UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                    FORM 10-K

[X] ANNUAL  REPORT  PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES  EXCHANGE
    ACT OF 1934
            For the fiscal year ended December 31, 1997
                                       OR
[ ] TRANSITION  REPORT  PURSUANT  TO SECTION  13 OR 15 (d) OF THE  SECURITIES
    EXCHANGE ACT OF 1934 For the transition  period  from_______ to  __________.
    Commission file number: 0-27036

                            AMBANC HOLDING CO., INC.
------------------------------------------------------------------------------
             (Exact name of registrant as specified in its charter)

            Delaware                                  14-1783770
-------------------------------------     -------------------------------------
  (State or other jurisdiction of         (I.R.S. Employer Identification No.)
    incorporation or organization)

11 Division Street, Amsterdam, New York                          12010-4303
-------------------------------------------------------------------------------
(Address of principal executive offices)                         (Zip Code)

Registrant's telephone number, including area code:       (518)842-7200
                                                    ---------------------------
         Securities Registered Pursuant to Section 12(b) of the Act:

                                      None
         -----------------------------------------------------------
         Securities Registered Pursuant to Section 12(g) of the Act:

                          Common Stock, $.01 par value
         -----------------------------------------------------------
                                (Title of class)

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

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

     The aggregate  market value of the voting stock held by  non-affiliates  of
the  registrant,  computed  by  reference  to the average of the closing bid and
asked prices of such stock on the Nasdaq  National  Market as of March 27, 1998,
was  $78,061,715.  (The  exclusion  from such amount of the market  value of the
shares owned by any person  shall not be deemed an  admission by the  registrant
that such person is an affiliate of the registrant.)

     As of March 27, 1998, there were issued and outstanding 4,258,418 shares of
the Registrant's Common Stock.
<PAGE>
                       DOCUMENTS INCORPORATED BY REFERENCE


     Parts  II  and  IV of  Form  10-K  -  Portions  of  the  Annual  Report  to
Shareholders for the year ended December 31, 1997.


     Part III of Form 10-K -  Portions  of the Proxy  Statement  for the  Annual
Meeting of Shareholders for the year ended December 31, 1997.


                                     PART I


Item 1.  Description of Business


General


     Ambanc  Holding  Co.,  Inc.  (the  "Company")  was  formed  as  a  Delaware
corporation  in June 1995 to act as the holding  company for  Amsterdam  Savings
Bank, FSB (the "Bank") upon the completion of the Bank's  conversion from mutual
to stock form (the "Conversion").  The Company received approval from the Office
of Thrift Supervision (the "OTS") to acquire all of the common stock of the Bank
to be  outstanding  upon  completion  of  the  Conversion.  The  Conversion  was
completed on December 26, 1995. The Company's  Common Stock trades on The Nasdaq
National Market under the symbol "AHCI".  All references to the Company,  unless
otherwise indicated, at or before December 26, 1995 refer to the Bank.

     At  December  31,  1997,  the  Company  had  $510.4  million  of assets and
shareholders' equity of $61.2 million or 12% of total assets.

     The  Bank,  organized  in  1886,  is a  federally  chartered  savings  bank
headquartered  in  Amsterdam,  New  York.  The  principal  business  of the Bank
consists of attracting  retail  deposits from the general public and using those
funds,  together with borrowings and other funds, to originate primarily one- to
four-family  residential  mortgage loans,  home equity loans and consumer loans,
and to a lesser extent,  commercial and multi-family real estate, and commercial
business  loans in the Bank's  primary  market area. See "Market Area." The Bank
also  invests  in  mortgage-backed   securities,   U.S.  Government  and  agency
obligations and other  permissible  investments.  Revenues are derived primarily
from interest on loans, mortgage-backed and related securities and investments.

     The Bank  offers a  variety  of  deposit  accounts  having a wide  range of
interest  rates and terms.  The Bank is a member of the Bank Insurance Fund (the
"BIF"), which is administered by the Federal Deposit Insurance  Corporation (the
"FDIC").  Its deposits are insured up to  applicable  limits by the FDIC,  which
insurance  is  backed  by  the  full  faith  and  credit  of the  United  States
Government.  The Bank primarily solicits deposits in its primary market area and
currently does not have brokered  deposits.  The Bank is a member of the Federal
Home Loan Bank (the "FHLB") System.

     The  Company's  and the Bank's  executive  office is located at 11 Division
Street,  Amsterdam,  New York,  12010-4303,  and its  telephone  number is (518)
842-7200.


                                       2
<PAGE>


     When used in this annual  Report on Form 10-K,  the words or phrases  "will
likely  result",   "are  expected  to",  "will  continue",   "is   anticipated",
"estimate",   "project"  or  similar   expressions   are  intended  to  identify
"forward-looking  statements"  within  the  meaning  of the  Private  Securities
Litigation  Reform Act of 1995. Such statements are subject to certain risks and
uncertainties  -  including,  changes in economic  conditions  in the  Company's
market  area,  changes in  policies  by  regulatory  agencies,  fluctuations  in
interest rates,  demand for loans in the Company's  market area and competition,
that could cause actual results to differ  materially from  historical  earnings
and those  presently  anticipated  or projected.  The Company  wishes to caution
readers not to place  undue  reliance  on any such  forward-looking  statements,
which speak only as of the date made.  The Company wishes to advise readers that
the factors listed above could affect the Company's  financial  performance  and
could cause the Company's actual results for future periods to differ materially
from any opinions or statements  expressed with respect to future periods in any
current statements.

     The Company does not undertake - and specifically  disclaims any obligation
- to  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.


Market Area


     The  Company's  primary  market area is comprised  of Albany,  Schenectady,
Saratoga,  Montgomery,  and  Fulton  Counties  in New York,  which are  serviced
through the Bank's main office,  eleven other banking offices and its operations
center.  The Bank also operates two offsite automated teller machines.

     The  Company's  primary  market area consists  principally  of suburban and
rural communities but also includes the capital of New York State,  Albany.  The
economy  of  the  Company's   primary   market  area  is  highly   dependent  on
manufacturing,  state government services (including the State University of New
York at Albany),  and private  higher  education  services.  These three sectors
provide the basis for the  region's  economy and the  principal  support for its
remaining  sectors,  such  as  retail  trade,  finance,  and  medical  services.
Significant  reductions in two of the region's main sectors,  manufacturing  and
state  government,  from  completed,  announced,  and  anticipated  layoffs  and
relocations  will  continue  to have a  negative  effect on the  economy  in the
Company's primary market area.

     Saratoga  County,  where the Bank operates two (2)  traditional and two (2)
supermarket  branches,  is the fastest  growing  county in the Company's  market
area.  From 1980 to 1990 the  population  in  Saratoga  County grew by 27,517 or
17.9% to 181,276.  For the same period,  the number of  households  increased by
14,490, or 27.9% to 66,425.

     Montgomery County,  where the main office of the Company is located, is the
least  populated  county  in  the  Company's  primary  market  area  with a 1990
population of approximately  51,981.  Albany County, where the Bank operates one
traditional branch (Guilderland) and one supermarket branch (Latham) is the most
populated  county  in the  Company's  market  area  with a  1990  population  of
approximately 292,594.


                                       3
<PAGE>


     The  Capital  District  Regional  Planning  Commission  (CDRPC) in its most
recent population and household  projections (1997) has projected the population
in the Capital  District to increase by 97,331 persons or 12.5% between 1990 and
2030. Saratoga County is projected to experience the greatest amount and rate of
growth rising from 181,276  persons in 1990 to 234,085  persons in 2030, a 29.1%
increase.

     The most significant population growth is expected to occur in suburban and
rural  communities,  while  population  in many of the  cities and  villages  is
projected to remain the same or slightly  decline.  The communities  expected to
experience the largest net increase in population  between 1990 and 2030 include
Clifton Park (Saratoga County), up 12,862 or 42.7%; Guilderland (Albany County),
up 8,211 or 27.4%;  Colonie  (Albany  County),  up 6,805 or 24.7%;  and Halfmoon
(Saratoga County), up 6,618 or 47.7%.


Lending Activities


     General


     The  Company  primarily  originates  fixed- and  adjustable  rate,  one- to
four-family  mortgage  loans.  The  Company's  general  policy  is to  originate
mortgages with terms between 15 and 30 years for retention in its portfolio. The
Company also originates  fixed and adjustable  rate consumer  loans.  Adjustable
rate mortgage ("ARM"), home equity and consumer loans are originated in order to
maintain loans with more frequent terms to repricing or shorter  maturities than
fixed-rate,   one-  to  four-family   mortgage  loans.  See  "-  Loan  Portfolio
Composition"  and "- One- to Four-Family  Residential  Real Estate  Lending." In
addition,  the Company  originates  commercial  and  multi-family  real  estate,
construction and commercial business loans in its primary market area; although,
the  originations  of these types of loans has recently been  de-emphasized.  In
1997  the  Company  initiated  an  FHA  loan  program   primarily   directed  at
low-to-moderate  income borrowers with terms up to 30 years.  Loan  originations
are generated by the Company's marketing efforts,  which include print and radio
advertising,  lobby  displays and direct  contact with local civic and religious
organizations,  as well as by the Company's present customers, walk-in customers
and referrals  from real estate  agents,  brokers and builders.  At December 31,
1997, the Company's net loan portfolio totaled $281.1 million.

     Loan  applications are initially  considered and approved at various levels
of authority, depending on the type, amount and loan-to-value ratio of the loan.
Bank employees with lending  authority are  designated,  and their lending limit
authority  defined,  by the Board of Directors of the Bank.  The approval of the
Bank's  Board of  Directors  is  required  for any  commercial  real  estate  or
commercial  business loan whose aggregate  borrowings are in excess of $250,000,
and  for  all  other  loans  in  excess  of  $500,000.  The  Bank  also  has  an
Officer/Director  Loan  Committee  which has  authority to approve loans between
$250,000  and  $2,000,000  and meets as needed to approve  loans  between  Board
meetings.

     The  aggregate  amount of loans  that the Bank is  permitted  to make under
applicable federal regulations to any one borrower,  including related entities,
or the aggregate amount that the Bank could have invested in any one real estate
project is  generally  the greater of 15% of  unimpaired  capital and surplus or
$500,000.  See  "Regulation - Federal  Regulation of Savings  Associations."  At
December  31, 1997,  the maximum  amount which the Bank could have loaned to any
one borrower and the borrower's related entities was approximately $7.4 million.
At such  date,  the Bank did not have any loans or  series  of loans to  related
borrowers with an outstanding balance in excess of this amount.


                                       4
<PAGE>



     At December 31, 1997, the Company's largest lending relationship  consisted
of a $1.4  million  loan  secured  by a strip  shopping  center.  The next three
largest lending  relationships  at December 31, 1997 consisted of a $1.2 million
loan secured by a motel,  a $1.1 million loan secured by a day treatment  center
for the mentally retarded and developmentally  disabled individuals,  and a $1.0
million  lending  relationship  consisting  of 20  loans  secured  by 20  one-to
four-family  properties.  At  December  31,  1997,  there were no other loans or
lending  relationships  equal  to or in  excess  of  $1.0  million.  All  of the
foregoing loans were current at December 31, 1997.


     Loan Portfolio Composition.


     The following table presents information  concerning the composition of the
Company's loan portfolio in dollar amounts and in percentages  (before  deferred
costs net of deferred fees and discounts  and  allowances  for losses) as of the
dates indicated.
<TABLE>
<CAPTION>
                                                                                December 31,
                                       --------------------------------------------------------------------------------------------
                                             1997               1996               1995               1994               1993
                                        Amount  Percent    Amount  Percent    Amount  Percent    Amount  Percent    Amount  Percent
                                       --------  ------   --------  ------   --------  ------   -------  -------   -------  ------
                                                                          (Dollars in Thousands)
<S>                                    <C>        <C>     <C>        <C>     <C>        <C>     <C>        <C>     <C>       <C>
Real Estate Loans:
     One- to four-family               $189,666   66.88%   158,182   63.15%  $133,468   53.20% $140,418    53.63% $116,441    52.18%
     Home Equity                         30,246   10.67     22,817    9.11     17,519    6.98    16,715     6.39    16,135     7.23
     Multi-family                         4,152    1.46      4,724    1.88      8,176    3.26     8,718     3.33    10,978     4.92
     Commercial                          26,585    9.38     29,947   11.96     41,929   16.71    46,736    17.85    51,528    23.09
     Construction                         2,081    0.73      2,234    0.89      1,073    0.43     4,809     1.84       812     0.36
                                       --------  ------   --------  ------   --------  ------  --------  -------   -------   ------
        Total Real Estate               252,730   89.12    217,904   86.99    202,165   80.58   217,396    83.04   195,894    87.78
                                       --------  ------   --------  ------   --------  ------  --------  -------   -------   ------
Other Loans:
 Consumer Loans
     Auto Loans                          16,237    5.73     12,417    4.96      9,337    3.72     4,765     1.82     1,147     0.52
     Recreational Vehicles                6,775    2.39      9,416    3.76     12,881    5.13    12,352     4.72     7,908     3.54
     Manufactured Homes                     494    0.17        620    0.25     13,484    5.37    15,161     5.79     5,751     2.58
     Other Secured                        1,781    0.63      1,866    0.74      2,020    0.81     2,065     0.79     3,867     1.73
     Unsecured                            1,847    0.65      1,445    0.58      1,299    0.52     1,398     0.53     1,499     0.67
                                       --------  ------   --------  ------   --------  ------   -------  -------   -------  ------
        Total Consumer Loans             27,134    9.57     25,764   10.29     39,021   15.55    35,741    13.65    20,172     9.04
                                       --------  ------   --------  ------   --------  ------   -------  -------   -------  ------
Commercial Business Loans:
     Secured                              3,233    1.14      6,199    2.47      9,346    3.73     8,332     3.18     6,810     3.05
     Unsecured                              471    0.17        620    0.25        350    0.14       339     0.13       279     0.13
                                       --------  ------   --------  ------   --------  ------   -------  -------   -------  ------
        Total Commercial
        Business Loans                    3,704    1.31      6,819    2.72      9,696    3.87     8,671     3.31     7,089     3.18
                                       --------  ------   --------  ------   --------  ------   -------  -------   -------  ------
Total Loan Portfolio, Gross             283,568  100.00%   250,487  100.00%   250,882  100.00%  261,808   100.00%  223,155   100.00%
                                                 ======             ======             ======             ======             ======
 Deferred costs, net of deferred
     fees and discounts                   1,362              1,045              1,756             2,008                741
 Allowance for Loan Losses               (3,807)            (3,438)            (2,647)           (2,235)            (3,249)
                                       --------           --------           --------          --------           --------
Total Loans Receivable, Net            $281,123           $248,094           $249,991          $261,581           $220,647
                                       ========           ========           ========          ========           ========
</TABLE>


