Exhibit 13.0



                       1997 Annual Report to Stockholders


<PAGE>

Annual Report 1997



<PAGE>
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                           Little Falls Bancorp, Inc.
                              Annual Report - 1997
--------------------------------------------------------------------------------

Little Falls Bancorp, Inc.
Annual Report - 1997
Table of Contents
The Board of Directors                                                       2
A Message from the President                                                 3
Corporate Information                                                        4
Corporate Headquarters and Branch Locations                                  5
Community Services                                                           6
Corporate Profile and Stock Market Information                               7
Selected Financial and Other Data                                            8
Management's Discussion and Analysis of
  Financial Condition and Results of Operations                             10
Index to Financial Statements                                               F-1


<PAGE>

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                             The Board of Directors
--------------------------------------------------------------------------------

                               [GRAPHIC OMITTED]

Board of Directors
Little Falls Bancorp and Little Falls Bank

Seated, left to right:
Edward J. Seugling, Vice Chairman;
Albert J. Weite, Chairman;
Leonard G. Romaine, President, Little Falls Bank/ Little Falls Bancorp, Inc.

Standing, left to right:
Directors; John P. Pullara, C. Evan Daniels,
Raoul G. Barton, George Kuiken

Norman A. Parker
Director
(not present at time of photo)

Richard A. Capone
Chief Financial Officer
and Treasurer

                                       2
<PAGE>

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                        A Message from the President...
--------------------------------------------------------------------------------

                               [GRAPHICS OMITTED]

Leonard G. Romaine
President

To Our Stockholders:

On behalf of our directors, officers and employees, we are pleased to present to
you our  third  annual  Stockholders'  Report.  We  believe  your  Bank has made
significant strides in its first two years as a public company.  During the past
two  years,  we have  been  able to  grow  our  loan  portfolio  through  strong
originations  of over $58.0 million,  supplemented by purchases of $15.1 million
of participations in multi-family loans. Such purchases should enable us to take
advantage of higher yields while diversifying our loan portfolio.

Furthermore,  excess  liquidity  was utilized to  repurchase  137,259  shares of
common  stock in fiscal  1997 and to invest in  mortgage-backed  and  investment
securities.  Such repurchases were accretive to earnings and management believes
that its purchases of mortgage-backed  securities and investment securities have
enhanced the Bank's asset quality and interest rate sensitivity.

Your Board of Directors and management team are
committed  to  protecting  and  enhancing  the value of your  investment  in the
Company.  To do so,  we are  challenged  to  continue  delivering  high  quality
services to our customers and communities and build on our past accomplishments.
We appreciate the  confidence,  support and loyalty of our customers,  employees
and stockholders.

Sincerely,



/s/Leonard G. Romaine
---------------------
Leonard G. Romaine
President


March 25, 1998

                                       3
<PAGE>

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                             Corporate Information
--------------------------------------------------------------------------------

Board of Directors of Little Falls Bancorp, Inc. and/or
Little Falls Bank
Albert J. Weite, Chairman of the Board
Edward J. Seugling, Vice Chairman of the Board
Raoul G. Barton
C. Evan Daniels
George Kuiken
Norman A. Parker
John P. Pullara
Leonard G. Romaine

Executive Officers of Little Falls Bancorp, Inc.
and/or Little Falls Bank
Leonard G. Romaine, President
Richard A. Capone, Chief Financial Officer and Treasurer
Anne Bracchitta, Secretary
Michael J. Allen, Vice President
Denise Hopper, Vice President
Della Talerico, Vice President

Corporate Counsel
Vincent N. Marino, Esq.
86 Main Street
Little Falls, NJ  07424

Independent Auditors
Radics & Co., LLC
55 US Highway #46
Pine Brook, NJ  07058

Special Counsel
Malizia, Spidi, Sloane & Fisch, P.C.
One Franklin Square
1301 K Street NW
Suite 700 East
Washington, DC 20005

Transfer Agent and Registrar
Chase Mellon Shareholder Services, LLC
450 W 33rd Street
New York, NY  10001-2697
The Company's Annual Report for the Year-Ended December 31, 1997, filed with the
Securities and Exchange  Commission on Form 10-K without exhibits,  is available
without  charge  upon  written  request.  For a copy of Form  10-K or any  other
investor  information,  please  write the  Secretary  of the  Company at 86 Main
Street,  Little Falls,  New Jersey.  Copies of any exhibits to the Form 10-K are
available at cost. The Annual Meeting of Stockholders  will be held on April 21,
1998 at 3:00 pm at The Bethwood, Lackawanna Avenue, Totowa, New Jersey.

                                       4
<PAGE>

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                  Corporate Headquarters and Branch Locations
--------------------------------------------------------------------------------

LITTLE FALLS BANCORP, INC.
86 Main Street
Little Falls, New Jersey  07424
(973)256-6100

LITTLE FALLS BANK
MAIN OFFICE
86 Main Street
Little Falls, New Jersey  07424

BRANCH OFFICES

WEST PATERSON
Route 46 & McBride Avenue
West Paterson, New Jersey  07424

SPRUCE RUN
220 Main Street
Glen Gardner, New Jersey  08826

MILFORD
34 Bridge Street
Milford, New Jersey  08848

ALEXANDRIA
636 Milford-Frenchtown Road
Alexandria Township, New Jersey  08848

KINGWOOD
Routes 12 and 519
Baptistown, New Jersey  08825

                               [GRAPHICS OMITTED]

Little Falls Office and Corporate Headquarters
Kingwood Office
Alexandria Office
Milford Office
Spruce Run Office
West Paterson Office

                                       5
<PAGE>

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                               Community Services
--------------------------------------------------------------------------------

                               [GRAPHICS OMITTED]

Little  Falls  Bank,  its Board of  Directors,  Management  and Staff are firmly
committed to the communities we serve.  From street fairs to team  sponsorships,
from church and civic  support to the health and  well-being of every age group,
Little  Falls  Bank  takes  very  seriously  the  importance  of its role in the
community. Milford Fair Milford Fair Milford Fair Kingwood Fair and Flea Market


<PAGE>

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Little Falls Bancorp, Inc.
--------------------------------------------------------------------------------


Corporate Profile

         Little Falls Bancorp,  Inc. (the "Company") is a New Jersey corporation
organized  in August  1995 at the  direction  of the Board of  Directors  of the
Little Falls Bank (the  "Bank") to acquire all of the capital  stock of the Bank
issued upon its conversion from the mutual to stock form of ownership on January
5, 1996 (the "Conversion").  In connection with the Conversion, the Company sold
3,041,750 shares of Common Stock for net proceeds of $26.8 million.  The Company
is a unitary  savings and loan  holding  company  which,  under  existing  laws,
generally is not restricted in the types of business  activities in which it may
engage  provided  that the Bank  retains a  specified  amount  of its  assets in
housing-related  investments.  At the present time, because the Company does not
conduct any active  business,  the Company does not intend to employ any persons
other than  officers of the Bank but utilizes the support staff of the Bank from
time to time.

         The Bank is a federally  chartered stock savings bank  headquartered in
Little  Falls,  New Jersey.  The Bank was founded in 1887 and its  deposits  are
federally  insured by the Savings  Association  Insurance  Fund ("SAIF") and the
Bank is a member of the Federal Home Loan Bank  ("FHLB")  System.  The Bank is a
community oriented, full service retail savings institution offering traditional
mortgage loan products.

         The Bank  attracts  deposits  from the  general  public  and uses  such
deposits   primarily  to  originate   loans   secured  by  first   mortgages  on
owner-occupied one- to four-family residences in its market area, purchase loans
to diversify its loan portfolio,  and to purchase mortgage-backed and investment
securities. The Bank also originates a limited number of commercial real estate,
residential  construction,  and consumer loans,  which consists mainly of second
mortgages and home equity lines of credit.

Stock Market Information

         Since its issuance on January 5, 1996,  the Company's  common stock has
traded on the Nasdaq  National  Market.  The following  table reflects the stock
price as  published  by the  Nasdaq  National  Market.  The  quotations  reflect
inter-dealer prices, without retail mark-up,  mark-down, or commission,  and may
not represent actual transactions.

         HIGH     LOW

October 1, 1997 - December 31, 1997          $20 1/2  $16 1/4
July 1, 1997 - September 30, 1997             18 1/2   15 1/4
April 1, 1997 - June 30, 1997                 15 7/8   12 5/8
January 1, 1997 - March 31, 1997              14 1/8   12 1/4
October 1, 1996 - December 31, 1996           13 3/4   11
July 1, 1996 - September 30, 1996             11 3/4   10
April 1, 1996 - June 30, 1996                 11        9 1/2
January 5, 1996 - March 31, 1996              11 7/8   10

         The number of  stockholders  of record of common stock as of the record
date of March 23, 1998  ("Record  Date"),  was  approximately  418.This does not
reflect the number of persons or entities  who held stock in nominee or "street"
name  through  various  brokerage  firms.  As of the  Record  Date,  there  were
2,477,525 shares outstanding.

                                       7
<PAGE>

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Little Falls Bancorp, Inc.
--------------------------------------------------------------------------------


         The Company's  ability to pay dividends to  stockholders  is subject to
the  requirements  of New Jersey  law.  No  dividend  may be paid by the Company
unless its board of  directors  determines  that the Company will be able to pay
its debts in the ordinary  course of business after payment of the dividend.  In
addition, the Company's ability to pay dividends is dependent, in part, upon the
dividends  it  receives  from the Bank.  The Bank may not  declare or pay a cash
dividend  on any of its stock if the  effect  thereof  would  cause  the  Bank's
regulatory  capital  to be  reduced  below  (1)  the  amount  required  for  the
liquidation  account  established in connection with the Bank's  conversion from
mutual to stock form, or (2) the regulatory capital  requirements imposed by the
Office of Thrift Supervision ("OTS"). Selected Financial Condition Data
<TABLE>
<CAPTION>
                                                                   December 31,
                                               --------------------------------------------------------
                                                  1997       1996       1995     1994         1993
                                                  ----       ----       ----     ----         ----

                                                                   (In Thousands)
<S>                                             <C>        <C>        <C>        <C>        <C>
Total Assets ................................   $328,522   $303,518   $310,355   $193,385   $202,280
Loans receivable (net) ......................    147,033    117,116     96,230     94,754    101,775
Mortgage-backed securities held
         to maturity ........................     90,957    112,473    118,020     51,664     56,401
Mortgage-backed securities
         available for sale .................     13,929       --         --         --         --
Investment securities - held to
         maturity ...........................     57,988     51,370     29,999     36,146     24,999
Cash and cash equivalents ...................      6,788     10,374     53,419      4,065     12,608
Deposits ....................................    230,133    228,312    247,851    176,173    186,704
Stockholders' equity ........................     38,295     40,448     16,223     15,715     14,149
Selected Operating Data
</TABLE>

<TABLE>
<CAPTION>
                                                                 Year Ended December 31,
                                                -----------------------------------------------------
                                                  1997       1996       1995       1994          1993
                                                  ----       ----       ----       ----          ----
                                                                   (In Thousands)
<S>                                             <C>        <C>        <C>       <C>           <C>
Total interest income .......................   $ 21,064   $ 18,776   $ 13,813  $  13,075     $ 14,237
Total interest expense ......................     12,920     11,258      9,314      7,170        7,708
         Net interest income ................      8,144      7,518      4,499      5,905        6,529
Provision for loan losses ...................        240        183        131        356          328
         Net interest income after
                  provision for loan losses .      7,904      7,335      4,368      5,549        6,201
Total non-interest income ...................        427        409        178        143          917
Total non-interest expense ..................      5,403                         6,747(1)    3,059,912
Income before provision for
         income taxes and cumulative
         effect of accounting change ........      2,928        996        705      2,781        4,058
Income tax expense ..........................      1,072        385        241      1,066        1,493
         Net income before cumulative
                  effect of accounting change      1,856        611        464      1,715        2,565
Cumulative effect of accounting
         change .............................         --         --         --         --          325(3)
         Net income .........................   $  1,856   $    611   $    464  $   1,715     $  2,890
</TABLE>

                         (footnotes on following page)
                                       8

<PAGE>

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Little Falls Bancorp, Inc.
--------------------------------------------------------------------------------

Other Selected Data
<TABLE>
<CAPTION>
                                                       Year Ended December 31,
                                          ---------------------------------------------

                                           1997       1996       1995     1994    1993
                                           ----       ----       ----     ----    ----

<S>                                      <C>        <C>        <C>      <C>     <C>
Return on average assets                   0.60%      0.21%(1)   0.22%    0.86%   1.43%
Return on average equity                   4.74%      1.44%(1)   2.89%   11.62%  21.67%
Average equity to average assets          12.57%     14.78%      7.64%    7.62%   6.42%
Net interest rate spread                   2.27%      2.22%      1.97%    2.86%   3.20%
Per Share Information:
 Diluted earnings per share(4)             $0.75      $0.22       N/A      N/A      N/A
 Dividends per share(4)                   $0.155      $0.05       N/A      N/A      N/A
 Tangible book value per share(4)         $13.59     $13.56       N/A      N/A      N/A
Dividend  payout  ratio(4)                 20.62%     22.28%      N/A      N/A      N/A
Non-performing  assets to
total assets                                0.57%      0.91%     1.27%    3.09%   2.85%
Non-performing loans to total assets        0.39%      0.63%     0.79%    2.18%   1.93%
Allowance  for loan losses to total loans   0.79%      0.92%     0.98%    1.21%   0.79%
</TABLE>


-----------------------
(1)  Includes one-time special assessment to recapitalize the SAIF.
(2)  Includes a non-recurring expense of $195,000 due to the implementation of a
     directors' medical plan.
(3)  Reflects  the  adoption  of  Statement  of  Financial  Accounting  Standard
     ("SFAS") No. 109 which relates to the accounting of deferred income taxes.
(4)  No shares of common stock were outstanding until January 5, 1996.

                                       9


<PAGE>

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Little Falls Bancorp, Inc.
--------------------------------------------------------------------------------

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

General

         The  largest  components  of the Bank's  net  income  are net  interest
income,  which is the difference  between interest income and interest  expense,
and noninterest  income derived  primarily from fees.  Consequently,  the Bank's
earnings are dependent on its ability to originate  loans,  net interest income,
and  the  relative  amounts  of  interest-earning  assets  and  interest-bearing
liabilities.  The Bank's net income is also  affected by its  provision for loan
losses  and  foreclosed  real  estate  as well  as the  amount  of  non-interest
expenses,  such as  compensation  and benefit  expense,  occupancy and equipment
expense and deposit insurance  premium  expenses.  Earnings of the Bank also are
affected   significantly  by  general   economic  and  competitive   conditions,
particularly  changes in market interest rates,  government policies and actions
of regulatory authorities.

Financial Condition

         The Bank's total assets increased by $24.9 million to $328.5 million at
December  31,  1997 from  $303.5  million at  December  31,  1996.  Total  loans
receivable  increased  by $29.9  million due to mortgage  originations  of $27.3
million and the purchase of $15.1 million of  multi-family  loans located in New
York and New Jersey,  offset somewhat by loan repayments.  Investment securities
increased by $6.6 million due to purchases of $16.0 million offset by securities
which  matured  or were  called.  Mortgage-backed  securities  held to  maturity
decreased by $21.5  million due to  repayments  of  principal.  $14.0 million of
adjustable rate  mortgage-backed  securities were purchased  during the year and
classified as available for sale. Total cash and cash  equivalents  decreased by
$3.6 million.

         Total deposits  increased by $1.8 million.  Borrowed funds increased by
$25.1 million due to $15.0 million of FHLB reverse  repurchase  agreements being
used to fund the above noted  purchase of $15.l million of  multi-family  loans,
and $10 million of FHLB  reverse  repurchase  agreements  being used to fund the
purchase of adjustable rate  mortgage-backed  securities.  These securities were
used as collateral for the borrowing.

         Total  stockholders'  equity decreased by $2.0 million primarily due to
the  purchase  of  shares of  Company  stock  pursuant  to the  Company's  stock
repurchase  program  (137,259  shares  at a total  price of  approximately  $2.4
million) and by the Bank Management  Stock Bonus Plan (121,670 shares at a total
price of approximately  $1.7 million) and to dividends paid,  offset somewhat by
earnings for the year.

                                       10

<PAGE>

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Little Falls Bancorp, Inc.
--------------------------------------------------------------------------------

Average Balance, Net Interest Income, Yields Earned and Rates Paid

         The  following  table sets forth  certain  information  relating to the
Bank's  average  balance  sheet and  reflects  the  average  yield on assets and
average cost of liabilities for the periods indicated. Such yields and costs are
derived  by  dividing  income or  expense  by the  average  balance of assets or
liabilities,  respectively,  for the periods  presented.  Average  balances  are
derived from  month-end  balances.  Management  does not believe that the use of
month-end  balances  instead of daily  average  balances has caused any material
difference in the information presented.
<TABLE>
<CAPTION>
                                                    1997                           1996                         1995
                                        -----------------------------   ----------------------------  ----------------------------
                                         Average          Average       Average           Average     Average          Average
                                         Balance  Interest Yield/Cost   Balance  Interest Yield/Cost  Balance  Interest Yield/Cost
                                         -------  -------------------   -------  -------------------  -------  -------------------
                                                                           (Dollars in Thousands)
Interest-earning assets:
<S>                                     <C>        <C>      <C>        <C>        <C>     <C>        <C>       <C>      <C>
Loans receivable(1)                     $131,625   $10,081    7.66%    $105,794   $ 8,255   7.80%    $ 93,638  $ 7,580    8.09%
Mortgage-backed securities(5)            107,304     7,118    6.63      119,684     7,972   6.64       63,605    3,839    6.04
Investment securities(2)                  55,615     3,624    6.52       40,316     2,164   5.37       36,163    1,998    5.52
Other interest-earning assets              4,596       241    5.24        7,431       385   5.18        6,900      395    5.72
                                        --------   -------             --------   -------            --------  -------
         Total interest-earning assets   299,140    21,064    7.04      273,225    18,776   6.87      200,306   13,812    6.90
                                                   -------                        -------                      -------
Non-interest-earning assets               12,566                         14,223                         9,940
                                        --------                        -------                      --------
         Total assets                   $311,706                       $287,448                      $210,246
                                        ========                       ========                      ========

Interest-bearing liabilities:
Savings accounts                        $ 45,724     1,440    3.15     $ 51,633    1,860    3.60     $ 31,425      929    2.95
Now and money market                      32,788       642    1.96       39,270    1,155    2.94       27,099    1,086    4.01
Certificates of deposit                  148,122     8,246    5.57      147,707    8,068    5.46      130,513    7,299    5.59
Borrowed funds                            43,975     2,592    5.89        3,173      175    5.52           --       --      --
                                        --------   -------             --------   -------            --------  -------
         Total interest-bearing
                  liabilities            270,609    12,920    4.77      241,783   11,258    4.66      189,037    9,314    4.93
                                                   -------                        -------                      -------

Non-interest bearing liabilities           1,928                          3,171                         5,149
                                        --------                        -------                      --------
         Total liabilities               272,537                        244,954                       194,186
Retained earnings                         39,169                         42,494                        16,060
                                        --------                        -------                      --------
         Total liabilities and retained
                  earnings              $311,706                       $287,448                      $210,246
                                        ========                       ========                      ========

Net interest income                                $ 8,144                       $ 7,518                      $ 4,498
                                                   =======                       =======                      =======
Interest rate spread(3)                                       2.27%                         2.21%                         1.97%
                                                              ====                          ====                          ====
Net yield on interest-earning
         assets(4)                                            2.72%                         2.75%                         2.25%
                                                              ====                          ====                          ====
Ratio of average interest-earning
         assets to average interest-
         bearing liabilities                                110.54%                       111.00%                       105.96%
                                                            ======                        ======                        ======
</TABLE>

-------------
(1)  Average balances include non-performing loans.
(2)  Includes interest-bearing deposits in other financial institutions and FHLB
     stock.
(3)  Interest-rate spread represents the difference between the average yield on
     interest-earning   assets  and  the   average   cost  of   interest-bearing
     liabilities.
(4)  Net yield on  interest-earning  assets  represents net interest income as a
     percentage of average interest-earning assets.
(5)  Includes both held to maturity and available for sale.

