EXHIBIT 13

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



<PAGE>


                               PULSE Bancorp, Inc.

                                      1997

                                 ANNUAL REPORT
<PAGE>
--------------------------------------------------------------------------------
Corporate Description                                             Common Stock

     Pulse Bancorp,  Inc. (the  "Corporation")  is the holding company for Pulse
Savings  Bank  which  was  chartered  by the State of New  Jersey  in 1916.  The
Corporation  is also the holding  company for Pulse  Insurance  Services,  Inc.,
Pulse Investment,  Inc., and Pulse Real Estate, Inc. All three subsidiaries were
formed in 1996 and are currently inactive.

     The principal  business of Pulse Savings Bank is the acceptance of deposits
from the general public and the origination of mortgage loans 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
mortgage-backed  securities  collateralized by one to four-family  dwellings and
investment  securities.  Its income is derived  largely from  interest on loans,
mortgage-backed securities and investment securities. Its principal expenses are
interest paid on deposits and borrowings and operating expenses.

     The business of the Bank is conducted through five offices located in South
River,  South Amboy,  Monroe  Township,  East Brunswick and  Lawrenceville,  New
Jersey.

--------------------------------------------------------------------------------
Table of Contents
--------------------------------------------------------------------------------
Consolidated Financial Highlights                                              2
--------------------------------------------------------------------------------
Report to Stockholders                                                         3
--------------------------------------------------------------------------------
Management's Discussion and Analysis                                           4
--------------------------------------------------------------------------------
Consolidated Financial Statements                                             10
--------------------------------------------------------------------------------
Notes to Consolidated Financial Statements                                    14
--------------------------------------------------------------------------------
Independent Auditors' Report                                                  34
--------------------------------------------------------------------------------
Officers and Directors                                                        35
--------------------------------------------------------------------------------
Corporate and Stockholders' Information                                       36
--------------------------------------------------------------------------------

     The  Corporation's  common stock is traded  over-the-counter  on the Nasdaq
National Market System  appearing  under the symbol "PULS".  The following table
reflects the stock sales prices as published by the Nasdaq statistical report.

                                                        DIV./SHARE
                          HIGH           LOW                 PAID
                          ----           ---                 ----
First Quarter
12-31-95                  17 1/2        15 3/4            $ 0.175  
Second Quarter                                           
3-31-96                   17            15 1/2            $ 0.175
Third Quarter                                            
                                                         
                                                         
6-30-96                   18            14 1/2            $ 0.175
Fourth Quarter                                           
9-30-96                   18            16 7/8            $ 0.175
First Quarter                                            
12-31-96                  17 3/4        15 1/2            $ 0.175
Second Quarter                                           
3-31-97                   18 7/8        15 3/4            $ 0.175
Third Quarter                                            
6-30-97                   20 1/2        17 7/8            $ 0.175
Fourth Quarter                                           
9-30-97                   26            19 1/2            $ 0.175
                                       

     While  the  Corporation  is not  subject  to  dividend  restrictions  under
regulations of the New Jersey Department of Banking,  the Corporation depends on
dividends  paid to it by the Bank in  order  to  declare  and pay  dividends  to
stockholders of the Corporation.  Under New Jersey banking law, the Bank may not
pay a dividend to the Corporation unless,  following payment,  the capital stock
of the Bank will 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 dividend will
not  reduce  the  surplus  of the Bank.  Under New  Jersey  corporate  law,  the
Corporation  may pay dividends in cash or shares but may not pay a dividend that
would  render it insolvent or cause its  liabilities  to exceed its assets. 

     The number of  stockholders of record of common stock as of the record date
of December 3, 1997, was approximately  800. This does not reflect the number of
persons or entities who held stock in nominee or "street"  name through  various
brokerage firms. At September 30, 1997, there were 3,080,548 shares outstanding.

