SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                   FORM 10-KSB

(Mark One)

[X]  ANNUAL REPORT  PURSUANT TO SECTION 13 OR 15(d) OF THE  SECURITIES  EXCHANGE
     ACT OF 1934

For the fiscal year ended               December 31, 2000
                          ---------------------------------------------

                                     - OR -

[ ]  TRANSITION  REPORT  PURSUANT  TO  SECTION  13 OR  15(d)  OF THE  SECURITIES
     EXCHANGE ACT OF 1934

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

SEC File Number:     0-25149
                  -------------

                            RIDGEWOOD FINANCIAL, INC.
--------------------------------------------------------------------------------
              (Exact name of small business issuer in its charter)

                     New Jersey                                 22-3616280
---------------------------------------------------         --------------------
       (State or other jurisdiction of                        (I.R.S. Employer
      of incorporation or organization)                      Identification No.)

   1124 East Ridgewood Avenue, Ridgewood, New Jersey                 07450
-----------------------------------------------------       --------------------
        (Address of principal executive offices)                   (Zip Code)

Registrant's telephone number, including area code:              (201) 445-4000
                                                            --------------------

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

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

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

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

         Check if there is no  disclosure  of  delinquent  filers in response to
Item 405 of Regulation S-B is not contained in this form, and no disclosure will
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-KSB
or any amendment to this Form 10-KSB [X]

         State issuer's revenues for its most recent fiscal year $18,747,000.

         The aggregate  market value of the voting and non-voting  stock held by
non-affiliates of the issuer, as of March 28, 2001 was $23.7 million.

         As of March 28, 2001,  registrant had 3,180,000  shares of common stock
outstanding.

         Transitional Small Business Disclosure Format (check one):
Yes     No  X
    ---    ---
                      DOCUMENTS INCORPORATED BY REFERENCE:
         Portions of the Proxy  Statement for the Annual Meeting of Stockholders
for the Fiscal Year ended December 31, 2000. (Part III)
<PAGE>


Forward-Looking Statements

         Ridgewood Financial,  Inc. (the "Company") may, from time to time, make
written or oral "forward-looking statements",  including statements contained in
the Company's  filings with the  Securities and Exchange  Commission  (including
this annual report on Form 10-KSB and the exhibits  thereto),  in its reports to
stockholders and in other communications by the Company,  which are made in good
faith by the Company  pursuant to the "safe  harbor"  provisions  of the Private
Securities Litigation Reform Act of 1995.

         These forward-looking statements involve risks and uncertainties,  such
as statements of the Company's plans,  objectives,  expectations,  estimates and
intentions,  that are subject to change based on various important factors (some
of which are beyond the Company's control). The following factors, among others,
could cause the Company's  financial  performance to differ  materially from the
plans,  objectives,  expectations,  estimates and  intentions  expressed in such
forward-looking statements: the strength of the United States economy in general
and  the  strength  of  the  local  economies  in  which  the  Company  conducts
operations;  the effects of, and changes in, trade, monetary and fiscal policies
and laws,  including  interest  rate  policies of the Board of  Governors of the
Federal  Reserve  System,   inflation,   interest  rate,   market  and  monetary
fluctuations;  the timely  development  of and  acceptance  of new  products and
services of the Company and the perceived  overall  value of these  products and
services by users,  including  the  features,  pricing  and quality  compared to
competitors'  products and  services;  the  willingness  of users to  substitute
competitors' products and services for the Company's products and services;  the
success of the  Company in  gaining  regulatory  approval  of its  products  and
services,  when required;  the impact of changes in financial services' laws and
regulations   (including  laws  concerning   taxes,   banking,   securities  and
insurance);  technological changes,  acquisitions;  changes in consumer spending
and saving habits; and the success of the Company at managing these risks.

         The  Company  cautions  that  this  list of  important  factors  is not
exclusive.  The  Company  does  not  undertake  to  update  any  forward-looking
statement,  whether written or oral, that may be made from time to time by or on
behalf of the Company.

                                     PART I

Item 1. Description of Business
-------------------------------

General

         Ridgewood  Financial,   Inc.  is  a  bank  holding  company  formed  in
connection with the mutual holding company  reorganization  of Ridgewood Savings
Bank of New Jersey (the  "Bank"),  which was  completed on January 7, 1999.  The
Bank is a wholly owned subsidiary of the Company. As part of the reorganization,
Ridgewood  Financial  MHC  (the  "MHC")  was  formed  and  became  the  majority
stockholder of the Company. The MHC is owned and controlled by the depositors of
the Bank and conducts no  significant  operations of its own.  References to the
Registrant  or Company used  throughout  this document  generally  refers to the
consolidated entity which includes the main operating company,  the Bank, unless
the context indicates otherwise.

         The  Company  provides  retail  banking  services,  with an emphasis on
one-to  four-family  residential  mortgage loans,  commercial loans and consumer
loans  as well  as  certificates  of  deposit,  checking  accounts  and  savings
accounts.  At December  31,  2000,  the Company had total  assets,  deposits and
equity of $288.0 million, $231.5 million and $25.4 million, respectively.

                                       1
<PAGE>

         On August 28,  2000,  the Company  entered  into a merger  agreement to
exchange each share of its common stock held by public  stockholders  for $15.00
in cash with Provident Savings Bank ("Provident"), headquartered in Jersey City,
New  Jersey.   The  merger   agreement  with  Provident   included  a  customary
non-solicitation  of other offers provision which,  under certain  circumstances
would  require the payment of $1.0 million by the Company in the event it enters
into  another  merger  agreement  with  another  company.   Subsequent  to  such
announcement,  Boiling  Springs  Bancorp,  Inc.,  the parent  company of Boiling
Springs Savings Bank,  Rutherford,  New Jersey ("Boiling  Springs") announced on
September 21, 2000 an offer to engage in a similar  transaction  with Ridgewood.
On October 19, 2000, the Company received and signed a confidentiality agreement
with Boiling Springs. On December 14, 2000,  Ridgewood announced that it entered
into a merger  agreement  with  Boiling  Springs to  exchange  each share of its
common stock held by public  stockholders for $18 per share in cash. On December
18, 2000, a $1.0 million payment was made to Provident.

Competition

         The Company is one of many  financial  institutions  serving its market
area which consists of northwestern  Bergen County,  New Jersey and includes the
townships of Allendale, Fair Lawn, Franklin Lakes, Glen Rock, Ho-Ho-Kus, Mahwah,
Midland Park, Oakland,  Paramus, Ramsey,  Ridgewood,  Saddle River, Upper Saddle
River,  Waldwick and Wyckoff.  The competition  for deposit  products comes from
other  insured  financial   institutions   such  as  commercial  banks,   thrift
institutions,  credit unions,  and  multi-state  regional banks in the Company's
market area.  Deposit  competition also includes a number of insurance  products
sold by local  agents and  investment  products  such as mutual  funds and other
securities sold by local and regional brokers. Loan competition varies depending
upon market conditions and comes from other insured financial  institutions such
as commercial banks, thrift  institutions,  credit unions,  multi-state regional
banks, and mortgage bankers.

                                       2
<PAGE>

Analysis of Loan  Portfolio.  Set forth below is selected  data  relating to the
composition  of the  Company's  loan  portfolio  by type  of  loan on the  dates
indicated.

<TABLE>
<CAPTION>
                                                                      At December 31,
                              ----------------------------------------------------------------------------------------------
                                     2000               1999               1998               1997               1996
                              -----------------  -----------------  ------------------ -----------------  ------------------
                                  $        %         $         %        $          %       $         %        $         %
                              --------  ------   --------   ------  --------   ------- --------   ------  --------   ------
                                                                  (Dollars in thousands)
<S>                          <C>       <C>      <C>        <C>     <C>        <C>    <C>         <C>    <C>         <C>
Type of Loans:
-------------
  First mortgage loans:
      One-to-four family      $158,159   85.11   $146,971    87.22   $88,936    82.23  $ 86,140    80.70  $ 90,500    82.96
      Commercial real estate     7,593    4.10      6,932     4.11     8,032     7.43    10,313     9.66    10,613     9.73
  Commercial                     2,956    1.60      1,689     1.00       497      .46       134      .13        78      .07
  Consumer loans:
    Equity                      16,286    8.79     12,612     7.48    10,397     9.61     9,645     9.04     7,519     6.89
    Education                        -       -         28      .02        36      .03       160      .15       120      .12
    Automobile                     113     .10          -        -         -        -         -        -         -        -
    Loans to depositors,
      secured by savings           448     .20        214      .13       202      .19       315      .30       245      .22
    Other                          107     .10         69      .04        58      .05        35      .02        11      .01
                              --------  ------   --------   ------  --------   ------- --------   ------  --------   ------
                               185,662  100.00%   168,515   100.00%  108,158   100.00%  106,742   100.00%  109,086   100.00%
                              --------  ======   --------   ======  --------   ======  --------   ======  --------   ======
Less:
  Net deferred loan fees            47                123                315                409                521
  Allowance for loan losses      1,001                924                822                618                606
                              --------           --------           --------           --------           --------
Total loans receivable, net   $184,614           $167,468           $107,021           $105,715           $107,959
                              ========           ========            =======           ========           ========

Loans held for sale           $     --           $     --           $     --           $    750           $  3,756
                              ========           ========           ========           ========           ========
</TABLE>

                                       3

<PAGE>

         Loan  Maturity.  The  following  table sets forth the  maturity  of the
Company's  loan  portfolio  at  December  31,  2000.  The table does not include
prepayments  or  scheduled  principal  repayments.   Prepayments  and  scheduled
principal repayments on loans totalled $27.6 million for the year ended December
31, 2000. All loans are shown as maturing based on contractual maturities.

                                      Due       Due after
                                      within    1 through  Due after
                                      1 year     5 years    5 years    Total
                                      ------     -------    -------   --------
                                                   (In Thousands)

One-to-four family ...............   $  1,136   $  2,860   $154,163   $158,159
Commercial real estate ...........        500      2,445      4,648      7,593
Commercial .......................      1,395      1,561         --      2,956
Consumer .........................        466      2,758     13,730     16,954
                                     --------   --------   --------   --------
Total Amounts Due ................   $  3,497   $  9,624   $172,541   $185,662
                                     ========   ========   ========   ========

         The  following  table sets forth the dollar  amount as of December  31,
2000 of all  loans due after  December  31,  2001,  which are based  upon  fixed
interest rates or floating or adjustable interest rates.

                                                     Floating or
                                    Fixed Rates    Adjustable Rates      Total
                                    -----------    ----------------      -----
                                                    (In Thousands)

One-to-four family ...............   $ 73,001         $ 84,022         $157,023
Commercial real estate ...........      6,931              162            7,093
Commercial .......................         --            1,561            1,561
Consumer .........................      9,134            7,354           16,488
                                     --------         --------         --------
  Total ..........................   $ 89,066         $ 93,099         $182,165
                                     ========         ========         ========

         One- to Four-Family  Lending. The Registrant's primary lending activity
consists of the  origination of one- to four-family  residential  mortgage loans
secured by  property  located  in its  market  area.  The  Registrant  generally
originates one- to four-family  residential  mortgage loans in amounts up to 80%
of the lesser of the appraised value or selling price of the mortgaged  property
without requiring mortgage  insurance.  The Registrant will originate a mortgage
loan in an amount  up to 95% of the  lesser of the  appraised  value or  selling
price of a mortgaged property,  however,  mortgage insurance for the borrower is
required.  The  Registrant  generally  originates  and  retains  fixed  rate and
adjustable  rate loans for retention in its  portfolio.  The  Registrant  offers
fixed rate  loans with  amortization  periods  ranging  from 5 to 30 years and a
variety of adjustable rate loans.  The adjustable rate loans typically have a 15
to 30 year amortization period. The Registrant's one- to four-family residential
loans  (both  fixed rate and  adjustable  rate) are  generally  underwritten  in
accordance with Federal National Mortgage Association ("FNMA") guidelines.

         Substantially  all of the Registrant's  residential  mortgages  include
"due on sale" clauses,  which are provisions  giving the Registrant the right to
declare a loan immediately  payable if the borrower sells or otherwise transfers
an interest in the property to a third party.

                                       4

<PAGE>

         Commercial  Real Estate.  The  Registrant  originates  commercial  real
estate mortgage loans and, to a much lesser extent,  commercial  business loans.
Commercial  real estate  mortgage loans are permanent  loans secured by improved
property such as office  buildings,  retail  stores,  and  apartment  buildings.
Essentially  all  originated   commercial  real  estate  loans  are  within  the
Registrant's market area and all are within the State of New Jersey. The largest
commercial  real  estate  loan had a balance of  approximately  $2.0  million on
December 31, 2000 and was performing in accordance with its  contractual  terms.
Typically,  commercial  real estate loans are originated in amounts up to 70% of
the appraised value of the mortgaged property.

         Commercial Lending.  The Registrant offers commercial loans for various
business  purposes  and such  loans are  generally  made to small and  mid-sized
companies in the  Registrant's  primary  lending area. At December 31, 2000, the
commercial  lending portfolio  primarily  consisted of unsecured lines of credit
totaling $1.4 million,  or 13.2% of the total  commercial loan portfolio.  Other
loans in the portfolio  consisted of fixed rate secured and unsecured loans with
terms not exceeding 5 years.

         Commercial  business  loans  generally  involve  more risk  than  first
mortgage loans.  The repayment of commercial loans typically is dependent on the
successful  operations and income stream of the business and the borrower.  Such
risks can be affected by economic  conditions.  In addition,  commercial lending
generally requires greater oversight efforts compared to first mortgage loans.

         Consumer Loans. The consumer loan portfolio  consists primarily of home
equity  and  home  improvement  loans.  To  a  lesser  extent,  this  Registrant
originates lines of credit, student loans, loans secured by savings accounts and
other consumer loans.  Consumer loans are originated in the Registrant's  market
area and generally have maturities of up to 15 years. For savings account loans,
the Registrant will lend up to 90% of the account balance.

         Consumer  loans  have a  shorter  term  and  generally  provide  higher
interest  rates  than first  mortgage  loans and may  entail  greater  risk than
residential mortgage loans,  particularly in the case of consumer loans that are
unsecured or secured by assets that depreciate rapidly.  Repossessed  collateral
for a  defaulted  consumer  loan  may not be  sufficient  for  repayment  of the
outstanding loan, and the remaining deficiency may not be collectible.

         Loan Commitments.  The Registrant  generally grants commitments to fund
fixed and adjustable-rate single-family mortgage loans for periods of 60 days at
a specified  term and  interest  rate.  The total amount of its  commitments  to
extend credit as of December 31, 2000 was $18.9 million.

Non-performing Loans and Problem Assets

         Loans are  reviewed on a regular  basis and are  generally  placed on a
non-accrual  status  when  they are more than 90 days  delinquent.  Loans may be
placed on a non-accrual status at any time if, in the opinion of management, the
collection of additional  interest is doubtful.  Interest  accrued and unpaid at
the time a loan is placed on  non-accrual  status is  charged  against  interest
income.  Subsequent  payments are either  applied to the  outstanding  principal
balance or recorded as  interest  income,  depending  on the  assessment  of the
ultimate collectibility of the loan.

         The  Registrant  has defined the population of impaired loans to be all
nonaccrual and restructured  commercial loans and certain other performing loans
considered  to be impaired as to  principal  and  interest.  Impaired  loans are
individually  assessed to  determine  that the loan's  carrying  value is not in
excess of the fair value of the  collateral  or the present  value of the loan's
expected  future  cash  flows.   Smaller  balance

                                       5
<PAGE>

homogeneous  loans  that are  collectively  evaluated  for  impairment,  such as
residential mortgage loans and installment loans, are excluded from the impaired
loan portfolio.

         Non-performing  Assets. The following table sets forth information with
respect to non-performing  assets for the periods indicated.  During the periods
indicated  there were no restructured  loans or impaired loans.  Interest income
that would have been recorded on loans accounted for on a nonaccrual basis under
the original  terms of such loans was not  material for the year ended  December
31, 2000.

                                                   At December 31,
                                        -----------------------------------
                                         2000   1999    1998    1997  1996
                                         ----   ----    ----    ----  ----
                                                (Dollars in thousands)
Loans accounted for on a
non-accrual basis:
  First mortgage loans:
    One to four-family ................ $  --   $133    $695    $ --  $313
  Commercial and other ................    --     --      --      --    --
  Consumer loans ......................    --     --      --      --    --
                                        -----   ----    ----    ----  ----
  Total ............................... $  --   $133    $695    $ --  $313
                                        =====   ====    ====    ====  ====
Real estate owned ..................... $  --   $ --    $ --    $ --  $ --
                                        =====   ====    ====    ====  ====
Total non-performing assets ........... $  --   $133    $695    $ --  $313
                                        =====   ====    ====    ====  ====
Total non-accrual loans to
   net loans .......................... $  --    .08%    .65%     --%  .28%
                                        =====   ====    ====    ====  ====
Total non-accrual loans
   to total assets ....................    --%   .05%    .25%     --%  .14%
                                        =====   ====    ====    ====  ====
Total non-performing
   assets to total assets .............    --%   .05%    .25%     --%  .14%
                                        =====   ====    ====    ====  ====

         Classified   Assets.   Management,   in  compliance   with   regulatory
guidelines,  has instituted an internal loan review  program,  whereby loans are
classified as special  mention,  substandard,  doubtful or loss.  When a loan is
classified  as  substandard  or doubtful,  management is required to establish a
valuation  reserve  for loan losses in an amount  that is deemed  prudent.  When
management  classifies  a loan as a loss asset,  a reserve  equal to 100% of the
loan balance is required to be established or the loan is to be charged-off. The
allowance  for loan losses is composed of an allowance  for both  inherent  risk
associated with lending activities and particular problem assets.

         An asset is considered  substandard if it is inadequately  protected by
the paying capacity and net worth of the obligor or the collateral  pledged,  if
any.  Substandard assets include those characterized by the distinct possibility
that  the  Registrant  will  sustain  some  loss  if the  deficiencies  are  not
corrected.  Assets classified as doubtful have all of the weaknesses inherent in
those classified substandard,  with the added characteristic that the weaknesses
present  make  collection  or  liquidation  in  full,  highly  questionable  and
improbable,  on the basis of currently existing facts,  conditions,  and values.
Assets classified as loss are those considered  uncollectible and of such little
value that their  continuance  as assets  without  the  establishment  of a loss
reserve is not  warranted.  Assets  which do not  currently  expose the  insured
institution to a sufficient  degree of risk to warrant  classification in one of
the  aforementioned  categories  but possess  credit  deficiencies  or potential
weaknesses  are required to be  designated  special  mention by

                                       6
<PAGE>

management. In addition, each loan that exceeds $500,000 and each group of loans
to one  borrower  that  exceeds  $500,000 is  monitored  more closely due to the
potentially greater losses from such loans.

         Management's  evaluation  of  the  classification  of  assets  and  the
adequacy of the  allowance for loan losses is reviewed by the Board on a regular
basis and by the regulatory agencies as part of their examination process.

         The following table sets forth the  Registrant's  classified  assets in
accordance with its classification system.


                                                         At
                                                    December 31,
                                                        2000
                                                   --------------
                                                   (In thousands)

                     Special mention.............       $281
                     Substandard.................         --
                     Doubtful....................         --
                     Loss........................         --
                                                        ----
                          Total..................       $281
                                                        ====

Allowance for Loan Losses. At least quarterly,  management evaluates the need to
establish  reserves  against losses on loans and other assets based on estimated
losses on specific loans and on any real estate held for sale or investment when
a  finding  is made  that a loss is  estimable  and  probable.  Such  evaluation
includes  a  review  of all  loans  for  which  full  collectibility  may not be
reasonably  assured and  considers,  among other matters,  the estimated  market
value of the  underlying  collateral of problem  loans,  prior loss  experience,
economic conditions and overall portfolio quality. Also considered are trends in
the loan  portfolio,  expected  future loss  experience,  and  industry  reserve
levels.  Provisions for losses are charged  against  earnings in the period they
are established.