                                       5
<PAGE>


     The following  table shows the  composition of the Company's loan portfolio
by fixed- and adjustable-rate at the dates indicated.
<TABLE>
<CAPTION>
                                                                              December 31,
                                   ------------------------------------------------------------------------------------------------
                                          1997                1996                1995                1994                1993
                                   -------------------------------------------------------------------------------------------------
                                    Amount   Percent    Amount   Percent    Amount   Percent    Amount   Percent    Amount   Percent
                                   --------  -------   --------  -------   --------  -------   --------  -------   --------  -------
                                                                         (Dollars in thousands)
<S>                                <C>        <C>      <C>        <C>      <C>        <C>      <C>        <C>      <C>        <C>
Fixed Rate Loans:
Real Estate:
     One- to four-family           $124,457   43.89%   $111,841   44.65%   $ 91,528   36.48%   $ 91,299   34.87%   $ 68,377   30.64%
     Home Equity                     23,099    8.14%     15,234    6.08%      8,405    3.35%      6,689    2.56%      5,586    2.50%
     Commercial and Multi-family      2,723    0.96%      2,590    1.03%      2,633    1.05%     13,144    5.02%     17,918    8.03%
     Construction                     2,081    0.73%      1,840    0.73%        633    0.25%      4,809    1.84%        812    0.36%
                                   --------  -------   --------  -------   --------  -------   --------  -------   --------  -------
Total Real Estate                   152,360   53.72%    131,505   52.49%    103,199   41.13%    115,941   44.29%     92,693   41.53%
Consumer                             26,260    9.26%     25,110   10.03%     33,343   13.29%     28,027   10.70%     15,644    7.01%
Commercial Business                   1,415    0.50%      3,124    1.24%      4,476    1.79%      3,480    1.33%      2,387    1.07%
                                   --------  -------   --------  -------   --------  -------   --------  -------   --------  -------
Total fixed-rate loans              180,035   63.48%    159,739   63.76%    141,018   56.21%    147,448   56.32%    110,724   49.61%
                                   --------  -------   --------  -------   --------  -------   --------  -------   --------  -------

Adjustable Rate Loans:
Real Estate:
     One- to four-family             65,209   23.00%     46,341   18.50%     41,940   16.72%     49,119   18.76%     48,064  21.54%
     Home Equity                      7,147    2.52%      7,583    3.03%      9,114    3.63%     10,026    3.83%     10,549   4.73%
     Commercial and Multi-family     28,014    9.88%     32,081   12.81%     47,472   18.92%     42,310   16.16%     44,588  19.98%
     Construction                       ---    ----%        394    0.16%        440    0.18%        ---    ----%       ---    ----%
                                   --------  -------   --------  -------   --------  -------   --------  -------   --------  -------
Total Real Estate                   100,370   35.40%     86,399   34.50%     98,966   39.45%    101,455   38.75%    103,201  46.25%
Consumer                                874    0.31%        654    0.26%      5,678    2.26%      7,714    2.95%      4,528   2.03%
Commercial Business                   2,289    0.81%      3,695    1.48%      5,220    2.08%      5,191    1.98%      4,702   2.11%
                                   --------  -------   --------  -------   --------  -------   --------  -------   --------  -------
Total adjustable-rate loans         103,533   36.52%     90,748   36.24%    109,864   43.79%    114,360   43.68%    112,431  50.39%
                                   --------  -------   --------  -------   --------  -------   --------  -------   --------  -------
Total Loan Portfolio, Gross         283,568  100.00%    250,487  100.00%    250,882  100.00%    261,808  100.00%    223,155 100.00%
                                             ======              ======              ======              ======             ======
Deferred costs, net of deferred
     fees and discounts               1,362               1,045               1,756               2,008                 741
Allowance for Loan Losses            (3,807)             (3,438)             (2,647)             (2,235)             (3,249)
                                   --------            --------            --------            --------            --------
Total Loans Receivable, Net        $281,123            $248,094            $249,991            $261,581            $220,647
                                   ========            ========            ========            ========            ========
</TABLE>


                                       6
<PAGE>


     The following table  illustrates the contractual  maturity of the Company's
loan  portfolio  at  December  31,  1997.  Mortgages  which have  adjustable  or
renegotiable interest rates are shown as maturing in the period during which the
contract  is due.  The  schedule  does  not  reflect  the  effects  of  possible
prepayments or enforcement of due-on-sale clauses.
<TABLE>
<CAPTION>
                                       Real Estate
                    --------------------------------------------------
                      One- to            Multi-
                     Four-Family        Family and                                            Commercial
                    and Home Equity     Commercial       Construction(2)     Consumer          Business           Total
                    --------------    --------------    --------------    --------------    --------------    --------------
                          Weighted          Weighted          Weighted          Weighted          Weighted          Weighted
                           Average           Average           Average           Average           Average           Average
                    Amount  Rate      Amount  Rate      Amount  Rate      Amount  Rate      Amount  Rate      Amount  Rate
Due During          ------  ----      ------  ----      ------  ----      ------  ----      ------  ----      ------  ----
Periods Ending
December 31,
<S>                 <C>      <C>      <C>      <C>      <C>      <C>       <C>     <C>       <C>      <C>      <C>      <C>
1998 (1)            $  985   8.92%    $2,149   8.76%    $-----   -----%    $1,637  10.06%    $2,018   9.13%    $6,789   8.49%
1999 to 2002        11,345   8.44     14,840   9.33      -----   -----     19,026   8.14      1,382   7.16     46,593   8.56
2003 and beyond    207,582   7.66     13,748   9.03      2,081    7.04      6,471  10.84        304  10.71    230,186   7.77
<FN>
---------------------

(1)  Includes demand loans, loans having no stated maturity and overdraft loans.

(2)  Construction  loan terms are generally  less than one year,  however,  upon
completion of the  construction  phase,  the loans are generally  converted to a
permanent mortgage with a term not to exceed thirty years, thereby extending the
contractual maturity.  Accordingly, the maturity on these loans are shown at the
final expected maturity of the permanent financing.
</FN>
</TABLE>
     As of December 31, 1997,  the total amount of loans due after  December 31,
1998 which have fixed interest rates was $179.1 million,  while the total amount
of loans due after such date which have  floating or adjustable  interest  rates
was $97.7 million.


                                       7
<PAGE>


One- to Four-Family Residential Real Estate Lending


     The Company's residential first mortgage loans consist primarily of one- to
four-family,  owner-occupied  mortgage  loans.  At  December  31,  1997,  $189.7
million,  or 66.9%,of the Company's gross loans consisted of one- to four-family
residential first mortgage loans.  Approximately  65.6% of the Company's one- to
four-family residential first mortgage loans provide for fixed rates of interest
and for repayment of principal  over a fixed period not to exceed 30 years.  The
Company's  fixed-rate one- to four-family  residential mortgage loans are priced
competitively with the market. Accordingly,  the Company attempts to distinguish
itself from its competitors based on quality of service.

     The Company  generally  underwrites  its  fixed-rate,  one- to four-family,
residential,  first mortgage loans using Federal National  Mortgage  Association
("FNMA") secondary market standards.  The Company generally holds for investment
all one- to four-family  residential  first  mortgage  loans it  originates.  In
underwriting  one- to four-family  residential first mortgage loans, the Company
evaluates both the borrower's  ability to make monthly payments and the value of
the property  securing the loan.  Properties  securing real estate loans made by
the Company are appraised by independent fee appraisers approved by the Board of
Directors.  The Company requires  borrowers to obtain title insurance,  and fire
and property  insurance  (including flood insurance,  if necessary) in an amount
not less than the amount of the loan.

     The Company  currently  offers one, three,  five and seven year residential
ARM loans with an interest rate that adjusts  annually in the case of a one-year
ARM loan, and every three,  five or seven years in the case of a three,  five or
seven year ARM loan, respectively,  based on the change in the relevant Treasury
constant maturity index. These loans provide for up to a 2.0% periodic cap and a
lifetime cap of 6.0% over the initial rate. As a consequence  of using caps, the
interest  rates on these loans may not be as rate  sensitive as is the Company's
cost of funds.  Borrowers  of  one-year  residential  ARM  loans  are  generally
qualified  at a rate  2.0%  above  the  initial  interest  rate.  The  Company's
residential ARM loans may be modified into fixed-rate loans. ARM loans generally
pose greater credit risks than fixed-rate  loans,  primarily because as interest
rates rise, the required periodic payment by the borrower rises,  increasing the
potential  for default.

     At December 31, 1997,  the largest one- to  four-family  aggregate  lending
relationship  consisted  of  20  loans  totaling  $1.0  million  secured  by  20
townhouses  located in Webster,  New York. All of these loans were current as of
December 31, 1997.

     The Company's one- to four-family  mortgage loans do not contain prepayment
penalties and do not permit  negative  amortization  of  principal.  Real estate
loans  originated  by the  Company  generally  contain  a "due on  sale"  clause
allowing  the  Company to declare the unpaid  principal  balance due and payable
upon the sale of the security  property.  The Company has waived the due on sale
clause on loans held in its portfolio from time to time to permit assumptions of
the loans by qualified borrowers.

     The Company does not currently originate  residential mortgage loans if the
ratio of the loan amount to the value of the  property  securing the loan (i.e.,
the  "loan-to-value"  ratio) exceeds 95%, with the exception of FHA loans, which
are fully insured by the Federal Government.  If the loan-to-value ratio exceeds
80%, the Company requires that borrowers  obtain private  mortgage  insurance in
amounts intended to reduce the Company's exposure to 80% or less of the lower of
the appraised value or the purchase price of the real estate security. See "Loan
Originations and Sales."


                                       8
<PAGE>
     The Company makes construction loans to individuals for the construction of
their  residences.  The Company has occasionally  made loans to builders for the
construction of residential homes,  provided the builder has a sales contract to
sell the home upon completion.  No construction loan is approved unless there is
evidence  of a  commitment  for  permanent  financing  upon  completion  of  the
residence,  whether  through  the  Company  or  another  financial  institution.
Construction loans generally will require  construction stage inspections before
funds may be released to the borrower.  Such inspections are generally performed
by outside fee appraisers.

     At December 31, 1997, the Company's  construction  loan  portfolio  totaled
$2.1 million,  or 0.7% of its gross loan portfolio.  Substantially  all of these
construction  loans were to individuals  intending to occupy such residences and
were  secured by property  located  within the  Company's  primary  market area.
Although no construction  loans were classified as non-performing as of December
31, 1997, these loans do involve a higher level of risk than  conventional  one-
to four-family  residential  mortgage  loans.  For example,  if a project is not
completed  and the  borrower  defaults,  the  Company  may have to hire  another
contractor to complete the project at a higher cost.


Home Equity Lending


     The  Company's  home equity loans and lines of credit are secured by a lien
on the borrower's  residence and generally do not exceed  $300,000.  The Company
uses the same  underwriting  standards for home equity loans as it uses for one-
to  four-family  residential  mortgage  loans.  Home equity loans are  generally
originated in amounts which, together with all prior liens on such residence, do
not exceed 90% of the  appraised  value of the property  securing the loan.  The
interest  rates for home  equity  loans  and lines of credit  adjust at a stated
margin  over the prime rate or, in the case of loans (but not lines of  credit),
have  fixed  interest  rates.  Home  equity  lines of credit  generally  require
interest  only payments on the  outstanding  balance for the first five years of
the  loan,  after  which  the  outstanding  balance  is  converted  into a fully
amortizing,  adjustable-rate  loan with a term not in excess of 15 years.  As of
December 31, 1997,  the Company had $30.2 million in home equity loans and lines
of credit  outstanding,  with an  additional  $4.3 million of unused home equity
lines of credit.


Commercial and Multi-Family Real Estate Lending


     The Company has engaged in commercial and multi-family  real estate lending
secured  primarily  by apartment  buildings,  small  office  buildings,  motels,
warehouses,  nursing homes,  strip shopping  centers and churches located in the
Company's primary market area,  although the origination of these types of loans
has recently been  de-emphasized  by the Bank. At December 31, 1997, the Company
had $26.6  million and $4.2 million of commercial  real estate and  multi-family
real estate loans, respectively,  which represented 9.4% and 1.5%, respectively,
of the Company's gross loan portfolio at that date. See "Management's Discussion
and  Analysis of  Financial  Condition  and Results of  Operations  - Management
Strategy - Asset  Quality" and  "Provision for Loan Losses" in the Annual Report
for a  discussion  of the  Bank's  1996 bulk sale of  certain  multi-family  and
commercial real estate loans.


                                       9
<PAGE>
     The Bank's  commercial and  multi-family  real estate loans  generally have
adjustable  rates  and  terms to  maturity  that do not  exceed  20  years.  The
Company's current lending guidelines  generally require that the multi-family or
commercial  income-producing property securing a loan generate net cash flows of
at least  125% of debt  service  after the  payment of all  operating  expenses,
excluding  depreciation,  and a loan-to-value  ratio not exceeding 65%. Prior to
September 1990, the Company  originated  commercial and multi-family  loans with
loan-to-value  ratios  of up to  75%.  Due to  declines  in the  value  of  some
properties  as a result of the  economic  conditions  in the  Company's  primary
market area,  however,  the current  loan-to-value  ratio of some commercial and
multi-family real estate loans in the Company's portfolio may exceed the initial
loan-to-value  ratio.  Adjustable rate commercial and  multi-family  real estate
loans  provide for interest at a margin over a designated  index,  with periodic
adjustments at frequencies of up to five-years.  The Company generally  analyzes
the financial  condition of the borrower,  the borrower's  credit  history,  the
reliability  and  predictability  of the cash flows  generated  by the  property
securing the loan and the value of the property  itself.  The Company  generally
requires  personal  guarantees  of the  borrowers  in addition  to the  security
property  as  collateral  for such  loans.  Appraisals  on  properties  securing
commercial  and  multi-family  real estate loans  originated  by the Company are
performed by independent fee appraisers approved by the Board of Directors.

