EXHIBIT 13
<PAGE>
                           Ridgewood Financial, Inc.
Corporate Profile

         On January 7, 1999, our wholly owned subsidiary, Ridgewood Savings Bank
of New Jersey, completed its mutual holding company reorganization and we became
its  parent  holding  company.  Ridgewood  Financial,  MHC,  which is owned  and
controlled by the depositors of Ridgewood Savings, was also formed as the bank's
mutual holding company. Ridgewood Financial MHC conducts no significant business
or operations of its own other than holding a majority of our outstanding common
stock.

         As part of the  reorganization,  we completed a minority stock offering
and  sold  1,494,600  shares  of our  common  stock  to the  public.  We  raised
approximately  $9.8  million in net  proceeds  which was added to our net worth.
Ridgewood Financial, MHC was issued 1,685,400 shares.

         We  currently  conduct  our  business  through the Bank with three full
service  offices  located  in  Ridgewood  and Mahwah  and a  mini-branch  in the
Allendale  Community  for Mature  Living in  Allendale,  New Jersey.  Our fourth
branch, which will also be our new headquarters, will be opened in April 2000 in
the former  MacHugh's  retail store on East Ridgewood  Avenue.  We offer a broad
range  of  deposits  and  loan  products  to  individuals,  families  and  small
businesses.  At December 31, 1999, we had assets of $276.8 million,  deposits of
$201.9 million, and stockholder's equity of $24.6 million.

Stock Market Information

         Our 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 1999....    7.00      5.50           --

         The  number of  shareholders  of record of common  shares of the record
date of March 15, 2000, was approximately  800. 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, 2000, 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.


                                       2
<PAGE>
                     MANAGEMENT'S DISCUSSION AND ANALYSIS OF
                  FINANCIAL CONDITION AND RESULTS OF OPERATIONS

         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,  year 2000 issues and general  economic
conditions.  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.

Overview

         On January 7, 1999, our wholly owned subsidiary, Ridgewood Savings Bank
of New  Jersey  ("Ridgewood  Savings"),  completed  its mutual  holding  company
reorganization  and we became its parent holding company.  Ridgewood  Financial,
MHC, which is owned and controlled by the depositors of Ridgewood  Savings,  was
also  formed as the bank's  mutual  holding  company.  Ridgewood  Financial  MHC
conducts no  significant  business or operations of its own other than holding a
majority of our outstanding common stock.

          As part of the reorganization,  we completed a minority stock offering
and  sold  1,494,600  shares  of our  common  stock  to the  public.  We  raised
approximately  $9.8  million in net  proceeds  which was added to our net worth.
Ridgewood Financial, MHC was issued 1,685,400 shares.

         We currently  conduct our business through Ridgewood Savings with three
full service  offices  located in Ridgewood and Mahwah and a mini-branch  in the
Allendale Community for Mature Living in Allendale,  New Jersey. We plan to open
our fourth branch,  which will also be our new  headquarters,  in April 2000. We
expect that our  non-interest  expense in fiscal 2000 will  increase  due to the
costs associated with opening a new branch.

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

Financial Condition

         At December 31, 1999, our total assets remained relatively unchanged at
$276.8 million from $274.7 million at December 31, 1998.  However the components
of our total assets changed as follows.

         Federal funds sold decreased $37.3 million,  or 90.5 %, to $3.9 million
at December 31, 1999 from $41.2  million at December  31, 1998.  At December 31,
1998,  federal funds sold  included our minority  stock  offering  subscriptions
totaling $17.8 million. Of this amount, due to the oversubscription of the stock
offering  in January  1999,  we  refunded  $8.0  million to  subscribers  of our
minority stock  offering.  Of the remaining  funds, we used $28.3 million of the
funds to  originate  loans and $1.0  million of such funds to  renovate  our new
headquarters.


                                       4
<PAGE>

         Loans receivable,  net grew $60.5 million,  or 56.5%, to $167.5 million
at December 31, 1999 from $107.0 million at December 31, 1998. The growth in our
loan portfolio was primarily due to our one-to-four  family loan  portfolio.  At
December 31, 1999, our  one-to-four  family loan portfolio grew $58.1 million to
$147.0  million from $88.9 million at December 31, 1998. Of this  increase,  our
fixed rate one-to four family loans  increased  approximately  $31.0 million (of
which  $15.2  million  was  purchased   during  our  second   quarter)  and  our
adjustable-rate  one-to-four family loans increased approximately $28.0 million.
In addition to our purchase of one-to-four  family loans,  such loans  increased
due to a lower rate  environment.  The increased capital from our minority stock
offering  gives us the  ability to increase  our loan growth and to  originate a
larger volume of loans.

         During  1999,  in  conjunction  with  our  asset/liability   management
strategy, we took advantage of the generally lower interest rate environment and
decreased  our available for sale mortgage  backed  securities  portfolio  $59.4
million.  The net funds received from sales and  maturities  from this portfolio
were reinvested into higher yielding investment  securities and mortgaged-backed
securities and adjustable rate  one-to-four  family  mortgage loans.  Investment
securities  available  for sale  increased  $22.6  million,  to $39.5 million at
December  31, 1999 from $16.9  million at December 31, 1998 and held to maturity
mortgage backed  securities  increased $6.1 million to $17.3 million at December
31, 1999 from $11.3 million at December 31, 1998. See also  Non-Interest  Income
discussion below.

         At December  31, 1999 our borrowed  funds  increased  $16.2  million to
$48.7 million from $32.6 million at December 31, 1998. Of such borrowings, $13.2
million  were used for the  purchase of our  one-to-four  family  loans and $3.0
million of such funds were used to purchase our new headquarters.

         Our net worth  increased  $7.2 million to $24.6 million at December 31,
1999 from $17.4 million at December 31, 1998. The increase reflects $9.8 million
of net proceeds from our stock offering and $309,000 of net income for the year,
which was partially  offset by an increase of $1.7 million in accumulated  other
comprehensive  loss and $913,000 due to the implementation of our employee stock
ownership plan.

          The increase 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.  The  decrease in market  value of the  investment  securities
available for sale is considered temporary in nature and will not affect our net
income unless the  securities are sold. We plan to hold these  securities  until
maturity or until the market values of these securities  increase.  Accordingly,
we do not expect,  though there is no  assurance,  that our  investment in these
securities  will affect net income in future  periods.  See Notes 3 and 4 to our
consolidated financial statements.

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.

