SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                    FORM 10-K

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

For the fiscal year ended        September 30, 1997
                          ------------------------------------------------------

                                     - or -

      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:  0-18764
                                                                     -----------

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

                  New Jersey                                   22-3016360
--------------------------------------------            ------------------------
       (State or other jurisdiction of                       (I.R.S. Employer
      of incorporation or organization)                    Identification No.)

  6 Jackson Street, South River, New Jersey                       08882
--------------------------------------------            ------------------------
   (Address of principal executive offices)                     (Zip Code)

Registrant's telephone number, including area code:              (732) 257-2400
                                                                ----------------
Securities registered pursuant to Section 12(b) of the Act:         None
                                                                ----------------
Securities registered pursuant to Section 12(g) of the Act:

                     Common Stock, par value $1.00 per share
--------------------------------------------------------------------------------
                                (Title of Class)

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

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

      The aggregate market value of the voting stock held by  non-affiliates  of
the  Registrant,  based on the closing  sales price of the  Registrant's  Common
Stock as quoted on the  National  Market of The Nasdaq  Stock Market on December
22, 1997 was $81.8 million.

      As of December 22, 1997, the Registrant had outstanding  3,087,898  shares
of Common Stock.

                       DOCUMENTS INCORPORATED BY REFERENCE

1.    Parts  II  and  IV --  Portions  of  the  Registrant's  Annual  Report  to
      Stockholders for fiscal year ended September 30, 1997.

2.    Part III -- Portions of the  Registrant's  Proxy  Statement  for a January
      1998 meeting.


<PAGE>



                                     PART I


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

      Pulse Bancorp,  Inc. (the "Registrant" or the  "Corporation") is a savings
bank holding company  incorporated  under the laws of the State of New Jersey in
November  1989,  for  the  sole  purpose  of  acquiring  all of the  issued  and
outstanding   common  stock  of  Pulawski  Savings  and  Loan  Association  (the
"Association") in connection with the reorganization of the Association into the
holding company form of  organization  and exchange of shares of common stock of
the Association for those of the Corporation (the "Reorganization").

      The  Association  was  chartered  by the  State of New  Jersey in 1916 and
following  several  name  changes,  the last of  which  occurred  in  1993,  the
Association  became Pulse Savings Bank (the "Bank").  In 1996,  the  Corporation
formed three wholly owned subsidiaries named Pulse Investment,  Inc., Pulse Real
Estate, Inc. and Pulse Insurance  Services,  Inc. The subsidiaries are currently
inactive.

      At September 30, 1997, the assets of the  Corporation  consisted of all of
the issued and  outstanding  shares of the Bank's Common Stock,  $2.0 million in
loans receivable from the Bank and $823,000 in investment securities. References
throughout this Report to the Corporation or the Bank include,  unless otherwise
specified or the context  otherwise  requires,  the Corporation's and the Bank's
predecessors in interest.

      At  September  30,  1997,   the  Bank  had  total  assets,   deposits  and
stockholders' equity of approximately $526.0 million,  $411.0 million, and $43.2
million,  respectively.  The  Bank  is a New  Jersey-chartered  savings  bank in
capital  stock form.  The Bank's  deposits  are  insured by the Federal  Deposit
Insurance  Corporation  ("FDIC")  under the Savings  Association  Insurance Fund
("SAIF").

      The Bank  conducts  its business  through  five  offices  located in South
River, South Amboy,  Monroe Township,  East Brunswick,  and  Lawrenceville,  New
Jersey.  The Bank's  executive  offices are located at 6 Jackson  Street,  South
River, New Jersey, and its telephone number is (732) 257-2400.

      The principal  business of the Bank is the acceptance of savings  deposits
from the general  public and the  origination of mortgage loans obtained for the
purpose of constructing,  financing or refinancing one-to four-family  dwellings
and other improved residential and commercial real estate. In addition, the Bank
purchases  investment  and  mortgage-backed  securities.  Its  income is derived
largely  from  interest  income  on  interest-earning   assets  such  as  loans,
mortgage-backed securities and investments.  Its principal expenses are interest
paid on deposits, borrowings and operating expenses.

      The  level of  earnings  (net  interest  income)  of the Bank  will  vary,
depending upon the difference between the amount of income that it receives from
its loans,  mortgage-backed securities and investment portfolios and its cost of
funds.  This is because  the Bank's  cost of funds are  sensitive  to changes in
short-term interest rates due to shorter-term  savings accounts bearing interest
rates determined by current market conditions while a significant portion of the
Bank's loan portfolio, consisting of long-term, fixed-rate real estate loans, do
not  reprice  as  rapidly  or  to  the  same  extent  as  the  Bank's  deposits.
Consequently,  the Bank is  vulnerable  to future  increases  in interest  rates
which,  if  significant,  may have a material  adverse  affect on its  financial
condition and results of operations.


                                        2

<PAGE>



      The Bank originates  fixed-rate and  adjustable-rate  mortgages and has in
the  past  purchased  primarily  one  to  five  year  adjustable-rate  loans  on
residential and  multi-family  dwellings for retention in its portfolio.  It has
adopted a strategy designed to improve and stabilize its operational  results to
counter the volatile cost of its funds and the mismatch  between its  relatively
long-term,  fixed-rate assets and short-term,  rate sensitive  liabilities.  The
principal  objective  of this  strategy is to  restructure  assets to lessen the
potential  adverse  effects of  interest  rate  volatility  on  earnings,  while
maintaining high quality (low credit risk) assets and improving profits.

      The Bank  operates  in an area  that is highly  industrialized,  extremely
diverse  and  densely  populated.   No  one  industry  or  group  of  industries
predominates in the Bank's operating area. However,  the Bank is affected by the
economy and real estate market in the State of New Jersey, particularly northern
New Jersey, and the New York City metropolitan area.

Lending Activities
-------------------

      General.  As of  September  30,  1997,  89.1% of the Bank's gross loan and
mortgage-backed  securities  portfolio consisted of loans and securities secured
by mortgages  on one- to  four-family  residential  properties,  which  included
conventional  mortgage loans, insured loans,  guaranteed loans,  mortgage-backed
securities,  collateralized mortgage obligations,  and consumer loans secured by
real estate (home equity loans). Additionally, the Bank originates and purchases
multi-family  and commercial  real estate loans,  which loans represent 10.9% of
the Bank's gross loan portfolio at September 30, 1997. To a lesser  extent,  the
Bank also originates consumer loans not secured by real estate.



                                        3

<PAGE>



      Loan Portfolio Analysis.  Set forth below is selected data relating to the
composition of the Bank's loan portfolio,  including mortgage-backed securities,
by type of loan and type of security on the dates indicated.

<TABLE>
<CAPTION>
                                                                               At September 30,
                                       ---------------------------------------------------------------------------------------------
                                             1993                1994                1995             1996               1997
                                       ------------------  ------------------  ----------------  ---------------   -----------------
                                       Amount     Percent  Amount     Percent  Amount   Percent  Amount  Percent   Amount    Percent
                                       -------    -------  ------     -------  ------   -------  ------  -------   ------    -------
Type of Loan:
------------
Conventional Real Estate Loans:
<S>                                   <C>          <C>    <C>          <C>    <C>        <C>    <C>       <C>    <C>          <C>
Construction Loans ................   $     --        --%       --        --% $    280     0.1% $    363    0.1%    1,037       0.3%
Loans on existing property.........    160,136      44.2   124,510      38.7   119,512    3.86   117,744   34.7   110,129      32.0
Insured or guaranteed real estate
  loans............................    10,393        2.9     7,975       2.5     7,080     2.3     5,838    1.7     5,043       1.5
loans
Mortgage-backed securities.........   146,336       40.4   142,385      44.2   138,986    44.9   169,077   49.9   182,550      53.1
Collateralized mortgage obligations    39,969       11.1    39,581      12.3    35,941    11.6    34,934   10.3    33,148       9.7
Consumer Loans:
Home equity .......................     10,076       2.8    10,870       3.4    10,397     3.4    13,544    4.0    14,348       4.2
Student loans .....................         57        --       101        --         7      --        --     --        --        --
Savings account loans .............        514       0.1       319       0.1       288     0.1       184    0.1       229       0.1
                                      --------     -----  --------     -----  --------   -----  --------  -----  --------     ----- 
                                       367,481     101.5   325,741     101.2   312,491   101.0   341,684  100.8   346,484     100.9
                                      --------     -----  --------     -----  --------   -----  --------  -----  --------     ----- 
Add:
 Premiums on mortgage-backed
   securities .....................        525       0.1       450       0.1       402     0.1       689    0.2       900       0.2
                                      --------     -----  --------     -----  --------   -----  --------  -----  --------     ----- 
Less:
Loans in process ..................         --        --        --        --       187      --       238    0.1       818       0.2
Unearned discounts on loans and
  mortgage-backed securities and
  deferred loan fees ..............      1,375       0.4       847       0.3       856     0.3       781    0.2       742       0.2
Allowance for loan losses .........      4,487       1.2     3,369       1.0     2,604     0.8     2,459    0.7     2,357       0.7
                                      --------     -----  --------     -----  --------   -----  --------  -----  --------     ----- 
                                         5,862       1.6     4,216       1.3     3,647     1.1     3,478    1.0     3,917       1.1
                                      --------     -----  --------     -----  --------   -----  --------  -----  --------     ----- 
      Total .......................   $362,144     100.0% $321,975     100.0% $309,246   100.0% $338,895  100.0% $343,467     100.0%
                                      ========     =====  ========     =====  ========   =====  ========  =====  ========     ===== 
Type of Security:
----------------
Residential:
  1 to 4 family ...................   $ 82,162      22.7% $ 60,662      18.9% $ 61,800    20.0% $ 73,578   21.7%   88,104      25.6%
  Other dwelling units ............     42,341      11.7    37,286      11.6    32,923    10.6    28,190    8.3    15,088       4.4
Commercial or industrial properties     45,709      12.6    37,432      11.6    35,466    11.5    29,883    8.8    22,322       6.5
Savings accounts ..................        514       0.1       319       0.1       288     0.1       184    0.1       229       0.1
Collateralized mortgage obligations     39,969      11.1    39,581      12.3    35,941    11.6    34,934   10.3    33,148       9.7
Insured by State or Federal
  Agencies:
FHA/VA ............................     10,393       2.9     7,975       2.5     7,080     2.3     5,838    1.7     5,043       1.5
Mortgage-backed securities.........    146,336      40.4   142,385      44.2   138,986    44.9   169,077   49.9   182,550      53.1
Student loans .....................         57        --       101        --         7      --        --     --        --        --
                                      --------     -----  --------     -----  --------   -----  --------  -----  --------     ----- 
                                       367,481     101.5   325,741     101.2   312,491   101.0   341,684  100.8   346,484     100.9
                                      --------     -----  --------     -----  --------   -----  --------  -----  --------     ----- 
Add:
  Premiums ........................        525       0.1       450       0.1       402     0.1       689    0.2       900       0.2
                                      --------     -----  --------     -----  --------   -----  --------  -----  --------     ----- 
Less:
Loans in process ..................         --        --        --        --       187      --       238    0.1       818       0.2
Unearned discounts on loans and
  mortgage-backed securities and
  deferred loan fees ..............      1,375       0.4       847       0.3       856     0.3       781    0.2       742       0.2