                                       11
<PAGE>
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Little Falls Bancorp, Inc.
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     The table  below  sets  forth  certain  information  regarding  changes  in
interest income and interest expense of the Bank for the periods indicated.  For
each  category  of  interest-earning  assets and  interest-bearing  liabilities,
information  is  provided  on  changes  attributable  to (i)  changes  in volume
(changes in average  volume  multiplied  by prior  rate);  (ii) changes in rates
(changes  in  rate  multiplied  by  prior  average  volume);  (iii)  changes  in
rate-volume (changes in rate multiplied by the change in average volume).
<TABLE>
<CAPTION>
                                                                        Year Ended December 31,
                                           -----------------------------------------------------------------------------------
                                                       1997 vs. 1996                                1996 vs. 1995
                                           ----------------------------------------    ---------------------------------------
                                                     Increase (Decrease)                         Increase (Decrease)
                                                            Due to                                    Due to
                                           ----------------------------------------    ---------------------------------------
                                                                 Rate/                                      Rate/
                                            Volume       Rate    Volume       Net      Volume     Rate      Volume       Net
                                            ------      -----    -------    -------    -------   -------    -------    -------
                                                                              (In Thousands)
Interest income:
<S>                                        <C>        <C>        <C>        <C>        <C>         <C>        <C>      <C>
         Loans receivable ..............   $ 2,016    $  (152)   $   (38)   $ 1,826    $   985     $(274)     $ (36)   $   675
         Mortgage-backed securities ....      (825)       (33)         4       (854)     3,385       398        351      4,134
         Investment securities .........       821        463        176      1,460        142        22          2        166
         Other interest-earning assets .      (147)         5         (2)      (144)        45       (49)        (6)       (10)
                                            ------      -----    -------    -------    -------   -------    -------    -------
           Total interest-earning assets     1,865        283        140      2,288      4,557        97        311      4,965
                                            ------      -----    -------    -------    -------   -------    -------    -------
Interest expense:
         Savings accounts ..............      (213)      (234)        27       (420)       597       203        131        931
         Now and money market ..........      (191)      (386)        64       (513)       488      (289)      (130)        69
         Certificates of deposit .......        23        155       --          178        962      (170)       (22)       770
         Borrowed funds ................     2,250         12        155      2,417        175      --         --          175
           Total interest-bearing
                    liabilities ........     1,869       (453)       246      1,662      2,222      (256)       (21)     1,945
                                            ------      -----    -------    -------    -------   -------    -------    -------
Net change in net
         interest income ...............    $   (4)     $ 736    $  (106)   $   626    $ 2,335   $   353    $   332    $ 3,020
                                            ======      =====    =======    =======    =======   =======    =======    =======
</TABLE>

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

         General.  Net  income  increased  by $1.2  million,  or  203.8% to $1.9
million for the year ended  December  31, 1997 from  $611,000 for the year ended
December 31, 1996.

         The  increase  in  earnings  for the  year  was due in part to the $1.2
million  charge in the third quarter of 1996  connected  with a one time special
assessment from the Savings Association  Insurance Fund ("SAIF").  This one time
assessment  was the result of  legislation  that was  effective on September 30,
1996 for the purpose of recapitalizing  the SAIF. Other factors for the increase
in  earnings  were an increase of  $569,000  in net  interest  income  after the
provision for loan losses,  a decrease of $62,000 in the loss on foreclosed real
estate and an  additional  decrease of $270,000  in deposit  insurance  premiums
offset somewhat by increases in the provision for income taxes of $687,000,  and
miscellaneous expense of $184,000.

                                       12

<PAGE>

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Little Falls Bancorp, Inc.
--------------------------------------------------------------------------------

         Interest Income.  Interest income  increased $2.3 million,  or 12.2% to
$21.1  million for the year ended  December 31, 1997 from $18.6  million for the
year ended  December 31, 1996.  The increase was  primarily  due to increases of
$25.8 million and $15.3 million in the average  balances of loans and investment
securities, respectively, offset somewhat by decreases of $12.4 million and $2.8
million in the average balances of mortgage-backed securities and other interest
earnings assets,  respectively.  Also, the average yield on all interest earning
assets  increased  by 17 basis points to 7.04%.  In addition,  the payoff of two
problem loans resulted in the recording of  approximately  of $170,000 of income
previously reserved for.

         Interest  Expense.  Interest  expense  increased  $1.7 million to $12.9
million for the year ended  December  31,  1997 from $11.3  million for the year
ended December 31, 1996.  This was due to an increase in the average  balance of
borrowed  funds of $40.8  million  coupled  with an increase in the average rate
paid on interest-bearing liabilities of 11 basis points (100 basis points equals
1%) to  4.77%  partially,  offset  by a  decrease  in  the  average  balance  of
interest-bearing deposits of $12.0 million.

         Net Interest Income. Net interest income increased by $626,000, or 8.3%
for the year ended  December 31, 1997 as compared to the year ended December 31,
1996. The increase was due to the reasons noted above.

         Provision for Losses on Loans. The Bank maintains an allowance for loan
losses based upon management's  periodic  evaluation of known and inherent risks
in the loan portfolio, the Bank's past loss experience,  adverse situations that
may  affect  the  borrowers'  ability  to repay  loans,  estimated  value of the
underlying collateral and current and expected market conditions.  The provision
for loan  losses  increased  $57,000  or 31.2% to  $240,000  for the year  ended
December 31, 1997 from $183,000 for the year ended December 31, 1996,  primarily
due to the increase in the loan  portfolio.  The  allowance  for loan losses was
$1.2 million at December 31, 1997.  While the Bank  maintains  its allowance for
losses at a level which it considers  to be adequate,  there can be no assurance
that further  additions  will not be made to the loss  allowances  and that such
losses will not exceed the estimated amounts.

         Non-Interest Income.  Non-interest income increased by $19,000, or 4.7%
to $428,000 at December  31, 1997 from  $409,000 at December 31, 1996. A gain of
$125,000 was recorded on the sale of the Bank's  Frenchtown  office  building in
1997.  The Frenchtown  branch was closed in 1996, and the related  deposits were
transferred to the Bank's other Hunterdon County offices.  This offset a gain of
$138,000  recorded in 1996 on the sale of the deposits of the Bank's Mount Holly
office to an unaffiliated financial institution.

         Non-Interest  Expense.  Non-interest expense decreased $1.3 million, or
19.9% to $5.4  million at December 31, 1997 from $6.7 million for the year ended
December 31, 1996. This decrease was primarily due to the $1.2 million charge in
the third quarter of 1996 connected with a one time special  assessment from the
Savings  Association  Insurance Fund ("SAIF").  This one time assessment was the
result of  legislation  that was effective on September 30, 1996 for the purpose
of  recapitalizing  the SAIF.  Other  factors for the  decrease in  non-interest
expense were the additional  decrease in deposit insurance premiums of $270,000,
a decrease of $62,000 in the loss on foreclosed  real estate offset  somewhat by
an increase of $184,000 in miscellaneous expense.

                                       13

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Little Falls Bancorp, Inc.
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         The decrease on the loss on foreclosed real estate was primarily due to
a gain of $11,000 being  recorded on the sales of foreclosed  properties for the
year  ended  December  31,  1997,  compared  to a loss of $28,000 on the sale of
foreclosed  properties  for the year  ended  December  31,  1996.  Miscellaneous
expense increased by $184,000 due in most part to the expense connected with the
director's management stock bonus plan, which increased to $139,000 in 1997 from
$39,000 for 1996 due to a full year of vesting,  an increase in legal expense of
$50,000 and a loss of $19,000 on the sale of the Bank's Mount Holly office.  The
deposits of this branch were sold in 1996.

         A great  deal of  information  has been  disseminated  about the global
computer year 2000. Many computer  programs that can only  distinguish the final
two digits of the year entered (a common programming  practice in earlier years)
are  expected  to read  entries  for the year 2000 as the year 1900 and  compute
payment,  interest or delinquency  based on the wrong date or are expected to be
unable to compute  payment,  interest or  delinquency.  Rapid and accurate  data
processing  is essential to the operation of the Bank.  Data  processing is also
essential to most other financial institutions and many other companies.  All of
the material data  processing of the Bank that could be affected by this problem
is provided by a third party service bureau.  The service bureau of the Bank has
advised the Bank that it expects to be year 2000 complaint prior to December 31,
1999. However, if the service bureau is unable to resolve this potential problem
in time, the Bank would likely  experience  significant data processing  delays,
mistakes  or  failures.   These  delays,  mistakes  or  failures  could  have  a
significant  adverse impact on the financial  condition and results of operation
of the Bank.

         Income Tax Expense.  Income tax expense increased $687,000,  or $178.2%
to $1.1 million for the year ended  December 31, 1997 from $385,000 for the year
ended December 31, 1996.  This increase was due to an increase in pre-tax income
of $1.9 million.

Comparison of Operating Results for the Years Ended December 31, 1996 and 1995

         General.  Net income  increased  $147,000 or 31.7% to $611,000  for the
year ended December 31, 1996 from $464,000 for the year ended December 31, 1995.
This was primarily the result of a $3.0 million  increase in net interest income
and a $230,000  increase in  non-interest  income,  offset by a $2.9 increase in
non-interest expenses and an $144,000 increase in the provision for income taxes
in fiscal 1996 compared to fiscal 1995.

         Interest  Income.  Interest  income  increased $5.0 million or 35.9% to
$18.8  million for the year ended  December 31, 1996 from $13.8  million for the
year ended  December 31, 1995.  This  increase was primarily due to increases of
$56.1  million  and $12.2  million in the average  balances  of  mortgage-backed
securities and loans  receivable,  respectively.  These increases were primarily
due to the funds received from the purchase of three branches in December,  1995
and from the Conversion.

         Interest Expense.  Interest expense increased $1.9 million, or 20.9% to
$11.3  million for the year ended  December  31, 1996 from $9.3  million for the
year ended December 31, 1996. The increase was mainly due to the increase in the
average  balance of  interest-bearing  deposits  to $238.6  million for the year
ended  December  31, 1996 from $189.0  million for the year ended  December  31,
1995.  In  addition,  the average  balance of borrowed  funds  increased to $3.2
million during 1996. In 1995, the Company had

<PAGE>
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Little Falls Bancorp, Inc.
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no borrowed  funds.  The  increase in the  average  balance of  interest-bearing
liabilities  was offset  somewhat by the  decrease  in the average  rate paid on
interest-bearing  liabilities of 29 basis points (100 basis points equals 1%) to
4.66% for the year ended December 31, 1996.

         Net Interest Income. Net interest income increased by $3.0 million,  or
67.1%  for the year  ended  December  31,  1996 as  compared  to the year  ended
December 31, 1995.  This  increase was due to the  investment  of $26.8  million
received from the  Conversion in loans and  mortgage-backed  securities  and the
decrease in the average rate paid on interest-bearing  liabilities, as described
earlier.  This  resulted  in an  increase  in the net  interest  spread  and net
interest  margin to 2.21% and 2.75%,  respectively,  for the year ended December
31, 1996  compared with a net interest  spread and net interest  margin of 1.97%
and 2.25%, respectively, for the year ended December 31, 1995.

         Provision for Losses on Loans. The Bank maintains an allowance for loan
losses based upon management's  periodic  evaluation of known and inherent risks
in the loan portfolio, the Bank's past loss experience,  adverse situations that
may  affect  the  borrowers'  ability  to repay  loans,  estimated  value of the
underlying collateral and current and expected market conditions.  The provision
for loan  losses  increased  $52,000  or 39.2% to  $183,000  for the year  ended
December 31, 1996 from $131,000 for the year ended December 31, 1995,  primarily
due to the  write-off of a loan in the third  quarter.  The  allowance  for loan
losses was $936,000 at December 31, 1996. While the Bank maintains its allowance
for  losses  at a level  which it  considers  to be  adequate,  there  can be no
assurance  that further  additions  will not be made to the loss  allowances and
that such losses will not exceed the estimated amounts.

         Non-Interest  Income.  Non-interest  income  increased by $230,000,  or
129.3% to $409,000 for the year ended  December  31, 1996 from  $178,000 for the
year ended  December 31,  1995.  The increase was due in most part to a $138,000
gain recorded on the sale of the Mount Holly deposits in December,  1996. Income
on  checking  accounts  increased  by  $70,000  to  $121,000  for the year ended
December 31, 1996,  from $51,000 for the year ended  December 31, 1995 primarily
due to the  increase in checking  accounts  that  resulted  from the purchase of
three branches from an unaffiliated commercial bank.

         Non-Interest  Expense.  Non-interest expense increased $2.9 million, or
75.7% to $6.7 million for the year ended December 31, 1996 from $3.8 million for
the year ended  December 31,  1995.  This was  primarily  due to the increase in
deposit insurance premiums of $1.2 million,  or 286.9%. This increase was due to
a special  assessment  charged by the FDIC on its SAIF members to capitalize the
SAIF at the  designated  reserve level of 1.25% as of October 1, 1996.  The Bank
paid $1.2  million in November  1996 for this special  assessment.  The FDIC has
subsequently  lowered its premium rate for deposits.  Other factors  causing the
increase in non-interest  expense was the increase in compensation  and employee
benefits  of  $920,000  and the  increase in other  expenses  of  $714,000.  The
increase  in  compensation  and  employee  benefits  was  due to the  additional
employees  resulting from the purchase of three branch offices in December 1995,
the adoption of an employee  stock  ownership  plan ("ESOP") and the  management
stock bonus plan  ("MSBP").  For the year ended  December 31, 1996, the ESOP and
MSBP expenses were $178,000 and $49,000,  respectively.  The  acquisition of the
branch  offices  also  caused  increases  in  occupancy,  equipment  and deposit
insurance premiums. In addition,  the acquisition resulted in an increase in the
amortization  of goodwill to $361,000 for the year ended December 31, 1996, from
$30,000 for the year ended December 31, 1995.

                                       15

<PAGE>

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Little Falls Bancorp, Inc.
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         The 1996 increases were partially offset by a nonrecurring 1995 expense
of $195,000 for the  implementation  of a  directors'  medical  plan,  which was
recorded  during the three months ended June 30, 1995.  On August 30, 1996,  the
Bank closed its Frenchtown office. The decision to close the branch was based on
management's  evaluation  of the  purchase of three  branch  offices in the same
county from an unaffiliated  commercial bank in December 1995 and the ability of
the Bank to decrease expenses and improve efficiencies through consolidation. On
December 20, 1996, the Bank closed its Mount Holly office,  and sold the related
deposits to an unaffiliated local financial  institution.  This should result in
decreased operating expenses going forward.

         Income Tax Expense.  Income tax expense increased  $144,000 to $385,000
for the year ended  December 31, 1996 from $241,000 for the year ended  December
31, 1995 due to an increase in pre-tax income of $291,000.

Risk Management

         In an effort  to reduce  interest  rate  risk and  protect  it from the
negative effect of rapid increases and decreases in interest rates, the Bank has
instituted certain asset and liability management measures including emphasizing
the origination of three, five and ten year  adjustable-rate  mortgage loans and
investing excess funds in short- and medium-term  mortgage-backed and investment
securities.  The Bank retains an asset/liability  consultant,  FinPro,  Inc., to
assist it in  analyzing  its asset  liability  position.  With the  consultant's
assistance,  the Bank undertakes a quarterly  extensive study of various trends,
conducts   separate   deposit   and  asset   analyses   and   prepares   various
asset/liability  tables including  contractual  interest rate gap, interest rate
gap with prepayment  assumptions,  margin/spread  and duration tables.  Interest
rate gap analysis  measures the difference  between amounts of  interest-earning
assets and interest-bearing  liabilities which either reprice or mature within a
given period of times and their sensitivity to changing interest rates.

         The Bank, like many other thrift  institutions,  is exposed to interest
rate risk as a result of the  difference  in the  maturity  of  interest-bearing
liabilities  and  interest-earning  assets and the volatility of interest rates.
Most deposit  accounts react more quickly to market interest rate movements than
do the existing mortgage loans because of the deposit accounts' shorter terms to
maturity;  sharp decreases in interest rates would typically increase the Bank's
earnings.  Conversely,  this same mismatch will generally  adversely  affect the
Bank's  earnings  during  periods of increasing  interest  rates.  The extent of
movement of interest rates is an uncertainty  that could have a negative  impact
on the earnings of the Bank.

         Volatility  in  interest  rates can also  result in  disintermediation,
which is the flow of funds away from savings institutions (such as the Bank) and
into other  investments,  such as U.S.  Government and corporate  securities and
other investment vehicles.  Because of the absence of federal insurance premiums
and reserve  requirements,  such investments may pay higher rates of return than
investment vehicles offered by savings institutions.

                                       16

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Little  Falls  Bancorp,  Inc.
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     In order to monitor  its  interest  rate risk,  the  Company  utilizes  the
services  of an outside  consultant  to  calculate  the  sensitivity  of its net
portfolio  value  ("NPV") to changes in interest  rates.  NPV is the  difference
between  incoming and outgoing  discounted cash flows from assets,  liabilities,
and off-balance  sheet  contracts.  The Company's  interest rate risk ("IRR") is
measured  as the change to its NPV as a result of  hypothetical  100 basis point
("bp") changes in market interest rates.