     At December 31, 1997, the Company's largest multi-family or commercial real
estate lending relationship  consisted of a $1.4 million loan secured by a strip
shopping   center.   The  next  largest   multi-family  or  commercial   lending
relationships  at December 31, 1997 were a $1.2 million loan secured by a motel,
and a $1.1  million  loan  secured by a day  treatment  center for the  mentally
retarded and developmentally disabled individuals,  all of which were current as
of December  31,  1997.  At December  31,  1997,  $1.1  million , or 3.4% of the
Company's   multi-family   and   commercial   real  estate  loan  portfolio  was
non-performing. See "Asset Quality - Non-Performing Assets".

     Multi-family  and commercial real estate loans  generally  present a higher
level of risk than loans secured by one- to four-family residences. This greater
risk is due to several  factors,  including the  concentration of principal in a
limited number of loans and borrowers, the effect of general economic conditions
on income  producing  properties and the increased  difficulty of evaluating and
monitoring these types of loans. Furthermore,  the repayment of loans secured by
multi-family  and  commercial  real  estate  is  typically  dependent  upon  the
successful  operation of the related real estate project.  If the cash flow from
the project is reduced (for example, if leases are not obtained or renewed, or a
bankruptcy  court  modifies a lease term, or a major tenant is unable to fulfill
its lease obligations), the borrower's ability to repay the loan may be impaired
and the value of the  property  may be reduced.  The  balances of these types of
loans have declined  over the past five years with a  significant  decrease from
$50.1  million at December 31, 1995 to $30.7  million at December 31, 1997,  due
primarily to the bulk sale of certain  performing  and  non-performing  loans in
1996.  See  "Management's  Discussion  and Analysis of Financial  Condition  and
Results of  Operations  -  Management  Strategy -- Asset  Quality" in the Annual
Report.  The Company currently plans to continue to de-emphasize the origination
of commercial and  multi-family  real estate loans,  thereby reducing its credit
risk exposure associated with these types of loans.


                                       10
<PAGE>
Consumer Lending


     The Company offers a variety of secured  consumer  loans,  including  loans
secured by automobiles and  recreational  vehicles  ("RV's").  In addition,  the
Company offers other secured and unsecured consumer loans. The Company no longer
originates   manufactured   home  loans.   The  Company   currently   originates
substantially  all of its consumer loans in its primary market area. The Company
originates  consumer  loans on a direct  basis only,  where the Company  extends
credit  directly to the borrower.  At December 31, 1997 the  Company's  consumer
loan portfolio  totaled $27.1 million,  or 9.6% of the gross loan portfolio.  At
December 31, 1997,  96.8% of the Company's  consumer loans were fixed-rate loans
and 3.2% were adjustable-rate loans.

     Consumer  loan terms vary  according  to the type and value of  collateral,
length of contract and creditworthiness of the borrower. Terms to maturity range
up to 15 years for  manufactured  homes and certain RV's and up to 60 months for
other secured and unsecured  consumer  loans.  The Company offers both open- and
closed-end credit.  Open-end credit is extended through lines of credit that are
generally tied to a checking account. These credit lines currently bear interest
up to 18% and are generally limited to $10,000.

     The  underwriting  standards  employed by the Company  for  consumer  loans
include,  a determination of the applicant's  payment history on other debts and
an  assessment  of ability to meet  existing  obligations  and  payments  on the
proposed  loan.  Although   creditworthiness  of  the  applicant  is  a  primary
consideration,  the underwriting process also includes a comparison of the value
of the security, if any, in relation to the proposed loan amount.

     At December 31, 1997,  automobile  loans and RV loans (such as motor homes,
boats,  motorcycles,  snowmobiles  and  other  types of  recreational  vehicles)
totaled $16.2 million and $6.8 million or 59.8% and 25.0% of the Company's total
consumer  loan  portfolio,  and  5.7%  and  2.4% of its  gross  loan  portfolio,
respectively.

     During 1997 and 1996,  the  Company  placed  more  emphasis on  originating
automobile loans secured by both new and used automobiles,  thereby experiencing
approximately  $3.8  million  and $3.1  million  in net growth in 1997 and 1996,
respectively.  In  the  past,  originations  were  generated  primarily  through
advertising  and lobby  displays.  In 1996, the Company  increased the number of
relationships  with local  automobile  dealerships  in order to further  enhance
automobile   originations   through  their  referrals.   The  Company's  maximum
loan-to-value  ratio on new automobiles is 100% of the borrower's cost including
sales  tax,  and on used  automobiles  up to 5 years  old,  100% of the  vehicle
average  retail  value,  based  on  NADA  (National  Auto  Dealers  Association)
valuation.  Non-performing  automobile  loans as of December  31,  1997  totaled
$36,000 or 0.1% of the Company's consumer loan portfolio.

     Of the RV loan balance, approximately $4.8 and $2.0 million were secured by
new and used RVs,  respectively.  Approximately 75% of the RV portfolio consists
of loans that were  originated  through the  Company's  relationship  with Alpin
Haus, Inc., a retail RV dealer formerly owned by one of the Company's directors.
The Company's maximum loan-to-value ratio on new and used RV loans is the lesser
of (i) 85% of the  borrower's  cost,  which includes such items as sales tax and
dealer  options or (ii) 115% of either the  factory  invoice for a new RV or the
wholesale  value,  plus sales tax, for a used RV. In the case of used RV's,  the
wholesale value is determined using published guide books. At December 31, 1997,
RV  loans   totaling   $195,000  or  2.9%  of  the  total  RV   portfolio   were
non-performing.



                                       11
<PAGE>
     Consumer loans may entail greater credit risk than do residential  mortgage
loans,  particularly  in the case of consumer  loans which are  unsecured or are
secured by rapidly depreciable assets, e.g. RVs and automobiles.  In such cases,
any  repossessed  collateral  for a defaulted  consumer  loan may not provide an
adequate source of repayment of the outstanding loan balance as a result of high
initial loan-to-value ratios,  repossession,  rehabilitation and carrying costs,
and the greater  likelihood of damage,  loss or  depreciation  of the underlying
collateral.  In  addition,  consumer  loan  collections  are  dependent  on  the
borrower's  continuing  financial  stability,  and thus are  more  likely  to be
affected by adverse  personal  circumstances.  Furthermore,  the  application of
various federal and state laws,  including  bankruptcy and insolvency  laws, may
limit the amount which can be recovered on these loans. In the case of RV loans,
which  tend  to  have  loan  balances  in  excess  of the  resale  value  of the
collateral, borrowers may abandon the collateral property making repossession by
the Company and subsequent losses more likely.

     During 1996, the Company sold certain performing and  non-performing  loans
as part of a bulk sale,  including  a  majority  of its  manufactured  home loan
portfolio,  as well as  certain RV loans,  thereby  significantly  reducing  its
credit  risk  exposure  on these  types of loans  (see  "Loan  Originations  and
Sales").  However,  management  expects that  delinquencies in its consumer loan
portfolio  may  increase as RV loans  continue to season.  At December 31, 1997,
$295,000,  or 1.1%, of the Company's consumer loan portfolio was non-performing.
There can be no assurances that additional  delinquencies  will not occur in the
future.


Commercial Business Lending


     The  Company  also  originates  commercial  business  loans,  although  the
origination of these types of loans has recently been de-emphasized by the Bank.
At December 31, 1997,  commercial business loans comprised $3.7 million, or 1.3%
of the Company's gross loan portfolio. Most of the Company's commercial business
loans have been extended to finance local businesses and include primarily short
term loans to finance machinery and equipment purchases and, to a lesser extent,
inventory and accounts receivable.  Loans made to finance inventory and accounts
receivable  will  only be made if the  borrower  secures  such  loans  with  the
inventory  and/or  receivables  plus  additional  collateral  acceptable  to the
Company,  generally real estate.  Commercial loans also involve the extension of
revolving credit for a combination of equipment acquisitions and working capital
in expanding companies.

     The terms of loans  extended on machinery  and  equipment  are based on the
projected  useful life of such machinery and equipment,  generally not to exceed
seven years.  Secured,  non-mortgage  lines of credit are available to borrowers
provided that the outstanding balance is paid in full (i.e., the credit line has
a zero  balance) for at least 30  consecutive  days every year. In the event the
borrower does not meet this 30 day requirement,  the line of credit is generally
terminated and the outstanding balance is converted into an amortizing loan.

     Unlike residential mortgage loans, which generally are made on the basis of
the  borrower's  ability to make  repayment from his or her employment and other
income and which are  secured by real  property,  the value of which tends to be
more easily  ascertainable,  commercial business loans typically are made on the
basis of the  borrower's  ability  to make  repayment  from the cash flow of the
borrower's business. As a result, the availability of funds for the repayment of
commercial  business loans may be substantially  dependent on the success of the
business itself (which,  in turn, is often  dependent upon the general  economic
environment).  The  Company's  commercial  business  loans are usually,  but not
always,  secured by business assets.  However, the collateral securing the loans


                                       12
<PAGE>
may  depreciate  over time,  may be difficult  to appraise and may  fluctuate in
value based on the success of the business.  As part of its commercial  business
lending  policy,  the Company  generally  requires all borrowers with commercial
business loans to submit annual financial statements to the Company.

     The Company's  commercial  business  lending  policy  includes  credit file
documentation  and analysis of the borrower's  character,  capacity to repay the
loan,  the  adequacy  of the  borrower's  capital and  collateral  as well as an
evaluation of conditions affecting the borrower. Consideration of the borrower's
cash flows is also an important aspect of the Company's current credit analysis.
The Company  generally  obtains personal  guarantees on its commercial  business
loans.  Nonetheless,  such loans are believed to carry  higher  credit risk than
more traditional thrift institution investments.

     The  balances of these types of loans have  declined  from $9.7  million in
1995 to $3.7  million  in  1997,  due  primarily  to the  bulk  sale of  certain
performing and  non-performing  loans, and the partial charge-off of the Bennett
Funding Group loan  relationship in 1996, as well as the general  de-emphasis of
this loan type in 1997. See  "Management's  Discussion and Analysis of Financial
Condition  and Results of Operations - Management  Strategy - Asset  Quality" in
the Annual Report. The Company plans to continue to de-emphasize the origination
of  commercial  business  loans,  thereby  reducing  its  credit  risk  exposure
associated with this type of lending.


Loan Originations and Sales


     Loan  originations  are developed from continuing  business with depositors
and borrowers, soliciting realtors, dealerships and mortgage brokers, as well as
walk-in customers.  Loans are originated by the Company's staff of salaried loan
officers.

     While the Company  originates both fixed- and  adjustable-rate  loans,  its
ability to  originate  loans is  dependent  upon demand for loans in its market.
Demand is  affected by the local  economy and  interest  rate  environment.  The
Company currently retains  fixed-rate and  adjustable-rate  real estate loans it
originates in its portfolio. As a regular part of its business, the Company does
not sell loans and has not purchased a  significant  amount of loans since 1989.
During  1996,  the Company  completed  the bulk sale of certain  performing  and
nonperforming  loans  in  order  to  improve  the  credit  quality  of its  loan
portfolio.  See "Management  Discussion and Analysis of Financial  Condition and
Results of Operations" contained in the Company's Annual Report.

     For the year ended December 31, 1997, the Company  originated $91.5 million
of  loans  compared  to $81.4  million  and  $50.2  million  in 1996  and  1995,
respectively.  During 1997 and 1996, the Company  increased its  originations of
one- to four-family mortgages through the referrals of several local brokers. Of
the  one- to  four-family  and home  equity  originations,  approximately  $22.6
million were adjustable rate, and $44.9 million were fixed rate loans.

     In periods of economic  uncertainty,  the  Company's  ability to  originate
large  dollar  volumes  of  real  estate  loans  with  acceptable   underwriting
characteristics  may be  substantially  reduced or  restricted  with a resultant
decrease in operating earnings.


                                       13
<PAGE>


     The  following  table shows the loan  origination,  loan sale and repayment
activities of the Company for the periods indicated.

                                              Years Ended December 31,
                                             --------------------------
                                               1997      1996      1995
                                             --------------------------
Origination by Type:                                (In Thousands)

Real estate-one- to four-family (1)          $67,503   $61,982   $16,190
           -multi-family                       1,490       190       134
           -non-residential                    3,000     2,838     2,014
Non-real estate-consumer                      14,694     7,735    18,359
           -commercial business                4,781     8,681    13,472
                                              ------    ------    ------
Total loans originated                       $91,468   $81,426   $50,169

Repayments:
Principal repayments                          57,084    52,741    58,374
Proceeds from sale of loans                      ---    18,929       ---
Net decrease in other items (2)                1,355    11,653     3,385
                                              ------    ------    ------
Net increase (decrease)                     $ 33,029   ($1,897) ($11,590)
                                            ========   =======    ======
-----------------------------------
(1) Includes home equity loans.
(2) Includes net  charge-offs,  transfers to real estate owned, and additions to
    loan loss allowances.


Asset Quality


     Generally,  when a  borrower  fails to make a  required  payment  on a loan
secured by residential real estate or consumer  products,  the Company initiates
collection  procedures by mailing a  delinquency  notice after the account is 15
days delinquent.  At 30 days delinquent,  a personal letter is generally sent to
the  customer  requesting  him or her to make  arrangements  to  bring  the loan
current.  If the  delinquency  is not cured by the 45th  day,  the  customer  is
generally  contacted by telephone and another  personal letter is sent, with the
same procedure being repeated if the loan becomes 60 days delinquent. At 90 days
past due, a demand letter is generally  sent.  If there is no response,  a final
demand  letter for payment in full is sent,  and unless  satisfactory  repayment
arrangements  are  made  subsequent  to  the  final  demand  letter,   immediate
repossession or foreclosure procedures are commenced.

     Similar collection  procedures are employed for loans secured by commercial
real estate and commercial  business  collateral,  except when such loans are 60
days  delinquent,  a letter is generally sent  requesting  rectification  of the
delinquency within seven days, otherwise foreclosure or repossession procedures,
as applicable, are commenced.


