               <C>              <C>  
         Assets
Cash and due from banks .......................................   $   9,225        5,628
Interest-bearing deposits .....................................       3,390        4,631
Federal funds sold ............................................      30,200            0

       Cash and cash equivalents ..............................      42,815       10,259

Securities available for sale, at fair value ..................     244,241      205,808
Federal Home Loan Bank of New York stock, at cost .............       7,215        3,291
Loans receivable, net .........................................     420,933      281,123
Accrued interest receivable ...................................       4,115        3,734
Premises and equipment, net ...................................       4,537        3,121
Real estate owned and repossessed assets ......................         399          143
Goodwill ......................................................       7,923            0
Other assets ..................................................       3,294        2,965

       Total assets ...........................................   $ 735,472      510,444

     Liabilities and Shareholders' Equity
Liabilities:
   Deposits ...................................................     461,413      333,265
   Federal Home Loan Bank overnight advances ..................         ---       12,300
   Federal Home Loan Bank term advances .......................      21,410          ---
   Securities sold under agreements to repurchase .............     152,400       99,250
   Advances from borrowers for taxes and insurance ............       2,436        1,902
   Accrued interest payable ...................................       1,426          819
   Accrued expenses and other liabilities .....................       4,494        1,706
   Due to brokers .............................................       6,000          ---

       Total liabilities ......................................     649,579      449,242

Commitments and contingent liabilities (note 14)

Shareholders' equity:
   Preferred stock $.01 par value. Authorized 5,000,000 shares;
     none issued at December 31, 1998 and 1997 ................         ---          ---
   Common stock $.01 par value.  Authorized 15,000,000 shares;
     5,432,371 shares issued at December 31, 1998 and 5,422,250
     shares issued at December 31, 1997 .......................          54           54
   Additional paid-in capital .................................      63,019       52,385
   Retained earnings, substantially restricted ................      26,356       26,458
   Treasury stock, at cost (23,908 shares at December 31,
     1998 and 1,115,832 shares at December 31, 1997) ..........        (329)     (12,585)
   Unallocated common stock held by ESOP ......................      (2,818)      (3,303)
   Unearned RRP shares ........................................        (759)      (1,533)
   Accumulated other comprehensive income .....................         370         (274)

       Total shareholders' equity .............................      85,893       61,202

       Total liabilities and shareholders' equity .............   $ 735,472      510,444

See accompanying notes to consolidated financial statements.
</TABLE>
<PAGE>
AMBANC HOLDING CO., INC. AND SUBSIDIARIES
<TABLE>
<CAPTION>
Consolidated Statements of Operations



                                                                Years ended December 31,
                                                              1998         1997      1996
                                                         (In thousands, except per share amounts)
<S>                                                          <C>           <C>        <C>   
Interest and dividend income:
   Loans receivable ......................................   $ 24,623      21,011     20,557
   Securities available for sale .........................     13,479      13,957     10,921
   Federal funds sold and interest-bearing deposits ......        507         394        740
   Federal Home Loan Bank stock ..........................        364         204        130

       Total interest and dividend income ................     38,973      35,566     32,348

Interest expense:
   Deposits ..............................................     13,822      13,645     12,424
   Borrowings ............................................      8,619       6,009      4,011

       Total interest expense ............................     22,441      19,654     16,435

       Net interest income ...............................     16,532      15,912     15,913

Provision for loan losses ................................        900       1,088      9,450

       Net interest income after provision for loan losses     15,632      14,824      6,463

Other income:
   Service charges on deposit accounts ...................      1,012         786        764
   Net (losses) gains on securities transactions .........       (165)        775       (102)
   Other .................................................        297         258        246

       Total other income ................................      1,144       1,819        908

Other expenses:
   Salaries, wages and benefits ..........................      6,393       6,086      5,097
   Non-recurring termination benefits ....................        608         ---        ---
   Occupancy and equipment ...............................      1,809       1,539      1,328
   Data processing .......................................      1,688       1,168      1,088
   Correspondent bank processing fees ....................        147         126        116
   Real estate owned and repossessed assets expenses, net          61         355      2,563
   Professional fees .....................................        735         429        540
   Amortization of goodwill ..............................         67         ---        ---
   Other .................................................      3,567       2,487      2,404

       Total other expenses ..............................     15,075      12,190     13,136

Income (loss) before taxes ...............................      1,701       4,453     (5,765)
Income tax expense (benefit) .............................        670       1,693     (1,929)

       Net income (loss) .................................   $  1,031       2,760     (3,836)

Basic earnings (loss) per share                              $   0.26        0.70      (0.81)

Diluted earnings (loss) per share                            $   0.26        0.69      (0.81)

See accompanying notes to consolidated financial statements.
</TABLE>
<PAGE>
AMBANC HOLDING CO., INC. AND SUBSIDIARIES
<TABLE>
<CAPTION>
Consolidated Statements of Changes in Shareholders' Equity
Years ended December 31, 1998, 1997 and 1996 (In thousands, except share and per share data)
                                                         Additional
                                                  Common   paid-in   Retained   Treasury
                                                   stock   capital   earnings     stock
<S>                                               <C>        <C>       <C>             <C>
Balance at December 31, 1995 ..................   $    54    52,127    28,272        ---
Comprehensive loss:
   Net loss ...................................       ---       ---    (3,836)       ---
   Other comprehensive income, net of tax:
       Unrealized net holding losses on
          securities available for sale arising
          during the year (pre-tax $68)
       Reclassification adjustment for net
          losses realized in net income during
          the year (pre-tax $102)
   Other comprehensive income .................       ---       ---       ---        ---
              Comprehensive loss
Purchase of treasury shares (1,030,227 shares).       ---       ---       ---    (11,208)
Release of ESOP shares (52,964 shares) ........       ---         1       ---        ---
Balance at December 31, 1996 ..................        54    52,128    24,436    (11,208)
Comprehensive income:
   Net income .................................       ---       ---     2,760        ---
   Other comprehensive loss, net of tax:
       Unrealized net holding gains on
          securities available for sale arising
          during the year (pre-tax $452)
       Reclassification adjustment for net
          gains realized in net income during
          the year (pre-tax $775)
   Other comprehensive loss ...................       ---       ---       ---        ---
             Comprehensive income
Purchase of treasury shares (216,890 shares) ..       ---       ---       ---     (3,488)
Release of ESOP shares (50,561 shares) ........       ---       257       ---          0
Issuance of RRP shares (131,285 shares) .......       ---       ---      (306)     2,111
RRP shares earned .............................       ---       ---       ---        ---
Cash dividends - $0.10 per share ..............       ---       ---      (432)       ---
Balance at December 31, 1997 ..................        54    52,385    26,458    (12,585)
Comprehensive income:
   Net income .................................       ---       ---     1,031        ---
   Other comprehensive income, net of tax:
       Unrealized net holding gains on
          securities available for sale arising
          during the year (pre-tax $908)
       Reclassification adjustment for net
          losses realized in net income during
          the year (pre-tax $165)
   Other comprehensive income .................       ---       ---       ---        ---
             Comprehensive income
Purchase of treasury shares (215,320 shares) ..       ---       ---       ---     (4,111)
Release of ESOP shares (48,498 shares) ........       ---       331       ---        ---
RRP shares earned .............................       ---       ---       ---        ---
Tax benefit related to RRP shares earned ......       ---        76       ---        ---
RRP shares forfeited (29,331 shares) ..........       ---       ---       ---       (403)
Exercises of stock options (9,489 shares) .....       ---         5       ---        125
Acquisition of AFSALA Bancorp, Inc.(see note 2)       ---    10,222       ---     16,645
Cash dividends - $0.25 per share ..............       ---       ---    (1,133)       ---
Balance at December 31, 1998 ..................   $    54    63,019    26,356       (329)
See accompanying notes to consolidated financial statements.
</TABLE>
<PAGE>
AMBANC HOLDING CO., INC. AND SUBSIDIARIES
<TABLE>
<CAPTION>
Consolidated Statements of Changes in Shareholders' Equity (continued)
Years ended December 31, 1998, 1997 and 1996 (In thousands, except share and per share data)
                                                  Unallocated            Accumulated
                                                 common stock   Unearned   other
                                                    held by       RRP   comprehensive          Comprehensive
                                                     ESOP        shares     income    Total    income(loss)
<S>                                                  <C>             <C>     <C>      <C>        <C>
Balance at December 31, 1995 ....................    (4,338)       ---       (100)    76,015
Comprehensive loss:
     Net loss ...................................       ---        ---        ---     (3,836)   $(3,836)
     Other comprehensive income, net of tax:
         Unrealized net holding losses on
            securities available for sale arising
            during the year (pre-tax $68) .......                                                   (41)
         Reclassification adjustment for net
            losses realized in net income during
            the year (pre-tax $102) .............                                                    61
     Other comprehensive income .................       ---        ---         20         20         20
                Comprehensive loss ..............                                               $(3,816)
Purchase of treasury shares (1,030,227 shares) ..       ---        ---        ---    (11,208)
Release of ESOP shares (52,964 shares) ..........       526        ---        ---        527
Balance at December 31, 1996 ....................    (3,812)       ---        (80)    61,518
Comprehensive income:
     Net income .................................       ---        ---        ---      2,760    $ 2,760
     Other comprehensive loss, net of tax:
         Unrealized net holding gains on
            securities available for sale arising
            during the year (pre-tax $452) ......                                                   271
         Reclassification adjustment for net
            gains realized in net income during
            the year (pre-tax $775) .............                                                  (465)
     Other comprehensive loss ...................       ---        ---       (194)      (194)      (194)
               Comprehensive income .............                                               $ 2,566
Purchase of treasury shares (216,890 shares) ....       ---        ---        ---     (3,488)
Release of ESOP shares (50,561 shares) ..........       509        ---        ---        766
Issuance of RRP shares (131,285 shares) .........       ---     (1,805)       ---        ---
RRP shares earned ...............................       ---        272        ---        272
Cash dividends - $0.10 per share ................       ---        ---        ---       (432)
Balance at December 31, 1997 ....................    (3,303)    (1,533)      (274)    61,202
Comprehensive income:
     Net income .................................       ---        ---        ---      1,031    $ 1,031
     Other comprehensive income, net of tax:
         Unrealized net holding gains on
            securities available for sale arising
            during the year (pre-tax $908) ......                                                   545
         Reclassification adjustment for net
            losses realized in net income during
            the year (pre-tax $165) .............                                                    99
     Other comprehensive income .................       ---        ---        644        644        644
               Comprehensive income .............                                               $ 1,675
Purchase of treasury shares (215,320 shares) ....       ---        ---        ---     (4,111)
Release of ESOP shares (48,498 shares) ..........       485        ---        ---        816
RRP shares earned ...............................       ---        371        ---        371
Tax benefit related to RRP shares earned ........       ---        ---        ---         76
RRP shares forfeited (29,331 shares) ............       ---        403        ---        ---
Exercises of stock options (9,489 shares) .......       ---        ---        ---        130
Acquisition of AFSALA Bancorp, Inc. (see note 2).       ---        ---        ---     26,867
Cash dividends - $0.25 per share ................       ---        ---        ---     (1,133)
Balance at December 31, 1998 ....................    (2,818)      (759)       370     85,893
See accompanying notes to consolidated financial statements.
</TABLE>
<PAGE>
AMBANC HOLDING CO., INC. AND SUBSIDIARIES
<TABLE>
<CAPTION>
Consolidated Statements of Cash Flows
                                                                      Years ended December 31,
                                                                    1998        1997        1996
                                                                        (In thousands)
<S>                                                                 <C>          <C>        <C>    
Increase (decrease) in cash and cash equivalents:
Cash flows from operating activities:
    Net income (loss) .........................................     $1,031       2,760      (3,836)
    Adjustments to reconcile net income (loss) to net
       cash provided by operating activities:
           Depreciation and amortization ......................        848         652         558
           Provision for loan losses ..........................        900       1,088       9,450
           Provision for losses and writedowns on real
              estate owned and repossessed assets .............          7         171         877
           Net (gains) losses on sale of real estate
              owned and repossessed assets ....................         (7)         38       1,260
           Loss on sale of premises and equipment .............        ---         ---          64
           ESOP compensation expense ..........................        816         766         527
           RRP expense ........................................        371         272           0
           Net losses (gains) on securities transactions ......        165        (775)        102
           Net amortization on securities .....................      1,094         320         475
           (Increase) decrease in accrued interest
              receivable and other assets .....................        (17)        831      (3,316)
           Increase (decrease) in accrued interest payable,
              accrued expenses and other liabilities ..........      1,423         187      (1,201)
                      Net cash provided by operating activities      6,631       6,310       4,960


