SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                   ----------

                                    FORM 10-K
(Mark One)
[X]      ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
         EXCHANGE ACT OF 1934 [NO FEE REQUIRED]

For the fiscal year ended         December 31, 1997
                          -----------------------------------------

                                     - or -

[ ]      TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
         EXCHANGE ACT OF 1934 [NO FEE REQUIRED]

For the transition period from                       to
                               ---------------------    ---------------------

Commission Number:  0-27010

                           LITTLE FALLS BANCORP, INC.
           -----------------------------------------------------------
             (Exact name of Registrant as specified in its Charter)

            New Jersey                                      22-3402073
---------------------------------------------           ---------------------
(State or other jurisdiction of incorporation            (I.R.S. Employer
  or organization)                                       Identification No.)

86 Main Street                                                 07424
---------------------------------------------           ---------------------
(Address of principal executive offices)                      Zip Code

Registrant's telephone number, including area code:     (201) 256-6100
                                                       -----------------

Securities registered pursuant to Section 12(b) of the Act:  None
                                                            -------

Securities registered pursuant to Section 12(g) of the Act:

                     Common Stock, $0.10 par value per share
                     ---------------------------------------
                                (Title of Class)


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

         Indicate by check mark if disclosure of delinquent  filers  pursuant to
Item 405 of Regulation S-K (ss.229.405 of this chapter) is not contained herein,
and will not be contained,  to the best of registrant's knowledge, in definitive
proxy or information  statements  incorporated  by reference in Part III of this
Form 10-K or any amendment to this Form 10-K. [ X ]

         The aggregate  market value of the voting stock held by  non-affiliates
of the Registrant,  based on the closing price of the Registrant's  Common Stock
as quoted on the Nasdaq  Stock  Market,  on March 26,  1998,  was $47.7  million
(2,477,525) shares at $19.25 per share).

         As of March 26,  1998  there  were  issued  3,041,750  and  outstanding
2,477,525 shares of the Registrant's Common Stock.
                       DOCUMENTS INCORPORATED BY REFERENCE

1.       Portions of the Annual Report to Stockholders for the Fiscal Year Ended
         December 31, 1997. (Parts I, II and IV)
2.       Portions  of the  Proxy  Statement  for  the  1997  Annual  Meeting  of
         Stockholders. (Part III)


<PAGE>
<TABLE>
<CAPTION>


<S>                                                                                                            <C>

                                      INDEX
PART I                                                                                                         Page
                                                                                                               ----

Item 1.     Business                                                                                              1

Item 2.     Properties...........................................................................................25

Item 3.     Legal Proceedings....................................................................................25

Item 4.     Submission of Matters to a Vote of Security-Holders..................................................26

PART II

Item 5.     Market for Registrant's Common Equity and Related Stockholder Matters................................26

Item 6.     Selected Financial Data..............................................................................26

Item 7.     Management's Discussion and Analysis of Financial Condition
              and Results of Operations..........................................................................26

Item 8.     Financial Statements and Supplementary Data..........................................................26

Item 9.     Changes In and Disagreements with Accountants on Accounting and Financial
              Disclosure.........................................................................................26

PART III

Item 10.    Directors and Executive Officers of the Registrant...................................................27

Item 11.    Executive Compensation...............................................................................27

Item 12.    Security Ownership of Certain Beneficial Owners and Management.......................................27

Item 13.    Certain Relationships and Related Transactions.......................................................27

PART IV

Item 14.    Exhibits, Financial Statement Schedules and Reports on Form 8-K......................................27

</TABLE>

<PAGE>



PART I

Item 1.  Business
-----------------

General

         Little Falls Bancorp,  Inc. (the "Company") is a New Jersey corporation
organized in August 1995 at the  direction of Little Falls Bank (the "Bank") for
the purpose of becoming a savings and loan holding company and to acquire all of
the capital stock issued by the Bank in its conversion  from the mutual to stock
form of ownership (the  "Conversion").  On January 5, 1996, the Registrant  sold
3,041,750  shares of its common  stock,  par value $0.10 per share (the  "Common
Stock") in a subscription  offering as part of the Conversion.  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. References to the "Bank" herein, unless the context
required  otherwise,  refer to the  Company  on a  consolidated  basis.  The net
conversion  proceeds totaled  approximately $26.8 million of which $14.6 million
was invested in the Bank.

         The Bank is a federally  chartered stock savings bank  headquartered in
Little  Falls,  New Jersey.  The Bank was  originally  chartered  in 1887 as the
Little  Falls  Building  and Loan  Association.  On December  2, 1993,  the Bank
converted its mutual charter from a federally chartered savings association to a
New Jersey  chartered  savings  bank,  changing its name to Little Falls Savings
Bank.  Effective  October 1995, the Bank converted its New Jersey mutual charter
to a federal  mutual  charter and changed its name to "Little  Falls  Bank." The
Bank's  deposits are  federally  insured and the Bank is a member of the Federal
Home Loan Bank ("FHLB") System.

         The  Company and the Bank are  subject to  regulation  by the Office of
Thrift Supervision ("OTS"),  the Federal Deposit Insurance  Corporation ("FDIC")
and the Securities and Exchange Commission ("SEC").

         The Bank is a community oriented savings institution offering a variety
of financial  services to meet the needs of the communities it serves.  The Bank
conducts its business from its main office in Little Falls,  New Jersey and five
branch offices located in Passaic and Hunterdon  Counties,  New Jersey. The Bank
attracts  deposits  from the  general  public  and has  historically  used  such
deposits   primarily  to  originate   loans   secured  by  first   mortgages  on
owner-occupied one- to four-family residences in its market area and to purchase
mortgage-backed  securities.  To a lesser  extent,  the Bank also  originates  a
limited number of commercial real estate,  residential construction and consumer
loans,  which mainly consist of home equity lines of credit.  Further,  the Bank
also invests in mortgage-backed securities and investment securities.

         The principal  sources of funds for the Bank's  lending  activities are
deposits,  the  amortization,  repayment and maturity of loans,  mortgage-backed
securities and investment  securities.  Principal sources of income are interest
and fees on loans,  mortgage-backed  securities and investment  securities.  The
Bank's principal expense is interest paid on deposits.

         Because the Bank did not convert to stock form  (including  the initial
sale of Common  Stock by the  Company)  until  January  5,  1996,  a part of the
presentation herein is that of the Bank in mutual form.


                                        1

<PAGE>




Year 2000

         The Company recognizes that the arrival of the Year 2000 poses a unique
worldwide  challenge to the ability of all systems to recognize  the date change
from  December  31,  1999 to January  1, 2000 and,  like  other  companies,  has
assessed and is repairing its computer  applications  and business  processes to
provide for their continued  functionality.  An assessment of external  entities
which it interfaces with, such as vendors,  counterparties,  customers,  payment
systems, and others, is ongoing.  Until such assessments are complete, it is not
possible  to predict  the affect on the  Company of  noncompliance  by  external
entities.

         The Company expects that the principal  costs will be those  associated
with the  remediation and testing of its computer  applications.  This effort is
under way and is  following  a  process  of  inventory,  scoping  and  analysis,
modification,  testing and certification, and implementation. A major portion of
these costs will be met from existing  resources through a  reprioritization  of
technology development initiatives,  with the remainder representing incremental
costs.

         The Company does not anticipate  that the related overall costs will be
material to any single year.

Market Area and Competition

         The Bank  focuses on serving  its  customers  located in the New Jersey
community of Little Falls and  surrounding  communities in Passaic and Hunterdon
Counties,  New  Jersey.  Economic  growth  in the  Bank's  market  area  remains
dependent upon the local economy. The economy of the greater New York -
 New Jersey  market has  historically  benefitted  from having a large number of
corporate   headquarters  and   concentration   of  financial   services-related
industries.  It also has a  well-educated  employment base and a large number of
industrial, service and high technology businesses. Over the past few years, New
Jersey's  economy  has slowly  begun to recover  from the effects of a prolonged
decline in the national and regional economy,  layoffs in the financial services
industry and corporate relocations. Employment levels and real estate markets in
the Bank's market area have  stabilized and in some instances  begun to improve.
Whether such  improvement  will continue is dependent,  in large part,  upon the
general economic health of the United States and other factors beyond the Bank's
control and, therefore,  cannot be estimated.  In addition, the deposit and loan
activity of the Bank is  significantly  affected by economic  conditions  in its
market area. The Bank's  principal  competitors are financial  institutions  and
mortgage  banking  companies,  many of which are  significantly  larger and have
greater financial resources than the Bank. The Bank's competition for loans on a
retail and wholesale basis comes  principally  from commercial  banks,  mortgage
brokers,  banking and insurance  companies.  The Bank's competition for deposits
has  historically  come from commercial  banks,  thrift  institutions and credit
unions.  In addition,  the Bank faces  increasing  competition for deposits from
non-bank  institutions,  such as brokerage firms and insurance companies in such
areas as short-term  money market funds,  corporate  and  government  securities
funds, mutual funds and annuities.

                                        2

<PAGE>




Lending Activities

         Analysis of Loan Portfolio.  The following table sets forth information
concerning the composition of the Bank's loan portfolio in dollar amounts and in
percentages of the loan portfolio as of the dates indicated.