Allowance for loan losses .........      4,487       1.2     3,369       1.0     2,604     0.8     2,459    0.7     2,357       0.7
                                      --------     -----  --------     -----  --------   -----  --------  -----  --------     ----- 
                                         5,862       1.6     4,216       1.3     3,647     1.1     3,478    1.0     3,917       1.1
                                      --------     -----  --------     -----  --------   -----  --------  -----  --------     ----- 
      Total .......................   $362,144     100.0% $321,975     100.0% $309,246   100.0% $338,895  100.0% $343,467     100.0%
                                      ========     =====  ========     =====  ========   =====  ========  =====  ========     ===== 
</TABLE>

                                        4

<PAGE>



      Mortgage-backed Securities. The Bank periodically purchases collateralized
mortgage obligations ("CMOs") and mortgage-backed  securities  guaranteed by the
Government  National  Mortgage  Association  ("GNMA")  and the Federal  National
Mortgage  Association  ("FNMA")  and  participation  certificates  issued by the
Federal Home Loan Mortgage Corporation  ("FHLMC").  CMOs are aggregates of pools
of pass-through  securities consisting of mortgage loans that serve as security.
Mortgage-backed  securities  represent  a  participation  interest  in a pool of
single-family mortgages, the principal and interest payments on which are passed
from   the   mortgage    originators,    through    intermediaries    (generally
quasi-governmental agencies) that pool and repackage the participation interests
in the form of securities,  to investors such as the Bank. GNMA  mortgage-backed
securities  are  certificates  issued and backed by the GNMA and are  secured by
interests in pools of mortgages  which are fully insured by the Federal  Housing
Administration  ("FHA") or partially guaranteed by the Veterans'  Administration
("VA"). FNMA  mortgage-backed  securities are certificates issued and guaranteed
by  the  FNMA  that  are  secured  by   conventional   mortgage   loans.   FHLMC
mortgage-backed  securities are participation certificates issued and guaranteed
by the FHLMC and secured by interests  in pools of  conventional  mortgages.  At
September 30, 1997, mortgage-backed securities,  consisting of GNMA, FHLMC, FNMA
and CMOs amounted to  approximately  $216.2 million or 62.4% of the net loan and
mortgage-backed securities portfolio.

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

      The CMOs (in the form of real estate mortgage investment conduits) held by
the Bank at September  30, 1997  totaled  $33.2  million and  consisted of FNMA,
FHLMC,  and  privately  issued  pools.  The portfolio of CMOs held in the Bank's
mortgage-backed  securities  portfolio at September 30, 1997 did not include any
residual  interests  in  CMOs.  Further,  at  September  30,  1997,  the  Bank's
mortgage-backed  securities portfolio did not include any "stripped" CMOs (i.e.,
CMOs that pay  interest  only and do not  repay  principal  or CMOs  that  repay
principal only and do not pay interest).

      Residential  Real Estate Loans.  One of the primary lending  activities of
the Bank is to originate loans to enable borrowers to purchase existing homes or
to construct  new homes.  The Bank's real estate loan  portfolio  also  includes
loans on one- to four-family dwellings,  multi-family housing (over four units),
and loans made for the  development  of  unimproved  real  estate to be used for
residential  housing.  At September 30, 1997,  approximately 89.1% of the Bank's
gross  loan  and  mortgage-backed   securities   portfolio  consisted  of  loans
(including   conventional  mortgage  loans,  insured  loans,  guaranteed  loans,
collateralized mortgage obligations and guaranteed  mortgage-backed  securities)
secured by one- to four-family dwellings.

      The loan-to-value  ratio,  maturity and other provisions of the loans made
by the Bank  generally have reflected the policy of making less than the maximum
loan  permissible   under  applicable   regulations,   consistent  with  lending
practices,  market  conditions,  and underwriting  standards  established by the
Bank. The Bank's general policy currently limits the maximum loan-to-value ratio
on single-family conventional

                                        5

<PAGE>



loans to 95% and 80% on multi-family and commercial real estate loans.  Mortgage
loans  originated  by the Bank are intended to conform to the FHLMC and the FNMA
underwriting  standards so that they may be eligible  for sale in the  secondary
market.  Mortgage  loans,  both  fixed-  and  adjustable-rate,  made by the Bank
generally are long-term loans,  amortized on a monthly basis, with principal and
interest  due each  month.  The  initial  contractual  loan  payment  period for
residential  loans typically ranges from 15 to 30 years.  The Bank's  experience
indicates that real estate loans remain  outstanding for  significantly  shorter
periods than their contractual terms. Borrowers may refinance or prepay loans at
their option, subject to any prepayment penalty provisions included in the note,
and any applicable state laws relating to such penalty.

      Due to  consumer  demand in the Bank's  primary  market  area in which its
offices are located, to date, the Bank has originated primarily fixed-rate loans
and one, three,  five, seven and ten year  adjustable-rate  loans. These one and
three year  adjustable-rate  residential  mortgage loans which adjust based upon
the respective one and three year U.S.  Treasury  securities,  are offered in an
effort to shorten the maturity and increase the interest rate sensitivity of the
Bank's total loan portfolio.

      Commercial  Real Estate  Loans.  The Bank has in the past  purchased  both
construction   loans  and  permanent  loans  on   multi-family   and  commercial
properties. Loans secured by multi-family, commercial and other income-producing
real estate  generally are limited to 80% of appraised  value and generally have
an initial  contractual  loan  payment  periods from 15 to 30 years with varying
call  provisions.  Commercial  real  estate  loans  generally  are  made  on  an
adjustable-rate  basis  indexed to the one-year,  three-year  or five-year  U.S.
Treasury  index.  Commercial real estate loans,  consisting  primarily of office
buildings,  strip  shopping  centers,  mini-storage  facilities,  and industrial
buildings  amounted  to  $22.3  million  or 6.5% of the  Bank's  gross  loan and
mortgage-backed securities portfolio at September 30, 1997.

      Construction  Loans.  The Bank will  occasionally  originate a residential
construction  loan with an  initial  term of one to two years.  Generally,  such
loans are repaid or converted to permanent  loans when the property is completed
or sold.

      Commercial real estate and construction lending is generally considered to
involve  a higher  level of  credit  risk than  one-to  four-family  residential
lending due to the  concentration  of principal in a limited number of loans and
borrowers  and the  effects  of  general  economic  conditions  on  real  estate
developers  and  managers.  The Bank's  risk of loss on a  construction  loan is
dependent  largely upon the accuracy of the initial  estimate of the  property's
value upon  completion of the project and the estimated cost of the project.  If
the estimated cost of construction or development  proves to be inaccurate,  the
Bank may be required to advance funds beyond the amount originally  committed to
permit  completion  of the  project.  If the  estimate  of  value  proves  to be
inaccurate, the Bank may be confronted, at or prior to the maturity of the loan,
with a project with value which is insufficient  to assure full repayment.  When
loan payments  become due,  borrowers may experience  cash flow from the project
which is not adequate to service total debt.  This cash flow shortage may result
in the failure to make loan payments.  In such cases,  the Bank may be compelled
to modify the terms of the loan. In addition,  the nature of these loans is such
that they are  generally  less  predictable  and more  difficult to evaluate and
monitor.  The Bank  seeks  to  minimize  these  risks by  lending  primarily  to
established customers and generally restricting such loans to its primary market
area.


                                        6

<PAGE>



      Consumer  Loans.  The Bank presently  originates  loans secured by savings
accounts and home equity loans.  Consumer  loans,  including  home equity loans,
amounted  to  $14.6  million  or  4.1%  of  the  Bank's  total  gross  loan  and
mortgage-backed securities portfolio at September 30, 1997.

      Commercial  Business Loans.  The Bank generally does not offer  commercial
business  loans. At September 30, 1997, none of the Bank's loans were classified
as commercial business loans.

      Loan Maturity Schedule. The following table sets forth certain information
at September 30, 1997,  regarding the dollar amount of loans and mortgage-backed
securities  maturing in the Bank's portfolio based on their contractual terms to
maturity.  Demand loans,  loans having no stated  schedule of repayments  and no
stated maturity, and overdrafts are reported as due in one year or less.