Cash flows from investing activities:
    Proceeds from sales and redemptions of
       securities available for sale ..........................    126,846     194,210      34,469
    Purchases of securities available for sale ................   (157,188)   (247,390)   (192,647)
    Proceeds from principal paydowns and
       maturities of securities available for sale ............     53,743      48,029      31,508
    Net decrease in due to/from brokers .......................        ---         ---     (28,752)
    Purchases of FHLB stock ...................................     (3,359)     (1,262)       (137)
    Purchases of loans ........................................    (31,888)        ---           0
    Proceeds from sales of loans ..............................        ---         ---      18,929
    Net increase in loans made to customers ...................    (26,391)    (34,384)    (28,685)
    Purchases of premises and equipment .......................       (422)     (1,004)       (341)
    Proceeds from sales of real estate owned and
       repossessed assets .....................................        270         631       2,519
    Proceeds from the sale of premises and equipment ..........        ---         ---          25
    Cash and cash equivalents acquired in acquisition,
       net of cash paid .......................................     24,996         ---         ---

           Net cash used in investing activities ..............    (13,393)    (41,170)   (163,112)
</TABLE>
<PAGE>
AMBANC HOLDING CO., INC. AND SUBSIDIARIES
<TABLE>
<CAPTION>
Consolidated Statements of Cash Flows (continued)
                                                                   Years ended December 31,
                                                                1998         1997       1996
                                                                      (In thousands)
<S>                                                           <C>           <C>        <C>     
     Cash flows from financing activities:
         Net (decrease) increase in deposits ..............   $(16,533)     35,183     (13,157)
         Net (decrease) increase in FHLB overnight advances    (12,300)      6,300       6,000
         Proceeds from FHLB term advances .................     20,000         ---         ---
         Repayments of FHLB term advances .................        (35)        ---         ---
         Proceeds from repurchase agreements ..............    142,575      66,570     193,770
         Repayments of repurchase agreements ..............    (89,425)    (70,100)    (90,990)
         Increase in advances from borrowers for taxes and
            insurance .....................................        150         199          11
         Purchases of treasury stock ......................     (4,111)     (3,488)    (11,208)
         Exercises of stock options .......................        130         ---         ---
         Dividends paid ...................................     (1,133)       (432)          0

                Net cash provided by financing activities .     39,318      34,232      84,426

Net increase (decrease) in cash and cash equivalents ......     32,556        (628)    (73,726)
Cash and cash equivalents at beginning of year ............     10,259      10,887      84,613

Cash and cash equivalents at end of year ..................    $42,815      10,259      10,887

Supplemental disclosures of cash flow
     information - cash paid during the year for:
         Interest .........................................   $ 21,834      19,912      15,360

         Income taxes .....................................   $  1,429       1,770         306

Noncash investing and financing activities:
     Net transfer of loans to real estate owned and
         repossessed assets ...............................   $    386         268       2,203

     Increase in amounts due to brokers from purchases of
         securities available for sale ....................   $  6,000         ---         ---

     Fair value of non-cash assets acquired in acquisition    $142,820         ---         ---

     Fair value of liabilities assumed in acquisition .....   $148,565         ---         ---

     Issuance of RRP shares ...............................   $    ---       2,111         ---

     Tax benefit related to vested RRP shares .............   $     76         ---         ---

     RRP shares forfeited .................................   $    403         ---         ---

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

                    AMBANC HOLDING CO., INC. AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements

                        December 31, 1998, 1997 and 1996


(1)     Summary of Significant Accounting Policies

        (a)     Basis of Presentation

                The accompanying  consolidated  financial statements include the
                accounts  of Ambanc  Holding  Co.,  Inc.  (Ambanc or the Holding
                Company),  and its wholly owned  subsidiaries,  Mohawk Community
                Bank,  formerly known as Amsterdam Savings Bank, FSB (the Bank),
                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 banking industry.

        (b)     Use of Estimates

                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.  In  connection  with  the
                determination  of the  allowance  for  loan  losses,  management
                obtains appraisals for significant assets.

                Management  believes  that  the  allowance  for loan  losses  is
                adequate.   While  management  uses  available   information  to
                recognize losses on loans, future additions to the allowance 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. Such agencies may require the Bank to
                recognize  additions to the allowance  based on their  judgments
                about  information  available  to  them  at the  time  of  their
                examination which may not be currently available to management.

                A substantial  portion of the Company's assets are loans secured
                by real estate in the upstate  New York area.  Accordingly,  the
                ultimate   collectibility  of  a  considerable  portion  of  the
                Company's loan portfolio is dependent upon market  conditions in
                the upstate New York region.

        (c)     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.


<PAGE>


        (d)     Securities Available for Sale, Securities  Held to  Maturity and
                FHLB of New York Stock

                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  securities  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 in accumulated other comprehensive  income. The Company
                does not maintain a trading  portfolio  and at December 31, 1998
                and 1997,  the Company had no  securities  classified as held to
                maturity.

                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
                (FHLB) of New York stock,  are stated at cost. The investment in
                FHLB of New York stock is required for membership and is pledged
                to secure FHLB borrowings.

                Mortgage-backed   securities,   which  are   guaranteed  by  the
                Government National Mortgage Association  ("GNMA"),  Freddie Mac
                or Fannie Mae,  represent  participation  interests  in 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 or redeemed.  The cost of securities is
                adjusted for the  amortization  of premiums and the 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
                statements of financial condition.

        (e)     Loans Receivable and Loan Fees

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


<PAGE>


                Non-performing  loans  include  nonaccrual  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 with  respect to
                interest income recognition.  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) on nonaccrual loans is
                dependent on the expectation of ultimate  repayment of the loan.
                If ultimate  repayment of the loan is  reasonably  assured,  any
                payments received are applied in accordance with the contractual
                terms.  If ultimate  repayment of  principal  is not  reasonably
                assured  or  management  judges it to be  prudent,  any  payment
                received is applied to principal until ultimate repayment of the
                remaining balance is reasonably assured.  Loans are removed from
                nonaccrual   status  when  they  are   estimated   to  be  fully
                collectible  as to principal and interest.  Amortization  of the
                related  deferred  fees or  costs  is  suspended  when a loan is
                placed on nonaccrual 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 portfolio, the level of non-performing
                loans,  past  loan  loss  experience,  the  estimated  value  of
                underlying  collateral,  and  current and  prospective  economic
                conditions.  The allowance is increased by  provisions  for loan
                losses  charged  to  operations.   Losses  on  loans  (including
                impaired  loans)  are  charged  to the  allowance  when all or a
                portion of a loan is deemed to be  uncollectible.  Recoveries of
                loans previously  charged off are credited to the allowance when
                realized.

        (f)     Loan Impairment

                Management  considers a loan to be impaired if, based on current
                information,  it is probable  that the Company will be unable to
                collect all scheduled payments of principal or interest when due
                according to the contractual terms of the loan agreement. When a
                loan is considered to be impaired,  the amount of the impairment
                is measured  based on the present value of expected  future cash
                flows discounted at the loan's effective  interest rate or, as a
                practical  expedient,  at the loan's  observable market price or
                the fair  value  of the  collateral  if the  loan is  collateral
                dependent.  Except for loans  restructured  in a  troubled  debt
                restructuring subsequent to January 1, 1995, management excludes
                large  groups  of  smaller  balance  homogeneous  loans  such as
                residential  mortgages and consumer loans which are collectively
                evaluated  for  impairment.   Impairment  losses,  if  any,  are
                recorded through a charge to the provision for loan losses.

        (g)     Real Estate Owned and Repossessed Assets

                Real estate owned and repossessed assets include assets received
                from foreclosures, in-substance foreclosures, and repossessions.
                A loan is classified  as an  in-substance  foreclosure  when the
                Company has taken  possession  of the  collateral  regardless of
                whether formal foreclosure proceedings have taken place.


<PAGE>


                Real estate owned and repossessed assets, including in-substance
                foreclosures,  are recorded on an individual  asset basis at the
                lower of fair  value  less  estimated  costs  to sell or  "cost"
                (defined   as  the  fair   value  at  initial   foreclosure   or
                repossession).  When a property is acquired or  identified as an
                in-substance  foreclosure,  the excess of the loan  balance over
                fair  value  is  charged  to  the  allowance  for  loan  losses.
                Subsequent  writedowns  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.

                At December 31, 1998 and 1997, real estate owned and repossessed
                assets  consisted  primarily of one-to-four  family  residential
                properties,  recreational vehicles and automobiles.  The Company
                had no in-substance foreclosures at December 31, 1998 or 1997.