<TABLE>
<CAPTION>
                                                                     At December 31,
                      --------------------------------------------------------------------------------------------------------------
                           1997                    1996                    1995                    1994                 1993
                      ------------------    --------------------     -------------------    ---------------------  -----------------
                              Percent of              Percent of             Percent of               Percent of          Percent of
                      Amount     Total        Amount    Total        Amount     Total         Amount     Total     Amount    Total
                      ------    -------       ------   -------       ------  -----------    --------- ----------   ------ ----------
                                                                    (Dollars in Thousands)
<S>                  <C>       <C>           <C>       <C>           <C>       <C>           <C>       <C>        <C>       <C>
Type of Loans:
One- to four-
 family..............$118,254   80.42%      $ 108,367   92.53%       $88,828    92.31%       $87,851    92.71%     $95,278   93.62%
Multi-family and
  commercial real
  estate.............  17,362   11.81           3,659    3.13          4,639      4.82         4,463     4.71        3,614    3.54
Residential
 construction........     350    0.24             525    0.45          1,098      1.14           521     0.55           --      --
Consumer:
Savings account......     807    0.55             889    0.76            824      0.86           866      .91        1,015    1.00
Second mortgages.....  11,630    7.91           5,028    4.29          2,540      2.64         2,694     2.84        3,007    2.95
Other................      12    0.01              25    0.02             42      0.04            52      .05           87     .09
                     --------  ------        --------  ------        -------   ------        -------   ------     --------  ------
Total loans
  receivable (gross). 148,415  100.94         118,493  101.18         97,971    101.81        96,447   101.77      103,001  101.20
Less:
  Loans in process...     233    0.16             150   (0.13)           450    (0.47)           186     (.18)          --      --
  Deferred loan
   origination                                          (0.12)
   fees and costs....     (19)   (0.01)           138                    333    (0.35)           338     (.36)         408    (.40)
  Allowance for loan
   losses............   1,168    0.79           1,090   (0.93)           958    (0.99)         1,169    (1.23)         818    (.80)
                     --------  ------        --------  ------        -------   ------        -------   ------     --------  ------
Total loans, net.....$147,033  100.00%       $117,115  100.00%       $96,230   100.00%       $94,754   100.00%    $101,775  100.00%
                     ========  ======        ========  ======        =======   ======        =======   ======     ========  ======
</TABLE>




                                        3

<PAGE>



Loan Maturity Tables

         The following table sets forth the  contractual  maturity of the Bank's
loan portfolio at December 31, 1997.  The table does not include  prepayments or
scheduled principal  repayments.  Prepayments and scheduled principal repayments
on  loans  totaled  $15.7  million  for  the  year  ended   December  31,  1997.
Adjustable-rate  mortgage  loans  are  shown as  maturing  based on  contractual
maturities  rather than the period in which interest rates are next scheduled to
adjust.
<TABLE>
<CAPTION>
                                                         Multi-Family
                                                              and
                                      One- to Four-        Commercial         Residential
                                         Family           Real Estate         Construction    Consumer       Total
                                      -------------       -----------         ------------    ---------      -----

                                                                    (In Thousands)
<S>                                      <C>                  <C>                <C>           <C>          <C>
Amounts Due:
Within 1 year..................          $     76             $    --            $   350       $ 1,154      $  1,580
                                         --------             -------            -------       -------      --------

  1 to 5 years.................             2,755                  --                 --            75         2,830
  5 to 10 years................             5,020                  --                 --         1,376         6,396
  Over 10 years................           109,367              17,114                 --         9,844       136,325
                                         --------             -------            -------       -------      --------
Total due after one year.......           117,142              17,114                 --        11,295       145,551
                                         --------             -------            -------       -------      --------
Non-performing.................             1,036                 248                 --            --         1,284
Total amount due...............           118,254              17,362                350        12,449       148,415

Less:
Allowance for loan and
  lease loss...................               877                 231                  4            56         1,168
Loans in process...............                --                  --                233            --           233
Deferred loan fees (costs).....                 8                  --                 --          (27)          (19)
                                         --------             -------            -------       -------      --------
  Loans receivable, not........          $117,369             $17,131            $   113       $12,420      $147,033
                                         ========             =======            =======       =======      ========
</TABLE>



         The  following  table sets forth the dollar amount at December 31, 1997
of all loans due after  December 31, 1998,  which have  pre-determined  interest
rates and which have floating or adjustable interest rates.
<TABLE>
<CAPTION>

                                                               Floating or
                                         Fixed Rates         Adjustable Rates          Total
                                         -----------         ----------------          -----
                                                             (In Thousands)
<S>                                       <C>                   <C>                  <C>
One- to four-family................       $38,153               $ 80,025             $118,178
Multi-family and
  commercial real estate...........           268                 17,094               17,362
Consumer...........................         8,402                  2,893               11,295
                                          -------               --------             --------
  Total............................       $46,823               $100,012             $146,835
                                          =======               ========             ========
</TABLE>




                                        4

<PAGE>



         One- to  Four-Family  Residential  Loans.  The Bank's  primary  lending
activity consists of the origination of single-family residential mortgage loans
secured by  owner-occupied  property.  The Bank  originates  one- to four-family
residential  mortgage  loans in amounts up to 80% of the appraised  value of the
mortgaged  property  and in  amounts up to 70% of the  appraised  value on loans
which exceed $200,000.  No private mortgage  insurance is obtained since loan to
value ratios do not exceed 80%. All loans are held in the Bank's portfolio.

         The Bank has an agreement with a mortgage solicitation firm pursuant to
which  the  Bank  receives  one-  to  four-family  mortgage  applications  on  a
state-wide  basis.  The Bank then submits bids on the mortgage  applications  on
which it is interested  prior to making the final loan.  The submission of a bid
to provide the mortgage loan is not a firm commitment on the Bank's part, as the
Bank applies its own underwriting  standards before  committing to the loan. All
loans must be documented,  including an original  appraisal.  This agreement has
provided  the  majority  of loan  applications  received by the Bank in the past
year.

         Loan  referrals  are also  obtained  from local  realtors or  builders,
existing or past  customers and members of the local  community.  Mortgage loans
generally   include  due-on  sale  clauses  which  provide  the  Bank  with  the
contractual right to deem the loan immediately due and payable in the event that
the borrower transfers ownership of the property without the Bank's consent.

         The Bank  primarily  originates  adjustable-rate  mortgage loans with a
guaranteed  renewal for a thirty-year term. These loans adjust after one, three,
five or ten years.  The Bank's ARM loans are originated for its portfolio and do
not conform to FNMA or FHLMC standards.  Although the Bank's ARM loans have a 6%
lifetime cap, at the adjustment period, interest rate changes are discretionary.
Generally,  ARM loans pose credit risks somewhat  greater than the risk inherent
in fixed-rate  loans primarily  because,  as interest rates rise, the underlying
payments of the borrower rise,  increasing  the potential for default.  The Bank
also  offers  fixed-rate  loans with terms of 15 and 30 years.  The Bank  offers
various  loan  programs  with  varying   interest   rates  and  fees  which  are
competitively priced based on market conditions and the Bank's cost of funds.

         The Bank has purchased and  participated  in a limited number of loans,
primarily in its market area. At December 31, 1997, the Bank had $4.5 million of
purchased loans and $2.4 million in loan participations.  The Bank purchases and
participates in loans after applying its own  underwriting  standards.  The Bank
typically does not service the loans that it purchases or  participates  in with
other financial institutions.

         Multi-Family and Commercial Real Estate Loans. The Company has recently
purchased  participations  in multi-family  mortgage loans secured  primarily by
apartment  buildings  located  in New  Jersey  and New  York.  These  loans  are
generally  adjustable-rate  loans with  maturities  up to 25 years.  These loans
typically  amortize over 20 to 25 years. As of December 31, 1997, $17.4 million,
or 11.8%, of the Bank's loan portfolio consisted of multi-family residential and
commercial  real estate loans.  These loans are generally  made in amounts up to
75% of the appraised value of the mortgaged property.  In purchasing such loans,
the Bank evaluates the mortgage  primarily on the net operating income generated
by the real  estate to support the debt  service.  The Bank also  considers  the
financial resources and income level of the borrower,  the borrower's experience
in owning or managing similar  property,  the  marketability of the property and
the  Bank's  lending  experience,   if  any,  with  the  borrower.  The  typical
multi-family  property in the Bank's multi-family  lending portfolio has between
11 and 110  dwelling  units  with  an  average  loan  balance  of  approximately
$700,000.



                                        5

<PAGE>



         To a lesser extent, the Bank's policy has been to originate  commercial
real  estate  loans.  The loans are  generally  made in amounts up to 65% of the
appraised  value of the  property.  The  Bank's  commercial  real  estate  loans
primarily  have  rates  equal to the prime  rate plus a margin.  In making  such
loans,  the Bank primarily  considers the net operating  income generated by the
real estate to support the debt  service,  the  financial  resources  and income
level  and  managerial  resources  of the  borrower,  the  marketability  of the
property and the Bank's lending experience with the borrower.

         The Bank's  commercial  real  estate  loans  typically  are  secured by
properties such as mixed-use  properties,  retail stores,  office  buildings and
strip shopping  centers.  The Bank's  commercial real estate portfolio  includes
multi-family   loans.  In  1997,  the  Bank  purchased  $15.1  million  of  loan
participations  on apartment  buildings  in New York and New Jersey.  These were
adjustable  rate loans and resulted in  increasing  the Bank's yield on interest
earning assets while  diversifying  its loan portfolio.  For a discussion of the
Bank's largest commercial real estate loan, see "- Loans to One Borrower."

         Loans secured by  multi-family  and  commercial  real estate  generally
involve a greater degree of risk than one- to four-family  residential  mortgage
loans and carry larger loan balances.  This increased credit risk is a result of
several factors, including the concentration of principal in a limited number of
loans and  borrowers,  the  effects of  general  economic  conditions  on income
producing properties,  and the increased difficulty of evaluating and monitoring
these types of loans. Furthermore,  the repayment of loans secured by commercial
real estate is typically dependent upon the successful  operation of the related
real  estate.  If the cash flow from the  property  is reduced,  the  borrower's
ability to repay the loan may be impaired.

         Residential Construction Loans. The Bank's policy has been to originate
residential construction loans to a lesser extent than other types of mortgages.
Residential  construction loans are made up to a maximum of 80% of the appraised
value of the home, based upon the builder's plans. The rate charged is generally
the prime rate plus a margin.  The loan proceeds are  disbursed  based upon work
completed. For a discussion of the Bank's largest residential construction loan,
see "-- Loans to One Borrower."

         Consumer Loans.  The Bank's  consumer loans  primarily  consist of home
equity loans,  and, to a much lesser extent,  student loans and loans secured by
savings  deposits.  The home equity  lines of credit are made with loan to value
ratios of up to 80% on either a fixed or adjustable rate basis.