<TABLE>
<CAPTION>

                                      One year    One to      Three to      Five to     Over Ten
                                       or less  Three Years   Five Years   Ten Years     Years      Total
                                      --------- -----------   ----------   ----------  --------   -------- 
                                                                (Dollars in Thousands)

<S>                                    <C>        <C>          <C>          <C>        <C>        <C>     
Real estate mortgage(1) ............   $ 14,199   $  8,907     $  5,742     $ 17,186   $ 70,175   $116,209
Consumer ...........................        253        191        1,095        2,971     10,067     14,577
Mortgage-backed securities(1)(2)....      5,877      2,962        3,590       27,342    175,927    215,698
                                       --------   --------     --------     --------   --------   --------
      Total ........................   $ 20,329   $ 12,060     $ 10,427     $ 47,499   $256,169   $346,484
                                       ========   ========     ========     ========   ========   ========
</TABLE>
                                                                         

---------------------
Footnotes included in next table.

      The  following  table sets forth the dollar  amount of all loans due after
one year from September 30, 1997,  which have  predetermined  interest rates and
have floating or adjustable interest rates, based on contractual terms.

<TABLE>
<CAPTION>

                                                          Floating or
                                        Predetermined      Adjustable
                                            Rates             Rates
                                        -------------     -----------
                                            (Dollars in Thousands)
<S>                                        <C>              <C>     
Real estate mortgage(1)...........         $ 75,960         $ 26,050
Consumer(1).......................            7,339            6,985
Mortgage-backed securities(1)(2)..           70,138          139,683
                                            -------          -------
      Total.......................         $153,437         $172,718
                                            =======          =======
</TABLE>

--------------------
(1)   Does not include scheduled principal  amortization.  Experience  indicates
      that prepayments significantly reduce the average term of maturity.
(2)   Includes collateralized mortgage obligations.

      Loan Solicitation and Processing. The Bank actively solicits mortgage loan
applications from real estate brokers, contractors, existing customers, customer
referrals,  and call-ins  and walk-ins to its offices.  An appraisal of the real
estate  intended to secure the proposed loan is undertaken by an independent fee
appraiser.


                                        7

<PAGE>



      In  connection  with the loan approval  process,  the Bank's loan officers
analyze  the  loan  applications  and the  property  involved.  All  residential
mortgage  loans are processed by a loan officer and then submitted to the Bank's
President for his approval.  All  multi-family  and commercial real estate loans
purchased by the Bank are reviewed by a committee of three  executive  officers.
In  addition,  all  multi-family  and  commercial  loans  are  inspected  by two
directors.  In  connection  with  loans  purchased  by the  Bank,  the Bank also
requires an independent  appraisal,  in addition to the information required for
all loans  originated by the Bank. All loans approved by the executive  officers
are then  submitted to the Bank's Board of Directors for its approval.  Prior to
closing any long-term loan, the borrower must provide proof of fire and casualty
insurance  on the  property  serving  as  collateral,  which  insurance  must be
maintained during the full term of the loan.

      Loan Purchases and Sales.  Because the Bank's savings  deposits  generally
exceed the demand for loans from its  customers  in its local  market  area,  in
addition  to  originating  loans  for its  portfolio,  the  Bank has in the past
purchased a portion of its real estate loan  portfolio in the secondary  market.
The Bank's  purchases in the secondary  market are dependent upon the demand for
mortgage  credit  in the  local  market  area  and  the  inflow  of  funds  from
traditional  sources.  Purchases of loans  enable the Bank to utilize  available
funds more quickly and to obtain a yield higher than could generally be obtained
in the Bank's  primary  market area.  The Bank  purchased  loans  totaling  $4.7
million during the 1997 fiscal year.

      The Bank has not sold loans,  other than  student  loans,  during the past
five years.

      Loan  Commitments.  It is  the  policy  of the  Bank  to  generally  grant
commitments  to fund loans for periods not to exceed 60 days at a specified term
and interest  rate unless a lock-in fee is paid.  The total amount of the Bank's
commitments to originate  loans at September 30, 1997 was $16.4 million of which
$3.7 million were at fixed rates.

      The origination of fixed-rate  loans creates a potential for interest rate
risk. In a rising interest rate environment,  the  interest-bearing  liabilities
used to fund loan originations will experience increasing costs while fixed-rate
assets  cannot  reprice.  Accordingly,  net  interest  income may be  negatively
impacted. The reverse would occur in a declining interest rate environment.  The
Bank monitors  this  situation by regularly  evaluating  its interest rate risk.
Although  fixed-rate  loans often are repaid well before the date of contractual
maturity,  the Bank has attempted to offset the increased  interest rate risk of
these assets by increasing the interest rate sensitivity of its other assets. In
recent  years,  the Bank has  substantially  increased its  mortgage-backed  and
investment  securities  portfolios,  partly to address the greater interest rate
risk of its fixed-rate assets.

      In addition,  the Bank has a  Homeowners'  Equity Credit Line Program that
represents  undisbursed  funds from  approved  lines of credit.  These  lines of
credit are secured by the respective one to four family  residential  properties
owned by the  borrowers.  At  September  30,  1997,  the  Bank  had  outstanding
commitments on approved lines of credit of $10.7 million.

      Loan  Origination and Other Fees. In addition to interest earned on loans,
the Bank may receive loan  origination  fees or "points" and commitment fees for
originating or purchasing loans.

      Statement of Financial  Accounting Standards No. 91 ("SFAS No. 91"), which
prescribes the accounting for recording non-refundable fees and costs associated
with the origination and acquisition of loans. SFAS No. 91 requires the deferral
and subsequent  amortization  of all loan  origination  fees net of certain loan
origination costs over the related life of the loan.

                                        8

<PAGE>




      The Bank's loan  origination  fees generally are 0% - 1.0% on conventional
residential  mortgage loans and 0%-3% for commercial real estate loans. The Bank
does not charge origination fees on fixed-rate conventional mortgage loans or on
home equity loans. The total amount of deferred loan fees and discounts on loans
at September 30, 1997, was $300,000.

      The Bank also receives other fees and charges  relating to existing loans,
which  include  prepayment  penalties,  late  charges,  and  fees  collected  in
connection with a change in borrower or other loan modifications. These fees and
charges have not constituted a material source of income.

      Non-Performing  and  Restructured  Loans  and  Asset  Classification.   At
September  30,  1997,  the Bank had  classified  approximately  $7.6  million in
assets,  of which $7.5 million were loans classified as substandard and $136,000
was real estate  acquired  as a result of  foreclosure.  Of the $7.5  million in
loans  classified  by  the  Bank,  approximately  $6.8  million  included  loans
internally  classified  but which were not  delinquent  greater  than 90 days at
September     30,     1997     ("performing/non-performing     loans").     Such
performing/non-performing loans were classified by the Bank due to other factors
(such as negative cash flow or past  delinquencies)  and are not included in the
following table.

      The  table  below  sets  forth  information  with  respect  to the  Bank's
non-performing loans for the periods indicated.  It does not include real estate
acquired as a result of foreclosure.  Accruing  mortgage loans more than 90 days
delinquent  are  loans  that  management  considers  adequately  secured,  where
management  believes,  based  upon its  evaluation  of each  loan and its  prior
experience with similar loans,  that such interest  receivable is collectible in
due  course.  A loan is placed  on  non-accrual  status  when,  in  management's
judgment,  further  accruals  of  interest  will be  uncollectible.  Loans which
continue to accrue interest while  contractually  past due more than ninety days
consist  almost  entirely of smaller  balance  mortgage  loans secured by single
family  residential  properties  having  fair  values in  excess  of the  Bank's
recorded investment therein.

                                        9

<PAGE>

<TABLE>
<CAPTION>
                                                         At September 30,
                                          -----------------------------------------------
                                           1993      1994      1995      1996      1997
                                          -------   -------   -------   -------   -------

<S>                                       <C>       <C>       <C>       <C>       <C>   
Loans Accounted For
On a Non-Accrual Basis:
  One- to four-family real estate......   $  443    $  212    $  211    $  345    $   68

  Multi-family real estate ............       --       779     1,253       654       654

  Commercial real estate ..............    2,566       464       464        --        --
                                          ------    ------    ------    ------    ------

    Total .............................    3,009     1,455     1,928       999       722
                                          ------    ------    ------    ------    ------

Restructured Loans ....................    3,121     4,200     4,167     2,135     2,103
                                          ------    ------    ------    ------    ------

Accruing Loans That Are
Contractually More than 90 Days
Delinquent:
  One- to four-family real estate......    1,479     1,091     1,355       835       999

  Other ...............................       --        --        --        --        --
                                          ------    ------    ------    ------    ------
     Total ............................    1,479     1,091     1,355       835       999
                                          ------    ------    ------    ------    ------

     Total of non-accrual,
      restructured, and more
      than 90 days delinquent and
      accruing loans ..................   $7,609    $6,746    $7,450    $3,969    $3,824
                                          ======    ======    ======    ======    ======

Percentage of total loan and
  mortgage-backed securities
  portfolio ...........................     2.07%     2.07%     2.38%     1.16%     1.11%
                                          ======    ======    ======    ======    ======
</TABLE>


      For the year ended  September 30, 1997,  gross interest income which would
have been recorded had the  non-accrual and  restructured  loans been current in
accordance  with their  original  terms  would have  amounted  to  approximately
$303,000. The amount that the Bank included in interest income on such loans for
the year ended September 30, 1997 was $143,000.

      At  September  30, 1997,  the Bank had loans with an  aggregate  principal
balance of $7.5 million  classified as  substandard  ($3.8 million of such loans
were  non-performing  or restructured at September 30, 1997). The following is a
description of the larger  non-performing or restructured  loans as of September
30, 1997.