        (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)     Goodwill

                Goodwill  represents  the excess of the purchase  price over the
                fair value of the net assets acquired for transactions accounted
                for using purchase accounting.  Goodwill is being amortized over
                fifteen  years  using  the  straight-line  method.   Accumulated
                amortization of goodwill  amounted to  approximately  $67,000 at
                December  31,  1998.   Goodwill  is  periodically   reviewed  by
                management for recoverability, and impairment is recognized by a
                charge to income if a permanent loss in value is indicated.

        (j)     Securities Repurchase Agreements

                In securities repurchase  agreements,  the Company transfers the
                underlying  securities to a third party custodian's account that
                explicitly  recognizes the Company's interest in the securities.
                These   agreements  are  accounted  for  as  secured   financing
                transactions  provided the Company  maintains  effective control
                over the  transferred  securities  and meets other  criteria for
                such   accounting   as   specified  in  Statement  of  Financial
                Accounting  Standards  (SFAS) No. 125. The Company's  agreements
                are  accounted  for  as  secured  financings;  accordingly,  the
                transaction  proceeds  are  recorded as  borrowed  funds and the
                underlying  securities  continue to be carried in the  Company's
                securities available for sale portfolio.



<PAGE>


        (k)     Income Taxes

                The Company  accounts for income taxes in  accordance  with 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  temporary   differences   between   financial
                statement  carrying  amounts of existing  assets and liabilities
                and  their  respective  tax  bases.   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.  The effect
                on deferred tax assets and  liabilities of a change in tax rates
                is  recognized in income tax expense in the period that includes
                the enactment  date.  The Company's  policy is that deferred tax
                assets are reduced by a  valuation  allowance  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 taxable temporary differences, historical income taxes
                paid and estimates of future taxable income.

        (l)     Financial Instruments

                In the  normal  course of  business,  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.

        (m)     Stock-Based Compensation Plans

                The Company  accounts  for its stock  option plan in  accordance
                with the  provisions  of  Accounting  Principles  Board  ("APB")
                Opinion  No. 25,  "Accounting  for Stock  Issued to  Employees."
                Accordingly,  compensation  expense  is  recognized  only if the
                exercise  price of the option is less than the fair value of the
                underlying  stock at the grant date.  SFAS No. 123,  "Accounting
                for Stock-Based  Compensation," encourages entities to recognize
                the fair value of all stock-based awards on the date of grant as
                compensation  expense  over the vesting  period.  Alternatively,
                SFAS No. 123 allows entities to continue to apply the provisions
                of APB Opinion No. 25 and provide pro forma  disclosures  of net
                income and earnings per share as if the fair-value-based  method
                defined  in SFAS  No.  123 had been  applied.  The  Company  has
                elected to continue to apply the  provisions  of APB Opinion No.
                25 and  provide the pro forma  disclosures  required by SFAS No.
                123.

                The  Company's  Recognition  and  Retention  Plan  (RRP) is also
                accounted  for in  accordance  with APB Opinion No. 25. The fair
                value of the shares  awarded,  measured as of the grant date, is
                recognized   as  unearned   compensation   (a   deduction   from
                shareholders'  equity) and amortized to compensation  expense as
                the shares become vested.


<PAGE>


        (n)     Earnings per Share

                Basic  earnings  per  share  (EPS)  excludes   dilution  and  is
                calculated   by  dividing   net  income   available   to  common
                shareholders   by  the   weighted   average   number  of  shares
                outstanding  during the period.  Shares of restricted  stock are
                considered   outstanding  common  shares  and  included  in  the
                computation of basic EPS when they become fully vested.  Diluted
                EPS  reflects  the  potential   dilution  that  could  occur  if
                securities or other contracts to issue common stock (such as the
                Company's  stock options and unvested RRP shares) were exercised
                into common stock or resulted in the issuance of common stock.

        (o)     Official Bank Checks

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

        (p)     Comprehensive Income

                The Company has adopted SFAS No. 130,  "Reporting  Comprehensive
                Income,"  which  establishes  standards  for the  reporting  and
                display of comprehensive  income and its components in financial
                statements.  Comprehensive  income  represents  the  sum  of net
                income  and items of  "other  comprehensive  income,"  which are
                reported directly in shareholders'  equity,  net of tax, such as
                the  change  in the net  unrealized  gain or loss on  securities
                available  for  sale.  While  SFAS No.  130 does not  require  a
                specific  reporting  format,  it does require that an enterprise
                display an amount  representing total  comprehensive  income for
                each  period  for which an income  statement  is  presented.  In
                accordance   with  SFAS  No.  130,   the  Company  has  reported
                comprehensive  income and its components for 1998, 1997 and 1996
                in the  consolidated  statements  of  changes  in  shareholders'
                equity.   Accumulated  other  comprehensive   income,  which  is
                included in shareholders' equity, net of tax, represents the net
                unrealized gain or loss on securities available for sale.

        (q)     Segment Reporting

                In June 1997, the FASB issued SFAS No. 131,  "Disclosures  about
                Segments of an Enterprise and Related Information." SFAS No. 131
                establishes   standards   for  the  way  that  public   business
                enterprises report information about operating segments. For the
                Company, the statement became effective for its annual financial
                statements for the year ended December 31, 1998.


<PAGE>


                The Company engages in the traditional operations of a community
                banking enterprise, principally the delivery of loan and deposit
                products  and  other  financial   services.   Management   makes
                operating decisions and assesses performance based on an ongoing
                review of the  Company's  community  banking  operations,  which
                constitute the Company's  only  operating  segment for financial
                reporting  purposes.  The Company operates  primarily in upstate
                New York in Montgomery,  Fulton, Schenectady,  Saratoga, Albany,
                Otsego, Chenango and Schoharie counties and surrounding areas.

        (r)     Reclassifications

                Amounts in the prior years'  consolidated  financial  statements
                are  reclassified  whenever  necessary to conform to the current
                year's presentation.


(2)     Acquisition of AFSALA Bancorp, Inc.

        On November 16, 1998, the Company acquired AFSALA Bancorp, Inc. (AFSALA)
        and its wholly owned subsidiary,  Amsterdam Federal Bank. At the date of
        the merger,  AFSALA had approximately  $167.1 million in assets,  $144.1
        million in deposits, and $19.2 million in shareholders' equity. Pursuant
        to the merger agreement,  AFSALA was merged with and into Ambanc Holding
        Co.,  Inc.,  and  Amsterdam  Federal  Bank was merged  with and into the
        former  Amsterdam  Savings Bank,  FSB. The combined bank now operates as
        one institution under the name "Mohawk Community Bank".

        Upon  consummation of the merger,  each share of AFSALA common stock was
        converted  into the right to receive 1.07 shares of Ambanc common stock.
        Based  on the  1,249,727  shares  of  AFSALA  common  stock  issued  and
        outstanding   immediately  prior  to  the  merger,  the  Company  issued
        1,337,207 shares of common stock in the merger.  Of the 1,337,207 shares
        issued in the merger,  1,327,086 were issued from the Company's treasury
        stock and 10,121 were newly-issued shares. In addition, under the merger
        agreement,  the Company  assumed  unexercised,  fully-vested  options to
        purchase  144,118  shares of AFSALA common stock,  which  converted into
        fully-vested  options to purchase 154,206 shares of Ambanc common stock.
        See also Note 12(d).

        The  acquisition   was  accounted  for  using  purchase   accounting  in
        accordance  with APB Opinion No. 16,  "Business  Combinations"  (APB No.
        16). Under purchase  accounting,  the purchase price is allocated to the
        respective  assets  acquired  and  liabilities  assumed  based  on their
        estimated  fair  values.   The   acquisition   of  AFSALA   resulted  in
        approximately  $8.0  million in excess of cost over net assets  acquired
        ("goodwill").  Goodwill is being  amortized  to expense over a period of
        fifteen years using the straight-line  method. The results of operations
        of  AFSALA  have  been  included  in  the  Company's  1998  consolidated
        statement of operations from the date of acquisition.


<PAGE>


        In conjunction  with the acquisition of AFSALA,  premiums on securities,
        loans,  time  deposits and FHLB term  advances  were  recorded  totaling
        approximately $155,000, $1,459,000,  $651,000 and $26,000, respectively,
        in order to record  these  assets and  liabilities  at their fair values
        based on market interest rates at the acquisition date. The premiums are
        being amortized over the estimated period to repricing of the respective
        items.  For the year ended  December 31, 1998,  the impact on net income
        from the net amortization of the premiums was not significant.

        The  following  unaudited  proforma  combined   consolidated   financial
        information  gives effect to the November 16, 1998 acquisition of AFSALA
        as if it had been  consummated  as of the  beginning  of 1998 and  1997,
        respectively, after giving effect to certain adjustments,  including (1)
        the amortization of goodwill, (2) the elimination of the expense related
        to AFSALA's ESOP and  Restricted  Stock Plan which  terminated as of the
        merger  date,  (3)  the  elimination  of  AFSALA's   acquisition-related
        expenses, and (4) the related income tax effects. The unaudited proforma
        combined  consolidated   financial  information  does  not  reflect  any
        potential cost savings or revenue enhancements which may result from the
        combination of operations of Ambanc and AFSALA and, accordingly, may not
        be indicative  of the results that actually  would have occurred had the
        acquisition been consummated at the beginning of the years presented, or
        that may be obtained in the future.

                                               Years ended December 31,
                                                1998              1997
                                               ------------------------
                                                     (Unaudited)
                                         (In thousands, except per share data)

           Net interest income           $     21,154          21,209
           Net income                           1,491           3,639
           Basic earnings per share              0.28            0.66
           Diluted earnings per share            0.27            0.66


(3)     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
        former Amsterdam  Savings Bank, FSB. 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
        consolidated financial statements. The Company utilized $26.0 million of
        the net  proceeds  to  acquire  all of the  capital  stock of the former
        Amsterdam Savings Bank, FSB.


<PAGE>


        As part of the conversion of the former Amsterdam Savings Bank, FSB, and
        the former Amsterdam Federal Bank, liquidation accounts were established
        for the benefit of eligible  depositors  who continue to maintain  their
        deposit accounts 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 accounts, 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  accounts.  Except
        for such  restrictions,  the existence of the liquidation  accounts does
        not restrict the use or application of retained earnings.

        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, 1998, the maximum amount that could have been
        paid by the Bank to the Holding Company was approximately $18.7 million.


(4)     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
        $2,378,000 and $1,123,000 at December 31, 1998 and 1997, 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 a blanket pledge of qualifying residential real estate
        loans,  to secure its borrowings  from the Federal Home Loan Bank of New
        York.