         The  underwriting  standards  employed by the Bank for  consumer  loans
include a determination of the applicant's payment history on other debts and an
assessment of the  borrower's  ability to make payments on the proposed loan and
other indebtedness.  In addition to the  creditworthiness of the applicant,  the
underwriting process also includes a comparison of the value of the security, if
any, in relation to the proposed loan amount.  The Bank's consumer loans tend to
have higher  interest  rates and  shorter  maturities  than one- to  four-family
mortgage  loans,  but are  considered  to entail a greater  risk of default than
mortgage loans.

         Loan  Approval  Authority  and  Underwriting.  The  Board of  Directors
generally  approves all mortgage  loans  although the Bank's  President  has the
authority to approve loans up to $500,000.  Any loans exceeding that amount must
be approved by the Board of Directors.

         The Bank uses board approved  independent fee appraisers on real estate
loans.  It is the Bank's  policy to obtain  title  insurance  on all  properties
securing real estate loans and to obtain fire,  flood and casualty  insurance on
all loans that require security.


                                        6

<PAGE>



         Loan  Commitments.  The Bank issues written  commitments to prospective
borrowers on all real estate approved loans. Generally,  the commitment requires
the loan to be closed within sixty days of issuance.  At December 31, 1997,  the
Bank had $3.2 million of commitments to fund new mortgage loans and  commitments
on unused lines of credit relating to home equity loans of $4.1 million.

         Loans to One  Borrower.  Savings  associations  are subject to the same
limits as those  applicable to national banks,  which under current  regulations
limit loans-to-one  borrower in an amount equal to 15% of unimpaired capital and
retained income on an unsecured  basis and an additional  amount equal to 10% of
unimpaired  capital  and  retained  income  if the loan is  secured  by  readily
marketable collateral  (generally,  financial  instruments,  not real estate) or
$500,000, whichever is higher. The Bank's maximum loan-to-one borrower limit was
approximately $4.1 million as of December 31, 1997.

         At December 31, 1997,  the Bank's three largest  lending  relationships
ranged  from $1.1  million to $1.2  million.  They are all  performing  loans on
apartment  buildings  in New  Jersey  and  New  York in  which  the  Bank  has a
participating interest. See also "-- Multi-Family and Commercial Real Estate."

Non-Performing Loans and Classified Assets

         Loan Delinquencies.  The Bank's collection procedures provide that when
a mortgage  loan is 15 days past due, a notice of nonpayment is sent. If payment
is still  delinquent  after 30 days past due, the customer will receive a letter
from the Bank. If the delinquency continues, similar subsequent efforts are made
to eliminate the delinquency.  If the loan continues in a delinquent  status for
60 days or more and no repayment  plan is in effect,  the Bank's  attorney  will
send a letter to the  customer.  After 90 days past due,  the Board of Directors
typically  approves  the  initiation  of  foreclosure  proceedings  as  soon  as
possible.  Loans are reviewed on a monthly basis and are placed on a non-accrual
and non-performing status when the loan becomes more than 90 days delinquent.

         The following  table sets forth  information  regarding  non-performing
loans and real  estate  owned.  During the  periods  indicated,  the Bank had no
restructured loans within the meaning of SFAS No. 15.

<TABLE>
<CAPTION>
                                                               At December 31,
                                                 1997      1996      1995      1994      1993
                                                 ----      ----      ----      ----      ----
                                                            (Dollars in Thousands)
<S>                                             <C>       <C>       <C>       <C>       <C>
Non-performing loans:
   Nonaccrual loans:
   One- to four-family residential ..........   $1,036    $  989    $1,059    $4,182    $3,894
   Multi-family and commercial real estate ..      248       860       860        --        --
   Consumer loans ...........................       --        52        23        20        --
                                                ------    ------    ------    ------    ------
Total nonaccrual loans ......................    1,284     1,901     1,942     4,202     3,894
   Accruing one- to four-family residential .       --        --       505        --        --
                                                ------    ------    ------    ------    ------
Total non-performing loans ..................    1,284     1,901     2,447     4,202     3,894
                                                ------    ------    ------    ------    ------
Real estate owned ...........................      604       857     1,501     1,765     1,859
                                                ------    ------    ------    ------    ------
Total non-performing assets .................   $1,888    $2,758    $3,948    $5,967    $5,753
                                                ======    ======    ======    ======    ======
Total non-performing loans to net loans .....      .87%     1.62%     2.54%     4.43%     3.83%
                                                ======    ======    ======    ======    ======
Total non-performing loans to total assets ..      .39%      .63%      .79%     2.17%     1.93%
                                                ======    ======    ======    ======    ======
Total non-performing assets to total assets .      .57%      .91%     1.27%     3.09%     2.85%
                                                ======    ======    ======    ======    ======
</TABLE>



         Interest  income that would have been recorded on nonaccrual  loans had
they been  current  under the  original  terms of such  loans was  approximately
$111,000  and  $198,000  for  the  years  ended  December  31,  1997  and  1996,
respectively. Amounts included in the Bank's interest income attributable

                                        7

<PAGE>



to  non-performing  loans for the years  ended  December  31, 1997 and 1996 were
approximately $50,000 and $84,000, respectively.

         Classified  and  Criticized  Assets.  OTS  regulations  provide  for  a
classification  system for problem assets of insured  institutions  which covers
all problem assets. Under this classification  system, problem assets of insured
institutions are classified as "substandard," "doubtful," or "loss." An asset is
considered  substandard if it is inadequately protected by the current net worth
and  paying  capacity  of the  obligor  or of the  collateral  pledged,  if any.
Substandard  assets include those  characterized  by the "distinct  possibility"
that the insured institution may sustain "some loss" if the deficiencies are not
corrected. Loans classified as substandard may or may not be considered impaired
under generally accepted  accounting  principals.  Assets classified as doubtful
have all of the weaknesses  inherent in those classified  substandard,  with the
added characteristic that the weaknesses present make "collection or liquidation
in full," on the basis of  currently  existing  facts,  conditions  and  values,
"highly  questionable  and  improbable."  Assets  classified  as loss are  those
considered  "uncollectible"  and as such,  are charged  off by the Bank.  Assets
which  do  not  currently   expose  the  Bank  to  sufficient  risk  to  warrant
classification in one of the  aforementioned  categories but possess  weaknesses
are designated "special mention" by management.

         When the Bank  classifies  problem  assets  as  either  substandard  or
doubtful,  it may establish  general  allowances for loan and lease losses in an
amount  deemed  prudent  by  management.   General  allowances   represent  loss
allowances which have been established to recognize the inherent risk associated
with lending activities.  When the Bank classifies problem assets as loss, it is
considered  uncollectible  and the Bank  charges  off such  amount.  The  Bank's
determination  as to the  classification  of its  assets  and the  amount of its
valuation  allowances  is  subject  to  review  by the OTS,  which may order the
establishment of additional  general or specific loss  allowances.  A portion of
general loss  allowances  established to cover possible losses related to assets
classified  as  substandard  or  doubtful  may be  included  in  determining  an
institution's  regulatory capital,  while specific valuation allowances for loan
losses generally do not qualify as regulatory capital.

         The  following  table  provides  further  information  about the Bank's
classified assets as of the dates indicated.
<TABLE>
<CAPTION>


                                                                  At December 31,
                              -----------------------------------------------------------------------------------------
                                1997               1996                1995                 1994                 1993
                              --------           --------             ------               ------             ---------
                                                                   (In Thousands)
<S>                           <C>                <C>                  <C>                  <C>                 <C>
Criticized:
  Special Mention........     $ 3,912            $  2,931             $2,639               $2,094              $ 1,406
Classified:
  Substandard............       1,637               3,665              3,925                5,901                8,549
  Doubtful...............          --                  --                 --                   --                   --
  Loss...................          --                  --                 --                  123                  501
                              -------            --------             ------               ------              -------
                              $ 5,549            $  6,596             $6,564               $8,118              $10,456
                              =======            ========             ======               ======              =======
</TABLE>



         Real  Estate  Owned.  Real  estate  acquired by the Bank as a result of
foreclosure or by deed in lieu of foreclosure is classified as real estate owned
until it is sold.  When  property  is acquired it is carried at the lower of the
cost or fair value less selling costs. It is the policy of the Bank to obtain an
appraisal on all real estate acquired through foreclosure as soon as practicable
after it takes  possession of the property.  The Bank  generally  reassesses the
value of real estate owned at least every eighteen

                                        8

<PAGE>



months. These properties are subsequently  evaluated and carried at the lower of
the "new" cost or fair value minus selling costs of the  underlying  collateral.
The Bank's real estate  owned  totaled  approximately  $604,000 at December  31,
1997.

         Allowance  for Loan Losses.  A provision  for loan losses is charged to
operations based on management's  evaluation of the potential losses that may be
incurred in the Bank's loan portfolio. Such evaluation,  which includes a review
of certain loans of which full  collectibility of interest and principal may not
be reasonably assured, considers the Bank's past loan loss experience, known and
inherent  risks  in the  portfolio,  adverse  situations  that  may  affect  the
borrower's  ability to repay,  estimated value of any underlying  collateral and
current economic conditions.

         Management  will continue to review its loan portfolio to determine the
extent,  if any,  to which  further  additional  loss  provisions  may be deemed
necessary.  There can be no  assurance  that the  allowance  for losses  will be
adequate  to cover  losses  which may in fact be realized in the future and that
additional provisions for losses will not be required.

         As a result of the declines in regional  real estate  market values and
the significant  losses  experienced by many financial  institutions,  there has
been a  greater  level  of  scrutiny  by  regulatory  authorities  of  the  loan
portfolios of financial  institutions  undertaken as part of the  examination of
the institution by the FDIC, OTS or other federal or state  regulators.  Results
of recent  examinations  indicate  that these  regulators  may be applying  more
conservative  criteria  in  evaluating  real  estate  market  values,  requiring
significantly  increased  provisions for potential  loan losses.  While the Bank
believes it has established an adequate allowance for loan losses,  there can be
no assurance that regulators,  in reviewing the Bank's loan portfolio,  will not
request  the Bank to  significantly  increase  its  allowance  for loan  losses,
thereby negatively affecting the Bank's financial condition and earnings or that
the Bank may not have to  increase  its  level  of loan  loss  allowance  in the
future.