                                       5

<PAGE>

         Net Income.  Net income for the year ended  December 31, 1999 decreased
$418,000,  or 57.5%,  to $309,000 from $727,000 for the year ended  December 31,
1998.  Pre-tax  income  decreased  $1.0  million  in 1999 as a result  of a $1.1
million net loss recognized on the sale of mortgaged-backed securities available
for sale.

         Net Interest  Income.  Net interest income (on a tax equivalent  basis)
before  provision for loan losses  increased  $670,000,  or 12.4%,  for the year
ended  December  31, 1999 to $6.1  million  from $5.4 million for the year ended
December 31, 1998.  The  increase was  primarily  due to the increase in average
loans of $28.6 million coupled with a 31 basis point decrease in average cost of
funds to 4.71% for 1999 from 5.02 % for 1998.  Offsetting  the  increase  in net
interest  income was a 26 basis point  decline in the yield on average  interest
earning  assets  to 6.73% for 1999 from  6.99%  for 1998.  The yield on  average
interest-earning  assets  declined in 1999 due to a 48 basis  point  decrease in
yields on loans  receivable to 7.41% for 1999 from 7.89% for 1998. Such decrease
in loan yields was the result of lower  interest  rates on  originated  loans as
well as the prepayment and amortization of higher rate loans.

         Provision for loan losses.  For the year ended  December 31, 1999,  the
provision  for loan losses  decreased  $102,000,  as a result of  non-performing
loans  decreasing  $562,000  from  fiscal  1998.  During  1999,  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, 1999  decreased  $1.1 million to a total  non-interest  net loss of
$904,000 from total non-interest  income of $199,000 for the year ended December
31,  1998.  Such loss was due to the  recognition  of a loss of $1.1  million on
available  for  sale   mortgage-backed   securities   (collateralized   mortgage
obligations)  portfolio.  Due to low  yields  on these  securities  and the high
levels of  prepayments,  we decided in the second  quarter of 1999 to  liquidate
this portfolio. The sale of these securities was consummated in July 1999.

         Non-interest expenses.  Total non-interest expenses remained relatively
unchanged to $4.5 million for the year ended December 31, 1999 from $4.2 million
for the year ended December 31, 1998. There were also no material changes in the
components which comprised non-interest expense.

         Income  taxes.  We recognized an income tax benefit of $319,000 for the
year ended  December  31, 1999 as opposed to income tax expense of $272,000  for
the year ended  December 31,  1998.  The tax benefit in 1999 was  primarily  the
result of our  increased  levels of tax exempt  securities  coupled  with a $1.0
million  decline  in net  income.  See  Note  11 to our  consolidated  financial
statements.

Year 2000

         We rely on computers to conduct our  business and  information  systems
processing.  Industry  experts  were  concerned  that on January  1, 2000,  some
computers might not be able to interpret the new year properly, causing computer
malfunctions. Some banking industry experts remain concerned that some computers
may not be able to interpret additional dates in the year 2000 properly. We have
operated and evaluated our computer  operating systems following January 1, 2000
and  have  not  identified  any  errors  or  experienced   any  computer  system
malfunctions.  We will  continue  to monitor our

                                       6
<PAGE>

information systems to assess whether our systems are at risk of misinterpreting
any future dates and will develop, if needed,  appropriate  contingency plans to
prevent any potential system malfunction or correct any system failures. We have
not  been  informed  of any  such  problem  experienced  by our  vendors  or our
customers.

         However, it is too soon to conclude that there will not be any problems
arising from the Year 2000 problem.  We will continue to monitor our significant
vendors  of goods and  services  and  customers  with  respect  to any Year 2000
problems they may encounter,  as those issues may effect our ability to continue
operations,  or might  adversely  affect  our  financial  position,  results  of
operations and cash flows.  At this time, we do not believe that these potential
problems will materially impact the ability to continue our operations or effect
our financial statements.  However, any delays, mistakes, or failures could have
a significant impact on our financial condition and profitability.

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, 1999,  we had
commitments to extend credit of $14.8 million.  Certificate of deposit  accounts
scheduled to mature in less than one year from  December 31, 1999 totaled  $96.5
million.  We expect  that we will  retain a  majority  of  maturing  certificate
accounts.

         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, 1999, cash and cash equivalents total $10.5 million.  In
connection  with our new  headquarters,  at December 31, 1999 we have  estimated
future  capital  expenditures  of  approximately  $1.3  million to complete  the
renovation.

         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, 1999 was $3.4
million, an increase of $700,000 from December 31, 1998.

         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, 1999 totaled
$40.1 million, an increase of $19.7 million from December 31, 1998. The increase
was  primarily  attributable  to our use of  $59.0  million  in cash to fund the
increase in loan originations,  primarily one-to-four family mortgage loans, the
use of $5.1  million was used  primarily  to  construct  and fully equip our new
headquarters,  offset by net cash received of $44.4 million due to the net sales
and maturities of investment and 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, 1999 totaled $3.7  million,  which was the result of our receipt of
$16.2 million in borrowings,  offset by a $3.6 million decrease in deposits, and
$8.0 million in  oversubscription  refunds to  subscribers in our minority stock
offering..  During 1999, we

                                       7
<PAGE>

used  borrowed  funds to fund our loan growth,  and may continue to do so in the
future depending on market  conditions,  the pricing of deposit products and the
pricing of borrowed funds.

         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.

                                       8

<PAGE>
[LOGO                         New Jersey Headquarters
 KPMG]                        150 John F. Kennedy Parkway
                              Short Hills, N.J. 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, 1999 and 1998, 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  generally   accepted  auditing
standards.  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, 1999 and 1998,  and the results of their
operations  and their cash flows for the years  then  ended in  conformity  with
generally accepted accounting principles.