                       Net Portfolio Equity Value     NPV as % of PV of Assets
                       --------------------------     ------------------------
    Change in
    Interest Rates             $ Change
    in Basis Points            in Market  % Change
    (Rate Shock)      Amount   Value(1)   From Base   NPV Ratio(2)   Changes(3)
    ------------      ------   --------   ---------   ------------   ----------
                             (Dollars in Thousands)
         300          31,935     (10,532)   (25)         10.41%        (251)bp
         200          35,610     (6,857)    (16)         11.33%        (159)bp
         100          39,121     (3,346)     (8)         12.16%         (76)bp
         Static       42,467         --      --          12.92%          --
         (100)        45,649      3,182       7          13.61%          69 bp
         (200)        48,667      6,200      15          14.23%         131 bp
         (300)        51,521      9,054      21          14.80%         188 bp


--------------------
(1)  Represents  the increase  (decrease)  of the estimated NPV at the indicated
     change in interest rates compared to the NPV assuming no change in interest
     rates.
(2)  Calculated  as the  estimated  NPV  divided by the  present  value of total
     assets. The Company's PV is the estimated present value of total assets.
(3)  Calculated  as the  increase  (decrease)  of the  NPV  ratio  assuming  the
     indicated change in interest rates over the estimated NPV ratio assuming no
     change in interest rates.


         Certain  assumptions  utilized by the Company in assessing its interest
rate risk were  employed in preparing  the  previous  table.  These  assumptions
related to interest rates, loan prepayment rates, core deposit duration, and the
market values of certain assets under the various  interest rate  scenarios.  It
was also assumed that  delinquency  rates will not change as a result of changes
in interest rates although there can be no assurance that this will be the case.
The calculation  methodology used by the Company has certain  shortcomings which
include,  among  others,  that the repricing of both loans and deposits is often
discretionary  and under the control of the Bank's  customers.  Even if interest
rates  change in the  designated  amounts,  there can be no  assurance  that the
Company's assets and liabilities would perform as projected.

         Generally,  net interest income should  decrease with an  instantaneous
100 basis point  increase in interest  rates while net  interest  income  should
increase  with  instantaneous  declines in  interest  rates.  Generally,  during
periods of increasing interest rates, the Company's  liabilities are expected to
reprice faster than its assets, causing a decline in the Company's interest rate
spread.  This would result from an increase in the Company's  cost of funds that
would not be immediately  offset by an increase in its yield on earning  assets.
An increase in the cost of funds without an equivalent  increase in the yield on
interest-earning assets would tend to reduce net interest income.

                                       17
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Little Falls Bancorp, Inc.
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Liquidity and Capital Resources

         The Bank is required under applicable  federal  regulations to maintain
specified levels of "liquid" investments in qualifying types of U.S. Government,
federal agency and other  investments.  OTS  regulations  require that a savings
association  maintain  liquid  assets of not less than 4% of its  average  daily
balance of net withdrawable  deposit accounts and borrowings payable in one year
or less. At December 31, 1997, the Bank's liquidity was in excess of the minimum
requirement.   The  Bank   adjusts   liquidity  as   appropriate   to  meet  its
asset/liability objectives.

         The Bank's  primary  sources of funds are  deposits,  amortization  and
prepayment  of loans and  mortgage-backed  securities,  maturities of investment
securities and funds provided from  operations.  While scheduled loan repayments
are a  relatively  predictable  source  of  funds,  deposit  flows  and loan and
mortgage-backed  security  prepayments are  significantly  influenced by general
interest-rates,  economic  conditions  and  competition.  In addition,  the Bank
invests  excess  funds in overnight  deposits  which  provide  liquidity to meet
lending requirements.

         The Bank's most liquid asset is cash,  which  includes  investments  in
highly liquid short-term investments. The level of these assets are dependent on
the  Bank's  operating,  financing  and  investing  activities  during any given
period.  At December 31, 1997, cash and cash  equivalents  totaled $6.8 million.
The Bank has other sources of liquidity if a need for  additional  funds arises.
Another source of liquidity is the repayment and  prepayment of  mortgage-backed
and investment  securities.  Additional  sources of funds include the ability to
utilize  FHLB  of  New  York   advances  and  the  ability  to  borrow   against
mortgage-backed and investment securities.  At December 31, 1997, the Bank had a
$9 million repurchase  agreement with a rate of 5.82%. The repurchase  agreement
matures in December  1999, and has a one time call feature at December 20, 1998.
The  repurchase  agreement  was used to fund the sale of the Mount Holly  branch
deposits  which were sold in December  1996. In an effort to increase  earnings,
reduce the Company's interest rate sensitivity, and to better match its interest
rate  position,  on November  13,  1996,  the Company  entered  into a financial
transaction  whereby  it  purchased  a $25.0  million  fixed-rate  FNMA note and
simultaneously  borrowed $25.0 million from an independent third party using the
FNMA note as collateral.  The note has an initial term of ten years at an annual
rate of 7.2% and is callable after two years and  continuously  thereafter.  The
borrowings  are  comprised  of  a  combination  of  repurchase  agreements  with
remaining  terms of two months.  The annual rates  payable on these  repurchases
agreements are 5.77% and 5.74%.  (These advances were  subsequently  rolled over
for 6 months,  nine months and nine  months  with new rates of 5.62%,  5.62% and
5.61%, respectively). On July 10, 1997, the Bank borrowed $10.0 million from the
FHLB of New York and used these  funds to  purchase  two  agency  collateralized
mortgage obligation ("CMO") securities. The securities consist of a $1.5 million
FNMA which adjusts monthly to the 30 day LIBOR rate plus 125 basis points with a
10% cap, and an $8.2  million  FHLMC which  adjusts  monthly to the 30 day LIBOR
rate  plus  115  basis  points  with a 9%  cap.  Both  securities  meet  the OTS
guidelines  set  forth in  Thrift  Bulletin  13.  The  securities  were  used as
collateral for the $10.0 million  borrowing,  which was set up initially as a 30
day repurchase  agreement and has been rolled over monthly since it's inception.
At December 31, 1997,  the rate on the borrowed  funds was 6.05%:  (This advance
was  subsequently  rolled over twice in 1998 at a rate of 5.61% each  time).  On
August 1, 1997,  the Bank borrowed $15.0 million from the Federal Home Loan Bank
of New York with

                                       18
<PAGE>

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Little Falls Bancorp, Inc.
--------------------------------------------------------------------------------

a term of one year and a rate of 5.8%.  These funds were used to purchase  $15.1
million of loan participations on apartment buildings. These participations have
an approximate yield of 8.36%.

         The Bank's cash flows are comprised of three  primary  classifications:
cash  flows  from  operating  activities,  investing  activities  and  financing
activities.  Cash flows from operating  activities,  consisting primarily of net
income adjusted for depreciation,  amortization and provisions for loan and real
estate owned losses, were $3.4 million, $1.6 million, and $368,000 for the years
ended  December  31,  1997,  1996,  and  1995,  respectively.  Net cash  used in
investing  activities  consisted primarily of disbursement of loan originations,
loan purchases,  mortgage-backed  security  purchases and investment  purchases,
offset by principal  collections  on loans and  mortgage-backed  securities  and
proceeds  from the  maturities  of  investment  securities,  were  $29.5,  $37.2
million,  and $12.8 million for fiscal 1997,  1996 and 1995,  respectively.  Net
cash provided by (used in) financing activities consisting primarily of proceeds
from stock  subscriptions,  net  activity  in deposit and escrow  accounts,  and
activity in borrowed funds were $22.5 million,  $(7.5) million and $61.8 million
for the years ended December 31, 1997, 1996 and 1995, respectively.

         Operating  activities in 1997  provided $3.4 million in cash  primarily
due to net  income  of $1.9  million  adjusted  for  $149,000  in  depreciation,
$367,000 in the  provision for loan and real estate owned lossed and $361,000 of
goodwill  amortization.  Investing  activities in 1997 used $29.5 million due to
$16.0  million,  $14.0  million and $15.1  million in  purchases  of  investment
securities held to maturity,  mortgage-backed securities available for sale, and
loans, respectively,  and the $15.0 million increase in loans receivable, offset
somewhat  by  $21.4  million  from  principal   collections  on  mortgage-backed
securities  held to maturity and $9.3  million  from the maturity of  investment
securities held to maturity. Financing activities in 1997 provided $22.5 million
due to a $1.8 million change in deposits and $25.1 million  increase in borrowed
funds offset somewhat by $1.7 million and $2.4 million for the purchase of stock
by the  MSBP  program  and the  repurchase  of  shares  of stock  for the  stock
repurchase program, respectively.

         Operating  activities in 1996  provided $1.6 million in cash  primarily
due to net income of $611,000 adjusted for $153,000 in depreciation,  a $183,000
provision  for  loan  and  real  estate  owned  losses,   $361,000  of  goodwill
amortization.  Investing  activities  in 1996 used  $37.2  million  due to $16.1
million  and $32.3  million  in  purchases  of  mortgage-backed  and  investment
securities,  respectively,  and a $21.3  million  increase in loans  receivable,
$11.0 million from the maturity of investment  securities held to maturity,  and
$21.5 million from principle  collections on mortgage-backed  securities held to
maturity.  Financing activities used $7.8 million due to a $7.5 million decrease
in deposits, a $19.7 million refunding of oversubscribed deposits related to the
initial public offering completed in January 1996, $9.1 million used to fund the
sale of the  deposits  of the  Mount  Holly  branch,  and $3.3  million  for the
repurchase of common stock,  offset somewhat by an increase in borrowed funds of
$33.6 million.

         Operating activities in 1995 provided $368,000 in cash due primarily to
net  income of  $464,000  adjusted  for  $103,000  in  depreciation,  a $382,000
provision  for loan and real estate  owned  losses and  $355,000,  $127,000  and
$528,000  increases  in interest  receivable,  net,  interest  payable and other
assets,  respectively.  Investing  activities  in 1995 used $12.8 million due to
$75.2 million and $6.0 million in purchases of  mortgage-backed  and  investment
securities, respectively, and $2.2 million due to an

                                       19
<PAGE>
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Little Falls Bancorp, Inc.
--------------------------------------------------------------------------------

increase in loans  receivable  offset somewhat by $49.3 million of cash received
in connection with the branch  acquisitions,  $12.2 million  provided due to the
maturity  of  investment  securities  held to  maturity  and $8.8  million  from
principle collections on mortgage-backed securities held to maturity.  Financing
activities  provided  $61.6  million  primarily due to $44.8 million in proceeds
from stock subscriptions and a $17.1 million increase in deposits.

         The Bank  anticipates  that it will have sufficient  funds available to
meet its current  commitments.  As of December 31,  1997,  the Bank had mortgage
commitments  to fund loans of $3.2 million.  Also,  at December 31, 1997,  there
were commitments on unused lines of credit relating to home equity loans of $4.1
million.  Certificates  of  deposit  scheduled  to mature in one year or less at
December  31,  1997  totaled  $130.8  million.   Based  on  historical   deposit
withdrawals and outflows,  and on internal monthly deposit reports  monitored by
management,  management  believes  that a majority of such  deposits will remain
with the Bank. As a result, no adverse liquidity effects are expected.

         At December 31, 1997,  the Bank exceeded  each of the three  regulatory
capital  requirements  on a fully  phased-in  basis.  See  Note 11 of  Notes  to
Consolidated Financial Statements.

Impact of Inflation and Changing Prices

         The  financial  statements  of the Bank and  notes  thereto,  presented
elsewhere  herein,  have been prepared in  accordance  with  generally  accepted
accounting  principles,  which require the measurement of financial position and
operating results in terms of historical dollars without  considering the change
in the relative  purchasing  power of money over time and due to inflation.  The
impact of inflation is reflected in the increased cost of the Bank's operations.

         Unlike most industrial companies, nearly all the assets and liabilities
of the Bank are monetary.  As a result,  interest rates have a greater impact on
the Bank's  performance  than do the  effects of  general  levels of  inflation.
Interest rates do not necessary move in the same direction or to the same extent
as the price of goods and services.

                                       20

<PAGE>

--------------------------------------------------------------------------------
Financial Statements
--------------------------------------------------------------------------------

                           Little Falls Bancorp, Inc.
                                 and Subsidiary
                       Consolidated Financial Statements
                  (With Independent Auditors' Report Thereon)
                               December 31, 1997
                     --------------------------------------
                                     INDEX



F-2      Management Responsibility Statement

F-3      Independent Auditors' Report

F-4      Consolidated Statements of Financial Condition as of
         December 31, 1997 and 1996

F-5      Consolidated Statements of Income for Each of the Years in the
         Three Year Period Ended December 31, 1997

F-6      Consolidated  Statements of Changes in Stockholders' Equity for Each of
         the Years in the Three Year Period Ended December 31, 1997

F-7      - 8 Consolidated  Statements of Cash Flows for Each of the Years in the
         Three Year Period Ended December 31, 1997

F-9 - 40 Notes to Consolidated Financial Statements


                                      F-1
<PAGE>


Logo

Little Falls Bancorp, Inc.
86 Main Street
Little Falls, NJ 07424-1493
201.256.6100


January 16, 1998

                      Management Responsibility Statement
                      -----------------------------------

Management of Little Falls Bancorp,  Inc. is responsible  for the preparation of
the  consolidated  financial  statements  and all  other  financial  information
included in this report. The consolidated  financial statements were prepared in
accordance with generally accepted accounting principles applied on a consistent
basis.  All  financial  information  included  in the  report  agrees  with  the
consolidated  financial  statements.  In preparing  the  consolidated  financial
statements,   management   makes   informed   estimates  and   judgments,   with
consideration given to materiality, about the expected results of various events
and transactions.

Management  maintains  a system of internal  accounting  control  that  includes
personnel  selection,  appropriate  division  of  responsibilities,  and  formal
procedures  and  policies  consistent  with high  standards  of  accounting  and
administrative  practice.  Consideration has been given to the necessary balance
between the costs of,systems of accounting and internal control and the benefits
derived.

Management  reviews and modifies its systems of accounting and internal  control
in light of changes in  conditions  and  operations  as well as in  response  to
recommendations  from the independent  certified public accountants.  Management
believes  the  accounting  and  internal  control  systems  provide   reasonable
assurance that assets are safeguarded and financial information is reliable.

The Board of Directors is responsible for determining  that management  fulfills
its responsibilities in the preparation of the consolidated financial statements
and  the  control  of  operations.  The  Board  appoints  the  certified  public
accountants.  The Board  meets with  management  and the  independent  certified
public  accountants,  approves  the overall  scope of audit work and related fee
arrangements and reviews audit reports and findings.


/s/Leonard G. Romaine Richard
-----------------------------
Leonard G. Romaine Richard
President


/s/A. Capone
------------
A. Capone
Chief Financial Officer and Treasurer

                                      F-2

<PAGE>


Independent Auditors' Report


To The Board of Directors and Stockholders
Little Falls Bancorp, Inc.
Little Falls, New Jersey

We have audited the  consolidated  statements  of financial  condition of Little
Falls Bancorp,  Inc. (the  "Company") and subsidiary as of December 31, 1997 and
1996 and the related consolidated statements of income, changes in stockholders'
equity  and cash  flows for each of the  years in the  three-year  period  ended
December  31,   1997.   These   consolidated   financial   statements   are  the
responsibility of the Company's management.  Our responsibility is to express an
opinion on these  consolidated  financial  statements  based on our  audits.

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

In our opinion, the consolidated  financial statements referred to in the second
preceding  paragraph present fairly, in all material respects,  the consolidated
financial  position of Little Falls Bancorp,  Inc. and subsidiary as of December
31, 1997 and 1996 and the results of their operations and cash flows for each of
the years in the three-year  period ended December 31, 1997, in conformity  with
generally  accepted  accounting  principles.


/s/Radics & Co., LLC
--------------------
Pine Brook, New Jersey
January 16, 1998, except for the last paragraph
of Note 2, as to which the date is January 27, 1998


                                      F-3

<PAGE>

--------------------------------------------------------------------------------
Little Falls Bancorp, Inc. and Subsidiary
Consolidated Statements of Financial Condition
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
                                                                                              December 31,
                                                                                    ------------------------------
Assets                                                                   Notes           1997             1996
                                                                     -------------  -------------    -------------
<S>                                                             <C>                 <C>              <C>
Cash and due from banks ........................................                    $   2,737,709    $   1,746,743
Interest-bearing deposits in other banks .......................                          550,522        3,627,221
Federal funds sold .............................................                        3,500,000        5,000,000
                                                                                    -------------    -------------
                  Total cash and cash equivalents ..............        1 and 17         6,788,23       10,373,964
Investment securities held to maturity .........................     1, 3 and 17       57,987,644       51,370,297
Mortgage-backed securities available for sale ..................     1, 4 and 17       13,929,048               --
Mortgage-backed securities held to maturity ....................     1, 4 and 17       90,957,446      112,473,144
Loans receivable ...............................................     1, 5 and 17      147,033,259      117,115,784
Premises and equipment .........................................        1 and 6         2,617,175        2,659,239
Investment in real estate ......................................        1 and 7           427,317          683,054
Foreclosed real estate .........................................        1                 604,219          857,157
Interest receivable ............................................        1 and 16        2,079,091        1,735,291
Federal Home Loan Bank of New York stock .......................        9 and 16         2,517,60        2,075,700
Excess of cost over assets acquired ............................               1        2,856,230        3,217,017
Other assets ...................................................              13          725,234          957,091
                                                                                    -------------    -------------
                  Total assets .................................                    $ 328,522,494    $ 303,517,738
                                                                                    =============    =============

Liabilities and stockholders' equity
Liabilities
Deposits .......................................................        8 and 17         $230,132    $ 228,311,543
Borrowed money .................................................       10 and 17       58,719,500       33,623,500
Accounts payable and other liabilities .........................       12 and 13        1,375,658        1,134,397
                                                                                    -------------    -------------
                  Total liabilities ............................                      290,227,833      263,069,440
                                                                                    -------------    -------------
Commitments ....................................................       16 and 17               --               --

Stockholders' equity ...........................................2, 11, 12 and 13

Preferred stock $.10 per value, 5,000,000 shares
         authorized; none issued and outstanding ...............                               --               --
Common stock $.10 par value, 10,000,000 shares
         authorized; 3,041,750 shares issued; shares outstanding
         2,607,921 (1997) and 2,745,180 (1996) .................                          304,175          304,175
Additional paid in capital .....................................                       29,067,633       28,974,799
Retained earnings - substantially restricted ...................                       18,275,517       16,802,056
Common stock acquired by employee
         stock ownership plan ("ESOP") .........................                       (2,106,432)      (2,271,173)
Unearned restricted Management Stock
         Bonus Plan ("MSBP") stock, at cost ....................                       (1,329,167)              --
Treasury stock, at cost; 433,829 and
         296,570 shares at December 31, 1997 and 1996 ..........                       (5,632,286)      (3,277,004)
Unrealized loss on mortgage-backed
         securities available for sale, net ....................                          (71,062)              --
Minimum pension liability, net of deferred income taxes ........                         (213,717)         (84,555)
                                                                                    -------------    -------------
                  Total stockholders' equity ...................                       38,294,661       40,448,298
                                                                                    -------------    -------------
                  Total liabilities and stockholders' equity ...                    $ 328,522,494    $ 303,517,738
                                                                                    =============    =============
</TABLE>

See notes to consolidated financial statements.