<PAGE>


(5)     Securities Available for Sale

          The amortized cost, gross  unrealized gains and losses,  and estimated
          fair values of securities  available for sale at December 31, 1998 and
          1997 are as follows:

                                                         1998
                                     -------------------------------------------
                                                  Gross       Gross    Estimated
                                      Amortized unrealized  unrealized   fair
                                        cost       gains     losses      value
                                      --------- ----------  ---------- ---------
                                                   (In thousands)

U.S. Government and agency securities $  83,665       400       (65)    84,000
Mortgage-backed securities ..........    96,140       253      (137)    96,256
Collateralized mortgage obligations .    62,000       244       (96)    62,148
States and political subdivisions ...     1,819        18      --        1,837
                                        -------   -------    -------    -------
          Total ..................... $ 243,624       915      (298)   244,241
                                        =======   =======    =======    =======

                                                         1997
                                      ------------------------------------------
                                                  Gross       Gross    Estimated
                                      Amortized unrealized  unrealized   fair
                                        cost       gains     losses      value
                                      --------- ----------  ---------- ---------
                                                   (In thousands)

U.S. Government and agency securities $  63,198        60      (113)     63,145
Mortgage-backed securities ..........   132,272       100      (386)    131,986
Collateralized mortgage obligations .    10,040       --       (129)      9,911
States and political subdivisions ...       755        11       --          766
                                        -------   -------    -------    -------
          Total ..................... $ 206,265       171      (628)    205,808
                                        =======   =======    =======    =======


<PAGE>


        The amortized cost and estimated fair value of debt securities available
        for sale at December 31, 1998, by contractual maturity,  are shown below
        (mortgage-backed  securities and collateralized mortgage obligations are
        included by final contractual maturity). Expected maturities will differ
        from contractual  maturities  because issuers may have the right to call
        or prepay obligations with or without call or prepayment penalties.

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

                Due within one year ...................   $  6,872      6,886
                Due after one year through five years .     12,077     12,117
                Due after five years through ten  years     50,106     50,167
                Due after ten years ...................    174,569    175,071
                                                          --------   --------
                      Totals ..........................   $243,624    244,241
                                                          ========   ========


          The  following  table sets forth  information  with regard to sales of
          securities available for sale for the years ended December 31:

                                        1998      1997      1996
                                        ----      ----      ----
                                             (In thousands)

               Proceeds from sale ..   $79,101   174,010    34,469
               Gross realized gains        154     1,017        14
               Gross realized losses       319       242       116

          Securities available for sale with a carrying value of $163,169,000 at
          December 31, 1998 and  $111,153,000  at December 31, 1997 were pledged
          to secure securities repurchase agreements.



<PAGE>


(6)     Loans Receivable, Net

        Loans  receivable  consisted  of the  following at December 31, 1998 and
        1997:

                                                           1998         1997
                                                         --------      -------
                                                             (In thousands)
        Loans secured by real estate:
        1 - 4 family ................................   $ 273,523     189,666
        Home equity .................................      83,949      30,246
        Non-residential .............................      23,506      26,585
        Multi-family ................................       4,165       4,152
        Construction ................................       3,600       2,081
                                                        ---------    --------
                  Total loans secured by real estate      388,743     252,730
                                                        ---------    --------

        Other loans:
        Consumer loans:
             Auto loans .............................      14,146      16,237
             Recreational vehicles ..................       4,990       6,775
             Other secured ..........................       6,289       1,781
             Unsecured ..............................       3,712       1,847
             Manufactured homes .....................         385         494
                                                        ---------    --------
                  Total consumer loans ..............      29,522      27,134
                                                        ---------    --------
        Commercial loans:
             Secured ................................       5,101       3,233
             Unsecured ..............................         508         471
                                                        ---------    --------
                  Total commercial loans ............       5,609       3,704
                                                        ---------    --------
                  Total loans receivable ............     423,874     283,568
        Deferred costs, net of deferred fees 
          and discounts .............................       1,950       1,362
        Allowance for loan losses ...................      (4,891)     (3,807)
                                                        ---------    --------
                  Loans receivable, net .............   $ 420,933     281,123
                                                        =========    ========

        A summary of  activity  in the  allowance  for loan losses for the years
ended December 31 is as follows:

                                        1998        1997      1996
                                      -------     -------    ------
                                               (In thousands)

     Balance at beginning of year ..   $ 3,807      3,438      2,647
     Provision charged to operations       900      1,088      9,450
     Charge-offs ...................    (1,226)    (1,214)    (8,718)
     Recoveries ....................       295        495         59
     Allowance acquired ............     1,115       --         --
                                       -------    -------    -------
     Balance at end of year ........   $ 4,891      3,807      3,438
                                       =======    =======    =======

<PAGE>


        The   following   table   sets   forth   information   with   regard  to
        non-performing loans at December 31:

                                                         1998     1997     1996
                                                        ------   ------   ------
                                                             (In thousands)

          Non-accrual loans .........................   $1,610    1,876    3,123
          Loans contractually past due 90 days
             or more and still accruing interest ....      580      451      725
          Restructured loans ........................      714      931    1,031
                                                        ------   ------   ------
          Total non-performing loans ................   $2,904    3,258    4,879
                                                        ======   ======   ======

        There  are  no   material  commitments  to  extend   further  credit  to
        borrowers with non-performing loans.

        Accumulated  interest on the above non-performing loans of approximately
        $118,000,  $277,000 and $375,000 was not  recognized  as income in 1998,
        1997  and  1996,  respectively.  Approximately  $238,000,  $192,000  and
        $229,000 of interest on restructured and non-accrual loans was collected
        and recognized as income in 1998, 1997 and 1996, respectively.

        At December 31, 1998 and 1997, the recorded investment in loans that are
        considered to be impaired totaled  approximately  $328,000 and $769,000,
        respectively,  for which  the  related  allowance  for loan  losses  was
        approximately  $44,000 and  $338,000,  respectively.  As of December 31,
        1998 and  1997,  there  were no  impaired  loans  which  did not have an
        allowance for loan losses.  The average recorded  investment in impaired
        loans  during  the years  ended  December  31,  1998,  1997 and 1996 was
        approximately $688,000, $1,445,000 and $6,918,000, respectively. For the
        years ended  December 31, 1998,  1997 and 1996,  the Company  recognized
        interest  income  on  those  impaired  loans of  approximately  $78,000,
        $15,000 and  $110,000,  respectively,  which  included  $50,000,  $0 and
        $14,000,  respectively,  of interest  income  recognized  using the cash
        basis method of income recognition.

        Certain directors and executive officers of the Company are customers of
        and have other  transactions  with the Company in the ordinary course of
        business.  Loans to these  parties  are 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 less than 5%
        of total shareholders' equity at both December 31, 1998 and 1997.


<PAGE>


(7)     Accrued Interest Receivable

        Accrued interest receivable consisted of the following at December 31:

                                               1998       1997
                                              ------     ------
                                                (In thousands)

           Loans                            $ 2,031      1,347
           Securities available for sale      2,084      2,387
                                            -------    -------
                                            $ 4,115      3,734
                                            =======    =======

(8)     Premises and Equipment

        A summary of premises and equipment is as follows at December 31:

                                                              1998       1997
                                                           -------    -------

          Land and buildings ...........................   $ 3,342      2,362
          Furniture, fixtures and equipment ............     4,182      3,737
          Leasehold improvements .......................     1,614      1,100
          Construction in progress .....................       195       --
                                                           -------    -------
                                                             9,333      7,199
          Less accumulated depreciation and amortization    (4,796)    (4,078)
                                                           -------    -------
                                                           $ 4,537      3,121
                                                           =======    =======

          Amounts  charged  to  depreciation  and   amortization   expense  were
          approximately  $735,000,  $606,000  and  $501,000  for the years ended
          December 31, 1998, 1997 and 1996, respectively.



<PAGE>


(9)     Deposits

        Deposits are summarized as follows at December 31:

                                                              1998       1997
                                                             --------   --------
                                                               (In thousands)

        Savings accounts (2.92%-3.00% at December 31, 1998
             and 3.00% at December 31, 1997) .............   $136,921     97,591
                                                             --------   --------

        Time deposits:
             3.01 to 4.00% ...............................      1,806      1,011
             4.01 to 5.00% ...............................     61,030      6,688
             5.01 to 6.00% ...............................    140,676    154,377
             6.01 to 7.00% ...............................     11,432     10,801
             7.01 to 8.00% ...............................     13,061     10,455
                                                             --------   --------
                                                              228,005    183,332
                                                             --------   --------
        NOW accounts (1.73%-2.75% at December 31,
             1998 and 2.75% at December 31, 1997) ........     38,814     22,718
        Money market accounts (2.25%-4.87% at December 31,
             1998 and 2.96% at December 31, 1997) ........     21,359      6,877
        Demand accounts (non-interest bearing) ...........     36,314     22,747
                                                             --------   --------
                  Total deposits .........................   $461,413    333,265
                                                             ========   ========

          The approximate amount of contractual  maturities of time deposits for
          the years subsequent to December 31, 1998 are as follows:

                                       (In thousands)
            Years ending December 31,
                         1999             $150,517
                         2000               57,742
                         2001               10,560
                         2002                4,581
                         2003                4,605
                                          --------
                                          $228,005
                                          ========

          The  aggregate  amount of time  deposits with a balance of $100,000 or
          more was approximately $25.9 million and $17.9 million at December 31,
          1998 and 1997, respectively.


<PAGE>


          Interest  expense on deposits  for the years ended  December 31, 1998,
          1997 and 1996, is summarized as follows:

                                        1998      1997      1996
                                       -------   -------   -------
                                             (In thousands)

               Savings accounts ....   $ 3,119     3,016     3,162
               Time deposits .......     9,882     9,882     8,492
               NOW accounts ........       549       543       527
               Money market accounts       272       204       243
                                       -------   -------   -------
                       Total .......   $13,822    13,645    12,424
                                       =======   =======   =======


(10)    Borrowed Funds

        At December 31, 1998, the Company had a $26.2 million  overnight line of
        credit and a $26.2  million  30 day line of credit  with the FHLB of New
        York. As of December 31, 1998, the Company had no amounts outstanding on
        these lines of credit.  At December  31,  1997,  the Company had a $24.2
        million  overnight  line of credit  and a $24.2  million  30 day line of
        credit with the FHLB. As of December 31, 1997,  the Company had borrowed
        $12.3 million under these lines of credit.  Under the terms of a blanket
        collateral  agreement  with  the  FHLB,  any  outstanding  balances  are
        collateralized by FHLB stock and certain qualifying assets not otherwise
        pledged (primarily first-lien mortgage loans).