                                        /s/KPMG LLP

January 24, 2000

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


                                       9

<PAGE>
                                    RIDGEWOOD FINANCIAL, INC. AND SUBSIDIARY

                                 Consolidated Statements of Financial Condition

                                           December 31, 1999 and 1998

                                        (In Thousands, Except Share Data)
<TABLE>
<CAPTION>

                              Assets                                                    1999                1998
                                                                                   ----------------    ----------------
<S>                                                                           <C>                         <C>
Cash and due from banks                                                        $           6,553               2,274
Federal funds sold                                                                         3,900              41,200
                                                                                   ----------------    ----------------
                  Cash and cash equivalents                                               10,453              43,474

Investment securities (note 3):
    Held to maturity (fair value approximates $847 and $1,374
       at December 31, 1999 and 1998, respectively)                                          860               1,354
    Available for sale                                                                    39,476              16,921
Mortgage-backed securities (notes 4 and 9):
    Held to maturity (fair value approximates $17,088 and $11,409
       at December 31, 1999 and 1998)                                                     17,340              11,277
    Available for sale                                                                    28,265              88,390
Loans receivable, net of allowance for loan losses of $924 in
    1999 and $822 in 1998 (notes 5 and 9)                                                167,468             107,021
Accrued interest receivable                                                                1,733               1,387
Premises and equipment, net (note 6)                                                       7,099               2,218
Federal Home Loan Bank stock, at cost (notes 7 and 9)                                      2,622               1,949
Other assets (note 11)                                                                     1,530                 742
                                                                                   ----------------    ----------------
                  Total assets                                                 $         276,846             274,733
                                                                                   ================    ================

               Liabilities and Shareholders' Equity

Liabilities:
    Deposits (note 8):
       Interest bearing                                                        $         195,467             201,424
       Non-interest bearing                                                                6,470               4,105
                                                                                   ----------------    ----------------
                  Total deposits                                                         201,937             205,529

    Borrowed funds (note 9)                                                               48,678              32,557
    Initial public offering subscriptions payable                                             --              17,809
    Advances from borrowers for taxes and insurance                                        1,247                 926
    Accounts payable and other liabilities (note 10)                                         369                 490
                                                                                   ----------------    ----------------
                  Total liabilities                                                      252,231             257,311
                                                                                   ----------------    ----------------
Shareholders' equity (note 15):
    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 1999 and
       none in 1998                                                                          318                  --
    Additional paid-in capital                                                             9,428                  --
    Retained earnings                                                                     17,802              17,693
    Unallocated common stock held by employee stock
       ownership plan                                                                       (913)                 --
    Accumulated other comprehensive loss                                                  (2,020)               (271)
                                                                                   ----------------    ----------------
                  Total shareholders' equity                                              24,615              17,422

Commitments and contingencies (note 12)
                                                                                   ----------------    ----------------
                  Total liabilities and shareholders' equity                   $         276,846             274,733
                                                                                   ================    ================
</TABLE>

See accompanying notes to consolidated financial statements.

                                       10
<PAGE>
                                    RIDGEWOOD FINANCIAL, INC. AND SUBSIDIARY

                                        Consolidated Statements of Income

                                       Years ended December 31, 1999, 1998

                                        (In Thousands, Except Share Data)
<TABLE>
<CAPTION>
                                                                                      1999                1998
                                                                                  ----------------    ----------------

<S>                                                                          <C>                          <C>
Interest income:
    Loans receivable (note 5)                                                 $           9,935               8,312
    Investment securities held to maturity                                                   46                 286
    Investment securities available for sale:
       Taxable                                                                              527                 587
       Tax-exempt                                                                         1,190                 333
    Mortgage-backed securities held to maturity                                             859                 871
    Mortgage-backed securities available for sale                                         3,046               4,831
    Interest on federal funds sold and other short-term
       investments and dividends on FHLB stock (note 7)                                   1,159               1,124
                                                                                  ----------------    ----------------
                     Total interest income                                               16,762              16,344
                                                                                  ----------------    ----------------
Interest expense:
    Deposits (note 8)                                                                     8,844               9,764
    Borrowed funds (note 9)                                                               2,445               1,335
                                                                                  ----------------    ----------------
                     Total interest expense                                              11,289              11,099
                                                                                  ----------------    ----------------
                     Net interest income before pro-
                        vision for loan losses                                            5,473               5,245

Provision for loan losses (note 5)                                                          102                 204
                                                                                  ----------------    ----------------
                     Net interest income                                                  5,371               5,041
                                                                                  ----------------    ----------------
Non-interest income (loss):
    Fees and service charges                                                                157                 140
    (Loss) gain on sale of securities (notes 3 and 4)                                    (1,068)                 24
    Gain on sale of loans                                                                    --                  21
    Other                                                                                     7                  14
                                                                                  ----------------    ----------------
                     Total non-interest (loss) income                                      (904)                199
                                                                                  ----------------    ----------------
Non-interest expense:
    Salaries and benefits (note 10)                                                       2,364               2,238
    Occupancy and equipment (notes 6 and 12)                                              1,217               1,145
    Advertising and promotion                                                               130                 150
    SAIF deposit insurance premium                                                          119                 118
    Other expenses                                                                          647                 590
                                                                                  ----------------    ----------------
                     Total non-interest expense                                           4,477               4,241
                                                                                  ----------------    ----------------
                     (Loss) income before income taxes                                        (10)              999

Income tax (benefit) expense (note 11)                                                       (319)              272
                                                                                  ----------------    ----------------
                     Net income                                               $             309                 727
                                                                                  ================    ================
Earnings per common share:
    Basic                                                                     $              0.10                --
    Diluted                                                                                  0.10                --
                                                                                  ================    ================
Weighted average shares outstanding:
    Basic                                                                     $       3,092,645                  --
    Diluted                                                                           3,092,645                  --
                                                                                  ================    ================
</TABLE>
See accompanying notes to consolidated financial statements.

                                       11
<PAGE>
                               RIDGEWOOD FINANCIAL, INC. AND SUBSIDIARY

                      Consolidated Statements of Changes in Shareholders' Equity

                             Years ended December 31, 1999, 1998 and 1997

                                            (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    income (loss)      equity
                                       ---------    --------  -----------   ------------   -----------------------------------------
<S>                                   <C>       <C>            <C>           <C>             <C>          <C>             <C>

Balance at December 31, 1997             --       $     --        --           16,966          --              228          17,194
                                       ---------    --------  -----------   ------------   -----------    -----------   ------------

Comprehensive income (loss):
   Net income                                                                     727                         --               727
   Other comprehensive loss -
     unrealized holding losses
     on securities arising
     during the period (net of
     benefit of $(290))                                                          --                           (514)           (514)
   Less reclassification
     adjustment for gains in net
     income (net of tax of $9)                                                   --                             15              15
                                       ---------    --------  -----------   ------------   -----------    -----------   ------------

       Total comprehensive income                                                                                              228
                                                                                                                        ------------

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 losses in net income
     (net of benefit 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
                                       =========    ========  ===========   ============   ===========    ===========   ============
</TABLE>


See accompanying notes to consolidated financial statements.