                                       7
<PAGE>



         The  following  table  sets forth  certain  information  regarding  the
allowance for loan losses at or for the dates indicated.

<TABLE>
<CAPTION>
                                                                    At or for the Year Ended December 31,
                                                       ------------------------------------------------------------------
                                                         2000          1999         1998           1997          1996
                                                       ---------     ---------    ---------    -----------    -----------
                                                                            (Dollars in thousands)
<S>                                                   <C>           <C>          <C>          <C>            <C>
Total loans receivable .............................   $ 184,614     $ 167,468    $ 107,021    $ 106,465(1)   $ 111,715(1)
                                                       =========     =========    =========    =========      =========
Average loans outstanding ..........................   $ 179,396     $ 134,034    $ 105,411    $ 109,954(1)   $ 105,170(1)
                                                       =========     =========    =========    =========      =========
Balance at beginning of period .....................   $     924     $     822    $     618    $     606      $     593
Provision for loan losses ..........................          86           102          204           12             12
Charge-offs ........................................          (9)           --           --           --             (2)
Recoveries .........................................          --            --           --           --              3
                                                       ---------     ---------    ---------    ---------      ---------
Balance at end of period ...........................   $   1,001     $     924    $     822    $     618      $     606
                                                       =========     =========    =========    =========      =========
Allowance for loan losses as a
  percent of total loans ...........................         .54%          .55%         .77%         .58%           .54%
                                                       =========     =========    =========    =========      =========
</TABLE>

-------------
(1) Includes loans held for sale

                                       8
<PAGE>

         The  following  table  exhibits a  breakdown  by loan  category  of the
allowance for loan losses.

<TABLE>
<CAPTION>
                                                                          At December 31,
                          ----------------------------------------------------------------------------------------------------------
                                 2000                     1999                  1998                1997              1996
                          ---------------------  --------------------  --------------------  -------------------  ------------------
                                    Percent of            Percent of            Percent of           Percent of          Percent of
                                    Loans                 Loans                 Loans                Loans               Loans
                                    in Each               in Each               in Each              in Each             in Each
                                    Category to           Category to           Category to          Category to         Category to
                          Amount    Total Loans  Amount   Total Loans  Amount   Total Loans  Amount  Total Loans  Amount Total Loans
                          ------    -----------  ------   -----------  ------   -----------  ------  -----------  ------ -----------
                                                                      (Dollars in thousands)
<S>                       <C>          <C>      <C>          <C>      <C>        <C>         <C>         <C>     <C>        <C>
First mortgage -
  One-to-four family        $852         85.11%   $807         87.22%   $679       82.23%     $499         80.70%  $512       82.96%
  Commercial real estate      41          4.10      38          4.11      60        7.43        60          9.66     54        9.73
Commercial                    16          1.60       9          1.00       4         .46         1           .13     --         .07
Consumer loans:
Equity                        88          8.79      69          7.48      77        9.61        56          9.04     38        6.89
Education                     --            --      --           .02      --         .03         1           .15      1         .12
Automobile                     1           .10      --            --      --          --        --            --     --          --
Loans to depositors,
  secured by savings           2           .20       1           .13       2         .19         1           .30      1         .22
Other                          1           .10      --           .04      --         .05        --           .02     --         .01
                          ------        ------    ----        ------     ----     ------       ----       ------   ----      ------
   Total allowance
       for loan losses    $1,001        100.00%   $924        100.00%    $822     100.00%      $618       100.00%  $606      100.00%
                          ======        ======    ====        ======     ====     ======       ====       ======   ====      ======
</TABLE>

                                       9
<PAGE>

Investment Activities

         The  Registrant  is required  under federal  regulations  to maintain a
minimum  amount of liquid  assets which may be invested in specified  short-term
securities  and certain  other  investments.  The level of liquid  assets varies
depending  upon  several  factors,  including:  (i)  the  yields  on  investment
alternatives,  (ii) management's judgment as to the attractiveness of the yields
then available in relation to other  opportunities,  (iii) expectation of future
yield levels, and (iv) management's  projections as to the short-term demand for
funds  to  be  used  in  loan  origination  and  other  activities.   Investment
securities,  including mortgage-backed securities, are classified at the time of
purchase,  based upon management's  intentions and abilities, as securities held
to maturity or securities  available for sale. Debt securities acquired with the
intent and ability to hold to maturity  are  classified  as held to maturity and
are stated at cost and adjusted  for  amortization  of premium and  accretion of
discount,  which are  computed  using the level yield method and  recognized  as
adjustments  of interest  income.  All other debt  securities  are classified as
available for sale to serve principally as a source of liquidity.

         Current  regulatory  and  accounting  guidelines  regarding  investment
securities  (including  mortgage  backed  securities)  require the Registrant to
categorize  securities as "held to maturity," "available for sale" or "trading."
As of December  31,  2000,  Registrant  had  securities  classified  as "held to
maturity"  and  "available  for sale" in the amount of $15.5  million  and $56.7
million,  respectively and had no securities classified as "trading." Securities
classified as "available for sale" are reported for financial reporting purposes
at the fair  market  value with net  changes in the market  value from period to
period included as a separate  component of stockholders'  equity, net of income
taxes. At December 31, 2000, the Registrant's  securities available for sale had
an amortized cost of $57.3 million and market value of $56.7 million (unrealized
loss of $600,000). The changes in market value in the Registrant's available for
sale portfolio  reflect normal market  conditions and vary, either positively or
negatively,  based  primarily  on changes in general  levels of market  interest
rates  relative to the yields of the  portfolio.  Changes in the market value of
securities  available for sale do not affect the Company's  income. In addition,
changes in the market value of  securities  available for sale do not affect the
Bank's regulatory capital requirements or its loan-to-one borrower limit.

         At December 31, 2000,  the  Registrant's  investment  portfolio  policy
allowed investments in instruments such as: (i) U.S. Treasury obligations,  (ii)
U.S. federal agency or federally sponsored agency  obligations,  (iii) municipal
obligations,  (iv) mortgage-backed  securities,  (v) banker's acceptances,  (vi)
certificates  of  deposit,  and (vii)  investment  grade  corporate  bonds,  and
commercial paper. The board of directors may authorize additional investments.

         As a  source  of  liquidity  and  to  supplement  Registrant's  lending
activities,   the  Registrant   has  invested  in  residential   mortgage-backed
securities.  Mortgage-backed  securities  can serve as collateral for borrowings
and, through repayments,  as a source of liquidity.  Mortgage-backed  securities
represent a participation  interest in a pool of  single-family or other type of
mortgages.  Principal  and  interest  payments  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,  like us. The  quasi-governmental  agencies  guarantee the payment of
principal  and interest to investors  and include the Federal Home Loan Mortgage
Corporation  ("FHLMC"),  Government National Mortgage Association ("GNMA"),  and
Federal National Mortgage Association ("FNMA").

         Mortgage-backed  securities  typically are issued with stated principal
amounts.  The  securities  are backed by pools of mortgages that have loans with
interest  rates that are  within a set range and have  varying  maturities.  The
underlying  pool of mortgages can be composed of either fixed rate or adjustable

                                       10
<PAGE>

rate mortgage  loans.  Mortgage-backed  securities are generally  referred to as
mortgage participation certificates or pass-through  certificates.  The interest
rate risk  characteristics of the underlying pool of mortgages (i.e., fixed rate
or adjustable  rate) and the 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.  Expected  maturities will differ from contractual
maturities due to scheduled  repayments and because borrowers may have the right
to  call  or  prepay   obligations   with  or  without   prepayment   penalties.
Mortgage-backed securities issued by FHLMC, GNMA, and FNMA make up a majority of
the pass-through certificates market.

         The Registrant also invests in mortgage-related  securities,  primarily
collateralized mortgage obligations ("CMOs"), issued or sponsored by GNMA, FNMA,
FHLMC,  as well as  private  issuers.  CMOs  are a type  of debt  security  that
aggregates  pools  of  mortgages  and  mortgage-backed  securities  and  creates
different  classes of CMO securities  with varying  maturities and  amortization
schedules as well as a residual  interest with each class having  different risk
characteristics.  The cash  flows from the  underlying  collateral  are  usually
divided into "tranches" or classes whereby  tranches have descending  priorities
with  respect to the  distribution  of principal  and interest  repayment of the
underlying  mortgages and mortgage- backed securities as opposed to pass through
mortgage-backed  securities  where  cash flows are  distributed  pro rata to all
security  holders.  Unlike  mortgage-backed  securities  from which cash flow is
received and prepayment risk is shared pro rata by all securities holders,  cash
flows from the mortgages and mortgage backed securities underlying CMOs are paid
in  accordance  with a  predetermined  priority  to  investors  holding  various
tranches of such  securities or obligations.  A particular  tranche or class may
carry  prepayment  risk  which  may be  different  from  that of the  underlying
collateral  and other  tranches.  CMOs  attempt to  moderate  reinvestment  risk
associated  with   conventional   mortgage-backed   securities   resulting  from
unexpected  prepayment activity. At December 31, 2000, the Registrant had no CMO
securities held as an investment.

Investment Portfolio

         The  following  table sets forth the carrying  value of the  investment
securities  portfolio,  and  mortgage-backed  securities  portfolio at the dates
indicated.

                                                          At December 31,
                                                  ------------------------------
                                                    2000       1999       1998
                                                  --------   --------   --------
                                                          (In thousands)

Investment Securities Held to Maturity:
 U.S. Agency Securities .......................   $    616   $    860   $  1,354
                                                  --------   --------   --------
   Total Investment Securities Held to Maturity        616        860      1,354
                                                  --------   --------   --------
Investment Securities Available for Sale:
  U.S. Government Securities ..................         --      2,000         --
  U.S. Agency Securities ......................      7,489      7,299      1,468
  Municipal Securities ........................     25,088     23,256     13,901
  Corporate Bonds .............................      7,030      6,921      1,522
  FNMA Common Stock ...........................         --         --         30
                                                  --------   --------   --------
    Total Investment Securities Available For
    Sale ......................................     39,607     39,476     16,921
                                                  --------   --------   --------
Mortgage-backed Securities Held to Maturity ...     14,896     17,340     11,277
                                                  --------   --------   --------
Mortgage-backed Securities Available For Sale .     17,055     28,265     88,390
                                                  --------   --------   --------
   Total Investment and Mortgage-backed
   Securities .................................   $ 72,174   $ 85,941   $117,942
                                                  ========   ========   ========

                                       11
<PAGE>

         Investment Portfolio Maturities. The following table sets forth certain
information   regarding  the  carrying  values,   weighted  average  yields  and
maturities  of  the  Registrant's  investment  and  mortgage-backed   securities
portfolio  at  December  31,  2000.  The  following  table  does not  take  into
consideration  the effects of  scheduled  repayments  or the effects of possible
prepayments.

<TABLE>
<CAPTION>
                         One Year or Less       One to Five      Five to Ten Years     More than Ten    Total Investment Securities
                         ------------------  ------------------  -----------------  ------------------  ----------------------------
                         Carrying  Average   Carrying  Average   Carrying Average   Carrying  Average   Carrying  Average   Market
                          Value    Yield(1)   Value    Yield(1)   Value   Yield(1)   Value    Yield(1)   Value    Yield(1)   Value
                          ------   --------  -------   --------   ------  --------   ------   --------   ------   -------   -----
                                                              (Dollars in thousands)
<S>                     <C>        <C>     <C>          <C>      <C>              <C>         <C>     <C>        <C>     <C>
Investment Securities:
U.S. government
  securities............  $2,487     6.09%   $ 5,002      6.36%    $    -       -%  $   616      7.15%  $ 8,105     6.32%  $ 8,113
Municipal
  securities(2).........      40     6.04      2,415      5.73      9,271    6.50    13,362      7.03    25,088     6.70    25,088
Corporate bonds.........   2,491     6.49      4,539      6.31          -       -         -         -     7,030     6.38     7,030
Mortgage-backed
  securities............     425     6.69     31,526      6.89          -       -         -         -    31,951     6.88    32,086
                          ------             -------               ------           -------             -------            -------
    Total...............  $5,443     6.32%   $43,482      6.70%    $9,271    6.50%  $13,978     7.04%   $72,174    6.71%   $72,317
                          ======     ====    =======      ====     ======    ====   =======     ====    =======    ====    =======
</TABLE>

----------------
(1)  Average yields are calculated on a yield-to-maturity basis.
(2)  Average  yields  on  municipal  securities  are  generally  tax-exempt  and
     calculated on a tax-equivalent  basis using a statutory  federal income tax
     rate of 34%.

                                       12
<PAGE>

Sources of Funds

         General.  Deposits are the major source of the  Registrant's  funds for
lending and other  investment  purposes.  Borrowings may be used on a short-term
basis to  compensate  for  reductions  in the  availability  of funds from other
sources.  In addition to deposits and  borrowings,  the Bank derives  funds from
loan and mortgage-backed  securities principal repayments, and proceeds from the
sale  of  mortgage-backed   securities  and  investment  securities.   Loan  and
mortgage-backed  securities  payments are a relatively  stable  source of funds,
while deposit inflows are significantly influenced by general interest rates and
money  market  conditions.  They  also may be used on a  longer-term  basis  for
interest rate risk management and general business purposes.

         Deposits. The Registrant offers a variety of deposit accounts, although
a majority of deposits  are in  fixed-term,  market-rate  certificate  accounts.
Deposit account terms vary, primarily as to the required minimum balance amount,
the amount of time that the funds  must  remain on  deposit  and the  applicable
interest rate.

Jumbo Certificates of Deposit

         The following table shows the amount of the  Registrant's  certificates
of deposit of $100,000 or more by time  remaining  until maturity as of December
31, 2000.

                                                        Certificates
      Maturity Period                                    of Deposit
      ---------------                                    ----------
                                                       (In thousands)
      Within three months..........................        $ 9,702
      Three through six months.....................          3,103
      Six through twelve months....................          4,756
      Over twelve months...........................          9,901
                                                             -----
                                                           $27,462
                                                           =======


         Borrowings.   Deposits  are  the  primary   source  of  funds  for  the
Registrant's  lending and  investment  activities  and for its general  business
purposes. The Registrant, as the need arises, relies upon advances from the FHLB
of New York ( the "FHLB") to supplement its supply of lendable funds and to meet
deposit withdrawal requirements. Advances from the FHLB are typically secured by
the Registrant's stock in the FHLB and a portion of the Registrant's residential
mortgage loans and may be secured by other assets (principally  securities which
are obligations of or guaranteed by the U.S.  Government).  The Registrant funds
loan demand and investment opportunities out of current loan and mortgage-backed
securities  repayments,  investment  maturities and new deposits.  However,  the
Registrant has utilized FHLB advances to supplement these sources and as a match
against certain assets in order to better manage interest rate risk.

                                       13
<PAGE>

         The following  table sets forth  information  concerning  FHLB advances
during the periods indicated (includes both short- and long-term advances).

                                                At or For the Years
                                                 Ended December 31,
                                      -------------------------------------
                                        2000           1999           1998
                                      -------        -------        -------
                                             (Dollars in thousands)
FHLB advances:
Average balance outstanding......     $43,643        $44,427        $23,596
Maximum amount outstanding
    at any month-end during
    the period...................      51,618         52,331         32,895
Balance outstanding at
  end of period..................      28,906         48,678         32,557
Weighted average interest
    rate during the period.......        5.87%          5.50%          5.66%
Weighted average
    interest rate at
    the end of the period........        5.86%          5.55%          5.41%


Equity And Assets Ratios

                                                        At Or For The Years
                                                         Ended December 31,
                                                  ------------------------------
                                                   2000         1999      1998
                                                  --------    --------   -------
Equity to Asset Ratio.......................        8.81%       8.89%     6.34%
Return on Average Equity....................       (2.06)       1.27      4.14
Return on Average Assets....................        (.18)        .12        .3
Dividend Payout Ratio.......................         .91          --        --

Asset/Liability Management

         The  Registrant  has  established an  asset/liability  committee  which
consists  of its senior  management  and  several  non-employee  directors.  The
committee is  responsible  for and  evaluates the interest rate risk inherent in
the Registrant's  assets and  liabilities,  determines the level of risk that is
appropriate given the Registrant's  business  strategy,  operating  environment,
capital,  liquidity and performance objectives, and manages this risk consistent
with the guidelines  approved by the Board of Directors.  The committee operates
under a policy adopted by the Board of Directors and meets at least quarterly to
review  its   asset/liability   policies  and  interest  rate  position  of  the
Registrant.

         The  Registrant is  vulnerable to an increase in interest  rates to the
extent that its interest-bearing liabilities mature or reprice more rapidly than
its   interest-earning   assets.   The  Registrant's   lending  activities  have
historically emphasized the origination of long-term,  adjustable rate and fixed
rate loans secured by single-family residences.  The primary source of funds has
been   deposits   with   substantially   shorter

                                       14
<PAGE>

maturities.   While  having  interest-bearing   liabilities  that  reprice  more
frequently than interest-earning  assets is generally beneficial to net interest
income  during  a  period  of  declining   interest  rates,   this  type  of  an
asset/liability  mismatch  is  generally  detrimental  during  periods of rising
interest rates.

         To reduce the effect of interest  rate changes on net interest  income,
the Registrant has adopted  various  strategies to enable  management to improve
the matching of interest-earning asset maturities to interest-bearing  liability
maturities.  Its  objective is to maintain a consistent  level of  profitability
within  acceptable  risk tolerances  across a broad range of potential  interest
rate  environments.  The principal  elements of these strategies include seeking
to:

o    originate adjustable-rate loans;

o    to  the  extent  that  market  conditions  permit,  originate  shorter-term
     consumer  loans,  which in  addition  to  offering  more rate  flexibility,
     typically bear higher interest rates than residential mortgage loans;

o    purchase mortgage-backed securities to provide monthly cash flows; and

o    purchase investment  securities with maturities that match specific deposit
     maturities.

Net Portfolio Value

         The Registrant uses the FDIC  Regulatory  Analysis Model to monitor its
exposure to interest rate risk, which calculates  changes in net portfolio value
("NPV").  Reports generated from assumptions provided and modified by management
are reviewed by the  Asset/Liability  Management  Committee  and reported to the
Board of Directors  quarterly.  The Interest Rate  Sensitivity  of Net Portfolio
Value  Report  shows  the  degree  to which  balance  sheet  line  items and net
portfolio value are potentially  affected by a 100 to 300 basis point upward and
downward parallel shift (shock) in the Treasury yield curve. The following table
sets forth the Company's NPV at December 31, 2000.

                  Change             NPV
                 in Rates         Ratio(1)        Change(2)
                 --------         --------        ---------

                  +300 bp            5.0%          (499) bp

                  +200 bp            6.8           (320)

                  +100 bp            8.5           (144)

                 Unchanged           9.9              0

                  -100 bp           10.9            100

                  -200 bp           11.7            170

                  -300 bp           12.4            250

(1)      Calculated as the estimated NPV divided by present value of assets.
(2)      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.