        The Company also has  longer-term  advances with the FHLB totaling $21.4
        million at December 31, 1998.  These advances  consist of the following:
        (i) $20.0  million of  interest-only,  non-prepayable,  adjustable  rate
        advances,  with the interest rate tied to LIBOR and adjusted  quarterly;
        $10.0  million  matures in July 2001 and $10.0  million  matures in July
        2003; and (ii) $1.4 million of adjustable rate amortizing  advances with
        interest  rates ranging from 5.91% to 7.91% at December 31, 1998;  final
        maturities on these advances range from April 2000 to September 2004.



<PAGE>


        The following table presents the detail of the Company's  borrowings and
        weighted-average interest rates thereon for the years ended December 31,
        1998, 1997 and 1996:

                                                                    Securities
                                                FHLB       FHLB     Sold Under
                                              Overnight    Term     Agreements
                                              Advances   Advances  to Repurchase
                                              ---------  --------  -------------
                                                    (Dollars in thousands)

        1998:
             Balance at December 31 ........ $   --      $ 21,410    $152,400
             Average balance during the year    9,366       8,493     132,476
             Maximum month-end balance .....   38,800      21,446     165,150
             Weighted-average interest rate:
                  At December 31 ...........     --          5.32%       5.48%
                  During the year ..........     5.49%       5.71        5.67

        1997:
             Balance at December 31 ........ $ 12,300    $   --      $ 99,250
             Average balance during the year    3,667        --        95,261
             Maximum month-end balance .....   14,400        --        99,410
             Weighted-average interest rate:
                  At December 31 ...........     6.38%       --          6.04%
                  During the year ..........     5.43        --          6.01

        1996:
             Balance at December 31 ........ $  6,000    $   --      $102,780
             Average balance during the year    9,757        --        57,815
             Maximum month-end balance .....   28,000        --       102,780
             Weighted-average interest rate:
                  At December 31 ...........     6.88%       --          5.96%
                  During the year ..........     5.35        --          5.94


<PAGE>


          Information concerning outstanding securities repurchase agreements as
          of December 31, 1998 is summarized as follows:


                      Securities Repurchase Agreements
         --------------------------------------------------------
                                               Accrued  Weighted-   Fair Value
          Remaining Term to       Repurchase   Interest  Average   of Collateral
          Final Maturity (1)      Liability    Payable    Rate    Securities (2)
          ------------------      ----------   --------   ----    --------------
                                   (Dollars in thousands)

          Within 90 days ........   $   --         --       --          $   --
          After 90 days but 
               within one year ..     22,400        191   5.94%         24,411
          After one year but 
               within five years      30,000        199   5.75          32,903
          After five years but 
               within ten years .    100,000        836   5.30         107,086
                                    --------   --------   ----        --------
                    Total .......   $152,400      1,226   5.48%       $164,400
                                    ========   ========   ====        ========

             (1)  The  weighted-average  remaining  term to final  maturity  was
                  approximately  7.0 years at December 31, 1998. At December 31,
                  1998, $115.0 million of the securities  repurchase  agreements
                  contained  call  provisions.   The  weighted-average  rate  at
                  December  31,  1998  on  the  callable  securities  repurchase
                  agreements was 5.37%, with a weighted-average remaining period
                  of 2.1 years to the call date.  At December  31,  1998,  $37.4
                  million  of  the  securities  repurchase  agreements  did  not
                  contain call provisions. The weighted-average rate at December
                  31, 1998 on the non-callable  securities repurchase agreements
                  was 5.82%,  with a  weighted-average  remaining  period of 1.8
                  years to the repurchase date.
             (2)  Represents  the  fair  value  of  the  securities  which  were
                  transferred, plus accrued interest receivable of approximately
                  $1.2 million at December 31, 1998.

        At December 31, 1998, the "amount at risk" (defined as the excess of (i)
        the  carrying  amount,  or fair  value,  if  higher,  of the  securities
        transferred plus accrued interest receivable over (ii) the amount of the
        repurchase  liability plus accrued interest payable) with any individual
        counterparty was less than ten percent of total shareholders' equity.



<PAGE>


(11)    Income Taxes

        The  components  of income tax expense  (benefit) are as follows for the
years ended December 31:

                                                     1998       1997       1996
                                                    -------    -------   ------
                                                            (In thousands)
           Current tax expense (benefit):
               Federal ..........................   $   763      1,389   (1,893)
               State ............................        13        270        1
                                                    -------    -------   ------
                                                        776      1,659   (1,892)
          Deferred tax (benefit) expense ........      (106)        34      (37)
                                                    -------    -------   ------
               Total income tax expense (benefit)   $   670      1,693   (1,929)
                                                    =======    =======   ======

        Actual  income tax expense  (benefit)  for the years ended  December 31,
        1998, 1997 and 1996 differs from expected income tax expense  (benefit),
        computed by applying  the  Federal  corporate  tax rate of 34% to income
        (loss) before taxes, as a result of the following items:

                                             1998       1997       1996
                                            -------    -------    -------
                                                  (In thousands)

          Expected tax expense (benefit)   $   578      1,514     (1,960)
          State taxes, net of Federal
             income tax benefit ........         1        178          1
          Non-deductible portion of ESOP
             compensation expense ......       113         89       --
          Other items, net .............       (22)       (88)        30
                                           -------    -------    -------
                                           $   670      1,693     (1,929)
                                           =======    =======    =======


<PAGE>


        The tax effects of temporary  differences  that give rise to significant
        portions of the  deferred tax assets and  deferred  tax  liabilities  at
        December 31, 1998 and 1997 are presented below:

                                                               1998       1997
                                                              -------    -------
                                                                (In thousands)
           Deferred tax assets:
               Allowance for loan losses ..................   $ 1,939      1,508
               Deferred compensation ......................       469        227
               Unvested RRP shares ........................        76        109
               Purchase accounting adjustments ............       237       --
               Other deductible temporary differences .....       148        105
                                                              -------    -------
                    Total deferred tax assets .............     2,869      1,949
                                                              -------    -------

          Deferred tax liabilities:
               Tax bad debt reserve .......................       174        216
               Net deferred loan costs ....................       681        409
               Defined benefit pension plan ...............       245        243
               Property and equipment .....................        91        113
               Prepaid expenses ...........................        61         83
               Purchase accounting adjustments ............       626       --
               Other taxable temporary differences ........       107         18
                                                              -------    -------
                    Total deferred tax liabilities ........     1,985      1,082
                                                              -------    -------
                    Net deferred tax asset at
                       end of year ........................       884        867
                    Net deferred tax asset at
                       beginning of year ..................       867        901
                                                              -------    -------
                                                                  (17)        34
               Net deferred tax asset acquired ............       285       --
               Initial net deferred tax liability
                  for purchase accounting adjustments .....      (374)      --
                                                              -------    -------
                    Deferred tax (benefit) expense for year   $  (106)        34
                                                              =======    =======

        In addition to the  deferred  tax items  shown in the table  above,  the
        Company also had a deferred tax liability of  approximately  $247,000 at
        December 31, 1998, and a deferred tax asset of approximately $183,000 at
        December  31,  1997,  relating  to the  net  unrealized  gain or loss on
        securities available for sale.

        There was no valuation allowance for deferred tax assets at December 31,
        1998 and 1997, or change in the valuation  allowance for the years ended
        December  31,  1998,  1997  and  1996.   Management  believes  that  the
        realization  of the  recognized  net  deferred tax asset at December 31,
        1998 and 1997 is more  likely  than  not,  based on  historical  taxable
        income,  available tax planning strategies and expectations as to future
        taxable income.


<PAGE>


        As a thrift  institution,  the Bank is subject to special  provisions in
        the Federal and New York State tax laws  regarding its allowable tax bad
        debt  deductions  and related tax bad debt  reserves.  These  deductions
        historically have been determined using methods based on loss experience
        or a percentage of taxable income.  Tax bad debt reserves are maintained
        equal to the excess of allowable  deductions over actual bad debt losses
        and  other  reserve  reductions.  These  reserves  consist  of a defined
        base-year   amount,   plus  additional   amounts   ("excess   reserves")
        accumulated after the base year. Deferred tax liabilities are recognized
        with  respect to such  excess  reserves,  as well as any  portion of the
        base-year  amount which is expected to become taxable (or  "recaptured")
        in the foreseeable future.

        Certain  amendments to the Federal and New York State tax laws regarding
        bad debt deductions were enacted in 1996. The Federal amendments include
        elimination  of the  percentage  of taxable  income method for tax years
        beginning  after  December 31, 1995,  and imposition of a requirement to
        recapture  into taxable income (over a period of six years) the bad debt
        reserves  in  excess  of the  base-year  amounts.  The  Bank  previously
        established,  and will  continue to maintain,  a deferred tax  liability
        with  respect  to such  excess  Federal  reserves.  The New  York  State
        amendments  redesignate the state bad debt reserves at December 31, 1995
        as the  base-year  amount and also  provide for future  additions to the
        base-year reserve using the percentage of taxable income method.

        In accordance with SFAS No. 109, the Company has not recognized deferred
        tax  liabilities  with respect to the Bank's Federal and state base-year
        reserves of approximately $5.2 million and $10.1 million,  respectively,
        at  December  31,  1998,  since the  Company  does not expect that these
        amounts will become  taxable in the  foreseeable  future.  Under the tax
        laws, as amended, events that would result in taxation of these reserves
        include  (i)   redemptions   of  the  Bank's  stock  or  certain  excess
        distributions  to the Holding  Company,  and (ii) failure of the Bank to
        maintain  a  specified  qualifying  assets  ratio or meet  other  thrift
        definition  tests for New York  State  tax  purposes.  The  unrecognized
        deferred tax  liability at December 31, 1998 with respect to the Federal
        base-year  reserve was  approximately  $1.8  million.  The  unrecognized
        deferred  tax  liability  at December 31, 1998 with respect to the state
        base-year reserve was approximately $598,000 (net of Federal benefit).


(12)    Employee Benefit Plans

        (a)     Pension Plan

                The Bank maintains a non-contributory  pension plan with the RSI
                Retirement  Trust,  covering  substantially all employees age 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.