      Hollowbrook  Associates  is a loan  originated  in  1990  to  finance  the
acquisitions  of a 2-story,  45,000 square foot office building on 2.75 acres in
Wappinger Falls, New York. The loan was subject to a troubled debt restructuring
in May 1994 which resulted in a reduction of the interest rate of the loan

                                       10

<PAGE>



to 6.75% and an  extension  of its  maturity  to May 1, 1999.  During  1997,  in
accordance with the restructuring  agreement, the interest rate was increased to
8.50%. The loan has performed in accordance with its restructured  terms and had
a remaining balance of $2.1 million at September 30, 1997.

      Brentwood  Associates is a loan  purchased in 1988 to finance the purchase
of a 32 unit, 8 building  apartment  complex located in Barrington,  New Jersey.
This  non-accrual  loan,  which  has  a  $654,000  balance,  is  in  foreclosure
proceedings and is being operated by a court appointed rent receiver.

      The  remainder of the  non-performing  loans  consists of smaller  balance
loans  aggregating  $1.0 million which are secured by 1-to 4-family  residential
property.

      The Bank's other  substandard  assets at September 30, 1997,  consisted of
$136,000 of real estate owned.

      Provision for Loan Losses and Losses on Real Estate Owned. A provision for
loan losses is charged to  operations  based on  management's  evaluation of the
risk  inherent in its loan  portfolio in relation to the level of the  allowance
for loan losses and changes in the nature and volume of its loan activity.

      The Bank provides  valuation  reserves for anticipated losses on loans and
real estate owned when management  determines that a significant  decline in the
value of the  collateral  has  occurred,  as a result  of which the value of the
collateral  is less than the amount of the unpaid  principal of the related loan
plus  estimated  costs of  acquisition  and  sale.  In  addition,  the Bank also
provides reserves based on the dollar amount and type of collateral securing its
loans,  in order to provide for future losses  inherent in Bank loans.  Although
management  believes  that it uses the best  information  available to make such
determinations,  future adjustments to reserves may be necessary, and net income
could be significantly  affected, if circumstances differ substantially from the
assumptions used in making the initial determinations.

      At September 30, 1997,  non-performing and restructured loans totaled $3.8
million.  Management  believes the allowance for loan losses is established at a
level  adequate  to provide  for  potential  credit  losses in  accordance  with
generally accepted accounting  principles at September 30, 1997. However,  there
can be no  assurance  that,  in the  future,  pursuant  to a  request  from  its
regulators  or as a result  of the  Bank's  ongoing  review,  the Bank  will not
significantly  increase or  decrease  its  allowance  for loan  losses,  thereby
impacting the Bank's financial condition and earnings.


                                       11

<PAGE>



      The  following  table sets forth an analysis of the Bank's  allowance  for
loan losses.

<TABLE>
<CAPTION>
                                                                 Year Ended September 30,
                                                   -------------------------------------------------------
                                                    1993        1994        1995        1996        1997
                                                   -------     -------     -------     -------     -------
                                                                   (Dollars in Thousands)

<S>                                                <C>         <C>         <C>         <C>         <C>    
Balance at beginning of period .................   $ 4,200     $ 4,487     $ 3,369     $ 2,604     $ 2,459
                                                   -------     -------     -------     -------     -------

Provision charged to operations ................     2,101       2,650          --          --          --
                                                   -------     -------     -------     -------     -------

Charge-Offs:
Residential real estate ........................    (1,814)     (3,673)       (765)       (145)       (102)
Commercial real estate .........................        --         (95)         --          --          --
                                                   -------     -------     -------     -------     -------
                                                    (1,814)     (3,768)       (765)       (145)       (102)
                                                   -------     -------     -------     -------     -------
Balance at end of period .......................   $ 4,487     $ 3,369     $ 2,604     $ 2,459     $ 2,357
                                                   =======     =======     =======     =======     =======

Percentage of net charge-offs during the period
  to average loans outstanding during the period       .92%       2.26%        .05%        .10%        .08%
                                                   =======     =======     =======     =======     =======

Percentage of allowance for loan losses to gross
  loans outstanding at period end ..............      2.48%       2.34%       1.90%       1.78%       1.81%
                                                   =======     =======     =======     =======     =======

Percentage of allowance for loan losses to
 non-performing and restructured loans..........      59.0%       49.9%       35.0%       62.3%       61.7%
                                                   =======     =======     =======     =======     =======

</TABLE>



                                       12

<PAGE>



      A breakdown of the  allowance  for loan losses by category of loan and the
relationship  of each category of loan to total loans is presented below for the
periods shown.
<TABLE>
<CAPTION>

                                                                      At September 30,
                     ---------------------------------------------------------------------------------------------------------------
                            1993                    1994                    1995                  1996                  1997
                     --------------------- ---------------------- ---------------------  --------------------- ---------------------
                               Percent of             Percent of             Percent of            Percent of            Percent of
                     Allowance  loans to   Allowance   loans to   Allowance   loans to   Allowance  loans to   Allowance  loans to
                      Balance  total loans  Balance   total loans  Balance   total loans  Balance  total loans  Balance  total loans
                     --------- ----------- ---------  ----------- ---------  ----------- --------- ----------- --------- -----------
                                            
Real estate mortgage:                       
<S>                   <C>        <C>          <C>         <C>       <C>          <C>       <C>         <C>       <C>        <C>  
  1 to 4 family(1)    $  822      51.1%       $  684       47.7%    $   225       48.9%    $  394       57.6%    $   384     71.2%
  Multifamily.....     1,380       23.4        1,119        26.0        786        24.5       698        20.5        668      11.5
  Commercial......     2,285       25.2        1,566        26.0      1,593        26.4     1,367        21.7      1,305      17.1
Consumer..........        --        0.3           --         0.3         --         0.2        --         0.2         --       0.2
                      ------     ------       ------       -----     ------      ------    ------      ------   --------   -------
                                            
                      $4,487     100.0%       $3,369      100.0%    $ 2,604      100.0%    $2,459      100.0%     $2,357    100.0%
                       =====     =====         =====      =====      ======      =====      =====      =====       =====    =====
</TABLE>
                                             
-----------------------
(1) Includes home equity lines of credit.




                                       13

<PAGE>

Investment Activities
---------------------

      Income from investment  securities provides a significant source of income
for the Bank. Investment decisions are made within policy guidelines established
by the Board of Directors. The Bank invests in instruments such as U.S. Treasury
securities,  municipal  securities,  corporate  debt  securities  and  overnight
federal funds. The use of short-term security investments reflects  management's
response to the  significantly  increasing  percentage of savings  deposits with
short  maturities.  It is  the  intention  of  management  to  maintain  shorter
maturities  in the  Bank's  investment  portfolio  in order to better  match the
interest  rate  sensitivities  of its assets and  liabilities.  However,  during
periods of rapidly declining  interest rates, such investments also decline at a
faster rate than does the yield on long-term investments.

      A breakdown of investment securities by type is presented below.

<TABLE>
<CAPTION>
                                                  At September 30,
                           ----------------------------------------------------------------
                                   1995                  1996                 1997
                           --------------------  --------------------  --------------------
                           Carrying     Fair     Carrying     Fair     Carrying    Fair
                            Value       Value      Value      Value      Value     Value
                                                   (In Thousands)

<S>                        <C>         <C>        <C>        <C>       <C>        <C>     
U.S. Government, including
  agencies...............  $113,781    $112,271   $144,004   $141,625  $155,874   $155,683
Equity Securities........        --          --         --         --       823        823
States and political
  subdivisions thereof...       600         614        600        622       597        623
                            -------     -------    -------    -------   -------    -------
                           $114,381    $112,885   $144,604   $142,247  $157,294   $157,129
                            =======     =======    =======    =======   =======    =======
</TABLE>


      The following  table is a summary of scheduled  investment  maturities and
weighted average yields at September 30, 1997.

<TABLE>
<CAPTION>

                                             After One Year       After Five Years
                                             But Within Five       But Within Ten
                         Within One Year          Years                Years          After Ten Years         Total
                         -----------------  -----------------   ------------------   -----------------  -----------------
                          Amount   Yield     Amount    Yield      Amount    Yield    Amount     Yield    Amount     Yield
                         -------- -------   --------  -------   ----------  ------   -------   -------  --------   ------
                                                          (Dollars in thousands)
<S>                      <C>        <C>     <C>         <C>     <C>          <C>     <C>        <C>     <C>         <C>  
U.S. Government,
  including agencies .   $ 7,985    5.38%   $ 32,901    6.24%   $ 106,988    6.95%   $ 8,000    7.78%   $155,874    6.76%
Equity securities ....        --      --          --      --           --      --        823    9.33         823    9.33
States and political
  subdivisions thereof        --      --          --      --           --      --        597    6.41         597    6.41
                         -------    ----    --------    ----    ---------    ----    -------    ----    --------    ---- 

                         $ 7,985    5.38%   $ 32,901    6.24%   $ 106,988    6.95%   $ 9,420    7.83%   $157,294    6.77%
                         =======    ====    ========    ====    =========    ====    =======    ====    ========    ==== 
</TABLE>



      Exclusive of securities issued by the U.S.  government and U.S. government
agencies and corporations,  no aggregate  investment with any issuer exceeds 10%
of stockholders' equity.


                                       14

<PAGE>



Sources of Funds
----------------

      General. Deposits are the major source of the Bank's funds for lending and
other investment purposes. In addition to deposits,  the Bank derives funds from
loan and mortgage-backed securities principal repayments. Historically, the Bank
has not relied  significantly upon the sale of loans (or loan participations) or
funds  borrowed  from the  Federal  Home Loan Bank  ("FHLB") of New York or from
other outside sources.  Loan repayments are a relatively stable source of funds,
while deposit inflows are significantly influenced by general interest rates and
money  market  conditions.  Borrowings  may be used  on a  short-term  basis  to
compensate for reductions in the availability of funds from other sources.  They
also may be used on a long-term basis for general business purposes.