                                      F-4
<PAGE>
--------------------------------------------------------------------------------
Little Falls Bancorp, Inc. and Subsidiary
Consolidated Statements of Income
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
                                                                                           Year Ended December 31,
                                                                                    ------------------------------------
                                                                        Notes       1997           1996          1995
                                                                     ----------- -----------   -----------   -----------
<S>                                                                  <C>         <C>           <C>           <C>
Interest income:
         Loans receivable ......................................             5   $10,081,393   $ 8,255,040   $ 7,579,947
         Mortgage-backed securities ............................                   7,117,907     7,972,069     3,839,383
         Investment securities and other interest-earning assets                   3,864,885     2,549,230     2,393,297
                                                                                 -----------   -----------   -----------
                  Total interest income ........................                  21,064,185    18,776,339    13,812,627
                                                                                 -----------   -----------   -----------

Interest expense:
         Deposits ..............................................             8    10,327,779    11,082,926     9,313,730
         Borrowings ............................................                   2,592,479       175,324            --
                                                                                 -----------   -----------   -----------
                  Total interest expense .......................                  12,920,258    11,258,250     9,313,730
                                                                                 -----------   -----------   -----------

Net interest income ............................................                   8,143,927     7,518,089     4,498,897
Provision for loan losses ......................................             5       240,000       182,900       131,359
                                                                                 -----------   -----------   -----------
Net interest income after provision for loan losses ............                   7,903,927     7,335,189     4,367,538
                                                                                 -----------   -----------   -----------
Non-interest income:
         Service fees ..........................................                     147,818       169,678       133,464
         Other .................................................                     279,877        238,89        44,699
                                                                                 -----------   -----------   -----------
                  Total non-interest income ....................                     427,695       408,571       178,163
                                                                                 -----------   -----------   -----------
Non-interest expenses:
         Compensation and employee benefits ....................            12     2,622,159     2,608,587     1,688,213
         Occupancy, net ........................................             6       295,305       334,406       166,347
         Equipment .............................................             6       430,366       401,510       268,841
         Deposit insurance premiums ............................            15       126,987     1,596,307       412,639
         Loss on foreclosed real estate ........................                      26,900        88,981       372,304
         Amortization of deposit premium .......................                     360,787       360,783        30,069
         Other .................................................            12     1,540,603     1,356,853       902,059
                                                                                 -----------   -----------   -----------
                  Total non-interest expenses ..................                   5,403,107     6,747,427     3,840,472
                                                                                 -----------   -----------   -----------

Income before provision for income taxes .......................                   2,928,515       996,333       705,229
Provision for income taxes .....................................            13     1,072,400       385,444       241,490
                                                                                 -----------   -----------   -----------
Net income .....................................................                 $ 1,856,115   $   610,889   $   463,739
                                                                                 ===========   ===========   ===========



Net income per common share: ...................................      1 and 14
         Basic .................................................                 $      0.78   $      0.22        N/A(1)
                                                                                 ===========   ===========   ===========

         Diluted ...............................................                 $      0.75   $      0.22        N/A(1)
                                                                                 ===========   ===========   ===========
</TABLE>
(1)  Little Falls Bancorp, Inc. converted to stock form on January 5, 1996.

                See notes to consolidated financial statements.

                                      F-5
<PAGE>
--------------------------------------------------------------------------------
Little Falls Bancorp, Inc. and Subsidiary
Consolidated Statements of Changes
in Stockholders' Equity
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
                                                                                             Unrealized
                                                                                              Loss on       Minimum
                                                                                             Mortgage-      Pension
                                                                                              Backed        Liability,
                                        Retained        Common      Unearned                 Securities      Net of
                         Additional     Earnings-       Stock      Restricted                 Available     Deferred
                 Common     Paid in    Substantially    Acquired       MSBP     Treasury         For         Income
                 Stock     Capital     Restricted       By ESOP       Stock      Stock        Sale, Net      Taxes       Total
                -------- ------------ ------------    ------------ -----------  ----------  ------------  ---------  ------------
<S>             <C>      <C>          <C>             <C>          <C>          <C>         <C>           <C>        <C>
Balance -
  December
  31, 1994 .....$   --   $       --   $ 15,863,547    $       --   $    --      $     --    $       --    $(148,825) $ 15,714,722
Net income
  for the
  year ended
  December
  31, 1995 .....    --           --        463,739            --        --            --            --         --         463,739
Decrease in
  minimum
  pension
  liability,
  net of
  deferred
  income
  taxes ........    --           --           --              --          --          --            --       44,762        44,762
Balance -
  December
  31, 1995 .....    --           --     16,327,286            --          --          --            --     (104,063)   16,223,223
Net income
  for the
  year ended
  December
  31, 1996 .....    --           --        610,889            --          --          --            --         --         610,889
Net proceeds
  from
  issuance of
  common stock . 304,175   28,959,347         --              --          --          --            --         --      29,263,522
Acquisition of
  common stock
  by ESOP.......    --           --           --        (2,433,400)       --          --            --         --      (2,433,400)
ESOP shares
  committed
  to be
  released .....    --         15,452         --           162,227        --          --            --         --         177,679
Purchase of
  296,570
  shares of
  treasury
  stock .........   --           --           --              --          --    (3,277,004)         --         --      (3,277,004)
Decrease in
  minimum
  pension
  liability,
  net of
  deferred
  income taxes .    --           --           --              --          --          --            --       19,508        19,508
Dividends paid .    --           --       (136,119)           --          --          --            --         --        (136,119)
                -------- ------------ ------------    ------------ -----------  ----------  ------------  ---------  ------------
Balance -
  December
  31, 1996 ..... 304,175   28,974,799   16,802,056      (2,271,173)       --    (3,277,004)         --      (84,555)   40,448,298
Net income
  for the
  year ended
  December
  31, 1997 .....    --           --      1,856,115            --          --          --            --         --       1,856,115
Acquisition of
  common stock
  by MSBP.......    --           --           --              --    (1,600,268)       --            --         --      (1,600,268)
ESOP shares
  committed
  to be
  released .....    --         92,834         --         164,741          --          --            --         --         257,575
Amortization
  of
  MSBP stock ...    --           --           --              --                271,101 --          --         --         271,101
Purchase of
  137,259
  shares of
  treasury
  stock ........    --           --           --              --          --    (2,355,282)         --         --      (2,355,282)
Unrealized
  loss on
  mortgage-
  backed
  securities
  available
  for sale,
  net ..........    --           --           --              --          --          --         (71,062)      --         (71,062)
Increase in
  minimum
  pension
  liability,
  net of
  deferred
  income taxes .    --           --           --              --          --          --                       --        (129,162)
                                                                                                                         (129,162)
Dividends paid .    --           --       (382,654)           --          --          --            --         --        (382,654)
                -------- ------------ ------------    ------------ -----------  ----------  ------------  ---------  ------------
Balance -
  December
  31, 1997 .....$304,175 $ 29,067,633 $ 18,275,517    $ (2,106,432)$(1,329,167) $5,632,286) $    (71,062) $(213,717) $ 38,294,661
                ======== ============ ============    ============ ===========  ==========  ============  =========  ============
</TABLE>

                 See notes to consolidated financial statements

                                      F-6
<PAGE>

--------------------------------------------------------------------------------
Little Falls Bancorp, Inc. and Subsidiary
Consolidated Statements of Cash Flows
--------------------------------------------------------------------------------

<TABLE>
<CAPTION>
                                                                                                     Year Ended December 31,

                                                                                     1997             1996            1995
                                                                               ------------     ------------    ------------
Cash flows from operating activities:
<S>                                                                            <C>              <C>             <C>
         Net income ........................................................   $  1,856,115     $    610,889    $    463,739
         Adjustments to reconcile net income to
         net cash provided by operating activities:
                  Depreciation .............................................        149,187          153,207         102,863



                  Provision for loan and real estate owned losses ..........        367,356          182,900         381,809
                  Amortization of intangibles ..............................        360,787          360,783          30,069
                  Amortization of deferred fees, premiums and discounts, net        117,732           40,903           7,186
                  Gain on sale of branch ...................................           --           (136,320)           --
                  Gain on sale of investments in real estate ...............       (106,318)            --              --
                  (Gain) loss on sale of foreclosed real estate ............        (11,086)          28,418         (27,705)
                  Deferred income taxes ....................................        (35,527)           1,808
                  Increase in interest receivable ..........................       (343,800)         (17,942)       (354,543)
                  Decrease (increase) in other assets ......................        366,147           (2,447)
                  Increase in interest payable .............................         92,789          180,501         127,445
                  Increase in accounts payable and other liabilities .......         55,364          256,012         163,438
                  ESOP shares committed to be released .....................        257,575          177,679            --
                  Amortization of MSBP cost ................................        271,101             --              --
                                                                               ------------     ------------    ------------
                    Net cash provided by operating activities ..............      3,397,422        1,589,578         367,704
                                                                               ------------     ------------    ------------
Cash flows from investing activities:
         Purchases of investment securities held to maturity ...............    (15,977,500)     (32,347,937)     (6,022,500)
         Maturities of investment securities held to maturity ..............      9,342,000       11,000,000      12,167,500
         Purchases of mortgage-backed securities available for sale ........    (14,048,125)            --              --
         Purchases of mortgage-backed securities held to maturity ..........           --        (16,073,205)    (75,243,631)
         Principal collections on
                  mortgage-backed securities held to maturity ..............     21,444,380       21,500,221       8,849,495
         Purchase of loans .................................................    (15,096,510)            --              --
         Net (increase) in loans receivable ................................    (15,023,967)     (21,265,657)     (2,239,571)
         Purchases of premises and equipment ...............................       (102,193)        (159,246)       (482,366)
         Proceeds from sales of investments in real estate .................         42,125             --              --
         Proceeds for sales of foreclosed real estate ......................        394,486          849,629         713,646
         (Purchase) redemption of Federal Home Loan Bank of
                  New York stock ...........................................       (441,900)        (680,500)        116,100
         Cash and cash equivalents received in connection with acquisition .           --               --        49,303,415
                                                                               ------------     ------------    ------------
                    Net cash (used in) investing activities ................    (29,467,204)     (37,176,695)    (12,837,912)
                                                                               ------------     ------------    ------------

Cash flows from financing activities:
         Net increase (decrease) in deposits ...............................      1,814,156       (7,464,225)     17,135,595
         Decrease in advances from borrowers for taxes .....................           --           (701,773)       (142,723)
         (Refunds of) proceeds from stock subscriptions ....................           --        (19,706,653)     44,831,296
         Net change in short-term borrowings ...............................     10,096,000       24,623,500            --
         Proceeds of long-term borrowings ..................................     15,000,000        9,000,000            --
         Costs of issuance of common stock .................................           --           (731,348)           --
         Dividends paid ....................................................       (382,654)        (136,119)           --
         Cash paid in connection with branch sales .........................           --         (9,064,385)           --
         Cost of MSBP shares ...............................................     (1,688,171)            --              --
         Treasury stock acquired ...........................................     (2,355,282)      (3,277,004)           --
                                                                               ------------     ------------    ------------
                    Net cash provided by (used in) financing activities          22,484,049       (7,458,007)     61,824,168
                                                                               ------------     ------------    ------------
(Decrease) increase in cash and cash equivalents                                 (3,585,733)     (43,045,124)     49,353,960

Cash and cash equivalents--beginning                                             10,373,964       53,419,088       4,065,128
                                                                               ------------     ------------    ------------
Cash and cash equivalents--ending                                              $  6,788,231     $ 10,373,964    $ 53,419,088
                                                                               ============     ============    ============
</TABLE>

                See notes to consolidated financial statements.

                                      F-7
<PAGE>

--------------------------------------------------------------------------------
Little Falls Bancorp, Inc. and Subsidiary
Consolidated Statement of Cash Flows
--------------------------------------------------------------------------------

<TABLE>
<CAPTION>
                                                                               Year Ended December 31,
                                                                     -------------------------------------------
                                                                          1997          1996             1995
                                                                     ------------   ------------    ------------
Supplemental disclosures:
         Cash paid during the period for:
<S>                                                                  <C>            <C>             <C>
                  Interest .......................................   $ 12,827,469   $ 11,077,749    $  9,186,285
                                                                     ============   ============    ============
                  Income taxes, net of refunds ...................   $    957,808   $    410,701    $    403,925
                                                                     ============   ============    ============
         Unrealized loss on mortgage-backed securities
                  available for sale, net of deferred income taxes   $    (71,062)  $         --    $         --
                                                                     ============   ============    ============
         Loans to facilitate sales of investment in real estate ..   $    215,000   $         --    $         --
                                                                     ============   ============    ============
         Loans receivable transferred to foreclosed real estate ..   $    157,818   $    406,379    $    672,584
                                                                     ============   ============    ============

         Loans to facilitate sales of foreclosed real estate .....   $         --   $    172,000    $         --
                                                                     ============   ============    ============

         Increase (decrease) in minimum
                  pension liability, net of deferred income taxes    $    129,162   $    (19,508)   $    (44,762)
                                                                     ============   ============    ============

         Property transferred to investment in real estate .......   $      9,629   $    145,478    $    243,667
                                                                     ============   ============    ============

         Issuance of common stock:
                  Deposits used for stock purchases ..............   $         --   $  2,859,458    $         --
                  Stock subscriptions used for stock purchases ...             --     25,124,642              --
                  Deferred costs .................................             --       (422,630)             --
                                                                     ------------   ------------    ------------
                                                                     $         --   $ 27,561,470    $         --
                                                                     ============   ============    ============
         Reduction in MSBP liability in connection with purchase
                  of MSBP shares .................................   $    (87,903)  $         --    $         --
                                                                     ============   ============    ============


         Assets acquired in connection with acquisition:
                  Cash and cash equivalents ......................   $         --     $       --    $ 49,303,415
                  Loans receivable ...............................             --             --           8,564
                  Premises and equipment .........................             --             --       1,500,000
                                                                     ------------   ------------    ------------
                                                                               --             --      50,811,979
                                                                     ------------   ------------    ------------
         Liabilities assumed in connection with acquisition:
                  Deposits .......................................             --             --      54,414,848
                  Other ..........................................             --             --           5,000
                                                                     ------------   ------------    ------------
                                                                               --             --      54,419,848
                                                                     ------------   ------------    ------------
         Excess of cost over assets acquired .....................   $         --   $         --    $ (3,607,869)
                                                                     ============   ============    ============
         Liabilities assigned in connection with branch sales:
                  Deposits .......................................   $         --   $  9,221,324    $         --
                                                                     ============   ============    ============
         Assets sold in connection with branch sales:
                  Loans ..........................................   $         --   $     18,619    $         --
                                                                     ============   ============    ============
</TABLE>

See notes to consolidated financial statements.

                                      F-8
<PAGE>

--------------------------------------------------------------------------------
Little Falls Bancorp, Inc. and Subsidiary
Notes to Consolidated Financial Statements
--------------------------------------------------------------------------------

1.       Summary of Significant Accounting Policies

Basis of financial statement presentation

The consolidated  financial  statements,  which have been prepared in conformity
with  generally  accepted  accounting  principles,  include the  accounts of the
Company and its wholly owned  subsidiary,  Little Falls Bank (the  "Bank").  All
significant  intercompany  accounts and  transactions  have been  eliminated  in
consolidation. In preparing the consolidated financial statements, management is
required to make estimates and  assumptions  that affect the reported  amount of
assets  and  liabilities  as of the  dates  of the  consolidated  statements  of
financial condition and revenues and expenses for the periods then ended. Actual
results could differ significantly from those estimates. Material estimates that
are particularly  susceptible to significant changes relate to the determination
of the allowance for loan losses,  the valuation of foreclosed real estate,  the
assessment of prepayment  risks associated with  mortgage-backed  securities and
the determination of the amount of deferred tax assets that are more likely than
not to be realized.  Management  believes  that the allowance for loan losses is
adequate,  foreclosed  real estate is  appropriately  valued,  prepayment  risks
associated  with  mortgage-backed  securities  are properly  recognized  and all
deferred tax assets are more likely than not to be recognized.  While management
uses  available  information to recognize  losses on loans and  foreclosed  real
estate,  future additions to allowance for loan losses or further  writedowns of
foreclosed real estate may be necessary based on changes in economic  conditions
in the market area.  Additionally,  assessments  of prepayment  risks related to
mortgage-backed  securities are based upon current market conditions,  which are
subject to frequent  change.  Finally,  the assessment of the amount of deferred
tax assets more likely  than not to be  realized  is based on  projected  future
taxable income, which is subject to continual revisions for updated information.

In  addition,  various  regulatory  agencies,  as  an  integral  part  of  their
examination  process,  periodically  review the Bank's allowance for loan losses
and  foreclosed  real  estate.  Such  agencies may require the Bank to recognize
additions to the  allowance  or  additional  writedowns  on real estate based on
their  judgments  about  information  available  to  them at the  time of  their
examination.

Cash and cash equivalents

Cash and cash equivalents include cash and amounts due from banks, federal funds
sold and interest-bearing  deposits in other banks having original maturities of
three  months  or  less.  Generally,  federal  funds  sold  are sold for one day
periods.

Investment and mortgage-backed securities

Debt  securities  that the Bank has the  positive  intent and ability to hold to
maturity are classified as held-to-maturity securities and reported at amortized
cost. Debt and equity  securities  that are bought and held  principally for the
purpose of selling them in the near term are  classified  as trading  securities
and reported at fair value, with unrealized holding gains and losses included in
earnings. Debt and equity securities not classified as trading securities nor as
held-to maturity  securities are classified as available for sale securities and
reported at fair value, with unrealized holding gains or losses, net of deferred
income taxes, reported in a separate component of retained earnings.

                                      F-9
<PAGE>
--------------------------------------------------------------------------------
Little Falls Bancorp, Inc. and Subsidiary
Notes to Consolidated Financial Statements
--------------------------------------------------------------------------------

1.       Summary of Significant Accounting Policies (Cont'd.)

Investment and mortgage-backed securities (Cont'd.)

Premiums are amortized  and discounts are accreted to interest  income using the
interest  method.  Gains  or  losses  on the  sale of  securities  are  based on
specifically  identifiable  cost and are  accounted  for on a trade date  basis.

Loans receivable

Loans receivable are stated at unpaid principal balances, less the allowance for
loan losses and net deferred loan origination fees and costs and discounts.

Loan fees and certain direct loan  origination  costs are deferred,  and the net
fee or cost  accreted or amortized as an  adjustment of yield using the interest
method over the  contractual  lives of the related loans.  Unearned  interest on
consumer  loans is recognized  over the  contractual  lives of the loans using a
method which approximates the interest method.

Uncollectible  interest on loans that are contractually past due is charged off,
or an allowance is established based on management's  periodic  evaluation.  The
allowance is  established  by a charge to interest  income equal to all interest
previously  accrued,  and income is  subsequently  recognized only to the extent
that cash payments are received until, in management's  judgment, the borrower's
ability to make periodic interest and principal  payments is  reestablished,  in
which case the loan is returned to accrual status.

