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                                    FORM 10-K

                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

          [X]  Annual Report Pursuant to Section 13 or 15(d) of the
                         Securities Exchange Act of 1934

                  For the fiscal year ended September 30, 1998

          [ ] Transition Report Pursuant to Section 13 or 15(d) of the
                         Securities Exchange Act of 1934
           For the transition period from ____________ to ____________

                         COMMISSION FILE NUMBER 0-22559

                            GSB FINANCIAL CORPORATION
             (Exact name of registrant as specified in its charter)

         Delaware                                                06-1481061
 (State or other jurisdiction of                              (I.R.S.  Employer
incorporation or organization)                               Identification No.)

                  1 South Church Street, Goshen, New York 10924
                (Address of principal executive office-zip code)
                            Telephone (914) 294-6151

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

                     Common Stock, par value $.01 per share

                                (Title of class)

     Indicate  by check mark  whether the  registrant  (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the  Securities  Exchange Act of
1934 during the  preceding  twelve  months (or for such shorter  period that the
registrant was required to file such reports),  and (2) has been subject to such
filing requirements for the past 90 days.      Yes _X_   No ___.

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

     As of December 16, 1998 the aggregate market value of the voting stock held
by  non-affiliates  of the  Registrant was $30.1 million based upon the reported
closing price on that date as quoted of the NASDAQ National Market System.

     As of December 16, 1998, 2,170,450 shares of Registrant's common stock were
outstanding.

                      Documents Incorporated by Reference:

(1)  The Annual Report to  Shareholders  for the fiscal year ended September 30,
     1998 (Items 5 through 8 of Part II) and

(2)  The definitive Proxy Statement dated December 28, 1998 to be distributed on
     behalf of the Board of  Directors  of  Registrant  in  connection  with the
     Annual  Meeting of  Shareholders  to be held on January  27, 1999 which was
     filed with the Securities and Exchange  Commission on or about December 28,
     1998.


                                      -1-
<PAGE>


Item 1 - Business

                             BUSINESS OF THE COMPANY

General

     GSB  Financial  Corporation  (the  "Company")  was  organized as a Delaware
corporation  on March 17, 1997,  at the  direction  of Goshen  Savings Bank (the
"Bank") in order to acquire  all the common  stock of the Bank to be issued upon
its  conversion  (the  "Conversion")  from  the  mutual  to the  stock  form  of
ownership.  The  Conversion  was  consummated on July 9, 1997, at which time the
Company sold 2,248,250 shares of its common stock at a price of $10.00 per share
and paid $10.7 million,  representing one-half the net proceeds from its sale of
stock,  to the Bank in exchange for all shares of stock of the Bank to be issued
in the  Conversion.  The Company  thereupon  became a savings  and loan  holding
company,  and  subsequently  registered  as  such  with  the  Office  of  Thrift
Supervision (the "OTS").

     Eight  percent of the shares  sold by the  Company  were  purchased  by the
Company's  Employee  Stock  Ownership  Plan (the "ESOP") using the proceeds of a
loan from the Company to pay the  purchase  price.  Therefore,  after  deducting
expenses  of the  Conversion,  the $10.7  million  paid to the Bank and the $1.8
million  represented by the promissory  note from the ESOP,  there remained $8.9
million of net proceeds available for investment directly by the Company.

     After the  Conversion,  the Company's  business has consisted of directing,
planning and co-ordinating the business activities of the Bank and investing the
net proceeds of the  Conversion  available for investment by it. The Company has
recently  formed  a  separate  subsidiary  which  makes  available,  through  an
independent third party, certain investment advisory and brokerage services. The
Bank's business has continued to consist of gathering  deposits from the general
public  within  its  market  area and  investing  those  deposits  primarily  in
one-to-four  family residential first mortgage loans, debt obligations issued by
the U.S. Government, its agencies and business corporations, and mortgage-backed
securities.  To a lesser extent, the Bank also makes home equity lines of credit
and other second mortgage loans on one-to-four  family  residential  properties,
commercial  mortgage loans,  construction  loans,  commercial business loans and
consumer  loans.  The net proceeds  retained by the Company  have been  invested
principally in mortgage-backed,  government, agency and corporate securities and
federal funds sold.

     In the  future,  the  Company  may  acquire  or  organize  other  operating
subsidiaries,  including other financial  institutions,  or it may merge with or
acquire other financial  institutions and financial  services related companies,
although  there  are  no  current  arrangements,  understandings  or  agreements
regarding any such  expansion.  The Company neither owns nor leases any property
but instead uses the premises,  equipment and furniture of the Bank. The Company
does not presently  intend to employ any persons other than certain  officers of
the Bank who will not be separately  compensated by the Company. The Company may
utilize the support staff of the Bank from time to time,  if needed.  Additional
employees may be hired as appropriate if the Company expands its business.

     References  herein to the  business  activities,  financial  condition  and
operations  of the  Company  prior to July 9,  1997,  refer to the  Bank,  while
references  to the  Company on or after that date refer to both the  Company and
the Bank as consolidated, except to the extent the context otherwise indicates.


                                      -2-
<PAGE>


Market Area

     The  Company's  market  area is the  Village  of  Goshen,  and  Village  of
Harriman,  New York and  their  surrounding  communities,  representing  most of
Orange  County,  New York.  The  Village of Goshen is the county  seat of Orange
County and lies 60 miles  northwest of New York City. The Village of Harriman is
located in the southern  portion of Orange  County,  closer to New York City and
approximately 8 miles from Rockland County.  Although  predominantly  rural with
many small  towns,  many  residents of the market area work in New York City and
other communities to the south and east, commuting by train or automobile.  They
tend to reside in Orange County due to lower housing costs and the quieter, more
rural  atmosphere.  Principal  occupations of residents in the community include
retail trades, manufacturing, professional services (including health, education
and other professional fields) and government administration.

     The Company's market area grew significantly in population during the 1980s
as rising housing  prices closer to New York City,  coupled with an abundance of
vacant  land in Orange  County,  led to a boom in housing  construction.  As the
economy  throughout  the  region  declined  in the late  1980s and early  1990s,
communities  within the market area  continued to  experience  growth,  but more
slowly.  According to 1990 U.S. census data,  approximately 18% of the residents
of Goshen and its surrounding zip code area who were over 5 years of age resided
outside  Orange  County  only five  years  earlier.  The  conversion  of Stewart
International  Airport, 12 miles to the northeast of Goshen, into a full-service
commercial  airport in 1990, gave the Company's market area an additional boost.
However,  the health of the economy in the New York City  metropolitan area has,
and will  continue  to have,  a direct  effect  on the  economic  well  being of
residents and businesses in the Company's market area.

Competition

     The Company's principal competitors for deposits are savings banks, savings
and loan  associations,  commercial  banks and  credit  unions in the  Company's
market area, money market mutual funds, insurance companies, brokerage firms and
other financial  institutions,  many of which are  substantially  larger in size
than the Company.  The Company's  competition for loans comes  principally  from
savings  banks,  savings  and  loan  associations,  commercial  banks,  mortgage
bankers,  finance  companies  and other  institutional  lenders.  The  Company's
principal methods of competition  include loan and deposit pricing,  maintaining
close ties with its local community,  advertising and marketing programs and the
types of services provided.

     The Company is subject to competition  from other  financial  institutions,
which may have much greater  financial and  marketing  resources.  However,  the
Company  believes it benefits from its community bank orientation as well as its
relatively  high core  deposit  base.  The  relative  economic  stability of the
Company's   lending   area  is   reflected  in  the  small  number  of  mortgage
delinquencies experienced by the Company.

Lending Activities

     Loan  Portfolio  Composition.  The Company's loan  portfolio,  representing
59.7% of total assets,  consists  primarily of conventional first mortgage loans
secured by one-to-four family residences. At September 30, 1998, the Company had
total loans receivable of $78.7 million,  of which $71.6 million, or 90.7%, were
owner-occupied   one-to-four   family  residential  first  mortgage  loans.  The
remainder  consisted  of $2.4  million of home equity  lines of credit and other
loans secured by junior liens on one-to-four family  owner-occupied  residential
properties,  or 3.0% of total loans; $1.8 million of commercial  mortgage loans,
or 2.3% of total loans;  $1.8  million of loans  secured by  one-to-four  family
residential property used for rental purposes,  or 2.3% of total loans; $478,000
of construction loans, or 0.6% of total loans; $720,000 of


                                      -3-
<PAGE>


consumer loans which are not secured by real estate, or 0.9% of total loans; and
$170,000 of commercial  business  loans,  or 0.2% of total loans.  The Company's
loan portfolio,  after remaining  relatively  constant throughout 1994, 1995 and
1996,  grew by 11.9%  during 1997 and by 19.7%  during  1998.  This growth was a
deliberate result of aggressive marketing of the Bank's loan products throughout
Orange  County.  Although  the Company is seeking to expand its  non-residential
first mortgage  lending,  the residential first mortgage loans have continued to
represent the largest, and an increasing, component of the loan portfolio.

     Interest rates on loans are affected by the demand for loans, the supply of
money available for lending and the rates offered by competitors.  These factors
are in turn  affected  by, among other  things,  economic  conditions,  monetary
policies of the federal  government,  and legislative tax policies.  The Company
seeks to compete  successfully for loan opportunities in its market area through
hands-on local originations,  community involvement,  responsiveness to customer
and community needs, competitive pricing, and low origination fees.