                                       12
<PAGE>
                                    RIDGEWOOD FINANCIAL, INC. AND SUBSIDIARY

                                      Consolidated Statements of Cash Flows

                                     Years ended December 31, 1999 and 1998

                                                 (In Thousands)
<TABLE>
<CAPTION>
                                                                                            1999             1998
                                                                                        --------------  ---------------
<S>                                                                                 <C>                   <C>
Cash flows from operating activities:
    Net income                                                                       $          309              727
    Adjustments to reconcile net income to net cash provided by
       operating activities:
          Depreciation                                                                          212              205
          Amortization of loan fees                                                            (231)            (131)
          Premiums and discounts on mortgage-backed and
            investment securities                                                             3,245            1,146
          Proceeds from loan sales                                                               --              771
          Gain on sale of loans                                                                  --              (21)
          Loans originated for resale                                                            --               --
          Disposal of premises and equipment                                                     --               77
          Loss (gain) on sale of securities available for sale                                1,068              (24)
          Provision for loans losses                                                            102              204
          Increase in deferred taxes                                                         (1,063)            (270)
          (Increase) decrease in accrued interest receivable                                   (346)             222
          Decrease in other assets, net                                                         275              126
          Decrease in other liabilities                                                        (123)            (308)
                                                                                        --------------  ---------------
                   Net cash provided by operating activities                                  3,448            2,724
                                                                                        --------------  ---------------
Cash flows from investing activities:
    Net increase in first mortgage loans                                                    (45,295)          (1,416)
    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)         (69,435)
    Principal collected on mortgage-backed securities                                        27,200           32,316
    Proceeds from sales of mortgage-backed securities available
       for sale                                                                              34,344               --
    Purchase of investment securities available for sale                                    (30,305)         (13,642)
    Proceeds from sales of securities available for sale                                      3,674           10,522
    Maturities and calls of investment securities held to maturity                               --            7,896
    Maturities and calls of investment securities available for sale                             --           13,200
    Principal collected on investment securities                                                332              374
    Purchase of premises and equipment                                                       (5,093)            (247)
    Purchase of Federal Home Loan Bank stock                                                   (673)              --
    Proceeds from collection of loan fees                                                        40               36
    Allocation of employee stock ownership shares                                                50               --
                                                                                        --------------  ---------------
                   Net cash used in investing activities                                    (40,122)         (20,396)
                                                                                        --------------  ---------------

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

                                      Consolidated Statements of Cash Flows

                                     Years ended December 31, 1999 and 1998

                                                 (In Thousands)
<TABLE>
<CAPTION>
                                                                                            1999               1998
                                                                                      --------------       -----------
<S>                                                                                <C>                      <C>
Cash flows from financing activities:
    Net (decrease) increase in deposits                                              $       (3,592)          11,640
    Proceeds from borrowed funds                                                             16,150           31,800
    Repayment of borrowed funds                                                                  --          (15,525)
    Net increase in advances from borrowers for
       taxes and insurance                                                                      321               24
    (Decrease) increase in initial public offering subscription
       payable                                                                              (17,809)          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                                  3,653           45,748
                                                                                        --------------  ---------------
                   Net (decrease) increase in cash and cash
                      equivalents                                                           (33,021)          28,076

Cash and cash equivalents at beginning of year                                               43,474           15,398
                                                                                        --------------  ---------------
Cash and cash equivalents at end of year                                             $       10,453           43,474
                                                                                        ==============  ===============
Supplemental disclosures of cash flow information - cash payments for:
       Interest on deposits and borrowed funds                                       $       11,302           11,096
                                                                                        ==============  ===============
       Income taxes                                                                  $          124              477
                                                                                        ==============  ===============
</TABLE>

See accompanying notes to consolidated financial statements.

                                       14
<PAGE>
                    RIDGEWOOD FINANCIAL, INC. AND SUBSIDIARY

                   Notes to Consolidated Financial Statements

                           December 31, 1999 and 1998


 (1)   Conversion and Reorganization

     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 now a wholly-owned subsidiary of Ridgewood Financial, Inc. (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  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, 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 Ridgewood  Financial,  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 Ridgewood Financial, MHC by the Bank.
     The remaining net proceeds were retained by the Company.

     Concurrent with the conversion and reorganization,  the Company established
     an Employee Stock  Ownership Plan (ESOP) and a Restricted  Stock Plan (RRP)
     for the benefit of employees  and  directors.  The ESOP will purchase 8% of
     the number of shares sold in the offering, in the open market, using a loan
     from the Company.  The RRP may be submitted for  stockholder  approval at a
     later date. If  implemented,  the RRP 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.

     As part of the  conversion,  5,000,000  shares of preferred stock at no par
     value were authorized;  however,  none were issued.  Included in the Bank's
     financial   statements   at  December   31,  1998  was  $17.8   million  of
     subscriptions payable related to the offering.

     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 so
     long as they maintain deposit accounts in the Bank after the conversion.

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

                   Notes to Consolidated Financial Statements

                           December 31, 1999 and 1998


       Costs incurred that were directly  associated  with the  conversion  were
       deferred as of December 31, 1998 and were  deducted  from the proceeds of
       the shares sold in the conversion in January 1999.


 (2)   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.

       Basis of Financial Statement Presentation

       The  consolidated  financial  statements have been prepared in conformity
       with generally accepted accounting principles and include the accounts of
       Ridgewood  Financial,  Inc. 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
       statement  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.


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

                   Notes to Consolidated Financial Statements

                           December 31, 1999 and 1998


       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.

       Loans Held for Sale

       Loans  originated  and held for sale are  carried at the lower of cost or
       fair value determined on an aggregate  basis.  Net unrealized  losses are
       recognized in a valuation allowance through charges to income.  Gains and
       losses  on the sale of loans  held for  sale  are  determined  using  the
       specific identification method.

       The Bank recognizes  separate assets for the rights to service for others
       mortgage loans that have been acquired  through  purchase or origination.
       These rights are amortized  over the estimated net servicing  life of the
       loans and are  evaluated  for  impairment  based on their fair value on a
       quarterly  basis.  The fair  value of the rights is  estimated  using the
       present value of future cash flows and assumptions  regarding  prepayment
       estimates,  cost  of  servicing,  discount  rates  and  loan  terms.  Any
       impairments  to the value of the rights are recognized as a direct effect
       to amortization.

       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.


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

                   Notes to Consolidated Financial Statements

                           December 31, 1999 and 1998

       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, 1999 and 1998, 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.