Allowance for loans losses

An allowance  for loan losses is maintained  at a level  considered  adequate to
absorb future loan losses.  Management of the Bank, in determining the allowance
for loan losses,  considers the risks inherent in its loan portfolio and changes
in the nature and volume of its loan activities, along with the general economic
and real estate market conditions.

The Bank utilizes a two tier approach:  (1) identification of impaired loans and
the   establishment   of  specific  loss  allowances  on  such  loans;  and  (2)
establishment  of general  valuation  allowances  on the  remainder  of its loan
portfolio.  The Bank  maintains a loan review system which allows for a periodic
review of its loan portfolio and the early  identification of potential impaired
loans.  Such system takes into  consideration,  among other things,  delinquency
status,  size of loans,  types of  collateral  and  financial  condition  of the
borrowers.  Specific loan loss allowances are  established for identified  loans
based  on a review  of such  information  and/or  appraisals  of the  underlying
collateral. General loan loss allowances are based upon a combination of factors
including , but not limited to, actual loan loss experience,  composition of the
loan portfolio,  current economic conditions and management's judgment. Although
management  believes that adequate specific and general loan loss allowances are
established,  actual  losses are  dependent  upon  future  events  and, as such,
further additions to the level of the loan loss allowance may be necessary.

                                      F-10
<PAGE>
--------------------------------------------------------------------------------
Little Falls Bancorp, Inc. and Subsidiary
Notes to Consolidated Financial Statements
--------------------------------------------------------------------------------

1.       Summary of Significant Accounting Policies (Cont'd.)

Allowance for loan losses (Cont'd.)

Impaired loans are measured  based on the present value of expected  future cash
flows  discounted  at the  loan's  effective  interest  rate or, as a  practical
expedient,  at the  loan's  observable  market  price or the  fair  value of the
collateral if the loan is collateral dependent.  A loan evaluated for impairment
is deemed to be impaired when,  based on current  information and events,  it is
probable  that the Bank will be unable to collect all amounts due  according  to
the contractual  terms of the loan agreement.  An  insignificant  payment delay,
which is defined by the Bank as up to ninety  days,  will not cause a loan to be
classified  as  impaired.  A loan is not  impaired  during a period  of delay in
payment if the Bank  expects to collect  all  amounts  due,  including  interest
accrued at the contractual interest rate for the period of delay. Thus, a demand
loan or other loan with no stated  maturity is not  impaired if the Bank expects
to collect  all  amounts  due,  including  interest  accrued at the  contractual
interest rate,  during the period the loan is outstanding.  All loans identified
as impaired are evaluated independently.  The Bank does not aggregate such loans
for evaluation  purposes.  Payments received on impaired loans are applied first
to interest receivable and then to principal.

Premises and equipment

Land is carried at cost. Buildings and improvements,  leasehold improvements and
furniture,   fixtures  and  equipment  are  carried  at  cost  less  accumulated
depreciation and  amortization.  Depreciation and amortization are computed on a
straight-line  basis over the lesser of the estimated useful lives of the assets
or, if applicable,  the term of lease. Significant renovations and additions are
capitalized.  When assets are  retired or  otherwise  disposed  of, the cost and
related accumulated depreciation are removed from the accounts and any resulting
gain or loss is reflected in operations for the period.  Maintenance and repairs
are charged to expense as incurred.  Rental income is netted  against  occupancy
expense.

Investment in real estate

Investments  in real  estate are  carried at the lower of cost less  accumulated
depreciation or fair value less estimated disposal costs.

Foreclosed real estate

Real estate  properties  acquired  through,  or in lieu of, loan foreclosure are
initially  recorded  at  the  lower  of  cost  or  fair  value  at the  date  of
foreclosure.  Subsequent valuations are periodically  performed and an allowance
for losses  established  by a charge to  operations  if the carrying  value of a
property exceeds its fair value less estimated selling costs.  Costs relating to
development  and improvement of properties are  capitalized,  whereas income and
expenses  relating to the operating  and holding of  properties  are recorded in
operations  as  earned  or  incurred.  Gains  and  losses  from  sales  of these
properties are recognized as they occur.

Excess of cost over assets  acquired

The  cost in  excess  of the fair  value  of net  assets  acquired  through  the
acquisition of certain  assets and  assumption of certain  liabilities of branch
offices  is being  amortized  to  expense  over a ten year  period by use of the
straight-line method.

                                      F-11
<PAGE>

--------------------------------------------------------------------------------
Little Falls Bancorp, Inc. and Subsidiary
Notes to Consolidated Financial Statements
--------------------------------------------------------------------------------

1.       Summary of Significant Accounting Policies (Cont'd.)

Income taxes

The Company and its subsidiary file a consolidated federal income tax return and
separate state income tax returns. Income taxes are allocated to the Company and
its subsidiary based upon the contribution of their respective income or loss to
the  consolidated  return.  Federal and State income taxes have been provided on
the basis of reported  income.  The amounts  reflected on the tax returns differ
from these provisions due principally to temporary  differences in the reporting
of certain items for financial  reporting and tax reporting  purposes.  Deferred
income tax expense or benefit is determined by  recognizing  deferred tax assets
and  liabilities  for the  estimated  future tax  consequences  attributable  to
temporary  differences  between  the  financial  statement  carrying  amounts of
existing assets and liabilities and their respective tax bases.

Deferred  tax  assets and  liabilities  are  measured  using  enacted  tax rates
expected  to apply to  taxable  income  in the  years in which  those  temporary
difference are expected to be recovered or settled.  The realization of deferred
tax assets is assessed and a valuation allowance provided,  when necessary,  for
that  portion of the asset  which  more  likely  than not will not be  realized.
Management  believes,  based upon current facts, that it is more likely than not
that there will be  sufficient  taxable  income in future  years to realize  all
deferred  tax assets.  The effect on deferred  tax assets and  liabilities  of a
change in tax rates is  recognized  in earnings in the period that  includes the
enactment date.

Accounting for stock-based compensation

In October 1995,  the  Financial  Accounting  Standards  Board  ("FASB")  issued
Statement of Financial  Accounting  Standards  ("Statement") No. 123 "Accounting
for  Stock-Based   Compensation".   Statement  No.  123  establishes   financial
accounting and reporting standards for stock-based employees compensation plans.
While all  entities  are  encouraged  to adopt the "fair value based  method" of
accounting for employee stock compensation plans,  Statement No. 123 also allows
an entity to  continue to measure  compensation  cost under such plans using the
"intrinsic value based method" specified in Accounting  Principles Board Opinion
No. 25.

Under the fair value based  method,  compensation  cost is measured at the grant
date based on the value of the award and is recognized  over the service period,
usually the vesting  period.  Fair value is determined  using an option  pricing
model that takes into  account the stock price at the grant date,  the  exercise
price,  the expected life of the option,  the volatility of the underlying stock
and the  expected  dividends  on it,  and the risk free  interest  rate over the
expected  life  of  the  option.   Under  the  intrinsic   value  based  method,
compensation cost is the excess, if any, of the quoted market price of the stock
at the grant date or other measurement date over the amount an employee must pay
to acquire the stock.

The accounting  requirements of Statement No. 123 are effective for transactions
entered into in fiscal years that begin after December 15, 1995. The Company has
elected to account for compensation cost under the intrinsic value based method.
Included  in Note 12 to  consolidated  financial  statements  are the pro  forma
disclosures required by Statement No. 123.

                                      F-12
<PAGE>
--------------------------------------------------------------------------------
Little Falls Bancorp, Inc. and Subsidiary
Notes to Consolidated Financial Statements
--------------------------------------------------------------------------------

1.       Summary of Significant Accounting Policies (Cont'd.)

Net income per common share

In February  1997,  the FASB issued  Statement  No. 128,  "Earnings  Per Share".
Statement  No. 128 is effective  for years  ending  after  December 15, 1997 and
requires  that prior period data be restated.  Per share amounts are reported in
accordance with Statement No. 128.

Basic net income per common  share is  calculated  by dividing net income by the
weighted average number of shares of common stock outstanding,  adjusted for the
unallocated  portion of shares held by the ESOP in accordance  with the American
Institute  of  Certified  Public  Accountants'  ("AICPA")  Statement of Position
("SOP")  93-6.  Diluted  net income per share is  calculated  by  adjusting  the
weighted  average  number of shares of common stock  outstanding  to include the
effect of stock options,  stock-based  compensation grants and other securities,
if  dilutive,  using the  treasury  stock  method.  See Note 14 to  consolidated
financial statements for a reconciliation of such amounts.

Per share  amounts for the year ended  December  31,  1996 have been  calculated
based on the net income for the entire  year.  The  calculation  of the weighted
average  number of  common  shares  outstanding,  adjusted  for the  unallocated
portion of shares held by the ESOP,  from the date of  conversion  to stock form
(January  5,  1996)  through  December  31,  1996,   assumes  such  shares  were
outstanding for the entire year (as if the conversion had taken place on January
1, 1996).

Interest rate risk

The Bank is principally  engaged in the business of attracting deposits from the
general public and using these deposits,  along with borrowings and other funds,
to make  loans  secured  by real  estate  and to  purchase  mortgage-backed  and
investment  securities.  The potential for interest-rate risk exists as a result
of the generally shorter duration of the Bank's  interest-sensitive  liabilities
compared to the generally longer duration of its interest-sensitive assets. In a
rising interest rate  environment,  liabilities will reprice faster than assets,
thereby  reducing the market value of long-term  assets and net interest income.
For this reason,  management  regularly  monitors the maturity  structure of the
Bank's  interest-earning  assets and  interest-bearing  liabilities  in order to
measure its level of interest-rate risk and to plan for future volatility.

Concentration of risk

The Bank's lending and real estate  activity is  concentrated in real estate and
loans secured by real estate located in the State of New Jersey. In general, the
Bank's loan portfolio performance is dependent upon local economic conditions.

Reclassification

Certain  amounts  for the year  ended  December  31,  1996 and  1995  have  been
reclassified to conform to the current year's presentation.

                                      F-13

<PAGE>

--------------------------------------------------------------------------------
Little Falls Bancorp, Inc. and Subsidiary
Notes to Consolidated Financial Statements
--------------------------------------------------------------------------------

2.       Reorganization and Stockholders' Equity

On July  13,  1995,  the  Board  of  Directors  of the  Bank  adopted  a Plan of
Conversion,  which was  subsequently  amended,  pursuant to which the Bank would
convert from a federally  chartered mutual savings bank to a federally chartered
stock savings bank,  with the  concurrent  formation of a holding  company.  The
holding  company,  Little Falls Bancorp,  Inc.,  (the "Company") is a New Jersey
corporation  organized in August 1995 to acquire all of the capital stock of the
Bank upon the completion of the conversion.  In October 1995, the Bank converted
from a New Jersey chartered mutual savings bank to a federally  chartered mutual
savings bank. Concurrently, the Bank changed its name from "Little Falls Savings
Bank" to "Little Falls Bank".  On January 5, 1996,  the  conversion  and initial
public stock offering were  completed  with the issuance of 3,041,750  shares of
the Company's common stock,  par value $.10 per share,  for net proceeds,  after
conversion  costs  and  the  effect  of the  shares  acquired  by the  ESOP,  of
$26,830,022.  Concurrently  with the issuance of the Company's common stock, the
Company  utilized  $14,671,962  of  the  net  proceeds  to  purchase  all of the
outstanding capital stock of the Bank.

At the time of the conversion,  the Bank, in order to grant priority to eligible
depositors in the event of future liquidation, established a liquidation account
of $15,488,000, an amount equal to its total net worth as of September 30, 1995,
the date of the latest statement of financial  condition  appearing in the final
prospectus.  The  liquidation  account  will be  maintained  for the  benefit of
eligible  account  holders who continue to maintain  their  accounts at the Bank
after the conversion.  The liquidation  account will be reduced  annually to the
extent that eligible  account  holders have reduced their  qualifying  deposits.
Subsequent increases in the deposit account will not restore an eligible account
holder's  interest  in the  liquidation  account.  In the  unlikely  event  of a
complete liquidation, each eligible account holder will be entitled to receive a
distribution  from the liquidation  account in an amount  proportionate to their
current adjusted qualifying balances.  The balance of the liquidation account on
December 31, 1997 has not been determined.

The ability of the Company to pay dividends to  stockholders  is dependent  upon
the receipt of income from the subsidiary  Bank. The Bank may not declare or pay
any dividend on or  repurchase  any of its capital  stock if the effect  thereof
would cause its net worth to be reduced below:  (1) the amount  required for the
liquidation  account,  or (2) the net worth  requirements  contained  in section
563.13 (b) of the rules and regulation of the Office of Thrift  Supervision (the
"OTS").

During the years ended December 31, 1997 and 1996, the Company approved plans to
repurchase  137,259  and  296,570  shares,  respectively,  of its  common  stock
outstanding,  up to five  percent (5%) of the shares  outstanding  at any single
instance. In accordance therewith,  during the years ended December 31, 1997 and
1996,  137,259  and  296,570  shares,  respectively,  at an  aggregate  cost  of
$2,355,282 and $3,277,004, respectively, were purchased in the open market.

On January 27, 1998, the Company  announced that it intends to repurchase in the
open market up to 5%, or 130,396 shares, of its common shares  outstanding as of
that date.

                                      F-14
<PAGE>

--------------------------------------------------------------------------------
Little Falls Bancorp, Inc. and Subsidiary
Notes to Consolidated Financial Statements
--------------------------------------------------------------------------------

3.       Investment Securities Held to Maturity
<TABLE>
<CAPTION>
                                                                                  December 31, 1997
                                                                ------------------------------------------------------
                                                                                  Gross Unrealized
                                                                 Amortized    --------------------------   Estimated
                                                                    Cost          Gains         Losses     Fair Value
                                                                -----------   -----------   -----------   -----------
<S>                                                             <C>           <C>           <C>           <C>
U.S. Government (including agencies):
         Due in one year or less ............................   $10,005,774   $      --     $    69,571   $ 9,936,203
         Due after one year through five years ..............    11,000,000        26,270        46,875    10,979,395
         Due after five years through ten years .............    30,981,870       239,337          --      31,221,207
         Due after ten years ................................     6,000,000         2,500        10,000     5,992,500
                                                                $57,987,644   $   268,107   $   126,446   $58,129,305
                                                                ===========   ===========   ===========   ===========
</TABLE>

<TABLE>
<CAPTION>
                                                                                  December 31, 1997
                                                                ------------------------------------------------------
                                                                                  Gross Unrealized
                                                                 Amortized    --------------------------   Estimated
                                                                    Cost          Gains         Losses     Fair Value
                                                                -----------   -----------   -----------   -----------
<S>                                                             <C>           <C>           <C>           <C>
U.S. Government (including agencies):
         Due in one year or less ............................   $ 9,008,182   $      --     $    23,182   $ 8,985,000
         Due after one year through five years ..............    15,014,352          --         147,477    14,866,875
         Due after five years through ten years .............    27,005,763         4,237          --      27,010,000
                                                                -----------   -----------   -----------   -----------
                                                                 51,028,297         4,237       170,659    50,861,875
Muncipal bonds:
         Due within one year ................................       342,000          --            --         342,000
                                                                -----------   -----------   -----------   -----------
                                                                $51,370,297   $     4,237   $   170,659   $51,203,875
                                                                ===========   ===========   ===========   ===========
</TABLE>

There were no sales of investment  securities  held to maturity during the years
ended December 31, 1997, 1996 and 1995.

Investment  securities  held to maturity with a carrying value of  approximately
$2,000,000  at December 31, 1997 and 1996,  were pledged to secure public funds.
See Note 10 to  consolidated  financial  statements  for  securities  pledged as
collateral for repurchase agreements.

4.       Mortgage-Backed Securities Available for sale:
<TABLE>
<CAPTION>

                                                                                  December 31, 1997
                                                                ------------------------------------------------------
                                                                                  Gross Unrealized
                                                                 Amortized    --------------------------   Estimated
                                                                    Cost          Gains         Losses     Fair Value
                                                                -----------   -----------   -----------   -----------
<S>                                                             <C>           <C>           <C>           <C>
         Federal Home Loan Mortgage Corporation                 $ 12,512,965  $       --    $   104,516   $  12,408,449
         Federal National Mortgage Association                     1,527,083          --          6,484       1,520,599
                                                                ------------  -----------   -----------   ------------
                                                                $ 14,040,048  $       --    $   111,000   $ 13,929,048
                                                                ============  ===========   ===========   ============
</TABLE>

                                      F-15

<PAGE>
--------------------------------------------------------------------------------
Little Falls Bancorp, Inc. and Subsidiary
Notes to Consolidated Financial Statements
--------------------------------------------------------------------------------

4.       Mortgage-Backed Securities  (Cont'd.)

Held to maturity:
<TABLE>
<CAPTION>
                                                                                      December 31, 1997
                                                              ------------------------------------------------------------------
                                                                Carrying            Gross         Unrealized        Estimated
                                                                  Value             Gains           Losses          Fair Value
                                                              ------------      ------------      -----------      ------------
<S>                                                           <C>               <C>              <C>               <C>
         Government National Mortgage Association             $ 26,771,595      $    215,909     $     35,973      $ 26,951,531
         Federal Home Loan Mortgage Corporation                 22,853,912           219,635          143,405        22,930,142
         Federal National Mortgage Association                  41,331,939           200,891          168,976        41,363,854
                                                              ------------      ------------      -----------      ------------
                                                              $ 90,957,446      $    636,435      $   348,354      $ 91,245,527
                                                              ============      ============      ===========      ============
</TABLE>

<TABLE>
<CAPTION>
                                                                                      December 31, 1996
                                                              ------------------------------------------------------------------
                                                                Carrying            Gross         Unrealized        Estimated
                                                                  Value             Gains           Losses          Fair Value
                                                              ------------      ------------      -----------      ------------
<S>                                                           <C>               <C>              <C>               <C>

         Government National Mortgage Association             $ 34,166,041      $    211,082     $     8,570       $  34,368,553
         Federal Home Loan Mortgage Corporation                 28,391,893           223,170         260,908          28,354,155
         Federal National Mortgage Association                  49,915,210           148,410         360,828          49,702,792
                                                              ------------      ------------     -----------        ------------
                                                              $112,473,144      $    582,662     $   630,306        $112,425,500
                                                              ============      ============     ===========        ============
</TABLE>

<TABLE>
<CAPTION>
                                                                                        December 31, 1997
                                                              -----------------------------------------------------------------
                                                                Principal       Unamortized          Unearned        Carrying
                                                                 Balance          Premium           Discounts          Value
                                                              ------------      -----------      ------------      ------------

<S>                                                           <C>               <C>              <C>               <C>
         Government National Mortgage Association             $ 26,336,892      $   442,503      $      7,800      $ 26,771,595
         Federal Home Loan Mortgage Corporation                 22,725,681          185,390            57,159        22,853,912
         Federal National Mortgage Association                  40,898,959          460,159            27,179        41,331,939
                                                              ------------      -----------      ------------      ------------
                                                              $ 89,961,532      $ 1,088,052      $     92,138      $ 90,957,446
                                                              ============      ===========      ============      ============
</TABLE>

<TABLE>
<CAPTION>
                                                                                        December 31, 1996
                                                              -----------------------------------------------------------------
                                                                Principal       Unamortized          Unearned        Carrying
                                                                 Balance          Premium           Discounts          Value
                                                              ------------      -----------      ------------      ------------

<S>                                                           <C>               <C>              <C>               <C>
         Government National Mortgage Association             $ 33,675,013      $    510,696     $     19,668      $ 34,166,041
         Federal Home Loan Mortgage Corporation                 28,296,802           219,734          124,643        28,391,893
         Federal National Mortgage Association                  49,434,097           517,150           36,037        49,915,210
                                                              ------------      ------------     ------------      ------------
                                                              $111,405,912      $  1,247,580     $    180,348      $112,473,144
                                                              ============      ============     ============      ============
</TABLE>


There were no sales of mortgage-backed  securities available for sale or held to
maturity during the years ended December 31, 1997, 1996 and 1995.