                                       14
<PAGE>


      The following table sets forth the Company's loan  delinquencies  by type,
by amount and by percentage of type at December 31, 1997.
<TABLE>
<CAPTION>

                           ---------------------------------------------------------------          Total Loans Delinquent
                                      60-89 Days                     90 Days and Over                  60  Days or More
                           ------------------------------   ------------------------------   ------------------------------
                                                % of Loan                       % of Loan                        % of Loan
                            Number     Amount    Category    Number     Amount   Category    Number     Amount    Category
                           --------   -------   ---------   --------   -------   --------   --------   --------   ---------
                                                          (Dollars in Thousands)
<S>                          <C>      <C>           <C>        <C>     <C>         <C>         <C>     <C>          <C>
Real Estate:
  One-to four-family           37     $1,629       0.85%       22     $1,069       0.56%       59       $2,698       1.42%
  Home Equity                   2         86       0.28%        2         54       0.18%        4          140       0.46%
  Multi-family                  -          -          -         1         28       0.67%        1           28       0.67%
  Commercial                    1         23       0.09%        4        278       1.05%        5          301       1.13%
Consumer                       28        251       0.93%       37        295       1.09%       65          546       2.01%
Commercial Business             3         60       1.62%        6        603      16.25%        9          663      17.90%
                           --------   -------               --------  -------              --------   --------
     Total                     71     $2,049       0.72%       72     $2,327       0.82%      143       $4,376       1.54%
                           ========   =======      =====    ========  =======     ======   ========   ========      ======
</TABLE>

Non-Performing  Assets


     The table  below sets forth the amounts and  categories  of  non-performing
assets at the dates indicated.  Loans are generally placed on non-accrual status
when the loan is more than 90 days  delinquent  (except  for FHA  insured and VA
guaranteed  loans) or when the collection of principal  and/or  interest in full
becomes  doubtful.  When loans are  designated as  non-accrual,  all accrued but
unpaid  interest is reversed  against  current period income and, as long as the
loan remains on non-accrual  status interest is recognized  using the cash basis
method of income  recogntion.  Accruing loans delinquent 90 days or more include
FHA insured  loans,  VA guaranteed  loans,  and loans that are in the process of
negotiating   a   restructuring   with  the  Bank,   excluding   troubled   debt
restructurings  (TDRs), or where the Bank has been notified by the borrower that
the  outstanding  loan  balance  plus  accrued  interest  and late  fees will be
paid-in-full  within a  relatively  short  period  of time from the date of such
notification. Foreclosed assets includes assets acquired in settlement of loans.
For  further  discussion  of  non-performing  assets,  and the 1996 bulk sale of
certain  non-performing  assets,  see  "Management's  Discussion and Analysis of
Financial  Condition and Results of Operations - Asset Quality" contained in the
Annual Report.


                                       15
<PAGE>


<TABLE>
<CAPTION>
                                                              December 31,
                                       -------------------------------------------------------
                                         1997        1996        1995        1994        1993
                                       -------     -------     -------     -------     -------
                                                             (In thousands)
<S>                                         <C>       <C>         <C>         <C>           <C>
Non-accruing loans:
   One- to four-family (1)                $843      $  259      $1,525      $1,130      $1,705
   Multi-family                             28         ---          77         563       1,354
   Commercial real estate                  265         339       1,549       4,096       2,937
   Consumer                                293         256         605         111         286
   Commercial Business                     447       2,269         743         404         684
                                       -------     -------     -------     -------     -------
     Total                               1,876       3,123       4,499       6,304       6,966
                                       -------     -------     -------     -------     -------
Accruing loans delinquent
 more than 90 days:
   One- to four-family (1)                 280         151         261         480         396
   Multi-family                            ---         ---         ---         ---          54
   Commercial real estate                   13         568         ---         ---          67
   Consumer                                  2           6         ---         ---         ---
   Commercial Business                     156         ---         ---         ---         ---
                                       -------     -------     -------     -------     -------
     Total                                 451         725         261         480         517
                                       -------     -------     -------     -------     -------
Troubled debt restructured loans:
   One- to four-family (1)                  86          88          89          90          91
   Multi-family                             34          38       1,626       1,645       1,709
   Commercial real estate                  761         781       2,185       1,758       1,547
   Consumer                                 --          56          84          62           3
   Commercial Business                      50          68          51          95         527
                                       -------     -------     -------     -------     -------
     Total                                 931       1,031       4,035       3,650       3,877
                                       -------     -------     -------     -------     -------
Total non-performing loans:              3,258       4,879       8,795      10,434      11,360
                                       -------     -------     -------     -------     -------
Foreclosed assets:
   One- to four-family (1)                  69         194         459         102         346
   Multi-family                            ---         282         926       1,792       2,405
   Commercial real estate                  ---         ---       1,503       1,799       2,707
   Consumer                                 74         239         281         111          42
   Commercial Business                     ---         ---         ---         ---         ---
                                       -------     -------     -------     -------     -------
     Total                                 143         715       3,169       3,804       5,500
                                       -------     -------     -------     -------     -------
Total non-performing assets             $3,401      $5,594     $11,964     $14,238     $16,860
                                       =======     =======     =======     =======     =======
Total as a percentage of total assets     0.67%       1.18%       2.72%       4.15%       5.06%
<FN>
--------------------------------------
(1)  Includes home equity loans
</FN>
</TABLE>


                                       16
<PAGE>


     For the year ended  December 31, 1997,  gross  interest  income which would
have  been  recorded  had the  year  end  non-accruing  loans  been  current  in
accordance  with their original terms amounted to $357,000.  The amount that was
included in interest income on such loans was $127,000, which represented actual
receipts.

     Similarly,  for the year ended  December 31, 1997,  gross  interest  income
which  would  have been  recorded  had the year end  restructured  loans paid in
accordance  with their original terms amounted to $112,000.  The amount that was
included in interest income for the year ended December 31, 1997 was $65,000.


Non-Accruing Loans


     At December 31, 1997, the Company had $1.9 million in  non-accruing  loans,
which  constituted 0.7% of the  Company's  gross loan  portfolio.  There were no
non-accruing loans or aggregate non-accruing  loans-to-one-borrower in excess of
$500,000.


Accruing Loans Delinquent More than 90 Days


     As of  December  31,  1997,  the Company  had  $445,000  of accruing  loans
delinquent  more than 90 days.  Of these loans,  $259,000 were FHA insured or VA
guaranteed   one-to-four   family  residential  loans.  The  remaining  $186,000
represented one (1) one-to-four-family real estate loan, one (1) commercial real
estate loan, and two (2) commercial loans for which management believes that all
contractual payments are collectible. These loans are pending restructuring with
the Bank.


Restructured Loans


     As of December 31,  1997,  the Company had  restructured  loans of $931,000
with one loan or  aggregate  lending  relationship  over  $500,000 as  discussed
below. The balance of the Company's restructured loans at that date consisted of
one (1) one- to four-family residential mortgage loan, one (1) multi-family real
estate loan,  three (3) commercial  real estate loans,  and three (3) commercial
business loans.


     The Company's largest restructured loan or lending relationship at December
31,  1997,  was a 58%  loan  participation  interest,  secured  by a  mixed  use
office/apartment  complex located in Syracuse, New York, on which the Company is
the lead  lender.  The loan  participation  was  originated  for $1.1 million in
February  1986  with a  loan  to  value  ratio  of  67.0%.  The  loan  had  been
experiencing  delinquencies  since June 1993 due to cash flow problems caused by
high vacancy  rates.  In December  1993,  the Company,  based on an October 1993
appraisal, wrote-down the loan balance to $609,000 and in July 1994 restructured
the loan to reduce the principal balance  outstanding and interest rate charged.
At December 31, 1997,  the  outstanding  balance on the Company's  participation
interest was $583,000. This loan has continued to perform according to the terms
of the  restructure;  however,  tenancy remains a problem and the property is in
need of a significant  upgrade that will require a new infusion of capital.  The
Company has reached a tentative  agreement to sell, at a discount,  its share of
the  participation  loan and  transfer  its  lead  lender  status  to a group of
investors who will bring the needed capital to this project. Current reserves on
the loan are  adequate to  accommodate  the  discounted  sale and no  additional
write-down is anticipated.


                                       17
<PAGE>

Foreclosed  Assets


     As of December  31,  1997,  the Company had  $143,000 in carrying  value of
foreclosed  assets.  One-to-four  family  real  estate  represents  48.3% of the
company's  foreclosed  property,  consisting  of  two  properties.   Repossessed
consumer  assets  represented  51.7%  of the  Company's  foreclosed  properties,
consisting of 12 recreational vehicles.


Other Loans of Concern


     As of  December  31,  1997,  there  were $5.8  million  of other  loans not
included  in the table or  discussed  above where  known  information  about the
possible credit problems of borrowers caused management to have doubts as to the
ability of the borrower to comply with present loan repayment  terms.  Set forth
below is a description of the largest other loans of concern.

     The largest  other loan of concern at  December  31,  1997  consisted  of a
commercial real estate loan secured by a one-story  educational facility located
in  Amsterdam,  New  York.  This  loan  was  originated  in  December  1995 as a
$1,000,000 line of credit with a loan-to-value  ratio of 25%. The loan is due to
mature on December 31, 1998.  Discussions  with the borrower  indicate that this
loan will not be fully  repaid  by the  maturity  date,  and  negotiations  have
commenced to rewrite this loan. At December 31, 1997,  the balance was $892,000.

     The second  largest other loan of concern at December 31, 1997 consisted of
a commercial real estate loan secured by a one-story light  industrial  facility
in Gates,  New York.  This loan was  originated  in May 1988 for $930,000 with a
loan-to-value  ratio of 74.4%. The property has experienced  tenant vacancies in
the past and based on financial information submitted by the borrower,  the cash
flow generated by this property had deteriorated. However, the borrower has been
able to keep the loan current by utilizing  other sources of funds. As a result,
the Bank has requested additional  financial  information from the guarantors on
this loan,  to assess  their  financial  position,  as the  secondary  source of
repayment on this lending relationship.  The most recent information provided by
the customer  indicates  that, as of November 1997, this property has been fully
leased. At December 31, 1997, the principal balance of this loan was $876,000.

     The third largest other loan of concern at December 31, 1997 consisted of a
multi-family real estate loan secured by a 32-unit apartment building located in
LeRoy,  New York. This loan was originated in December 1989 with a loan-to-value
ratio of 72.2%.  Although the  property  was 97%  occupied  based on a 1996 rent
roll,  the cash flow  generated was not  sufficient to keep the loan current but
the borrower has been able to keep the loan current by utilizing  other  sources
of funds.  Recent  financial  information  obtained from the guarantors for this
loan  confirms the  resources  used to keep this loan  current.  At December 31,
1997, the principal balance on this loan was $636,000.

     As of December 31, 1997, all of the above loans were current.

     There  were no other  loans  with a balance  in excess  of  $500,000  being
specially monitored by the Company as of December 31, 1997. The balance of other
loans of concern at that date consisted of 21 commercial and  multi-family  real
estate loans  totaling  $2.6  million,  12 commercial  business  loans  totaling
$683,000 and one (1) one-to  four-family  mortgage loan totaling $72,000.  These
loans have been considered by management in conjunction with the analysis of the
adequacy of the allowance for loan losses.


                                       18
<PAGE>


Classified Assets


     Federal  regulations  provide  for the  classification  of loans  and other
assets,  such as debt and equity securities  considered to be of lesser quality,
as "substandard,"  "doubtful" or "loss." An asset is considered "substandard" if
it is inadequately protected by the current net worth and paying capacity of the
obligor or of the collateral pledged, if any. "Substandard" assets include those
characterized by the "distinct  possibility"  that the insured  institution will
sustain "some loss" if the deficiencies are not corrected.  Assets classified as
"doubtful"   have  all  of  the   weaknesses   inherent   in  those   classified
"substandard,"  with the added  characteristic  that the weaknesses present make
"collection or liquidation in full," on the basis of currently  existing  facts,
conditions,  and values, "highly questionable and improbable." Assets classified
as "loss" are those  considered  "uncollectible"  and of such little  value that
their continuance as assets without the establishment of a specific loss reserve
is not warranted.

     When an insured institution classifies problem assets as either substandard
or doubtful,  it may increase  general  allowances  for loan losses in an amount
deemed  prudent by  management  to address  the  increased  risk of loss on such
assets. General allowances represent loss allowances which have been established
to recognize the inherent risk  associated with lending  activities,  but which,
unlike  specific  allowances,  have not been  allocated  to  particular  problem
assets. When an insured  institution  classifies problem assets as "loss," it is
required  either to establish a specific  allowance  for losses equal to 100% of
that  portion  of the asset so  classified  or to  charge  off such  amount.  An
institution's  determination  as to the  classification  of its  assets  and the
amount of its valuation  allowances  is subject to review and  adjustment by the
OTS and the  FDIC,  which  may order  increases  in  general  or  specific  loss
allowances.

     In connection  with the filing of its periodic  reports with the OTS and in
accordance  with its  classification  of assets  policy,  the Company  regularly
reviews the problem  assets in its  portfolio  to  determine  whether any assets
require classification in accordance with applicable  regulations.  On the basis
of  management's  review of its assets at  December  31,  1997,  the Company had
classified $8.1 million as substandard, $326,000 as doubtful, and none as loss.


 Allowance for Loan Losses


     The allowance for loan losses is  established  through a provision for loan
losses  based  on  management's  evaluation  of the  risk  inherent  in its loan
portfolio and changes in the nature and volume of its loan  activity,  including
those  loans  which  are  being  specifically  monitored  by  management.   Such
evaluation,  which includes a review of loans for which full  collectability may
not  be  reasonably   assured,   considers   among  other   matters,   the  loan
classifications  discussed  above,  the  estimated  fair value,  less  estimated
disposal costs, of the underlying  collateral,  economic conditions,  historical
loan loss  experience,  and other factors that warrant  recognition in providing
for an adequate loan loss allowance.

     Real estate  properties  acquired through  foreclosure are recorded at fair
value,  less estimated  disposal costs. If fair value at the date of foreclosure
is lower than the book  balance of the  related  loan,  the  difference  will be
charged to the allowance for loan losses at the time of transfer.  Valuations of
the property are periodically updated by management and if the value declines, a
specific  provision  for  losses on such  property  is  recorded  by a charge to
operations and the asset's recorded value is written down accordingly.


                                       19
<PAGE>


     Although management believes that it uses the best information available to
determine  the  allowances,   unforeseen   market  conditions  could  result  in
adjustments and net earnings could be  significantly  affected if  circumstances
differ  substantially  from the assumptions used in determining the level of the
allowance.  Future  additions to the Company's  allowances will be the result of
periodic loan,  property and collateral  reviews and thus cannot be predicted in
advance. In addition,  federal regulatory  agencies,  as an integral part of the
examination  process,  periodically  review  the  Company's  allowance  for loan
losses.  Such  agencies  may require the Company to  recognize  additions to the
allowance based upon their judgment of the information  available to them at the
time of their  examination.  At  December  31,  1997,  the  Company  had a total
allowance  for  loan  losses  of $3.8  million,  representing  117.1%  of  total
non-performing  loans.  See  Note  5 of  the  Notes  to  Consolidated  Financial
Statements.