                                        9

<PAGE>



         Analysis of the  Allowance for Loan Losses.  The  following  table sets
forth  information  with respect to the Bank's  allowance for loan losses at the
dates indicated.
<TABLE>
<CAPTION>


                                                        At December 31,
                                   ---------------------------------------------------------
                                     1997        1996        1995        1994         1993
                                     ----        ----        ----        ----         ----
                                                    (Dollars in Thousands)

<S>                                <C>         <C>         <C>         <C>         <C>
Total loans outstanding ........   $148,415    $118,493    $ 97,971    $ 96,447    $103,001
                                   ========    ========    ========    ========    ========

Allowance balances (at beginning
 of period) ....................   $  1,090    $    958    $  1,169    $    818    $    731
Provision:
  One- to four-family ..........        168         136          87         340         325
  Multi-family and commercial
    real estate(1) .............         35          38          35          13          --
  Consumer .....................         37           9           9           3           3
                                   ========    ========    --------    --------    --------
Total provision for loan losses         240         183         131         356         328
                                   --------    --------    --------    --------    --------
Charge-offs net of recoveries:
  One- to four-family ..........        154          51         342           5         241
  Multi-family and commercial
    real estate ................         --          --          --          --          --
Consumer .......................          8          --          --          --          --
                                   --------    --------    --------    --------    --------
Total charge-offs ..............        162          51         342           5         241
                                   --------    --------    --------    --------    --------
Allowance balance (at end of
  period) ......................   $  1,168    $  1,090    $    958    $  1,169    $    818
                                   ========    ========    ========    ========    ========
Allowance for loan losses as
  a percent of total loans
  outstanding ..................       0.79%       0.92%       0.98%       1.21%       0.79%
                                   ========    ========    ========    ========    ========
</TABLE>




        -----------------
        (1)  Includes residential construction loans.



                                       10

<PAGE>



         Allocation of Allowance for Loan Losses. The following table sets forth
the  allocation  of the  Bank's  allowance  for loan and  lease  losses  by loan
category and the percentage of loans in each category to net loans receivable at
the dates  indicated.  The portion of the loan loss allowance  allocated to each
loan category does not represent the total available for future losses which may
occur  within  the loan  category  since the  total  loan  loss  allowance  is a
valuation reserve applicable to the entire loan portfolio.

<TABLE>

                                                               At December 31,
               ---------------------------------------------------------------------------------------------------------------------
                     1997                    1996                   1995                    1994                    1993
               ----------------------   ----------------------  ---------------------  ----------------------  ---------------------
                         Percent of              Percent of             Percent of              Percent of             Percent of
                          Loans to                Loans to               Loans to                Loans to               Loans to
               Amount  Loan Portfolio   Amount  Loan Portfolio  Amount Loan Portfolio  Amount  Loan Portfolio  Amount Loan Portfolio
               ------  --------------   ------  --------------  ------ --------------  ------  --------------  ------ --------------
                                                            (Dollars in Thousands)
<S>            <C>        <C>           <C>         <C>         <C>     <C>            <C>        <C>            <C>      <C>
At end of
 period
 allocated to:
One-to four-
 family........$  877      79.68%       $  863       91.66%     $778     92.31%        $1,033      92.71%        $814      93.62%
Multi-family
  and
   commercial
   real
   estate(1)...   235      11.93           200         3.27      162      4.82            127       4.71           --       3.54
Consumer ......    56       8.39            27         5.07       18      3.54              9       3.80            4       4.04
               ------     ------        ------      ------      ----    ------         ------     ------         ----     ------
Total
 allowance.....$1,168     100.00%       $1,090      100.00%     $958    100.00%        $1,169     100.00%        $818     100.00%
               ======     ======        ======      ======      ====    ======         ======     ======         ====     ======
</TABLE>



(1)  Includes residential construction loans.



                                       11

<PAGE>



Investment Activities

         General.  The investment  policy of the Bank,  which is approved by the
Board of Directors  and  implemented  by certain  officers as  authorized by the
Board, is designed primarily to provide and maintain liquidity and to manage the
interest rate sensitivity of its overall assets and  liabilities,  to generate a
favorable  return  without  incurring  undue  interest  rate and credit risk, to
provide a flow of earnings  and a  countercyclical  balance to  earnings  and to
provide a balance of  quality  and  diversification  of the  Bank's  assets.  In
establishing  its  investment  strategies,  the Bank  considers its business and
growth plans, the economic environment,  its interest rate sensitivity position,
the types of  securities  to be held,  and other  factors.  Federally  chartered
savings  institutions  have  authority  to invest in  various  types of  assets,
including U.S.  Treasury  obligations,  securities of various federal  agencies,
mortgage-backed and mortgage-related securities, certain certificates of deposit
of  insured  banks  and  savings  institutions,   certain  bankers  acceptances,
repurchase  agreements,  loans of federal funds, and, subject to certain limits,
corporate securities, commercial paper and mutual funds.

         Current  regulatory  and  accounting  guidelines  regarding  investment
portfolio policy require insured  institutions to categorize  securities as held
for  "investment,"  "sale," or "trading." At December 31, 1996,  the Bank had no
securities held available for sale or trading. The Bank's securities  portfolio,
which the Bank has the ability and intent to hold to maturity, are accounted for
on an amortized cost basis. The Bank may purchase securities in the future to be
held available for sale or trading.

         At  December  31,  1997,  the Bank's  investment  securities  portfolio
primarily  consisted  primarily  of short and medium  term U.S.  Government  and
agency securities. In addition, at December 31, 1997, the Bank had federal funds
sold of $3.5 million and FHLB stock of $2.5 million.

         To supplement lending  activities and to utilize excess liquidity,  the
Bank  invests  in  residential   mortgage-backed   securities.   Mortgage-backed
securities can serve as collateral for borrowings and, through repayments,  as a
source of liquidity.  The mortgage-backed  securities  portfolio at December 31,
1997 consisted of both fixed-rate and adjustable rate certificates issued by the
FHLMC, GNMA and FNMA. The fixed rate certificates provide the certificate holder
principal  payments  while the adjustable  rate  securities  provide  protection
against rising interest rates.

         Mortgage-backed securities represent a participation interest in a pool
of single-family or multi-family mortgages,  the principal and interest payments
on which  are  passed  from the  mortgage  originators,  through  intermediaries
(generally   quasi-governmental   agencies)   that   pool  and   repackage   the
participation  interests in the form of  securities,  to  investors  such as the
Bank. Such quasi-governmental agencies, which guarantee the payment of principal
and interest to investors, primarily include FHLMC, FNMA, and GNMA.

         Mortgage-backed  securities  typically are issued with stated principal
amounts,  and the  securities  are backed by pools of mortgages  that have loans
with  interest  rates that are within a range and have varying  maturities.  The
underlying pool of mortgages can be composed of either  fixed-rate  mortgages or
adjustable-rate  mortgage  loans.   Mortgage-backed   securities  are  generally
referred to as mortgage participation certificates or pass-through certificates.
As a result,  the interest rate risk  characteristics  of the underlying pool of
mortgages, fixed rate or adjustable rate, as well as prepayment risk, are passed
on to  the  certificate  holder.  The  life  of a  mortgage-backed  pass-through
security is equal to the life of the underlying mortgages.

         To reduce the effect of interest  rate changes on net  interest  income
the Bank invests in collateralized  mortgage  obligations  ("CMOs").  All of the
products that were purchased are adjustable

                                       12

<PAGE>



on a monthly basis and use London  Interbank  Offered Rates ("LIBOR") index. All
of the  securities  have a cap rate of  either  9.0%,  or  10.0%  and all of the
products meet the current FFIEC tests.  The securities are tested on a quarterly
basis.

Investment and Mortgage-backed  Securities  Portfolio.  The following table sets
forth the carrying value of the Bank's investment and mortgage-backed securities
portfolio.
<TABLE>
<CAPTION>
                                                       At December 31,
                                           ----------------------------------------
                                            1997             1996            1995
                                           -------        ----------       --------
                                                        (In Thousands)

<S>                                        <C>              <C>             <C>
Investment Securities:
 U.S. Government
   securities.................             $    --         $   6,006        $10,014
 U.S. Agency securities.......              57,988            45,022         19,985
 Other securities.............                  --               342             --
                                           -------          --------        -------
   Total investment                         57,988            51,370         29,999
                                           -------          --------        -------
     securities...............
Federal funds sold............               3,500             5,000         39,800
FHLB Stock....................               2,518             2,076          1,395
                                           -------          --------        -------
   Total investment
     securities, federal
     funds sold and FHLB
     stock....................             $64,006          $ 58,446        $71,194
                                           =======          ========        =======
</TABLE>

<TABLE>
<CAPTION>
                                                        At December 31,
                                    -------------------------------------------------------
                                        1997                 1996                   1995
                                        ----                 ----                   ----

                                      Amount(1)             Amount                 Amount
                                      ---------             ------                 ------

                                                      (Dollars in Thousands)
Mortgage-backed securities:
<S>                                   <C>                   <C>                    <C>
  GNMA...........................     $ 26,337              $  33,675              $ 38,714
  FNMA...........................       42,393                 49,434                45,613
  FHLMC..........................       34,932                 28,297                32,590
                                      --------              ---------              --------
      Total......................      103,662                111,406               116,917
  Net premiums...................        1,224                  1,067                 1,103
                                      --------              ---------              --------
Net mortgage-backed
  securities.....................     $104,886              $ 112,473              $118,020
                                      ========              =========              ========
</TABLE>


---------------------
(1)      Includes held to maturity and available  for sale  (available  for sale
         issues are reflected net of an unrealized loss of $111,500).

                                       13

<PAGE>



         Investment and Mortgage-backed  Securities' Portfolios Maturities.  The
following table sets forth certain  information  regarding the carrying  values,
weighted   average   yields  and   maturities  of  the  Bank's   investment  and
mortgage-backed securities portfolios at December 31, 19976.