See note 10 for securities pledged as collateral for repurchase agreements.

                                      F-16

<PAGE>
--------------------------------------------------------------------------------
Little Falls Bancorp, Inc. and Subsidiary
Notes to Consolidated Financial Statements
--------------------------------------------------------------------------------

5.       Loans Receivable
<TABLE>
<CAPTION>
                                                                  December 31,
                                                        ------------------------------
                                                             1997              1996
                                                        -------------    -------------
<S>                                                     <C>              <C>
Real estate mortgage:
         One-to-our family ..........................   $ 118,254,242    $ 108,367,393
         Commercial and multi-family ................      17,361,751        3,658,543
                                                        -------------    -------------

                                                          135,615,993      112,025,936
                                                        -------------    -------------

Construction ........................................         350,000          525,000
                                                        -------------    -------------

Consumer:
         Second mortgage ............................      11,629,689        5,028,193
         Passbook or certificate ....................         807,062          888,885
         Student education ..........................          12,451           25,368
                                                        -------------    -------------

                                                           12,449,202        5,942,446
                                                        -------------    -------------

                  Total loans .......................     148,415,195      118,493,382
                                                        -------------    -------------

Less: Loans in process ..............................         233,125          150,000
         Allowance for loan losses ..................       1,168,160        1,089,828
         Deferred loan fees, costs and discounts, net         (19,349)         137,770
                                                        -------------    -------------

                                                            1,381,936        1,377,598
                                                        -------------    -------------

                                                        $ 147,033,259    $ 117,115,784
                                                        =============    =============
</TABLE>

An analysis of the allowance for loan losses follows:
<TABLE>
<CAPTION>
                                                          Year Ended December 31,
                                              -------------------------------------------
                                                  1997           1996             1995
                                              -----------    -----------      -----------
<S>                                           <C>            <C>              <C>
Balance--beginning .....................      $ 1,089,828    $   958,149      $ 1,169,058
Provisions charged to operations .......          240,000        182,900          131,359
Loans charged off, net of recoveries....         (161,668)       (51,221)        (342,268)
                                              -----------    -----------      -----------

Balance--ending ........................      $ 1,168,160    $ 1,089,828      $   958,149
                                              ===========    ===========      ===========
</TABLE>

                                      F-17





<PAGE>
--------------------------------------------------------------------------------
Little Falls Bancorp, Inc. and Subsidiary
Notes to Consolidated Financial Statements
--------------------------------------------------------------------------------

5.       Loans Receivable (Cont'd.)

Impaired loans and related amounts recorded in the allowance for loan losses are
summarized as follows (in thousands):

<TABLE>
<CAPTION>
                                                                                 December 31,
                                                                          ------------------------
                                                                           1997     1996     1995
                                                                          ------   ------   ------
<S>                                                                       <C>      <C>      <C>
Recorded investment in impaired loans:
         With recorded allowances .....................................   $  744   $1,777   $1,743
         Without recorded allowance ...................................     --       --        267
                                                                          ------   ------   ------

                  Total impaired loans ................................      744    1,777    2,010

         Related allowance for loan losses ............................      111      404       30
                                                                          ------   ------   ------
                  Net impaired loans ..................................   $  633   $1,373   $1,980
                                                                          ======   ======   ======

Average recorded investment in impaired loans .........................   $1,509   $1,717   $1,783
                                                                          ======   ======   ======

Interest income  recognized  on impaired  loans  during the period each
         loan was impaired:
                  Total ...............................................   $  214   $   57   $   42
                                                                          ======   ======   ======

                  Cash basis ..........................................   $  197   $   57   $   33
                                                                          ======   ======   ======
</TABLE>


At December 31, 1997, 1996 and 1995,  nonaccrual  loans for which the accrual of
interest had been discontinued totalled approximately $1,284,000, $1,901,000 and
$1,942,000,  respectively.  Interest  income that would have been recorded under
the original terms of such loans and the interest income actually  recognized is
summarized as follows (in thousands):

                                                   Year Ended December 31,
                                                   -----------------------
                                                     1997   1996   1995
                                                     ----   ----   ----

Interest income that would have been recorded...     $111   $198   $189
Interest income recognized .....................     $ 50   $ 84   $ 39


The  activity  with  respect  to  loans to  directors,  executive  officers  and
associates of such persons is as follows:

                                 Year Ended December 31,
                          ------------------------------------
                              1997                    1996
                          -----------             -----------
Balance--beginning ....   $ 1,168,277             $   855,760
Loans originated ......       242,128                 569,187
Collection of principal       (14,879)               (256,670)
Other additions .......        53,099                   --
                          -----------             -----------
Balance--ending .......   $ 1,448,625             $ 1,168,277
                          ===========             ===========

                                      F-18


<PAGE>

--------------------------------------------------------------------------------
Little Falls Bancorp, Inc. and Subsidiary
Notes to Consolidated Financial Statements
--------------------------------------------------------------------------------

6.       Premises and Equipment

                                                       December 31,
                                                 -----------------------
                                                    1997         1996
                                                 ----------   ----------
Land .........................................   $  614,714   $  614,714
Buildings and improvements ...................    2,301,063    2,296,452
Furniture, fixture and equipment .............    1,071,944    1,038,673
Leasehold improvements .......................       54,122       54,122
                                                 ----------   ----------
                                                  4,041,843    4,003,961
Less accumulated depreciation and amortization    1,424,668    1,344,722
                                                 ----------   ----------
                                                 $2,617,175   $2,659,239
                                                 ==========   ==========


Depreciation and amortization  expense totalled  $134,628,  $143,997 and $92,735
for the  years  ended  December  31,  1997,  1996  and  1995,  respectively.

7. Investment  in Real Estate

The Bank owns real estate  adjoining  its main office and other land  originally
acquired  for a  future  office  site  which  is no  longer  to be used for that
purpose.  The real  estate  adjoining  the main office is  comprised  of various
rental units,  both  residential and commercial.  In addition,  during the years
ended  December  31, 1997 and 1996,  as a result of the  relocation  of a branch
office and the sale of  deposits in another  branch  office,  properties  with a
carrying  value of $9,629 and  $145,478,  respectively,  were  transferred  from
premises and equipment to investment in real estate.  These properties were sold
during the year ended December 31, 1997 at a gain of $106,318.  Also, during the
year ended  December  31,  1997,  a $100,000  impairment  loss was recorded on a
parcel of land to reduce its  carrying  value from  $243,667  to  $143,667.  The
income  received  from the  properties,  net of  expenses,  is included in other
income. The properties are summarized as follows:

                                                    December 31,
                                                 -------------------
                                                    1997       1996
                                                 --------   --------
Land .........................................   $143,667   $291,277
Buildings and improvements ...................    363,452    622,480
                                                 --------   --------
                                                  507,119    913,757
Less accumulated depreciation and amortization     79,802    230,703
                                                 --------   --------
                                                 $427,317   $683,054
                                                 ========   ========

                                      F-19


<PAGE>

--------------------------------------------------------------------------------
Little Falls Bancorp, Inc. and Subsidiary
Notes to Consolidated Financial Statements
--------------------------------------------------------------------------------

8.       Deposits

<TABLE>
<CAPTION>
                                                          December 31, 1997
                                                          -----------------
                                                   Weighted
                                                   Average
                                                    Rate       Amount      Percent
                                                    ----    ------------   ------
<S>                                                 <C>     <C>            <C>
NOW accounts and non-interest-bearing deposits..    1.33%   $ 21,338,938     9.27
Money Market accounts ..........................    2.94       9,952,885     4.33
Passbook and club accounts .....................    3.08      44,468,893    19.32
Certificates of deposit ........................    5.63     154,371,959    67.08
                                                            ------------   ------

                                                    4.62    $230,132,675   100.00
                                                            ============   ======
</TABLE>

<TABLE>
<CAPTION>
                                                          December 31, 1996
                                                  -------------------------------------
                                                  Weighted
                                                  Average
                                                    Rate        Amount         Percent
                                                    ----     ------------      ------
<S>                                                 <C>      <C>               <C>
NOW accounts and non-interest-bearing deposits      1.46%    $ 20,871,936        9.14
Money Market accounts ........................      3.33       14,822,840        6.49
Passbook and club accounts ...................      3.60       49,700,347       21.77
Certificates of deposit ......................      5.48      142,916,420       62.60
                                                             ------------      ------

                                                    4.48     $228,311,543      100.00
                                                             ============      ======
</TABLE>

The  aggregate   amount  of  jumbo   certificates  of  deposit  with  a  minimum
denomination  of  greater  than  $100,000  was  approximately   $10,020,000  and
$18,177,000 at December 31, 1997 and 1996,  respectively.  These certificates of
deposit do not  receive a  preferential  interest  rate.  Deposits  in excess of
100,000 are not federally insured.  The scheduled  maturities of certificates of
deposit are as follows:

                                                    December 31,
                                             --------------------------
                                                1997              1996
                                             --------          --------
Three months or less ..............          $ 40,847          $ 27,834
Over three months to one year .....            89,942            75,561
Over one year to three years ......            21,296            37,488
Over three years ..................             2,287             2,033
                                             --------          --------
                                             $154,372          $142,916
                                             ========          ========

                                      F-20


<PAGE>
--------------------------------------------------------------------------------
Little Falls Bancorp, Inc. and Subsidiary
Notes to Consolidated Financial Statements
--------------------------------------------------------------------------------

8.       Deposits (Cont'd.)

A summary of interest on deposits follows:

                                Year Ended December 31,
                          ---------------------------------------
                               1997          1996          1995
                          -----------   -----------   -----------
NOW accounts ..........   $   260,813   $   366,984   $   195,025
Money Market ..........       380,732       788,001       890,973
Passbook and club .....     1,440,145     1,859,939       970,934
Certificates of deposit     8,246,089     8,068,002     7,256,798
                          -----------   -----------   -----------
                          $10,327,779   $11,082,926   $ 9,313,730
                          ===========   ===========   ===========


9.       Line of Credit

The Bank has an available  line of credit with the Federal Home Loan Bank of New
York  ("FHLB"),  subject to the terms and  conditions of the lenders'  overnight
advances program, in the amount of $30,018,400 at December 31, 1997.  Borrowings
under this line of credit,  which expires on November 23, 1998, are made for one
day  periods  and are  secured  by the  Bank's  investment  in FHLB stock and an
assignment  of the Bank's  unpledged,  qualifying  one-to-four  family  mortgage
loans.  During the year ended  December 31, 1997,  the Bank did not borrow funds
under this program.  See Note 10 to consolidated  financial  statements for FHLB
borrowers under other programs.

10. Borrowed Money

<TABLE>
<CAPTION>
                                                                                               December 31,
                                                                                        ---------------------------
                                                                                            1997           1996
                                                                            Interest    ------------- -------------
Lender                                            Maturity                    Rate          Amount        Amount
------                                            --------                    ----          ------        ------
<S>                                             <C>                         <C>         <C>           <C>
Securities sold under agreement to repurchase:
         Security broker dealer ..............   May 19, 1997                 5.50%      $      --     $ 8,175,000
         Security broker dealer ..............   November 20, 1997            5.68%             --       8,148,000
         Security broker dealer ..............   Overnight                    7.10%             --       8,300,000
         FHLB ................................   January 30, 1998             6.05%       10,000,000          --
         FHLB ................................   February 17, 1998            5.74%        8,175,000          --
         Security broker dealer ..............   February 18, 1998            5.77%        8,368,500          --
         FHLB ................................   February 19, 1998            5.76%        8,176,000          --
         FHLB ................................   December 30, 1999            5.82%        9,000,000     9,000,000
                                                                                         -----------   -----------
                                                                                          43,719,500    33,623,000
Advance:
         FHLB ................................   August 3, 1998               5.80%       15,000,000          --
                                                                                         -----------   -----------

                                                                                         $58,719,500   $33,623,000
                                                                                         ===========   ===========
</TABLE>


                                      F-21
<PAGE>

--------------------------------------------------------------------------------
Little Falls Bancorp, Inc. and Subsidiary
Notes to Consolidated Financial Statements
--------------------------------------------------------------------------------

10.      Borrowed Money (Cont'd.)

Certain information concerning borrowed money is summarized as follows:

<TABLE>
<CAPTION>
                                                Year Ended December 31,
                                            --------------------------------
                                                  1997             1996
                                            --------------    --------------
<S>                                         <C>               <C>
Average balance during the year .........   $   43,974,600    $    3,173,000
Average interest rate during the year ...             5.89%             5.53%
Maximum month-end balance during the year   $   58,719,500    $   33,624,000
Average interest rate at year end .......             5.83%             6.02%
</TABLE>

At  December  31,  1997,  the  Bank's  investment  in FHLB  stock  and a blanket
assignment of the Bank's unpledged, qualifying one-to-four family mortgage loans
served as collateral  for FHLB advances.  The carrying  values of collateral for
the agreements to repurchase are as follows:

                                                      December 31,
                                                -------------------------
                                                    1997         1996
                                                -----------   -----------
Investment securities held to maturity ......   $18,700,000   $35,331,000
Mortgage-backed securities available for sale     9,749,213          --
Mortgage-backed securities held to maturity .    21,500,903          --
                                                -----------   -----------
                                                $49,950,116   $35,331,000
                                                ===========   ===========

11.      Regulatory Capital

The Bank is subject to various regulatory capital  requirements  administered by
the federal banking  agencies.  Failure to met minimum capital  requirements can
initiate certain mandatory,  and possibly additional  discretionary,  actions by
regulators  that, if undertaken,  could have a direct material adverse effect on
the Bank.  Under capital  adequacy  guidelines and the regulatory  framework for
prompt corrective  action,  the Bank must meet specific capital  guidelines that
involve  quantitative  measures of the Bank's assets,  liabilities,  and certain
off-balance-sheet items as calculated under regulatory accounting practices. The
Bank's  capital  amounts  and  classification  are also  subject to  qualitative
judgments  by the  regulators  about  components,  risk  weightings,  and  other
factors.

The OTS  has  prescribed  capital  requirements  which  include  three  separate
measurements of capital adequacy: a leverage-ratio  capital standard ("Core"), a
tangible capital standard and a risk based capital standard  (collectively known
as the "Capital  Rule").  The Capital Rule requires each savings  institution to
maintain tangible capital equal to at least 1.5% of its tangible assets and core
capital equal to at least 3.0% of its adjusted  total  assets.  The Capital Rule
further requires each savings  institution to maintain total capital equal to at
least 8.0% of its risk-weighted assets.

                                      F-22

<PAGE>
--------------------------------------------------------------------------------
Little Falls Bancorp, Inc. and Subsidiary
Notes to Consolidated Financial Statements
--------------------------------------------------------------------------------

11.      Regulatory Capital (Cont'd.)

The following table sets forth the capital position of the Bank as calculated as
of December 31, 1997:
<TABLE>
<CAPTION>
                                               Tangible                Core               Risk-Based
                                         ---------------------   -------------------   -------------------
                                           Amount      Percent   Amount      Percent   Amount      Percent
                                           ------      -------   ------      -------   ------      -------

<S>                                      <C>             <C>    <C>            <C>    <C>            <C>
Capital as calculated under GAAP .....   $ 29,201        8.96   $ 29,201       8.96   $ 29,201       25.60
Deduct goodwill ......................     (2,856)                (2,856)     (0.88)    (2,856)      (2.41)
Add unrealized loss on
         securities available for sale         71        0.02         71       0.02         71        0.06
Deduct investment in real estate .....       --           --        --          --        (427)      (0.37)
Add qualifying general
         loan loss allowance .........       --           --        --          --       1,149        1.01
                                         --------        ----   --------       ----   --------       -----
Capital, as calculated ...............     26,416        8.10     26,416       8.10     27,138       23.83
Capital, as required .................      4,890        1.50      9,780       3.00      9,112        8.00
                                         --------        ----   --------       ----   --------       -----

Excess ...............................   $ 21,526        6.60   $ 16,636       5.10   $ 18,026       15.83
                                         ========        ====   ========       ====   ========       =====

</TABLE>

The Federal  Deposit  Insurance  Corporation  Improvement  Act of 1991 ("FDICA")
imposes increased  requirements on the operations of financial  institutions and
mandated the development of regulations  designed to empower  regulators to take
prompt  corrective  action with respect to institutions  that fall below certain
capital  standards.  FDICA stipulates that an institution with less than 4% core
capital is deemed to be undercapitalized.  Quantitative  measures established by
FDICIA to ensure capital  adequacy  require the Bank to maintain minimum amounts
and  ratios of total and Tier 1  capital  (as  defined  in the  regulations)  to
risk-weighted  assets (as defined),  and of Tier 1 capital to average assets (as
defined).  Management believes, as of December 31, 1997, that the Bank meets all
capital adequacy requirements to which it is subject.

As of June 23,  1997,  the most recent  notification  from the OTS, the Bank was
categorized  as well  capitalized  under the  regulatory  framework  for  prompt
corrective action. To be categorized as well capitalized, the Bank must maintain
minimum  total,  risk-based,  and Tier 1  leverage  ratios of 10%,  6%,  and 5%,
respectively.  There are no  conditions  existing or events which have  occurred
since  notification,  that  management  believes have changed the  institution's
category.

12. Benefit Plans

Employee pension plan

The Bank has a defined  benefit pension plan covering  substantially  all of its
employees.   The  benefits  are  based  on  years  of  service  and   employees'
compensation.  The Bank's  funding  policy is to contribute  the maximum  amount
deductible  for  federal  income tax  purposes.  Contributions  are  intended to
provide not only for benefits  attributed  to service to date but also for those
expected to be earned in the future.