     The following  table sets forth an analysis of the Company's  allowance for
loan losses.
<TABLE>
<CAPTION>
                                                          For the year
                                                        ended December 31,
                                      1997        1996        1995        1994        1993
                                   ----------- ----------- ----------- ----------- -----------
                                                        (In thousands)
<S>                                    <C>         <C>         <C>         <C>         <C>
Balance at beginning of period         $3,438     $2,647      $2,235      $3,248      $3,089

Charge-offs:
     One- to four-family (1)              (15)      (530)        (31)        (28)        (24)
     Multi-family                         (51)    (1,174)       (171)       (668)       (257)
     Commercial real estate              (372)    (2,564)       (568)     (1,336)       (641)
     Consumer                            (316)    (1,834)       (400)       (196)       (409)
     Commercial business                 (460)    (2,616)        (46)       (232)       (399)
                                   ----------- ----------- ----------- ----------- -----------
        Total Charge offs              (1,214)    (8,718)     (1,216)     (2,460)     (1,730)
                                   -----------------------------------------------------------

Recoveries:
     One- to four-family (1)                1         10         ---          27          13
     Multi-family                          --         --          64         ---           1
     Commercial real estate                26         --           1         193         ---
     Consumer                              76         49          41         110         128
     Commercial business                  392         --         ---          10          58
                                   ----------- ----------- ----------- ----------- -----------
        Total Recoveries                  495         59         106         340         200
                                   -----------------------------------------------------------

Net Charge-offs                          (719)    (8,659)     (1,110)     (2,120)     (1,530)
Provisions charged to operations        1,088      9,450       1,522       1,107       1,689
                                   ----------- ----------- ----------- ----------- -----------
Balance at end of period               $3,807     $3,438      $2,647      $2,235      $3,248
                                   =========== =========== =========== =========== ===========
Ratio of net charge-offs during
the period to average loans
outstanding during period                0.25%      3.30%       0.42%       0.88%       0.65%
                                        ======     ======      ======      ======      ======
<FN>
-------------------------------------
(1)  Includes home equity loans.
</FN>
</TABLE>


                                       20
<PAGE>
     No portion of the  allowance is  restricted  to any loan or group of loans,
and the entire allowance is available to absorb realized losses.  The amount and
timing of realized losses and future allowance allocations may vary from current
estimates.  The following  table  summarizes the  distribution  of the Company's
allowance for losses on loans at the dates indicated:
<TABLE>
<CAPTION>
                                                                           December 31,
                           ---------------------------------------------------------------------------------------------------------
                                   1997                  1996                 1995                 1994                 1993
                           ---------------------  -------------------- -------------------- -------------------- -------------------
                                        Percent               Percent              Percent              Percent             Percent
                              Amount    of loans    Amount    of loans   Amount    of loans   Amount    of loans   Amount   of loans
                                of      in each       of      in each      of      in each      of      in each      of     in each
                               Loan     category     Loan     category    Loan     category    Loan     category    Loan    category
                               Loss     to total     Loss     to total    Loss     to total    Loss     to total    Loss    to total
                            Allowance    loans    Allowance    loans   Allowance    loans   Allowance    loans   Allowance   loans
                            ---------   --------  ---------   -------- ---------   -------- ---------   -------- ---------  --------
<S>                           <C>        <C>          <C>       <C>        <C>      <C>        <C>       <C>        <C>       <C>
One- to four-family (1)       $897       77.55%    $  157       72.26%     $268     60.18%     $207      60.02%     $175      59.41%
Multi-family and
Commercial real estate       1,818       10.84%     1,599       13.84%    1,097     19.97%    1,260      21.18%    2,607      28.01%
Construction and
   development                 ---        0.73%       ---        0.89%      ---      0.43%      ---       1.84%        -       0.36%
Consumer                       449        9.57%       355       10.29%      718     15.55%      454      13.65%      330       9.04%
Commercial Business            483        1.31%     1,327        2.72%      268      3.87%      114       3.31%      127       3.18%
Unallocated                    160        ----        ---        ----       296      ----       200       ----         9       ----%
                            ------      -------    ------      -------   ------    -------   ------      -------   -----     -------
          Total             $3,807      100.00%    $3,438      100.00%   $2,647    100.00%   $2,235     100.00%   $3,248     100.00%
                            ======      =======    ======      =======   ======    =======   ======     =======   ======     =======
<FN>
-------------------------------
(1)  Includes home equity loans.
</FN>
</TABLE>

Investment Activities


     The Bank must maintain minimum levels of investments that qualify as liquid
assets under OTS regulations.  Liquidity may increase or decrease depending upon
the  availability of funds and comparative  yields on investments in relation to
the return on loans.  Historically,  the Bank has  maintained  liquid  assets at
levels above the minimum  requirements  imposed by the OTS regulations and above
levels  believed  adequate  to  meet  the  requirements  of  normal  operations,
including potential deposit outflows. At December 31, 1997, the Bank's liquidity
ratio (liquid assets as a percentage of net  withdrawable  savings  deposits and
current  borrowings) was 37.05%.  See  "Management's  Discussion and Analysis of
Financial   Condition  and  Results  of  Operations  --  Liquidity  and  Capital
Resources" contained in the Annual Report.

     In  December  1995  the  Company   reclassified  its  entire  portfolio  of
investment  and  mortgage-backed  securities to the available for sale category.
This reclassification was made in response to a one time transfer allowed by the
Financial Accounting Standards Board and the various federal banking regulators.
See Note 1(d) of the Notes to Consolidated Financial Statements contained in the
Annual Report.

     Generally,  the  investment  policy of the Company is to invest funds among
various  categories of investments and maturities  based upon the Company's need
for liquidity, to achieve the proper balance between its desire to minimize risk
and maximize  yield,  to provide  collateral  for  borrowings and to fulfill the
Company's asset/liability management policies. To date, the Company's investment
strategy  has been  directed  toward  high-quality  mortgage-backed  securities.



                                       21
<PAGE>


Substantially  all of the  mortgage-backed  securities  owned by the Company are
issued, insured or guaranteed either directly or indirectly by a federal agency.
At December  31,  1997,  all of the  Company's  securities  were  classified  as
available for sale. The fair value  (excluding FHLB stock) and amortized cost of
the  Company's  securities  at December 31, 1997 were $205.8  million and $206.3
million,  respectively.  For additional information on the Company's securities,
see Note 4 of the  Notes to  Consolidated  Financial  Statements  in the  Annual
Report.

     Mortgage-backed  securities generally increase the quality of the Company's
assets by virtue of the insurance or guarantees  that back them. Such securities
are more liquid than individual  mortgage loans and may be used to collateralize
borrowings or other  obligations  of the Company.  At December 31, 1997,  $111.2
million or 78.3% of the  Company's  mortgage-backed  securities  were pledged to
secure various obligations of the Company.

     While mortgage-backed securities carry a reduced credit risk as compared to
whole  loans,  such  securities  remain  subject to the risk that a  fluctuating
interest  rate  environment,  along with other  factors  such as the  geographic
distribution of the underlying  mortgage loans, may alter the prepayment rate of
such mortgage loans and so affect both the prepayment  speed, and value, of such
securities.  The prepayment risk associated with  mortgage-backed  securities is
monitored periodically,  and prepayment rate assumptions adjusted as appropriate
to   update   the   Company's   mortgage-backed    securities   accounting   and
asset/liability  reports.   Classification  of  the  Company's   mortgage-backed
securities portfolio as available for sale is designed to minimize that risk.

     At  December  31,  1997,  the  contractual  maturity of 96.2% of all of the
Company's  mortgage-backed  securities  was in excess of ten  years.  The actual
maturity  of the  mortgage-backed  security  is  typically  less than its stated
maturity due to prepayments of the underlying  mortgages.  Prepayments  that are
different than anticipated will affect the yield to maturity. The yield is based
upon the interest income and the amortization of any premium or discount related
to  the  mortgage-backed   security.   In  accordance  with  generally  accepted
accounting principles,  premiums and discounts are  amortized/accreted  over the
estimated lives of the securities,  which decrease and increase interest income,
respectively.    The    prepayment    assumptions    used   to   determine   the
amortization/accretion  period for  premiums  and  discounts  can  significantly
affect the yield of the  mortgage-backed  security,  and these  assumptions  are
reviewed  periodically to reflect actual  prepayments.  Although  prepayments of
underlying  mortgages  depend on many factors,  including the type of mortgages,
the coupon rate,  the age of the  mortgages,  the  geographical  location of the
underlying  real estate  collateralizing  the  mortgages  and general  levels of
market  interest  rates,  the  difference  between  the  interest  rates  on the
underlying mortgages and the prevailing mortgage interest rates generally is the
most  significant  determinant  of the rate of  prepayments.  During  periods of
falling mortgage interest rates, if the coupon rate of the underlying  mortgages
exceeds  the  prevailing  market  interest  rates  offered for  mortgage  loans,
refinancing generally increases and accelerates the prepayment of the underlying
mortgages and the related security. Under such circumstances, the Company may be
subject  to  reinvestment   risk  because  to  the  extent  that  the  Company's
mortgage-backed  securities  amortize  or prepay  faster than  anticipated,  the
Company  may  not be able to  reinvest  the  proceeds  of  such  repayments  and
prepayments at a comparable rate.


                                       22
<PAGE>



     The following table sets forth the composition of the Company's  securities
at the dates indicated.
<TABLE>
<CAPTION>
                                                                            December 31,
                                       ---------------------------------------------------------------------------------
                                                1997                         1996                        1995
                                       ---------------------------------------------------------------------------------
                                        Carrying                    Carrying                    Carrying
                                        Value (1)    %of Total      Value (1)     %of Total     Value (1)     %of Total
                                       -----------    --------    ------------     --------    -----------     --------
                                                                     (Dollars in Thousands)
<S>                                   <C>                <C>        <C>             <C>        <C>              <C>
Securities:
 Federal Agency Obligations            $   63,145        30.19%       $43,773        21.65%      $  9,967        13.06%
 Municipal Bonds                              766         0.37%           505         0.25%           ---         ----%
 Other investment securities (2)              ---         ----            ---          ---%        11,422        14.97%
 Mortgage-backed securities               141,897        67.85%       156,261        77.10%        53,033        69.49%
                                       ----------      -------     ----------      -------      ---------       ------
 Total debt securities                    205,808        98.41%       200,539        99.00%        74,422        97.52%
FHLB stock                                  3,291         1.57%         2,029         1.00%         1,892         2.48%
Other equity securities (3)                    34          .02%           ---         ----%           ---         ----%
                                       ----------      -------     ----------      -------      ---------       ------
 Total securities and FHLB stock        $ 209,133       100.00%      $202,568       100.00%     $  76,314       100.00%
                                       ==========      =======     ==========      =======      =========       ======

 Other interest-earning assets:
   Interest-bearing deposits with banks $   4,598       100.00%     $   2,051        31.31%     $   5,259         6.39%
   Federal Funds Sold                         ---         ----          4,500        68.69%        77,100        93.61%
                                       ----------      -------     ----------      -------     ----------       ------
       Total                            $   4,598       100.00%     $   6,551       100.00%     $  82,359       100.00%
                                       ==========      =======     ==========      =======      =========       ======

<FN>
     -------------------------------------

(1)At  December  31, 1997,  1996 and  1995, debt  securities  are  classified as
available  for  sale  and  are  carried  at  fair  value.   The  FHLB  stock  is
non-marketable and accordingly is carried at cost.

(2)Primarily  comprised of debt  securities of Fortune 500  companies  initially
rated A or better. These securities generally contain greater risk than U.S.
Government securities and Federal agency obligations.

(3)Comprised of municipal bond mutual funds.
</FN>
</TABLE>


                                       23
<PAGE>
     The composition and contractual maturities of the securities portfolio (all
of which are categorized as available for sale),  excluding FHLB stock and other
equity  securities,   are  indicated  in  the  following  table.  The  Company's
securities portfolio at December 31, 1997, contained no securities of any issuer
with an aggregate book value in excess of 10% of the Company's equity, excluding
those issued by the United States  Government or its  agencies.  Securities  are
stated at their  contractual  maturity  date  (mortgage  backed  securities  are
included by final contractual  maturity).  Expected  maturities will differ from
contractual  maturities  because  borrowers may have the right to call or prepay
obligations with or without call or prepayment penalties.
<TABLE>
<CAPTION>
                                                                     December 31, 1997
                               ---------------------------------------------------------------------------------------
                                                Over One       Over Five
                                   One Year    Year through   Years through    Over
                                    or less    Five Years      Ten Years     10 Years          Total Securities
                               -------------- -------------- -------------- -------------- ---------------------------
                               Amortized Cost Amortized Cost Amortized Cost Amortized Cost Amortized Cost Fair Value
                               -------------- -------------- -------------- -------------- -------------- ------------
                                                                 (Dollars in Thousands)
<S>                              <C>            <C>            <C>            <C>            <C>            <C>
Federal agency obligations       $  3,998       $ 13,000       $ 31,200       $ 15,000       $ 63,198       $ 63,145
Municipal Bonds                       ---            755            ---            ---            755            766
Mortgage-backed securities            ---            ---          5,433        136,879        142,312        141,897
                                  -------        -------        -------        -------        -------        -------
Total investment securities      $  3,998       $ 13,755       $ 36,633       $151,879       $206,265       $205,808
                                  =======        =======        =======        =======        =======        =======
Weighted average yield ....          5.74%          6.05%          7.06%          7.35%          7.18%          7.18%
                                  =======        =======        =======        =======        =======        =======
</TABLE>

Sources of Funds


     General


     The  Company's   primary   sources  of  funds  are  deposits,   borrowings,
amortization  and  prepayment of loan and  mortgage-backed  security  principal,
maturities of investment securities,  short-term investments, and funds provided
from operations.