                                                                               1
<PAGE>
--------------------------------------------------------------------------------
Consolidated Financial Highlights
<TABLE>
<CAPTION>
                                                                           At September 30,
                                                       ------------------------------------------------------
                                                          1993       1994        1995      1996      1997
                                                       ---------   --------   --------   --------   ---------
                                                                           (In Thousands)
<S>                                                     <C>        <C>        <C>        <C>        <C>     
Selected Financial Condition and Other Data
  Assets ............................................   $435,177   $447,684   $445,779   $502,500   $526,016
  Loans receivable, net .............................    175,835    139,975    134,277    134,548    127,311
  Mortgage-backed securities held to maturity........    186,309    182,000    174,969    164,092    162,764
  Mortgage-backed securities available for sale .....       --         --         --       40,255     53,393
  Investment securities held to maturity ............     49,277     87,917    114,381    105,549     96,552
  Investment securities available for sale ..........       --         --         --       39,055     60,742
  Real estate owned .................................      4,091      3,281      2,628      2,233        136
  Deposits ..........................................    387,704    396,190    391,038    394,581    411,021
  Borrowings ........................................       --         --         --       64,275     67,675
  Stockholders' equity ..............................     45,310     49,292     52,274     38,459     43,207
</TABLE>

<TABLE>
<CAPTION>
                                                                         Year Ended September 30,
                                                       ------------------------------------------------------
                                                          1993       1994        1995      1996      1997
                                                       ---------   --------   --------   --------   ---------
                                                                  (In Thousands, Except Per Share Data)

<S>                                                      <C>       <C>       <C>       <C>          <C>    
Interest income ......................................   $31,586   $30,348   $30,739   $32,733      $36,019
Interest expense .....................................    14,492    13,780    17,230    19,133       22,375
                                                         -------   -------   -------   -------      -------
Net interest income ..................................    17,094    16,568    13,509    13,600       13,644
Provision for loan losses ............................     2,101     2,650      --        --           --
Non-interest income ..................................       252       357       294       326          510
Non-interest expense .................................     5,148     5,003     5,643     8,474(1)     5,275
Income taxes .........................................     3,634     3,254     2,895     1,959        3,204
                                                         -------   -------   -------   -------      -------
  Net income .........................................   $ 6,463   $ 6,018   $ 5,265   $ 3,493      $ 5,675
                                                         =======   =======   =======   =======      =======
Net income per share .................................   $  1.70   $  1.55   $  1.34   $  0.94      $  1.80
                                                         =======   =======   =======   =======      =======
Dividends per share ..................................   $  0.65   $  0.60   $  0.70   $  0.70      $  0.70
                                                         =======   =======   =======   =======      =======
</TABLE>

<TABLE>
<CAPTION>
                                                                  At or For Year Ended September 30,
                                                       ------------------------------------------------------
                                                          1993       1994        1995      1996      1997
                                                       ---------   --------   --------   --------   ---------
                                                                  (In Thousands, Except Per Share Data)
<S>                                                      <C>       <C>         <C>       <C>        <C>    
Selected financial ratios:                                                                          
  Return on average assets ...........................       1.53%    1.35%      1.18%     0.74%       1.10%
  Return on average equity ...........................      14.87%   12.37%     10.29%     7.02%      14.08%
  Dividend payout ratio ..............................      37.29%   37.68%     51.20%    69.38%      37.81%
  Stockholders' equity/total assets ..................      10.41%   11.01%     11.72%     7.65%       8.21%
  Non-performing loans/total assets ..................       1.03%    0.57%      0.73%     0.36%       0.33%
  Real estate owned/total assets .....................       0.94%    0.73%      0.58%     0.44%       0.03%
  Allowance for loan losses/loans receivable..........       2.55%    2.40%      1.93%     1.82%       1.85%
                                                                   
</TABLE>
---------------
  (1)   Includes a pre-tax charge of  approximately  $2.7 million as a result of
        the FDIC's one-time special insurance  assessment on thrift institutions
        to recapitalize the Savings Association  Insurance Fund (SAIF). See Note
        15.