<TABLE>
<CAPTION>
                                                                                           Total Investment and
                          One Year or Less  One to Five Years  More Than Five Years      Mortgage-backed Securities
                         ------------------ ------------------ -------------------- ---------------------------------------
                                  Weighted            Weighted            Weighted               Weighted       Estimated
                         Carrying  Average  Carrying  Average  Carrying    Average  Carrying      Average          Fair
                           Value    Yield    Value     Yield    Value       Yield    Value         Yield           Value
                          -------  -------  -------   -------  -------     -------  -------       -------         ------
                        (Dollars in Thousands)

<S>                       <C>        <C>    <C>         <C>    <C>           <C>     <C>            <C>         <C>
U.S. Agency securities... $10,006     5.26%  9,000      6.17%  $38,982       7.18%   $ 57,988       6.69%       $ 58,129
                          =======    ====   ======      ====   =======       ====    ========       ====        ========

GNMA..................... $    --   $   --      36      7.68%  $26,736       7.12%   $ 26,772       7.12%       $ 26,952
FNMA(1)..................     455     7.14   2,200      7.00    40,196       6.77      42,851       6.78          42,884
FHLMC(1).................      --       --   8,883      6.65    26,380       6.73      35,263       6.71          35,339
                          -------    ----   ------      ----   -------       ----    --------       ----        --------
   Total mortgage-backed
   securities........... .$   455    7.14%  11,119      6.72%  $93,312       6.86%   $104,886       6.84%       $105,175
                          =======    ====   ======      ====   =======       ====    ========       ====        ========
</TABLE>



----------------------
(1) Includes mortgage-backed securities held to maturity and available for sale.

                                       14

<PAGE>



Sources of Funds

         General.  Deposits are the major source of the Bank's funds for lending
and other  investment  purposes.  The Bank derives funds from  amortization  and
prepayment of loans and  maturities of  investment  securities,  mortgage-backed
securities and operations.  Scheduled loan principal repayments are a relatively
stable source of funds,  while deposit inflows and outflows and loan prepayments
are  significantly  influenced by general interest rates and market  conditions.
The Bank can obtain  advances from the FHLB as an  alternative to retail deposit
funds.  FHLB advances may also be used to acquire certain other assets as may be
deemed appropriate for investment purposes. These advances are collateralized by
the  capital  stock of the FHLB held by the Bank and by  certain  of the  Bank's
mortgage loans and mortgage-backed securities.

         Deposits.  The Bank currently offers NOW Accounts,  Super NOW accounts,
regular passbook  statement savings accounts and savings accounts,  money market
deposit  accounts and term certificate  accounts,  primarily to consumers within
its primary  market area.  Deposit  account terms vary  according to the minimum
balance  required,  the time  period  the funds must  remain on deposit  and the
interest rate, among other factors.

         Although   the  Bank   partially   relies  on   customer   service  and
relationships  with customers to attract and retain  deposits,  market  interest
rates and rates offered by competing financial institutions significantly affect
the Bank's ability to attract and retain deposits.

         The interest rates paid by the Bank on deposits are monitored regularly
and are set as needed at the direction of the Board of  Directors.  The interest
rates on deposit  account  products are  determined by  evaluating  the interest
rates offered by other local  institutions,  and the degree of  competition  the
Bank wishes to maintain;  the Bank's anticipated need for cash and the timing of
that desired cash flow; the cost of borrowing from other sources versus the cost
of acquiring funds through  customer  deposits;  and the Bank's  anticipation of
future economic conditions and related interest rates. The Bank's interest rates
typically  are  competitive  with  those  offered by  competitors  in the Bank's
primary market area.

         Regular  savings  accounts,  money  market  accounts  and NOW  accounts
including non-interest bearing deposits constituted $44.5 million, $10.0 million
and $21.3  million,  respectively,  or  19.3%,  4.3%,  and  9.3%,  respectively.
Certificates  of deposit  constituted  $154.4  million  or 67.1% of the  deposit
portfolio. As of December 31, 1997, the Bank had no brokered deposits.

         Jumbo Certificate Accounts. The following table indicates the amount of
the Bank's  certificates  of deposit of greater than $100,000 by time  remaining
until maturity as of December 31, 1996.

                                         Certificates
                                         of Deposits
                                        --------------
Maturity Period                         (In Thousands)
---------------
Within three months.................        $ 2,172
Three through six months............          3,059
Six through twelve months...........          2,916
Over twelve months..................          1,873
                                            -------
                                            $10,020
                                            =======



                                       15

<PAGE>



         Savings  Deposit  Activity.  The following table sets forth the savings
activities of the Bank for the periods indicated.
<TABLE>
<CAPTION>
                                                           Year Ended December 31,
                                                   ---------------------------------------
                                                     1997           1996              1995
                                                     ----           ----              ----
                                                               (In Thousands)
<S>                                                <C>            <C>              <C>
Net increase (decrease)
  before interest credited, deposits
  purchased and deposits sold............          $ (8,507)      $(21,401)        $ 7,949
Deposits purchased.......................                --             --          54,415
Deposits sold............................                --         (9,221)             --
Interest credited........................            10,328         11,083           9,314
                                                   --------       --------         -------
Net increase (decrease) in
  savings deposits.......................          $  1,821       $(19,539)        $71,678
                                                   ========       ========         =======
</TABLE>

Borrowings

         At December 31, 1997, the Bank had $50.4 million of borrowings with the
Federal Home Loan Bank. These consist of the following:

                  (a)      $9.0  million  repurchase  agreement  with a rate  of
                           5.82%,  maturing December,  1999 with a one time call
                           feature at December 20, 1998.

                  (b)      Two  repurchase   agreements  of  approximately  $8.2
                           million each.  Both mature in February 1998, and have
                           rates  of  5.76%   and   5.74%.   (These   repurchase
                           agreements  were  subsequently  rolled  over for nine
                           months,  maturing in November 1998, at rates of 5.62%
                           and 5.61%.)

                  (c)      $10.0  million,  30 day  repurchase  agreement with a
                           rate  of  6.05%.   (This  repurchase   agreement  was
                           subsequently  rolled  over twice in 1998 at a rate of
                           5.61% each time.)

                  (d)      $15.0 million advance with a rate of 5.80%,  maturing
                           in August, 1998.

         In  addition,  the  Bank  had  a  $8.4  repurchase  agreement  with  an
independent  third  party,  which  matures in  February,  1998 and has a rate of
5.77%. (This repurchase agreement was subsequently rolled over for six months at
a rate of 5.62%).

Subsidiary Activities

     As of December 31, 1997,  the Bank was the sole  subsidiary of the Company.
The Bank has no active subsidiaries.

Personnel

     As of  December  31,  1997,  the  Bank  had 36  full-time  and 9  part-time
employees.  None  of  the  Bank's  employees  are  represented  by a  collective
bargaining  group. The Bank believes that its relationship with its employees is
good.


                                       16

<PAGE>



Regulation

     Set  forth  below  is  a  brief  description  of  all  materials  laws  and
regulations  which relate to the  regulation  of the Bank and the  Company.  The
description  does not purport to be complete and is qualified in its entirety by
reference to applicable laws and regulations.

Company Regulation

     General.  The Company is a unitary savings and loan holding company subject
to regulatory oversight by the OTS. As such, the Company is required to register
and file reports with the OTS and is subject to regulation  and  examination  by
the OTS. In addition, the OTS has enforcement authority over the Company and its
non-savings association subsidiaries,  should such subsidiaries be formed, which
also permits the OTS to restrict or prohibit  activities  that are determined to
be a serious risk to the subsidiary  savings  association.  This  regulation and
oversight is intended primarily for the protection of the depositors of the Bank
and not for the  benefit of  stockholders  of the  Company.  The Company is also
required to file certain reports with, and otherwise  comply with, the rules and
regulations of the OTS and the SEC.

     Qualified  Thrift  Lender  Test.  As a  unitary  savings  and loan  holding
company, the Company generally is not subject to activity restrictions, provided
the Bank  satisfies  the Qualified  Thrift  Lender  ("QTL") test. If the Company
acquires  control of another savings  association as a separate  subsidiary,  it
would become a multiple savings and loan holding company,  and the activities of
the  Company  and any of its  subsidiaries  (other  than the  Bank or any  other
Savings Association Insurance Fund  ("SAIF")-insured  savings association) would
become subject to restrictions  applicable to bank holding companies unless such
other associations each also qualify as a QTL and were acquired in a supervisory
acquisition. See "Regulation of the Bank -- Qualified Thrift Lender Test."

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

     Federal  law  generally  provides  that no  "person,"  acting  directly  or
indirectly or through or in concert with one or more other persons,  may acquire
"control," as that term is defined in OTS  regulations,  of a federally  insured
savings  institution  without giving at least 60 days' written notice to the OTS
and providing the OTS an opportunity to disapprove the proposed acquisition.  In
addition,  no company may acquire  control of such an institution  without prior
OTS approval.

     Federal  Securities  Law.  The  Company is subject to filing and  reporting
requirements  by  virtue  of  having  its  common  stock  registered  under  the
Securities Exchange Act of 1934. Furthermore,  Company stock held by persons who
are affiliates (generally officers, directors and principal stockholders) of the
Company may not be resold without registration or unless sold in accordance with
certain  resale  restrictions.  If the Company meets  specified  current  public
information  requirements,  each affiliate of the Company is able to sell in the
public  market,  without  registration,  a  limited  number  of  shares  in  any
three-month period.


                                       17

<PAGE>



Regulation of the Bank

     General. As a federally chartered,  SAIF-insured  savings association,  the
Bank is  subject  to  extensive  regulation  by the OTS  and the  FDIC.  Lending
activities and other  investments must comply with various federal statutory and
regulatory   requirements.   The  Bank  is  also  subject  to  certain   reserve
requirements promulgated by the Federal Reserve Board.

     The OTS, in  conjunction  with the FDIC,  regularly  examines  the Bank and
prepares  reports for the  consideration of the Bank's Board of Directors on any
deficiencies that they find in the Bank's  operations.  The Bank's  relationship
with its depositors and borrowers is also regulated to a great extent by federal
law,  especially  in such matters as the  ownership of savings  accounts and the
form and content of the Bank's mortgage documents.