                                       15
<PAGE>

         Computations  of  prospective  effects of  hypothetical  interest  rate
changes are based on numerous  assumptions,  including relative levels of market
interest rates,  prepayments and deposit  run-offs and should not be relied upon
as  indicative  of actual  results.  Certain  shortcomings  are inherent in such
computations.  Although certain assets and liabilities may have similar maturity
or periods  of  repricing  they may react at  different  times and in  different
degrees to changes in the market interest  rates.  The interest rates on certain
types of assets and  liabilities  may  fluctuate in advance of changes in market
interest  rates,  while rates on other types of assets and  liabilities  may lag
behind changes in market interest rates. Certain assets, such as adjustable rate
mortgages, generally have features which restrict changes in interest rates on a
short  term  basis and over the life of the  asset.  In the event of a change in
interest  rates,   prepayments  and  early   withdrawal   levels  could  deviate
significantly  from  those  assumed  in making  calculations  set  forth  above.
Additionally,  an  increased  credit  risk may  result  as the  ability  of many
borrowers to service  their debt may  decrease in the event of an interest  rate
increase.

                                       16
<PAGE>

Average Balance Sheet

The following table sets forth information  relating to our consolidated average
balance  sheet and  reflects  the average  yield on assets and average  costs of
liabilities at and for the periods indicated.  Such yields and costs are derived
by dividing  income or expense by the average  balance of assets or liabilities,
respectively,  for the periods  presented.  Average  balances  are derived  from
month-end  balances.  Management  does not  believe  that  the use of  month-end
balances instead of daily average  balances has caused any material  differences
in the information presented.

<TABLE>
<CAPTION>
                                                                       For the Years Ended December 31,
                                      ----------------------------------------------------------------------------------------------
                                                     2000                            1999                           1998
                                      ---------------------------------   ----------------------------    --------------------------
                                                                Average                        Average                       Average
                                        Average                  Yield/   Average               Yield/    Average             Yield/
                                        Balance    Interest       Cost    Balance  Interest      Cost     Balance  Interest    Cost
                                        -------    --------       ----    -------  --------      ----     -------  --------    ----
                                                                           (Dollars in thousands)
<S>                                   <C>         <C>           <C>    <C>        <C>          <C>     <C>        <C>        <C>
INTEREST-EARNING ASSETS:
  Loans receivable, net (1).........    $179,396    $13,025       7.26%  $134,034   $ 9,935      7.41%   $105,411   $ 8,312    7.89%
  Securities held to maturity (2)...      16,905      1,143       6.76     14,374       905      6.30      17,171     1,157    6.74
  Securities available for sale (3).      61,496      4,215       6.86     87,834     5,376      6.12      93,482     5,922    6.33
  Other interest-earning assets (4).      10,797        732       6.78     21,900     1,159      5.29      20,078     1,124    5.60
                                        --------    -------              --------   -------               -------   -------
    Total interest-earning assets...     268,594     19,115       7.12    258,142    17,375      6.73     236,142    16,515    6.99
  Noninterest-earning assets........      12,938                            8,769                           5,280
                                        --------                         --------                        --------
    Total assets....................    $281,532                         $266,911                        $241,422
                                        ========                         ========                        ========
INTEREST-BEARING LIABILITIES:
  Deposit accounts:
   NOW accounts.....................    $ 18,315        299       1.63   $ 16,250       281      1.73    $ 13,500       252    1.87
   Passbook accounts................      30,624        988       3.23     30,679       980      3.19      28,671       948    3.31
   Money market deposit accounts....       4,093        119       2.91      4,288       126      2.94       4,102       123    3.00
   Certificates of deposit..........     157,404      8,919       5.67    144,196     7,457      5.17     151,232     8,441    5.58
  Borrowed funds....................      43,643      2,560       5.87     44,427     2,445      5.50      23,596     1,335    5.66
                                        --------    -------              --------   -------               -------   -------
    Total interest-bearing
      liabilities...................     254,079     12,885       5.07    239,840    11,289      4.71     221,101    11,099    5.02
                                                    -------                         -------                         -------
  Noninterest-bearing liabilities...       2,414                            2,736                           2,740
                                        --------                         --------                        --------
    Total liabilities...............     256,493                          242,576                         223,841
Total equity........................      25,039                           24,335                          17,581
                                        --------                         --------                        --------
   Total liabilities and total
     equity.........................    $281,532                         $266,911                        $241,422
                                        ========                         ========                        ========
   Net interest income
     (tax equivalent basis).........                $ 6,230                         $ 6,086                         $ 5,416
                                                    =======                         =======                         =======
   Interest rate spread (5).........                              2.05%                          2.02%                         1.97%
   Net interest margin (6)..........                              2.32%                          2.36%                         2.29%
 Ratio of average interest-
   earning asset to average
   interest-bearing liabilities.....                              1.06X                          1.08X                         1.07X

</TABLE>
---------------------------------
(1)  Loans receivable,  net includes  non-accrual loans.  Interest includes loan
     origination fees, which are immaterial.
(2)  Includes mortgage-backed and investment securities held to maturity.
(3)  Investments,  mortgage-backed  securities,  and  loans  held  for  sale are
     carried at market value.  Yields on tax exempt obligations were computed on
     a tax equivalent basis, at 34%.
(4)  Includes   federal   funds   sold,   Federal   Home  Loan  Bank  stock  and
     interest-earning deposits.
(5)  Interest rate spread represents the difference between the average yield on
     interest-earning   assets  and  the   average   cost  of   interest-bearing
     liabilities.
(6)  Net  interest  margin  represents  net interest  income  divided by average
     interest-earning assets.

                                       17
<PAGE>

Volume/Rate Table

         The following table  represents the extent to which changes in interest
rates and changes in the volume of interest-earning  assets and interest-bearing
liabilities  have affected our interest  income and interest  expense during the
periods indicated.  Information is provided in each category with respect to (i)
changes  attributable to changes in volume (change in volume multiplied by prior
rate),  (ii) changes  attributable to changes in rate (change in rate multiplied
by prior volume), and (iii) the net change. Changes attributable to the combined
impact of volume and rate have been allocated  proportionately to the change due
to volume and the changes due to rate.
<TABLE>
<CAPTION>
                                       Years Ended December 31,          Years Ended December 31,
                                    ------------------------------   -------------------------------
                                            2000 vs. 1999                    1999 vs. 1998
                                    ------------------------------   -------------------------------
                                           Increase (Decrease)             Increase (Decrease)
                                                Due to                          Due to
                                    ------------------------------   -------------------------------
                                     Volume      Rate       Net      Volume       Rate       Net
                                     ------      ----       ---      ------       ----       ---
                                                          (In thousands)
<S>                                <C>        <C>        <C>        <C>        <C>        <C>
Interest income:
  Loans receivable, net .........   $ 3,295    $  (205)   $ 3,090    $ 2,153    $  (530)   $ 1,623
  Securities held to maturity ...       167         70        237       (180)       (72)      (252)
  Securities available for sale .    (1,753)       593     (1,160)      (353)      (193)      (546)
  Other interest earning assets .      (694)       267       (427)        99        (64)        35
                                    -------    -------    -------    -------    -------    -------
    Total .......................   $ 1,015    $   725    $ 1,740    $ 1,719    $  (859)   $   860
                                    =======    =======    =======    =======    =======    =======
Interest expense:
  NOW Accounts ..................   $    35    $   (17)   $    18    $    49    $   (20)   $    29
  Passbook accounts .............        (2)        10          8         66        (34)        32
  Money market accounts .........        (6)        (1)        (7)        12         (9)         3
  Certificates of deposit .......       711        751      1,462       (382)      (602)      (984)
  Borrowed funds ................       (44)       159        115      1,149        (39)     1,110
                                    -------    -------    -------    -------    -------    -------
    Total .......................   $   694    $   902    $ 1,596    $   894    $  (704)   $   190
                                    =======    =======    =======    =======    =======    =======

Net change in net interest income   $   321    $  (177)   $   144    $   825    $  (155)   $   670
                                    =======    =======    =======    =======    =======    =======
</TABLE>

Personnel

         As of December 31, 2000, the Registrant had 36 full-time  employees and
10  part-time  employees.  The  employees  are not  represented  by a collective
bargaining unit. The Registrant  believes its relationship with its employees to
be satisfactory.

Regulation
         Set forth below is a brief  description of certain laws which relate to
the  regulation  and  supervision  of the Company,  the MHC,  and the Bank.  The
description  does not purport to be complete and is qualified in its entirety by
reference to applicable laws and regulation.

Regulation of the Company

         General.  The Company, as a bank holding company under the Bank Holding
Company  Act of  1956,  as  amended  ("BHCA"),  is  subject  to  regulation  and
supervision  by the  Board  of  Governors  of  the

                                       18
<PAGE>

Federal Reserve and by the Department.  The Company is required to file annually
a report of its operations  with, and is subject to examination  by, the Federal
Reserve and the Department.  This regulation and oversight is generally intended
to ensure that the Company  limits its  activities  to those  allowed by law and
that it operates in a safe and sound manner  without  endangering  the financial
health of its subsidiary banks.

         Under the BHCA,  the  Company  must  obtain the prior  approval  of the
Federal  Reserve  before it may acquire  control of another bank or bank holding
company, merge or consolidate with another bank holding company,  acquire all or
substantially  all of the assets of another  bank or bank  holding  company,  or
acquire direct or indirect ownership or control of any voting shares of any bank
or bank holding  company if, after such  acquisition,  the bank holding  company
would directly or indirectly own or control more than 5% of such shares.

         Federal  statutes impose  restrictions on the ability of a bank holding
company and its nonbank  subsidiaries  to obtain  extensions  of credit from its
subsidiary bank, on the subsidiary bank's investments in the stock or securities
of the  holding  company,  and on the  subsidiary  bank's  taking of the holding
company's  stock or securities as collateral  for loans to any borrower.  A bank
holding company and its subsidiaries are also prevented from engaging in certain
tie-in arrangements in connection with any extension of credit, lease or sale of
property, or furnishing of services by the subsidiary bank.

         A bank  holding  company is required to serve as a source of  financial
and  managerial  strength  to its  subsidiary  banks  and  may not  conduct  its
operations in an unsafe or unsound manner. In addition,  it is the policy of the
Federal  Reserve that a bank holding company should stand ready to use available
resources to provide  adequate capital to its subsidiary banks during periods of
financial stress or adversity and should maintain the financial  flexibility and
capital-raising  capacity  to obtain  additional  resources  for  assisting  its
subsidiary  banks. A bank holding  company's  failure to meet its obligations to
serve  as a source  of  strength  to its  subsidiary  banks  will  generally  be
considered by the Federal Reserve to be an unsafe and unsound  banking  practice
or a violation of the Federal Reserve regulations, or both.

         Non-Banking  Activities.  The business  activities of the Company, as a
bank holding company, are restricted by the BHCA. Under the BHCA and the Federal
Reserve's bank holding company  regulations,  the Company may only engage in, or
acquire or control  voting  securities  or assets of a company  engaged  in, (1)
banking or managing or controlling banks and other subsidiaries authorized under
the BHCA and (2) any BHCA activity the Federal  Reserve has  determined to be so
closely  related to  banking or  managing  or  controlling  banks to be a proper
incident thereto.  These include any incidental activities necessary to carry on
those  activities,  as well as a lengthy  list of  activities  that the  Federal
Reserve has determined to be so closely related to the business of banking as to
be a proper incident thereto.

         Financial Modernization.  The Gramm-Leach-Bliley Act, which was enacted
in November  1999 and most  provisions  of which became  effective in March 2000
(the  "Act"),  permits  greater  affiliation  among  banks,   securities  firms,
insurance companies,  and other companies under a new type of financial services
company  known as a "financial  holding  company." A financial  holding  company
essentially  is a bank  holding  company  with  significantly  expanded  powers.
Financial  holding  companies are authorized by statute to engage in a number of
financial  activities  previously  impermissible  for  bank  holding  companies,
including securities underwriting,  dealing and market making; sponsoring mutual
funds and investment companies;  insurance underwriting and agency; and merchant
banking  activities.  The Act also permits the Federal  Reserve and the Treasury
Department to authorize additional activities for financial holding

                                       19
<PAGE>

companies  if they are  "financial  in  nature"  or  "incidental"  to  financial
activities.  A bank  holding  company  may become a  financial  holding  company
("FHC") if each of its subsidiary banks is well capitalized,  well managed,  and
has at least a  "satisfactory"  CRA rating.  A financial  holding  company  must
provide notice to the Federal Reserve within 30 days after commencing activities
previously determined by statute or by the Federal Reserve and Department of the
Treasury to be permissible.  The Company has not, to date,  submitted  notice to
the Federal Reserve of its intent to be deemed a financial holding company.

         Regulatory  Capital  Requirements.  The  Federal  Reserve  has  adopted
capital  adequacy  guidelines  pursuant  to which it  assesses  the  adequacy of
capital in examining  and  supervising  a bank holding  company and in analyzing
applications  to it under the  BHCA.  The  Federal  Reserve's  capital  adequacy
guidelines are similar to those imposed on the Bank by the FDIC. See "Regulation
of the Bank - Regulatory Capital Requirements."

         Restrictions   Applicable  to  New   Jersey-Chartered   Mutual  Holding
Companies. The Department is authorized to approve the reorganization of a state
chartered  savings bank to a mutual  savings bank holding  company.  The general
powers of a mutual  savings bank holding  company are similar to the  authorized
powers  of  New  Jersey  corporations,  subject  to  the  interpretation  of the
Department.  The Department has not issued mutual holding company regulations to
date.

Regulation of the Bank

         General.  As a New Jersey chartered savings bank insured by the Savings
Association  Insurance  Fund (the  "SAIF"),  the Bank is  subject  to  extensive
regulation and examination by the New Jersey Department of Banking and Insurance
(the  "Department"),  the FDIC, which insures its deposits to the maximum extent
permitted  by law,  and to a much lesser  extent,  by the Federal  Reserve.  The
federal and state laws and  regulations  which are applicable to banks regulate,
among other things, the scope of their business, their investments, the reserves
required  to be  kept  against  deposits,  the  timing  of the  availability  of
deposited  funds and the nature and amount of and  collateral for certain loans.
The laws and regulations  governing the Bank generally have been  promulgated to
protect  depositors  and not for the  purpose of  protecting  stockholders.  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 regulation,  whether by the Department,  the FDIC or the United States
Congress,  could have a material  adverse  impact on the  Company,  the Bank and
their operations.

         New  Jersey  Savings  Bank  Law.  The New  Jersey  Banking  Act of 1948
("Banking  Code")  contains  detailed  provisions  governing  the  organization,
location of offices,  rights and  responsibilities of directors,  officers,  and
employees,  as well as corporate powers,  savings and investment  operations and
other aspects of the Bank and its affairs.  The Banking Code delegates extensive
rule-making  power and  administrative  discretion to the Department so that the
supervision and regulation of state chartered  savings banks may be flexible and
readily responsive to changes in economic  conditions and in savings and lending
practices.

         The Banking Code provides state-chartered savings banks with all of the
powers enjoyed by federal savings and loan  associations,  subject to regulation
by the  Department.  The Federal  Deposit  Insurance  Corporation  Act ("FDIA"),
however, prohibits state chartered banks from making new investments,  loans, or
becoming  involved in activities as principal and equity  investments  which are
not permitted for national banks unless (1) the FDIC  determines the activity or
investment does not pose a

                                       20
<PAGE>

significant  risk of loss to the  SAIF  and (2) the bank  meets  all  applicable
capital requirements.  Accordingly,  the additional operating authority provided
to the Bank by the Banking Code is significantly restricted by the FDIA.

         Federal 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.  The FDIC  administers  two  separate
insurance  funds,  the Bank  Insurance  Fund ("BIF"),  which  generally  insures
commercial bank and state savings bank deposits,  and the SAIF,  which generally
insures savings  association  deposits.  The Bank,  which was previously a state
savings  association,  remains a member of the SAIF and its deposit accounts are
insured by the FDIC, up to prescribed limits.

         The FDIC is authorized to establish  separate annual deposit  insurance
assessment rates for members of the BIF and the SAIF, and to increase assessment
rates if it determines  such increases are  appropriate to maintain the reserves
of either insurance fund. In addition,  the FDIC is authorized to levy emergency
special  assessments  on BIF and SAIF  members.  The  FDIC  has set the  deposit
insurance  assessment  rates  for SAIF - member  institutions  for the first six
months of 2001 at 0% to .027% of insured deposits on an annualized  basis,  with
the assessment rate for most institutions set at 0%.

         In addition,  all insured  institutions of the FDIC are required to pay
assessments  at an annual rate of  approximately  .0212% of insured  deposits to
fund interest payments on bonds issued by the Financing  Corporation,  an agency
of the Federal  government  established to  recapitalize  the predecessor to the
SAIF.  These  assessments  will continue until the Financing  Corporation  bonds
mature in 2017.

         Regulatory  Capital  Requirements.  The  FDIC has  promulgated  capital
adequacy  requirements  for  state-chartered  banks that, like the Bank, are not
members of the Federal Reserve  System.  At December 31, 2000, the Bank exceeded
all regulatory capital requirements and was classified as "well capitalized."

         The FDIC's capital  regulations  establish a minimum 3% Tier I leverage
capital requirement for the most highly-rated state-chartered, non-member banks,
with an  additional  cushion  of at least 100 to 200 basis  points for all other
state-chartered,  non-member banks, which effectively increases the minimum Tier
I  leverage  ratio for such  other  banks to 4% to 5% or more.  Under the FDIC's
regulation,  the highest-rated  banks are those that the FDIC determines are not
anticipating or experiencing  significant growth and have well diversified risk,
including no undue interest rate risk exposure,  excellent  asset quality,  high
liquidity,  good earnings and, in general, which are considered a strong banking
organization,  rated composite 1 under the Uniform Financial Institutions Rating
System.  Tier I or core  capital is  defined as the sum of common  stockholders'
equity (including  retained earnings),  noncumulative  perpetual preferred stock
and related surplus, and minority interests in consolidated subsidiaries,  minus
all intangible assets other than certain purchased mortgage servicing rights and
purchased credit and relationships.

         The FDIC's  regulations also require that  state-chartered,  non-member
banks meet a  risk-based  capital  standard.  The  risk-based  capital  standard
requires the  maintenance  of total capital  (which is defined as Tier I capital
and  supplementary  (Tier  2)  capital)  to  risk  weighted  assets  of  8%.  In
determining the amount of  risk-weighted  assets,  all assets,  plus certain off
balance sheet assets,  are multiplied by a risk-weight  of 0% to 100%,  based on
the risks  the FDIC  believes  are  inherent  in the type of asset or item.  The
components of Tier I capital for the risk-based  standards are the same as those
for the leverage capital  requirement.  The components of supplementary (Tier 2)
capital include cumulative  perpetual

                                       21
<PAGE>

preferred stock,  mandatory  subordinated  debt,  perpetual  subordinated  debt,
intermediate-term  preferred  stock,  up to 45% of  unrealized  gains on  equity
securities and a bank's allowance for loan and lease losses.  Allowance for loan
and lease losses includable in supplementary  capital is limited to a maximum of
1.25% of risk-weighted assets. Overall, the amount of supplementary capital that
may be included in total capital is limited to 100% of Tier I capital.

         A bank that has less than the minimum leverage  capital  requirement is
subject to various  capital plan and activities  restriction  requirements.  The
FDIC's regulations also provide that any insured  depository  institution with a
ratio of Tier I capital to total  assets  that is less than 2.0% is deemed to be
operating in an unsafe or unsound condition pursuant to Section 8(a) of the FDIA
and could be subject to potential termination of deposit insurance.