       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.

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

                   Notes to Consolidated Financial Statements

                           December 31, 1999 and 1998

       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 1999,  5,854 of the 119,568  shares were
       allocated.  In addition,  6,250 shares were  allocated in 1998 based on a
       cash  contribution to the Plan. 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 did not
       declare any dividends  during 1999. The Company  recognizes  compensation
       cost  equal to the fair  value of the shares  committed  to be  released.
       During 1999, the Company recognized  compensation expense of $50,000. The
       fair value of unearned ESOP shares at December 31, 1999 is $591,000.

       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. Earnings per share are not reported for the year ended December 31,
       1998 as there were no shares outstanding.

       Recent Accounting Pronouncements

       In June 1998, the Financial Accounting Standards Board (FASB) issued SFAS
       No. 133, "Accounting for Derivative  Instruments and Hedging Activities."
       This  statement  establishes   accounting  and  reporting  standards  for
       derivative instruments, including certain derivative instruments embedded
       in other contracts,  and for hedging  activities.  The statement requires
       that an entity  recognize all derivatives as either assets or liabilities
       in the balance sheet and measure those instruments at fair value. In June
       1999,  the FASB issued SFAS No. 137, an  amendment  of SFAS No. 133 which
       defers the effective date to periods  beginning  after June 15, 2000. The
       Company  does not expect the  adoption of SFAS No. 133 to have a material
       impact on its consolidated financial statements.

       Reclassifications

       Certain  reclassifications  have  been  made  to  the  1998  consolidated
       financial statements to conform to the 1999 presentation.

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

                   Notes to Consolidated Financial Statements

                           December 31, 1999 and 1998

 (3)   Investment Securities

       At December 31, 1999 and 1998, securities held to maturity consist of the
following (in thousands):
<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>

<TABLE>
<CAPTION>
                                                                         December 31, 1998
                                                 -------------------------------------------------------------------
                                                                      Gross            Gross
                                                   Amortized        unrealized       unrealized           Fair
                                                      cost            gains            losses            value
                                                 ---------------  ---------------  ---------------   ---------------
<S>                                           <C>                   <C>                    <C>            <C>
           U.S agencies                       $         1,354               20               --             1,374
                                                 ===============  ===============  ===============   ===============
</TABLE>

       At  December  31,  1999,  none  of  these   securities  were  pledged  as
collateral.

       At December 31, 1999 and 1998,  securities  available for sale consist of
the following (in thousands):
<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. treasuries                              2,001               --               (1)            2,000
           U. S. agencies                               7,410                9             (120)            7,299
                                                 ---------------  ---------------  ---------------   ---------------
                                              $        42,297                9           (2,830)           39,476
                                                 ===============  ===============  ===============   ===============
</TABLE>

<TABLE>
<CAPTION>
                                                                         December 31, 1998
                                                 -------------------------------------------------------------------
                                                                      Gross            Gross
                                                   Amortized        unrealized       unrealized           Fair
                                                      cost            gains            losses            value
                                                 ---------------  ---------------  ---------------   ---------------
<S>                                         <C>                          <C>             <C>             <C>
           Municipal securities               $        13,747              335             (181)           13,901
           Corporate bonds                              1,516                6               --             1,522
           U. S. agencies                               1,467                1               --             1,468
           Equity securities                                8               22               --                30
                                                 ---------------  ---------------  ---------------   ---------------
                                              $        16,738              364             (181)           16,921
                                                 ===============  ===============  ===============   ===============
</TABLE>


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

                   Notes to Consolidated Financial Statements

                           December 31, 1999 and 1998


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

       The  following  is a  summary  of  maturities  of debt  securities  as of
December 31, 1999 (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                $            --               --            2,041             2,040
              After one year through five
                  years                                   403              394           15,386            15,079
              After five years through
                  ten years                                --               --            2,245             2,116
              After ten years                             457              453           22,625            20,241
                                                 ---------------  ---------------  ---------------   ---------------
                                              $           860              847           42,297            39,476
                                                 ===============  ===============  ===============   ===============
</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):
<TABLE>
<CAPTION>
                                                                 Years ended December 31
                                                             ---------------------------------
                                                                  1999              1998
                                                             ---------------   ---------------
<S>                                                       <C>                      <C>
                Proceeds from sales                       $         3,674            10,522
                                                             ===============   ===============
                Gross realized gains                      $            39                24
                                                             ===============   ===============
</TABLE>

 (4)   Mortgage-backed Securities

       At  December  31,  1999  and  1998,  mortgage-backed  securities  held to
maturity consist of the following (in thousands):
<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>

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

                   Notes to Consolidated Financial Statements

                           December 31, 1999 and 1998
<TABLE>
<CAPTION>
                                                                    December 31, 1998
                                            ------------------------------------------------------------------
                                                                 Gross            Gross
                                              Amortized        unrealized       unrealized          Fair
                                                 cost            gains            losses           value
                                            ---------------  ---------------  ---------------  ---------------
<S>                                    <C>                           <C>              <C>          <C>
                GNMA                     $         2,378               36               --            2,414
                FHLMC                              2,333               22               (3)           2,352
                FNMA                               6,566               85               (8)           6,643
                                            ---------------  ---------------  ---------------  ---------------
                                         $        11,277              143              (11)          11,409
                                            ===============  ===============  ===============  ===============
</TABLE>
       At  December  31,  1999,  securities  of $8.7  million  were  pledged  as
collateral.

       At December 31, 1999 and 1998,  mortgage-backed  securities available for
sale consist of the following (in thousands):
<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>

<TABLE>
<CAPTION>
                                                                    December 31, 1998
                                            ------------------------------------------------------------------
                                                                 Gross            Gross
                                              Amortized        unrealized       unrealized          Fair
                                                 cost            gains            losses           value
                                            ---------------  ---------------  ---------------  ---------------
<S>                                     <C>                        <C>             <C>            <C>
                GNMA                     $         3,845               16              (11)           3,850
                FHLMC                             36,415              325             (509)          36,231
                FNMA                              48,737              125             (553)          48,309
                                            ---------------  ---------------  ---------------  ---------------

                                         $        88,997              466           (1,073)          88,390
                                            ===============  ===============  ===============  ===============
</TABLE>

       At  December  31,  1999,  securities  of $18.4  million  were  pledged as
collateral.