                                      -4-
<PAGE>


Loan Portfolio Composition Table

The following  table sets forth the  composition of the Company's loan portfolio
in dollar amounts and in  percentages of the respective  portfolios at the dates
indicated:

<TABLE>
<CAPTION>
                                                          At September 30,
-----------------------------------------------------------------------------------------------------------------------------------
                               1998                    1997                   1996                  1995                1994
                       ------------------      -------------------     ------------------     -----------------    ----------------
                                   Percent                  Percent                Percent               Percent             Percent
                                     of                       Of                     Of                    of                   of
                       Amount       Total      Amount        Total     Amount       Total     Amount      Total    Amount     Total
                       ------       -----      ------        -----     ------       -----     ------      -----    ------     -----
<S>                  <C>            <C>      <C>            <C>      <C>           <C>       <C>         <C>      <C>          <C> 
Mortgage loans:
                                                       (Dollars in thousands)                                     
One- to
  four-family(1) .   $ 71,560        90.7    $ 57,365        87.0%   $ 50,377       85.6%   $ 49,552      85.4%   $ 49,279     86.0%
                                                                                                                  
                                                                                                                  
Construction .....        478         0.6       1,377         2.1       1,003        1.7         352       0.6       1,316      2.3
                                                                                                                  
One-to-four-family                                                                                                
Rental property ..      1,764         2.3       1,936         2.9       2,202        3.7       2,465       4.2       2,406      4.2
                                                                                                                  
Home equity ......      2,365         3.0       2,314         3.5       2,197        3.8       2,122       3.7       2,141      3.7
                                                                                                                  
                                                                                                                  
Commercial real                                                                                                   
  estate .........      1,820         2.3       2,073         3.2       2,255        3.8       2,660       4.6       1,402      2.5
                     --------       -----    --------       -----    --------      -----    --------     -----    --------    -----
                                                                                                                  
  Total mortgage                                                                                                  
  loans ..........   $ 77,987        98.9%   $ 65,065        98.7%     58,034       98.6      57,151      98.5      56,544     98.7
                                                                                                                  
Other loans:                                                                                                      
                                                                                                                  
Commercial                                                                                                        
  business .......        170         0.2          36         0.0          15        0.0          20       0.0          26      0.0
                                                                                                                  
Consumer .........        605         0.8         630         1.0         675        1.1         669       1.1         544      1.0
                                                                                                                  
Savings account                                                                                                   
  loans ..........        115         0.1         174         0.3         148        0.3         209       0.4         176      0.3
                     --------       -----    --------       -----    --------      -----    --------     -----    --------    -----
                                                                                                                  
   Total other                                                                                                    
    loans ........   $    890         1.1    $    840         1.3         838        1.4         898       1.5         746      1.3
                     --------       -----    --------       -----    --------      -----    --------     -----    --------    -----
   Total loans                                                                                                    
    receivable ...     78,877       100.0%     65,905       100.0%     58,872      100.0%     58,049     100.0%     57,290    100.0%
                                                                                                                  
Less:                                                                                                             
                                                                                                                  
Deferred loan                                                                                                     
  fees ...........         (3)                     28                      22                     16                    13
                                                                                                                 
Allowances for                                                                                                   
  loan losses ....        167                     139                     123                    114                   106
                     --------                --------                --------               --------              --------
                                                                                                                 
Loans                                                                                                            
  receivable, net    $ 78,713                $ 65,738                $ 58,727               $ 57,919              $ 57,171
                     ========                ========                ========               ========              ========   
                                                                                                                 
Mortgage loan                                                                                                    
  summary:                                                                                                       
Fixed rate loans .   $ 47,831        61.3%   $ 28,864        44.4%   $ 17,885       30.8%   $ 11,074      19.4%   $ 12,544     22.2%
                                                                                                                 
                                                                                                                 
Adjustable-rate                                                                                                  
  loans ..........   $ 30,156        38.7    $ 36,201        55.6      40,149       69.2      46,077      80.6      44,000     77.8
                     --------       -----    --------       -----    --------      -----    --------     -----    --------    -----
                                                                                                                 
Total mortgage                                                                                                   
  loans ..........   $ 77,987       100.0%   $ 65,065       100.0%   $ 58,034      100.0%   $ 57,151     100.0%   $ 56,544    100.0%
                     ========       =====    ========       =====    ========      =====    ========     =====    ========    ===== 
</TABLE>                


                                       -5-
<PAGE>


     Residential  Mortgage  Loans.  The primary focus of the  Company's  lending
activities  are  mortgage  loans  secured by first liens on  one-to-four  family
owner-occupied  or rental  residential  real  estate.  At  September  30,  1998,
approximately  $73.8 million,  or 93.6%,  of the Company's  total loan portfolio
consisted  of such loans.  The Company  offers both  adjustable  rate  mortgages
("ARMs") and fixed-rate  mortgage loans. The relative  proportions of fixed-rate
loans versus ARMs  originated by the Company  depends  principally  upon current
customer preference,  which is generally driven by general economic and interest
rate  conditions  and the  pricing  offered  by the  Company's  competitors.  At
September 30, 1998, approximately 38.3% of the Company's residential one-to-four
family owner-occupied first mortgage portfolio were ARMs and approximately 61.7%
were  fixed  rate  loans.  The  percentage  represented  by fixed rate loans has
increased  from 44.4% at  September  30, 1997,  to 61.7% at September  30, 1998,
principally  due to customer  preference  for  fixed-rate  loans during  current
periods  of low  interest  rates.  The  ARMs  generally  carry  annual  caps and
life-of-the-loan ceilings, which limit interest rate adjustments.

     The  Company's   residential  loan  underwriting   criteria  are  generally
comparable  to those  required  by the  Federal  National  Mortgage  Association
("FNMA") and other major secondary market loan purchasers. Generally, ARM credit
risks are somewhat greater than fixed-rate loans primarily because,  as interest
rates rise, the borrowers' payments rise,  increasing the potential for default.
The Bank's teaser rate ARMs (ARMs with low initial  interest  rates that are not
based upon the index plus the margin for  determining  future rate  adjustments)
were underwritten based on the payment due at the fully-indexed rate.

     In  addition  to  verifying  income and assets of  borrowers,  the  Company
obtains independent appraisals on all residential first mortgage loans and title
insurance is required at closing.  Private mortgage insurance is required on all
loans with a loan to value ratio in excess of 80% and the Company  requires real
estate tax escrows on such loans.  Real  estate tax  escrows  are  voluntary  on
residential mortgage loans with loan to value ratios of 80% or less.

     Fixed-rate  residential  mortgage  loans are  generally  originated  by the
Company for terms of 15 or 30 years.  Although 30 year fixed-rate mortgage loans
may  adversely  affect the  Company's  net interest  income in periods of rising
interest rates,  the Company  originates such loans to satisfy  customer demand.
Such loans are generally  originated at initial  interest rates which exceed the
fully  indexed  rate on ARMs  offered at the same time.  Fixed-rate  residential
mortgage loans originated by the Company generally include due-on-sale  clauses,
which  permit the Company to demand  payment in full if the  borrower  sells the
property  without the Company's  consent.  Due-on-sale  clauses are an important
means  of  adjusting  the  rates  of  the  Company's  fixed-rate  mortgage  loan
portfolio,  and the  Company  will  generally  exercise  its rights  under these
clauses if necessary to maintain market yields.

     The Company has offered ARMs since the early 1980s. In the early years, the
Company's  ARMs provided for interest rate  adjustments  based upon the Contract
Interest Rate Index (the "CIRI") and the Monthly Median Cost of Funds Index (the
"COFI"), both as originally published by the Federal Home Loan Bank Board. These
indexes  have  proved to be  unsatisfactory  because the COFI  generally  reacts
slowly to interest rate changes and the CIRI no longer  reflects the same spread
against market interest rates due to changes in mortgage lending patterns.  As a
result,  at September 30, 1998,  the Company had  approximately  $7.0 million of
ARMs  based  upon the COFI and CIRI with  current  interest  rates from 3.80% to
7.00%.  ARMs originated in recent years have interest rates that adjust annually
based upon the movement of the one year treasury bill constant  maturity  index,
plus a margin of from 2% to 2.75%. These loans generally have a maximum interest
rate  adjustment  of  2%  per  year,  with  a  lifetime  maximum  interest  rate
adjustment, measured from the initial interest rate, of 5.5% or 6%.


                                      -6-
<PAGE>


     The Company offers residential single family  construction loans to persons
who  intend to  occupy  the  property  upon  completion  of  construction.  Upon
completion  of  construction,  these  loans  are  automatically  converted  into
permanent residential mortgage loans and classified as such. The proceeds of the
construction  loan are advanced in stages on a percentage of completion basis as
construction  progresses.  The loans generally provide for a construction period
of not more than six months  during which the borrower  pays  interest  only. In
recognition of the risks involved in such loans, the Company carefully  monitors
construction  through regular  inspections and the borrower must qualify for the
permanent  mortgage loan before the construction  loan is made. At September 30,
1998,  the  Company  had 10  construction  loans with an  aggregate  outstanding
principal  balance of $478,000.  The Company's  delinquency  experience with its
construction  loans has been  favorable.  At the end of each  fiscal  year since
September 30, 1992, the Company had no non-performing construction loans.

     Home Equity Loans. The Company makes home equity loans,  representing loans
secured by junior  mortgages on one-to-four  family  owner-occupied  residences.
These loans are of two types.  The  Company  offers a home equity line of credit
secured by a  residential  mortgage,  normally a second  lien.  These loans have
adjustable rates of interest and generally provide for an initial advance period
of five or ten years,  during which the borrower pays interest only, or interest
plus a nominal  principal  amount,  and can  borrow,  repay,  and  reborrow  the
principal balance. This is followed by a repayment period,  generally ten years,
during  which  the  balance  of the loan is  repaid in  principal  and  interest
installments.  The Company also offers  regular  amortizing  home equity  loans.
These loans are fully advanced at closing and repayable in monthly principal and
interest  installments  over a period  not to exceed 10 years.  Second  mortgage
loans are limited to a maximum loan to value ratio,  including  prior liens,  of
not more than 80%. At  September  30,  1998,  the  Company  had $1.2  million in
outstanding  advances on home equity lines of credit and $1.2 million in regular
amortizing home equity loans.

     Commercial Mortgage Loans. The Company originates fixed and adjustable rate
mortgage loans secured by office  buildings,  retail  establishments,  and other
types of commercial  property,  almost always secured by property located in the
Company's  market area.  The Company may make or  participate  in loans in areas
adjoining  its market area.  At September  30, 1998,  the  Company's  commercial
mortgage loan portfolio was $1.8 million,  or 2.3% of total loans.  At September
30, 1998, the Company's largest such loan was a participation  loan with a local
savings bank in which the Company's  participation  was $472,000,  or 44% of the
total loan.  The loan is secured by a mixed use office and retail center located
in the  Village  of Goshen.  With the recent  expansion  of  commercial  lending
activities, larger balance originations could occur in the future.

     The Company makes commercial mortgage loans with loan to value ratios up to
75%, terms up to 15 years, and amortization periods up to 15 years. At September
30, 1998, $1.0 million of the Company's commercial mortgage loans had adjustable
rates and $799,000 had fixed rates.

     Loans secured by commercial  properties  generally involve a greater degree
of risk than one-to-four family residential  mortgage loans. Because payments on
such loans are often  dependent on  successful  operation or  management  of the
properties, repayment may be subject, to a greater extent, to adverse conditions
in the real estate market or the economy.  The Company  seeks to minimize  these
risks through its underwriting  policies. In reaching its decision on whether to
make a commercial  mortgage loan, the Company considers the  qualifications  and
financial condition of the borrower, including credit history, profitability and
expertise,  as well as the value and condition of the underlying  property.  The
factors  considered  by the  Company  include  the net  operating  income of the
mortgaged premises before debt service and depreciation; the debt coverage ratio
(the ratio of net  earnings  to debt  service);  and the ratio of loan amount to
appraised value.