<PAGE>


                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  provides a summary of the  changes in the
                plan's  projected  benefit  obligation and the fair value of the
                plan's   assets  for  the  years  ended   December   31,  and  a
                reconciliation of the plan's funded status at December 31:
<TABLE>

                                                                        1998      1997
                                                                       ------    ------
                                                                        (In thousands)
<S>                                                                   <C>         <C>  
          Changes in the projected benefit obligation:
               Projected benefit obligation at January 1 ...........  $ 4,508     4,060
                    Service cost ...................................      219       183
                    Interest cost ..................................      318       304
                    Benefits paid ..................................     (224)     (238)
                    Settlements ....................................     --          (2)
                    Actuarial loss .................................      435       201
                                                                       ------    ------
               Projected benefit obligation at December 31 .........    5,256     4,508
                                                                       ------    ------
          Changes in the fair value of plan assets:
               Fair value of plan assets at January 1 ..............    5,994     5,093
                    Actual (loss) return on plan assets ............      (10)    1,104
                    Benefits paid ..................................     (224)     (238)
                    Employer contributions .........................     --          37
                    Settlements ....................................     --          (2)
                                                                       ------    ------
               Fair value of plan assets at December 31 ............    5,760     5,994
                                                                       ------    ------
          Funded status:
               Funded status at December 31 ........................      504     1,486
               Unrecognized portion of net asset at transition .....      (39)      (85)
               Unrecognized prior service cost .....................        9        12
               Unrecognized net loss (gain) ........................      131      (806)
                                                                       ------    ------
                    Prepaid pension asset recognized in other assets $    605       607
                                                                       ======    ======
</TABLE>
<PAGE>

          The following  table provides the  components of net periodic  pension
          cost for the years ended December 31:

                                                           1998    1997     1996
                                                           -----   -----   -----
                                                               (In thousands)

          Service cost - benefits earned during the year   $ 219     183    187
          Interest cost on projected benefit obligation      318     304    288
          Expected return on plan assets ...............    (471)   (398)  (362)
          Amortization of unrecognized net asset at
            transition .................................     (46)    (46)   (46)
          Amortization of unrecognized prior service
            cost .......................................       3       3      3
          Amortization of unrecognized net actuarial
            gain .......................................     (22)   --      --
                                                           -----   -----   -----
               Net periodic pension cost ...............  $    1      46     70
                                                           =====   =====   =====

                Prior service costs are amortized on a straight-line  basis over
                the average future  service period of active plan  participants.
                Unrecognized  net actuarial  gains or losses in excess of 10% of
                the  greater of the  projected  benefit  obligation  or the fair
                value  of  the  plan  assets  are  amortized  over  the  average
                remaining service period of active plan participants.

                The  assumptions  used  in  the  measurement  of  the  Company's
                projected  benefit  obligation and net periodic pension cost are
                shown in the table below:

                                                             1998   1997   1996
                                                             -----  -----  -----
                Weighted-average assumptions at December 31:
                  Discount rate                              6.50%  7.25%  7.75%
                  Rate of increase in future
                       compensation levels                   4.50   5.00   5.50
                  Expected return on plan assets             8.00   8.00   8.00

        (b)     401(k) Savings Plan

                The Company  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.  Prior to March 1,
                1997,  the Company  matched 50% of employee  contributions  that
                were less than or equal to 3% of the  employee's  salary.  After
                that date, there were no employee matching contributions.  Total
                expense  related to the  401(k)  plan  during  1997 and 1996 was
                approximately $5,000 and $38,000, respectively (none in 1998).


<PAGE>


        (c)     Employee Stock Ownership Plan

                As part of the conversion discussed in note 3, an employee stock
                ownership plan (ESOP) was  established to provide  substantially
                all  employees  of  the  Company  the   opportunity   to  become
                shareholders.  The ESOP  borrowed  $4.3 million from the Company
                and used the funds to purchase  433,780 shares of Company common
                stock  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, 1998 and
                1997,  the loan had an  outstanding  balance of $3.0 million and
                $3.5 million,  respectively.  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.

                The  Company  accounts  for the  ESOP  in  accordance  with  the
                American Institute of Certified Public Accountants' Statement of
                Position No. 93-6,  "Employers'  Accounting  for Employee  Stock
                Ownership Plans." 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 $816,000,
                $766,000 and  $527,000 of  compensation  expense  related to the
                ESOP during the years ended  December 31,  1998,  1997 and 1996,
                respectively.

                The ESOP shares as of December 31, 1998 were as follows:

                      Allocated shares                              103,525
                      Shares released for allocation                 48,498
                      Unallocated shares                            281,757
                                                                -----------
                                                                    433,780
                                                                ===========

                      Market value of unallocated shares
                          at December 31, 1998                   $5,001,187
                                                                ===========

        (d)     Stock Option Plan

                On May 23, 1997,  the Company's  shareholders  approved the 1997
                Stock Option and  Incentive  Plan  ("Stock  Option  Plan").  The
                primary  objective  of  the  Stock  Option  Plan  is to  provide
                officers  and  directors  with  a  proprietary  interest  in the
                Company as an incentive to encourage such persons to remain with
                the Company.


<PAGE>


                The Stock  Option Plan  provides for awards in the form of stock
                options,   stock   appreciation   rights   and   limited   stock
                appreciation  rights.  Under  the  Stock  Option  Plan,  542,225
                authorized  but unissued  shares are reserved for issuance  upon
                option  exercises.  The Company also has the alternative to fund
                the Stock Option Plan with  treasury  stock.  Options  under the
                plan may be either  non-qualified  stock  options  or  incentive
                stock options.  Each option  entitles the holder to purchase one
                share of common  stock at an  exercise  price  equal to the fair
                value on the date of grant.  Options  expire  no later  than ten
                years following the date of grant.

                Upon shareholder  ratification of the Stock Option Plan, options
                to purchase  373,974 shares were awarded at an exercise price of
                $13.75 per share.  These shares have a ten-year term and vest at
                a rate of 25% per year from the grant date.

                In addition, under the terms of the merger agreement with AFSALA
                discussed  in note 2, the Company  issued  154,206  fully-vested
                options with an exercise price of $12.97 in exchange for 144,118
                fully-vested  AFSALA  options with an exercise  price of $13.88.
                The estimated  fair value of these options was $9.95 per option.
                The issuance of these options was included in the computation of
                goodwill,  with the  offsetting  credit  to  additional  paid-in
                capital.

               A  summary  of the stock  option  activity  for the  years  ended
               December 31, 1998 and 1997 is presented below:

                                                            Weighted-Avg.
                                                  No. of       Exercise
                                                  Shares        Price
                                                --------       ------
          Granted on May 23, 1997 and
             outstanding at December 31, 1997    373,974    $   13.75
                     Exercised ..............     (9,489)       13.75
                     Forfeited ..............    (77,947)       13.75
                     Issued in acquisition ..    154,206        12.97
                                                --------       ------
          Outstanding at December 31, 1998       440,744    $   13.48
                                                ========       ======


<PAGE>


               The following table  summarizes  information  about the Company's
               stock options at December 31, 1998:

                                                 Weighted-Avg.
                 Exercise                         Remaining
                   Price          Outstanding  Contractual Life   Exercisable
                 --------         -----------  ----------------   -----------
                  $12.97             154,206      8.4 years         154,206
                   13.75             286,538      8.4 years          84,005
                                   ---------                      ---------
                                     440,744                        238,211
                                   =========                      =========

                All options have been granted at an exercise  price equal to the
                fair value of the common  stock at the grant date.  Accordingly,
                no compensation expense has been recognized for the Stock Option
                Plan.   SFAS   No.   123   requires   companies   not   using  a
                fair-value-based method of accounting for employee stock options
                or similar plans, to provide pro forma disclosures of net income
                and earnings per share as if that method of accounting  had been
                applied. The fair value of each option grant is estimated on the
                date of grant using the Black-Scholes  option-pricing model with
                the following  weighted-average  assumptions  used for grants in
                1997:  dividend yield of 1.32%;  expected  volatility of 40.90%;
                risk free interest rate of 5.48%;  and expected option life of 5
                years.  The estimated fair value of the options  granted in 1997
                was $5.30.

               Pro-forma  disclosures  for  the  Company  for  the  years  ended
               December 31, 1998 and 1997 are as follows:

                                 (In thousands, except per share data)
                                        1998        1997
                                        ----        ----
                  Net income:
                    As reported...  $    1,031      2,760
                    Pro-forma ....         740      2,533

                  Basic EPS:
                    As reported...        0.26       0.70
                    Pro-forma ....        0.19       0.64

                  Diluted EPS:
                    As reported...        0.26       0.69
                    Pro-forma ....        0.19       0.64

                The full impact of  calculating  compensation  expense for stock
                options under SFAS No. 123 is not reflected in the pro-forma net
                income amounts presented above because  compensation  expense is
                reflected over the options' vesting period of four years.


<PAGE>


                Because   the    Company's    employee    stock   options   have
                characteristics  significantly  different  from  those of traded
                options for which the  Black-Scholes  model was  developed,  and
                because  changes  in  the  subjective   input   assumptions  can
                materially affect the fair value estimate,  the existing models,
                in management's  opinion,  do not necessarily provide a reliable
                single measure of the fair value of its stock options.

        (e)     Recognition and Retention Plan

                On May 23, 1997,  the Company's  shareholders  also approved the
                Ambanc Holding Co., Inc.  Recognition  and Retention Plan (RRP).
                The purpose of the plan is to promote the long-term interests of
                the  Company and its  shareholders  by  providing a  stock-based
                compensation   program  to  attract  and  retain   officers  and
                directors.  Under  the RRP,  216,890  shares of  authorized  but
                unissued  shares are reserved for issuance  under the plan.  The
                Company also has the  alternative  to fund the RRP with treasury
                stock.

                On May 23, 1997,  131,285 shares were awarded under the RRP. The
                shares vest in four equal installments  commencing one year from
                the date of grant.  The fair market value of the shares  awarded
                under the plan at the  grant  date was  $13.75  per share and is
                being  amortized  to expense on a  straight-line  basis over the
                four year  vesting  period.  During  1998,  29,331  unvested RRP
                shares were  forfeited and  transferred to treasury stock at the
                grant date fair market value of $13.75 per share.

        (f)     Postretirement  Benefits

                Certain  postretirement  health  insurance  benefits  have  been
                committed  to a closed group of 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
                6.0% 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 cost in 1998, 1997 and
                1996 was approximately $26,000 in each year.