      Deposits.  The Bank offers a wide variety of deposit accounts,  although a
substantial majority of such deposits are in fixed-term, market-rate certificate
accounts.  Deposit  account  terms vary,  primarily as to the  required  minimum
balance  amount,  the  amount  of time  that the funds  must  remain on  deposit
(typically  between  three  months and five years) and the  applicable  interest
rate.

      Fixed-term,  market-rate certificates have been the primary sources of new
deposits for the Bank and, at September 30, 1997, such certificates  represented
approximately  64.1% of the  Bank's  accounts.  The Bank also  offers IRA plans,
money market deposit  accounts,  passbook  accounts and NOW (negotiable order of
withdrawal) accounts.

Jumbo Certificate Accounts

      The  following  table  indicates  the  amount  of the  Bank's  certificate
accounts of $100,000 or more by time  remaining  until  maturity as of September
30, 1997.

                                                     Certificate
Maturity Period                                        Accounts
---------------                                      -----------
                                                    (In Thousands)
Three months...................................         $ 4,654
Over three through six months..................           5,996
Over six through twelve months.................           3,422
Over twelve months.............................           3,428
                                                        -------
                                                        $17,500
                                                        =======


      Borrowings. Savings deposits are the primary source of funds of the Bank's
lending and investment  activities and for its general  business  purposes.  The
Bank  generally  has not  relied  upon  advances  from  the  FHLB of New York to
supplement  its  supply  of  lendable  funds  or  to  meet  deposit   withdrawal
requirements.  The Bank  generally has been able to finance  operations  through
internally-generated  funds. However, in 1996, the Board of Directors decided to
engage in an asset growth strategy funded by borrowings.  As a result,  the Bank
made medium and short term  borrowings  which were used to fund  increased  loan
demand,   purchases  of  investment  and  mortgage-backed   securities  and  the
repurchase of shares of common stock of the Corporation. The Bank had borrowings
of $67.7 million outstanding at September 30, 1997.


                                       15

<PAGE>



Yields Earned and Rates Paid
----------------------------

      The Bank's  earnings  depend  primarily  on its net interest  income.  Net
interest  income is  affected by (i) the volume of  interest-earning  assets and
interest-bearing  liabilities, (ii) rates of interest earned on interest-earning
assets and rates paid on interest-bearing  liabilities, and (iii) the difference
("interest rate spread")  between rates of interest  earned on  interest-earning
assets and rates paid on  interest-bearing  liabilities.  When  interest-earning
assets approximate or exceed interest-bearing liabilities, any positive interest
rate spread will generate net interest income.

      A portion of the Bank's real estate loans are long-term, fixed-rate loans.
Accordingly,  the average yield on the Bank's loan portfolio  changes slowly and
generally does not keep pace with changes in interest rates on deposit  accounts
and borrowings.  Accordingly,  when interest rates rise, the Bank's yield on its
loan  portfolio  increases  more slowly than the rate by which its cost of funds
increases which may adversely impact the Bank's interest rate spread.




                                       16

<PAGE>



      The  following  table sets forth for the  periods  indicated,  information
regarding  the total  dollar  amounts of interest  income from  interest-earning
assets and the resulting  average  yields,  the total dollar amounts of interest
expense on  interest-bearing  liabilities and the resulting  average costs,  net
interest income,  interest rate spread,  net  interest-earning  assets,  the net
yield earned on interest-earning assets, and the ratio of total interest-earning
assets  to  total  interest-bearing  liabilities.  Average  balances  have  been
calculated primarily on a daily basis.

<TABLE>
<CAPTION>
                                              1995                          1996                          1997
                                  -----------------------------   --------------------------  -----------------------------
                                                          Yield/                      Yield/                         Yield/
                                   Balance   Interest      Rate    Balance  Interest   Rate   Balance    Interest     Rate
                                  --------   ---------    -----   --------  --------  ------  --------  ---------    ------
                                                                      (Dollars In Thousands)

<S>                               <C>         <C>         <C>     <C>       <C>        <C>     <C>        <C>          <C>  
  Loans(1)......................  $138,049    $12,404      8.98%  $135,905  $11,861    8.73%   $128,578   $11,013       8.57%
  Mortgage-backed securities(3).   181,058     11,113      6.13    190,069   12,269    6.46     216,784    14,395       6.64
  Investments and other interest-
   earning assets(2)(3).........   113,801      7,222      6.34    133,309    8,603    6.45     158,611    10,611       6.69
                                   -------     ------              -------  -------            --------   -------

   Total interest-earning assets   432,908     30,739      7.10    459,283   32,733    7.13     503,973    36,019       7.15
                                               ------                       -------                       -------
Non-interest-earning assets.....    15,064                          11,699                       10,098
                                  --------                        --------                    ---------
 Total assets...................  $447,972                        $470,982                    $ 514,071
                                  ========                        ========                    =========

Interest-Bearing Liabilities:
  Savings and interest-bearing 
    demand......................   160,146      5,349      3.34   $146,865    4,477   3.04    $ 142,309     4,302       3.02
  Time..........................   231,324     11,881      5.13    245,488   13,330   5.43      259,997    14,356       5.52
                                   -------     ------              -------  --------          ---------   -------     ------
    Total interest-bearing 
      deposits..................   391,470     17,230      4.40    392,353   17,807   4.53      402,306    18,658       4.63
  Borrowings....................        --         --        --     22,951    1,326   5.77       63,223     3,717       5.87
                                   -------     ------               ------- -------            --------   -------
    Total interest-bearing 
     liabilities................   391,470     17,230      4.40    415,304   19,133   4.60      465,529    22,375       4.80
                                               ------                        ------                       -------
Non-interest-bearing liabilities:
  Demand deposits...............     3,629                           3,719                        4,370
  Other.........................     1,699                           2,231                        3,871
                                  --------                        --------                     --------
    Total liabilities...........   396,798                         421,254                      473,770
Stockholders' equity............    51,174                          49,728                       40,301
                                  --------                        --------                     --------
    Total liabilities and 
      stockholders' equity......  $447,972                        $470,982                     $514,071
                                  ========                        ========                     ========

Net interest income/interest 
  rate spread...................              $13,509     2.70%             $13,600   2.53%               $13,644       2.35%
                                               ======    =====              =======   ====                =======      =====


Net interest-earning assets/net 
  yield on interest-earning 
  assets........................   $41,438                3.12%    $43,979            2.96%    $ 38,444                 2.70%
                                    ======               =====      ======            ====     ========                =====
Ratio of average interest-
  earning assets to average 
  interest-bearing liabilities...     1.11X                           1.11X                        1.08X
                                    ======                          ======                     ========               

</TABLE>

-----------------------
(1)   Includes non-accrual loans.
(2)   Includes  tax-exempt  securities.   Income  from  such  securities,  which
      amounted to  approximately  $39,000,  $39,000 and $38,000 during the years
      ended September 30, 1995, 1996 and 1997, respectively, is included without
      adjustment to a tax-equivalent  basis.  Such adjustments were not made due
      to their immateriality.
(3)   Investments  classified  as available for sale are included in the average
      at amortized cost amounts.

                                       17

<PAGE>



Gap Analysis
------------

      As rates on  sources  of funds  have  become  deregulated  and  subject to
competitive pressures, financial institutions have become increasingly concerned
with the extent to which they are able to match  maturities of  interest-earning
assets  and  interest-bearing  liabilities.  Such  matching  is  facilitated  by
examining the extent to which such assets and  liabilities  are  "interest  rate
sensitive" and by monitoring an institution's  interest rate sensitivity  "gap."
An asset or liability is  considered  to be interest  rate  sensitive if it will
mature or reprice within a specific time period.  The interest rate  sensitivity
gap is defined as the excess of  interest-earning  assets  maturing or repricing
within a specific  time period  over  interest-bearing  liabilities  maturing or
repricing within that time period.

      The following  table reflects the interest rate  sensitivity of the Bank's
interest-earning  assets and  interest-bearing  liabilities  as of September 30,
1997, the Bank's interest rate  sensitivity gap at various periods and the ratio
of the Bank's interest-earning assets to interest-bearing liabilities at various
periods.  As the table  indicates,  the Bank has a  negative  gap for assets and
liabilities  maturing or  repricing  within one year,  thereby  leaving the Bank
vulnerable to future  increases in interest rates. The Bank has assumed that its
savings and  interest-bearing  demand  deposits will be withdrawn  annually at a
rate  of 18%  on  the  cumulative  declining  balance  of  such  accounts.  This
assumption is based upon prior experience and management's  assessment of future
trends.

<TABLE>
<CAPTION>

                                                          Matures or Reprices
                                      ---------------------------------------------------------------
                                                    Over One        Over Five
                                      One Year       Through         Through     Over Ten
                                       or Less      Five Years      Ten Years      Years      Total
                                      --------      ----------      ---------    ---------  ---------
                                                           (Dollars in Thousands)
<S>                                   <C>             <C>            <C>           <C>      <C>     
Interest-Earning Assets:
Loans(2)........................      $ 34,683        $25,918        $16,456       $52,611  $129,668
Mortgage-backed securities (2)..       132,819          3,722         23,049        56,567   216,157
Investments.....................         7,985         32,901        106,985         9,423   157,294
Other interest-earning assets(1)        14,701             --             --            --    14,701
                                      --------        -------        -------       -------  --------
  Total.........................       190,188         62,541        146,490       118,601   517,820
                                      --------        -------        -------       -------  --------

Interest-bearing liabilities:
  Savings and interest-bearing
  demand deposits...............        25,684         64,104         33,288        19,613   142,689
  Time deposits.................       213,917         49,660             --            --   263,577
  Borrowings....................        51,875         15,800             --            --    67,675
                                      --------        -------        -------       -------  --------
      Total.....................       291,476        129,564         33,288        19,613   473,941
                                      --------        -------        -------       -------  --------
  Interest sensitivity gap......     (101,288)       (67,023)        113,202        98,988
  Cumulative interest
    sensitivity gap.............     (101,288)      (168,311)       (55,109)        43,879
  Ratio of gap to total assets..       (19.25)%       (12.74)%        21.52 %        18.81%
  Ratio of cumulative gap to
    total assets................       (19.25)%       (31.99)%       (10.47)%         8.34%

</TABLE>


-----------------
(1)   Includes  FHLB of New York stock  classified  as  repricing in one year or
      less. 
(2)   Does not include  prepayment  assumptions or scheduled  amortization which
      could significantly reduce the terms to maturity of these assets.