                                      -7-
<PAGE>


     The Company  generally  requires a debt service  coverage ratio of at least
120% and the personal  guarantee of the  borrower.  The Company also requires an
appraisal  on the  property  conducted  by an  independent  appraiser  and title
insurance.  When evaluating the  qualifications of the borrower for a commercial
mortgage loan, the Company considers the financial resources and income level of
the borrower,  the borrower's  experience in owning or managing similar property
and  the  Company's  lending   experience  with  the  borrower.   The  Company's
underwriting   policies  require  that  the  borrower  be  able  to  demonstrate
management  skills and the ability to maintain the property from current  rental
income or from the  borrower's  operations  on the  property.  The Bank's policy
requires  borrowers to present evidence of the ability to repay the mortgage and
a  history  of  making  mortgage  payments  on a timely  basis.  In  making  its
assessment of the  creditworthiness of the borrower,  the Bank generally reviews
the financial  statements and credit  history of the borrower,  as well as other
related documentation.

     Consumer Loans. The Company also makes short-term fixed-rate consumer loans
either unsecured or secured by savings  accounts,  automobiles or other consumer
assets.  Consumer  loans,  excluding  these  secured  by  real  estate,  totaled
$720,000,  or 0.9% of total loans, at September 30, 1998.  These loans generally
have an average term of not more than five years and have interest  rates higher
than mortgage  loans.  The shorter terms to maturity are helpful in managing the
Company's interest rate risk. These loans are generally  underwritten based upon
the  borrower's  ability to repay and the value of the  collateral for the loan.
Collateral  value,  except for loans  secured  by bank  deposits  or  marketable
securities,  is a secondary  consideration  because personal property collateral
generally  rapidly  depreciates in value, is difficult to repossess,  and rarely
generates close to full value at a forced sale.

     Commercial  Business  Loans.  The  Company has  diversified  its lending to
include business loans in its communities. Business loans at September 30, 1998,
totaled $170,000 compared to $36,000 at September 30, 1997, representing 0.2% of
total loans for fiscal 1998.

     The Company intends to pursue additional  commercial  non-mortgage loans in
the future in order to diversify its loan offering and expand its customer base.
Commercial  non-mortgage  loans  generally  have  shorter  terms to maturity and
adjustable interest rates when compared to residential first mortgage loans, and
also generally have higher  yields.  The Company  intends to offer such loans on
both an unsecured and a secured basis,  with the secured loans having collateral
such as machinery,  equipment,  accounts  receivable,  other business  assets or
marketable securities.

     Commercial  mortgage loans are generally  perceived as having greater risks
that  residential  first  mortgage loans because  historically  they have higher
default rates. The collateral often declines rapidly in value or is difficult to
sell when not part of a successful ongoing business. In order to protect against
these risks, the Company markets it commercial non-mortgage loans principally to
businesses  within its local  market  area  where the  Company  has  substantial
knowledge and expertise  regarding local business and economic  conditions.  The
Company also requires personal  guaranties of business  principals as additional
support for these loans.

     Origination  of Loans.  Loan  originations  come from a number of  sources.
Residential loan  originations can be attributed to advertising,  the efforts of
the Company's loan officers,  and in-house loan originators,  and referrals from
other borrowers, real estate brokers and builders. The Company has increased its
staff of loan originators to increase its originations.  The Company  originates
loans  through  its own  efforts  and does not use  mortgage  brokers,  mortgage
bankers or other fee paid loan  finders.  The Company does not  originate  loans
independent of the Bank, except for the loan made to


                                      -8-
<PAGE>


the Company's ESOP, which was used to purchase stock in the Conversion. The ESOP
loan  is not  recorded  as an  asset  on the  Company's  consolidated  financial
statements and is excluded  throughout this discussion of the Company's  lending
business.

     All of the Bank's  lending is  subject  to its  written,  nondiscriminatory
underwriting  standards  and to loan  origination  procedures  prescribed by the
Bank's Board of  Directors.  Officers of the Bank have the  authority to approve
loans at differing  levels  established by the Board of Directors based upon the
position and expertise of the officer.  Loans over  $500,000,  of which the Bank
had none at September 30, 1998,  must be approved in advance by the Bank's Board
of Directors.  All other loans are reviewed by the Bank's ad hoc loan  committee
after approval.

     As a federal  savings bank, the aggregate  amount of loans that the Bank is
permitted to make to any one borrower is generally  limited to 15% of unimpaired
capital  and  surplus  (25%  if  the  security  for  such  loan  has a  "readily
ascertainable"  value or 30% for  certain  residential  development  loans).  At
September 30, 1998, 15% of the Bank's capital and surplus was approximately $3.4
million.  On that date,  the Bank's  largest  aggregate  loan  relationship  was
$746,000,  represented by three loans to affiliated borrowers.  One of the three
component  loans,  a  participation  loan  with a  balance  owed to the  Bank at
September  30, 1998 of  $472,000,  is the Bank's  largest loan and is secured by
mixed use  commercial  property  in  Goshen.  The two  related  loans  include a
residential  mortgage  loan  on the  primary  residence  of a  principal  of the
commercial  loan  borrower and a mortgage loan on a small  mixed-use  commercial
property  to a related  entity.  The Bank had two other  loan  relationships  at
September 30, 1998 with balances in excess of $500,000. One relationship, in the
amount of $627,000,  includes a commercial  mortgage loan on medical  offices in
the amount of $389,000  and a  residential  mortgage  loan to a principal of the
commercial  loan borrower.  The other  relationship,  in the amount of $619,000,
includes the same mortgage loan on the medical facility,  a residential mortgage
loan on another principal's home, and a small overdraft checking line of credit.
At  September  30, 1998,  the Bank had seven loans  outstanding  with  principal
balances  in  excess of  $250,000  and an  additional  18 loans  with  principal
balances from $200,000 to $250,000. None of these loans were past due 90 days or
more on September 30, 1998 or otherwise classified as non-performing.


                                      -9-
<PAGE>


     The following table sets forth the Bank's loan originations, loan sales and
principal repayments for the periods indicated.

                                               Year Ended September 30,
                                          --------------------------------
                                            1998        1997        1996
                                            ----        ----        ----
                                                   (In Thousands)
     Total loans, beginning of period .   $ 65,905    $ 58,872    $ 58,049
                                          --------    --------    --------
     Loans originated:
     Residential 1 to 4 family (1) ....     18,208      10,017       6,198
     Commercial real estate ...........         --          17         334
     Construction loans ...............      1,846       2,092       1,652
     Consumer loans ...................        699       1,127       2,030
                                          --------    --------    --------
         Total loans originated .......     20,753      13,253      10,214
     Loans purchased ..................         --          --          --
     Loans sold .......................         --          --          --
     Principal repayments .............     (7,666)     (6,206)     (9,373)
     Total charge-offs ................       (115)        (14)        (18)
                                          --------    --------    --------
     Net loan activity ................     12,972       7,033         823
                                          --------    --------    --------
       Total loans, end of period .....   $ 78,877    $ 65,905    $ 58,872
                                          ========    ========    ========

(1) Includes  home equity loans  secured by junior liens on  one-to-four  family
owner-occupied residences.

     The Company does not purchase loans. Prior to fiscal 1995, the Company sold
part of its fixed rate residential mortgage loan production to FNMA and retained
the right to service those loans. At September 30, 1998, the Company's portfolio
of loans  serviced for FNMA totaled  $6.0  million.  The Company did not service
loans for any other investors at that date. The Company has never purchased loan
servicing rights.

     Loan Maturity.  The following table shows the  contractual  maturity of the
Company's loan portfolio at September 30, 1998.  Loans are shown as due based on
their contractual terms to maturity. Loans which have adjustable or renegotiable
interest  rates are shown as maturing in the period  during which the final loan
payment is due without  regard to rate  adjustments.  The table does not reflect
the  effects  of loan  amortization,  possible  prepayments  or  enforcement  of
due-on-sale  clauses.  Non-performing  loans are  shown as being due based  upon
their contractual maturity without regard to acceleration due to default.


                                      -10-
<PAGE>


<TABLE>
<CAPTION>
                                                            At September  30, 1998
                                      -----------------------------------------------------------------
                                      One- to                                                  Total
                                       Four-          Home        Commercial     Other         Loans
                                      Family         Equity      Real Estate     Loans       Receivable
                                      ------         ------      -----------     -----       ----------
                                                                (In Thousands)
<S>                                  <C>            <C>           <C>           <C>           <C>     
Contractual maturity:
  Within 1 year ..................   $     54       $     --      $     --      $    133      $    187
  After 1 year:
     1 to 3 years ................        541             --           510           371         1,422
     3 to 5 years ................        751            290            --           277         1,318
     5 to 10 years ...............      2,664            538           287            74         3,563
     Over 10 years ...............     69,792          1,537         1,023            35        72,387
                                     --------       --------      --------      --------      --------
     Total due after one year ....   $ 73,748       $  2,365      $  1,820      $    757      $ 78,690
                                     --------       --------      --------      --------      --------
  Total amounts due ..............   $ 73,802       $  2,365      $  1,820      $    890      $ 78,877
                                     ========       ========      ========      ========
Less:
  Deferred loan fees, net ........                                                                  (3)
  Allowance for loan losses ......                                                                 167
                                                                                              --------
  Loans receivable, net ..........                                                            $ 78,713
                                                                                              ========
</TABLE>

     The following  table sets forth at September 30, 1998, the dollar amount of
loans due after  September 30, 1999,  and whether such loans have fixed interest
rates or adjustable interest rates.

                                          Due After September 30, 1999
                                        ---------------------------------
                                        Fixed     Adjustable        Total
                                        -----     ----------        -----
                                               (In Thousands)
Mortgage loans:
  One- to four-family .............    $45,779       $27,969       $73,748
  Home equity .....................      1,209         1,156         2,365
  Commercial real estate ..........        799         1,021         1,820
Other loans .......................        690            67           757
                                       -------       -------       -------
Total loans receivable ............    $48,477       $30,213       $78,690
                                       =======       =======       =======

Asset Quality

     Delinquency Procedures. When a borrower fails to make a required payment on
a loan,  the Company  attempts to cause the deficiency to be cured by contacting
the borrower. Late notices are sent when a payment is more than 15 days past due
and a late charge is generally  assessed at that time.  The Company  attempts to
contact  personally  any  borrower  who is more than 30 days  past due.  In most
cases,  deficiencies are cured promptly. All loans past due 60 days or more, and
all loans in which the  borrower  is  delinquent  in the  payment of real estate
taxes  regardless  of  payment  status,  are  added  to a watch  list and a Bank
employee of the Company contacts the borrower on a regular basis to seek to cure
the  delinquency.  If a loan  becomes past due 90 days,  the Company  refers the
matter to an attorney, who first seeks to obtain payment without litigation and,
if unsuccessful,  generally  commences a foreclosure action or other appropriate
legal action to collect the loan. A  foreclosure  action,  if the default is not
cured,  generally  leads to a judicial  sale of the mortgaged  real estate.  The
judicial sale is normally  delayed if the borrower  files a bankruptcy  petition
because the  foreclosure  action  cannot be continued  unless the Company  first
obtains relief from the automatic stay provided by the Bankruptcy Code.