        (g)     Directors' Deferred Compensation Agreements

                Under  the  Directors'  Deferred  Compensation  Agreements,  the
                Company's  directors  were  eligible  to elect to defer fees for
                services  that  were  otherwise  currently  payable.  Fees  were
                deferred over a period of five years.  The Company  utilized the
                deferred  fees to purchase life  insurance  policies to fund the
                benefits   on  each   director   with  the  Bank  named  as  the
                beneficiary.  Each  director  participating  in such  agreements
                deferred  their fees over a five year  period  with a set amount
                established  as an annual  payout over a ten year  period  after
                five years from the date of the  agreement or upon  reaching the
                age  of  65,  whichever  is  later.  The  present  value  of the
                remaining   installments   due  under   these   agreements   was
                approximately  $616,000  and  $562,000 at December  31, 1998 and
                1997, respectively,  and is included in other liabilities in the
                consolidated   statements  of  financial  condition.   The  cash
                surrender value of the life insurance policies was approximately
                $221,000   and   $214,000  at   December   31,  1998  and  1997,
                respectively,   and  is   included   in  other   assets  in  the
                consolidated statements of financial condition.


<PAGE>


(13)    Earnings Per Share

        The calculation of basic EPS and diluted EPS is as follows:
<TABLE>
<CAPTION>
                                                                       Weighted
                                                             Net        Average   Per Share
                                                           Income        Shares     Amount
                                                          --------     ---------  ---------  
                                                     (In thousands, except share and per share data)
        For the year ended December 31, 1998
<S>                                                      <C>          <C>            <C>  
           Basic EPS
           Net income available to common shareholders   $  1,031     3,916,047      $0.26
                                                         ========                    =====
           Effect of Dilutive Securities
           Stock options                                                 49,043
           Unvested RRP shares                                           24,155
                                                                      ---------
           Diluted EPS
           Net income available to common shareholders plus
                assumed conversions                      $  1,031     3,989,245      $0.26
                                                         ========     =========      =====

                                                                       Weighted
                                                             Net        Average   Per Share
                                                           Income        Shares     Amount
                                                          --------     ---------  ---------  
                                                     (In thousands, except share and per share data)

        For the year ended December 31, 1997

           Basic EPS
           Net income available to common shareholders   $  2,760     3,940,867      $0.70
                                                         ========                    =====
           Effect of Dilutive Securities
           Stock options                                                 24,285
           Unvested RRP shares                                           16,374
                                                                      ---------
           Diluted EPS
           Net income available to common shareholders plus
                assumed conversions                      $  2,760     3,981,526      $0.69
                                                         ========     =========      =====

</TABLE>

<PAGE>
<TABLE>
<CAPTION>

                                                                       Weighted
                                                             Net        Average   Per Share
                                                           Income        Shares     Amount
                                                          --------     ---------  ---------  
                                                     (In thousands, except share and per share data)

        For the year ended December 31, 1996
<S>                                                     <C>           <C>           <C>    
           Basic EPS
           Net loss applicable to common shareholders   $ (3,836)     4,761,393     $(0.81)
                                                         ========                    =====
           Effect of Dilutive Securities
           No dilutive securities during 1996

           Diluted EPS
           Net loss applicable to common shareholders   $ (3,836)     4,761,393     $(0.81)
                                                         ========     =========      =====
</TABLE>

(14)    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  brought by the  current
                owners of F. H. Doherty  Associates,  Inc., a company  which the
                Bank sold to the current  owners.  The action  sought to rescind
                the sale of stock, recover any additional capital  contributions
                made by the plaintiffs,  as well as certain punitive damages and
                indemnification  on a potential  claim.  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 to 1996 operations.


<PAGE>


        (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 pledged security. 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 on the demand account and standby
                letter of credit.

                During 1996, the Company received a cash payment of $233,000 for
                its  demand  account  balance,  issued a new  standby  letter of
                credit for $150,000 to the  Superintendent,  and  cancelled  the
                initial  standby  letter  of  credit.  Concurrent  with  the new
                standby  letter of  credit,  the  Company  was  required  to pay
                $58,000 under the original  standby letter of credit  agreement,
                which  was  charged  against  the  reserve.   Subsequently,  the
                $150,000  standby  letter of credit was canceled and the Company
                was released from any further  liability in connection  with its
                agreement  with  the  Superintendent.   During  1997,  the  Bank
                received  approximately  $45,000  from the  Superintendent  as a
                partial recovery of the amounts previously charged off, which is
                included in other income.

        (c)     Lease Commitments

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


                                                       (In thousands)
                     Years ending December 31,
                          1999                  $              493
                          2000                                 281
                          2001                                 214
                          2002                                 152
                          2003                                 106
                          2004 and thereafter                  816
                                                  ----------------
                                                $            2,062
                                                  ================

               Amounts  charged to rent  expense  were  approximately  $385,000,
               $315,000 and $225,000 for the years ended December 31, 1998, 1997
               and 1996.


<PAGE>


        (d)     Off-Balance Sheet Financial  Instruments  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  amounts  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.

                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.


<PAGE>


          Contract  amounts  of  financial  instruments  with  off-balance-sheet
          credit  risk as of December  31,  1998 and 1997 at fixed and  variable
          interest rates are as follows:

                                                   Fixed   Variable    Total
                                                  -------  --------   -------
                                                        (In thousands)
                1998:
                   Commitments to extend credit   $12,004       514    12,518
                   Unused lines of credit .....     2,665     3,375     6,040
                   Standby letters of credit ..      --          30        30
                                                  -------   -------   -------
                                                  $14,669     3,919    18,588
                                                  =======   =======   =======


                1997:
                   Commitments to extend credit   $ 3,797       393     4,190
                   Unused lines of credit .....     1,025     4,336     5,361
                   Standby letters of credit ..      --         100       100
                                                  -------   -------   -------
                                                  $ 4,822     4,829     9,651
                                                  =======   =======   =======

                The range of interest rates on fixed rate  commitments was 6.50%
                to 12.50% at  December  31,  1998 and 5.50% to 8.75% at December
                31,  1997.  All  variable  rate  commitments  were at  8.75%  at
                December  31,  1998,  and ranged from 6.75% to 7.25% at December
                31, 1997.


(15)    Fair Values of Financial Instruments

        A  financial  instrument  is  defined  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.


<PAGE>


        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 assets and  liabilities,  and  premises  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. There also are significant  intangible assets that the fair value
        estimates do not recognize, such as the value of "core deposits" and the
        Company's branch network.

        Financial Assets and Liabilities

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

             Securities Available for Sale

             The fair value of  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.

             Loans

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


<PAGE>


             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.

             The fair  value for  significant  non-performing  loans is based on
             recent  external  appraisals  and  discounted  cash flow  analyses.
             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

             The  fair  value  of  deposits  with no  stated  maturity,  such as
             non-interest  bearing  demand  deposits,   savings  accounts,   NOW
             accounts  and money  market  accounts,  is the  amount  payable  on
             demand.  The fair value of time deposits is based on the discounted
             value of  contractual  cash flows.  The discount  rate is estimated
             using  the  rates  currently  offered  for  deposits  with  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.

             FHLB Advances and Securities Sold Under Agreements to Repurchase

             The  fair  value  of  FHLB  advances  and  securities   sold  under
             agreements to repurchase 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  FHLB advances and  securities  sold
             under   agreements  to  repurchase  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
             the carrying  value due to the nature of the  financial  instrument
             and the period  within which it will be settled or  repriced:  cash
             and cash  equivalents,  FHLB stock,  accrued  interest  receivable,
             advances from borrowers for taxes and insurance,  accrued  interest
             payable and due to brokers.


<PAGE>


               The carrying values and estimated fair values of financial assets
               and liabilities as of December 31, 1998 and 1997 were as follows:
<TABLE>
<CAPTION>
                                                                         1998                     1997
                                                                ----------------------   ----------------------
                                                                             Estimated                Estimated
                                                                 Carrying       Fair      Carrying       Fair
                                                                   Value        Value       Value        Value
                                                                ---------    ---------   ---------    ---------
                                                                                (In thousands)
<S>                                                             <C>             <C>         <C>          <C>   
           Financial assets:
               Cash and cash equivalents ....................   $  42,815       42,815      10,259       10,259
               Securities available for sale ................     244,241      244,241     205,808      205,808
               FHLB of New York stock .......................       7,215        7,215       3,291        3,291

               Loans ........................................     425,824      423,163     284,930      280,765
                 Less:  Allowance for loan losses ...........      (4,891)        --        (3,807)        --
                                                                ---------    ---------   ---------    ---------
                         Loans receivable, net ..............     420,933      423,163     281,123      280,765
                                                                =========    =========   =========    =========

               Accrued interest receivable ..................       4,115        4,115       3,734        3,734

          Financial liabilities:
               Deposits:
                    Demand, savings, money market, and NOW
                       accounts .............................     233,408      233,408     149,933      149,933
                    Time deposits ...........................     228,005      230,399     183,332      184,208
               FHLB overnight advances ......................        --           --        12,300       12,300
               FHLB term advances ...........................      21,410       21,419        --           --
               Securities sold under agreements to repurchase     152,400      153,340      99,250       98,706
               Advances from borrowers for taxes and
                    insurance ...............................       2,436        2,436       1,902        1,902
               Accrued interest payable .....................       1,426        1,426         819          819
               Due to brokers ...............................       6,000        6,000        --           --
</TABLE>

        Commitments to Extend Credit and Standby Letters of Credit

        The fair value of commitments to extend credit is estimated based on the
        fees  currently  charged to enter into similar  agreements,  taking into
        account  the  remaining   terms  of  the   agreements  and  the  present
        creditworthiness of the counterparties. For fixed rate loan commitments,
        fair value also considers the difference  between current interest rates
        and the committed  rates. The fair value of standby 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. The Company believes that the carrying value of
        these off-balance sheet financial  instruments equals fair value and the
        amounts are not significant.


<PAGE>


(16)    Regulatory Capital Requirements

        Office of Thrift Supervision (OTS) capital  regulations  require savings
        institutions to maintain minimum levels of regulatory capital. Under the
        regulations  in effect at December  31,  1998,  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% to 4.0%; 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 of December 31, 1998 and 1997, the Bank met
        all capital adequacy requirements to which it was 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.


<PAGE>


        The  following  is a summary of the Bank's  actual  capital  amounts and
        ratios as of  December  31,  1998 and  1997.  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.

                                          1998                1997
                                   -----------------    -----------------
                                   Amount      Ratio    Amount      Ratio
                                   ------      -----    ------      -----
                                           (Dollars in thousands)
          Bank
          ----
          Tangible capital ....   $63,509       8.83%  $49,722       9.88%
          Tier 1 (core) capital    63,509       8.83    49,722       9.88
          Risk-based capital:
            Tier 1 ............    63,509      20.73    49,722      23.42
            Total .............    67,351      21.99    52,390      24.68

          Consolidated
          ------------
          Tangible capital ....    77,600      10.68    61,476      11.99
          Tier 1 (core) capital    77,600      10.68    61,476      11.99
          Risk-based capital:
            Tier 1 ............    77,600      25.17    61,476      28.79
            Total .............    81,442      26.42    64,159      30.04



<PAGE>


(17)    Holding Company Financial Information

        The Holding Company's  statements of financial  condition as of December
        31, 1998 and 1997,  and the related  statements of income and cash flows
        for the years  ended  December  31,  1998,  1997 and 1996 are  presented
        below. These financial statements should be read in conjunction with the
        Company's consolidated financial statements and notes thereto.