                                       18

<PAGE>



      The table  above  indicates  the time  periods  in which  interest-earning
assets and interest-bearing liabilities will mature or may reprice in accordance
with their contractual terms.  However,  the table does not necessarily indicate
the impact of general  interest rate  movements on the Bank's net interest yield
because  the  repricing  of  various  categories  of assets and  liabilities  is
discretionary  and is subject to competitive and other  pressures.  As a result,
various assets and liabilities indicated as repricing within the same period may
in fact reprice at different  times and at different  rate levels.  Furthermore,
the table does not reflect either scheduled principle amortization or the Bank's
prepayment  experience,  both of which reduce the actual term to maturity of the
Bank's loan portfolio.

Rate/Volume Analysis
--------------------

      Changes in net interest income are attributable to three factors: a change
in volume of an interest-earning  asset or interest-bearing  liability, a change
in rates or a change caused by a combination  of changes in volume and rate. The
table below sets forth certain information  regarding changes in interest income
and interest expense of the Bank for the periods indicated. For each category of
interest-earning asset and interest-bearing  liability,  information is provided
on changes  attributable to (1) changes in volume (changes in volume  multiplied
by old rate);  (2) changes in rates (changes in rate  multiplied by old volume);
and (3)  changes  in  rate-volume  (changes  in rate  multiplied  by  changes in
volume).

<TABLE>
<CAPTION>

                                             1995 vs. 1996                           1996 vs. 1997
                                 -------------------------------------   --------------------------------------
                                                Due to                                  Due to
                                 -------------------------------------   --------------------------------------
                                                      Rate/                                   Rate/
                                 Volume     Rate     Volume     Total     Volume     Rate     Volume    Total
                                 -------    ------   ------    ------    --------  --------  -------- ---------
                                                                (In Thousands)
<S>                               <C>       <C>      <C>       <C>       <C>       <C>       <C>      <C>      
Interest Income:
Loans.........................    $(196)    $(352)   $    5    $ (543)   $  (642)  $  (218)  $    12  $   (848)
Mortgage-backed securities....       550       577       29      1,156      1,716      360        50     2,126
Investments and other interest
  -bearing assets.............     1,235       125       21      1,381      1,628      319        61     2,008
                                 -------    ------  -------    -------    -------  -------   -------   -------

   Total interest-earning
     assets...................     1,589       350       55      1,994      2,702      461       123     3,286
                                 -------    ------  -------    -------    -------  -------   -------   -------

Interest Expense:
  Savings and interest-bearing
    demand deposits...........      (438)     (474)      40       (872)      (145)     (31)         1     (175)

  Time deposits...............       719       687       42      1,449        791      222        13     1,026
  Borrowings..................     1,326        --       --      1,326      2,328       23        40     2,391
                                 -------    ------  -------    -------    -------  -------   -------   -------
   Total interest-bearings 
    liabilities...............     1,607       213       82      1,903      2,974      214        54     3,242
                                 -------    ------  -------    -------    -------  -------   -------   -------
Net change in net interest-
  income......................   $   (18)   $  137  $  (27)    $    91    $ (272)  $   247   $    69   $    44
                                 =======    ======  ======     =======    ======   =======   =======   =======

</TABLE>




                                       19

<PAGE>




Market Risk

      Market risk is the risk of loss from adverse  changes in market prices and
rates.  The Bank's market risk arises primarily from interest rate risk inherent
in its lending and deposit taking activities.  To that end,  management actively
monitors and manages its interest rate risk exposure.

      The Bank's  profitability is affected by fluctuations in interest rates. A
sudden and  substantial  increase in  interest  rates may  adversely  impact the
Bank's  earnings  to the  extent  that the  interest  rates  borne by assets and
liabilities do not change at the same speed, to the same extent,  or on the same
basis.  The Bank  monitors  the impact of changes in  interest  rates on its net
interest  income  using  several  tools.  One measure of the Bank's  exposure to
differential  changes in interest rates between assets and  liabilities is shown
in  the  Bank's   Maturity   and  Rate   Sensitivity   Analysis   is  under  the
Asset/Liability Management caption. Another measure is the test specified by OTS
Thrift Bulletin No. 13, "Interest Rate Risk  Management." This test measures the
impact on net interest income and on net portfolio value of an immediate  change
in interest rates in 100 basis point increments.  Net portfolio value is defined
as  the  net  present  value  of  assets,  liabilities,  and  off-balance  sheet
contracts.  Following are the estimated impacts of immediate changes in interest
rates at the specified levels at September 30, 1997.

Percentage Changes in Interest Rates:
                   Net Interest       Net Portfolio
 Basis Points        Income(1)          Value(2)
---------------  -----------------  ------------
     +400              -48%               -60%
     +300               -34                -42
     +200               -21                -31
     +100               -9                 -12
    - 100               +8                 +9
    - 200               +8                 +22
    - 300               N/A                N/A
    - 400               N/A                N/A


---------------
(1)   The percentage change in this column represents net interest income for 12
      months in a stable  interest  rate  environment  versus  the Net  Interest
      Income in the various rate scenarios.
(2)   The percentage change in this column represents net portfolio value of the
      Bank in a stable interest rate environment  versus the net portfolio value
      in the various rate scenarios.

      The Bank's primary objective in managing interest rate risk is to minimize
the  adverse  impact of changes  in  interest  rates on the Bank's net  interest
income and capital while  structuring  the Bank's  asset-liability  structure to
obtain  the  maximum  yield-cost  spread  on that  structure.  The  Bank  relies
primarily on its asset-liability structure to control interest rate risk.

      The   Bank   continually   evaluates   interest   rate   risk   management
opportunities, including the use of derivative financial instruments. Management
believes that hedging  instruments  currently  available are not cost-effective,
and  therefore,  has  focused its efforts on  increasing  the Bank's  yield-cost
spread through wholesale and retail growth opportunities.

                                       20

<PAGE>



      The following  table shows the Company's  financial  instruments  that are
sensitive to changes in interest rates,  categorized by expected  maturity,  and
the  instruments'  fair values at  September  30,  1997.  Market risk  sensitive
instruments are generally  defined as  on-and-off-balance  sheet derivatives and
other financial instruments.

Expected Maturity/Principal Repayment at September 30,

<TABLE>
<CAPTION>

                             Average                                                              Total                     Fair
                          Interest Rate    1998          1999         2000       2001    2002   Thereafter    Balance(1)   Value(1)
                          -------------    ----          ----         ----       ----    ----   ----------   -----------   --------
                                                                       (Dollars in  Thousands)
<S>                          <C>        <C>            <C>           <C>       <C>      <C>       <C>         <C>        <C>
Interest-Sensitive Assets:
Fed funds sold and other
 short-term investments        6.00%     $ 11,925       $    --       $   --    $    --      --        --     $ 11,925    $ 11,925
Loans Receivable:
  One-to-four family.          8.18%       18,846         1,147        1,147      2,521   2,521    67,429       92,464      93,019
  Multifamily and Non-
   Residential.......          8.93%       15,389         5,194        5,194      4,097   4,097     2,785       36,756      36,976
  Other..............         10.00%          448            --           --         --      --        --          448         451
Mortgage-Backed
   Securities........          6.80%      132,819           126           --      3,522      74    79,616      216,157     217,039
Investment Securities          6.77%        7,985         4,977        3,000     24,924      --   116,408      157,294     157,129
FHLB stock...........          6.80%        2,776            --           --         --      --        --        2,776       2,776
Interest-Sensitive 
 Liabilities:
 Deposits
  Money Market Deposits        3.53%       12,825        10,516        8,623      7,071   5,798    26,415       71,248      71,041
  Passbook Deposits..          2.75%       10,003         8,203        6,726      5,515   4,523    20,603       55,573      55,412
  Now and other demand
   deposits..........          1.26%        2,856         2,342        1,921      1,575   1,291     5,883       15,868      15,822
  Certificate Accounts         6.51%      213,917        36,809        8,769      4,082      --        --      263,577     262,813
Borrowings...........          5.84%       51,875        15,800           --         --      --        --       67,675      67,292
Interest-Sensitive Off
balance sheet items:(2)
  Commitments to extend
   credit............          7.50%                                                               16,409
  Commitments to
   purchase securities         9.00%                                                                  200
  Unused lines of Credit       9.67%                                                               10,711

</TABLE>


---------------
(1)   Loans  are  reduced  for  nonaccrual  loans  but are not  reduced  for the
      allowance for loan losses.
(2)   Total balance equals the notional  amount of  off-balance  sheet items and
      interest rates are the weighted  average  interest rates of the underlying
      loans.