     If the Company  acquires  the  mortgaged  property at  foreclosure  sale or
accepts a voluntary deed in lieu of foreclosure,  the acquired  property is then
classified as Real Estate Owned ("REO") until it is sold. At September 30, 1998,
the Company had REO consisting of one property totaling $94,000,  which was sold
in November 1998. When REO is acquired, the property is recorded at the lower of
the  principal  balance  of the  loan or fair  value  less  costs of sale of the
property and any shortfall


                                      -11-
<PAGE>


between the recorded value of the property and the carrying value of the loan is
charged to the  allowance for loan losses.  Thereafter,  changes in the value of
the REO are  reflected  as a valuation  allowance.  The Company is  permitted to
finance  sales of REO by "loans to  facilitate,"  which may involve a lower down
payment  or a  longer  repayment  term or other  more  favorable  features  than
generally  would  be  granted  under  the  Company's  underwriting   guidelines.
Currently, the Company has no "loans to facilitate."

     The following  table sets forth  information  with respect to the Company's
non-performing  assets (which generally include loans that are delinquent for 90
days or more and real estate owned) at the dates indicated.

                                                     At September 30,
                                     -------------------------------------------
                                      1998     1997      1996     1995     1994
                                      ----     ----      ----     ----     ----
                                                 (Dollars in Thousands)
Non-accrual loans:
  Loans in non-accrual status:
  One- to four-family ............    $ --     $  --     $ 16     $157     $ 42
  Home equity ....................      --        --       --       --       --
  Commercial real estate .........      --        --       --       --       --
                                      ----     -----     ----     ----     ----
     Total mortgage loans ........    $ --        --       16      157       42
                                      ----     -----     ----     ----     ----
  Consumer loans .................      --                 --       --       --
     Total non-accrual ...........    $ --        --       16      157       42
                                      ----     -----     ----     ----     ----
  Accruing Loans delinquent 90
   days or more:
  Mortgage loans .................      --        --       --       68      160

  Home equity ....................      --        --       --       --       51
  Other loans ....................       4        --       --       --        4
                                      ----     -----     ----     ----     ----

     Total .......................       4        --       --       68      215
                                      ----     -----     ----     ----     ----
Total non-performing loans .......       4        --       16      225      257

Foreclosed and in substance
   foreclosed real estate ........      94        --       --       --       --
                                      ----     -----     ----     ----     ----
Total non-performing assets ......    $ 98     $  --     $ 16     $225     $257
                                      ====     =====     ====     ====     ====
Ratio of non-performing loans to
   total loans ...................    0.01%     0.00%    0.03%    0.39%    0.45%
Ratio of non-performing assets to
   total assets ..................    0.07%     0.00%    0.02%    0.22%    0.26%

     At September 30, 1998,  management  had  identified as a potential  problem
loan one residential  mortgage loan with a principal  balance of $92,000,  which
was  then 59 days  past  due.  Although  management  has been  advised  that the
property  is likely to be sold at a price  which  would  involve  no loss to the
Company,  lack of a  prompt  sale  could  necessitate  foreclosure  proceedings.
Management  believes that the allowance for loan losses is adequate to cover the
loss,  if any, on such loan.  At September  30, 1998,  there were no other loans
other than those included in the table above with regard to which management had
information   about  possible  credit  problems  of  the  borrower  that  caused
management to seriously doubt the ability of the borrower to comply with present
loan repayment terms.

     It is the Company's policy to discontinue  accruing interest on a loan when
it becomes 90 days or more  delinquent  unless the Company  determines  that the
nature of the  delinquency  and the collateral  are such that  collection of the
principal  and  interest  on the loan in full is  reasonably  assured.  Once the
accrual of interest is  discontinued,  the Company records  interest as and when
received until the loan is restored to accruing status.


                                      -12-
<PAGE>


     For the years  ended  September  30,  1998,  1997 and 1996,  the  amount of
interest  income that would have been recorded on non-accrual  loans was $0, $0,
and $1,400,  respectively,  if such loans had been performing  inaccordance with
their terms,  of which $0, $0, and $1,400 was actually  collected by the Company
and recorded as income during each such period. Interest earned on loans 90 days
or more delinquent and still accruing  interest  amounted to $95, $0, and $0 for
such periods, respectively.

     Classified  Assets.  OTS  regulations  require that federal  savings  banks
classify  their  assets  on a  regular  basis and  establish  prudent  valuation
allowances  based on such  classifications.  In  addition,  in  connection  with
examinations of savings  associations,  OTS examiners have authority to identify
problem  assets  and,  if  appropriate,  require  them  to  be  classified.  OTS
regulations  provide  for three  adverse  classifications  for  problem  assets:
Substandard,  Doubtful  and Loss.  Substandard  assets have one or more  defined
weaknesses and are characterized by the distinct  possibility that the Bank will
sustain some loss if the  deficiencies  are not corrected.  Doubtful assets have
the weaknesses of Substandard assets, with the additional  characteristics  that
the weaknesses  make collection or liquidation in full on the basis of currently
existing  facts,  conditions  and  values  questionable,  and  there  is a  high
probability of loss. An asset classified Loss is considered uncollectible and of
such little value that its continuance as an asset of the Bank is not warranted.
The  regulations  have also created a Special  Mention  category,  consisting of
assets which do not currently expose the Bank to a sufficient  degree of risk to
warrant  classifications,  but  do  possess  credit  deficiencies  or  potential
weaknesses deserving management's close attention.

     Assets  classified as Substandard or Doubtful require the Bank to establish
prudent  valuation  allowances.  If an asset or portion thereof is classified as
Loss, the Bank must either establish a specific allowance for loss equal to 100%
of the portion of the asset  classified  Loss or charge off such amount.  If the
Bank does not agree with an examiner's classification of an asset, it may appeal
this  determination  to the  District  Director  of the  OTS.  On the  basis  of
management's  review  of its  loans  at  September  30,  1998,  the  Bank had no
classified assets and no loans categorized by management as "Special Mention."

     Allowance for Loan Losses.  The  allowance  for loan losses is  established
through a provision  for loan losses  based on  management's  evaluation  of the
risks  inherent in the Company's  loan  portfolio and the general  economy.  The
allowance  for loan  losses  is  maintained  at an amount  management  considers
adequate to cover loan losses which are deemed  probable  and can be  estimated.
The   allowance   is  based   upon  a  number  of   factors,   including   asset
classifications,  economic trends,  industry experience and trends, industry and
geographic concentrations,  estimated collateral values, management's assessment
of the credit risk inherent in the portfolio,  historical  loan loss  experience
and the Company's underwriting policies. The Company evaluates on a loan by loan
basis each calendar  quarter all loans which are at least sixty days past due or
for which there are unpaid real estate taxes and considers whether the allowance
should be adjusted to protect  against  risks  associated  with such loans.  The
analysis of the  adequacy of the  allowance  is reported to and  reviewed by the
Board of  Directors  quarterly.  Although  management  believes it uses the best
information  available to make  determinations with respect to the allowance for
loan losses,  future adjustments may be necessary if economic conditions and the
Company's  actual  experience  differ  substantially  from  the  conditions  and
experience used in the  assumptions  upon which the initial  determinations  are
based.

     While the Company  believes that it has  established an adequate  allowance
for loan losses based upon its low level of prior  charge-offs,  there can be no
assurance that regulators,  in reviewing the Company's loan portfolio as part of
a future  regulatory  examination,  will not request  the Company to  materially
increase  its  allowance  for loan  losses,  thereby  negatively  affecting  the


                                      -13-
<PAGE>


Company's financial condition and earnings at that time. Moreover,  no assurance
can be made that future  additions to the allowance will not be necessary  based
on changes in economic and real estate market  conditions,  further  information
obtained  regarding  existing loans,  identification of additional problem loans
and other  factors,  both  within  and  outside  of  management's  control.  The
directors  of the Bank and the Company  have  reviewed  the  provision  for loan
losses  and the  allowance  for loan  losses  and the  assumptions  utilized  by
management as to their reasonableness and adequacy.

     The following table analyzes  activity in the Company's  allowance for loan
losses during the fiscal years indicated.

<TABLE>
<CAPTION>
                                                         Year Ended September 30,
                                           -------------------------------------------------
                                             1998     1997       1996        1995       1994
                                             ----     ----       ----        ----       ----
                                                         (Dollars in Thousands)
<S>                                        <C>        <C>        <C>        <C>        <C>  
Allowance, beginning of period ........    $ 139      $ 123      $ 114      $ 106      $  91
Provision:
   Residential 1-4 family .............       70          5         --         15         20
   Commercial real estate .............       --         --         --         --         --
   Consumer ...........................       --         15         24         14          5
                                           -----      -----      -----      -----      -----
     Total provision ..................       70         20         24         29         25

Charge-offs:
   Residential 1-4 family .............      (43)        --         --         --         --
   Consumer ...........................       --        (14)       (18)       (22)       (14)
                                           -----      -----      -----      -----      -----
      Total charge-offs ...............      (43)       (14)       (18)       (22)       (14)
                                           -----      -----      -----      -----      -----
Recoveries:
   Residential 1-4 family .............       --         --         --         --         --
   Consumer ...........................        1         10          3          1          4
                                           -----      -----      -----      -----      -----

      Total recoveries ................        1         10          3          1          4
                                           -----      -----      -----      -----      -----
Net (charge-offs) recoveries ..........      (42)        (4)       (15)       (21)       (10)
                                           -----      -----      -----      -----      -----
Allowance, end of period ..............    $ 167      $ 139      $ 123      $ 114      $ 106
                                           =====      =====      =====      =====      =====
Allowance as a percent of total loans .     0.21%      0.21%      0.21%      0.19%      0.19%
</TABLE>


                                      -14-
<PAGE>


     The  following  table sets forth the  breakdown of the  allowance  for loan
losses by loan category at the dates indicated.  The allocation of the allowance
to each  category is not  necessarily  indicative  of future losses and does not
restrict the use of the allowance to absorb losses in any category.