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

                   Notes to Consolidated Financial Statements

                           December 31, 1999 and 1998


       The following is a summary of maturities of mortgage-backed securities as
of December 31, 1999 (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                $            --               --              139               140
              After one year through five
                  years                                   938              915            3,036             3,003
              After five years through
                  ten years                             2,381            2,328           19,175            18,897
              After ten years                          14,021           13,845            6,250             6,225
                                                 ---------------  ---------------  ---------------   ---------------
                                              $        17,340           17,088           28,600            28,265
                                                 ===============  ===============  ===============   ===============
</TABLE>

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

       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
                                                                -----------------------------------------
                                                                      1999                  1998
                                                                ------------------    ------------------
<S>                                                        <C>                         <C>
                Proceeds from sales                        $             34,344                    --
                                                                ==================    ==================
                Gross realized gains                       $                 --                    --
                                                                ==================    ==================
                Gross realized losses                      $             (1,107)                   --
                                                                ==================    ==================
</TABLE>

       There  were no sales of  mortgage-backed  securities  available  for sale
during 1998.

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

                   Notes to Consolidated Financial Statements

                           December 31, 1999 and 1998

(5)   Loans

       The  following  is a summary of loans at  December  31, 1999 and 1998 (in
thousands):
<TABLE>
<CAPTION>
                                                                                1999              1998
                                                                           ---------------   ---------------
<S>                                                                     <C>                    <C>
           First mortgage loans:
              Secured by one- to four-family residences                 $       146,971            88,936
              Secured by other property                                           6,932             8,032
                                                                           ---------------   ---------------
                             Total first mortgage loans                         153,903            96,968
                                                                           ---------------   ---------------
           Commercial loans                                                       1,689               497
                                                                           ---------------   ---------------
           Consumer loans:
              Equity                                                             12,612            10,397
              Education                                                              28                36
              Loans to depositors, secured by  savings                              214               202
              Other                                                                  69                58
                                                                           ---------------   ---------------
                             Total consumer loans                                12,923            10,693
                                                                           ---------------   ---------------
           Less:
              Net deferred loan fees                                                123               315
              Allowance for loan losses                                             924               822
                                                                           ---------------   ---------------
                                                                        $       167,468           107,021
                                                                           ===============   ===============
</TABLE>

       Loans serviced for others amounted to $4,669,000 at December 31, 1999 and
$5,171,000 at December 31, 1998.

       Activity in the  allowance  for loan losses for the years ended  December
       31, 1999 and 1998 is summarized as follows (in thousands):
<TABLE>
<CAPTION>
                                                                    1999             1998
                                                               ---------------  ---------------
<S>                                                         <C>                      <C>
                Balance at beginning of year                $           822              618
                Provision charged to income                             102              204
                                                               ---------------  ---------------
                Balance at end of year                      $           924              822
                                                               ===============  ===============
</TABLE>

       The  balance  of  nonaccrual  loans for which  interest  income  has been
       reduced totals  approximately  $133,000 and $695,000 at December 31, 1999
       and 1998,  respectively.  Interest  income that would have been  recorded
       under the original terms of such loans  approximated  $8,000 and $17,000,
       for the years ended December 31, 1999 and 1998, respectively.  There were
       no commitments  to lend  additional  funds to borrowers  whose loans were
       classified as nonaccrual.

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

                   Notes to Consolidated Financial Statements

                           December 31, 1999 and 1998


 (6)   Premises and Equipment

       Premises  and  equipment  at December  31, 1999 and 1998  consists of the
following (in thousands):
<TABLE>
<CAPTION>
                                                                                    1999             1998
                                                                               ---------------  ---------------
<S>                                                                         <C>                  <C>
                Land                                                        $         1,052              527
                Building and improvements                                             5,128              607
                Leasehold improvements                                                  800              798
                Furniture, fixtures and equipment                                     1,100            1,055
                                                                               ---------------  ---------------
                                                                                      8,080            2,987

                Less accumulated depreciation                                           981              769
                                                                               ---------------  ---------------
                                                                            $         7,099            2,218
                                                                               ===============  ===============
</TABLE>

       Depreciation  expense  for the years  ended  December  31,  1999 and 1998
amounted to $212,000 and $205,000, respectively.


 (7)   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 6.81%
       and 7.20% for the years ended December 31, 1999 and 1998, respectively.

 (8)   Deposits

       Deposits at  December  31,  1999 and 1998 are  summarized  as follows (in
thousands):
<TABLE>
<CAPTION>
                                                         1999                                 1998
                                             --------------------------------     --------------------------------
                                                                 Weighted                             Weighted
                                                 Amount        average rate           Amount        average rate
                                             ---------------  ---------------     ---------------  ---------------
<S>                                      <C>                      <C>                <C>               <C>
           Non-interest bearing          $          6,470               --%              4,105              --%
           NOW accounts                            12,582           2.22                11,407           1.83
           Passbook                                32,893           3.24                31,555           3.01
           Money market                             4,202           2.91                 4,504           3.00
           Certificates of deposit                145,790           5.21               153,958           5.50
                                             ---------------  ===============     ---------------  ===============
                                         $        201,937                      $       205,529
                                             ===============                      ===============
</TABLE>

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

                   Notes to Consolidated Financial Statements

                           December 31, 1999 and 1998


       The aggregate  amount of certificate  of deposit  accounts with a minimum
       denomination  of  $100,000  was  approximately  $18.8  million  and $17.4
       million at December 31, 1999 and 1998, respectively.

       At December 31, 1999 and 1998,  scheduled  maturities of  certificates of
deposit are as follows (in thousands):
<TABLE>
<CAPTION>
                                                                                   1999             1998
                                                                              ---------------  ---------------
<S>                                                                        <C>                    <C>
                One year or less                                           $        96,488          127,031
                One year to two years                                               43,066           22,162
                Two years to three years                                             3,731            4,765
                Three years to four years                                            2,443               --
                Five years or more                                                      62               --
                                                                              ---------------  ---------------
                                                                           $       145,790          153,958
                                                                              ===============  ===============
</TABLE>

       Interest  expense on deposits  for the years ended  December 31, 1999 and
1998 is summarized as follows (in thousands):
<TABLE>
<CAPTION>
                                                                 1999              1998
                                                            ---------------   ---------------
<S>                                                      <C>                    <C>
                NOW accounts                             $           281               252
                Passbook                                             980               948
                Money market                                         126               123
                Certificates of deposit                            7,457             8,441
                                                            ---------------   ---------------
                                                         $         8,844             9,764
                                                            ===============   ===============
</TABLE>
(9)   Borrowed Funds