                                       21

<PAGE>



      Expected  maturities are contractual  matures  adjusted for prepayments of
principal.  The Company uses  certain  assumptions  to estimate  fair values and
expected maturities.  For assets, expected maturities are based upon contractual
maturity,  projected  repayments and  prepayments  of principal.  The prepayment
experience reflected herein is based on the Company's historical experience. The
Company's  average  Constant  Prepayment  Rate  ("CPR") on its total  fixed-rate
portfolio is 10%, and 6% on its adjustable-rate  portfolio for  interest-earning
assets (excluding investment securities, which do not have prepayment features).
For deposit  liabilities,  in accordance with standard industry practice and the
Company's own historical  experience,  "decay factors," used to estimate deposit
runoff of 12.5%, 8.8%, and between 8% and 100% for passbook,  checking and money
market  deposit   accounts,   respectively.   The  actual  maturities  of  these
instruments  could vary  substantially  if future  prepayments  differ  from the
Company's historical experience.

Personnel
---------

      As of  September  30,  1997,  the Bank had 52  full-time  employees  and 9
part-time  employees.   The  employees  are  not  represented  by  a  collective
bargaining  unit.  The Bank believes its  relationship  with its employees to be
satisfactory.

Competition
-----------

      The Bank faces strong  competition in its  attraction of savings  deposits
(its primary  source of funds  available for lending) and in the  origination of
real estate loans.  Its most direct  competition for savings  deposits and loans
historically  has come from  other  thrift  institutions  and  commercial  banks
located in Middlesex County, New Jersey.  The Bank faces additional  significant
competition for investor funds from short-term money market securities and other
corporate and government securities.

      The Bank's  competition for real estate loans comes principally from other
thrift institutions, commercial banks, and mortgage banking companies.

      The Bank  competes for loans by charging  competitive  interest  rates and
loan  fees,  remaining  efficient  and  providing  a wide range of  services  to
borrowers,  real estate brokers,  and home builders.  It competes for savings by
offering  depositors  a wide  variety of savings  accounts,  checking  accounts,
convenient  office  locations,  drive-up  facilities,  extended  banking  hours,
tax-deferred retirement programs, and other miscellaneous services.

      The Bank considers  Middlesex County,  New Jersey and, to a lesser extent,
Mercer,  Monmouth and Ocean Counties, its primary market area for savings. While
the majority of the Bank's  mortgage  loans are  originated in this market area,
the Bank also makes loans, to a much lesser degree, throughout New Jersey.

      Based upon total assets,  the Bank was the 21st largest thrift institution
in the State of New Jersey as of September  30,  1997.  The Bank  competes  with
larger  financial  institutions,   headquartered  both  inside  and  outside  of
Middlesex County,  New Jersey,  that maintain offices in the Bank's market area.
These  competitors  may be able to offer better loan rates from time to time due
to their size, financial resources, and competitive strategy.


                                       22

<PAGE>



Regulation
----------

      General.  The Corporation owns all of the capital stock of the Bank and is
a  savings  bank  holding  company.  As a  savings  bank  holding  company,  the
Corporation  is  subject  to  regulation  by the  Office of  Thrift  Supervision
("OTS").  As a company whose stock is  publicly-traded,  the Corporation is also
subject to the  reporting,  proxy  solicitation,  and other  regulations  of the
Securities and Exchange Commission ("SEC").

      The  Bank  is a New  Jersey-chartered  capital  stock  savings  bank,  the
accounts  of which are  insured  by the FDIC,  and as such,  is  subject  to the
regulation,  supervision and examination of the New Jersey Department of Banking
and the FDIC. The New Jersey Department of Banking (the "Department")  regulates
the Bank's internal organization as well as its deposit,  lending and investment
activities.  The Department  must approve  changes to the Bank's  certificate of
incorporation,  the  establishment  or relocations of branch offices and mergers
involving the Bank. In addition,  the Department conducts periodic  examinations
of the Bank.  Many of the areas  regulated  by the  Department  are  subject  to
similar regulation by the FDIC.

Bank Regulation
---------------

      New Jersey law  provides  that no dividend  may be paid by the Bank unless
after the payment of such  dividend,  the capital  stock of the Bank will not be
impaired  and  either  the Bank will have a surplus  of not less than 50% of its
capital  stock,  or the payment of such  dividend  will not reduce the statutory
surplus of the Bank.

      Generally,  federal law limits the  activities  and equity  investments of
FDIC-insured,  state-chartered  banks to those that are permissible for national
banks.

      Insurance of Deposit Accounts.  The Bank's deposit accounts are insured by
the SAIF to a maximum of $100,000 for each insured member (as defined by law and
regulation).  Insurance of deposits may be terminated by the FDIC upon a finding
that the institution has engaged in unsafe or unsound practices, is in an unsafe
or unsound condition to continue  operations or has violated any applicable law,
regulation,  rule, order or condition  imposed by the FDIC or the  institution's
primary regulator.

      As a member of the SAIF,  the Bank paid an  insurance  premium to the FDIC
equal to a minimum  of 0.23% of its  total  deposits.  The FDIC  also  maintains
another insurance fund, The Bank Insurance Fund ("BIF"), which primarily insures
commercial  bank deposits.  In 1996, the annual  insurance  premium for most BIF
members  was lowered to $2,000.  The lower  insurance  premiums  for BIF members
placed SAIF members at a competitive disadvantage to BIF members.

      Effective  September  30,  1996,  federal  law was  revised  to  mandate a
one-time  special  assessment on SAIF members such as the Bank of  approximately
 .657% of deposits held on March 31, 1995. Beginning January 1, 1997, the deposit
insurance  assessment  for SAIF  members  was reduced to .064% of deposits on an
annual basis through the end of 1999. During this same period,  BIF members will
be assessed approximately .013% of deposits. After 1999, assessments for BIF and
SAIF  members  should  be  the  same.  It  is  expected  that  these  continuing
assessments  for both  SAIF and BIF  members  will be used to repay  outstanding
Financing Corporation bond obligations. As a result of these changes,

                                       23

<PAGE>



beginning  January 1,  1997,  the rate of deposit  insurance  assessed  the Bank
declined by approximately 70%.

      Capital Requirements.  Under FDIC regulations,  state-chartered banks that
are not members of the Federal  Reserve  System ("state  non-member  banks") are
required to maintain a minimum  leverage  capital  requirement  consisting  of a
ratio of Tier 1 capital to total assets of 4%. For institutions other than those
most highly rated by the FDIC,  an  additional  "cushion" of at least 100 to 200
basis  points is  required.  Tier 1 capital  is the sum of common  stockholders'
equity,  noncumulative perpetual preferred stock (including any related surplus)
and  minority  investments  in certain  subsidiaries,  less  certain  intangible
assets,  deferred tax assets,  certain identified losses and certain investments
in securities  subsidiaries.  As a SAIF-insured,  state-chartered bank, the Bank
must  currently  also  deduct  from  Tier  1  capital  an  amount  equal  to its
investments  in, and  extensions of credit to,  subsidiaries  engaged in certain
activities not permissible for national banks.

      In addition to the leverage  ratio,  state nonmember banks must maintain a
minimum ratio of qualifying  total capital to  risk-weighted  assets of at least
8.0%,  of  which  at  least  four  percentage  points  must be  Tier 1  capital.
Qualifying total capital consists of Tier 1 capital plus Tier 2 or supplementary
capital  items which  include  allowances  for loan losses in an amount of up to
1.25% of risk-weighted  assets,  cumulative  preferred stock and preferred stock
with a maturity  of over 20 years and certain  other  capital  instruments.  The
includable  amount of Tier 2 capital  cannot  exceed  the  institution's  Tier 1
capital. Qualifying total capital is further reduced by the amount of the bank's
investments in banking and finance  subsidiaries  that are not  consolidated for
regulatory  capital purposes,  reciprocal  cross-holdings of capital  securities
issued by other banks and certain other deductions. Under the FDIC risk-weighted
system,  all of a bank's balance sheet assets and the credit equivalent  amounts
of certain  off-balance sheet items are assigned to risk weight categories.  The
aggregate  dollar  amount of each  category  is  multiplied  by the risk  weight
assigned to that category.  The sum of these  weighted  values equals the bank's
risk-weighted assets.

      Each federal  banking agency is required to revise its risk-based  capital
standards for insured  institutions to ensure that those standards take adequate
account of  interest-rate  risk ("IRR"),  concentration  of credit risk, and the
risks of nontraditional activities, as well as to reflect the actual performance
and expected  risk of loss on  multi-family  residential  loans.  The FDIC,  the
Office of the  Comptroller of the Currency,  and the Federal  Reserve Board have
proposed  procedures  for  measuring  IRR exposure and  alternative  methods for
determining what amount of additional capital, if any, a bank may be required to
maintain for IRR.

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

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

      The Bank was in  compliance  with  both  the FDIC and New  Jersey  capital
requirements at September 30, 1997.


                                       24

<PAGE>



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

      Dividends  payable by the Bank to the Corporation and dividends payable by
the Corporation to stockholders  are subject to various  additional  limitations
imposed by federal and state laws,  regulations and policies  adopted by federal
and state  regulatory  agencies.  The Bank is  required by federal law to obtain
FDIC  approval  for the  payment  of  dividends  if the  total of all  dividends
declared  by the Bank in any year exceed the total of the Bank's net profits (as
defined)  for that  year and the  retained  net  profits  (as  defined)  for the
preceding two years,  less any required  transfers to surplus.  Under New Jersey
law, the Bank may not pay dividends unless, following payment, the capital stock
of the Bank would be unimpaired and (a) the Bank will have a surplus of not less
than 50% of its capital  stock,  or, if not,  (b) the payment of such  dividends
will not reduce the surplus of the Bank.

      Under applicable regulations, the Bank would be prohibited from making any
capital  distributions if, after making the  distribution,  the Bank would have:
(i) a total risk-based capital ratio of less than 8.0%; (ii) a Tier 1 risk-based
capital  ratio of less than 4.0%;  or (iii) a leverage  ratio of less than 4.0%,
unless a higher ratio is required by the Commissioner of the Department.

      Loans to One Borrower.  Generally,  the Bank may not make a loan or extend
credit  to a single  or  related  group of  borrowers  in  excess  of 15% of its
unimpaired capital and surplus.