     Deposits


     The Company offers a variety of deposit accounts having a range of interest
rates and terms.  The  Company's  deposits  consist of savings  accounts,  money
market  accounts,  transaction  accounts,  and  certificate  accounts  currently
ranging in terms  from 91 days to 60  months.  The  Company  primarily  solicits
deposits  from its primary  market area and at December 31,  1997,  did not have
brokered deposits. The Company relies primarily on competitive pricing policies,
advertising  and  customer  service to attract and retain  these  deposits.  The
Company  has  utilized  premiums  and  promotional  gifts  for new  accounts  in
connection with the opening of new branches or with club accounts.  At times the
Company also uses small advertising give-aways in the aisles of the supermarkets
where it maintains branches. For information regarding average balances and rate
information on deposit accounts,  see  "Management's  Discussion and Analysis of
Financial  Condition  and Results of  Operations"  in the Annual  Report and for
information  on the dollar  amount of  deposits  in the  various  deposit  types
offered  by the  Company,  see  Note 8 of the  Notes to  Consolidated  Financial
Statements in the Annual Report.

                                       24
<PAGE>


     The flow of  deposits  is  influenced  significantly  by  general  economic
conditions,   changes  in  money  market  and  prevailing  interest  rates,  and
competition.  The variety of deposit accounts offered by the Company has allowed
it to be  competitive  in  obtaining  funds and to respond with  flexibility  to
changes  in  consumer  demand.  The  Company  has  become  more  susceptible  to
short-term fluctuations in deposit flows, as customers have become more interest
rate conscious.  The Company manages the pricing of its deposits in keeping with
its asset/liability management, liquidity and profitability objectives. Based on
its experience,  the Company  believes that its savings accounts and transaction
accounts are relatively stable sources of deposits.  However, the ability of the
Company to attract and  maintain  money  market  accounts  and  certificates  of
deposit and the rates paid on these  deposits  have been and will continue to be
significantly affected by market conditions.

     The following  table sets forth the deposit flows at the Company during the
periods indicated.  The net increase in deposits for the year ended December 31,
1995,  was primarily the result of the Company's  having opened two new branches
in 1995 and the  Company's  decision to raise the interest  rates offered on six
month  certificates of deposit in order to replace  borrowed  funds.  Management
believes that the net decrease in deposits during 1996 was the result,  in part,
to some of the Bank's depositors  deciding to pursue alternative  opportunities,
such as stock mutual funds,  with a portion of their  investable  funds. The net
increase in deposits  during 1997 was  attributable,  in part, to the reverse of
1996 with depositors  shifting  investable funds into certificates of deposit to
obtain the relatively higher interest rates paid by the Bank and its market area
competitors.  Also  contributing to the increase were new account  relationships
that resulted from the opening of three new branch offices in May 1997.


                                Years Ended December 31,
                            --------------------------------
                                1997      1996       1995
                            ----------  ---------  ---------
                                  (Dollars in thousands)

Opening balance               $298,082   $311,238   $293,152
Deposits                       924,133    860,011    841,042
Withdrawals                    902,595    885,591    835,404
Interest credited               13,645     12,424     12,448
                            ==========  =========   ========
Ending balance                $333,265    298,082   $311,238
                            ==========  =========   ========

Net increase (decrease)        $35,183   ($13,156)  $ 18,086
                            ==========  =========   ========

Percent increase (decrease)      11.80%    (4.23)%      6.17%
                            ==========  =========   ========


                                       25
<PAGE>


     The following  table shows rate and maturity  information for the Company's
certificates of deposit as of December 31, 1997.


Certificate Accounts          0.00-     4.01 -     6.01 -                Percent
Maturing in Quarter Ending:   4.00%     6.00%       8.00      Total     of Total
--------------------------- -------   --------   --------    --------   --------
                                           (Dollars in Thousands)
March 31, 1998             $    999   $ 43,640   $  1,189    $ 45,828     25.00%
June 30, 1998                    12     41,571      3,255      44,838     24.46%
September 30, 1998              ---     23,597        383      23,980     13.08%
December 31, 1998               ---     24,443         14      24,457     13.34%
March 31, 1999                  ---      8,389        996       9,385      5.12%
June 30, 1999                   ---      4,295        994       5,289      2.88%
September 30, 1999              ---      3,897        177       4,074      2.22%
December 31, 1999               ---      2,173      1,098       3,271      1.78%
March 31, 2000                  ---      2,091      5,294       7,385      4.03%
June 30, 2000                   ---      1,305      5,070       6,375      3.48%
September 30, 2000              ---      1,541         85       1,626       .89%
December 31, 2000               ---        764         13         777       .42%
Thereafter                      ---      3,359      2,688       6,047      3.30%
                             ------      -----      -----       -----    -------

Total                      $  1,011   $161,065   $ 21,256    $183,332    100.00%
                           ========   ========   ========    ========    =======
Percent of Total               0.55%     87.86%     11.59%     100.00%
                           ========   ========   ========    ========


     The following table  indicates the amount of the Company's  certificates of
deposit by time remaining until maturity as of December 31, 1997.


                                               Maturity
                                -------------------------------------
                                           Over     Over
                                 3 Months  3 to 6  6 to 12    Over
                                  or Less  Months   Months  12 Months    Total
                                --------- -------- --------  --------   --------
                                            (In thousands)
Certificates of deposit
less than $100,000                $42,611  $39,724  $43,066   $40,083   $165,484

Certificates of deposit
of $100,000 or more                 3,217    5,114    5,371     4,146     17,848
                                --------- -------- --------  --------   --------

Total certificates of deposit     $45,828  $44,838  $48,437   $44,229   $183,332
                                ========= ======== ========  ========   ========


                                       26
<PAGE>


     Borrowings


     Although  deposits are the Company's primary source of funds, the Company's
policy  generally  has been to utilize  borrowings  when they are a less  costly
source of funds, can be invested at a positive  interest rate spread or when the
Company needs additional funds to satisfy loan demand.

     The Company's  borrowings  historically have consisted of advances from the
FHLB of New York. Such advances can be made pursuant to several different credit
programs,  each of which has its own interest rate and range of  maturities.  At
December 31, 1997, the Company had $12.3 million in FHLB advances.  During 1996,
the Company  significantly  increased its other  borrowings  by $102.8  million.
These borrowings were used to purchase  various  investments  including  Federal
agency  obligations and  mortgage-backed  securities  which were  simultaneously
pledged as securities sold under agreements to repurchase. At December 31, 1997,
pledged  securities  totaled $111.2 million.  The positive  interest rate spread
between the volume of pledged securities and the related borrowings has produced
an increase in net interest  income but at an interest  rate spread that is less
than the  Company has earned on other asset to funding  spreads.  The  increased
level of borrowings coupled with a reduction in the interest rate spread related
to the  borrowings  has  resulted in a narrowing  in the  Company's  overall net
interest margin from 3.66% for the year ended December 31, 1996 to 3.36% for the
year ended  December  31, 1997.  See  "Management's  Discussion  and Analysis of
Financial  Condition and Results of Operations - Operating Results" contained in
the Annual Report. See Note 9 of the Notes to Consolidated  Financial Statements
contained in the Annual Report.

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

                                                     Years Ended December 31,
                                                   -----------------------------
                                                     1997      1996      1995
                                                   --------  --------  --------
                                                            (In thousands)
Maximum Balance:
FHLB Advances                                      $  14,400   $28,000   $15,000
Securities sold under agreements to repurchase        99,410   102,780     4,000

Average Balance:
FHLB Advances                                          3,667     9,757     3,922
Securities sold under agreements to repurchase        95,261    57,815       958


                                       27
<PAGE>
The  following  table  sets  forth  certain  information  as  to  the  Company's
borrowings at the dates indicated:

                                                          December 31,
                                                   -----------------------------
                                                     1997      1996      1995
                                                   --------  --------  --------
                                                       (Dollars in thousands)

FHLB advances                                       $ 12,300  $ 6,000    $------
Securities sold under agreements to repurchase        99,250  102,780     ------
                                                   ---------  --------  --------
Total borrowings                                    $111,550 $108,780    $------
                                                   ========= ========   ========

Weighted average interest rate of FHLB advances        6.38%     6.88%     ----%

Weighted average interest rate of securities sold
  under agreements to repurchase                       6.04%     5.96%     ----%


Subsidiary and Other Activities


     As a federally chartered savings association,  the Bank is permitted by OTS
regulations  to invest up to 2% of its assets,  or $10.2 million at December 31,
1997, in the stock of, or loans to, service corporation subsidiaries. As of such
date, the Bank had no investments in service corporation subsidiaries.  The Bank
may invest an  additional  1% of its assets in service  corporations  where such
additional funds are used for inner-city or community  development  purposes and
up to 50% of its total capital in conforming  loans to service  corporations  in
which it owns more than 10% of the capital stock.  Federal associations also are
permitted to invest an unlimited amount in operating subsidiaries engaged solely
in activities which a federal association may engage in directly.

     The Bank organized a single service  corporation in 1984, which is known as
ASB Insurance  Agency,  Inc.  ("ASB  Insurance").  In November 1996, the Company
purchased the service corporation from the Bank for $1,000. ASB Insurance offers
mutual funds, annuity and brokerage services through a registered  broker-dealer
to the  Company's  customers  and members of the general  public.  ASB Insurance
recognized gross revenues of $60,800 for the year ended December 31, 1997.


Regulation


     General


     The Bank,  organized in 1886, is a federally  chartered  savings bank,  the
deposits of which are federally insured by the FDIC and backed by the full faith
and credit of the United States Government.  Accordingly, the Bank is subject to
broad  federal  regulation  and  oversight  by the  OTS  extending  to  all  its
operations.  The Bank is a member  of the  FHLB of New  York and is  subject  to
certain  limited  regulation  by the Board of Governors  of the Federal  Reserve
System  ("Federal  Reserve Board").  As a savings and loan holding company,  the
Company  also is subject  to federal  regulation  and  oversight.  The Bank is a
member of the Bank Insurance Fund ("BIF"),  which is  administered  by the FDIC.
Its deposits are insured up to applicable  limits by the FDIC. As a result,  the
FDIC also has certain regulatory and examination authority over the Bank.

     Certain of these  regulatory  requirements  and  restrictions are discussed
below or elsewhere in this document.


                                       28
<PAGE>


     Federal Regulation of Savings Association.


     The  OTS  has   extensive   authority   over  the   operations  of  savings
associations.  As part of this authority,  the Bank is required to file periodic
reports  with the OTS and is subject to periodic  examinations  by the OTS,  its
primary  federal  banking  regulator,   and  the  FDIC.  The  last  regular  OTS
examination of the Bank was as of December 31, 1996. When these examinations are
conducted by the OTS and the FDIC, the examiners, if they deem appropriate,  may
require the Bank to provide for higher  general or specific loan loss  reserves.
All savings associations are subject to a semi-annual assessment, based upon the
savings  association's  total  assets,  to fund the  operations  of the OTS. The
Bank's OTS assessment for the fiscal year ended December 31, 1997, was $110,000.

     The OTS also has extensive  enforcement authority over savings associations
and  their  holding  companies,   including  the  Bank  and  the  Company.  This
enforcement authority includes,  among other things, the ability to assess civil
money  penalties,  to issue  cease-and-desist  or removal orders and to initiate
injunctive actions.  In general,  these enforcement actions may be initiated for
violations  of laws and  regulations  and  unsafe or  unsound  practices.  Other
actions or inactions may provide the basis for enforcement action, including the
filing of  misleading  or untimely  reports with the OTS.

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

     The Bank's general permissible lending limit for  loans-to-one-borrower  is
equal to the  greater of  $500,000  or 15% of  unimpaired  capital  and  surplus
(except for loans fully secured by certain  readily  marketable  collateral,  in
which case this limit is increased to 25% of unimpaired capital and surplus). At
December 31, 1997,  the Bank's  lending limit was $7.4  million.  The Bank is in
compliance with the loans-to-one-borrower limitation.

     The  OTS,  as well as the  other  federal  banking  agencies,  has  adopted
guidelines  establishing  safety and soundness standards on such matters as loan
underwriting and  documentation,  asset quality,  earnings  standards,  internal
controls and audit  systems,  interest rate risk exposure and  compensation  and
other  employee  benefits.  Any  institution  which  fails to comply  with these
standards must submit a compliance plan. A failure to submit a plan or to comply
with an  approved  plan will  subject  the  institution  to further  enforcement
action.  The OTS and the other  federal  banking  agencies  have  also  proposed
additional guidelines on asset quality and earnings standards.  No assurance can
be given as to whether or in what form the proposed regulations will be adopted.


                                       29
<PAGE>


     Insurance of Accounts and Regulation by the FDIC


     The  Bank is a member  of the  BIF,  which  is  administered  by the  FDIC.
Deposits are insured up to applicable  limits by the FDIC and such  insurance is
backed by the full faith and credit of the United States Government. As insurer,
the FDIC  imposes  deposit  insurance  premiums  and is  authorized  to  conduct
examinations of and to require reporting by FDIC-insured  institutions.  It also
may prohibit any FDIC-insured institution from engaging in any activity the FDIC
determines,  by  regulation  or order,  to pose a serious risk to the  insurance
fund. The FDIC also has the authority to initiate  enforcement  actions  against
savings  associations,  after giving the OTS an opportunity to take such action,
and may terminate  deposit  insurance if it determines  that the institution has
engaged in unsafe or unsound practices, or is in an unsafe or unsound condition.

     The FDIC's  deposit  insurance  premiums are assessed  through a risk-based
system under which all insured  depository  institutions  are placed into one of
nine  categories  and  assessed  insurance  premiums,  based upon their level of
capital and supervisory evaluation. Under the system, institutions classified as
well  capitalized  (i.e., a core capital ratio of at least 5%, a ratio of Tier 1
or core capital to  risk-weighted  assets  ("Tier 1  risk-based  capital") of at
least 6% and a risk-based  capital ratio of at least 10%) and considered healthy
pay the  lowest  premium,  while  institutions  that  are less  than  adequately
capitalized (i.e., core or Tier 1 risk-based capital ratios of less than 4% or a
risk-based  capital  ratio  of  less  than  8%)  or  considered  of  substantial
supervisory concern pay the highest premium.  Risk classification of all insured
institutions is made by the FDIC semi-annually.

     The FDIC is authorized to adjust the insurance premium rates for banks that
are insured by the BIF, such as the Bank, in order to maintain the reserve ratio
of the BIF at 1.25% of BIF insured deposits.  The ranges of BIF premium rates in
effect during fiscal 1997 was 0% to 0.27%. In addition, BIF insured institutions
are required to  contribute  to the cost of financial  bonds that were issued to
finance  the cost of  resolving  the  thrift  failures  in the 1980s  (the "FICO
Premium").  The rate  currently set for the FICO Premium for BIF insured  banks,
such as the Bank, is 1.3 basis points.