       Borrowed  funds at December 31, 1999 and 1998 are summarized as follows :
(in thousands):

                                                       1999             1998
                                                  ---------------  -------------
                Advances from the FHLB         $        48,678           32,557
                                                  ===============  =============

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

                   Notes to Consolidated Financial Statements

                           December 31, 1999 and 1998


       Pursuant to collateral  agreements with the FHLB, advances are secured by
       all stock in the FHLB,  mortgage-backed  securities and qualifying  first
       mortgage  loans.  Advances at December  31, 1999 have  maturity  dates as
       follows (in thousands):

                         2000                                   $          5,650
                         2001                                              2,000
                         2002                                              4,200
                         2003                                              5,500
                         2004                                              3,000
                         2005                                              2,000
                         2006                                                503
                         2008                                             16,000
                         2009                                              9,825
                                                                    ------------
                                                                $         48,678
                                                                    ============

       The interest rates on advances  ranged from 4.65% to 6.76% and from 4.65%
       to 6.76% at  December  31,  1999 and  1998,  respectively.  The  weighted
       average  interest rate on FHLB advances at December 31, 1999 and 1998 was
       5.55%, and 5.41%, respectively.


(10)   Employee Retirement Plans

       Pension Plan

       The Bank has a defined  benefit pension plan covering  substantially  all
       employees.  The benefits are computed  using an average of the employee's
       compensation  for the  highest  five  years  during the last ten years of
       employment.  The Bank  funds an  amount  equal to the  maximum  allowable
       deduction for tax purposes as reported by the Bank's actuary. Plan assets
       consist primarily of mutual funds.

       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.


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

                   Notes to Consolidated Financial Statements

                           December 31, 1999 and 1998


       The following table shows the funded status of the Bank's defined benefit
       plan, SERP and DRP and the amount reported in the consolidated statements
       of financial condition at December 31, 1999 and 1998 (in thousands):
<TABLE>
<CAPTION>
                                                                                           1999             1998
                                                                                      ---------------  ---------------
<S>                                                                                <C>                    <C>
       Change in benefit obligation:
          Benefit obligation at beginning of year                                  $         1,648              707
          Benefit obligation related to past service liability on new plans                     --              821
          Service cost                                                                         172              123
          Interest cost                                                                        108               78
          Benefits paid                                                                        (84)             (83)
          Actuarial (gain) loss                                                               (291)               2
                                                                                      ---------------  ---------------
          Benefit obligation at end of year                                                  1,553            1,648
                                                                                      ---------------  ---------------
       Change in plan assets:
          Fair value of plan assets at beginning of year                                       755              730
          Actual return on plan assets                                                         133               87
          Employer contributions                                                                67               21
          Benefits paid                                                                        (84)             (83)
                                                                                      ---------------  ---------------
          Fair value of plan assets at end of year                                             871              755
                                                                                      ---------------  ---------------
                         Funded status                                                        (682)            (893)

       Unrecognized gain                                                                      (426)             (32)
       Unrecognized past service liability                                                     699              773
       Other                                                                                    34                6
                                                                                      ---------------  ---------------
                         Accrued pension liability                                 $          (375)            (146)
                                                                                      ===============  ===============
</TABLE>
       Weighted  average  assumptions  used to develop the net periodic  pension
costs are as follows (in thousands):
<TABLE>
<CAPTION>
                                                                 1999              1998
                                                            ---------------   ---------------
<S>                                                             <C>               <C>
                Discount rate                                     8.0%              6.8%
                Expected long-term rate of return
                    on assets                                     8.0               8.0
                Rate of increase in compensation
                    levels                                        5.5               4.5
                                                            ===============   ===============
</TABLE>
                                       28                            (Continued)
<PAGE>
                    RIDGEWOOD FINANCIAL, INC. AND SUBSIDIARY

                   Notes to Consolidated Financial Statements

                           December 31, 1999 and 1998


       Listed below are the  components  of pension  expense for the years ended
December 31, 1999 and 1998 (in thousands):
<TABLE>
<CAPTION>
                                                                 1999              1998
                                                            ---------------   ---------------
<S>                                                      <C>                           <C>
                Service cost                             $           172               123
                Interest cost                                        108                78
                Expected return on plan
                    assets                                           (63)              (53)
                Unrecognized past service
                    liability                                         74                54
                Other components                                       6                --
                                                            ---------------   ---------------
                              Net periodic pension
                                  cost                   $           297               202
                                                            ===============   ===============
</TABLE>
       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, 1999 and 1998 were  approximately
       $23,000 and $22,000, respectively.


(11)   Income Taxes

       Income tax expense  (benefit)  for the years ended  December 31, 1999 and
1998 is summarized as follows (in thousands):
<TABLE>
<CAPTION>
                                                                        1999             1998
                                                                   ---------------  ---------------
<S>                                                            <C>                     <C>
           Current:
               Federal                                         $           (258)             495
               State                                                         19               47
                                                                   ---------------  ---------------

                                                               $           (239)             542
                                                                   ===============  ===============
</TABLE>

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

                   Notes to Consolidated Financial Statements

                           December 31, 1999 and 1998


<TABLE>
<CAPTION>
                                                                        1999             1998
                                                                   ---------------  ---------------
<S>                                                            <C>                    <C>
           Deferred:
               Federal                                         $            (77)            (252)
               State                                                         (3)             (18)
                                                                   ---------------  ---------------
                                                                            (80)            (270)
                                                                   ---------------  ---------------
           Total:
               Federal                                                     (335)             243
               State                                                         16               29
                                                                   ---------------  ---------------
                                                               $           (319)             272
                                                                   ===============  ===============
</TABLE>

       Total income tax expense (benefit)  differed from the amounts computed by
       applying the U.S. federal income tax rates of 34% to income before income
       taxes as a result of the following (in thousands):
<TABLE>
<CAPTION>
                                                                        1999             1998
                                                                   ---------------  ---------------
<S>                                                            <C>                       <C>
           Expected income tax (benefit) expense
               at federal tax rate                             $             (3)             340
           (Decrease) increase in taxes
               resulting from:
                  State income tax, net of
                    federal income tax effect                                11               19
                  Tax-exempt interest                                      (406)            (113)
                  Disallowed interest expense                                77               --
                  Other, net                                                  2               26
                                                                   ---------------  ---------------
                                                               $           (319)             272
                                                                   ===============  ===============
</TABLE>