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

      As a member,  the Bank is required to purchase and  maintain  stock in the
FHLB of New York in an  amount  equal to at  least  1% of its  aggregate  unpaid
residential  mortgage loans, home purchase  contracts or similar  obligations at
the beginning of each year. At September 30, 1997,  the Bank had $2.8 million in
FHLB stock, which was in compliance with this requirement.

      Federal Reserve System.  The Federal Reserve Board requires all depository
institutions  to maintain  non-interest  bearing  reserves at  specified  levels
against  their  transaction  accounts  (primarily  checking,  NOW and  Super NOW
checking  accounts) and non-personal time deposits.  The balances  maintained to
meet the reserve  requirements  imposed by the Federal Reserve Board may be used
to satisfy the liquidity  requirements  that are imposed by the  Department.  At
September 30, 1997, the Bank's total transaction accounts were below the minimum
level for which the Federal Reserve Board requires a reserve.

      State-chartered  savings  banks have  authority to borrow from the Federal
Reserve Bank "discount  window," but Federal Reserve policy  generally  requires
savings banks to exhaust all reasonable  alternative  sources  before  borrowing
from the Federal Reserve System.  The Bank had no discount window  borrowings at
September 30, 1997.


                                       25

<PAGE>



Holding Company Regulation
--------------------------

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

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

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

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

Executive Officers of the Company
---------------------------------

      The executive  officers of the  Corporation as of September 30, 1997, were
as follows:

Name                      Age    Position
----                     -----   ---------

Benjamin S. Konopacki     75     Chairman of the Board
George T. Hornyak, Jr     47     President and Chief Executive Officer
Ronald E. Vaughn, Jr      41     Senior Vice President - Chief Lending Officer
Thomas Konopacki          40     Executive Vice President - Controller



      The  following   information   describes  the  principal   occupation  and
employment  of the  executive  officers  of the  Corporation  and the Bank as of
September 30, 1997, during at least the past five years.

      Benjamin S. Konopacki has been employed by the Bank in various  capacities
since 1954.  From 1965 to 1989,  he served as  President.  From 1965 to 1991, he
served as Chief Executive Officer. In

                                       26

<PAGE>



1989,  Mr.  Konopacki  became  Chairman  of the Board.  On January 1, 1991,  Mr.
Konopacki retired as Chief Executive Officer.

      George T. Hornyak,  Jr. has been employed by the Bank since 1983. In March
1989, Mr. Hornyak was named President and Chief Operating  Officer.  Mr. Hornyak
became  Chief  Executive  Officer of the Bank on  January 1, 1991.  He is also a
director of Mercer Mutual Insurance Company.

      Ronald E.  Vaughn,  Jr. has been  employed by the Bank since  August 1988.
Since  January  1990,  he has served as Senior Vice  President  - Chief  Lending
Officer.  From  August  1985 to August  1988,  Mr.  Vaughn was Vice  President -
Residential Lending of Lincoln Federal Savings and Loan Association,  Westfield,
New Jersey.

      Thomas Konopacki has been employed by the Bank since 1976 and is currently
Executive Vice President and Chief Financial  Officer.  Mr. Konopacki has served
in that capacity since January 1990.

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

      The Bank owns its home office which is located at 6 Jackson Street,  South
River,  New Jersey.  The Bank also  operates four full service  branch  offices,
three of which it owns and one which it leases.

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

      From time to time the  Registrant is a party to legal  proceedings  in the
ordinary  course of  business  wherein it  enforces  its  security  interest  in
mortgage  loans made by it. In the opinion of  management,  no material  loss is
expected from any pending legal proceedings.

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

      No matters were submitted to a vote of security  holders during the fourth
quarter of the fiscal year ended September 30, 1997.

                                     PART II

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

      The information  contained under the section  captioned  "Common Stock" in
the  Corporation's  Annual  Report to  Stockholders  for the  fiscal  year ended
September 30, 1997 (the "Annual Report"), is incorporated herein by reference.

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

      The information contained in the table captioned  "Consolidated  Financial
Highlights" in the Annual Report is incorporated herein by reference.

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

      The  information   contained  in  the  section   captioned   "Management's
Discussion and Analysis of Financial Condition and Results of Operations" in the
Annual Report is incorporated herein by reference.


                                       27

<PAGE>



Item  7A.  Quantitative and Qualitative Disclosures About Market Risk
---------------------------------------------------------------------

      The  information  contained in the section  captioned  "Market Risk" under
Item 1 herein is incorporated herein by reference.

Item  8.  Financial Statements and Supplementary Data

      The  Corporation's  Consolidated  Financial  Statements  listed in Item 14
herein are incorporated herein by reference.

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  information  contained  under the  section  captioned  "Proposal I --
Election of Directors" in the  Corporation's  definitive proxy statement for the
Corporation's  1998 Annual Meeting of  Stockholders  (the "Proxy  Statement") is
incorporated herein by reference.

      Additional  information  concerning  executive  officers is included under
"Part I - Executive Officers of the Registrant."

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

      The  information  contained  under the  section  captioned  "Proposal I --
Election of  Directors  --  Executive  Compensation"  in the Proxy  Statement is
incorporated herein by reference.

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

      (a)   Security Ownership of Certain Beneficial Owners

            Information   required  by  this  item  is  incorporated  herein  by
            reference to the section  captioned  "Voting  Securities and Certain
            Beneficial Owners Thereof" in the Proxy Statement.

      (b)   Security Ownership of Management

            Information   required  by  this  item  is  incorporated  herein  by
            reference  to the  section  captioned  "Proposal  I --  Election  of
            Directors" in the Proxy Statement.

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


                                       28

<PAGE>



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

      The information  required by this item is incorporated herein by reference
to the  section  captioned  "Proposal  I --  Election  of  Directors  -- Certain
Transactions With the Company" in the Proxy Statement.

                                    PART IV

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

(a)(1)      The  Consolidated  Financial  Statements and  Independent  Auditors'
            Report included in the Annual Report, listed below, are incorporated
            herein by reference.

      1.    Independent Auditors' Report

      2.    Pulse Bancorp, Inc.

            (a)   Consolidated  Statements  of Financial  Condition at September
                  30, 1996 and 1997
            (b)   Consolidated Statements of Income for each of the years in the
                  three-year period ended September 30, 1997
            (c)   Consolidated Statements of Changes in Stockholders' Equity for
                  each of the years in the three-year period ended September 30,
                  1997
            (d)   Consolidated Statements of Cash Flows for each of the years in
                  the three-year period ended September 30, 1997
            (e)   Notes to Consolidated Financial Statements

(a)(2)      All schedules have been omitted, because the required information is
            either  inapplicable  or  included  in  the  Notes  to  Consolidated
            Financial Statements.

(a)(3)      Exhibits  are either  filed or  attached  as part of this  Report or
            incorporated herein by reference.

            3(i)        Certificate of Incorporation1

            3(ii) Bylaws2

            10.1  Employment Agreement with Benjamin S. Konopacki3

            10.2  Employment Agreement with George T. Hornyak, Jr.3

            10.3  Employment Agreement with Thomas Konopacki4

            10.4  1986 Stock Option and Incentive Plan4

            10.5  1993 Stock Option and Incentive Plan5

            10.6  1997 Stock Compensation Plan

            10.7  1997 Directors Stock Option Plan


                                       29

<PAGE>



            13    Annual  Report  to  Stockholders  for the  fiscal  year  ended
                  September 30, 1997

            21    Subsidiaries of the Registrant


-------------------------
(1)   Incorporated by reference to the  Registrant's  Registration  Statement on
      Form S-4  (33-23154)  declared  effective by the Commission on December 7,
      1989.
(2)   Incorporated by reference to the  Registrant's  Annual Report on Form 10-K
      for the fiscal year ended September 30, 1995.
(3)   Incorporated by reference to the  Registrant's  Annual Report on Form 10-K
      for the fiscal year ended September 30, 1993.
(4)   Incorporated by reference to the  Registrant's  Annual Report on Form 10-K
      for the fiscal year ended September 30, 1989.
(5)   Incorporated  by  reference  to the  Registrant's  Proxy  Statement  dated
      December 18, 1992 for the 1993 Annual Meeting of Stockholders.


(b) No  Reports on Form 8-K were  filed  during  the last  quarter of the period
covered by this report.





                                       30

<PAGE>


                                  SIGNATURES

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


                                     PULSE BANCORP, INC.


Dated: December 29, 1997             By:  /s/ George T. Hornyak, Jr.
                                          --------------------------
                                          George T. Hornyak, Jr.
                                          President, Chief Executive
                                          Officer and Director (Duly
                                          Authorized Representative)

      Pursuant to the  requirement of the Securities  Exchange Act of 1934, this
Report  has  been  signed  below  by the  following  persons  on  behalf  of the
Registrant and in the capacities indicated as of December 29,  1997.


By:   /s/ George T. Hornyak, Jr.          By:   /s/ Wayne A. Kronowski
      ------------------------------            -----------------------------
      George T. Hornyak, Jr.                    Wayne A. Kronowski
      President, Chief Executive                Director
      Office and Director (Principal
      Executive Officer)


By:   /s/ Edwin A. Kolodziej              By:   /s/ Joseph Chadwick
      ------------------------------            -----------------------------
      Edwin A. Kolodziej                        Joseph Chadwick
      Director                                  Director


By:   /s/ Benjamin S. Konopacki           By:   /s/ Edwin A. Roginski
      ------------------------------            -----------------------------
      Benjamin S. Konopacki                     Edwin A. Roginski
      Chairman of the Board                     Director


By:   /s/ Thomas Konopacki
      -------------------------------
      Thomas Konopacki
      Executive Vice President - Controller
      (Principal Financial and Accounting
      Officer)