                              Statements of Financial Condition
                                                                  1998     1997
                                                                 ------   ------
                                                                  (In thousands)
                                             Assets

          Cash and cash equivalents .......................... $  3,516    1,046
          Securities available for sale* .....................    6,097    9,400
          Loan receivable from subsidiary ....................    3,036    3,470
          Accrued interest receivable ........................       64      115
          Investment in subsidiary ...........................   71,797   49,467
          Other assets .......................................    1,570      334
                                                                 ------   ------
                    Total assets ............................. $ 86,080   63,832
                                                                 ======   ======

                         Liabilities and Shareholders' Equity

          Liabilities:
               Security sold under agreement to repurchase** . $   --      2,600
               Other liabilities .............................      187       30

          Shareholders' equity ...............................   85,893   61,202
                                                                 ------   ------

                    Total liabilities and shareholders' equity $ 86,080   63,832
                                                                 ======   ======


          *  The Holding  Company's  securities  available for sale consisted of
             U.S.  Government  agency  and  mortgage-backed  securities  with  a
             contractual  weighted-average  maturity  of 9.1 years (2.2 years to
             call date) and 2.9 years (none  callable)  at December 31, 1998 and
             1997, respectively.

          **  Weighted-average  rate at  December  31,  1997  was  5.91%  with a
              maturity date of February 20, 1998.


<PAGE>
<TABLE>
<CAPTION>
                              Statements of Income
                                                                   1998      1997     1996
                                                                  ------    ------   ------
                                                                       (In thousands)
<S>                                                                  <C>       <C>    <C>  
          Income:
               Dividends from bank subsidiary ................. $  5,000     --        --
               Interest income ................................      649       868    1,128
               Other income ...................................        1      --       --
                                                                  ------    ------   ------
                    Total income ..............................    5,650       868    1,128
                                                                  ------    ------   ------

          Expenses:
               Interest expense ...............................       34       170        2
               Net loss (gain) on securities transactions .....     --         153       (1)
               RRP expense ....................................      371       272     --
               Other expenses .................................      735       221      310
                                                                  ------    ------   ------
                    Total expenses ............................    1,140       816      311
                                                                  ------    ------   ------

          Income before taxes and effect of subsidiary earnings
               and distributions ..............................    4,510        52      817

          Income tax (benefit) expense ........................     (199)       21      328
                                                                  ------    ------   ------

          Income before effect of subsidiary earnings and
               distributions ..................................    4,709        31      489

          Effect of subsidiary earnings and distributions:
                 Distributions in excess of earnings ..........   (3,678)     --       --
                 Equity in undistributed earnings (loss) ......     --       2,729   (4,325)
                                                                  ------    ------   ------
          Net income (loss) ................................... $  1,031     2,760   (3,836)
                                                                  ======    ======   ======
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
                                                                  
                            Statements of Cash Flows


                                                                                 1998        1997       1996
                                                                               --------    --------    --------
                                                                                          (In thousands)
<S>                                                                            <C>            <C>        <C>    
Increase (decrease) in cash and cash equivalents:
          Cash flows from operating activities:
            Net income (loss) ..............................................   $  1,031       2,760      (3,836)
            Adjustment to reconcile net income (loss) to net cash provided
               by (used in) operating activities:
                    Distributions in excess of subsidiary earnings .........      3,678        --          --
                    Equity in undistributed (earnings) loss of subsidiary ..       --        (2,729)      4,325
                    Net loss (gain) on securities transactions .............       --           153          (1)
                    RRP expense ............................................        371         272        --
                    Increase in accrued interest receivable and other assets     (1,124)       (274)       (163)
                    Increase (decrease) in other liabilities ...............        157        (341)        371
                                                                               --------    --------    --------
                              Net cash provided by (used in)
                                   operating activities ....................      4,113        (159)        696
                                                                               --------    --------    --------
          Cash flows from investing activities:
            Purchases of securities available for sale .....................     (7,998)    (11,052)    (19,985)
            Proceeds from principal paydowns and maturities of securities
                 available for sale ........................................     11,338       8,159       3,984
            Proceeds from sales of securities available for sale ...........       --         7,515       1,796
            Payments received on loan receivable from subsidiary ...........        434         434         434
            Net cash acquired in acquisition ...............................      2,297        --          --
                                                                               --------    --------    --------
                              Net cash provided by (used in) investing
                                   activities ..............................      6,071       5,056     (13,771)
                                                                               --------    --------    --------
          Cash flows from financing activities:
            Net (decrease) increase in securities sold under agreements to
                 repurchase ................................................     (2,600)       (400)      3,000
            Purchases of treasury stock ....................................     (4,111)     (3,488)    (11,208)
            Exercises of stock options .....................................        130        --          --
            Dividends paid .................................................     (1,133)       (432)       --
                                                                               --------    --------    --------
                              Net cash used in financing activities ........     (7,714)     (4,320)     (8,208)
                                                                               --------    --------    --------
          Net increase (decrease) in cash and cash equivalents .............      2,470         577     (21,283)
          Cash and cash equivalents:
               Beginning of year ...........................................      1,046         469      21,752
                                                                               --------    --------    --------
               End of year .................................................   $  3,516       1,046         469
                                                                               ========    ========    ========
</TABLE>

<PAGE>
                      CORPORATE AND SHAREHOLDER 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 of
the Company's  Common Stock during 1997 and 1998. 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.

                                        Dividends
                      High       Low    Per Share
1997 First Quarter   14.875    11.125     $0.00
1997 Second Quarter  16.625    12.500      0.00
1997 Third Quarter   16.500    15.125      0.05
1997 Fourth Quarter  19.750    15.375      0.05

1998 First Quarter   19.375    16.750     $0.06
1998 Second Quarter  20.000    16.500      0.06
1998 Third Quarter   19.250    11.750      0.06
1998 Fourth Quarter  17.750    12.000      0.07

     For  information  regarding  restrictions  on dividends,  see Note 3 to the
Notes to Consolidated Financial Statements.

As of March 29, 1999, the Company had approximately 1,382 shareholders of record
and 5,315,463 outstanding shares of Common Stock.


Special Counsel

                  Silver, Freedman & Taff, L.L.P.
                  1100 New York Avenue, N.W.
                  Washington, D.C. 20005-3934
                  Telephone:  (202) 414-6100


<PAGE>
Independent Auditors

                  KPMG LLP
                  515 Broadway
                  Albany, NY  12207
                  Telephone:  (518) 427-4600


Investor Relations


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

                  Sandra Hammond, Assistant Vice President
                  Executive Asst./Investor Relations
                  Ambanc Holding Co., Inc.
                  11 Division Street
                  Amsterdam, New York 12010-4303
                  Telephone:  (518) 842-7200
                  Fax:  (518) 842-1688


Annual Report on Form 10-K


     Copies of Ambanc Holding Co.,  Inc.'s Annual Report for year ended December
31, 1998 on Form 10-K filed with the  Securities  and  Exchange  Commission  are
available without charge to shareholders upon written request to:

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


Annual Meeting


     The annual  meeting of  shareholders  will be held at 10:00 a.m.,  New York
time, on Friday, May 28, 1999 at the Best Western,  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  shareholder  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

<PAGE>

Mohawk Community Bank Offices:

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

Traditional Branches:

11 Division Street, Amsterdam, NY  12010
161 Church Street, Amsterdam, NY 12010
Route 30N, Amsterdam, NY 12010
Route 30 & Maple Avenue, Amsterdam, NY  12010
Riverfront Center, Amsterdam, NY  12010
Grand Union Plaza, Route 50, Ballston Spa, NY  12020
Village Plaza, Clifton Park, NY  12068
19 River Street, Fort Plain, NY  13339
Arterial at Fifth Avenue, Gloversville, NY 12078
5 New Karner Road, Guilderland, NY  12084


Supermarket Branches:

Price Chopper Supermarkets:
Sanford Farms Plaza, Amsterdam, NY  12010
873 New Loudon Rd., Latham, NY 12110
1640 Eastern Parkway, Schenectady, NY 12309
115 Ballston Avenue, Saratoga, NY  12866
Route 50, Saratoga, NY  12866
5631 State Highway 12, Norwich, NY  13815

Hannaford Supermarkets:
235 Fifth Avenue Ext., Gloversville, NY  12078
Route 28, Oneonta, NY  13850

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




<PAGE>
DIRECTORS AND OFFICERS


Board of Directors
------------------
(Ambanc Holding Co., Inc. and Mohawk Community Bank)              Year appointed
                                                                  to Bank Board

Lauren T. Barnett, Barnett Agency, Inc., Chairman of the Board          1966
John M. Lisicki, President & Chief Executive Officer                    1998
Paul W. Baker, Retired, Morrison & Putman Music Store                   1963
James J. Bettini, Vice President, Farm Family Insurance                 1998
John J. Daly, Alpin Haus                                                1988
Robert J. Dunning D.D.S., Dentist                                       1972
Lionel H. Fallows, Retired, Lieutenant Colonel                          1981
Dr. Daniel J. Greco, Retired, School Superintendent                     1998
Marvin R.  LeRoy, Jr., Alzheimers Association, Northeastern NY Chapter  1996
Charles S. Pedersen, Independent Manufacturers' Representative          1977
Carl A. Schmidt, Jr., Sofco, Inc.                                       1974
Dr. Ronald S. Tecler, Dentist                                           1998
John A. Tesiero, Jr., Owner, Construction Supply Business               1998
William A. Wilde, Jr., Amsterdam Printing and Litho Corp.               1966
Charles E. Wright, President, WW Custom Clad                            1998


Executive Officers of Ambanc Holding Co., Inc. and Mohawk Community Bank
------------------------------------------------------------------------

John M. Lisicki            President/Chief Executive Officer
James J. Alescio           Sr.Vice President/Treasurer/Chief Financial Officer
Benjamin Ziskin            Sr. Vice President/Sr. Consumer Lending Officer
Thomas Nachod              Sr. Vice President/Sr. Commercial Lending Officer
Robert Kelly               Vice President/General Counsel/Secretary


<PAGE>