         Pursuant to New Jersey banking law, the minimum  leverage capital for a
depository  institution  is a ratio of Tier 1  capital  to  total  risk-weighted
assets of four percent. However, the Department may require a higher ratio for a
particular depository institution.

         New Jersey banking law requires that a depository  institution maintain
qualifying  capital of at least eight  percent of its risk weighted  assets.  At
least four  percent of this  qualifying  capital  shall be in the form of Tier 1
capital.  For purposes of New Jersey banking law, risk weighted  assets,  Tier 1
capital,  and  total  assets  are  defined  in the  same  manner  as in the FDIC
regulations.

         The Bank was in  compliance  in both  the FDIC and New  Jersey  capital
requirements at December 31, 2000.

         Affiliate  Transaction  Restrictions.  Federal laws strictly  limit the
ability  of banks to engage in  transactions  with their  affiliates,  including
their bank holding  companies.  Such transactions  between a subsidiary bank and
its parent company or the nonbank  subsidiaries  of the bank holding company are
limited to 10% of a bank  subsidiary's  capital and surplus and, with respect to
such parent company and all such nonbank subsidiaries, to an aggregate of 20% of
the bank  subsidiary's  capital and surplus.  Further,  loans and  extensions of
credit generally are required to be secured by eligible  collateral in specified
amounts.  Federal law also requires that all transactions between a bank and its
affiliates  be  on  terms  as  favorable  to  the  bank  as  transactions   with
non-affiliates.

         Federal Home Loan Bank System.  The Bank is a member of the FHLB of New
York,  which is one of 12  regional  FHLBs.  Each FHLB  serves  as a reserve  or
central bank for its members within its assigned region.  It is funded primarily
from  funds  deposited  by member  institutions  and  proceeds  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
Trustees 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 the greater of 1% of its aggregate unpaid
residential  mortgage loans, home purchase  contracts or similar  obligations at
the  beginning of each year or 5% of the Bank's  outstanding  advances  from the
FHLB. At December 31, 2000,  the Bank had $2.6 million in FHLB stock,  which was
in compliance with this requirement.

         Federal  Reserve System.  The Federal  Reserve  requires all depository
institutions  to maintain  non-interest  bearing  reserves at  specified  levels
against their  transaction  accounts  (primarily  checking and

                                       22
<PAGE>

NOW accounts) and non-personal  time deposits.  The balances  maintained to meet
the reserve  requirements  imposed by the Federal Reserve may be used to satisfy
the liquidity  requirements that are imposed by the Department.  At December 31,
2000, the Bank met its reserve requirements.

         Regulatory Capital Distributions.  Earnings of the Bank appropriated to
bad debt reserves and deducted for federal income tax purposes are not available
for payment of cash dividends or other  distributions  to  stockholders  without
payment  of taxes  at the then  current  tax rate by the Bank on the  amount  of
earnings removed from the reserves for such distributions.

         Dividends  payable by the Bank to the Company and dividends  payable by
the  Company to  stockholders  are  subject to  various  additional  limitations
imposed by federal and state laws,  regulations and policies  adopted by federal
and state  regulatory  agencies.  Under  New  Jersey  law,  the Bank may not pay
dividends unless, following payment, the capital stock of the Savings Bank would
be  unimpaired  and (a) the Bank will have a surplus of not less than 50% of its
capital stock, or, if not, (b) the payment of such dividends will not reduce the
surplus of the Bank. Under applicable regulations,  the Bank would be prohibited
from making any capital  distributions  if, after making the  distribution,  the
Bank would have: (i) a total risk-based  capital ratio of less than 8.0%; (ii) a
Tier 1 risk-based  capital ratio of less than 4.0%; or (iii) a leverage ratio of
less than 4.0%, unless a higher ratio is required by the Department.

         Loans to One Borrower.  Under New Jersey and federal law, savings banks
have, subject to certain exemptions, lending limits to one borrower in an amount
equal to 15% of the institution's  capital accounts. As of December 31, 2000 the
Bank's  loans-to-one  borrower  limitations was $3.7 million and the Bank was in
compliance with such limitation.

Item 2. Description of Property
-------------------------------

         The Registrant's  executive  offices are located at 1124 East Ridgewood
Avenue, Ridgewood, New Jersey. The Registrant conducts its business through four
offices,  which are located in Ridgewood and Mahwah,  New Jersey.  The executive
office of the Company  and the Bank and one branch  office are owned by the Bank
and the remaining two branch  offices are leased by the Bank.  These leases have
initial  terms of 12 to 30 years,  and all leases  contain  renewal  options for
additional  years.  The  Registrant  also has a limited  service branch which is
opened several hours a week that is located in a nursing home in Allendale,  New
Jersey.

         (b) Investment  Policies.  See "Item 1.  Business"  above for a general
description of the Registrant's  investment policies and any regulatory or Board
of Director's  percentage of assets limitations  regarding certain  investments.
The  Registrant's  investments are primarily to produce income,  and to a lesser
extent, possible capital gain.

                  (1)    Investments in Real Estate or Interests in Real Estate.
See "Item 1.  Business  - Lending  Activities  and -  Regulation,"  and "Item 2.
Description of Property."

                  (2)    Investments  in  Real  Estate  Mortgages.  See "Item 1.
Business - Lending Activities and - Regulation.

                  (3)    Investments  in  Securities  of or Interests in Persons
Primarily  Engaged in Real

                                       23
<PAGE>
Estate Activities. See "Item 1. Business - Lending Activities and - Regulation.

         (c)      Description of Real Estate and Operating Data. Not applicable.

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

         There  are  various   claims  and  lawsuits  in  which   Registrant  is
periodically involved, such as claims to enforce liens, condemnation proceedings
on properties in which Registrant holds security interests, claims involving the
making and  servicing  of real  property  loans,  and other  issues  incident to
Registrant's  business.  In the  opinion  of  management,  no  material  loss is
expected from any of the pending claims or lawsuits.

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
------------------------------------------------------------------

         The Company's  common stock began trading on the NASDAQ National Market
under the  trading  symbol of  "RSBI"on  January 8, 1999.  The  following  table
reflects  high  and low bid  quotations.  The  quotations  reflect  inter-dealer
prices, without retail mark-up,  mark-down, or commission, and may not represent
actual transactions.

                                                                     Dividends
             Date                            High ($)    Low ($)    Declared($)
             ----                            --------    -------    -----------
January 8, 1999 to March 31, 1999             11.88       7.88           --
April 1, 1999 to June 30, 1999                 8.44       6.75           --
July 1, 1999 to September 30, 1999             7.00       6.38           --
October 1, 1999 to December 31, 1999           7.00       5.50           --
January 1, 2000 to March 31, 2000              6.39       4.79          .04
April 1, 2000 to June 30, 2000                 5.77       5.03          .04
July 1, 2000 to September 30, 2000            17.11       5.38          .04
October 1, 2000 to December 31, 2000          17.77      15.86          .04

         The  number of  shareholders  of record of common  shares of the record
date of March 15, 2001, was approximately  700. This does not reflect the number
of persons or  entities  who held stock in  nominee  or  "street"  name  through
various  brokerage  firms. At March 15, 2001, there were 3,180,000 common shares
outstanding.  We may not declare or pay a cash  dividend on any of our shares if
the effect of the declaration or payment of dividends would cause our regulatory
capital to be reduced below (1) the amount required for the liquidation  account
established in connection with the reorganization, or (2) the regulatory capital
requirements imposed by our federal and state regulators.

                                       24
<PAGE>

Item  6.  Management's Discussion and Analysis or Plan of Operation
-------------------------------------------------------------------

         The Private  Securities  Litigation  Reform Act of 1995  contains  safe
harbor  provisions  regarding  forward-looking  statements.  When  used  in this
discussion, the words "believes", "anticipates",  "contemplates", "expects", and
similar expressions are intended to identify  forward-looking  statements.  Such
statements  are  subject to certain  risks and  uncertainties  which could cause
actual  results to differ  materially  from  those  projected.  Those  risks and
uncertainties  include  changes in interest  rates,  risks  associated  with the
ability to control  costs and  expenses,  competition  from both  financial  and
non-financial   institutions,   general  economic  conditions,  and  changes  un
applicable laws and regulations.  We undertake no obligation to publicly release
the results of any revisions to those forward  looking  statements  which may be
made to reflect events or circumstances  after the date hereof or to reflect the
occurrence of unanticipated events.

         References  in  this   discussion  to  "we,"  "us,"  and  "our,"  refer
collectively  to Ridgewood  Financial,  Inc. and  Ridgewood  Savings Bank of New
Jersey.

Overview

         On December 14, 2000, we entered into a merger  agreement  with Boiling
Springs   Bancorp,   Boiling  Springs  MHC  and  Boiling  Springs  Savings  Bank
(collectively, Boiling Springs), to exchange each share of our common stock held
by the public  shareholders,  other than Ridgewood  Financial,  MHC. for $18 per
share.  Previously,  on August  28,  2000,  we  entered  into a  similar  merger
agreement with  Provident  Savings Bank  ("Provident")  at a price of $15.00 per
share. The merger agreement with Provident included a customary non-solicitation
of other offers provision, which required the payment of $1.0 million by us upon
entering into the agreement with Boiling  Springs.  Subsequent to the signing of
the merger agreement with Boiling Springs, we paid Provident $1.0 million, which
was included in non-interest  expense as non-recurring  merger related expenses,
in the fourth quarter of December 31, 2000.  The merger  agreement is subject to
several  contingencies,  including  the receipt of  regulatory  approval and the
approval of our shareholders. We expect the merger transaction to be consummated
during the second quarter of 2001.

Financial Condition

         At December 31, 2000,  total assets  increased  $11.2 million to $288.0
million from $276.8  million at December 31, 1999.  The increase in total assets
resulted  from  increases in federal funds sold and loans  receivable,  net that
were offset by a reduction  of our  mortgage-backed  securities  portfolios.  We
funded  the $11.2  million of new  assets by using a  combination  of funds from
maturities  and sales of  mortgage-backed  securities,  new  borrowings  and new
deposits.

         Federal funds sold increased $10.9 million to $14.8 million at December
31, 2000 from $3.9  million at December  31,  1999.  Such funds will be used for
future loan demand.

                                       25
<PAGE>

         Loans receivable,  net grew $17.1 million to $184.6 million at December
31,  2000 from  $167.5  million at  December  31,  1999.  The growth in our loan
portfolio  was  primarily  due to  increases  in  our  one-to-four  family  loan
portfolio of $11.2  million,  home equity loans of $3.7 million,  and commercial
loans of $1.3 million,  respectively.  Such  increases were due to a very strong
local housing economy and our competitive pricing of loan products.

         At  December  31,  2000,  mortgage-backed  securities  held to maturity
decreased $2.4 million to $14.9 million from $17.3 million at December 31, 1999.
The  decrease  primarily  reflects  principal   collected  on  such  securities.
Additionally at December 31, 2000, mortgage-backed securities available for sale
decreased  $11.2  million to $17.1  million  from $28.3  million at December 31,
1999.  Such  decrease  reflects  $5.1  million of principal  collected  and $6.4
million from proceeds of sales.

         At December 31, 2000,  total  liabilities  increased  $10.4  million to
$262.6 million from $252.2 million. Of such increase,  interest-bearing deposits
increased $30.2 million offset by a decrease in borrowed funds of $19.8 million.
The growth in interest  bearing  deposits was primarily due to the growth in our
certificates  of  deposits.  At  December  31,  2000,  certificates  of deposits
increased  $32.6 million to $178.4  million from $145.8  million at December 31,
1999.  During the latter part of the year in conjunction with the opening of our
new  headquarters  and branch on May 1, 2000,  we promoted our deposit  products
through newspaper advertising and the marketing efforts of our staff.

         Borrowed  funds are  comprised  of advances  from the Federal Home Loan
Bank of New York  ("FHLB").  During the year, we used $46.8 million of our funds
to pay off a  combination  of maturing and callable  FHLB  advances and replaced
such advances with $27.0 million of new borrowed funds.

         Our net worth increased  $800,000 to $25.4 million at December 31, 2000
from $24.6  million at  December  31,  1999.  The  increase  in our net worth at
December  31, 2000  reflected a decrease of $1.6  million in  accumulated  other
comprehensive  loss which was offset by a net loss of $515,000.  The decrease in
other  comprehensive  accumulated  loss resulted from the  fluctuation in market
value of our  investment in available for sale  securities.  Because of interest
rate volatility,  accumulated other comprehensive loss and shareholders'  equity
could materially fluctuate for each interim period and year-end period.

Analysis of Net Interest Income

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

         Net  (Loss)  Income.  Net loss for the year  ended  December  31,  2000
totaled  $515,000  as  compared  to net  income of  $309,000  for the year ended
December  31,  1999.  The net  loss  from  operations  is  primarily  due to the
incurrence of $1.3 million of non-recurring merger related expenses.

                                       26
<PAGE>



         Net Interest  Income.  Net interest income (on a tax equivalent  basis)
before  provision  for loan losses  remained  relatively  unchanged for the year
ended  December 31, 2000 as compared to December  31,  1999.  For the year ended
December 31, 2000, net interest income before  provision for loan losses totaled
$5.6 million compared to $5.5 million at December 31, 1999. However, despite the
higher  interest  rate  environment  in  fiscal  2000,  we were able to keep our
interest rate spread relatively constant.  For the year ended December 31, 2000,
the interest rate spread was 2.05% compared to 2.02% for the year ended December
31, 1999.

         Interest Income. Interest income on a tax equivalent basis for the year
ended  December  31, 2000  increased  $1.7  million to $19.1  million from $17.4
million for the year ended  December 31, 1999. The increase was primarily due to
a combination of higher  average  yields on interest  earning assets and average
balances in loans  receivable  offset by a decrease  in the  average  balance of
securities  available for sale and other interest  earning assets.  For the year
ended  December  31,  2000,  the average  yield (on a tax  equivalent  basis) on
interest  earning  assets  increased 39 basis points to 7.12% from 6.73% for the
year ended December 31, 1999.

         For the  year  ended  December  31,  2000,  interest  income  on  loans
receivable  increased  $3.1  million to $13.0  million from $9.9 million for the
same  period in 1999.  Such  increase  was a result of our  ability to  increase
average loan receivables $45.4 million to $179.4 million as of December 31, 2000
from $134.0 million as of December 31, 1999. However,  such increase in interest
income was somewhat  offset by a 15 basis point  decline in the average yield on
loans  receivable  to 7.26% for the year ended  December 31, 2000 from 7.41% for
the year ended  December 31, 1999.  Decreases in the average  yields were due to
lower interest rates on originated  loans and the continuation of prepayments by
borrowers and the amortization on such loans.

         Average  securities  available for sale  decreased  $26.3 million as of
December 31, 2000 to $61.5  million from $87.8  million as of December 31, 1999,
which resulted in a decline of $1.2 million in interest  income on available for
sale securities. However, the average yield on this portfolio increased 74 basis
points to 6.86% for the year  ended  December  31,  2000 from 6.12% for the year
ended December 31, 1999.

         Interest  Expense.  Total interest  expense for the year ended December
31, 2000 increased $1.6 million to $12.9 million from $11.3 million for the same
fiscal  period in 1999.  In  addition  to higher  average  balances  on interest
earning deposits,  interest rates on certificates of deposits and borrowed funds
increased  sharply during fiscal 2000,  which forced us to reprice  deposits and
other funding sources at much higher costs. For the year ended December 31, 2000
the average cost of funds for interest  bearing  liabilities  increased 36 basis
points to 5.07% from 4.71% for the year ended December 31, 1999.

         For the year ended December 31, 2000,  interest expense on certificates
of deposits  increased  $1.4  million to $8.9  million from $7.5 million for the
year ended  December  31,  1999.  Such  increase  was a result of our ability to
increase average  certificates of deposits $13.2 million to $157.4 million as of
December 31, 2000 from $144.2  million as of December 31, 1999 coupled with a 50
basis  point  increase  in cost of funds  from last  year.  For the year  ended,
December 31, 2000, average cost of funds for certificates of deposits were 5.67%
compared to 5.17% for the year ended December 31, 1999.

                                       27
<PAGE>

         Additionally,  though  average  borrowings  decreased  $800,000  during
fiscal  2000,  cost of funds  increased  37 basis  points over last year,  which
caused  interest  expense on  borrowings  to increase  $115,000 from prior year.
Average  borrowed  funds for the year ended  December  31,  2000  totaled  $43.6
million compared to $44.4 million for the year ended December 31, 1999. Costs of
funds for average  borrowings  for the year ended  December  31, 2000 were 5.87%
compared to 5.50% for the year ended December 31, 1999.

         Provision for loan losses.  For the year ended  December 31, 2000,  the
provision for loan losses decreased $16,000, as a result of non-performing loans
decreasing  $133,000 from fiscal 1999. During 2000, such loans were reclassified
to the current loans status.  Management  continually  evaluates the adequacy of
the   allowance   for  loan   losses,   which   encompasses   the  overall  risk
characteristics of the various portfolio segments,  past experience with losses,
the impact of economic  conditions on borrowers and other relevant factors which
may come to the attention of management.  Although we maintain our allowance for
loan  losses at a level that we  consider  to be  adequate  to  provide  for the
inherent  risk of loss in our loan  portfolio,  there can be no  assurance  that
future losses will not exceed  estimated  amounts or that additional  provisions
for loan losses will not be required in future periods.

         Non-interest  income.  Total  non-interest  income  for the year  ended
December 31, 2000  increased  $1.1 million to $224,000 from a  non-interest  net
loss of $904,000 for the year ended  December 31,  1999.  For the current  year,
non-interest  income does not include a loss of $1.1  million on  available  for
sale mortgage-backed  securities (collateralized mortgage obligations) portfolio
which was recognized in fiscal 1999.

         Non-interest  expenses.  Total non-interest  expense for the year ended
December 31, 2000  increased  $1.8 million to $6.3 million from $4.5 million for
the same 1999 fiscal  period.  The most  significant  increases in  non-interest
expenses  for  the  current   fiscal  year  were   primarily   attributable   to
non-recurring merger related expenses of $1.3 million.  Additionally, due to the
opening of our new headquarters and branch on May 1, 2000, we incurred increased
expenses in salaries and benefits,  occupancy and equipment, and advertising and
promotion.

         Income  taxes.  We  recognized  an income tax expense of $4,000 for the
year ended December 31, 2000 as opposed to an income tax benefit of $319,000 for
the year ended December 31, 1999. Income tax expense primarily  reflects the tax
effect of  non-deductible  merger  expenses  offset by the benefit of tax-exempt
income. See Note 12 to our consolidated financial statements.

Liquidity And Capital Resources

         Our primary sources of funds include savings, deposits, loan repayments
and  prepayments,  cash flow from operations and borrowed funds,  primarily FHLB
advances.  We use our capital resources principally to fund loan origination and
purchases, repay maturing borrowings,  purchase investments,  and for short-term
liquidity  needs. We expect to be able to fund or refinance,  on a timely basis,
our  commitments  and  long-term  liabilities.  As of December 31, 2000,  we had
commitments to extend credit of $18.9 million.  Certificate of deposit  accounts
scheduled to mature in less than one year from December 31, 2000 totaled  $103.0
million.  We expect  that we will  retain a  majority  of  maturing  certificate
accounts.

                                       28
<PAGE>

         Our liquid assets consist of cash and cash  equivalents,  which include
investments  in highly  short-term  investments.  The level of these  assets are
dependent on our operating, financing and investment activities during any given
period. At December 31, 2000, cash and cash equivalents total $17.3 million.