     The  Bank  must  file  reports  with the OTS and the  FDIC  concerning  its
activities  and  financial  condition,   in  addition  to  obtaining  regulatory
approvals  prior to entering into certain  transactions  such as mergers with or
acquisitions  of other savings  institutions.  This  regulation and  supervision
establishes a comprehensive  framework of activities in which an institution can
engage and is intended  primarily for the protection of the SAIF and depositors.
The  regulatory  structure  also  gives  the  regulatory  authorities  extensive
discretion in connection with their  supervisory and enforcement  activities and
examination  policies,  including policies with respect to the classification of
assets and the  establishment  of adequate  loan loss  reserves  for  regulatory
purposes.  Any change in such  regulations,  whether by the OTS, the FDIC or the
Congress could have a material adverse impact on the Company, the Bank and their
operations.

     Deposit Insurance.  The FDIC is an independent  federal agency that insures
the deposits,  up to prescribed statutory limits, of federally insured banks and
savings  institutions and safeguards the safety and soundness of the banking and
savings  industries.  Two separate  insurance  funds,  the Bank  Insurance  Fund
("BIF") for  commercial  banks,  state  savings  banks and some federal  savings
banks, and the SAIF for savings associations, are maintained and administered by
the FDIC. The Bank is a member of the SAIF and its deposit  accounts are insured
by the FDIC, up to the prescribed  limits.  The FDIC has  examination  authority
over all insured  depository  institutions,  including  the Bank,  and has under
certain  circumstances,   authority  to  initiate  enforcement  actions  against
federally insured savings institutions to safeguard safety and soundness and the
deposit insurance fund.

     Assessments. The FDIC is authorized to establish separate annual assessment
rates for deposit  insurance  for members of the BIF and the SAIF.  The FDIC may
increase  assessment  rates for either fund if  necessary  to restore the fund's
ratio of reserves to insured  deposits to its target  level  within a reasonable
time and may decrease such  assessment  rates if such target level has been met.
The FDIC has  established a risk-based  assessment  system for both SAIF and BIF
members.  Under this system,  assessments  are set within a range,  based on the
risk the  institution  poses to its deposit  insurance  fund. This risk level is
determined  based on the  institution's  capital  level and the FDIC's  level of
supervisory concern about the institution.

     FDIC  assessments on SAIF  institutions  currently range from 0 to 27 basis
points. In addition,  legislation  requires the cost of prior thrift failures to
be  shared  by both the SAIF and the Bank  Insurance  Fund  ("BIF")  (Fico  Bond
payments).  The  Fico  Bond  assessment  for  savings  institutions  in 1997 was
approximately $.064 per $100 in deposits.

     Examination  Fees.  In  addition  to federal  deposit  insurance  premiums,
savings  institutions  like the  Bank are  required  by OTS  regulations  to pay
assessments to the OTS to fund the operations of the

                                       18

<PAGE>



OTS. The general assessment is paid on a semi-annual basis and is computed based
on total assets of the institution, including subsidiaries.

     Regulatory Capital  Requirements.  OTS capital  regulations require savings
institutions to meet three capital standards: (1) tangible capital equal to 1.5%
of total adjusted assets,  (2) a leverage ratio (core capital) equal to at least
3% of total adjusted assets, and (3) a risk-based  capital  requirement equal to
8.0% of total risk-weighted assets.

     Savings  associations  with a greater than "normal"  level of interest rate
exposure  will,  in the future,  be subject to a deduction  for an interest rate
risk ("IRR")  component  which may be from  capital for purposes of  calculating
their risk-based capital requirement. See "-- Net Portfolio Value Analysis."

     Tangible  capital is defined as core  capital  less all  intangible  assets
(including  supervisory  goodwill),  plus purchased  mortgage  servicing  rights
valued  at the lower of the  maximum  percentage  established  by the OTS or the
amount   includable  in  core  capital.   Core  capital  is  defined  as  common
stockholders'  equity (including  retained  earnings),  noncumulative  perpetual
preferred  stock and minority  interests in the equity  accounts of consolidated
subsidiaries, and qualifying supervisory goodwill, less nonqualifying intangible
assets.

     The OTS  requires  a core  capital  ratio of at least 3% for those  savings
associations  in the strongest  financial and  managerial  condition.  All other
savings  associations  are required to maintain minimum core capital of at least
4% of total adjusted  assets,  with a maximum core capital ratio  requirement of
5%. In determining the required minimum core capital ratio, the OTS assesses the
quality of risk management and the level of risk in each savings  association on
a case-by-case basis.

     The  risk-based  capital  standard  for savings  institutions  requires the
maintenance of total  risk-based  capital (which is defined as core capital plus
supplementary  capital)  of  8%  of  risk-weighted  assets.  The  components  of
supplementary capital include, among other items, cumulative perpetual preferred
stock,  perpetual  subordinated debt, mandatory  convertible  subordinated debt,
intermediate-term  preferred  stock and the  portion of the  allowance  for loan
losses not designated for specific loan losses. The portion of the allowance for
loan and lease  losses  includable  in  supplementary  capital  is  limited to a
maximum of 1.25% of  risk-weighted  assets.  Overall,  supplementary  capital is
limited  to 100% of core  capital.  A savings  association  must  calculate  its
risk-weighted  assets by multiplying  each asset and  off-balance  sheet item by
various risk factors as determined  by the OTS,  which range from 0% for cash to
100% for delinquent  loans,  property acquired through  foreclosure,  commercial
loans and other assets.


                                       19

<PAGE>



     As  shown  below,  the  Bank's  regulatory  capital  exceeded  all  minimum
regulatory capital requirements applicable to it as of December 31, 1997:

                                                                     Percent of
                                                                       Adjusted
                                                     Amount             Assets
                                                       (Dollars in Thousands)
Tangible Capital:
Actual capital..............................         $26,416              8.10%
Regulatory requirement......................           4,890              1.50
                                                     -------             -----
  Excess....................................         $21,526              6.60%
                                                     =======             =====

Core Capital:
Actual capital..............................         $26,416              8.10%
Regulatory requirement......................           9,780              3.00
                                                     -------             -----
  Excess....................................         $16,636              5.10%
                                                     =======             =====

Risk-Based Capital:
Actual capital..............................         $27,138             23.83%
Regulatory requirement......................           9,112              8.00
                                                     -------             -----
  Excess....................................         $18,026             15.83%
                                                     =======             =====


     The Bank is not under any agreement with  regulatory  authorities nor is it
aware of any current  recommendations  by the regulatory  authorities  which, if
they were to be implemented,  would have a material effect on liquidity, capital
resources or operations of the Bank or the Company.

     Net Portfolio Value Analysis. In order to encourage  associations to reduce
their IRR,  the OTS  adopted a final rule in August  1993  incorporating  an IRR
component  into the  risk-based  capital  rules.  The IRR  component is a dollar
amount that will be deducted from total  capital for the purpose of  calculating
an institution's  risk-based capital requirement and is measured in terms of 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.  An institution's IRR is
measured as the change to its NPV as a result of a hypothetical  200 basis point
("bp") change in market interest  rates. A resulting  change in NPV of more than
2% of the estimated  market value of its assets will require the  institution to
deduct from its capital 50% of that excess  change.  The rules  provide that the
OTS will calculate the IRR component  quarterly for each  institution.  The rule
will not become  effective  until the OTS evaluates the process by which savings
associations  may appeal an interest rate risk  reduction  determination.  It is
uncertain as to when this evaluation may be completed.


                                       20

<PAGE>



     The  following  table  presents  the Bank's NPV at December  31,  1997,  as
calculated  by OTS and based on OTS  assumptions  using raw data provided to the
OTS by the Bank.

                               Net Portfolio Value
                                ($ In Thousands)
<TABLE>
<CAPTION>

     Change in                                                  Percent of                                 Change in
   Interest Rate                               Amount of         Estimated             NPV Ratio              NPV
   (Basis Points)               NPV            Change (1)          NPV (2)                (3)              Ratio (4)
   --------------               ---            ----------          -------                ---              ---------
<S>                           <C>                <C>                 <C>                 <C>                 <C>
        +400                   4,264            (29,252)             -87%                 1.42%              (862)bp
        +300                  11,932            (21,585)             -64%                 3.87%              (618)bp
        +200                  19,570            (13,946)             -42%                 6.17%              (388)bp
        +100                  26,884             (6,632)             -20%                 8.25%              (179)bp
        Par                   33,516                 --               --                 10.04%                --
        -100                  39,212              5,696               17%                11.51%               147 bp
        -200                  43,922             10,406               31%                12.67%               262 bp
        -300                  48,912             15,396               46%                13.85%               381 bp
        -400                  55,122             21,606               64%                15.28%               524 bp
</TABLE>

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

     If the OTS rule  regarding the IRR component had been in effect at December
31,  1997,  the Bank  would  have had to  deduct  from  its  risk-based  capital
approximately  $3.6 million.  The Bank would have met its capital  requirements,
had this rule been in effect at December 31, 1997.
<TABLE>
<CAPTION>

                                                                  December 31,    December 31,
                                                                    1997(1)           1996
                                                                  ------------    ------------


               *** RISK MEASURES: 200 BP RATE SHOCK ***

<S>                                                                <C>              <C>
Pre-Shock NPV Ratio: NPV as % of PV of Assets.................      10.04 %           9.17 %

Exposure Measure: Post-Shock NPV Ratio........................       6.17 %           5.71 %

Sensitivity Measure: Change in NPV Ratio......................       (388) bp         (346) bp



*** CALCULATION OF CAPITAL COMPONENT ***

Change in NPV as % of PV of Assets............................       4.18 %           3.73 %

Interest Rate Risk Capital Component ($000)...................     $3,637           $2,630

</TABLE>


                                       21

<PAGE>



     Certain  shortcomings  are  inherent in the  methodology  used in the above
table.  Modeling changes in NPV requires the making of certain  assumptions that
may tend to oversimplify  the manner in which actual yields and costs respond to
changes in market interest rates.  First, the models assume that the composition
of  the  Bank's  interest  sensitive  assets  and  liabilities  existing  at the
beginning of a period remains  constant over the period being measured.  Second,
the models  assume  that a  particular  change in  interest  rates is  reflected
uniformly  across the yield  curve  regardless  of the  duration  to maturity or
repricing  of specific  assets and  liabilities.  Accordingly,  although the NPV
measurements  do provide an indication of the Bank's interest rate risk exposure
at a particular  point in time, such  measurements are not intended to provide a
precise forecast of the effect of changes in market interest rates on the Bank's
net interest income.