2
<PAGE>
-------------------------------------------------------------------------------
REPORT TO STOCKHOLDERS

         At Pulse Bancorp,  Inc. (the "Corporation") and Pulse Savings Bank (the
"Bank"), we are dedicated to enhancing  shareholder value. This was demonstrated
by the strong  returns  reported  for the fiscal year ended 1997.  The return on
average  equity was a robust 14% while the  earnings  per share for fiscal  1997
increased  significantly  due to the massive  stock  buyback that was  conducted
during the 1996 fiscal year.

         For the fiscal year ended  September 30, 1997,  net income was reported
at $5,675,000 or $1.80 per share compared with  $3,493,000 or $.94 per share for
the previous year.

         The  Corporation  has continued to grow the balance sheet  successfully
utilizing a risk-averse profile.  Loans receivable continued to be static due to
significant  pay-offs of large  commercial  real estate  loans.  The Bank is now
concentrating  on increasing the  origination of one to four-family  residential
loan. Various mortgage company  correspondents  have been providing  residential
loans to the Bank. Additionally, the Bank has increased its emphasis on consumer
loans by offering highly competitive priced products.

         The  investment  and mortgage  backed  securities  portfolio  increased
during the fiscal year and  maintained  its high quality  with minimal  interest
rate risk. The real estate owned and non-performing  loans are also at favorable
levels thus affording optimum earning assets.

         On the liability  side, the Bank has  emphasized  increasing the demand
deposits,  money  market  accounts  and  passbook  savings.   Additionally,  the
effective use of borrowed  money through  repurchase  agreements has allowed the
Corporation to maximize earnings and growth.

         Although growth is important,  the Corporation has focused on operating
as a  community  bank.  The Bank  recently  opened a "de  novo"  branch  in East
Brunswick.  Additionally,  another branch office in Monroe Township is scheduled
to be opened in the  summer of 1998.  Emphasizing  core  deposits  and  customer
service  are the main  themes of these  new  offices.  The Bank will not  expand
geographically at the expense of our present customer service.

         Due to the  consolidation of the banking  industry,  Pulse Savings Bank
remains one of the few community banks  headquartered in Middlesex  County,  New
Jersey.  We are able to offer  personalized  attention to our customer  base and
attract new customers who desire this attention.  To better serve our customers,
the Bank has made  additional  investments in the area of  technology.  The Bank
recently  installed  ATM's in two of its  branch  offices.  Other  ATM's will be
installed in other offices for the  convenience of our customers.  Additionally,
the  telephone  banking  system  is now in full  operational  use.  This  system
provides customers with 24 hour access to account and product information.

         As we embark into the future,  we are constantly  evaluating the Bank's
savings and lending products. This evaluation is consistent with maintaining our
profile as a community  bank.  To remain  competitive  and  profitable,  we will
continue to operate the  Corporation  with products that are  designated to meet
the needs of our customers. Furthermore, the Bank will continue to be a generous
supporter and neighbor to our local towns. Our goal is to continue our role as a
community bank.

         In assessing  the future,  our  commitment  to the  shareholders  is to
provide  optimal  value.  We appreciate the loyalty you have shown us throughout
the years. On behalf of the directors,  officers and employees, we thank you for
your continued interest and support.



                                     Sincerely,
                             
                                     /s/George T. Hornyak, Jr.
                                     George T. Hornyak, Jr.
                                     President
                                     Chief Executive Officer
                             
                                     /s/Benjamin S. Konopacki
                                     Benjamin S. Konopacki
                                     Chairman of the Board
                             
                                                                               3
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
--------------------------------------------------------------------------------