     Regulatory Capital Requirements


     Federally insured savings  associations,  such as the Bank, are required to
maintain a minimum level of regulatory capital.  The OTS has established capital
standards,  including a tangible capital requirement,  a leverage ratio (or core
capital)  requirement and a risk-based  capital  requirement  applicable to such
savings associations.  The OTS is also authorized to impose capital requirements
in excess of these standards on a case-by-case  basis. At December 31, 1997, the
Bank was in compliance with its regulatory capital requirements.  See Note 15 of
the Notes to Consolidated Financial Statements contained in the Annual Report.

     The OTS and the  FDIC  are  authorized  and,  under  certain  circumstances
required, to take certain actions against savings associations that fail to meet
their  capital  requirements.  The OTS is  generally  required to take action to
restrict the activities of an "undercapitalized  association" (generally defined
to be  one  with  less  than  either  a 4%  core  capital  ratio,  a 4%  Tier  1
risked-based  capital  ratio  or an  8%  risk-based  capital  ratio).  Any  such
association  must  submit a  capital  restoration  plan and  until  such plan is
approved by the OTS may not increase its assets,  acquire  another  institution,
establish a branch or engage in any new  activities,  and generally may not make
capital   distributions.   The  OTS  is  authorized  to  impose  the  additional
restrictions that are applicable to significantly undercapitalized associations.


                                       30
<PAGE>


     As a condition to the approval of the capital restoration plan, any company
controlling an undercapitalized association must agree that it will enter into a
limited  capital  maintenance   guarantee  with  respect  to  the  institution's
achievement of its capital requirements.

     Any savings  association  that fails to comply with its capital  plan or is
"significantly undercapitalized" (i.e., Tier 1 risk-based or core capital ratios
of less  than 3% or a  risk-based  capital  ratio of less  than 6%) must be made
subject  to  one  or  more  of  additional   specified   actions  and  operating
restrictions  which may cover all aspects of its operations and include a forced
merger  or  acquisition  of  the   association.   An  association  that  becomes
"critically  undercapitalized" (i.e., a tangible capital ratio of 2% or less) is
subject to further mandatory restrictions on its activities in addition to those
applicable to significantly  undercapitalized associations. In addition, the OTS
must appoint a receiver (or conservator  with the concurrence of the FDIC) for a
savings  association,  with certain limited exceptions,  within 90 days after it
becomes critically  undercapitalized.  Any undercapitalized  association is also
subject to the general enforcement  authority of the OTS and the FDIC, including
the appointment of a conservator or a receiver.

     The OTS is also generally  authorized to reclassify an  association  into a
lower capital category and impose the  restrictions  applicable to such category
if the institution is engaged in unsafe or unsound  practices or is in an unsafe
or unsound condition.

     The  imposition by the OTS or the FDIC of any of these measures on the Bank
or the Company may have a substantial adverse effect on the Company's operations
and  profitability.  Company  shareholders  do not have preemptive  rights,  and
therefore, if the Company is directed by the OTS or the FDIC to issue additional
shares  of  Common  Stock,  such  issuance  may  result  in  the  dilution  of a
shareholder's percentage ownership of the Company.


     Limitations on Dividends and Other Capital Distributions


     OTS regulations  impose various  restrictions on savings  associations with
respect  to their  ability  to make  distributions  of  capital,  which  include
dividends,  stock  redemptions  or  repurchases,   cash-out  mergers  and  other
transactions  charged to the capital  account.  OTS regulations  also prohibit a
savings  association from declaring or paying any dividends or from repurchasing
any of its stock if, as a result, the retained earnings of the association would
be reduced  below the  amount  required  to be  maintained  for the  liquidation
account established in connection with its mutual to stock conversion.

      Generally,  savings associations,  such as the Bank, that before and after
the proposed  distribution  meet their  capital  requirements,  may make capital
distributions  during  any  calendar  year  equal to the  greater of 100% of net
income  for the  year-to-date  plus 50% of the amount by which the lesser of the
association's   tangible,   core  or  risk-based  capital  exceeds  its  capital
requirement  for such  capital  component,  as measured at the  beginning of the
calendar year, or 75% of its net income for the most recent four quarter period.
However,  an association deemed to be in need of more than normal supervision by
the OTS may have its dividend authority  restricted by the OTS. The Bank may pay
dividends in accordance with this general authority.

     Savings  associations  proposing to make any capital distribution need only
submit  written  notice to the OTS 30 days prior to such  distribution.  Savings
associations  that do not,  or would  not meet  their  current  minimum  capital
requirements following a proposed capital distribution, however, must obtain OTS
approval  prior  to  making  such  distribution.  The  OTS  may  object  to  the
distribution  during that 30-day  notice  period  based on safety and  soundness
concerns. See "- Regulatory Capital Requirements."


                                       31
<PAGE>
     The OTS has  proposed  regulations  that would  revise the current  capital
distribution  restrictions.  Under the proposal a savings association may make a
capital  distribution  without notice to the OTS (unless it is a subsidiary of a
holding  company)  provided  that  it  has a  CAMELS  1 or 2  rating,  is not of
supervisory concern, and would remain adequately  capitalized (as defined in the
OTS prompt corrective action regulations)  following the proposed  distribution.
Savings  associations  that would remain  adequately  capitalized  following the
proposed  distribution but do not meet the other noted  requirements must notify
the OTS 30 days prior to  declaring  a capital  distribution.  The OTS stated it
will generally regard as permissible that amount of capital  distributions  that
do not exceed 50% of the institution's excess regulatory capital plus net income
to date during the calendar year. A savings  association  may not make a capital
distribution  without  prior  approval  of  the  OTS  and  the  FDIC  if  it  is
undercapitalized  before,  or as a result of, such a distribution.  As under the
current  rule,  the  OTS  may  object  to a  capital  distribution  if it  would
constitute  an unsafe  or  unsound  practice.  No  assurance  may be given as to
whether or in what form the regulations may be adopted.


     Qualified  Thrift  Lender Test


     All  savings  associations,  including  the Bank,  are  required  to meet a
qualified  thrift  lender  ("QTL") test to avoid certain  restrictions  on their
operations. This test requires a savings association to have at least 65% of its
portfolio assets (as defined by regulation) in qualified thrift investments on a
monthly  average  for nine out of every 12  months  on a  rolling  basis.  As an
alternative,  the savings  association  may  maintain 60% of its assets in those
assets  specified under Section  7701(a)(19) of the Internal Revenue Code. Under
either test, such assets primarily consist of residential  housing related loans
and investments.  At December 31, 1997, the Bank met the test and has always met
the test since its effectiveness.

     Any savings  association  that fails to meet the QTL test must convert to a
national bank charter,  unless it requalifies as a QTL and thereafter  remains a
QTL. If such an association  has not yet  requalified or converted to a national
bank, its new  investments  and activities are limited to those  permissible for
both a savings  association  and a national  bank, and it is limited to national
bank  branching  rights in its home  state.  In  addition,  the  association  is
immediately  ineligible  to receive  any new FHLB  borrowings  and is subject to
national  bank  limits for payment of  dividends.  If such  association  has not
requalified  or  converted  to a national  bank  within  three  years  after the
failure,  it must  divest  of all  investments  and  cease  all  activities  not
permissible  for a  national  bank.  In  addition,  it must repay  promptly  any
outstanding FHLB borrowings,  which may result in prepayment  penalties.  If any
association  that fails the QTL test is  controlled by a holding  company,  then
within one year after the failure,  the holding  company must register as a bank
holding  company  and  become  subject  to  all  restrictions  on  bank  holding
companies. See "- Holding Company Regulation."

                                       32
<PAGE>

     Community Reinvestment Act


     Under  the  Community   Reinvestment   Act  ("CRA"),   every  FDIC  insured
institution has a continuing and affirmative obligation consistent with safe and
sound banking  practices to help meet the credit needs of its entire  community,
including  low and moderate  income  neighborhoods.  The CRA does not  establish
specific lending requirements or programs for financial institutions nor does it
limit an institution's  discretion to develop the types of products and services
that it believes are best suited to its particular  community,  consistent  with
the CRA. The CRA requires the OTS, in  connection  with the  examination  of the
Bank,  to assess the  institution's  record of meeting  the credit  needs of its
community  and to take such record  into  account in its  evaluation  of certain
applications, such as a merger or the establishment of a branch, by the Bank. An
unsatisfactory  rating may be used as the basis for the denial of an application
by the OTS.

      The federal banking agencies, including the OTS, have recently revised the
CRA regulations and the methodology for determining an institution's  compliance
with the CRA. Due to the heightened attention being given to the CRA in the past
few years,  the Bank may be required to devote  additional  funds for investment
and  lending  in its  local  community.  The  Bank  was  last  examined  for CRA
compliance in June 1996 and received a rating of "satisfactory".


     Holding  Company  Regulation


     The  Company  is a unitary  savings  and loan  holding  company  subject to
regulatory  oversight  by the OTS. As such,  the Company is required to register
and file reports with the OTS and is subject to regulation  and  examination  by
the OTS. In addition, the OTS has enforcement authority over the Company and its
non-savings  association  subsidiaries,  which  authority  permits  the  OTS  to
restrict or prohibit  activities that are determined to be a serious risk to the
subsidiary savings association.

     As a unitary savings and loan holding company, the Company generally is not
subject to activity  restrictions.  If the Company  acquires  control of another
savings association as a separate subsidiary, it would become a multiple savings
and loan  holding  company,  and the  activities  of the  Company and any of its
subsidiaries  (other  than the Bank or any  savings  association)  would  become
subject to activity  restrictions unless such other associations each qualify as
a QTL and were acquired in a supervisory acquisition.

     If the Bank fails the QTL test, the Company must obtain the approval of the
OTS prior to  continuing  after such  failure,  directly  or  through  its other
subsidiaries,  any  business  activity  other than those  approved  for multiple
savings and loan holding companies or their  subsidiaries.  In addition,  within
one year of such failure the Company must  register as, and will become  subject
to, the  restrictions  applicable  to bank  holding  companies.  The  activities
authorized  for a bank holding  company are more limited than are the activities
authorized  for a unitary or multiple  savings  and loan  holding  company.  See
"Qualified Thrift Lender Test."

     The Company must obtain approval from the OTS before  acquiring  control of
any savings  association.  Such  acquisitions  are generally  prohibited if they
result in a  multiple  savings  and loan  holding  company  controlling  savings
associations in more than one state. However,  such interstate  acquisitions are
permitted based on specific state authorization or in a supervisory  acquisition
of a failing savings association.

                                       33
<PAGE>


     Federal Taxation


     Savings  associations such as the Bank that meet certain definitional tests
relating to the  composition  of assets and other  conditions  prescribed by the
Internal  Revenue  Code of 1986,  as amended  (the  "Code"),  are  permitted  to
establish reserves for bad debts and to make annual additions thereto which may,
within specified  formula limits,  be taken as a deduction in computing  taxable
income for  federal  income  tax  purposes.  The amount of the bad debt  reserve
deduction is computed under the experience method.  Under the experience method,
the bad debt reserve  deduction is an amount  determined  under a formula  based
generally upon the bad debts actually sustained by the savings  association over
a period of years.

     In addition to the regular  income  tax,  corporations,  including  savings
associations  such as the Bank,  generally  are  subject  to a minimum  tax.  An
alternative  minimum tax is imposed at a minimum tax rate of 20% on  alternative
minimum  taxable  income,  which is the sum of a  corporation's  regular taxable
income (with certain  adjustments) and tax preference  items, less any available
exemption.  The alternative  minimum tax is imposed to the extent it exceeds the
corporation's  regular  income tax and net  operating  losses can offset no more
than 90% of alternative  minimum  taxable  income.  For taxable years  beginning
after 1986 and before 1996, corporations, including savings associations such as
the Bank, were also subject to an environmental tax equal to 0.12% of the excess
of alternative  minimum taxable income for the taxable year (determined  without
regard to net operating losses and the deduction for the environmental tax) over
$2 million.

     To the extent prior years earnings  appropriated to a savings association's
bad debt reserves for "qualifying  real property loans" and deducted for federal
income tax purposes exceed the allowable amount of such reserves  computed under
the  experience  method  and to the  extent  of the  association's  supplemental
reserves for losses on loans  ("Excess"),  such Excess may not,  without adverse
tax  consequences,  be  utilized  for the  payment  of cash  dividends  or other
distributions   to  a  shareholder   (including   distributions  on  redemption,
dissolution or  liquidation) or for any other purpose (except to absorb bad debt
losses).

     The Company  and its  subsidiaries  file  consolidated  federal  income tax
returns on a fiscal  year basis  using the  accrual  method of  accounting.

     The Bank and its  consolidated  subsidiaries  have been  audited by the IRS
with respect to  consolidated  federal income tax returns  through  December 31,
1988.  With respect to years examined by the IRS, either all  deficiencies  have
been satisfied or sufficient  reserves have been established to satisfy asserted
deficiencies.  The IRS is currently examining the Company,  including returns of
subsidiaries  and  predecessors,  for the years ended 1990 through  1996. In the
opinion of management,  any examination of still open returns (including returns
of subsidiaries  and  predecessors  of, or entities merged into, the Bank) would
not result in a  deficiency  which could have a material  adverse  effect on the
financial condition of the Bank and its consolidated subsidiaries.

                                       34
<PAGE>


     New York Taxation


     The Bank and its  subsidiaries  that operate in New York are subject to New
York state taxation.  The Bank is subject to the New York State Franchise Tax on
Banking  Corporations  in an annual amount equal to the greater of (i) 9% of the
Bank's "entire net income"  allocable to New York State during the taxable year,
or (ii) the applicable  alternative  minimum tax. The alternative minimum tax is
generally the greater of (a) 0.01% of the value of the Bank's  assets  allocable
to New York State with certain modifications,  (b) 3% of the Bank's "alternative
entire net income"  allocable to New York State, or (c) $250.  Entire net income
is  similar  to  federal  taxable  income,   subject  to  certain  modifications
(including the fact that net operating  losses cannot be carried back or carried
forward) and alternative entire net income is equal to entire net income without
certain  modifications.  The Bank and its  consolidated  subsidiaries  have been
audited  by the New York  State  Department  of  Taxation  and  Finance  through
December 31, 1994.