                                      F-23


<PAGE>

--------------------------------------------------------------------------------
Little Falls Bancorp, Inc. and Subsidiary
Notes to Consolidated Financial Statements
--------------------------------------------------------------------------------

12.      Benefit Plans (Cont'd.)

Employee pension plan (Cont'd.)

Plan assets are composed primarily of certificates of deposit,  savings accounts
and insurance  contracts.  The following tables present the plan's funded status
and the components of net periodic pension cost:
<TABLE>
<CAPTION>
                                                                  December 31,
                                                     ----------------------------------
                                                         1997                   1996
                                                     -----------            -----------
<S>                                                  <C>                    <C>
Actuarial present value of benefit obligations:
         Vested ..................................   $ 1,873,615            $ 1,493,630
         Non-vested ..............................        16,195                  4,382
                                                     -----------            -----------
                  Total benefit obligation .......   $ 1,889,810            $ 1,498,012
                                                     ===========            ===========

Projected benefit obligation .....................   $ 2,410,463            $ 1,919,617
Plan assets at fair value ........................     1,258,573              1,222,245
                                                     -----------            -----------
Plan benefit obligation in excess of plan assets .     1,151,890                697,372
Unrecognized net transition obligation
         being amortized over fifteen years ......       (82,585)
Unrecognized net loss ............................      (854,481)              (553,681)
Additional minimum liability .....................       416,413                228,426
                                                     -----------            -----------
Accrued pension cost included
         in accounts payable and other liabilities   $   631,237            $   275,767
                                                     ===========            ===========
</TABLE>

<TABLE>
<CAPTION>
                                                            Year Ended December 31,
                                                     --------------------------------
                                                       1997         1996       1995
                                                     --------     --------   --------
<S>                                                  <C>          <C>        <C>
Net periodic pension cost
  included the following components:
     Service cost ................                   $ 94,253     $ 87,161   $113,010
     Interest cost ...............                    168,152      127,080    122,026
     Actual return on plan assets                     (14,684)
     Net amortization and deferral                     (6,806)      60,784     63,398
                                                     --------     --------   --------
Net periodic pension cost included
         in compensation and employee benefits..     $240,915     $200,728   $208,493
                                                     ========     ========   ========
</TABLE>

                                      F-24

<PAGE>

--------------------------------------------------------------------------------
Little Falls Bancorp, Inc. and Subsidiary
Notes to Consolidated Financial Statements
--------------------------------------------------------------------------------

12.      Benefit Plans (Cont'd.)

Employee pension plan (Cont'd.)

Significant actuarial assumptions used in determining plan benefits are:

                                         Year Ended December 31, 1997
                                         ----------------------------
                                             1997    1996     1995
                                             ----    ----     ----

         Annual salary increase             5.50%    5.00%    6.00%
         Long-term return on assets         8.00%    8.00%    8.00%
         Discount rate                      7.50%    7.00%    8.25%

Directors retirement plan

The Board of Directors adopted a plan, effective January 1, 1995, which provides
that any  director  with twenty or more years of service may retire and continue
to be paid at the rate of 50% of regular  directors  fees.  These  payments will
continue  for the  directors'  lifetime.  This plan is unfunded.  The  following
tables  present the status of the plan and the  components  of net periodic plan
cost:

                                                         December 31,
                                                  --------------------------
                                                     1997             1996
                                                  ---------        ---------

Actuarial present value of benefit obligation:
         Vested ...............................   $ 253,159        $ 189,536
         Non-vested ...........................      57,394          143,912
                                                  ---------        ---------
                                                  $ 310,553        $ 333,448
                                                  =========        =========

Projected benefit obligation ..................   $ 366,691        $ 357,661
Unrecognized past service cost ................    (218,618)        (235,914)
Unrecognized net (loss) .......................     (23,558)
                                                  ---------        ---------
Accrued plan cost included
  in accounts payable and other liabilities ...   $ 124,515        $  74,928
                                                  =========        =========

<TABLE>
<CAPTION>
                                                              Year Ended December 31,
                                                            ---------------------------
                                                              1997      1996      1995
                                                            -------   -------   -------

<S>                                                         <C>       <C>       <C>
Net periodic plan cost included the following components:
         Service cost ...................................   $   784   $ 6,380   $ 4,151
         Interest cost ..................................    26,825    20,972    14,563
         Amortization of past service cost
    and unrecognized net loss ...........................    21,978    17,317    11,545
                                                            -------   -------   -------
Net periodic plan cost included in other expense ........   $49,587   $44,669   $30,259
                                                            =======   =======   =======
</TABLE>

                                      F-25
<PAGE>
--------------------------------------------------------------------------------
Little Falls Bancorp, Inc. and Subsidiary
Notes to Consolidated Financial Statements
--------------------------------------------------------------------------------

12.      Benefit Plans (Cont'd.)

Directors retirement plan (Cont'd.)

Significant actuarial assumptions used in determining plan benefits are:

                                                 Year Ended December 31, 1997
                                                 ----------------------------
                                                     1997     1996     1995
                                                     ----     ----     ----

         Annual compensation increase...........     7.00%    7.00%    8.00%
         Discount rate..........................     7.25%    7.50%    8.25%

Directors health benefits plan

The Board of Directors also adopted a plan, effective January 1, 1995, providing
for the  continuation  of the directors'  medical  insurance  coverage for their
lifetime after  retirement.  Benefits under this plan are available to directors
retiring after their attainment of age 60 and twenty years of service. This plan
is unfunded.  The  following  tables  present the status of the plan and the net
components of net periodic plan cost:


                                                               December 31,
                                                           --------------------
                                                              1997       1996
                                                           --------    --------
         Accumulated postretirement benefit obligation...  $158,388    $160,094
         Unrecognized net gain...........................    55,426      44,907
                                                           --------    --------
         Accrued plan cost included in
                  accounts payable and other liabilities.  $213,814    $205,001
                                                           ========    ========

<TABLE>
<CAPTION>
                                                                      Year Ended December 31,
                                                                 --------------------------------
                                                                   1997        1996       1995
                                                                  -------     -------    --------
<S>                                                               <C>         <C>        <C>
         Net periodic plan cost included the following components:
                  Service cost.................................   $   190     $ 2,866    $  4,082
                  Interest cost................................    12,007      10,969      13,270
                  Immediate recognition of prior service cost..      --          --       177,830
                  Net amortization.............................    (3,384)     (4,016)       --
                                                                  -------     -------    --------
         Net periodic plan cost included in other expense......   $ 8,813     $ 9,819    $195,182
                                                                  =======     =======    ========
</TABLE>


A  discount  rate of 7.25%,  7.50% and 8.25%  was  assumed  for the years  ended
December 31, 1997, 1996 and 1995, respectively. For the years ended December 31,
1997,  1996 and  1995,  a  medical  cost  trend  rate of 7.0%,  7.5% and  10.5%,
respectively, decreasing 0.5% per year thereafter until an ultimate rate of 5.0%
is reached,  was used in the plan's  valuation.  Increasing the assumed  medical
cost  trend  by  one  percent  in  each  year  would  increase  the  accumulated
postretirement  benefit  obligation  as of December 31, 1997, by $18,459 and the
aggregate of the service and interest components of net periodic  postretirement
benefit cost for the year ended December 31, 1997 by $1,522.

                                      F-26
<PAGE>
--------------------------------------------------------------------------------
Little Falls Bancorp, Inc. and Subsidiary
Notes to Consolidated Financial Statements
--------------------------------------------------------------------------------

12.      Benefit Plans (Cont'd.)

ESOP
Effective upon conversion,  an ESOP was established for all eligible  employees.
The ESOP used  $2,433,400  of  proceeds  from a term loan  from the  Company  to
purchase  243,340  shares of Company common stock in the initial  offering.  The
term loan from the  Company to the ESOP,  including  interest,  is payable  over
one-hundred-eighty  (180) equal monthly installments.  The initial interest rate
is 8.25% and is subject to semi-annual  adjustment  based on the prime rate. The
Bank  intends  to make  contributions  to the  ESOP  which  will be equal to the
principal and interest payment  required from the ESOP on the term loan.  Shares
purchased with the loan proceeds are pledged as collateral for the term loan and
are  held in a  suspense  account  for  future  allocation  among  participants.
Contributions  to the ESOP and shares released from the suspense account will be
allocated among the participants on the basis of  compensation,  as described by
the plan in the year of allocation. During the years ended December 31, 1997 and
1996, the Bank made cash  contributions  of $323,642 and $286,659 to the ESOP of
which $193,801 and $196,181, respectively, were applied to interest and $129,841
and $90,478,  respectively,  were applied to principal. At December 31, 1997 and
1996,  the  loan  had an  outstanding  balance  of  $2,213,081  and  $2,342,922,
respectively.  The ESOP is accounted for in accordance with SOP 93-6,  which was
issued by the AICPA in November  1993.  Accordingly,  the ESOP shares pledged as
collateral are reported as unearned ESOP shares in the  consolidated  statements
of financial condition.  As shares are committed to be released from collateral,
the Company  reports  compensation  expense equal to the current market price of
the shares,  and the shares become  outstanding  for basic net income per common
share  computations.  Dividends  on  allocated  ESOP  shares are  recorded  as a
reduction  of  retained  earnings.  Contributions  equivalent  to  dividends  on
unallocated  ESOP shares are recorded as a reduction of debt. ESOP  compensation
expenses  were  $255,061 and $177,679 for the years ended  December 31, 1997 and
1996, respectively.

 The ESOP shares were as follows:

                                            December 31,
                                      -----------------------
                                          1997         1996
                                      ----------   ----------
Allocated shares ................         16,223        9,048
Shares commited to be released...         16,474        7,175
Unreleased shares ...............        210,643      227,117
                                      ----------   ----------
Total ESOP shares ...............        243,340      243,340
                                      ==========   ==========
Fair value of unreleased shares..     $4,318,182   $2,895,742
                                      ==========   ==========

MSBP
On July 3, 1996,  the Bank  established a MSBP to provide both key employees and
outside  directors  with a  proprietary  interest  in the  company  in a  manner
designed to encourage such persons to remain with the Bank. The Bank, during the
year ended  December 31, 1997,  contributed  $1,688,171 to the MSBP to allow the
MSBP to  purchase  121,670  shares of common  stock of the  Company  in the open
market at an average cost of $13.875 per share.

                                      F-27
<PAGE>
--------------------------------------------------------------------------------
Little Falls Bancorp, Inc. and Subsidiary
Notes to Consolidated Financial Statements
--------------------------------------------------------------------------------

12.      Benefit Plans (Cont'd.)

MSBP (Cont'd.)

Under the MSBP,  awards are granted in the form of common stock held by the MSBP
Trust.  The  awards  vest  over a  period  of time  not more  than  five  years,
commencing one year from the date of award.  The awards become fully vested upon
termination  of  employment  due to death or  disability.  At December 31, 1997,
79,248  shares had been granted to directors  and 26,767 shares had been granted
to officers  and  employees.  16,311  shares were vested at December  31,  1997.
$271,101 and $87,903 of expense  related to the MSBP shares was recorded  during
the years ended December 31, 1997 and 1996, respectively.

Stock Option Plan

The Company  adopted the 1996 Stock  Option Plan (the  "Plan")  authorizing  the
grant of stock  options  equal to 304,175  shares of common  stock to  officers,
directors  and key employees of the Bank or the Company.  Options  granted under
the Plan may be either  options  that  qualify  as  incentive  stock  options as
defined in Section 422 of the  Internal  Revenue  Code of 1986,  as amended,  or
non-statutory  options.  Options  granted will vest and will be exercisable on a
cumulative  basis in equal  installments  at the rate of 20% per year commencing
one year from the date of grant.  All options granted will be exercisable in the
event the optionee  terminates his  employment  due to death or disability.  The
options expire ten years from the date of grant.

In the event of change in control of the Bank or Company,  the optionee  will be
given: (1) substitute  options by the acquiring or succeeding  corporation,  (2)
shares of stock  issueable upon the exercise of such  substitute  options or (3)
cash for each option granted, equal to the difference between the exercise price
of the option  and the fair  market  value or merger  price  equivalent  to cash
payment  for each  share of common  stock  exchanged  in the  change of  control
transaction.

Shares of common stock have been granted under the plan as  non-incentive  stock
options to directors  and  incentive  stock  options to officers and  employees,
respectively, as follows:
<TABLE>
<CAPTION>

                                                         Shares                                 Weighted
                                            -----------------------------                       Average
                                               Non-                                Exercise     Exercise
                                            Incentive Incentive    Total            Price        Price
                                             -------   -------    -------       -----------   -----------
<S>                                          <C>       <C>        <C>           <C>           <C>
Granted in 1996 .........................    121,665   109,476    231,161       $    10.625   $    10.625
Granted in 1997 ..........................      --      16,000     16,000            20.000        20.000
                                             -------   -------    -------                     -----------
                                             121,665   125,476    247,161                     $    11.232
                                             =======   =======    =======                     ===========
</TABLE>

No options have been  exercised.  Options for 46,232 shares are  exercisable  at
December 31, 1997 at a weighted  average  exercise price of $10.625.  No options
were exercisable at December 31, 1996.

                                      F-28
<PAGE>

--------------------------------------------------------------------------------
Little Falls Bancorp, Inc. and Subsidiary
Notes to Consolidated Financial Statements
--------------------------------------------------------------------------------

12.      Benefit Plans (Cont'd.)

Stock Option Plan (Cont'd.)

The Company, as permitted by Statement No. 123, recognizes compensation cost for
stock options  granted based on the intrinsic  value method  instead of the fair
value  based  method.  The  weighted-average  grant-date  fair  value of options
granted  during 1997 and 1996,  all of which have  exercise  prices equal to the
market price of the Company's common stock at the grant date, is estimated using
the  Black-Scholes  option-pricing  model.  Such fair values and the assumptions
used for estimating fair values are as follows:


                                                         December 31,
                                                     --------------------
                                                        1997       1996
                                                        ----       ----

Weighted average grant-date fair value per share     $  5.87   $   2.81
Expected common stock dividend yield ...........        1.00%      0.94%
Expected volatility ............................       23.29%     13.90%
Expected option life ...........................      5 years    5 years
Risk-free interest rate ........................        5.88%      6.875%

Had the Company used the fair value based method, net income for the years ended
December 31, 1997 and 1996 would have been decreased to $1,736,000 and $574,000,
respectively,  and basic and diluted net income per common share would have been
reduced to $0.73 and $0.70,  respectively,  for the year ended December 31, 1997
and $0.21 each during the year ended  December  31, 1996.

13.  Income Taxes

The Bank qualifies as a Savings Institution under the provisions of the Internal
Revenue Code and was  therefore,  prior to January 1, 1996,  permitted to deduct
from  taxable  income an  allowance  for bad debts  based on the greater of: (1)
actual  loan  losses  (the  "experience  method");  or (2) eight (8)  percent of
taxable  income before such bad debt  deduction  less certain  adjustments  (the
"percentage of taxable income method").

On  August  21,  1996,  legislation  was  signed  into law  which  repealed  the
percentage of taxable income method for tax bad debt  deductions.  The repeal is
effective for the Bank's  taxable year  beginning  January 1, 1996. In addition,
the  legislation  requires  the Bank to include  in taxable  income its bad debt
reserves in excess of its base year  reserves over a six,  seven,  or eight year
period depending upon the attainment of certain loan origination  levels.  Since
the percentage of taxable income method for Federal tax bad debt  deductions and
the corresponding  increase in the Federal tax bad debt reserve in excess of the
base  year  have  been  reflected  as  temporary  differences  pursuant  to FASB
Statement No. 109, with deferred income taxes recorded  thereon,  this change in
the tax law did not have a material adverse effect on the Company's consolidated
financial position or operations.

                                      F-29


<PAGE>
--------------------------------------------------------------------------------
Little Falls Bancorp, Inc. and Subsidiary
Notes to Consolidated Financial Statements
--------------------------------------------------------------------------------

3.       Income Taxes (Cont'd.)

Retained  earnings at December 31, 1997 includes  approximately  $2.4 million of
tax bad debt  deductions  which,  in accordance with FASB Statement No. 109, are
considered a permanent difference between the book and income tax basis of loans
receivable, and for which income taxes have not been provided. If such amount is
used for  purposes  other  than  bad debt  losses,  including  distributions  in
liquidation,  it will be  subject to income tax at the then  current  rate.

The provision for income taxes is summarized as follows:

                                Year Ended December 31,
                        -----------------------------------------
                              1997          1996          1995
                        -----------    -----------    -----------
Current:
         Federal....    $   990,405    $   540,688    $   222,142
         State .....        117,522         87,761         17,540
                        -----------    -----------    -----------
                          1,107,927        628,449        239,682
                        -----------    -----------    -----------

Deferred:
         Federal....        (32,405)      (222,744)         1,658
         State .....         (3,122)       (20,261)           150
                        -----------    -----------    -----------
                            (35,527)      (243,005)         1,808
                        -----------    -----------    -----------
                        $ 1,072,400    $   385,444    $   241,490
                        ===========    ===========    ===========



The  provision  for income  taxes  differs  from that  computed  at the  federal
statutory rate of 34% as follows:
<TABLE>
<CAPTION>
                                                         Year Ended December 31,
                                                 ------------------------------------
                                                     1997        1996          1995
                                                 ----------   ----------   ----------
<S>                                              <C>          <C>          <C>
Tax at the statutory rate ..................     $  995,695   $  338,753   $  239,777
New Jersey Savings Institution Tax,
         net of federal income tax effect...         75,504       44,550       11,675
Other ......................................          1,201        2,141       (9,962)
                                                 ----------   ----------   ----------

                                                 $1,072,400   $  385,444   $  241,490
                                                 ==========   ==========   ==========

</TABLE>

                                      F-30

<PAGE>

--------------------------------------------------------------------------------
Little Falls Bancorp, Inc. and Subsidiary
Notes to Consolidated Financial Statements
--------------------------------------------------------------------------------

13.      Income Taxes (Cont'd.)

The tax effects of existing temporary differences which give rise to significant
portions of deferred tax assets and liabilities are as follows:
<TABLE>
<CAPTION>
                                                                      December 31,
                                                                   ------------------
                                                                     1997      1996
                                                                   --------  --------
<S>                                                                <C>       <C>
Deferred tax assets:
         Allowance for loan losses ..............................  $316,151  $346,353
         Deferred loan orgination fees, net .....................    63,821    46,702
         Deferred compensation ..................................   115,025    97,185
         Minimum pension liability ..............................   120,111    47,521
         Goodwill ...............................................    90,101    46,829
         MSBP ...................................................    15,513    31,627
         Unrealized loss on securities available for sale .......    39,938      --
         Other ..................................................      --       1,920
                                                                   --------  --------
                  Total deferred tax assets .....................   760,660   618,137
                                                                   --------  --------

Deferred tax liabilities:
         Depreciation of premises and equipment .................    67,944    64,196
         Other ..................................................     2,572    11,852
                                                                   --------  --------
                  Total deferred tax liabilities ................    70,516    76,048
                                                                   --------  --------
                  Net deferred tax asset included in other assets  $690,144  $542,089
                                                                   ========  ========

</TABLE>

At December 31, 1997 and 1996,  current  income taxes  receivable of $25,526 and
$55,769,  respectively,  are  included in other  assets.  At December  31, 1997,
income taxes payable of $119,876 are included in other liabilities.