<TABLE>
<CAPTION>
                                                                         At September 30,
                                           ---------------------------------------------------------------------------------
                                                 1998                1997               1996                  1995
                                           ---------------------------------------------------------------------------------
                                                       Percent            Percent             Percent                Percent
                                                       of Loans           Of Loans            of Loans              Of Loans
                                                       to Total           To Total            to Total              To Total
                                            Amount       Loans    Amount   Loans    Amount     Loans     Amount       Loans
                                            ------       -----    ------   -----    ------     -----     ------       -----
                                                                       (Dollars in Thousands)
<S>                                          <C>        <C>       <C>      <C>       <C>       <C>         <C>       <C>    
Allowance allocated to:
Residential 1-4 family ................      $139        96.56%   $117      95.58%   $112       94.75%     $112       93.87%
Commercial real estate ................        --         2.31%     --       3.15%     --        3.83%       --        4.58%
Consumer and other ....................        28         1.13%     22       1.27%     11        1.42%        2        1.55%
                                             ----       ------    ----     ------    ----      ------      ----      ------ 
Total allowance .......................      $167       100.00%   $139     100.00%   $123      100.00%     $114      100.00%
                                             ====       ======    ====     ======    ====      ======      ====      ====== 
</TABLE>

Environmental Issues   

     The  Company  encounters  certain   environmental   risks  in  its  lending
activities.  Under  federal  and state  environmental  laws,  lenders may become
liable for costs of cleaning up hazardous  materials found on property  securing
their  loans.  In  addition,  the  presence of  hazardous  materials  may have a
substantial  adverse  effect on the value of such property as collateral and may
cause  economic  difficulties  for the  borrower,  causing  the  loan to go into
default.  Although environmental risks are usually associated with loans secured
by commercial real estate, risks also may exist for loans secured by residential
real estate if, for example, there is nearby commercial  contamination or if the
residence was constructed on property formerly used for commercial purposes. The
Company  attempts  to control its risk by  requiring  a phase one  environmental
assessment by a Company-approved engineer as part of its underwriting review for
all mortgage loans other than those secured by one-to-three family residences.

     The  Company   believes  its   procedures   regarding  the   assessment  of
environmental  risk are adequate and, as of September 30, 1998,  the Company was
unaware of any  environmental  issues with respect to any of its mortgage  loans
which are believed to expose the Company or any  collateral for any of its loans
to any material liability at this time.  However, no assurance can be given that
the values of properties  securing loans in the Company's  portfolio will not be
adversely affected by unforeseen environmental risks.

Investment Activities

     General. The investment policy of the Company and the Bank, approved by the
Boards of  Directors,  is based  upon  asset/liability  management  goals and is
designed  primarily to provide  satisfactory  yields while maintaining  adequate
liquidity, a balance of high quality, diversified investments, and minimal risk.
The investment policy is implemented by the Chief Executive Officer.


                                      -15-
<PAGE>


     As required by SFAS 115,  securities are classified into three  categories:
trading, held-to-maturity and available-for-sale. Securities that are bought and
held principally for the purpose of selling them in the near term are classified
as trading  securities and are reported at fair value with unrealized  gains and
losses  included in trading  account  activities  in the  statement of earnings.
Securities  that the  Company  has the  positive  intent and  ability to hold to
maturity are classified as held-to-maturity  and reported at amortized cost. All
other  securities  are  classified  as  available-for-sale.   Available-for-sale
securities are reported at fair value with unrealized gains and losses included,
on an after-tax basis, as a separate component of retained earnings. The Company
has not had a trading  securities  portfolio since 1994 and has no current plans
to maintain such a portfolio in the future. At September 30, 1998, $31.5 million
of investment  securities  were classified as  available-for-sale  and none were
classified  as  held to  maturity.  At  September  30,  1998,  $3.9  million  of
mortgage-backed securities were classified as held to maturity with a fair value
of $4.0 million, and $5.8 million were classified as available for sale.

     Investment  Securities.   The  Company's  investment  securities  portfolio
totaled  $31.5 million at September 30, 1998. It is the policy of the Company to
invest in debt securities issued by the United States Government,  its agencies,
municipalities  and  corporations.  In order to benefit from higher yields,  the
Company invests in callable  government  agency debt  securities,  which totaled
$18.5 million,  or 58.7% of investment  securities,  at September 30, 1998. Such
securities  have greater risks than U.S.  Government  securities  because of the
greater possibility that the corporate obligor, compared to the U.S. Government,
will default in payment of the obligation.  To control risks, the Company limits
its investment in corporate debt  securities to those rated in the three highest
grades by a nationally recognized rating organization.  The Company also invests
in the Institutional  Investors Capital  Appreciation  Fund, Inc.  ("IICAF"),  a
mutual fund which invests  principally  in common stocks of companies  listed on
the New York Stock  Exchange  that have paid regular  dividends for at least ten
consecutive  fiscal years.  At September 30, 1998,  the Company's  investment in
IICAF shares totaled $2.7 million.

     At September  30, 1998,  the Bank had an investment of $704,000 in stock of
the  FHLBNY,  which  investment  was  necessary  for the  Bank to  maintain  its
membership in the FHLBNY and to utilize FHLBNY borrowing facilities. If the Bank
increases its FHLBNY borrowings, the Bank may have to increase its investment in
FHLBNY stock  because the Bank must own FHLBNY stock at least equal to 5% of its
borrowings. The Bank's yield on FHLBNY stock was 7.21% for the fiscal year ended
September 30, 1998.

     Mortgage-Backed   Securities.   The  Company  invests  in   mortgage-backed
securities  to  supplement  the yields on its loan  portfolio.  At September 30,
1998, the Company's  mortgage-backed  securities portfolio totaled $9.7 million,
of which $3.9  million was  classified  as held to maturity and $5.8 million was
classified  as  available  for sale.  The  Company's  most recent  purchases  of
mortgage-backed  securities  have been  classified as available for sale and the
Company  expects  that it will  continue  to so  classify  future  purchases  to
maintain   flexibility.   At   September   30,  1998,   all  of  the   Company's
mortgage-backed securities were issued or guaranteed by FNMA, FHLMC or GNMA. The
Company's  mortgage-backed  securities portfolio had a weighted average yield of
6.70% at September 30, 1998.

     Mortgage-backed  securities  generally  have higher yields than  investment
securities because of the longer terms and the uncertainties associated with the
timing of mortgage repayments. In addition,  mortgage-backed securities are more
liquid  than  individual  mortgage  loans  and  may  be  used  to  collateralize
borrowings of the Company.  However,  these securities generally yield less than
the loans that underlie them because of the cost of payment guarantees or credit
enhancements  that reduce  credit risk.  Mortgage-backed  securities of the type
held by the Bank are generally weighted


                                      -16-
<PAGE>


at 20%,  rather than the 50% weighting for  performing  residential  one-to-four
family mortgage loans, in determining the Bank's regulatory  risk-based  capital
ratios.

     While investment and mortgage-backed securities carry a reduced credit risk
as  compared  to  loans,  such  securities  remain  subject  to the risk  that a
fluctuating  interest  rate  environment,  along with other  factors such as the
geographic  distribution  of  the  underlying  mortgage  loans,  may  alter  the
prepayment rate of such mortgage loans and so affect both the prepayment  speed,
and value, of such securities.


                                      -17-
<PAGE>


     The following table sets forth certain information  regarding the amortized
cost and fair value of the Company's  available  for sale,  and held to maturity
securities portfolios at the dates indicated.

<TABLE>
<CAPTION>
                                                                                       At September 30,
                                                          --------------------------------------------------------------------------
                                                                   1998                       1997                    1996
                                                          --------------------------------------------------------------------------
                                                           Amortized      Fair       Amortized       Fair      Amortized      Fair
                                                             Cost         Value         Cost         Value       Cost         Value
                                                          ----------     -------     ---------      -------    ---------     -------
                                                                                      (In Thousands)
<S>                                                         <C>          <C>          <C>          <C>          <C>          <C>    
Securities Available for Sale:
       U.S. Treasury securities ......................      $ 1,001      $ 1,006      $ 3,497      $ 3,505      $ 4,718      $ 4,715
       U.S. Government agencies ......................       18,274       18,462        7,123        7,163        2,967        2,984
       Corporate debt obligations ....................        8,338        8,468       11,879       11,942       12,043       12,075
       Mortgage-backed securities ....................        5,797        5,804        6,994        6,990           --           --
       Other securities ..............................           --           --          400          400          506          504
                                                            -------      -------      -------      -------      -------      -------
                     Total ...........................       33,410       33,740       29,893       30,000       20,234       20,278
                                                            -------      -------      -------      -------      -------      -------
       FHLBNY stock ..................................          704          704          638          638          599          599
                                                                                          
       Corporate equity securities ...................        2,002        2,204        2,112        2,834        2,165        2,990
                                                            -------      -------      -------      -------      -------      -------
                     Total equity securities .........        2,816        3,538        2,803        3,628        2,601        2,803
                                                            -------      -------      -------      -------      -------      -------
                     Total available for
                     sale ............................       36,226       37,278       32,696       33,628       22,835       23,081
                                                            -------      -------      -------      -------      -------      -------
Securities Held to Maturity:
       Mortgage-backed securities ....................        3,881        3,965        5,653        5,766        6,474        6,529
                                                            -------      -------      -------      -------      -------      -------
                     Total held to maturity ..........        3,881        3,965        5,653        5,766        6,474        6,529
                                                            -------      -------      -------      -------      -------      -------
                     Total Securities ................      $40,107      $41,243      $38,349      $39,394      $29,309      $29,610
                                                            =======      =======      =======      =======      =======      =======
</TABLE>

     The table  below sets forth  certain  information  regarding  the  carrying
value,  weighted average yields and stated maturity of the Company's  securities
at September 30, 1998. There were no securities (exclusive of obligations of the
U.S.  Government  and  federal  agencies)  issued by any one entity with a total
carrying value in excess of 10% of the Company's equity at September 30, 1998.