         Net cash  provided by our  operating  activities  (the cash  effects of
transactions that enter into our  determination of net income -- e.g.,  non-cash
items, amortization and depreciation,  premiums and discounts on mortgage-backed
and investment securities, loss (gain ) on sale of securities available for sale
and  provision  for  loan  losses)  for the year  ended  December  31,  2000 was
$238,000, a decrease of $3.2 million from December 31, 2000.

         Net  cash  used  in our  investing  activities  (i.e.,  cash  receipts,
primarily  from  our  investment   securities  and  mortgage-backed   securities
portfolios and our loan  portfolio) for the year ended December 31, 2000 totaled
$2.8 million,  a decrease of $37.4 million from December 31, 1999.  The decrease
in net cash used in investing  activities was primarily the result of a decrease
of $28.1 million in loan originations,  a decrease of $15.2 million in purchases
of  first  mortgage   loans,  a  decrease  of  $39.5  million  in  purchases  of
mortgage-backed  and  investment  securities,  a  decrease  of $3.2  million  in
purchases of premises and  equipment , offset by a decrease of $49.3  million in
net sales and maturities of mortgage-backed securities.

         Net cash  provided by our  financing  activities  (i.e.,  cash receipts
primarily from net increases in deposits and borrowed funds ) for the year ended
December 31, 2000  increased  $5.6 million to $9.3 million from $3.7 million for
the year ended December 31, 1999. The increase was the result of a $33.1 million
increase in deposits,  $10.9  million in proceeds  from  borrowed  funds,  $17.8
million in initial public offering subscription payable, offset by $46.8 million
in repayment of borrowed funds, a $9.8 million decrease in net offering proceeds
and  $500,000 in dividend  payments to the public  shareholders,  other than the
mutual holding company.

         Liquidity  may be adversely  affected by unexpected  deposit  outflows,
excessive  interest rates paid by competitors,  and similar matters.  Management
monitors projected liquidity needs and determines the level desirable,  based in
part on our commitment to make loans and our ability to generate  funds.  We are
also  subject  to  federal  regulations  that  impose  certain  minimum  capital
requirements.

                                       29
<PAGE>

Item  7.  Financial Statements



<PAGE>
[LOGO]
KPMG
     New Jersey Headquarters
     150 John F. Kennedy Parkway
     Short Hills, NJ  07078




                          Independent Auditors' Report


The Board of Directors
Ridgewood Financial, Inc.:


We have audited the consolidated  statements of financial condition of Ridgewood
Financial, Inc. and subsidiary as of December 31, 2000 and 1999, and the related
consolidated  statements of income,  changes in shareholders'  equity,  and cash
flows for the years then ended. These consolidated  financial statements are the
responsibility of the Company's management.  Our responsibility is to express an
opinion on these consolidated financial statements based on our audits.

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

In our opinion, the consolidated  financial statements referred to above present
fairly, in all material respects, the financial position of Ridgewood Financial,
Inc. and  subsidiary as of December 31, 2000 and 1999,  and the results of their
operations  and their cash flows for the years  then  ended in  conformity  with
accounting principles generally accepted in the United States of America.


                                    /s/KPMG LLP



January 22, 2001


[LOGO]
KPMG LLP. KPMB LLP, a U.S. limited liability partnership, is
                    a member of KPMG International a Swiss association.

                                       31
<PAGE>
                    RIDGEWOOD FINANCIAL, INC. AND SUBSIDIARY

                 Consoldiated Sttements of Financial Condition

                           December 31, 2000 and 1999

                        (In Thousands, Except Share Data)

<TABLE>
<CAPTION>
                              Assets                                   2000         1999
                                                                    ---------    ---------
<S>                                                               <C>              <C>
Cash and due from banks                                             $   2,454        6,553
Federal funds sold                                                     14,800        3,900
                                                                    ---------    ---------
                  Cash and cash equivalents                            17,254       10,453

Investment securities (note 4):
    Held to maturity (fair value approximates $624 and $847
       at December 31, 2000 and 1999, respectively)                       616          860
    Available for sale                                                 39,607       39,476
Mortgage-backed securities (notes 5 and 10):
    Held to maturity (fair value approximates $15,031 and $17,088
       at December 31, 2000 and 1999)                                  14,896       17,340
    Available for sale                                                 17,055       28,265
Loans receivable, net of allowance for loan losses of $1,001 in
    2000 and $924 in 1999 (notes 6 and 10)                            184,614      167,468
Accrued interest receivable                                             1,756        1,733
Premises and equipment, net (note 7)                                    8,662        7,099
Federal Home Loan Bank stock, at cost (notes 8 and 10)                  2,622        2,622
Other assets (note 12)                                                    895        1,530
                                                                    ---------    ---------
                  Total assets                                      $ 287,977      276,846
                                                                    =========    =========
               Liabilities and Shareholders' Equity

Liabilities:
    Deposits (note 9):
       Interest bearing                                             $ 225,662      195,467
       Noninterest bearing                                              5,789        6,470
                                                                    ---------    ---------
                  Total deposits                                      231,451      201,937

    Borrowed funds (note 10)                                           28,906       48,678
    Advances from borrowers for taxes and insurance                     1,327        1,247
    Accounts payable and other liabilities (note 11)                      930          369
                                                                    ---------    ---------
                  Total liabilities                                   262,614      252,231
                                                                    ---------    ---------
Shareholders' equity (note 14):
    Preferred stock, no par value.  Authorized 5,000,000 shares;
       none issued and outstanding                                         --           --
    Common stock, par value $.10.  Authorized 10,000,000 shares;
       3,180,000 shares issued and outstanding in 2000 and 1999           318          318
    Additional paid-in capital                                          9,446        9,428
    Retained earnings                                                  16,796       17,802
    Unallocated common stock held by employee stock
       ownership plan                                                    (811)        (913)
    Accumulated other comprehensive loss                                 (386)      (2,020)
                                                                    ---------    ---------
                  Total shareholders' equity                           25,363       24,615

Commitments and contingencies (note 13)
                                                                    ---------    ---------
                  Total liabilities and shareholders' equity        $ 287,977      276,846
                                                                    =========    =========
</TABLE>

See accompanying notes to consolidated financial statements.

                                       32
<PAGE>
                    RIDGEWOOD FINANCIAL, INC. AND SUBSIDIARY

                        Consolidated Statements of Income

                     Years ended December 31, 2000 and 1999

                        (In Thousands, Except Share Data)
<TABLE>
<CAPTION>
                                                              2000           1999
                                                          -----------    -----------
<S>                                                     <C>             <C>
Interest income:
    Loans receivable (note 6)                             $    13,025          9,935
    Investment securities held to maturity                         41             46
    Investment securities available for sale:
       Taxable                                                    470            527
       Tax-exempt                                               1,140          1,190
    Mortgage-backed securities held to maturity                 1,102            859
    Mortgage-backed securities available for sale               2,018          3,046
    Interest on federal funds sold and other short-term
       investments and dividends on FHLB stock (note 8)           732          1,159
                                                          -----------    -----------
                     Total interest income                     18,528         16,762
                                                          -----------    -----------
Interest expense:
    Deposits (note 9)                                          10,325          8,844
    Borrowed funds (note 10)                                    2,560          2,445
                                                          -----------    -----------
                     Total interest expense                    12,885         11,289
                                                          -----------    -----------
                     Net interest income before pro-
                        vision for loan losses                  5,643          5,473

Provision for loan losses (note 6)                                 86            102
                                                          -----------    -----------
                     Net interest income                        5,557          5,371
                                                          -----------    -----------
Noninterest income (loss):
    Fees and service charges                                      194            157
    Gain (loss) on sale of securities (notes 4 and 5)               5         (1,068)
    Other                                                          25              7
                                                          -----------    -----------
                     Total noninterest income (loss)              224           (904)
                                                          -----------    -----------
Noninterest expense:
    Salaries and benefits (note 11)                             2,540          2,364
    Occupancy and equipment (notes 7 and 13)                    1,307          1,011
    Advertising and promotion                                     183            130
    SAIF deposit insurance premium                                 41            119
    Merger related expenses (note 1)                            1,341             --
    Other expenses                                                880            853
                                                          -----------    -----------
                     Total noninterest expense                  6,292          4,477
                                                          -----------    -----------
                     Loss before income taxes                    (511)           (10)

Income tax expense (benefit) (note 12)                              4           (319)
                                                          -----------    -----------
                     Net (loss) income                    $      (515)           309
                                                          ===========    ===========
(Loss) earnings per common share - basic and diluted      $     (0.17)          0.10
                                                          ===========    ===========
Weighted average shares outstanding - basic and diluted   $ 3,078,040      3,092,645
                                                          ===========    ===========
</TABLE>
See accompanying notes to consolidated financial statements.

                                       33
<PAGE>
                    RIDGEWOOD FINANCIAL, INC. AND SUBSIDIARY

           Consolidated Statements of Changes in Shareholders' Equity

                     Years ended December 31, 2000 and 1999

                                 (In Thousands)

<TABLE>
<CAPTION>
                                                                                                Accu-
                                                                                 Unallocated   mulated
                                    Shares                                         common       other
                                      of                  Additional               stock       compre-
                                    common       Common    Paid-in     Retained    held by     hensive      Total
                                    stock         stock    Capital     earnings   the ESOP      (loss)      equity
                                    -------    ---------  ---------   ---------  ----------   ----------------------
<S>                                <C>     <C>           <C>          <C>           <C>        <C>         <C>

Balance at December 31, 1998            --     $      --      --        17,693          --         (271)     17,422
                                    -------    ---------  ---------   ---------  ----------   -----------  ---------

Comprehensive income (loss):
    Net income                                                             309                                  309
    Other comprehensive loss -
       unrealized holding losses
       on securities arising
       during the period (net of
       benefit of $(1,367))                                                                      (2,433)     (2,433)
    Less reclassification
       adjustment for gains
       in net income
       (net of tax of $384)                                                                         684         684
                                                                                                           ---------
                  Total
                    comprehensive
                    loss                                                                                     (1,440)
                                                                                                           ---------
    Net proceeds from common
       stock offering (net of
       expenses of $700)             3,180           318   9,433                                              9,751
    Capitalization of
       Mutual Holding Company                                             (200)                                (200)
    Unallocated common stock
      acquired by the ESOP                                                            (968)                    (968)
    Allocation of ESOP stock                                  (5)                       55                       50
                                    -------    ---------  ---------   ---------  ----------   -----------  ---------
Balance at December 31, 1999         3,180           318   9,428        17,802        (913)      (2,020)     24,615
                                    -------    ---------  ---------   ---------  ----------   -----------  ---------
Comprehensive income (loss):
    Net loss                                                              (515)                                (515)
    Other comprehensive income -
       unrealized holding gains
       on securities arising
       during the period
       (net of tax of $917)                                                                       1,637       1,637
    Less reclassification
        adjustment for gains
        in net income
       (net of tax of $2)                                                                            (3)        (3)
                                                                                                           ---------
                  Total
                    comprehensive
                    income                                                                                    1,119
                                                                                                           ---------
    Dividends paid                                                        (491)                                (491)
    Allocation of ESOP stock                                  18                       102                      120
                                    -------    ---------  ---------   ---------  ----------   -----------  --------
Balance at December 31, 2000         3,180   $       318   9,446        16,796        (811)        (386)     25,363
                                    =======    =========  =========   =========  ==========   ===========  ========
</TABLE>

See accompanying notes to consolidated financial statements.

                                       34
<PAGE>
                    RIDGEWOOD FINANCIAL, INC. AND SUBSIDIARY

                      Consolidated Statements of Cash Flows

                     Years ended December 31, 2000 and 1999

                                 (In Thousands)
<TABLE>
<CAPTION>
                                                                           2000        1999
                                                                         --------    --------
<S>                                                                    <C>              <C>
Cash flows from operating activities:
    Net (loss) income                                                    $   (515)        309
    Adjustments to reconcile net (loss) income to net cash provided by
       operating activities:
          Depreciation                                                        349         212
          Amortization of loan fees                                           (91)       (231)
          Premiums and discounts on mortgage-backed and
            investment securities                                             169       3,245
          (Gain) loss on sale of securities available for sale                 (5)      1,068
          Charge-offs                                                          (9)         --
          Provision for loans losses                                           86         102
          Increase in accrued interest receivable                             (23)       (346)
          Increase in other assets, net                                      (284)       (788)
          Increase (decrease) in other liabilities                            561        (123)
                                                                         --------    --------
                   Net cash provided by operating activities                  238       3,448
                                                                         --------    --------
Cash flows from investing activities:
    Net increase in loans                                                 (17,150)    (45,255)
    Purchase of first mortgage loans                                           --     (15,180)
    Purchase of mortgage-backed securities held to maturity                    --      (8,247)
    Purchase of mortgage-backed securities available for sale                  --        (969)
    Principal collected on mortgage-backed securities held to maturity      2,433       2,200
    Principal collected on mortgage-backed securities available
       for sale                                                             5,100      25,000
    Proceeds from sales of mortgage-backed securities available
       for sale                                                             6,385      34,344
    Purchase of investment securities available for sale                       --     (30,305)
    Proceeds from sales of securities available for sale                       --       3,674
    Maturities and calls of investment securities held to maturity          2,040          --
    Principal collected on investment securities                              216         332
    Purchase of premises and equipment                                     (1,912)     (5,093)
    Purchase of Federal Home Loan Bank stock                                   --        (673)
    Allocation of employee stock ownership shares                             120          50
                                                                         --------    --------
                   Net cash used in investing activities                   (2,768)    (40,122)
                                                                         --------    --------
</TABLE>
                                                                     (Continued)
                                       35
<PAGE>
                    RIDGEWOOD FINANCIAL, INC. AND SUBSIDIARY

                      Consolidated Statements of Cash Flows

                     Years ended December 31, 2000 and 1999

                                 (In Thousands)
<TABLE>
<CAPTION>
                                                                           2000        1999
                                                                         --------    --------
<S>                                                                    <C>              <C>
Cash flows from financing activities:
    Net increase (decrease) in deposits                                  $ 29,514      (3,592)
    Proceeds from borrowed funds                                           27,000      16,150
    Repayment of borrowed funds                                           (46,772)         --
    Net increase in advances from borrowers for
       taxes and insurance                                                     80         321
    Dividends paid                                                           (491)         --
    Decrease in initial public offering subscription
       payable                                                                 --     (17,809)
    Net proceeds from initial public offering                                  --       9,751
    Purchase of employee stock ownership plan stock                            --        (968)
    Capitalization of mutual holding company                                   --        (200)
                                                                         --------    --------
                   Net cash provided by financing activities                9,331       3,653
                                                                         --------    --------
                   Net increase (decrease) in cash and cash
                      equivalents                                           6,801     (33,021)

Cash and cash equivalents at beginning of year                             10,453      43,474
                                                                         --------    --------
Cash and cash equivalents at end of year                                 $ 17,254      10,453
                                                                         ========    ========
Supplemental disclosures of cash flow information - cash payments for:
       Interest on deposits and borrowed funds                           $ 12,871      11,302
                                                                         ========    ========
       Income taxes                                                      $    325         124
                                                                         ========    ========
</TABLE>

See accompanying notes to consolidated financial statements.

                                       36
<PAGE>
                    RIDGEWOOD FINANCIAL, INC. AND SUBSIDIARY

                   Notes to Consolidated Financial Statements

                           December 31, 2000 and 1999


 (1)   Merger

       On December 14, 2000,  Ridgewood  Financial,  Inc. (the Company)  entered
       into a merger  agreement with Boiling Springs  Bancorp,  Inc., the parent
       company of Boiling Springs Savings Bank, Rutherford,  New Jersey (Boiling
       Springs). At the date of acquisition,  the Company's common stock held by
       public  stockholders  will  be  purchased  for $18 per  share,  in  cash,
       resulting  in a  $26,902,800  total  purchase  price.  The merger will be
       accounted  for as a  purchase  by Boiling  Springs.  The  transaction  is
       expected to close in May 2001.

       In  conjunction  with the merger,  the Company  incurred  $1.3 million of
       merger-related  charges  during the year ended  December 31,  2000.  Such
       charges consist of a $1 million breakage fee payable to Provident Savings
       Bank, with whom the Company entered into a merger agreement on August 28,
       2000, and other  identified and  incremental  costs  associated  with the
       merger.  Such costs include  professional  fees for  investment  banking,
       legal and accounting.

       In the event the Company enters into a merger, acquisition, consolidation
       or other form of business  combination  agreement,  the Company shall pay
       Boiling  Springs,  in cash,  the full amount of $500,000  promptly  after
       written  demand by Boiling  Springs.  The merger  agreement  has not been
       terminated  nor has the Company  entered  into any of the  aforementioned
       transactions as of December 31, 2000.

       Upon  effective  date of the merger,  the  Ridgewood  Savings Bank of New
       Jersey  Employee  Stock  Ownership Plan (the ESOP) shall be terminated on
       such  terms  and  conditions  contained  in  the  ESOP  agreement.   Upon
       termination,  all participant  accounts shall be considered  fully vested
       and  non-forfeitable,  all  remaining  assets  shall be  allocated to the
       accounts of the participants, and the ESOP loan will be paid in full. The
       Company  will  record an expense  upon  termination  of the ESOP,  in the
       amount of the cash  proceeds  remaining  after the ESOP loan is repaid in
       full.


 (2)   Conversion and Reorganization

       Upon  the  effective  date  of the  merger,  the  Supplemental  Executive
       Retirement  Plan and Directors  Consultant and Retirement Plan (described
       in note 11)  provide  for  acceleration  in the  vesting of  benefits  or
       payments due thereunder  upon the occurrence of a change in ownership and
       control. Such acceleration will result in an expense to the Company to be
       recorded upon consummation of the merger.

       On June 22, 1998, the Board of Directors of Ridgewood Savings Bank of New
       Jersey  (the Bank)  adopted a Plan of  Conversion  to convert  from a New
       Jersey  chartered  mutual  savings bank to a New Jersey  chartered  stock
       savings bank.  The Bank is a  wholly-owned  subsidiary of the Company,  a
       holding company formed by the Bank.

       The Company is a savings bank holding  company that was  incorporated  in
       July 1998 under the laws of the state of New  Jersey  for the  purpose of
       acquiring  all of the issued and  outstanding  common  stock of the Bank.
       This  acquisition  occurred  in  January  1999.  At that  time,  the Bank
       simultaneously converted

                                      37
                                                                     (Continued)
<PAGE>
                    RIDGEWOOD FINANCIAL, INC. AND SUBSIDIARY

                   Notes to Consolidated Financial Statements

                           December 31, 2000 and 1999

       from a mutual  to  stock  institution  and  sold  all of its  outstanding
       capital  stock  to the  Company.  The  Company  made its  initial  public
       offering of common stock and provided  additional  shares of common stock
       to Ridgewood  Financial,  MHC (MHC), a mutual holding  company that holds
       53% of the outstanding shares of the Company.

       The reorganization and conversion,  including the initial public offering
       of the common  stock of the  Company,  was  completed on January 7, 1999,
       resulting in the issuance of 3,180,000 shares of common stock,  $0.10 par
       value per share, of the Company of which 1,494,600 shares (47%) were sold
       at a purchase  price per share of $7.00 and  1,685,400  shares (53%) were
       issued  to MHC,  resulting  in gross  proceeds  of $10.5  million.  Total
       expenses were approximately  $700,000,  resulting in net proceeds of $9.8
       million.

       Approximately  half of the net proceeds were paid directly by the Company
       to the Bank in return for 100,000 shares of common stock, $2.00 par value
       per share, of the Bank (100% of the issued and outstanding  shares of the
       Bank).  In  addition,  $200,000  was  provided  to MHC by the  Bank.  The
       remaining net proceeds were retained by the Company.