                                      F-31

<PAGE>
--------------------------------------------------------------------------------
Little Falls Bancorp, Inc. and Subsidiary
Notes to Consolidated Financial Statements
--------------------------------------------------------------------------------

14.      Net Income Per Common Share

                                   Year Ended December 31, 1997
                                   ----------------------------
                                                Weighted
                                    Net         Average   Per Share
                                   Income       Shares     Amounts
                                   ------       ------     -------

Basic net income per share ...   $1,856,115    2,389,063   $   0.78
Effect of dilutive securities:                             ========
         Stock options .......         --         71,296
         MSBP unearned shares          --          6,531
                                 ----------    ---------
Diluted net income per share .   $1,856,116    2,466,890   $   0.75
                                 ==========    =========   ========


                           Year Ended December 31, 1996

                                                   Weighted
                                   Net             Average       Per Share
                                  Income           Shares         Amounts
                                  ------           ------         -------

Basic net income per share ...   $610,889         2,727,627     $       0.22
Effect of dilutive securities:                                  ============
         Stock options .......      --                7,336
         MSBP unearned shares       --                1,681
                                 --------         ---------
Diluted net income per share .   $610,889         2,736,644     $       0.22
                                 ========         =========     ============


15.      Legislative Matters

On September  30,  1996,  legislation  was enacted  which,  among other  things,
imposed a special  one-time  assessment on Savings  Association  Insurance  Fund
("SAIF") member  institutions,  including the Bank, to recapitalize the SAIF and
spread the obligation for payment of Financial Corporation ("FICO") bonds across
all SAIF and Bank Insurance Fund ("BIF") members.  The special assessment levied
amounted to 65.7 basis points on SAIF  assessable  deposits held as of March 31,
1995. The special  assessment was recognized in the third quarter of 1996 and is
tax deductible.  The Bank took a charge of $1,167,427 as a result of the special
assessment.  This legislation  eliminated the substantial  disparity between the
amount that BIF and SAIF members had been paying for deposit insurance premiums.

Currently,  the Federal  Deposit  Insurance  Corporation  ("FDIC") has estimated
that, in addition to normal deposit insurance  premiums,  BIF members will pay a
portion of the FICO payment  equal to 1.3 basis points on  BIF-insured  deposits
compared  to 6.4 basis  points by SAIF  members on  SAIF-insured  deposits.  All
institutions  will pay a pro rate share of the FICO  payment  on the  earlier of
January 1, 2000 or the date upon which the last  savings  association  ceases to
exist.  The  legislation  also  requires BIF and SAIF to be merged by January 1,
1999 provided that  legislation  is adopted to eliminate the saving  association
charter and no savings associations remain as of the time.

                                      F-32
<PAGE>

--------------------------------------------------------------------------------
Little Falls Bancorp, Inc. and Subsidiary
Notes to Consolidated Financial Statements
--------------------------------------------------------------------------------

15.      Legislative Matters (Cont`d.)

The FDIC has  lowered  SAIF  assessments  to a range  comparable  to that of BIF
members, although SAIF members must also make the FICO payments described above.
Management cannot predict the precise level of FDIC insurance  assessments on an
ongoing  basis or  whether  the BIF and SAIF  will  eventually  be  merged.

16.      Commitments

The Bank is a party to financial instruments with  off-balance-sheet risk in the
normal course of business to meet the financing  needs of its  customers.  These
financial  instruments  include  commitments  to extend  credit.  Commitments to
extend  credit  are  agreements  to lend to a  customer  as long as  there is no
violation of any condition established in the loan agreement.  These commitments
are comprised of the undisbursed  portion of construction  loans, unused amounts
of lines of credit and  residential  loan  originations.  The Bank's exposure to
credit loss from nonperformance by the other party to the financial  instruments
for  commitments to extend credit is represented  by the  contractual  amount of
those instruments.  The Bank uses the same credit policies in making commitments
and  conditional  obligations  as  it  does  for  on-balance-sheet  instruments.
Collateral,  usually  in the  form of  residential  real  estate,  is  generally
required to support financial instruments with credit risk.

At December 31, 1997, the Bank had commitments outstanding to originate mortgage
loans of $3,205,000,  of which $377,000 were for five year commercial adjustable
rate loans with initial  rates ranging from 8.23% to 9.50% and  $2,828,000  were
for fixed rate loans with rates ranging from 7.00% to 8.50%. The commitments are
due to expire  within sixty days.  The rates at which the Bank has  committed to
fund these loans are set based on the rate in effect when the  borrower  accepts
the commitment in writing.

At December  31,  1997,  outstanding  commitments  related to unused home equity
lines of credit  totalled  $4,101,000  These  amounts,  when  used,  will  carry
interest rates that will float at the prime rate plus 13/4%.

Rental  expenses  related to the  occupancy of premises  totalled  approximately
$30,000,  $38,000 and $38,000 for the years ended  December 31,  1997,  1996 and
1995, respectively.  Minimum non-cancellable  obligations under lease agreements
with original terms of more than one year are as follows:

                         December 31,                     Amount
                         ------------                     ------

                             1998                       $ 42,497
                             1999                         42,497
                             2000                         42,497
                             2001                         42,497
                             2002                         17,707
                                                        --------
                                                        $187,695
                                                        ========

                                      F-33


<PAGE>

--------------------------------------------------------------------------------
Little Falls Bancorp, Inc. and Subsidiary
Notes to Consolidated Financial Statements
--------------------------------------------------------------------------------

17.      Disclosures About the Fair Value of Financial Instruments

The fair value of a financial  instrument  is defined as the amount at which the
instrument could be exchanged in a current  transaction between willing parties,
other than a forced or liquidation sale.  Significant  estimations were used for
the purposes of this disclosure. The following methods and assumptions were used
to estimate the fair value of each class of financial  instruments  for which it
is practicable to estimate such value:

Cash and cash equivalents and interest receivable

For cash and cash  equivalents  and interest  receivable,  the carrying  amounts
approximate fair value.

Investment and mortgage-backed securities

For investment and mortgage-backed  securities, both available for sale and held
to maturity, fair value is estimated using quoted market prices.

Loans receivable

The fair value of loans is estimated by discounting  the future cash flows using
the current rates at which similar loans would be made to borrowers with similar
credit ratings and for the same remaining maturities.

Deposits

The fair  value of  demand,  savings  and money  market  deposits  is the amount
payable  on demand at the  reporting  date.  The fair value of  certificates  of
deposit  is  estimated  by  discounting  the future  cash flows  using the rates
currently offered for deposits of similar remaining maturities.

Borrowed money

The fair value of advances and securities sold under agreements to repurchase is
estimated  by  discounting  cash  flows  using  rates  currently  available  for
borrowings of similar remaining securities.

Commitments to extend credit

The fair  value of  commitments  to extend  credit is  estimated  using the fees
currently  charged to enter into  similar  agreements,  taking into  account the
remaining  terms  of the  agreements  and the  present  creditworthiness  of the
counterparties.  For fixed-rate loan commitments,  fair value also considers the
difference between current levels of interest rates and the committed rates.

                                      F-34
<PAGE>
--------------------------------------------------------------------------------
Little Falls Bancorp, Inc. and Subsidiary
Notes to Consolidated Financial Statements
--------------------------------------------------------------------------------

17.      Disclosures About the Fair Value of Financial Instruments (Cont'd.)

<TABLE>
<CAPTION>

                                                                     December 31,
                                                        -------------------------------------
                                                                1997               1996
                                                        ------------------  -----------------
                                                         Carrying   Fair    Carrying   Fair
                                                          Amount    Value    Amount    Value
                                                          ------    -----    ------    -----
<S>                                                     <C>      <C>       <C>      <C>
Financial assets:
         Cash and cash equivalents ...................  $  6,788 $   6,788 $ 10,374 $ 10,374
         Investment securities held to maturity ......    57,988    58,129   51,370   51,204
         Mortgage-backed securities available for sale    13,929    13,929     --         --
         Mortgage-backed securities held to maturity .    90,957    91,246  112,473  112,426
         Loans receivable ............................   147,033   148,534  117,116  114,850
         Interest receivable .........................     2,079     2,079    1,735    1,735

Financial liabilities:
         Deposits ....................................   230,133   226,113  228,312  227,954
         Borrowed money ..............................    58,720    58,708   33,624   33,475

Commitments:
         To fund loans................................     7,306     7,306    6,287    6,287
</TABLE>

Fair  value  estimates  are made at a specific  point in time based on  relevant
market  information  and  information  about  the  financial  instrument.  These
estimates do not reflect any premium or discount that could result from offering
for sale at one time the entire holdings of a particular  financial  instrument.
Because no market exists for a significant portion of the financial instruments,
fair value  estimates  are based on judgments  regarding  future  expected  loss
experience,   current  economic  conditions,  risk  characteristics  of  various
financial  instruments,  and other  factors.  These  estimates are subjective in
nature, involve uncertainties and matters of judgment and, therefore,  cannot be
determined with precision. Changes in assumptions could significantly affect the
estimates.  In addition,  fair value estimates are based on existing  on-and-off
balance sheet financial  instruments without attempting to estimate the value of
anticipated future business and exclude the value of assets and liabilities that
are not considered financial instruments.  Other significant assets that are not
considered financial assets include premises and equipment. In addition, the tax
ramifications  related to the realization of the unrealized gains and losses can
have a significant  effect on fair value  estimates and have not been considered
in any of the estimates.  Finally,  reasonable  comparability  between financial
institutions  may not be likely  due to the wide  range of  permitted  valuation
techniques and numerous estimates which must be made given the absence of active
secondary  markets for many of the  financial  instruments.  The lack of uniform
valuation  methodologies  introduces a greater degree of  subjectivity  to those
estimated fair values.

                                      F-35
<PAGE>

--------------------------------------------------------------------------------
Little Falls Bancorp, Inc. and Subsidiary
Notes to Consolidated Financial Statements
--------------------------------------------------------------------------------

18.      Parent Only Financial Information

The Company operates one wholly owned subsidiary,  the Bank. The earnings of the
Bank are  recognized  by the  Company  using the  equity  method of  accounting.
Accordingly, the earnings of the Bank are recorded as increases in the Company's
investment  in  the  subsidiary.  The  following  are  the  condensed  financial
statements  for the Company  (parent  company  only) as of December 31, 1997 and
1996 and for the periods then ended.  The Company had no operations prior to the
Bank's conversion to stock form on January 5, 1996.

<TABLE>
<CAPTION>
                                                              December 31,
                                                      ----------------------------
Statements of Financial Condition                           1997            1996
                                                      ------------    ------------
<S>                                                   <C>             <C>
Assets
Cash and due from banks ...........................   $  1,167,965    $    555,582
Loan receivable from the Bank .....................      6,044,666       8,854,264
ESOP loan receivable ..............................      2,213,081       2,342,922
Investment in subsidiary ..........................     29,200,841      28,874,037
Other assets ......................................         18,000          12,167
                                                      ------------    ------------
         Total assets .............................   $ 38,644,553    $ 40,638,972
                                                      ============    ============


Liabilities and stockholders' equity
Liabilities
Other liabilities .................................   $    349,892    $    190,674
                                                      ------------    ------------
Stockholders' equity
Common stock ......................................        304,175         304,175
Additional paid in capital ........................     29,067,633      28,974,799
Retained earnings .................................     18,204,455      16,802,056
Common stock acquired by ESOP .....................     (2,106,432)     (2,271,173)
Unearned restricted MSBP stock ....................     (1,329,167)           --
Treasury stock ....................................     (5,632,286)     (3,277,004)
Minimum pension liability, net ....................       (213,717)        (84,555)
                                                      ------------    ------------
         Total stockholders' equity ...............     38,294,661      40,448,298
                                                      ------------    ------------
         Total liabilities and stockholders' equity   $ 38,644,553    $ 40,638,972
                                                      ============    ============
</TABLE>
                                      F-36
<PAGE>

--------------------------------------------------------------------------------
Little Falls Bancorp, Inc. and Subsidiary
Notes to Consolidated Financial Statements
--------------------------------------------------------------------------------

18.      Parent Only Financial Information (Cont'd.)

Statements of Income

                                                                From
                                                              Inception
                                                              January 5,
                                                 Year Ended     1996 to
                                                December 31,  December 31,
                                                ------------  ------------
                                                    1997          1996
                                                 ----------   ----------
Interest income ..............................   $  666,225   $  880,582
Equity in undistributed earnings of subsidiary    1,598,621      248,247
                                                 ----------   ----------
                                                  2,264,846    1,128,829
Expenses .....................................      235,731      274,940
                                                 ----------   ----------
Income before income taxes ...................    2,029,115      853,889
Income taxes .................................      173,000      243,000
                                                 ----------   ----------
Net income ...................................   $1,856,115   $  610,889
                                                 ==========   ==========

                                      F-37


<PAGE>

--------------------------------------------------------------------------------
Little Falls Bancorp, Inc. and Subsidiary
Notes to Consolidated Financial Statements
--------------------------------------------------------------------------------

18.      Parent Only Financial Information (Cont'd.)

Statements of Cash Flows
<TABLE>
<CAPTION>
                                                                                          From
                                                                                        Inception
                                                                                        January 5,
                                                                          Year Ended      1996 to
                                                                          December 31,  December 31,
                                                                             1997           1996
                                                                        ------------    ------------
Cash flows from operations activities:
<S>                                                                     <C>             <C>
         Net income .................................................   $  1,856,115    $    610,889
         Adjustments to reconcile net income provided by
                  operative activities:
                  Equity in undistributed earnings of subsidiary ....     (1,598,620)       (248,247)
                  (Increase) in other assets ........................         (5,833)        (12,167)
                  Increase in other liabilities .....................        159,218         190,674
                                                                        ------------    ------------
                  Net cash provided by operating activities .........        410,880         541,149
                                                                        ------------    ------------
Cash flows from investing activities:
         Purchase of all outstanding stock of the Bank ..............           --       (14,638,780)
         Loan to the Bank ...........................................           --       (12,205,380)
         Repayments of loan by the Bank .............................      2,809,598       3,351,116
         Loan to ESOP ...............................................           --        (2,433,400)
         Repayments of Loan by ESOP .................................        129,841          90,478
                                                                        ------------    ------------
                  Net cash provided by (used in) investing activities      2,939,439     (25,835,966)
                                                                        ------------    ------------
Cash flows from financing activities:
         Net proceeds from issuance of common stock .................           --        29,263,522
         Acquisition of treasury stock ..............................     (2,355,282)     (3,277,004)
         Dividends paid .............................................       (382,654)       (136,119)
                                                                        ------------    ------------
                  Net cash (used in) provided by financing activities     (2,737,936)     25,850,399
                                                                        ------------    ------------
Net increase in cash and cash equivalents ...........................        612,383         555,582
Cash and cash equivalents--beginning ................................        555,582            --
                                                                        ------------    ------------
Cash and cash equivalents--ending ...................................   $  1,167,965    $    555,582
                                                                        ============    ============
</TABLE>

                                      F-38

<PAGE>
--------------------------------------------------------------------------------
Little Falls Bancorp, Inc. and Subsidiary
Notes to Consolidated Financial Statements
--------------------------------------------------------------------------------

19.      Quarterly Financial Data (unaudited)

                                Year Ended December 31, 1997
                                ----------------------------
                               First   Second    Third   Fourth
                              Quarter  Quarter  Quarter  Quarter
                               ------   ------   ------   ------
                              (In thousands, except per share data)
Interest income ............   $4,981   $4,971   $5,348   $5,764
Interest expense ...........    2,995    3,034    3,322    3,569
                               ------   ------   ------   ------
         Net interest income    1,986    1,937    2,026    2,195
Provision for loan losses ..       60       60       60       60
Non-interest income ........       69      189       41      129
Non-interest expense .......    1,280    1,281    1,321    1,522
Income taxes ...............      270      316      229      257
                               ------   ------   ------   ------
Net income .................   $  445   $  469   $  457   $  485
                               ======   ======   ======   ======

Net income per common share:
         Basic .............   $ 0.18   $ 0.20   $ 0.19   $ 0.21
                               ======   ======   ======   ======
         Diluted ...........   $ 0.17   $ 0.19   $ 0.19   $ 0.20
                               ======   ======   ======   ======


                                    Year Ended December 31, 1996
                                    ----------------------------
                                First    Second     Third     Fourth
                               Quarter   Quarter   Quarter    Quarter
                               -------   -------   -------    -------
                               (In thousands, except per share data)
Interest income ............   $ 4,710   $ 4,670   $ 4,614    $ 4,782
Interest expense ...........     2,912     2,751     2,721      2,874
                               -------   -------   -------    -------
         Net interest income     1,798     1,919     1,893      1,908
Provision for loan losses ..        30      --         153       --
Non-interest income ........        53        82        67        207
Non-interest expense .......     1,427     1,296     2,564      1,460
Income taxes ...............       133       282      (275)       246
                               -------   -------   -------    -------
Net income .................   $   261   $   423   $  (482)   $   409
                               =======   =======   =======    =======

Net income per common share:
         Basic .............   $  0.09   $  0.15    $ (0.18) $ 0.16
                               =======   =======    =======  ======
         Diluted ...........   $  0.09   $  0.15    $ (0.18) $ 0.16
                               =======   =======    =======  ======

                                      F-39
<PAGE>

--------------------------------------------------------------------------------
Little Falls Bancorp, Inc. and Subsidiary
Notes to Consolidated Financial Statements
--------------------------------------------------------------------------------

20.      Impact of Recent Accounting Standards

In June 1997,  the FASB  issued  Statement  No.  130,  "Reporting  Comprehensive
Income".  Statement  No.  130  requires  that all items that are  components  of
"comprehensive  income" be reported in a financial  statement  that is displayed
with the same prominence as other financial statements.  Comprehensive income is
defined as the "change in equity [net assets] of a business  enterprise during a
period  from  transactions  and other  events and  circumstances  from  nonowner
sources.  It  includes  all  changes  in  equity  during a period  except  those
resulting from  investments by owners and  distributions  to owners".  Companies
will be required to (a) classify  items of other  comprehensive  income by their
nature in the financial  statements and (b) display the  accumulated  balance of
other  comprehensive  income  separately  from retained  earnings and additional
paid-in  capital in the equity  section of a statement  of  financial  position.
Statement No. 130 is effective  for fiscal years  beginning  after  December 15,
1997  and  requires   reclassification  of  prior  periods  presented.   As  the
requirements  of Statement No. 130 are  disclosure-related,  its  implementation
will have no impact on the Company's consolidated financial condition or results
of operations.


                                      F-40