<TABLE>
<CAPTION>
                                                                At September 30, 1998
                    -------------------------------------------------------------------------------------------------------------
                     One Year or Less   One to Five Years   Five to Ten Years     More than Ten Years   Total Securities
                    -----------------   -----------------  ------------------    --------------------   ----------------
                    Carrying  Average   Carrying  Average  Carrying   Average    Carrying     Average   Carrying  Average   Market
                      Value    Yield     Value     Yield    Value      Yield       Value       Yield      Value    Yield     Value
                    --------  -------   --------  -------  --------   -------    --------     -------   --------   -----     -----
                                                            (Dollars in Thousands)
<S>                 <C>        <C>     <C>          <C>     <C>          <C>      <C>           <C>      <C>       <C>     <C>    
U.S. Treasury                                                                                                             
  securities ...    $ 1,001    5.99%   $    --        --    $    --        --     $    --         --   $   1,001   5.99%   $ 1,006
                                                                                                                          
U.S.  Government                                                                                                          
  agency .......         --      --      1,000      7.10%     6,978      6.66%     10,296       6.83%     18,274   6.78%    18,462
                                                                                                                          
Corporate debt                                                                                                            
  obligations ..      2,203    6.26%     6,135      7.24%        --        --          --         --       8,338   6.98%     8,468
Mortgage-backed                                                                                                          
  securities ...        345    5.00%     3,402      6.40%     1,317      7.14%      4,614       6.93%      9,678   6.70%     9,769
FHLBNY stock ...         --      --         --        --         --        --         704       7.21%        704   7.21%       704
Other equity                                                                                                              
  securities ...         --      --         --        --         --        --       2,112       6.87%      2,112   6.87%     2,834
                    -------            -------              -------               -------                -------           -------
    Total ......    $ 3,549    6.06%   $10,537      6.96%   $ 8,295      6.74%    $17,726       6.87%    $40,107   6.79%   $41,243
                    =======            =======              =======               =======                =======           =======
</TABLE>


                                      -18-
<PAGE>


Sources of Funds

     General.  The Company's  primary source of funds is deposits.  In addition,
the  Company  derives  funds for loans and  investments  from loan and  security
repayments and  prepayments,  from net revenues from operations and, to a lesser
extent,  from borrowings.  Scheduled payments on loans and  mortgage-backed  and
investment  securities  are a relatively  stable source of funds,  while savings
inflows and  outflows and loan and  mortgage-backed  and  investment  securities
prepayments  are  significantly  influenced by general  interest rates and money
market conditions. Borrowings are occasionally used to compensate for reductions
in other sources of funds.

     Deposits.  The  Company  offers  several  types of deposit  programs to its
customers,  including  passbook and statement  savings  accounts,  NOW accounts,
money market deposit  accounts,  checking  accounts and certificates of deposit.
Deposit account terms vary according to the minimum balance  required,  the time
periods  the funds must  remain on deposit and the  interest  rate,  among other
factors.  The  Company's  deposits  are obtained  predominantly  from its Orange
County  market  area.  The Company  relies  primarily  on  customer  service and
long-standing  relationships  with customers to attract and retain these savings
deposits;  however,  market  interest  rates  and  rates  offered  by  competing
financial institutions significantly affect the Company's ability to attract and
retain savings deposits. The Company does not pay premium rates for certificates
of deposit in excess of  $100,000  nor does the  Company  use  brokers to obtain
deposits.  At  September  30,  1998,  the Company had $88.3  million of deposits
outstanding.

     The Company prices its deposit  offerings based upon market and competitive
conditions in its market area.  Beginning in fiscal 1996, the Company took steps
to decrease its cost of funds by moderating the rates it offered on certificates
of deposit.  However,  after the conversion of Goshen Savings Bank in July 1997,
the Company took a more  aggressive  posture towards deposit pricing in order to
increase   deposits  and  leverage  the  additional   capital  obtained  in  the
conversion.  This new pricing  policy  involved  the  creation of a tier pricing
structure  for money market  deposit  accounts,  with a premium rate offered for
higher  balance  accounts.  In  addition,  the Company  modified its approach to
certificate  of deposit  pricing to move its rates to slightly above the average
market rates,  but not reaching the highest  market rates,  offered in the local
market.  Furthermore,  the Bank also opened its third  deposit-taking  office in
September  1998 in Harriman,  New York as part of the expansion of the Company's
business and to seek additional deposits for further leveraging of the Company's
capital.


                                      -19-
<PAGE>


The  following  table  sets  forth the  distribution  of the  Company's  deposit
accounts at the dates indicated.  Interest rates shown for non-time accounts are
the rates in effect at September 30, 1998.

<TABLE>
<CAPTION>
                                                                                    At September 30,
                                                       --------------------------------------------------------------------------
                                                              1998                     1997                     1996
                                                              ----                     ----                     ----
                                                                     Percent                   Percent                   Percent 
                                                                       of                        of                         of
                                                       Amount         Total       Amount        Total        Amount       Total
                                                       ------         -----       ------        -----        ------       -----
                                                                            (Dollars in Thousands)
<S>                                                   <C>           <C>          <C>           <C>          <C>          <C>    
Non-time accounts:
   Savings accounts (3.00%) .......................   $28,089        31.81%      $26,839        31.65%      $26,805       32.12%
   NOW accounts (2.50%) ...........................     4,932         5.58%        4,136         4.87%        3,636        4.36%
   Checking accounts ..............................     4,981         5.64%        4,869         4.70%        4,206        5.04%
   Money market accounts (3.00% - 4.50%) ..........    10,958        12.41%        8,892        12.82%       10,457       12.53%
                                                      -------       ------       -------       ------       -------      ------ 
      Total non-time accounts .....................    48,960        55.44%       44,736        54.04%       45,104       54.05%
                                                      -------       ------       -------       ------       -------      ------ 
 Time accounts:                                                                                           
   3.00-3.99% .....................................       122         0.14%          208         0.42%          501        0.60%
   4.00-4.99% .....................................    19,703        22.31%        8,394        29.75%       25,479       30.53%
   5.00-5.99% .....................................    18,998        21.51%       28,861        14.27%        9,736       11.67%
   6.00-6.99% .....................................       264         0.30%          509         1.12%        2,291        2.75%
   7.00-7.99% .....................................       263         0.30%          275         0.40%          331        0.40%
                                                      -------       ------       -------       ------       -------      ------ 
      Total time accounts .........................    39,350        44.56%       38,247        45.96%       38,338       45.95%
                                                      -------       ------       -------       ------       -------      ------ 
          Total deposits ..........................   $88,310       100.00%      $82,983       100.00%      $83,442      100.00%
                                                      =======       ======       =======       ======       =======      ====== 
</TABLE>
 
     The following  table sets forth the deposit flows at the Company during the
periods indicated.

                                                    Year Ended September 30,
                                              ---------------------------------
                                                1998         1997         1996
                                                ----         ----         ----
                                                       (In Thousands)
Net deposits (withdrawals) ...............     $ 2,128     $(3,587)     $(8,016)
Interest credited ........................       3,199       3,128        3,365
                                               -------     -------      -------
Net increase (decrease) in deposits ......     $ 5,327     $  (459)     $(4,651)
                                               =======     =======      =======

     At September  30, 1998,  the Company had $2.4  million in  certificates  of
deposit with balances of $100,000 or more ("jumbo deposits"),  representing 2.7%
of all deposits, as follows:

          Original                              Interest
            Term                                Rate (1)       Balance
            ----                                --------       -------
                                                            (In Thousands)
1-3 months .............................          3.60%         $  201
4-6 months .............................          4.70%          1,148
6-12 months ............................          4.95%            635
Over twelve months .....................          5.10%            371
                                                                ------
                                                                $2,355
                                                                ======

(1)  Interest rate offered as of September 30, 1998.


                                      -20-
<PAGE>


     Borrowings.  To a limited  extend,  the Company has in the past relied upon
borrowed funds or repurchase  agreements to supplement its available  funds. The
Company has borrowed funds, either through direct borrowings or through the sale
of securities  under  agreements to repurchase,  on an infrequent basis when the
cost of borrowings was attractive  when compared to the rate required to be paid
on deposits plus the deposit insurance premium required to be paid.

     The Company had borrowing of $10.0 million  outstanding as of September 30,
1998,  which  were to  provide a method of  leveraging  the  additional  capital
obtained in the Conversion. The Company had no borrowings at September 30, 1997.
The  maximum  borrowings  outstanding  at any time  during  fiscal  1997 were $2
million.

 Subsidiary Activities

     As a federal  savings  bank,  the Bank may invest up to 2% of its assets in
subsidiaries,  with an additional  investment of 1% of assets if the  investment
serves primarily community,  inner city and community development.  The Bank may
also invest an unlimited  amount in  operating  subsidiaries  engaged  solely in
activities  which a federal savings bank may engage in directly.  The Company is
permitted,  as a  unitary  savings  and  loan  holding  company,  to  invest  in
subsidiaries without limits as to the activities in which the subsidiary engages
and without  limit as to the amount  invested.  Neither the Bank nor the Company
have any subsidiaries.

Personnel

     At September  30,  1998,  the Bank  employed 34  full-time  and 7 part-time
employees. The Company did not have any employees who were not also employees of
the Bank. The employees are not represented by a collective bargaining unit, and
the Company considers its relationship with its employees to be good.

Regulation

     The following is a summary of certain  statutes and  regulations  affecting
the Company and the Bank.  The Bank,  as a federally  chartered,  FDIC  insured,
savings bank,  derives its powers principally from federal law and is subject to
comprehensive  regulation of virtually every aspect of its business  operations.
The following summary is selective and should not be considered to be a complete
discussion of all regulation affecting the Company or the Bank.

     General Bank  Regulation.  The Bank's primary federal bank regulator is the
Office of Thrift Supervision  ("OTS"). The Bank is also subject to regulation by
the FDIC as the insurer of its  deposits.  The Bank must file  periodic  reports
with the OTS and is regularly  examined by the OTS and the FDIC.  As a result of
these examinations,  the Bank can be required to adjust its loan classifications
or allowance for loan losses,  take other actions to correct  deficiencies found
during the examinations,  or cease engaging in certain  activities.  The Bank is
generally  permitted  to open  deposit-taking  branches  throughout  the  United
States, regardless of local laws regarding branching.

     The OTS may institute enforcement action against the Bank for violations of
law or for unsafe and unsound banking practices. Enforcement actions can include
the issuance of cease and desist orders, the commencement of removal proceedings
in which an employee,  officer or director can be removed from  involvement with
the Bank, the assessment of civil monetary penalties, and injunctive relief. The
FDIC may terminate the insurance of deposits,  after notice and hearing,  upon a


                                      -21-
<PAGE>


finding that an institution has engaged in unsafe and unsound practices,  cannot
continue  operations  because it is in an unsafe and unsound  condition,  or has
violated any applicable law, regulation, rule, order or condition imposed by the
OTS or FDIC. The FDIC may instead impose less severe sanctions.  Neither the OTS
nor the FDIC have ever instituted any enforcement action against the Bank.