       Concurrent   with  the   conversion  and   reorganization,   the  Company
       established an ESOP and a Restricted  Stock Plan (RSP) for the benefit of
       employees  and  directors.  The ESOP has  purchased  8% of the  number of
       shares sold in the  offering,  in the open market,  using a loan from the
       Company.  The RSP may be submitted  for  stockholder  approval at a later
       date. If  implemented,  the RSP would  purchase up to 4% of the number of
       shares sold in the  offering.  In  addition,  a stock  option plan may be
       submitted for stockholders' approval in the future. If implemented, up to
       10% of the number of shares sold in the  offering  would be reserved  for
       issuance  through  exercise  of options for common  stock.  If the merger
       described  in note 1 is  consummated,  the RSP and stock option plan will
       not be submitted for approval.

       Upon a  complete  liquidation  of the  Bank  after  the  conversion,  the
       Company,  as holder of the Bank's common stock,  would be entitled to any
       assets remaining upon a liquidation of the Bank. Each depositor would not
       have a  claim  in  the  assets  of the  Bank.  However,  upon a  complete
       liquidation of the MHC after the conversion,  each depositor would have a
       claim, up to the pro rata value of his or her accounts,  in the assets of
       the MHC  remaining  after  the  claims  of the  creditors  of the MHC are
       satisfied. Depositors who have liquidation rights in the Bank immediately
       prior to the  conversion  will  continue  to have such  rights in the MHC
       after the conversion for as long as they maintain deposit accounts in the
       Bank after the conversion.


 (3)   Summary of Significant Accounting Policies

       Business Activities

       The sole  operations of the Company are  conducted by the Bank.  The Bank
       grants  residential,  commercial  and  consumer  loans  to,  and  accepts
       deposits from,  customers from three branches located in northeastern New
       Jersey.  The Bank is subject to the  regulations  of certain  federal and
       state agencies and undergoes  periodic  examinations by those  regulatory
       authorities.  The  Bank  operates  in one  segment,  which  is  community
       banking.

                                      38
                                                                     (Continued)
<PAGE>
                    RIDGEWOOD FINANCIAL, INC. AND SUBSIDIARY

                   Notes to Consolidated Financial Statements

                           December 31, 2000 and 1999

       Basis of Financial Statement Presentation

       The  consolidated  financial  statements have been prepared in conformity
       with generally accepted accounting principles and include the accounts of
       the Company and its wholly-owned  subsidiary,  Ridgewood  Savings Bank of
       New  Jersey.   All  significant   intercompany   transactions  have  been
       eliminated.   In  preparing  the   consolidated   financial   statements,
       management is required to make estimates and assumptions  that affect the
       reported  amounts  of  assets  and  liabilities  as of  the  date  of the
       consolidated  statements of financial condition and revenues and expenses
       for the period.  Actual  results  could differ  significantly  from these
       estimates.

       Material  estimates  that are  particularly  susceptible  to  significant
       change in the near term relate to the  determination of the allowance for
       loan losses and the valuation of real estate  acquired in connection with
       foreclosures   or  in  settlement  of  loans.   In  connection  with  the
       determination  of the  allowance  for loan losses and  valuation  of real
       estate owned,  management  generally obtains  independent  appraisals for
       significant properties.

       Cash and Cash Equivalents

       For purposes of the consolidated  statements of cash flows, cash and cash
       equivalents include cash and due from banks and federal funds sold.

       Investment Securities

       Management  determines the  appropriate  classification  of securities as
       either held to maturity or available for sale at the purchase date.  Debt
       securities that management has the ability and intent to hold to maturity
       are  classified  as held to maturity  and carried at cost,  adjusted  for
       amortization of premiums and accretion of discounts. Other securities are
       classified  as  available  for  sale  and  are  carried  at  fair  value.
       Unrealized  gains  and  losses  on  securities  available  for  sale  are
       recognized as a component of other  comprehensive  income,  net of income
       taxes, which is included in equity.  Premiums and discounts are amortized
       using the level-yield  method.  The cost of securities sold is recognized
       using the specific-identification method.

       Mortgage-backed Securities

       Management  determines the appropriate  classification of mortgage-backed
       securities  as  either  held to  maturity  or  available  for sale at the
       purchase  date.   Mortgage-backed   securities  represent   participating
       interests in pools of  long-term  first  mortgage  loans  originated  and
       serviced by third parties. Mortgage-backed securities that management has
       the intent and  ability to hold to  maturity  are  classified  as held to
       maturity  and  carried  at  unpaid  principal   balances,   adjusted  for
       unamortized  premiums and unearned discounts.  All other  mortgage-backed
       securities  are  classified as available for sale and are carried at fair
       value.   Unrealized  gains  and  losses  on  mortgage-backed   securities
       available for sale are  recognized as a component of other  comprehensive
       income,  net of income taxes,  which is included in equity.  Premiums and
       discount are amortized  using the  level-yield  method,  adjusted for any
       prepayments.  The  cost  of  securities  sold  is  determined  using  the
       specific-identification method.

                                      39
                                                                     (Continued)
<PAGE>
                    RIDGEWOOD FINANCIAL, INC. AND SUBSIDIARY

                   Notes to Consolidated Financial Statements

                           December 31, 2000 and 1999

       Loans Receivable and Allowance for Loan Losses

       Loans  receivable  are  stated  at  unpaid  principal  balances  less the
       allowance  for loans  losses  and net  deferred  loan  origination  fees.
       Interest  income on loans is accrued and  credited to interest  income as
       earned.  Loan  origination and commitment fees are deferred and amortized
       as a yield  adjustment  over the  lives of the  related  loans  using the
       interest method.

       The allowance for loan losses is increased by charges to income through a
       provision  for  loan  losses  and  decreased  by   charge-offs,   net  of
       recoveries.  Management's  periodic  evaluation  of the  adequacy  of the
       allowance is based on the Bank's past loss experience, known and inherent
       risks in the portfolio, adverse situations that may affect the borrower's
       ability to repay,  the estimated  value of any underlying  collateral and
       current economic conditions.

       Management believes that the allowance for loan losses is adequate. While
       management  uses  available  information  to  recognize  losses on loans,
       future  additions to the allowance  may be necessary  based on changes in
       economic  conditions  in the Bank's  market area.  In  addition,  various
       regulatory  agencies,  as an integral part of their  routine  examination
       process,  periodically  review the Bank's allowance for loan losses. Such
       agencies  may require the Bank to recognize  additions  to the  allowance
       based on their judgments about information  available to them at the time
       of their examination.

       Loans  are  placed  on  nonaccrual  status  when a loan  is  specifically
       determined to be impaired based on management's periodic evaluation.  Any
       unpaid  interest  previously  accrued  on those  loans is  reversed  from
       income.   Interest  income   generally  is  not  recognized  on  specific
       nonaccrual loans unless the likelihood of further loss is remote and only
       to the extent of interest payments received.

       The  Bank  has  defined  the  population  of  impaired  loans  to be  all
       nonaccrual  and   restructured   commercial   loans,  and  certain  other
       performing  loans considered to be impaired as to principal and interest.
       Impaired  loans are  individually  assessed to determine  that the loan's
       carrying  value is not in excess of the fair value of the  collateral  or
       the present  value of the loan's  expected  future  cash  flows.  Smaller
       balance homogeneous loans that are collectively evaluated for impairment,
       such as residential  mortgage loans and installment  loans,  are excluded
       from the impaired loan portfolio. At December 31, 2000 and 1999, the Bank
       has no impaired loans.

       Premises and Equipment

       Land is carried at cost.  Premises  and  equipment,  including  leasehold
       improvements,  are carried at cost less accumulated depreciation computed
       on the  straight-line  method  over  the  estimated  useful  lives of the
       assets.  Estimated  useful  lives are 40 years for  premises  and 3 to 10
       years for furniture and equipment. Leasehold improvements are depreciable
       over the term of the leases.

       Foreclosed Real Estate

       Real  estate  properties   acquired  through  foreclosure  are  initially
       recorded at the lower of  amortized  cost or estimated  fair value,  less
       estimated costs to sell at the date of foreclosure.  Estimated fair value
       is derived from independent appraisals. Costs relating to development and
       improvements of property are  capitalized,  whereas costs relating to the
       holding of property are expensed.

                                       40

                                                                     (Continued)
<PAGE>
                    RIDGEWOOD FINANCIAL, INC. AND SUBSIDIARY

                   Notes to Consolidated Financial Statements

                           December 31, 2000 and 1999

       Valuations are periodically performed by management, and an allowance for
       losses is  established by a charge to operations if the carrying value of
       a property  exceeds its estimated  fair value,  less  estimated  costs to
       sell.

       Comprehensive Income

       Other comprehensive income includes items previously recorded directly to
       equity,  such as unrealized gains and losses on securities  available for
       sale. Comprehensive income is presented in the consolidated statements of
       changes in shareholders' equity.

       Income Taxes

       Income  taxes are  accounted  for using the asset and  liability  method.
       Deferred tax assets and  liabilities  are  recognized  for the future tax
       consequences  attributable to differences between the financial statement
       carrying  amounts of existing assets and liabilities and their respective
       tax bases. Deferred tax assets and liabilities are measured using enacted
       tax rates expected to apply to taxable income in the years in which those
       temporary differences are expected to be recovered or settled. The effect
       on  deferred  tax  assets  and  liabilities  of a change  in tax rates is
       recognized in income in the period that includes the enactment date.

       Employee Stock Ownership Plan

       An ESOP was  established  January  1, 1998 for the  exclusive  benefit of
       participating   employees  of  the  Bank.   Participating  employees  are
       employees  who have  completed one year of service with the Bank and have
       attained the age of 21. Upon completion of the Plan of Reorganization and
       Stock Issuance, the ESOP acquired 8% of the total shares (119,568 shares)
       issued in the  subscription  offering.  The purchase was funded through a
       loan obtained from the Company.  The loan is expected to be repaid over a
       term of ten  years at an annual  interest  rate  equal to the  prevailing
       prime  interest  rate.  The loan is secured by the shares  purchased  and
       earnings of the ESOP assets.

       When a  principal  payment  is made on the loan,  the pro rata  number of
       shares is  allocated to the eligible  employees  in  accordance  with the
       provisions of the ESOP. During 2000 and 1999, 5,854 of the 119,568 shares
       were allocated in each year.  The  outstanding  principal  balance of the
       ESOP loan is treated as a reduction in shareholders'  equity. ESOP shares
       scheduled  to be released  at the ESOP's year end are  included as shares
       outstanding  for  calculation  of earnings  per share on a pro rata basis
       throughout the year.

       Dividends on unallocated  shares used to pay debt service are reported as
       a  reduction  of  debt  or of  accrued  interest  payable.  Dividends  on
       allocated shares are charged to retained earnings. The Company recognizes
       compensation  cost equal to the fair value of the shares  committed to be
       released.  During  2000 and 1999,  the  Company  recognized  compensation
       expense  of  $120,212  and  $50,000,  respectively.  The  fair  value  of
       unallocated  ESOP shares at December 31, 2000 and 1999 is $1,647,789  and
       $591,000,  respectively. As of the merger date (note 1), the ESOP will be
       terminated and upon termination,  all participant  accounts will be fully
       vested and the loan will be paid in full.

                                       41
                                                                     (Continued)
<PAGE>
                    RIDGEWOOD FINANCIAL, INC. AND SUBSIDIARY

                   Notes to Consolidated Financial Statements

                           December 31, 2000 and 1999


       Earnings Per Common Share

       Basic  earnings  per  share   represents   income   available  to  common
       shareholders  divided  by the  weighted-average  number of common  shares
       outstanding  during  the  period.  Diluted  earnings  per share  reflects
       additional  common  shares that would have been  outstanding  if dilutive
       potential  common  shares had been issued,  as well as any  adjustment to
       income that would result from the assumed issuance. ESOP shares scheduled
       to be released at the ESOP's year end are included as shares  outstanding
       for calculation of earnings per share on a pro rata basis  throughout the
       year.

       Derivative and Hedging Activities

       In June 1999,  the  Financial  Accounting  Standards  Board (FASB) issued
       Statement of Financial  Accounting  Standards (SFAS) No. 137, "Accounting
       for  Derivative  Instruments  and  Hedging  Activities  - Deferral of the
       Effective  Date of FASB  Statement  No. 133." This  statement  delays the
       effective  date of FASB  Statement  No. 133 for one year.  SFAS No.  133,
       "Accounting  for  Derivative  Instruments  and  Hedging  Activities,"  as
       amended by SFAS No. 138,  "Accounting for Certain Derivative  Instruments
       and Certain  Hedging  Activities,"  establishes  accounting and reporting
       standards  for  derivative  instruments,   including  certain  derivative
       instruments embedded in other contracts, and for hedging activities. This
       standard  requires  recognition of all  derivative  instruments as either
       assets  or  liabilities  in  the  statement  of  financial  position  and
       measurement of those  instruments at fair value.  On January 1, 2001, the
       Company  adopted  the  aforementioned  statements  with no  impact on the
       consolidated financial statements.

       Recent Accounting Pronouncements

       In  September  2000,  the  FASB  issued  SFAS No.  140,  "Accounting  for
       Transfers and  Servicing  of  Financial  Assets  and  Extinguishments  of
       Liabilities."  SFAS  No. 140  replaces  SFAS  No. 125,  "Accounting   for
       Transfers and  Servicing   of  Financial  Assets and  Extinguishments  of
       Liabilities."  However,  most  of  the  provisions  of  SFAS No. 125 have
       been carried forward without  reconsideration. SFAS No. 140  revises  the
       standards for  accounting  and  reporting for  securitizations  and other
       transfers  of  financial  assets  and collateral,  servicing of financial
       assets,   extinguishments   of   liabilities,   and   requires    certain
       disclosures. While certain provisions of SFAS No. 140  are  currently  in
       effect,  other provisions  contained in SFAS No. 140  are  not  effective
       until  fiscal  years  ending  after  December 15, 2000  and  for  certain
       transactions  entered into after March 31, 2001.  The  adoption  of  SFAS
       No. 140 is not expected to have a material  impact  on  the  consolidated
       financial statements of the Company.

       Reclassifications

       Certain  reclassifications  have  been  made  to  the  1999  consolidated
       financial statements to conform to the 2000 presentation.

                                       42

                                                                     (Continued)
<PAGE>
                    RIDGEWOOD FINANCIAL, INC. AND SUBSIDIARY

                   Notes to Consolidated Financial Statements

                           December 31, 2000 and 1999


 (4)   Investment Securities

       At December 31, 2000 and 1999, securities held to maturity consist of the
following (in thousands):

<TABLE>
<CAPTION>
                                                    December 31, 2000
                            -------------------------------------------------------------------
                                                 Gross            Gross
                              Amortized        unrealized       unrealized           Fair
                                 cost            gains            losses            value
                            ---------------  ---------------  ---------------   ---------------
<S>                        <C>                         <C>           <C>                <C>
           U.S agencies     $        616                8               --               624
                            ===============  ===============  ===============   ===============
</TABLE>

<TABLE>
<CAPTION>
                                                    December 31, 1999
                            -------------------------------------------------------------------
                                                 Gross            Gross
                              Amortized        unrealized       unrealized           Fair
                                 cost            gains            losses            value
                            ---------------  ---------------  ---------------   ---------------
<S>                        <C>                       <C>             <C>               <C>
           U.S agencies     $        860               --              (13)              847
                            ===============  ===============  ===============   ===============
</TABLE>

       At December 31, 2000, $615,723 was pledged as collateral. At December 31,
       1999, none of these securities was pledged as collateral.

       At December 31, 2000 and 1999,  securities  available for sale consist of
       the following (in thousands):

<TABLE>
<CAPTION>
                                                            December 31, 2000
                                    -------------------------------------------------------------------
                                                         Gross            Gross
                                      Amortized        unrealized       unrealized           Fair
                                         cost            gains            losses            value
                                    ---------------  ---------------  ---------------   ---------------
<S>                                <C>                     <C>              <C>             <C>
           Municipal securities     $     25,792               52             (756)           25,088
           Corporate bonds                 7,032               14              (16)            7,030
           U. S. agencies                  7,430               59               --             7,489
                                    ---------------  ---------------  ---------------   ---------------
                                    $     40,254              125             (772)           39,607
                                    ===============  ===============  ===============   ===============
</TABLE>

                                       43

                                                                     (Continued)
<PAGE>
                    RIDGEWOOD FINANCIAL, INC. AND SUBSIDIARY

                   Notes to Consolidated Financial Statements

                           December 31, 2000 and 1999


<TABLE>
<CAPTION>
                                                                         December 31, 1999
                                                 -------------------------------------------------------------------
                                                                      Gross            Gross
                                                   Amortized        unrealized       unrealized           Fair
                                                      cost            gains            losses            value
                                                 ---------------  ---------------  ---------------   ---------------
<S>                                           <C>                       <C>            <C>               <C>
           Municipal securities               $        25,842               --           (2,586)           23,256
           Corporate bonds                              7,044               --             (123)            6,921
           U. S. agencies                               2,001               --               (1)            2,000
           Equity securities                            7,410                9             (120)            7,299
                                                 ---------------  ---------------  ---------------   ---------------
                                              $        42,297                9           (2,830)           39,476
                                                 ===============  ===============  ===============   ===============
</TABLE>

       At  December  31,  2000  and  1999,   securities   of  $0  and  $846,998,
       respectively, were pledged for municipal deposits.

       The  following  is a  summary  of  maturities  of debt  securities  as of
       December 31, 2000 (in thousands):

<TABLE>
<CAPTION>
                                                         Securities held                 Securities available
                                                           to maturity                         for sale
                                                 --------------------------------  ---------------------------------
                                                   Amortized           Fair          Amortized            Fair
                                                      cost            value             cost             value
                                                 ---------------  ---------------  ---------------   ---------------
<S>                                              <C>                    <C>           <C>               <C>
           Amounts maturing in:
              One year or less                   $         --               --            5,004             5,018
              After one year through five
                  years                                    --               --           11,937            11,956
              After five years through
                  ten years                                --               --            9,630             9,271
              After ten years                             616              624           13,683            13,362
                                                 ---------------  ---------------  ---------------   ---------------
                                                 $        616              624           40,254            39,607
                                                 ===============  ===============  ===============   ===============
</TABLE>

       Expected  maturities  will differ  from  contractual  maturities  because
       borrowers  may  have  the  right to call or  prepay  obligations  with or
       without call or prepayment penalties.