       Total income tax expense  (benefit) for the years ended December 31, 1999
and 1998 was allocated as follows (in thousands):
<TABLE>
<CAPTION>
                                                                        1999             1998
                                                                   ---------------  ---------------
<S>                                                            <C>                       <C>
           Income tax expense (benefit) from operations        $           (319)             272
           Accumulated other comprehensive
              income - unrealized loss on securities
                  available for sale                                       (983)            (281)
                                                                   ---------------  ---------------
                                                               $         (1,302)              (9)
                                                                   ===============  ===============
</TABLE>

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

                   Notes to Consolidated Financial Statements

                           December 31, 1999 and 1998


       The  following  are the  significant  components  of the net deferred tax
asset at December 31, 1999 and 1998 (in thousands):
<TABLE>
<CAPTION>
                                                                                          1999             1998
                                                                                      ---------------  ---------------

<S>                                                                                <C>                      <C>
       Components of deferred tax asset:
          Provision for loan losses - book                                         $           333              296
          Loan fees                                                                             50               77
          Interest reserves                                                                      3                6
          Amortization of premiums and discounts on investment
              securities and mortgage-backed securities                                        199              224
          Accrued SERP                                                                          61               24
          Other                                                                                 92               45
          Unrealized losses on available-for-sale securities                                 1,136              153
                                                                                      ---------------  ---------------
                         Total deferred tax asset                                            1,874              825
                                                                                      ---------------  ---------------
       Components of deferred tax liability:
          Depreciation                                                                         (55)             (40)
          Provision for loan losses - tax                                                     (288)            (360)
          Deferred loan cost                                                                   (47)              --
          Other                                                                                (10)             (14)
                                                                                      ---------------  ---------------
                         Total deferred tax liability                                         (400)            (414)
                                                                                      ---------------  ---------------
                         Net deferred tax asset                                    $         1,474              411
                                                                                      ===============  ===============
       Net state deferred tax asset                                                             80               23
       Net federal deferred tax asset                                                        1,394              388
                                                                                      ---------------  ---------------
                                                                                   $         1,474              411
                                                                                      ===============  ===============
</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.

       Retained earnings at December 31, 1999 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.   Management  is  not   aware   of   the
       occurrence of any such events.  At December 31, 1999,  the  Bank  has  an
       unrecognized  tax  liability   of  $1.1  million  with  respect  to  this
       reserve.

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

                   Notes to Consolidated Financial Statements

                           December 31, 1999 and 1998


(12)   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,  1999,  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  $187,000
       and   $166,000   for  the  years  ended   December  31,  1999  and  1998,
       respectively.

       The  projected  minimum  rental  payments  under the terms of the leases,
       exclusive of the renewal options, as of December 31, 1999 are as follows:

                   2000                       $        155,000
                   2001                                155,000
                   2002                                155,000
                   2003                                155,000
                   2004                                155,000
                   2005 and thereafter                 627,000
                                                  ---------------
                                              $      1,402,000
                                                  ===============

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

       At December 31, 1999, the Bank is obligated to third-party contractors in
       the amount of  $846,000  to complete  renovations  of  premises  acquired
       during 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

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

                   Notes to Consolidated Financial Statements

                           December 31, 1999 and 1998


        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,  1999,  the Bank has  outstanding  firm  commitments  to
originate loans as follows (in thousands):
<TABLE>
<CAPTION>
                                                                  Fixed           Variable
                                                                   rate             rate             Total
                                                              ---------------  ---------------   ---------------
<S>                                                        <C>                 <C>                 <C>
                First mortgage loans                       $            40            2,382             2,422
                Consumer and other loans                                76              494               570
                Commercial and construction                             --            2,914             2,914
                                                              ---------------  ---------------   ---------------
                                                           $           116            5,790             5,906
                                                              ===============  ===============   ===============

                         Commitments under home equity
                             lines of credit                                    $     8,392
                         Commitments under overdraft lines
                             of credit                                                  478
                                                                                ------------------
                                                                                $     8,870
                                                                                ==================
</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.

       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.


(13)   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.

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

                   Notes to Consolidated Financial Statements

                           December 31, 1999 and 1998


       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, 1999 and 1998, that the Company and Bank met
       all capital adequacy requirements to which it is subject.

       As of  December  31,  1999,  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, 1999 and 1998 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, 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       9.98          10,676        4.00         13,346        5.00
                 Bank                       22,650       8.59          10,547        4.00         13,184        5.00
       As of December 31, 1998:
           Total capital (to risk-
              weighted assets):
                 Consolidated                   --         --              --          --             --          --
                 Bank                       18,522      18.57           7,977        8.00          9,972       10.00
           Tier 1 capital (to risk-
              weighted assets):
                 Consolidated                   --         --              --          --             --          --
                 Bank                       17,690      17.74           3,989        4.00          5,983        6.00
           Tier 1 capital (to average
              assets):
                 Consolidated                   --         --              --          --             --          --
                 Bank                       17,690       6.88          10,286        4.00         12,858        5.00
                                        =========== ============   ============ ===========   ============ ============
</TABLE>

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

                   Notes to Consolidated Financial Statements

                           December 31, 1999 and 1998


(14)   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.


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

                   Notes to Consolidated Financial Statements

                           December 31, 1999 and 1998


       The estimated fair values of the Bank's financial instruments at December
31, 1999 and 1998 are as follows (in thousands):
<TABLE>
<CAPTION>

                                                              1999                               1998
                                                 --------------------------------  ---------------------------------
                                                    Carrying           Fair           Carrying            Fair
                                                     amount           value            amount            value
                                                 ---------------  ---------------  ---------------   ---------------
<S>                                           <C>                   <C>              <C>               <C>
           Assets:
               Cash and cash equivalents      $        10,453           10,453           43,474            43,474
               Investment securities - HTM                860              847            1,354             1,374
               Investment securities - AFS             39,476           39,476           16,921            16,921
               Mortgage-backed securities -
                  HTM                                  17,340           17,088           11,277            11,409
               Mortgage-backed securities -
                  AFS                                  28,265           28,265           88,390            88,390
               Loans receivable, net                  167,468          165,619          107,021           113,380
               FHLB stock                               2,622            2,622            1,949             1,949
           Liabilities:
               Deposits                               201,937          199,732          205,529           206,077
               Borrowed funds                          48,678           48,343           32,557            33,989
                                                 ===============  ===============  ===============   ===============
</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.



                                       36