     Federal law and OTS  regulations  limit the percentage of the Bank's assets
that can be invested in certain investments. For example, commercial,  corporate
and business  loans,  other than those  secured by real estate  collateral,  are
limited in the  aggregate  to 10% of assets.  The  purchase of below  investment
grade debt  securities  is  prohibited.  Loans secured by  non-residential  real
property cannot,  in the aggregate,  exceed 400% of capital.  Consumer loans not
secured by residential real estate are generally limited,  in the aggregate,  to
35% of total assets. Loans secured by residential real property,  and many other
types of loans and  investments,  are not  subject  to any  percentage  of asset
limit. Generally,  the Bank may not lend more than 15% of unimpaired capital and
surplus to one borrower,  which equates to a lending limit of $3.4 million, with
an additional 10% of unimpaired  capital and surplus being  permitted if secured
by certain  readily  marketable  collateral.  The Bank is in compliance with all
these limits. The Bank's largest loan, to one borrower at September 30, 1998 was
represented  by three  related  loans in the  aggregate  amount of $746,000 loan
secured by commercial and residential real estate in the Bank's market area.

     The  OTS  also  imposes  a  semi-annual  assessment  on all  OTS  regulated
institutions  to defer  the  cost of OTS  regulation.  The  Bank's  most  recent
semi-annual OTS assessment was $17,674.

     The Company is a unitary  savings and loan  holding  company,  and its sole
FDIC-insured  subsidiary,  the  Bank,  is  a  qualified  thrift  lender  ("QTL",
discussed in more detail  below).  Therefore,  the Company  generally  has broad
authority to engage in all types of business  activities  in which  business can
engage. If the Company were to acquire another insured institution as a separate
subsidiary or if the Bank fails to remain a QTL, the Company's  activities  will
be limited to those permitted of multiple savings and loan holding companies. In
general, a multiple savings and loan holding company (or subsidiary thereof that
is not an insured  institution)  may,  subject to OTS  approval  in most  cases,
engage in activities  comparable to those permitted for bank holding  companies,
certain insurance  activities,  and certain activities related to the operations
of its FDIC-insured subsidiaries.

     Capital  Requirements.  The Bank is subject to minimum capital requirements
imposed by the OTS. The Bank must maintain (i) tangible capital of at least 1.5%
of tangible  assets,  (ii) core  capital of at least 3.0% of  adjusted  tangible
assets,  and (iii) total capital  requirement of at least 8.0% of  risk-weighted
assets.  Under current law and  regulations,  there are no capital  requirements
directly applicable to the Company.  The Bank substantially  exceeds all minimum
capital  standards  imposed by the OTS. At September  30,  l998,  the Bank had a
tangible  capital ratio of 17.8%, a core capital ratio of 17.8% and a risk based
capital ratio of 37.4%.

     The OTS has the  authority  to  require  that an  institution  take  prompt
corrective  action to solve  problems if the  institution  is  undercapitalized,
significantly  undercapitalized or critically  undercapitalized.  Because of the
Bank's high capital ratios,  the prompt  corrective  action  regulations are not
expected to have an effect on the Bank.

     Deposit  Insurance  Premiums.  The FDIC's  deposit  insurance  premiums are
assessed  through  a  risk-based  system  under  which  all  insured  depository
institutions  are placed  into one of nine  categories  and  assessed  insurance
premiums based upon their level of capital and supervisory evaluation. Under the
system,  institutions  classified as well capitalized and considered healthy pay


                                      -22-
<PAGE>


the lowest  premium.  The Bank is in this category and currently pays negligible
deposit  insurance  premiums.  However,  the Bank pays an annual  assessment  of
approximately  0.013% of insured deposits to defray a portion of the cost of the
bonds  sold by a federal  agency to finance a portion  of the  savings  and loan
bailout  in  the  late  1980's.  If  the  Bank's  capital  ratios  substantially
deteriorate  or if the Bank is  found to be  otherwise  unhealthy,  the  deposit
insurance premiums payable by the Bank could increase.

         Dividend  Restrictions.  OTS regulations  impose limits on dividends or
other capital  distributions by savings institutions based on capital levels and
net income.  An institution,  such as the Bank, that meets or exceeds all of its
capital  requirements  (both before and after giving effect to the distribution)
and  is  not  in  need  of  more  than  normal  supervision,  may  make  capital
distributions  during a  calendar  year of up to the  greater of (i) 100% of net
income for the current calendar year plus 50% of its capital surplus (capital in
excess of regulatory  requirements)  or (ii) 75% of its net income over the most
recent  four  quarters.  Any  additional  capital  distributions  require  prior
regulatory approval.

     The Bank's capital levels exceed regulatory minimums to such an extent that
the  substantive  restrictions  on dividends are not expected to have a material
effect  on  the  Bank.   However,   OTS  regulations   also  impose   procedural
restrictions.  The OTS must  receive  at least 30 days'  written  notice  before
making any capital distributions.  All such capital distributions are subject to
the OTS' right to object to a distribution on safety and soundness grounds.  The
OTS has proposed regulations that would eliminate the notice requirement for the
highest rated institutions so that advance notice would not be required for most
normal  dividends.  The Bank expects that it will not be required to give notice
under normal circumstances if the new proposal is adopted in its current form.

     Qualified  Thrift  Lenders.  If the Bank fails to remain a QTL,  as defined
below,  it must  either  convert  to a  national  bank  charter or be subject to
restrictions on its activities  specified by law and the OTS regulations,  which
restrictions  would generally  limit  activities to those permitted for national
banks.  Also, three years after the savings  institution  ceases to be a QTL, it
would be prohibited  from  retaining any  investment or engaging in any activity
not  permissible  for a  national  bank and  would  be  required  to  repay  any
outstanding borrowings from any Federal Home Loan Bank.

     A savings  institution  will be a QTL if its qualified  thrift  investments
equal or exceed 65% of its portfolio  assets on a monthly  average basis in nine
of every 12 months.  Qualified thrift  investments  include,  among others,  (i)
certain housing-related loans and investments (notably including residential one
to four family  mortgage  loans),  (ii) certain  federal  government  and agency
obligations,  (iii) loans to purchase or construct  churches,  schools,  nursing
homes and  hospitals  (subject  to certain  limitations),  (iv)  consumer  loans
(subject to certain limitations), (v) shares of stock issued by any Federal Home
Loan Bank, and (vi) shares of stock issued by the FHLMC or the


                                      -23-
<PAGE>


FNMA  (subject  to  certain  limitations).  The Bank  satisfied  the QTL test at
September 30, 1998 and for every month during fiscal 1998.

     Community  Reinvestment  Act.  Under the  Community  Reinvestment  Act (the
"CRA"),  as  implemented  by OTS  regulations,  the  Bank has a  continuing  and
affirmative obligation consistent with its safe and sound operation to help meet
the credit needs of its entire  community,  including  low and  moderate  income
neighborhoods.  The Bank is periodically examined by the OTS for compliance with
the CRA.  The Bank's  CRA  performance  is  evaluated  based  upon the  lending,
investment   and  service   activities   of  the  Bank.   The  Bank  received  a
"satisfactory" CRA rating in its last CRA examination.

     Federal Reserve  Regulation.  Under Federal Reserve Board regulations,  the
Bank  must  maintain  reserves  against  its  transaction   accounts  (primarily
interest-bearing  checking accounts) and non-personal time deposits.  The effect
of  the  reserve  requirements  is  to  compel  the  Bank  to  maintain  certain
low-yielding  reserve  deposits which are not available for investment in higher
yielding assets. However, at the present time, the Bank's normal levels of vault
cash and  other  cash-equivalent  assets  are  sufficient  so that  the  reserve
requirements  do not have a material  adverse  effect on the Bank.  The balances
maintained  to meet the reserve  requirements  may be used to satisfy  liquidity
requirements  imposed by the OTS.  The Bank is in  compliance  with its  reserve
requirements.

     Taxation.  The Company  pays federal and New York State income taxes on its
income.  The Bank, as a savings  institution,  was  permitted a deduction  under
former law for the  creation of a reserve  for bad debts.  In August  1996,  the
Internal Revenue Code (the "Code") was amended to abolish the percentage  method
of calculating  the tax bad debt  deduction,  which,  in general,  had permitted
savings  institutions  to deduct 8% of their taxable income as a reserve for bad
debts.  The Bank had not been eligible to use the percentage  method because its
retained earnings and surplus exceeded 12% of deposits,  so the abolition should
not have a material effect on current operations. Furthermore, the change in the
Code also requires  savings  institutions to recapture,  over a period of six to
eight years,  any additions to their tax bad debt reserves  since 1988. The Bank
had already provided,  as a provision for deferred taxes in accordance with SFAS
No. 109, for the tax consequences of the Bank's  post-1987  additions to the tax
bad  debt  reserve.  Therefore,  the  recapture  requirement  should  not have a
material financial statement impact.


                                      -24-
<PAGE>


Item 2

Properties

     The Bank conducts its business through its headquarters in Goshen, a nearby
public accommodation  drive-up facility, and a branch opened in March 1997 at an
elder care  facility  in Goshen and a branch  opened in  September,  1998,  at a
former  office of a  commercial  bank in  Harriman.  The elder care  facility is
operated by a non-profit  corporation of which  President  Clifford  Kelsey is a
director.  The Company does not have separate facilities and operates out of the
Bank's  headquarters.   The  following  table  sets  forth  certain  information
regarding the Bank's deposit-taking offices.

<TABLE>
<CAPTION>
                                                             Owned/     Approximate    Net Book
Location                                   Date acquired     Leased     Square Feet     Value
                                                                (In Thousands)
<S>                                      <C>                <C>         <C>             <C>
One South Church Street, Goshen,                   1971      Owned      10,680          2,337
NY 10924 with adjacent drive-up                                                        
facility at 50 South Church Street                                                     
                                                                                       
214 Harriman Drive                           March 1997     Leased         105             33
Goshen, NY 10924                                                                       

80 Route 17M                             September 1998      Owned       1,623            430
Harriman, NY 10926                                                                     
</TABLE>

Item 3

Legal Proceedings

     In the ordinary course of its operations, the Company is a party to routine
litigation involving claims incidental to the savings bank business.  Management
believes that no current litigation, threatened or pending, to which the Company
or its  assets  is or may  become a party,  poses a  substantial  likelihood  of
potential  loss or exposure  which would have a material  adverse  effect on the
financial condition or results of operations of the Bank or the Company.

Item 4

Submission of Matters to a Vote of Security Holders

     None


                                      -25-
<PAGE>


                                     PART II

ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED SHAREHOLDER MATTERS

     The following information included in the Annual Report to Shareholders for
the fiscal year ended September 30, 1998, (the "Annual Report"), is incorporated
herein by reference: "STOCKHOLDERS' INFORMATION- Common Stock", which appears on
page 53 of the Annual Report.