       Proceeds from sales of investment  securities  available for sale and the
       realized  gross  gains and  losses  from those  sales are as follows  (in
       thousands):


                                                  Years ended December 31
                                              ---------------------------------
                                                   2000              1999
                                              ---------------   ---------------
                Proceeds from sales           $         --             3,674
                                              ===============   ===============
                Gross realized gains          $         --                39
                                              ===============   ===============


                                       44
                                                                     (Continued)
<PAGE>
                    RIDGEWOOD FINANCIAL, INC. AND SUBSIDIARY

                   Notes to Consolidated Financial Statements

                           December 31, 2000 and 1999


(5)   Mortgage-backed Securities

       At  December  31,  2000  and  1999,  mortgage-backed  securities  held to
       maturity consist of the following (in thousands):

<TABLE>
<CAPTION>
                                                                    December 31, 2000
                                            ------------------------------------------------------------------
                                                                 Gross            Gross
                                              Amortized        unrealized       unrealized          Fair
                                                 cost            gains            losses           value
                                            ---------------  ---------------  ---------------  ---------------
<S>                                      <C>                        <C>             <C>           <C>
                GNMA                        $      2,856               52               --            2,908
                FHLMC                              1,675                9               (3)           1,681
                FNMA                              10,365               92              (15)          10,442
                                            ---------------  ---------------  ---------------  ---------------
                                            $     14,896              153              (18)          15,031
                                            ===============  ===============  ===============  ===============
</TABLE>

<TABLE>
<CAPTION>
                                                                    December 31, 1999
                                            ------------------------------------------------------------------
                                                                 Gross            Gross
                                              Amortized        unrealized       unrealized          Fair
                                                 cost            gains            losses           value
                                            ---------------  ---------------  ---------------  ---------------
<S>                                       <C>                       <C>            <C>            <C>
                GNMA                        $      3,319               17              (40)           3,296
                FHLMC                              1,931                5              (44)           1,892
                FNMA                              12,090               16             (206)          11,900
                                            ---------------  ---------------  ---------------  ---------------
                                            $     17,340               38             (290)          17,088
                                            ===============  ===============  ===============  ===============
</TABLE>

       At  December  31,  2000 and 1999,  securities  of $5.1  million  and $8.7
       million, respectively, were pledged as collateral.

       At December 31, 2000 and 1999,  mortgage-backed  securities available for
       sale consist of the following (in thousands):

<TABLE>
<CAPTION>
                                                                    December 31, 2000
                                            ------------------------------------------------------------------
                                                                 Gross            Gross
                                              Amortized        unrealized       unrealized          Fair
                                                 cost            gains            losses           value
                                            ---------------  ---------------  ---------------  ---------------
<S>                                       <C>                        <C>             <C>           <C>
                FHLMC                       $      8,385               33              (16)           8,402
                FNMA                               8,627               49              (23)           8,653
                                            ---------------  ---------------  ---------------  ---------------
                                            $     17,012               82              (39)          17,055
                                            ===============  ===============  ===============  ===============
</TABLE>

                                       45

                                                                     (Continued)
<PAGE>
                    RIDGEWOOD FINANCIAL, INC. AND SUBSIDIARY

                   Notes to Consolidated Financial Statements

                           December 31, 2000 and 1999
<TABLE>
<CAPTION>
                                                                    December 31, 1999
                                            ------------------------------------------------------------------
                                                                 Gross            Gross
                                              Amortized        unrealized       unrealized          Fair
                                                 cost            gains            losses           value
                                            ---------------  ---------------  ---------------  ---------------
<S>                                      <C>                        <C>            <C>            <C>
                GNMA                        $        608               --               --              608
                FHLMC                             14,144               20             (137)          14,027
                FNMA                              13,848               15             (233)          13,630
                                            ---------------  ---------------  ---------------  ---------------
                                            $     28,600               35             (370)          28,265
                                            ===============  ===============  ===============  ===============
</TABLE>

       At  December  31,  2000 and 1999,  securities  of $1.7  million and $18.4
       million, respectively, were pledged as collateral.

       The following is a summary of maturities of mortgage-backed securities as
       of December 31, 2000 (in thousands):

<TABLE>
<CAPTION>
                                                         Mortgage-backed                   Mortgage-backed
                                                         securities held                 securities available
                                                           to maturity                         for sale
                                                 --------------------------------  ---------------------------------
                                                   Amortized           Fair          Amortized            Fair
                                                      cost            value             cost             value
                                                 ---------------  ---------------  ---------------   ---------------
<S>                                           <C>                    <C>              <C>               <C>
           Amounts maturing in:
              One year or less                   $         --               --              426               424
              After one year through five
                  years                                   924              918            3,716             3,720
              After five years through
                  ten years                             1,908            1,930           11,330            11,348
              After ten years                          12,064           12,183            1,540             1,563
                                                 ---------------  ---------------  ---------------   ---------------
                                                 $     14,896           15,031           17,012            17,055
                                                 ===============  ===============  ===============   ===============
</TABLE>

       Expected  maturities  will differ  from  contractual  maturities  because
       borrowers may have the right to call or prepay  obligations  without call
       or prepayment penalties.

                                       46

                                                                     (Continued)
<PAGE>
                    RIDGEWOOD FINANCIAL, INC. AND SUBSIDIARY

                   Notes to Consolidated Financial Statements

                           December 31, 2000 and 1999

       Proceeds from sales of mortgage-backed  securities available for sale and
       the  realized  gross gains and losses from those sales are as follows (in
       thousands):
<TABLE>
<CAPTION>
                                                                        Years ended December 31
                                                                -----------------------------------------
                                                                      2000                  1999
                                                                ------------------    ------------------
<S>                                                             <C>                         <C>
                Proceeds from sales                             $         7,533                34,344
                                                                ==================    ==================
                Gross realized gains                            $            14                    --
                                                                ==================    ==================
                Gross realized losses                           $            (9)               (1,107)
                                                                ==================    ==================
</TABLE>

 (6)   Loans

       The  following  is a summary of loans at  December  31, 2000 and 1999 (in
       thousands):
<TABLE>
<CAPTION>
                                                                        2000              1999
                                                                   ---------------   ---------------
<S>                                                             <C>                    <C>
           First mortgage loans:
              Secured by one- to four-family residences            $    158,159           146,971
              Secured by other property                                   7,593             6,932
                                                                   ---------------   ---------------
                             Total first mortgage loans                 165,752           153,903
                                                                   ---------------   ---------------
           Commercial loans                                               2,956             1,689
                                                                   ---------------   ---------------
           Consumer loans:
              Equity                                                     16,286            12,612
              Auto loans                                                    113                --
              Loans to depositors, secured by  savings                      448               214
              Other                                                         107                97
                                                                   ---------------   ---------------
                             Total consumer loans                        16,954            12,923
                                                                   ---------------   ---------------
           Less:
              Net deferred loan fees                                         47               123
              Allowance for loan losses                                   1,001               924
                                                                   ---------------   ---------------
                                                                   $    184,614           167,468
                                                                   ===============   ===============
</TABLE>
                                       47

                                                                     (Continued)
<PAGE>
                    RIDGEWOOD FINANCIAL, INC. AND SUBSIDIARY

                   Notes to Consolidated Financial Statements

                           December 31, 2000 and 1999


       Loans  serviced  for others  amounted to  $4,181,928  and  $4,669,000  at
       December 31, 2000 and 1999, respectively.

       Activity in the  allowance  for loan losses for the years ended  December
       31, 2000 and 1999 is summarized as follows (in thousands):

<TABLE>
<CAPTION>
                                                                    2000             1999
                                                               ---------------  ---------------
<S>                                                          <C>                       <C>
                Balance at beginning of year                   $        924              822
                Provision charged to income                              86              102
                Charge-offs                                              (9)              --
                                                               ---------------  ---------------
                Balance at end of year                         $      1,001              924
                                                               ===============  ===============
</TABLE>

       The balance of  nonaccrual  loans totaled $0 and $133,000 at December 31,
       2000 and  1999,  respectively.  Interest  income  that  would  have  been
       recorded under the original terms of such loans  approximated  $8,000 for
       the year ended  December  31,  1999.  There were no  commitments  to lend
       additional funds to borrowers whose loans were classified as nonaccrual.


 (7)   Premises and Equipment

       Premises  and  equipment  at December  31, 2000 and 1999  consists of the
       following (in thousands):

<TABLE>
<CAPTION>
                                                                      2000             1999
                                                                 ---------------  ---------------
<S>                                                            <C>                   <C>
                Land                                             $      1,052            1,052
                Building and improvements                               6,267            5,128
                Leasehold improvements                                    800              800
                Furniture, fixtures and equipment                       1,873            1,100
                                                                 ---------------  ---------------
                                                                        9,992            8,080
                Less accumulated depreciation                           1,330              981
                                                                 ---------------  ---------------
                                                                 $      8,662            7,099
                                                                 ===============  ===============
</TABLE>

       Depreciation  expense  for the years  ended  December  31,  2000 and 1999
       amounted to $349,000 and $212,000, respectively.

                                       48

                                                                     (Continued)
<PAGE>
                    RIDGEWOOD FINANCIAL, INC. AND SUBSIDIARY

                   Notes to Consolidated Financial Statements

                           December 31, 2000 and 1999


 (8)   Federal Home Loan Bank Stock

       The Bank,  as a member of the Federal Home Loan Bank System,  is required
       to maintain an  investment in capital stock of the Federal Home Loan Bank
       of New York (FHLB). The FHLB paid dividends at an effective rate of 6.93%
       and 6.81% for the years ended December 31, 2000 and 1999, respectively.


 (9)   Deposits

       Deposits at  December  31,  2000 and 1999 are  summarized  as follows (in
       thousands):

<TABLE>
<CAPTION>
                                                          2000                                 1999
                                             --------------------------------     --------------------------------
                                                                 Weighted                             Weighted
                                                 Amount        average rate           Amount        average rate
                                             ---------------  ---------------     ---------------  ---------------
<S>                                        <C>                <C>               <C>                   <C>
           Noninterest bearing               $      5,676             --%         $      6,470             --%
           NOW accounts                            14,303           2.21                12,582           2.22
           Passbook                                29,229           3.19                32,893           3.24
           Money market                             3,821           2.97                 4,202           2.91
           Certificates of deposit                178,422           6.08               145,790           5.21
                                             ---------------  ===============     ---------------  ===============
                                             $    231,451                         $    201,937
                                             ===============                      ===============
</TABLE>

       The aggregate  amount of certificate  of deposit  accounts with a minimum
       denomination  of  $100,000  was  approximately  $27.5  million  and $18.8
       million at December 31, 2000 and 1999, respectively.

       At December 31, 2000 and 1999,  scheduled  maturities of  certificates of
       deposit are as follows (in thousands):

<TABLE>
<CAPTION>
                                                                                   2000             1999
                                                                              ---------------  ---------------
<S>                                                                         <C>                    <C>
                One year or less                                              $    103,036           96,488
                One year to two years                                               66,151           43,066
                Two years to three years                                             8,752            3,731
                Three years to four years                                              435            2,443
                Five years or more                                                      48               62
                                                                              ---------------  ---------------
                                                                              $    178,422          145,790
                                                                              ===============  ===============
</TABLE>
                                       49

                                                                     (Continued)
<PAGE>
                    RIDGEWOOD FINANCIAL, INC. AND SUBSIDIARY

                   Notes to Consolidated Financial Statements

                           December 31, 2000 and 1999


       Interest  expense on deposits  for the years ended  December 31, 2000 and
       1999 is summarized as follows (in thousands):


                                                     2000              1999
                                                ---------------   --------------

                NOW accounts                    $        299               281
                Passbook                                 988               980
                Money market                             119               126
                Certificates of deposit                8,919             7,457
                                                ---------------   --------------
                                                $     10,325             8,844
                                                ===============   ==============

(10)  Borrowed Funds

       Borrowed  funds at December 31, 2000 and 1999 are  summarized  as follows
       (in thousands):

                                                      2000             1999
                                                 ---------------  --------------
                Advances from the FHLB           $     28,906           48,678
                                                 ===============  ==============

       Pursuant to collateral  agreements with the FHLB, advances are secured by
       all stock in the FHLB,  mortgage-backed  securities and qualifying  first
       mortgage  loans.  The  advances  are  callable  by the FHLB.  Advances at
       December 31, 2000 have maturity dates as follows (in thousands):

                         2001                            $      5,000
                         2002                                   4,200
                         2004                                   1,500
                         2005                                   2,000
                         2006                                     446
                         2008                                   6,000
                         2009                                   9,760
                                                         ---------------
                                                         $     28,906
                                                         ===============

       The interest rates on advances  ranged from 4.65% to 6.90% and from 4.65%
       to 6.76% at  December  31,  2000 and  1999,  respectively.  The  weighted
       average  interest rate on FHLB advances at December 31, 2000 and 1999 was
       5.87% and 5.55%, respectively.

                                       50

                                                                     (Continued)
<PAGE>
                    RIDGEWOOD FINANCIAL, INC. AND SUBSIDIARY

                   Notes to Consolidated Financial Statements

                           December 31, 2000 and 1999

(11)   Employee Retirement Plans

       Pension Plan

       The Bank had a defined  benefit  pension  plan (the  pension  plan) which
       covered all employees who satisfied  the  eligibility  requirements.  The
       benefits were computed  using an average of the  employee's  compensation
       for the highest  five years during the last ten years of  employment.  At
       December 31, 1999, the Bank's pension plan had a benefit obligation, plan
       assets and funded status of $735,957, $871,077 and $80,979, respectively.
       During 1999, employer contributions and benefit payments were $54,080 and
       $71,190,  respectively.  Assumptions  utilized to develop  the  actuarial
       present  value of the pension  plan at December  31, 1999 were a discount
       rate  of 8%,  expected  long-term  rate  of  return  of 8%  and  expected
       increases in compensation levels of 5.50%.

       Effective  January 1, 2000,  the Bank merged its plan into the  Financial
       Institutions  Retirement  Fund  Comprehensive   Retirement  Program  (the
       Program),  a  multiemployer  plan. In January 2000,  all plan assets were
       transferred to the successor  trustee.  Upon this plan being merged,  the
       Bank recognized  $117,563 of pension plan settlement income. The Bank did
       not receive any assets from the merger. The merger did not impact current
       or future  participant  benefits.  Costs of the pension plan are based on
       the  contribution  required to be made to the program.  Due to the funded
       status of the Program, the Bank was not required to make contributions in
       2000. Annual  contributions are made to the Program in an amount not less
       than the minimum regulatory requirements.

       Supplemental Executive Retirement Plan

       In 1998, the Bank  established a supplemental  executive  retirement plan
       (SERP) for the benefit of its senior officers. The SERP provides that the
       participant  may  receive  additional  retirement  income in  addition to
       benefits payable under the Bank's defined benefit pension plan.  Benefits
       are  calculated as 60% of final average  earnings upon  retirement at age
       65, reduced by benefits  payable under the Bank's defined benefit pension
       plan and Social Security benefits.  Benefits payable prior to age 65 will
       be reduced by 1% per month of early retirement. The SERP is unfunded.

       Directors Consultant and Retirement Plan

       In 1998, the Bank established a directors  consultant and retirement plan
       (DRP)  which  provides   retirement   benefits  to  directors   following
       retirement  after age 60 and  completion of at least 10 years of service.
       If a director  becomes a  consulting  director to the Board of  Directors
       (Board) upon  retirement,  then he or she will receive a monthly  payment
       equal to  between  50% and 80% of the  Board fee in effect at the date of
       retirement  for a period of 120  months;  such level of benefits is based
       upon years of service as of the retirement date. The DRP is unfunded.

                                       51

                                                                     (Continued)
<PAGE>
                    RIDGEWOOD FINANCIAL, INC. AND SUBSIDIARY

                   Notes to Consolidated Financial Statements

                           December 31, 2000 and 1999

       The  following  table shows the funded  status of the Bank's SERP and DRP
       and the amount  reported  in the  consolidated  statements  of  financial
       condition at December 31, 2000 and 1999 (in thousands):

<TABLE>
<CAPTION>
                                                            2000             1999
                                                       ---------------  ---------------
<S>                                                    <C>                  <C>
       Change in benefit obligation:
          Benefit obligation at beginning of year               817              857
          Service cost                                           50               63
          Interest cost                                          64               55
          Benefits paid                                         (20)             (13)
          Actuarial gain                                        (82)            (145)
                                                       ---------------  ---------------
          Benefit obligation at end of year                     829              817
                                                       ---------------  ---------------
                         Funded status                         (829)            (817)

       Unrecognized gain                                       (257)            (177)
       Unrecognized past service liability                      625              699
                                                       ---------------  ---------------
                         Accrued pension liability     $       (461)            (295)
                                                       ===============  ===============
</TABLE>

       Weighted  average  assumptions  used to develop the net periodic  pension
       costs are as follows (in thousands):

                                                       2000        1999
                                                    ----------   ---------

                Discount rate                           7.25%       8.00%
                Rate of increase in compensation
                    levels                              4.75        5.50
                                                    ==========   =========

                                       52

                                                                     (Continued)
<PAGE>
                    RIDGEWOOD FINANCIAL, INC. AND SUBSIDIARY

                   Notes to Consolidated Financial Statements

                           December 31, 2000 and 1999

       Listed below are the  components  of pension  expense for the years ended
       December 31, 2000 and 1999 (in thousands):


                                                        2000         1999
                                                      ----------   ---------

                Service cost                          $      50           63
                Interest cost                                64           55
                Unrecognized gain                            (9)          --
                Unrecognized past service
                    liability                                74           74
                                                      ----------   ---------
                              Net periodic pension
                                  cost                $     179          192
                                                      ==========   =========


       Profit-sharing Plan

       The Bank has a 401(k)  profit-sharing  plan  covering  substantially  all
       employees.  The plan  provides for the Bank to match 50% of an employee's
       contribution up to 4% of an  individual's  salary.  Contributions  to the
       plan for the years ended  December  31, 2000 and 1999 were  approximately
       $25,300  and  $23,000,   respectively.   At  the  merger  effective  date
       (described in note 1), the 401(k) profit-sharing plan will be terminated.
       Upon termination, all participants will be fully vested.


(12)   Income Taxes

       Income tax expense  (benefit)  for the years ended  December 31, 2000 and
       1999 is summarized as follows (in thousands):


                                                         2000         1999
                                                     ------------  -----------
           Current:
               Federal                                     116         (258)
               State                                        36           19
                                                     ------------  -----------
                                                           152         (239)
                                                     ============  ===========
                                       53

                                                                     (Continued)
<PAGE>
                    RIDGEWOOD FINANCIAL, INC. AND SUBSIDIARY

                   Notes to Consolidated Financial Statements

                           December 31, 2000 and 1999

                                                         2000       1999
                                                     ----------  ---------
           Deferred:
               Federal                               $    (142)       (77)
               State                                        (6)        (3)
                                                     ----------  ---------
                                                          (148)       (80)
                                                     ==========  =========
           Total:
               Federal                                     (26)      (335)
               State                                        30         16
                                                     ----------  ---------
                                                     $       4       (319)
                                                     ==========  =========

       Total income tax expense (benefit)  differed from the amounts computed by
       applying the U.S.  federal income tax rate of 34% to income before income
       taxes as a result of the following (in thousands):

                                                         2000        1999
                                                     ----------  ----------
           Expected income tax (benefit) expense
               at federal tax rate                   $    (174)         (3)
           (Decrease) increase in taxes
               resulting from:
                  State income tax, net of
                    federal income tax effect               16          11
                  Merger expenses                          455          --
                  Tax-exempt interest                     (388)       (406)
                  Disallowed interest expense               82          77
                  Other, net                                13           2
                                                     ----------  ----------
                                                     $       4        (319)
                                                     ==========  ==========

       Total income tax expense  (benefit) for the years ended December 31, 2000
       and 1999 was allocated as follows (in thousands):

<TABLE>
<CAPTION>
                                                                 2000        1999
                                                               ----------  ------------
<S>                                                          <C>              <C>
           Income tax expense (benefit) from operations        $       4        (319)
           Accumulated other comprehensive income
              (loss) - unrealized gain (loss) on securities
              available for sale                                     919        (983)
                                                               ----------  ------------
                                                               $     923      (1,302)
                                                               ==========  ============
</TABLE>
                                       54

                                                                     (Continued)
<PAGE>
                    RIDGEWOOD FINANCIAL, INC. AND SUBSIDIARY

                   Notes to Consolidated Financial Statements

                           December 31, 2000 and 1999

       The  following  are the  significant  components  of the net deferred tax
       asset at December 31, 2000 and 1999 (in thousands):

<TABLE>
<CAPTION>
                                                                                           2000             1999
                                                                                      ---------------  ---------------
<S>                                                                                 <C>                  <C>
       Components of deferred tax asset:
          Provision for loan losses - book                                            $        360              333
          Loan fees                                                                             50               50
          Interest reserves                                                                     --                3
          Amortization of premiums and discounts on investment
              securities and mortgage-backed securities                                        151              199
          Accrued SERP                                                                          95               61
          Other                                                                                118               92
          Unrealized losses on available-for-sale securities                                   217            1,136
                                                                                      ---------------  ---------------
                         Total deferred tax asset                                              991            1,874
                                                                                      ---------------  ---------------
       Components of deferred tax liability:
          Depreciation                                                                          (5)             (55)
          Provision for loan losses - tax                                                     (216)            (288)
          Deferred loan cost                                                                   (59)             (47)
          Other                                                                                 (8)             (10)
                                                                                      ---------------  ---------------
                         Total deferred tax liability                                         (288)            (400)
                                                                                      ---------------  ---------------
                         Net deferred tax asset                                       $        703            1,474
                                                                                      ===============  ===============
       Net state deferred tax asset                                                   $         37               80
       Net federal deferred tax asset                                                          666            1,394
                                                                                      ---------------  ---------------
                                                                                      $        703            1,474
                                                                                      ===============  ===============
</TABLE>

       Management  has  determined  that it is more likely than not that it will
       realize  the  deferred  tax asset based upon the nature and timing of the
       items listed above. There can be no assurances,  however, that there will
       be no significant  differences  in the future between  taxable income and
       pretax book income if circumstances change. In order to fully realize the
       net deferred  tax asset,  the Bank will need to generate  future  taxable
       income.  Management has projected that the Bank will generate  sufficient
       taxable income to utilize the net deferred tax asset; however,  there can
       be no assurance as to such levels of taxable income generated.