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

     Prompt  Corrective  Action.  The FDICIA also established a system of prompt
corrective  action to resolve  the  problems of  undercapitalized  institutions.
Under this  system,  which  became  effective  December  19,  1992,  the banking
regulators   are  required  to  take   certain   supervisory   actions   against
undercapitalized   institutions,   the  severity  of  which   depends  upon  the
institution's  degree of  capitalization.  Under the OTS final rule implementing
the prompt  corrective action  provisions,  an institution shall be deemed to be
(i) "well  capitalized" if it has total risk-based capital of 10.0% or more, has
a Tier I risk- based  capital ratio (core or leverage  capital to  risk-weighted
assets)  of 6.0% or  more,  has a  leverage  capital  of 5.0% or more and is not
subject to any order or final capital  directive to meet and maintain a specific
capital level for any capital measure, (ii) "adequately capitalized" if it has a
total risk-based  capital ratio of 8.0% or more, a Tier I risked-based  ratio of
4.0% or more and a leverage  capital  ratio of 4.0% or more (3.0% under  certain
circumstances)  and does not meet the  definition of "well  capitalized,"  (iii)
"undercapitalized"  if it has a total risk-based capital ratio that is less than
6.0%,  a Tier I  risk-based  capital  ratio that is less than 4.0% or a leverage
capital  ratio  that is less than 4.0%  (3.0% in  certain  circumstances),  (iv)
"significantly undercapitalized" if it has a total risk-based capital ratio that
is less than 6.0%, a Tier I risk-based capital ratio that is less than 3.0% or a
leverage   capital   ratio   that  is  less  than   3.0%  and  (v)   "critically
undercapitalized"  if it has a ratio of tangible  equity to total assets that is
equal to or less than 2.0%. In addition, under certain circumstances,  a federal
banking  agency may  reclassify a well  capitalized  institution  as  adequately
capitalized  and  may  require  an  adequately  capitalized  institution  or  an
undercapitalized institution to comply with supervisory actions as if it were in
the next lower category (except that the FDIC may not reclassify a significantly
undercapitalized institution as critically  undercapitalized).  Immediately upon
becoming  undercapitalized,  an  institution  shall  become  subject  to various
restrictions and could be subject to additional supervisory actions.

     As of December 31, 1997, the Bank was a "well  capitalized  institution" as
defined in the prompt corrective  action  regulations and as such is not subject
to any prompt corrective action measures.

     Dividend  and  Other  Capital  Distribution  Limitations.  OTS  regulations
require  the  Bank to give  the OTS 30  days'  advance  notice  of any  proposed
declaration of dividends to the Company, and the OTS has the authority under its
supervisory  powers to prohibit  the payment of  dividends  to the  Company.  In
addition,  the Bank may not declare or pay a cash  dividend on its capital stock
if the  effect  thereof  would be to reduce the  regulatory  capital of the Bank
below the amount  required  for the  liquidation  account to be  established  in
connection with the Conversion.


                                       22

<PAGE>



     OTS  regulations  impose  limitations  upon all  capital  distributions  by
savings  institutions,  such  as  cash  dividends,  payments  to  repurchase  or
otherwise acquire its shares, payments to shareholders of another institution in
a cash-out  merger and other  distributions  charged against  capital.  The rule
establishes  three tiers of  institutions,  based primarily on an  institution's
capital  level.  An  institution  that  exceeds  all  fully  phased-in   capital
requirements  before  and  after  a  proposed  capital   distribution  ("Tier  1
institution")  and has not  been  advised  by the OTS that it is in need of more
than the normal  supervision can, after prior notice but without the approval of
the OTS, make capital  distributions during a calendar year equal to the greater
of (i) 100% of its net income to date during the  calendar  year plus the amount
that would reduce by one-half its "surplus  capital  ratio" (the excess  capital
over its fully phased-in capital  requirements) at the beginning of the calendar
year,  or (ii) 75% of its net income over the most recent four  quarter  period.
Any additional capital distributions require prior regulatory approval. Based on
the  Bank's  capital  levels  at  December  31,  1997,  the  Bank  was a  Tier 1
institution.  In the event the Bank's  capital  fell  below its fully  phased-in
requirement  or the OTS  notified  it that  it was in need of more  than  normal
supervision,   the  Bank's  ability  to  make  capital  distributions  could  be
restricted.  In addition, the OTS could prohibit a proposed capital distribution
by any institution, which would otherwise be permitted by the regulation, if the
OTS  determines  that such  distribution  would  constitute an unsafe or unsound
practice.

     Finally,  under the FDICIA, a savings association is prohibited from making
a  capital   distribution  if,  after  making  the  distribution,   the  savings
association  would  be  "undercapitalized"  (not  meet  any  one of its  minimum
regulatory  capital  requirements).  OTS regulations also prohibit the Bank from
declaring or paying any dividends or from repurchasing any of its stock if, as a
result, the regulatory (or total) capital of the Bank would be reduced below the
amount required to be maintained for the liquidation  account  established by it
for certain  depositors in connection  with its conversion  from mutual to stock
form. In addition,  such regulations  prohibit an institution from  repurchasing
any of its  stock  for a  period  of at  least  one  year  from  the date of its
conversion without a waiver of such prohibition by the OTS.

     Qualified  Thrift  Lender  Test.  The Home Owners'  Loan Act  ("HOLA"),  as
amended, requires savings institutions to meet a QTL test. If the Bank maintains
an appropriate  level of Qualified  Thrift  Investments  (primarily  residential
mortgages and related investments, including certain mortgage-backed securities)
("QTIs")  and  otherwise  qualifies  as a QTL,  it will  continue  to enjoy full
borrowing  privileges from the FHLB of New York. The required percentage of QTIs
is 65% of  portfolio  assets  (defined as all assets  minus  intangible  assets,
property used by the  institution  in conducting  its business and liquid assets
equal to 10% of total  assets).  Certain  assets  are  subject  to a  percentage
limitation of 20% of portfolio  assets.  In addition,  savings  associations may
include  shares of stock of the FHLBs,  FNMA and FHLMC as qualifying  QTIs.  The
method for measuring  compliance with the QTL test is on a monthly basis in nine
out of every 12 months. As of December 31, 1997, the Bank was in compliance with
its QTL requirement.

     A savings  association that does not meet a QTL test must either convert to
a bank charter or comply with the following restrictions on its operations:  (i)
the  savings  association  may not  engage in any new  activity  or make any new
investment,  directly or  indirectly,  unless such  activity  or  investment  is
permissible  for a  national  bank;  (ii) the  branching  powers of the  savings
association  shall be restricted to those of a national bank;  (iii) the savings
association shall not be eligible to obtain any advances from its FHLB; and (iv)
payment of  dividends by the savings  association  shall be subject to the rules
regarding  payment of dividends by a national bank. Upon the expiration of three
years from the date the  savings  association  ceases to be a QTL, it must cease
any activity and not retain any investment not  permissible  for a national bank
and  immediately  repay any  outstanding  FHLB  advances  (subject to safety and
soundness considerations).


                                       23

<PAGE>



     Loans-to-One  Borrower. See "Business -- Lending Activities -- Loans-to-One
Borrower."

     Community  Reinvestment.  Under the Community  Reinvestment Act ("CRA"), as
implemented  by OTS  regulations,  a savings  association  has a continuing  and
affirmative obligation consistent with its safe and sound operation to help meet
the credit needs of its entire  community,  including  low and  moderate  income
neighborhoods.  The CRA does not  establish  specific  lending  requirements  or
programs  for  financial   institutions  nor  does  it  limit  an  institution's
discretion  to develop the types of products and  services  that it believes are
best  suited  to its  particular  community,  consistent  with the CRA.  The CRA
requires the OTS, in connection with its  examination of a savings  institution,
to assess the institution's  record of meeting the credit needs of its community
and to take such record into account in its  evaluation of certain  applications
by such institution.  Current law requires public disclosure of an institution's
CRA  rating  and  requires  the  OTS  to  provide  a  written  evaluation  of an
institution's CRA performance utilizing a four-tiered  descriptive rating system
in lieu of the existing five-tiered numerical rating system. The Bank received a
satisfactory rating as a result of its last evaluation in March, 1997.

     Transactions With Affiliates.  Generally, restrictions on transactions with
affiliates  require  that  transactions  between  a savings  association  or its
subsidiaries  and  its  affiliates  be on  terms  as  favorable  to the  Bank as
comparable  transactions  with  non-affiliates.  In  addition,  certain of these
transactions  are restricted to an aggregate  percentage of the Bank's  capital;
collateral  in  specified  amounts  must  usually be provided by  affiliates  to
receive loans from the Bank.  Affiliates of the Bank include the Company and any
company  which would be under  common  control  with the Bank.  In  addition,  a
savings  association  may not lend to any affiliate  engaged in  activities  not
permissible  for a  bank  holding  company  or  acquire  the  securities  of any
affiliate  which  is not a  subsidiary.  The  OTS has the  discretion  to  treat
subsidiaries of savings associations as affiliates on a case-by-case basis.

     The Bank's  authority to extend credit to its  officers,  directors and 10%
shareholders,  as well as to entities  that such  persons  control is  currently
governed by Sections 22(g) and 22(h) of the Federal Reserve Act and Regulation O
promulgated by the Federal Reserve Board. Among other things,  these regulations
require such loans to be made on terms substantially similar to those offered to
unaffiliated individuals,  place limits on the amount of loans the Bank may make
to such persons  based,  in part, on the Bank's  capital  position,  and require
certain approval  procedures to be followed.  Recent legislation permits savings
institutions  to make  loans  to  executive  officers,  trustees  and  principal
shareholders  ("insiders")  on  preferential  terms,  provided the  extension of
credit is made pursuant to a benefit or compensation program of the Bank that is
widely  available to employees of the Bank or its  affiliates  and does not give
preference to any insider over other employees of the Bank or affiliate.

     Branching by Federal Savings Banks. Effective May 11, 1992, the OTS amended
its Policy  Statement  on Branching by Federal  Savings  Associations  to permit
interstate  branching  to  the  full  extent  permitted  by  statute  (which  is
essentially  unlimited).  This  permits  savings  associations  with  interstate
networks to  diversify  their loan  portfolios  and lines of  business.  The OTS
authority  preempts any state law  purporting  to regulate  branching by federal
associations.  However, the OTS will evaluate a branching  applicant's record of
compliance  with the CRA.  A poor CRA  record  may be the basis for  denial of a
branching application.