     Delaware Taxation


     As a Delaware  holding  company,  the  Company is  exempted  from  Delaware
corporate  income tax but is required  to file an annual  report with and pay an
annual fee to the State of  Delaware.  The Company is also  subject to an annual
franchise tax imposed by the State of Delaware.


Competition


     The Company faces strong  competition,  both in originating real estate and
other loans and in attracting  deposits.  Competition in originating real estate
loans comes primarily from other savings institutions,  commercial banks, credit
unions and mortgage  brokers  making loans secured by real estate located in the
Company's  primary market area. Other savings  institutions,  commercial  banks,
credit unions and finance  companies  provide  vigorous  competition in consumer
lending.

     The Company attracts  substantially  all of its deposits through its branch
offices,  primarily  from the  communities  in which  those  branch  offices are
located;  therefore,  competition for those deposits is principally  from mutual
funds and other savings  institutions,  commercial banks and credit unions doing
business in the same  communities.  The Company  competes for these  deposits by
offering a variety of deposit accounts at competitive rates, convenient business
hours, and convenient  branch locations with interbranch  deposit and withdrawal
privileges. Automated teller machine facilities are also available.


Employees


     At December 31, 1997, the Company had a total of 189  employees,  including
26 part-time  employees.  The  Company's  employees are not  represented  by any
collective  bargaining group.  Management considers its employee relations to be
good.

                                       35
<PAGE>


Executive Officers of the Company and the Bank Who Are Not Directors


     The following  information  as to the business  experience  during the past
five years is supplied with respect to the executive officers of the Company and
the Bank who do not serve on the  Company's  or the Bank's  Board of  Directors.
There are no arrangements or  understandings  between such persons named and any
persons pursuant to which such officers were selected.

     Harold  A.  Baylor,  Jr.  Mr.  Baylor,  age 55,  is Vice  President,  Chief
Financial  Officer and the  Treasurer of the Company and the Bank,  positions he
has held with the Company since June 1995 and with the Bank since 1990 and 1987,
respectively.

     Robert Kelly.  Mr. Kelly,  age 51, is Vice President, Secretary and General
Counsel  to the  Company,  positions  he has held  with the  Company  since  its
incorporation  in June  1995.  Mr.  Kelly has been Vice  President  and  General
Counsel to the Bank since July 1994. In January 1995 he was appointed  Secretary
of the Bank.  Prior to joining the Bank in 1994, Mr. Kelly was  self-employed in
the general practice of law in the State of New York.

     Nancy S. Virkler.  Ms. Virkler, age 48, is Vice President of Operations/MIS
at the Bank.  She was appointed  Vice  President in June 1994.  Ms.  Virkler has
served the Bank in various capacities since she began as a management trainee in
1977.

     Richard C. Edel.  Mr.  Edel,  age 48, is a Vice  President  of the Bank,  a
position  he has held since  1987.  Mr.  Edel is also  currently  serving as the
Community Reinvestment Act Officer of the Bank.

     Cynthia M. Proper.  Ms.  Proper,  age 35, was appointed  Vice President and
Director  of Lending of the Bank in July 1995.  Prior to such  appointment,  Ms.
Proper was the Director of Internal  Audit.  She also served the Bank in various
other  capacities,  primarily in the lending and savings  areas.  Ms. Proper has
been employed at the Bank since 1985.


Item 2.    Description of Property


     The Company conducts its business at its main office,  eleven other banking
offices and an operations  office in its primary  market area.  The Company owns
its Main Office,  its  operations  center and two branch  offices and leases the
remaining  nine branch  offices.  The Company also owns a parking lot located at
18-22 Division  Street,  Amsterdam,  New York, which is used to service the main
office.  The net book value of the Company's  premises and equipment  (including
land, building and leasehold improvements and furniture, fixtures and equipment)
at  December  31,  1997 was $3.1  million.  See Note 7 of Notes to  Consolidated
Financial Statements in the Annual Report. The Company believes that its current
facilities  are adequate to meet the present and  foreseeable  needs of the Bank
and the Company, subject to possible future expansion.


Item 3.   Legal Proceedings


     The Company is involved as plaintiff or defendant in various  legal actions
arising in the normal  course of its  business.  While the  ultimate  outcome of
these  proceedings  cannot be  predicted  with  certainty,  it is the opinion of
management,  after  consultation  with counsel  representing  the Company in the
proceedings, that the resolution of these proceedings should not have a material
effect on the Company's  results of operations.  For more information on certain
legal  proceedings,  see Note  13(a)  of the  Notes  to  Consolidated  Financial
Statements contained in the Annual Report.

                                       36
<PAGE>


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


     No  matter  was  submitted  to a vote  of  security  holders,  through  the
solicitation  of proxies or  otherwise,  during the quarter  ended  December 31,
1997.


                                     PART II


Item 5.   Market for the Registrant's Common Stock and Related Security Holder
          Matters

      Page 61 of the Annual Report is herein incorporated by reference.


Item 6.   Selected Financial Data


      Pages 3 and 4 of the Annual Report is herein incorporated by reference.


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


      Pages 5 through 20  of the  Annual  Report  are  herein  incorporated  by
      reference.


Item 7A.  Quantitative and Qualitative Disclosures About Market Risk


      Pages 17 through 19  of the  Annual  Report  are  herein  incorporated  by
      reference.


Item 8.   Financial Statements and Supplementary Data


      Pages 21 through 60  of the  Annual  Report  are  herein  incorporated  by
      reference.


Item 9.   Changes in and  Disagreements  With  Accountants on  Accounting  and
          Financial Disclosure


     There has been no Current  Report on Form 8-K filed  within 24 months prior
to the date of the most recent  consolidated  financial  statements  reporting a
change of accountants and/or reporting disagreements on any matter of accounting
principle or financial statement disclosure.

                                       37
<PAGE>


                                    PART III


Item 10.     Directors and Executive Officers of the Registrant


Directors
---------


     Information  concerning  Directors of the Registrant is incorporated herein
by reference from the  Corporation's  definitive  Proxy Statement for the Annual
Meeting  of  Shareholders  scheduled  to be  held on May 22,  1998,  except  for
information  contained  under  the  heading  "Compensation  Committee  Report on
Executive  Compensation" and "Shareholder  Return Performance  Presentation",  a
copy of which  will be filed  not  later  than 120 days  after  the close of the
fiscal year.


Executive Officers
------------------


     Information concerning executive officers of the Company is set forth under
the  caption  "Executive  Officers  of the  Company  and  the  Bank  who are not
Directors" contained in Part 1 of this Form 10-K.


Compliance with Section 16(a)
-----------------------------


     Section  16(a) of the Exchange Act requires  the  Company's  directors  and
executive  officers,  and persons who own more that 10% of a registered class of
the Company's equity  securities,  to file with the SEC reports of ownership and
reports of changes in ownership of common stock and other equity  securities  of
the Company. Officers,  directors and greater than 10% shareholders are required
by SEC  regulation to furnish the Company with copies of all Section 16(a) forms
they file.

     To the Company's  knowledge,  based soley on a review of the copies of such
reports  furnished  to the  Company and  written  representations  that no other
reports  were  required  during the fiscal year ended  December  31,  1997,  all
Section 16(a) filing  requirements  applicable  to its  officers,  directors and
greater than 10 percent beneficial owners were complied with.


Item 11.     Executive Compensation


     Information  concerning  executive  compensation is incorporated  herein by
reference  from the  Corporation's  definitive  Proxy  Statement  for the Annual
Meeting  of  Shareholders  scheduled  to be  held on May 22,  1998,  except  for
information  contained  under  the  heading  "Compensation  Committee  Report on
Executive  Compensation" and "Shareholder  Return Performance  Presentation",  a
copy of which  will be filed  not  later  than 120 days  after  the close of the
fiscal year.

                                       38
<PAGE>


 Item 12.     Security  Ownership of Certain  Beneficial  Owners and Management


     Information  concerning security ownership of certain beneficial owners and
management is incorporated herein by reference from the Corporation's definitive
Proxy Statement for the Annual Meeting of  Shareholders  scheduled to be held on
May 22, 1998, except for information  contained under the heading  "Compensation
Committee Report on Executive  Compensation" and "Shareholder Return Performance
Presentation",  a copy of which  will be filed not later than 120 days after the
close of the fiscal year.


Item 13.     Certain Relationships and Related Transactions


     Information   concerning   certain   relationships   and   transactions  is
incorporated  herein  by  reference  from  the  Corporation's  definitive  Proxy
Statement for the Annual Meeting of Shareholders scheduled to be held on May 22,
1998, except for information contained under the heading "Compensation Committee
Report  on  Executive   Compensation"   and  "Shareholder   Return   Performance
Presentation",  a copy of which  will be filed not later than 120 days after the
close of the fiscal year.


                                     PART IV


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


     (a) (1) Financial Statements:


     The following  information  appearing in the Registrant's  Annual Report to
Shareholders  for the year ended December 31, 1997, is incorporated by reference
in this Form 10-K Annual Report as Exhibit 13.

                                                                      Pages in
                                                                      Annual
     Annual Report Section                                             Report
     ---------------------                                            --------


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

Consolidated Statements of Financial Condition at
     December 31, 1997 and 1996 .....................................      23

Consolidated Statements of Operations for the years ended
     December 31, 1997, 1996 and 1995 ...............................      24

Consolidated Statements of Changes in Shareholders' Equity for
     the years ended December 31, 1997, 1996 and 1995 ...............      25

Consolidated Statements of Cash Flows for the years ended
     December 31, 1997, 1996 and 1995 ...............................   26-27

Notes to Consolidated Financial Statements ..........................   28-60

                                       39
<PAGE>


     (a) (2)  Financial Statement Schedules:


     All financial  statement  schedules have been omitted as the information is
not required under the related instructions or is inapplicable.


     (a) (3)  Exhibits:


          See Index to Exhibits

     (b) Reports on Form 8-K:

     Current reports on form 8-K were filed as follows:

     On November 20, 1997, a Press  Release dated  November 19, 1997  announcing
     regular quarterly cash dividend.


                                       40
<PAGE>


                                   SIGNATURES


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


                                          AMBANC HOLDING CO., INC.



Date: March 30, 1998                      By: /s/ Robert J. Brittain
      ------------------------------          ----------------------
                                              Robert J. Brittain, President
                                              and Chief Executive Officer
                                              (Duly Authorized Representative)




                                       41
<PAGE>


      Pursuant to the requirements of the Securities  Exchange Act of 1934, this
report  has  been  signed  below  by the  following  persons  on  behalf  of the
Registrant and in the capacities and on the dates indicated.



/s/ Robert J. Brittain                    /s/ Paul W. Baker
-----------------------------------       -------------------------------------
Robert J. Brittain, President             Paul W. Baker, Chairman of the Board
and Chief Executive Officer
(Principal Executive Officer)

Date: March 30, 1998                      Date: March 30, 1998
      -----------------------------            --------------------------------



/s/ William A. Wilde, Jr.                 /s/ Lauren T. Barnett
-----------------------------------       -------------------------------------
William A. Wilde, Jr., Director           Lauren T. Barnett, Director

Date: March 30, 1998                      Date:  March 30, 1998
      -----------------------------            --------------------------------



/s/ Robert J. Dunning                     /s/ Carl A. Schmidt, Jr.
-----------------------------------       -------------------------------------
Robert J. Dunning, DDS, Director          Carl A. Schmidt, Jr., Director

Date: March 30, 1998                      Date:  March 30, 1998
      -----------------------------            --------------------------------



/s/ Charles S. Pedersen                   /s/ Lionel H. Fallows
-----------------------------------       -------------------------------------
Charles S. Pedersen, Director             Lionel H. Fallows, Director

Date: March 30, 1998                      Date:  March 30, 1998
      -----------------------------            --------------------------------



/s/ John J. Daly                          /s/ Harold A. Baylor, Jr.
-----------------------------------       -------------------------------------
John J. Daly, Director                    Harold A. Baylor, Jr., Vice
                                          President and Treasurer (Principal
                                          Financial and Accounting Officer)

Date: March 30, 1998                      Date:  March 30, 1998
      -----------------------------            --------------------------------


/s/ Marvin R. LeRoy, Jr.
-----------------------------------
Marvin R. LeRoy, Jr., Director

Date: March 30, 1998
      -----------------------------



                                       42
<PAGE>


                                Index to Exhibits


Exhibit
Number                                Document
------              ------------------------------------------------------------

3(i)                Registrants's Certificate of Incorporation as currently in
                    effect, filed as an exhibit to Registrants's Registration
                    Statement of Form S-1 (File No. 33-96654), is incorporated
                    herein by reference.

3(ii)               Registrants's Bylaws as currently in effect, filed as an
                    exhibit to Registrant's Registration Statement on Form S-1
                    (File No. 33-96654), is incorporated herein by reference.

4                   Registrant's Specimen Stock Certificate, filed as an exhibit
                    to Registrant's Registration Statement on Form S-1 (File No.
                    33-96654), is incorporated herein by reference.

10.1                Employment Agreements between the Registrant's operating
                    subsidiary and Robert J. Brittain, Harold A. Baylor, Jr.,
                    Richard C. Edel, Nancy S. Virkler, Cynthia M. Proper and
                    Robert Kelly, filed as exhibits to Registrant's Registration
                    Statement on Form S-1 (File No. 33-96654), are incorporated
                    herein by reference.

10.2                Registrant's  Employee Stock  Ownership  Plan,  filed as an
                    exhibit to Registrant's Registration  Statement on Form S-1
                    (File No. 33-96654), is incorporated herein by reference.

10.3                Registrant's 1997 Stock Option and Incentive Plan, Filed as
                    Exhibit A to Registrant's  Proxy  Statement  filed with the
                    Commission on March 26, 1997, pursuant to Section  14(a) of
                    the Securities Exchange Act of 1934, as amended (File No.
                    0-27036), is incorporated herein by reference.

10.4                Registrant's Recognition and Retention Plan, filed as
                    Exhibit B to Registrant's Proxy Statement filed with the
                    Commission on March 26, 1997, pursuant to Section 14(a) of
                    the Securities Exchange Act of 1934, as amended (File No.
                    0-27036), is incorporated herein by reference.

11                  Statement re: computation of per share earnings (see Notes
                    1(n) and 17 of the Notes to Consolidated Financial
                    Statements contained in the Annual Report to Shareholders
                    filed as Exhibit 13 herein).

13                  Annual Report to Shareholders

21                  Subsidiaries of the Registrant

27                  Financial Data Schedule