                                       55

                                                                     (Continued)
<PAGE>
                    RIDGEWOOD FINANCIAL, INC. AND SUBSIDIARY

                   Notes to Consolidated Financial Statements

                           December 31, 2000 and 1999

       Retained earnings at December 31, 2000 include approximately $3.1 million
       for which no  provision  for  income  taxes has been  made.  This  amount
       represents  an  allocation  of  income  to bad  debt  deductions  for tax
       purposes  only.  Events that would  result in taxation of these  reserves
       include failure to qualify as a bank for tax purposes;  distributions  in
       complete  or  partial   liquidation;   stock   redemptions;   and  excess
       distributions  to  shareholders.  At December 31,  2000,  the Bank has an
       unrecognized tax liability of $1.1 million with respect to this reserve.


(13)   Commitments, Contingencies and Concentrations of Credit Risk

       In the  ordinary  course of  business,  the Bank has various  outstanding
       commitments  that  are not  reflected  in the  accompanying  consolidated
       financial statements.  The principal commitments of the Bank are outlined
       in the following section.

       Lease Commitments

       At  December  31,  2000,  the  Bank is  obligated  under a  noncancelable
       operating  lease  expiring in February  2005 for its office and  drive-in
       facilities  in  Ridgewood,  New  Jersey.  The lease  contains  escalation
       clauses  providing  for  increased  rentals  based upon  increases in the
       consumer  price index and an option to renew for an additional ten years.
       In addition,  the Bank leases a facility in Mahwah,  New Jersey,  under a
       noncancelable  operating  lease  expiring  in  November  2007.  The lease
       contains  an option  to renew for an  additional  eight  years.  Net rent
       expense  exclusive  of real  estate  taxes  under the  operating  leases,
       included in occupancy and equipment expense,  was approximately  $200,355
       and   $187,397   for  the  years  ended   December  31,  2000  and  1999,
       respectively.

       The  projected  minimum  rental  payments  under the terms of the leases,
       exclusive of the renewal options, as of December 31, 2000 are as follows:

           2001                           $    155,000
           2002                                155,000
           2003                                155,000
           2004                                155,000
           2005                                155,000
           2006 and thereafter                 472,000
                                          ------------
                                          $  1,247,000
                                          ============


       Real estate  taxes,  insurance  and  maintenance  expenses are  generally
       obligations  of the Bank and,  accordingly,  are not  included as part of
       rental payments.

                                       56

                                                                     (Continued)
<PAGE>
                    RIDGEWOOD FINANCIAL, INC. AND SUBSIDIARY

                   Notes to Consolidated Financial Statements

                           December 31, 2000 and 1999

       Financial Instruments with Off-balance-sheet Risk

       The  Bank  maintains  its  cash  and  cash  equivalents  in bank  deposit
       accounts,  the balances of which, at times, may exceed federally  insured
       limits.  Additionally,  the Bank is a party to financial instruments with
       off-balance-sheet  risk in the  normal  course  of  business  to meet the
       financing needs of its customers.  These financial  instruments primarily
       consist of commitments to extend credit.  These instruments  involve,  to
       varying  degrees,  elements of credit and interest rate risk in excess of
       the  amounts  recognized  in the  consolidated  statements  of  financial
       condition.

       The Bank's exposure to credit loss in the event of  nonperformance by the
       other party to the financial instruments for commitments to extend credit
       is represented by the contractual  notional amount of those  instruments.
       The  Bank  uses  the same  credit  policies  in  making  commitments  and
       conditional  obligations  as it does  for  on-balance-sheet  instruments.
       Commitments to extend credit are agreements to lend to a customer as long
       as there is no violation of any  condition  established  in the contract.
       Commitments  generally have fixed expiration  dates or other  termination
       clauses  and may  require  payment  of a fee.  The  Bank  evaluates  each
       customer's  creditworthiness on a case-by-case basis. The amount and type
       of collateral obtained by the Bank upon extension of credit varies and is
       based on management's credit evaluation of the counterparty/customer.

       Loan Commitments

       At December  31,  2000,  the Bank has  outstanding  firm  commitments  to
       originate loans as follows (in thousands):

<TABLE>
<CAPTION>
                                                                  Fixed           Variable
                                                                   rate             rate             Total
                                                              ---------------  ---------------   ---------------
<S>                                                         <C>                <C>                  <C>
                Consumer and other loans                      $        270               --               270
                Commercial and construction                             --            5,025             5,025
                                                              ---------------  ---------------   ---------------
                                                              $        270            5,025             5,295
                                                              ===============  ===============   ===============

                         Commitments under home equity
                             lines of credit                                   $      1,055
                         Commitments under overdraft lines
                             of credit                                                   --
                                                                               ----------------
                                                                               $      1,055
                                                                               ================
</TABLE>

       Litigation

       In the  normal  course of  business,  the Bank may be a party to  various
       outstanding  legal  proceedings and claims. In the opinion of management,
       the  consolidated  financial  position of the Bank will not be materially
       affected by the outcome of such legal proceedings and claims.

                                       57

                                                                     (Continued)
<PAGE>
                    RIDGEWOOD FINANCIAL, INC. AND SUBSIDIARY

                   Notes to Consolidated Financial Statements

                           December 31, 2000 and 1999

       Concentrations of Credit Risk

       A  substantial  portion  of the  Bank's  loans  are  one- to  four-family
       residential  first  mortgage  loans secured by real estate located in New
       Jersey.  Accordingly,  the collectibility of a substantial portion of the
       Bank's loan  portfolio is  susceptible  to changes in real estate  market
       conditions.


(14)   Minimum Regulatory Capital Requirements

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

       Quantitative   measures  established  by  regulation  to  ensure  capital
       adequacy  require the Company  and Bank to maintain  minimum  amounts and
       ratios (set forth in the following table) of total and Tier 1 capital (as
       defined in the regulations) to  risk-weighted  assets (as defined) and of
       Tier 1 capital (as defined) to average  assets (as  defined).  Management
       believes, as of December 31, 2000 and 1999, that the Company and Bank met
       all capital adequacy requirements to which it is subject.

                                       58

                                                                     (Continued)
<PAGE>
                    RIDGEWOOD FINANCIAL, INC. AND SUBSIDIARY

                   Notes to Consolidated Financial Statements

                           December 31, 2000 and 1999

       As of  December  31,  2000,  the most recent  notification  from the FDIC
       categorized the Bank as well capitalized  under the regulatory  framework
       for prompt corrective  action. To be categorized as well capitalized,  an
       institution must maintain minimum total risk-based, Tier 1 risk-based and
       Tier 1 leverage ratios as set forth in the following table.  There are no
       conditions or events since the notification that management believes have
       changed the Bank's  category.  The Company's  and Bank's  actual  capital
       amounts and ratios as of December 31, 2000 and 1999 are also presented in
       the table.

<TABLE>
<CAPTION>
                                                                                                    To be well
                                                                                                 capitalized under
                                                                         For capital             prompt corrective
                                                Actual                adequacy purposes          action provisions
                                        ------------------------   ------------------------   -------------------------
                                          Amount       Ratio         Amount       Ratio         Amount        Ratio
                                        ----------- ------------   ------------ -----------   ------------ ------------
                                                                        (In thousands)
<S>                                   <C>             <C>        <C>               <C>      <C>              <C>
       As of December 31, 2000:
           Total capital (to risk-
             weighted assets):
                 Consolidated           $   26,749      19.54      $   10,955        8.00     $   13,693       10.00
                 Bank                       24,482      17.88          10,955        8.00         13,693       10.00
           Tier 1 capital (to risk-
             weighted assets):
                 Consolidated               25,749      18.80           5,477        4.00          8,216        6.00
                 Bank                       23,481      17.15           5,477        4.00          8,216        6.00
           Tier 1 capital
             (to average assets):
                 Consolidated               25,749       8.34          12,353        4.00         15,441        5.00
                 Bank                       23,481       8.31          11,296        4.00         14,121        5.00
       As of December 31, 1999:
           Total capital (to risk-
             weighted assets):
                 Consolidated               27,560      20.70          10,158        8.00         12,698       10.00
                 Bank                       23,574      18.57          10,156        8.00         12,696       10.00
           Tier 1 capital (to risk-
             weighted assets):
                 Consolidated               26,636      20.98           5,079        4.00          7,619        6.00
                 Bank                       22,650      17.84           5,078        4.00          7,617        6.00
           Tier 1 capital
             (to average assets):
                 Consolidated               26,636       9.06          11,762        4.00         14,702        5.00
                 Bank                       22,650       8.59          10,547        4.00         13,184        5.00
                                        =========== ============   ============ ===========   ============ ============
</TABLE>

                                       59

                                                                     (Continued)
<PAGE>
                    RIDGEWOOD FINANCIAL, INC. AND SUBSIDIARY

                   Notes to Consolidated Financial Statements

                           December 31, 2000 and 1999


(15)   Fair Values of Financial Instruments

       The following methods and assumptions were used by the Bank in estimating
       its fair value disclosure for financial instruments:

       Cash and Cash Equivalents

       The carrying amounts reported in the consolidated statements of financial
       condition for these assets approximate their fair value.

       Investment Securities (Including Mortgage-backed Securities)

       Fair values for investment securities are based on quoted market prices.

       Loans

       Fair values are estimated using  discounted cash flow analysis,  based on
       interest  rates  currently  being offered for loans with similar terms to
       borrowers of similar credit quality.  Loan fair value  estimates  include
       judgments   regarding   future   expected   loss   experience   and  risk
       characteristics.

       Deposits

       The fair values  disclosed for demand deposits are, by definition,  equal
       to the amount payable on demand at the reporting date. The fair value for
       certificates  of  deposit  is  estimated  using a  discounted  cash  flow
       calculation  that  applies  interest  rates  currently  being  offered on
       certificates of deposit to a schedule of aggregate contractual maturities
       on such time deposits.

       Borrowed Funds

       The fair value of borrowed  funds is estimated  using a  discounted  cash
       flow calculation that applies interest rates currently being offered.

       FHLB Stock

       The fair value of FHLB stock approximates carrying value.

       Off-balance-sheet Commitments

       The fair value of  commitments  to extend  credit is estimated  using the
       fees  currently  charged to enter into  similar  arrangements  and is not
       included in the table since it is not significant.

                                       60

                                                                     (Continued)
<PAGE>
                    RIDGEWOOD FINANCIAL, INC. AND SUBSIDIARY

                   Notes to Consolidated Financial Statements

                           December 31, 2000 and 1999

       The estimated fair values of the Bank's financial instruments at December
       31, 2000 and 1999 are as follows (in thousands):

<TABLE>
<CAPTION>
                                                              2000                               1999
                                                 --------------------------------  ---------------------------------
                                                    Carrying           Fair           Carrying            Fair
                                                     amount           value            amount            value
                                                 ---------------  ---------------  ---------------   ---------------
<S>                                              <C>                <C>              <C>               <C>
           Assets:
               Cash and cash equivalents           $   17,254           17,254           10,453            10,453
               Investment securities - HTM                616              624              860               847
               Investment securities - AFS             39,607           39,607           39,476            39,476
               Mortgage-backed securities -
                  HTM                                  14,896           15,031           17,340            17,088
               Mortgage-backed securities -
                  AFS                                  17,055           17,055           28,265            28,265
               Loans receivable, net                  184,614          185,711          167,468           165,619
               FHLB stock                               2,622            2,622            2,622             2,622
           Liabilities:
               Deposits                               231,451          232,103          201,937           199,732
               Borrowed funds                          28,906           29,097           48,678            48,343
                                                    =========        =========       ==========        ==========
</TABLE>

       The  carrying  amounts  in  the  preceding  table  are  included  in  the
       consolidated  statements  of  financial  condition  under the  applicable
       captions.

       Limitations

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

       Fair value  estimates  are based on existing  on-balance-sheet  financial
       instruments  without  attempting  to  estimate  the value of  anticipated
       future  business  and the value of assets  and  liabilities  that are not
       considered financial  instruments.  The tax ramifications  related to the
       realization  of the  unrealized  gains and losses can have a  significant
       effect  on fair  value  estimates  and have not  been  considered  in the
       estimates.

                                       61
                                                                     (Continued)
<PAGE>
                    RIDGEWOOD FINANCIAL, INC. AND SUBSIDIARY

                   Notes to Consolidated Financial Statements

                           December 31, 2000 and 1999


Item 8.  Changes  in  and  Disagreements  with  Accountants  On  Accounting  and
--------------------------------------------------------------------------------
         Financial Disclosure.
         ---------------------

         Not applicable.

                                    PART III

Item 9. Directors, Executive Officers, Promoters and Control Persons: Compliance
--------------------------------------------------------------------------------
        with Section 16(a) of the Exchange Act.
        ---------------------------------------

         The  information  required  under this item is  incorporated  herein by
reference  to the  Proxy  Statement  for the 2001  Annual  Meeting  (the  "Proxy
Statement")  contained under the sections  captioned  "Section 16(a)  Beneficial
Ownership  Reporting  Compliance," and "Election of Directors."

Item 10.  Executive Compensation
--------------------------------

         The  information  required by this item is incorporated by reference to
the  Proxy  Statement  contained  under  the  section  captioned  "Director  and
Executive Officer Compensation."

Item 11.  Security Ownership of Certain Beneficial Owners and Management
------------------------------------------------------------------------

         (a)      Security Ownership of Certain Beneficial Owners
         (b)      Security Ownership of Management

                  The  information required by items (a) and (b) is incorporated
                  herein  by reference to the Proxy  Statement  contained  under
                  the  sections captioned  "Principal Holders" and "Election  of
                  Directors."

         (c)      Management  of the Company knows of no arrangements, including
                  any pledge  by any person of  securities  of the Company,  the
                  operation  of  which  may at a  subsequent  date  result  in a
                  change in control of the Company.

Item 12.  Certain Relationships and Related Transactions
--------------------------------------------------------

         The  information  required  by this  item  is  incorporated  herein  by
reference  to  the  section   captioned   "Certain   Relationships  and  Related
Transactions" in the Proxy Statement.

Item 13.  Exhibits, Lists and Reports on Form 8-K
-------------------------------------------------

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

         (1) The  consolidated  statements  of financial  condition of Ridgewood
Financial,  Inc. and subsidiary as of December 31, 2000 and 1999 and the related
consolidated  statements  of income,  changes

                                       62
<PAGE>

in shareholders'  equity and cash flows for the years then ended,  together with
the related notes and the independent  auditors' report of KPMG LLP, independent
certified public accountants for the year ended December 31, 2000.

         (2)      Schedules omitted as they are not applicable.

          3.   The   following   exhibits   are   included  in  this  Report  or
               incorporated herein by reference:
<TABLE>
<CAPTION>
<S>     <C>     <C>
         (a)      List of Exhibits:
                  2       Agreement and Plan of Merger between the Company and Boiling Springs
                            Bancorp, Inc.*
                  3(i)    Certificate of Incorporation of Ridgewood Financial, Inc.**
                  3(ii)   Bylaws of Ridgewood Financial, Inc.**
                  10.1    Amended Form of Employment Agreement with Susan E. Naruk***
                  10.2    Amended Form of Employment Agreement with Nelson Fiordalisi***
                  10.5    Supplemental Executive Retirement Plan**
                  21      Subsidiaries of the Registrant (See Item 1 --
                            Description of Business -- General)
                  23      Consent of KPMG LLP
</TABLE>

          (b)  The  Registrant  did not file any  reports on Form 8-K during the
               quarter ended December 31, 2000.

------------------
*         Incorporated  by  reference  to  the  Definitive  Proxy  Statement  on
          Schedule 14A filed with the Commission on December 15, 2000.
**        Incorporated by reference to the identically  numbered  Exhibit of the
          Registration  Statement on Form SB-2 (File No.  333-62363)  filed with
          the Commission on August 27, 1998.
***       Incorporated by reference to the identically  numbered  exhibit of the
          Quarterly  Report on Form 10-QSB filed with the  Commission on May 12,
          2000.


                                       63
<PAGE>

                                   SIGNATURES

         In accordance  with Section 13 or 15(d) of the Securities  Exchange Act
of 1934, the registrant  caused this report to be signed as of March 29, 2001 on
its behalf by the undersigned, thereunto duly authorized.

                                         Ridgewood Financial, Inc.

                                         By: /s/Susan E. Naruk
                                             -----------------------------------
                                             Susan E. Naruk
                                             President and Chief
                                             Executive Officer
                                             (duly authorized representative)

         In accordance with 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 indicated as of March 29, 2001.

<TABLE>
<CAPTION>
<S>                                               <C>

/s/Susan E. Naruk                                    /s/John Scognamiglio
-----------------------------------------            --------------------------------------------
Susan E. Naruk                                       John Scognamiglio
President, Chief Executive Officer,                  Senior Vice President and Chief
and Director                                         Financial Officer
(Principal Executive Officer)                        (Principal Financial and Accounting Officer)


/s/Nelson Fiordalisi                                 /s/Bernard J. Hoogland
-----------------------------------------            --------------------------------------------
Nelson Fiordalisi                                    Bernard J. Hoogland
Executive Vice President, Chief Operating            Director
Officer, and Director


/s/Michael W. Azzara                                 /s/John Kandravy
-----------------------------------------            --------------------------------------------
Michael W. Azzara                                    John Kandravy
Director                                             Director


/s/Jerome Goodman                                    /s/Robert S. Monteith
-----------------------------------------            --------------------------------------------
Jerome Goodman                                       Robert S. Monteith
Director                                             Director


/s/John J. Repetto                                   /s/Paul W. Thornwall
-----------------------------------------            --------------------------------------------
John J. Repetto                                      Paul W. Thornwall
Director                                             Director

</TABLE>