                                       24

<PAGE>



     Liquidity  Requirements.  All savings associations are required to maintain
an average daily  balance of liquid assets equal to a certain  percentage of the
sum of its  average  daily  balance of net  withdrawable  deposit  accounts  and
borrowings payable in one year or less. The liquidity  requirement may vary from
time to time (between 4% and 10%) depending upon economic conditions and savings
flows of all savings  associations.  At the present  time,  the required  liquid
asset ratio is 4%. At December 31, 1997, the Bank's liquidity ratio was 44.14%.

     Federal  Home  Loan  Bank  System.  The Bank is a member of the FHLB of New
York,  which is one of 12  regional  FHLBs that  administer  the home  financing
credit  function  of  savings  associations.  Each FHLB  serves as a reserve  or
central bank for its members within its assigned region.  It is funded primarily
from  proceeds  derived from the sale of  consolidated  obligations  of the FHLB
System.  It makes loans to members (i.e.,  advances) in accordance with policies
and procedures established by the Board of Directors of the FHLB.

     As a member,  the Bank is required to purchase  and  maintain  stock in the
FHLB of New York in an  amount  equal to at  least  1% of its  aggregate  unpaid
residential  mortgage loans, home purchase contracts,  or similar obligations at
the beginning of each year.  As of December 31, 1997,  the Bank had $2.5 million
in FHLB stock, which was in compliance with this requirement.

     The FHLBs are  required  to provide  funds for the  resolution  of troubled
savings  associations  and to contribute to affordable  housing programs through
direct loans or interest subsidies on advances targeted for community investment
and  low-  and  moderate-income  housing  projects.   These  contributions  have
adversely  affected the level of FHLB dividends paid and could continue to do so
in the future.  For the fiscal year ended  December 31, 1997,  dividends paid by
the FHLB of New York to the Bank totaled $148,000.

     Federal Reserve  System.  The Federal Reserve Board requires all depository
institutions  to maintain  non-interest  bearing  reserves at  specified  levels
against  their  transaction  accounts  (primarily  checking,  NOW and  Super NOW
checking  accounts) and non-personal time deposits.  The balances  maintained to
meet the reserve  requirements  imposed by the Federal Reserve Board may be used
to satisfy the liquidity requirements that are imposed by the OTS.

     Savings associations have authority to borrow from the Federal Reserve Bank
"discount  window,"  but  Federal  Reserve  policy  generally  requires  savings
associations  to exhaust  all OTS  sources  before  borrowing  from the  Federal
Reserve System. The Bank had no such borrowings at December 31, 1997.

Item  2.  Properties
--------------------

     The Bank  operates from its main office  located at 86 Main Street,  Little
Falls, New Jersey and five branch offices, one of which is leased. This includes
three branches purchased from an unaffiliated  commercial bank in December 1996.
The Bank's total  investment  in office  property and  equipment is $4.0 million
with a net book value of $2.6 million at December 31, 1997.

Item 3.  Legal Proceedings
--------------------------

     Neither the Company nor its  subsidiaries are involved in any pending legal
proceedings,  other than routine legal matters  occurring in the ordinary course
of  business,  which in the  aggregate  involve  amounts  which are  believed by
management to be immaterial to the consolidated  financial  condition or results
of operations of the Company.


                                       25

<PAGE>



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

 Not applicable.

                                     PART II


Item 5.  Market for Common Equity and Related Stockholder Matters
-----------------------------------------------------------------

     Information  relating  to the market  for  Registrant's  common  equity and
related  stockholder  matters  appears under "Stock Market  Information"  in the
Registrant's 1997 Annual Report to Stockholders ("Annual Report") on page 7, and
is incorporated herein by reference.

Item 6.  Selected Financial Data
--------------------------------

     The above-captioned information appears in the Annual Report on pages 8 and
9, and is incorporated herein by reference.

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

     The above-captioned  information appears under Management's  Discussion and
Analysis of Financial  Condition  and Results of Operations in the Annual Report
on pages 10 through 20 and is incorporated herein by reference.

Item 8.  Financial Statements and Supplementary Data
----------------------------------------------------

     The Financial  Statements of the Bank,  together with the report thereon by
Radics & Co., LLC, appear in the Annual Report on pages F-1 through F-40 and are
incorporated herein by reference.

Item  9.  Changes  In and  Disagreements  with  Accountants  on  Accounting  and
--------------------------------------------------------------------------------
Financial Disclosure
--------------------

     Not applicable.




                                       26

<PAGE>



                                    PART III

Item 10.  Directors and Executive Officers of the Registrant
------------------------------------------------------------

     The  information  contained  under the  section  captioned  "Proposal  I --
Election of Directors" at pages 4 through 8 of the Registrant's definitive proxy
statement for the Registrant's 1998 Annual Meeting of Stockholders to be held on
April 21, 1998 (the "Proxy  Statement"),  which was filed with the Commission on
March 25, 1998 and incorporated herein by reference.  See also "Item 1. Business
of the Bank -- Personnel" included herein.

Item 11.  Executive Compensation
--------------------------------

     The information  relating to executive  compensation is incorporated herein
by reference to the Registrant's Proxy Statement at pages 8 through 14.

Item 12.  Security Ownership of Certain Beneficial Owners and Management
------------------------------------------------------------------------

     The information relating to security ownership of certain beneficial owners
and management is  incorporated  herein by reference to the  Registrant's  Proxy
Statement at pages 2 and 3.


                                     PART IV

Item 13.  Certain Relationships and Related Transactions
--------------------------------------------------------

     The information relating to certain  relationships and related transactions
is incorporated  herein by reference to the Registrant's Proxy Statement at page
15.

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

(a)      The following documents are filed as a part of this report:

     (1) Financial  Statements of the Company are  incorporated  by reference to
the following indicated pages of the Annual Report.

                                                                    PAGE
                                                                    ----

Independent Auditors' Report................................         F-3
Consolidated Statements of Financial Condition as of
  December 31, 1997 and 1996................................         F-4
Consolidated Statements of Income For the Years Ended
  December 31, 1997, 1996 and 1995..........................         F-5
Consolidated Statements of Changes in Stockholders' Equity
  for the Years Ended December 31, 1997, 1996 and 1995......         F-6
Consolidated Statements of Cash Flows for the Years Ended
  December 31, 1997, 1996 and 1995..........................         F-7
Notes to Consolidated Financial Statements..................         F-9



                                       27

<PAGE>



         The remaining  information appearing in the Annual Report is not deemed
to be filed as part of this report, except as expressly provided herein.

         (2)  All  schedules  are  omitted  because  they  are not  required  or
applicable,  or the required information is shown in the consolidated  financial
statements or the notes thereto.

         (3)      Exhibits

                  (a)   The following exhibits are filed as part of this report.

          2.0     Branch Sale Agreement**
          3.1     Articles of Incorporation of Little Falls Bancorp, Inc.*
          3.2     Bylaws of Little Falls Bancorp, Inc.*
          4.0     Form of Stock Certificate of Little Falls Bancorp, Inc.*
         10.1     Employment Agreement between the Bank and John P. Pullara**
         10.2     Employment Agreement between the Bank and Leonard G. Romaine**
         10.4     Form of  Employment  Agreement  with  Eight  Employees  of the
                  Bank***
         10.6     1996 Management Stock Bonus Plan***
         10.7     1996 Stock Option Plan***
         13.0     1997 Annual Report to Stockholders
         21.0     Subsidiary of the Registrant (See Item 1 - Business-Subsidiary
                  Activities)
         27.0     Financial Data Schedule ****


                  (b)   Reports on Form 8-K.

                  None.

---------------------
*        Incorporated  herein by reference  into this document from the Exhibits
         to  Form  S-1,  Registration   Statement,   initially  filed  with  the
         Securities and Exchange  Commission on September 25, 1995 (Registration
         No. 33-97316).

**       Incorporated  by  reference  into this  document  from the  Exhibits to
         Registrant's Annual Report on Form 10-K for the Year Ended December 31,
         1995 (File No. 0-27010).

***      Incorporated  by  reference  into this  document  from the  Exhibits to
         Registrant's Annual Report on Form 10-K for the year ended December 31,
         1996 (File No. 0-27010).

****     In electronic filing only.



                                       28

<PAGE>



                                   SIGNATURES

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

                                                     LITTLE FALLS BANCORP, INC.

Dated:  March 31, 1998                       By:       /s/ Leonard G. Romaine
                                                     -----------------------
                                                     Leonard G. Romaine
                                                     President and Director
                                                     (Duly Authorized
                                                       Representative)

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

<TABLE>
<CAPTION>

<S>                                                  <C>
By:        /s/ Leonard G. Romaine                    By:       /s/ Richard A. Capone
          --------------------------------------              ------------------------------------
          Leonard G. Romaine                                  Richard A. Capone
          President and Director                              Chief Financial Officer
          (Principal Executive Officer)                       (Principal Financial and Accounting
                                                                 Officer)

Date:     March 31, 1998                             Date:    March 31, 1998


By:                                                  By:      /s/ John P. Pullara
          --------------------------------------              -------------------------------------
          Albert J. Weite                                     John P. Pullara
          Chairman of the Board and Director                  Director

Date:     March 31, 1998                             Date:    March 31, 1998


By:       /s/ Edward J. Seugling                     By:      /s/ George Kuiken
          ---------------------------------------             -------------------------------------
          Edward J. Seugling                                  George Kuiken
          Vice Chairman of the Board and Director             Director

Date:     March 31, 1998                             Date:    March 31, 1998


By:       /s/Raoul G. Barton                         By:      /s/ Norman A. Parker
          ---------------------------------------             -------------------------------------
          Raoul G. Barton                                     Norman A. Parker
          Director                                            Director

Date:     March 31, 1998                             Date:    March 31, 1998


By:       /s/ C. Evans Daniels
          ---------------------------------------
          C. Evans Daniels
          Director

Date:     March 31, 1998
</TABLE>