ITEM 6. SELECTED FINANCIAL DATA

     The following  information  included in the Annual  Report is  incorporated
herein by reference: "SELECTED CONSOLIDATED FINANCIAL INFORMATION" which appears
on pages 1 and 2 of the Annual Report.

ITEM 7. MANAGEMENT'S  DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
        OF OPERATIONS

     The following  information  included in the Annual  Report is  incorporated
herein  by  reference:   "MANAGEMENT'S  DISCUSSION  AND  ANALYSIS  OF  FINANCIAL
CONDITION AND RESULTS OF OPERATIONS", which appears on pages 3 through 18 of the
Annual Report.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS

     The following  information  included in the Annual  Report is  incorporated
herein  by  reference:   "MANAGEMENT'S  DISCUSSION  AND  ANALYSIS  OF  FINANCIAL
CONDITION  AND RESULTS OF  OPERATIONS - Gap  Analysis" AND "- Analysis of Market
Risk", which appear on pages 8 through 10 of the Annual Report.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

     The following  information  included in the Annual  Report is  incorporated
herein by reference:  The consolidated  statements of financial condition of GSB
Financial  Corporation and Subsidiary as of September 30, 1998 and 1997, and the
related  consolidated  statements of operations,  shareholders'  equity and cash
flows  for each of the  years  in the  three-year  period  September  30,  1998,
together with the related notes and the  independent  auditors'  report thereon,
all of which appears on pages 20 through 52 of the Annual Report.

ITEM  9.  CHANGES  IN AND  DISAGREEMENTS  WITH  ACCOUNTANTS  ON  ACCOUNTING  AND
          FINANCIAL DISCLOSURE

     None.

                                    PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

     The following  information  included in the Proxy Statement under the major
heading  "INFORMATION  CONCERNING THE BOARD OF DIRECTORS AND EXECUTIVE OFFICERS"
is incorporated herein by reference:  "Director Nominated for a Term Expiring In
2002,"  "Directors  Whose Terms Will  Continue  Beyond the  Meeting,"  "Board of
Directors-  Biographical  Information,"  and  "Executive  Officers  Who  Are Not
Directors," which appears on pages 2 through 4 of the definitive Proxy Statement
dated December 28, 1998 and filed with the Securities and Exchange Commission on
or about that date (the "Proxy Statement").


                                      -26-
<PAGE>


ITEM 11. EXECUTIVE COMPENSATION

     The  information  included  which  appears  under  the  captions  "Director
Compensation,"  "Executive  Compensation,"  "Compensation  Committee  Report  on
Executive  Compensation,"  "Option  Grants in Last  Fiscal  Year,"  "Stockholder
Return  Performance  Presentation,"  "Transactions with Directors and Officers,"
"Retention   Agreements"  "The  Enhanced  Voluntary  Termination  Program,"  and
"Pension Plan" of the Proxy Statement is incorporated herein by reference.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

     The information  included under the Caption "Voting  Securities and Certain
Holders Thereof", in the Proxy Statement is incorporated herein by reference.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

     The information included under the caption "Transactions With Directors
and Officers" in the Proxy Statement is incorporated herein by reference.


                                      -27-
<PAGE>


                                     PART IV

ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.

(a) 1.   Financial Statements

     The following  financial  statements  are included in the Company's  Annual
Report  to  Shareholders   for  the  year  ended  September  30,  1998  and  are
incorporated herein by this reference:

Consolidated Statements of Condition at September 30, 1997 and 1998

Consolidated  Statements of Operations  for the years ended  September 30, 1998,
1997 and 1996

Consolidated  Statements of Equity for the years ended  September 30, 1998, 1997
and 1996

Consolidated  Statements  of Cash Flows for the years ended  September 30, 1998,
1997 and 1996

Notes to Consolidated Financial Statements

Report of Independent Accountants

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

2.   Financial Statement Schedules

Financial  Statement Schedules have been omitted because they are not applicable
or the required information is shown in the Consolidated Financial Statements or
Notes thereto.

(b) Reports on Form 8-K filed during the last quarter of fiscal 1997

None

(c) Exhibits Required by Securities and Exchange Commission Regulation S-K

                                TABLE OF EXHIBITS

Exhibit
Number

3.1    Certificate of Incorporation of GSB Financial Corporation *

3.2    By laws of GSB Financial Corporation.*


<PAGE>


4.1    Form of Stock Certificate of GSB Financial Corporation.*

10.1   Employee  Retention  Agreement between Goshen Savings Bank and Stephen W.
       Dederick.**

10.2   Schedule of Additional Employee Retention Agreements.***

10.3   Supplementary  Retention Agreement between GSB Financial  Corporation and
       Stephen W. Dederick.**

10.4   Schedule of Additional Supplementary Retention Agreements.***

10.5   Employment   Agreement   between  Goshen  Savings  Bank  and  Richard  C.
       Durland.**

10.6   Employment  Agreement  between GSB Financial  Corporation  and Richard C.
       Durland.**

10.7   Employment  Agreement between Goshen Savings Bank and Clifford E. Kelsey,
       Jr. **

10.8   Employment  Agreement  between GSB Financial  Corporation and Clifford E.
       Kelsey, Jr.**

10.9   Employment Agreement between Goshen Savings Bank and Diane D. King.**

10.10  Employment  Agreement  between  GSB  Financial  Corporation  and Diane D.
       King.**

10.11  Employment Agreement between Goshen Savings Bank and Jenny M. Ford.**

10.12  Employment  Agreement  between  GSB  Financial  Corporation  and Jenny M.
       Ford.**

10.13  GSB Financial Corporation Employee Stock Ownership Plan.**

10.14  GSB Financial Corporation Employee Stock Ownership Plan Loan and Security
       Agreement.**

10.15  Supplementary Schedule of Additional Employee Retention Agreement.

13.1   1998 Annual Report to security holders

21.1   Subsidiaries of the Registrant

27     Financial Data Schedule


<PAGE>


* Previously filed as an exhibit to the  Registration  Statement on Form S-1 No.
333-23573 of GSB Financial  Corporation,  filed with the Securities and Exchange
Commission on March 19, 1997

**  Previously  filed as an exhibit to the Report on Form 10K for the year ended
September  30, 1997 as filed with the  Securities  and  Exchange  Commission  on
December 29, 1998.

*** Revised  from exhibit as filed with 1997 Form 10K to reflect  retirement  of
one of the named persons

                                   SIGNATURES

         Pursuant  to the  requirements  of Section  13 or 15(d) the  Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized, in Goshen, New York on
December 29, 1998.

                        GSB FINANCIAL CORPORATION

                        By: /s/ Clifford E. Kelsey, Jr.
                        --------------------------------------
                        Clifford E. Kelsey, Jr., President and
                        Chief Executive Officer
                        (duly authorized officer)

     Pursuant  to  the   requirements  of  the  Securities  Act  of  1933,  this
Registration  Statement  has  been  signed  by  the  following  persons  in  the
capacities and on the dates indicated.

<TABLE>
<CAPTION>
Name and Signature                            Title                                      Date
<S>                                  <C>                                         <C> 
/s/ Clifford E. Kelsey, Jr.          President, Chief Executive Officer           December 29, 1998
-----------------------------        and Director (principal executive officer)
Clifford E. Kelsey, Jr.

/s/ Richard C. Durland               Executive Vice President,                    December 29, 1998
-----------------------------        Treasurer and Director
Richard C. Durland

/s/ Stephen W. Dederick              Principal Financial and                      December 29, 1998
-----------------------------        Accounting Officer
Stephen W. Dederick

/s/ Herbert C. Mueller               Director                                     December 29, 1998
-----------------------------
Herbert C. Mueller

/s/ Stephen O. Hopkins               Director                                     December 29, 1998
-----------------------------
Stephen O. Hopkins
</TABLE>


<PAGE>

<TABLE>
<S>                                  <C>                                          <C> 
/s/ Thomas V. Guarino                Chairman and Director                        December 29, 1998
-----------------------------
Thomas V. Guarino

/s/ Gene J. Gengel                   Director                                     December 29, 1998
-----------------------------
Gene J. Gengel

/s/ Roy L. Lippincott                Director                                     December 29, 1998
-----------------------------
Roy L. Lippincott
</TABLE>

                                TABLE OF EXHIBITS

3.1    Certificate of Incorporation of GSB Financial Corporation *

3.2    By laws of GSB Financial Corporation.*

4.1    Form of Stock Certificate of GSB Financial Corporation.*

10.1   Employee  Retention  Agreement between Goshen Savings Bank and Stephen W.
       Dederick.**

10.2   Schedule of Additional Employee Retention Agreements.***

10.3   Supplementary  Retention Agreement between GSB Financial  Corporation and
       Stephen W. Dederick.**

10.4   Schedule of Additional Supplementary Retention Agreements.***

10.5   Employment   Agreement   between  Goshen  Savings  Bank  and  Richard  C.
       Durland.**

10.6   Employment  Agreement  between GSB Financial  Corporation  and Richard C.
       Durland.**

10.7   Employment  Agreement between Goshen Savings Bank and Clifford E. Kelsey,
       Jr. **

10.8   Employment  Agreement  between GSB Financial  Corporation and Clifford E.
       Kelsey, Jr.**

10.9   Employment Agreement between Goshen Savings Bank and Diane D. King.**

10.10  Employment  Agreement  between  GSB  Financial  Corporation  and Diane D.
       King.**


<PAGE>


10.11  Employment Agreement between Goshen Savings Bank and Jenny M. Ford.**

10.12  Employment  Agreement  between  GSB  Financial  Corporation  and Jenny M.
       Ford.**

10.13  GSB Financial Corporation Employee Stock Ownership Plan.**

10.14  GSB Financial Corporation Employee Stock Ownership Plan Loan and Security
       Agreement.**

10.15  Supplementary Schedule of Additional Employee Retention Agreement.

13.1   1998 Annual Report to security holders

21.1   Subsidiaries of the Registrant

27     Financial Data Schedule

* Previously filed as an exhibit to the  Registration  Statement on Form S-1 No.
333-23573 of GSB Financial  Corporation,  filed with the Securities and Exchange
Commission on March 19, 1997

**  Previously  filed as an exhibit to the Report on Form 10K for the year ended
September  30, 1997 as filed with the  Securities  and  Exchange  Commission  on
December 29, 1998.

*** Revised  from exhibit as filed with 1997 Form 10K to reflect  retirement  of
one of the named persons