General             Pulse  Bancorp,  Inc. (the  "Corporation")  owns 100% of the
                    issued and  outstanding  common stock of Pulse Savings Bank,
                    hereafter  referred to as the  "Bank",  which is the primary
                    asset of the Corporation. The Corporation is also 100% owner
                    of Pulse Insurance Services,  Inc., Pulse Real Estate, Inc.,
                    and Pulse Investment,  Inc., all of which were formed during
                    the 1996  period,  but which  are  currently  inactive.  The
                    Corporation's  business is conducted principally through the
                    Bank.  The  earnings of the Bank depend  primarily  upon the
                    level  of net  interest  income,  which  is  the  difference
                    between  the  interest  earned  on  assets  such  as  loans,
                    mortgage-backed    securities,    investments    and   other
                    interest-earning   assets  and  the  interest  paid  on  its
                    liabilities  such as deposits and  borrowings.  Net interest
                    income is affected by many  factors,  including  regulatory,
                    economic  and  competitive  forces that  influence  interest
                    rates,  loan demand and deposit flow. Net interest income is
                    also   affected   by   the   composition   of   the   Bank's
                    interest-earning assets and interest-bearing liabilities and
                    by the repricing of such assets and  liabilities.  Operating
                    results are also affected to a lesser extent by the types of
                    lending such as fixed rates versus adjustable rates, each of
                    which has a different fee structure.  The Bank is vulnerable
                    to  interest  rate  fluctuations  to  the  extent  that  its
                    interest-bearing  liabilities mature or reprice more rapidly
                    than  its  interest-earning   assets.  Such  asset/liability
                    structure may result in lower net interest income during the
                    periods of rising  interest  rates and may be  beneficial in
                    times of declining  interest rates. The Bank's net income is
                    also  affected by provisions  for loan losses,  non-interest
                    income, non-interest expenses and income taxes.

Financial Condition The  Corporation's  assets at  September  30,  1997  totaled
                    $526.0  million,  which  represents  an  increase  of  $23.5
                    million  or  4.7%  when  compared  with  $502.5  million  at
                    September 30, 1996.  Investment  securities held to maturity
                    totaled  $96.6  million and $105.5  million at September 30,
                    1997 and 1996, respectively,  which represents a decrease of
                    $9.0 million or 8.5%. The decrease in investment  securities
                    is primarily due to calls and  maturities of $19.0  million,
                    which more than offset the purchase of investment securities
                    issued by the U.S. Government or its agencies totaling $10.0
                    million.  Investment  securities  available for sale totaled
                    $60.7  million and $39.1  million at September  30, 1997 and
                    1996,  respectively,  which  represents an increase of $21.7
                    million  or  55.5%.  The  increase  in  1997  resulted  from
                    purchases of $20.8 million,  along with an  appreciation  in
                    the  market  values.   Mortgage-backed  securities  held  to
                    maturity  totaled  $162.8  million  and  $164.1  million  at
                    September 30, 1997 and 1996, respectively,  which represents
                    a  decrease  of  $1.3  million  or  0.8%.  The  decrease  in
                    mortgage-backed  securities  was  primarily due to principal
                    repayments  of  $25.1   million,   which  more  than  offset
                    purchases totaling $23.8 million. Mortgage-backed securities
                    available  for sale totaled  $53.4 million and $40.3 million
                    at  September  30,  1997  and  1996,   respectively,   which
                    represents  an  increase  of $13.1  million  or  32.6%.  The
                    increase  in 1997 was due to  purchases  of  $20.0  million,
                    along with an increase in the market values, which more than
                    offset   principal   repayments  of  $7.5   million.   Loans
                    receivable  amounted to $127.3 million and $134.5 million at
                    September 30, 1997 and 1996 respectively, which represents a
                    decrease of $7.2 million or 5.4%.  The  decrease  during the
                    1997  period  in  loans   receivable  is  due  primarily  to
                    principal  collections  and payoffs of loans  exceeding loan
                    originations  by $7.0  million,  along with the  transfer of
                    $287,000  of loans to other  real  estate  owned  during the
                    fiscal 1997 period.  Other assets  decreased $2.8 million or
                    74.2% to $1.0 million at September 30, 1997 compared to $3.7
                    million at September  30, 1996.  The decrease was  primarily
                    due to the application of funds the Bank received during the
                    period in final settlement of the Corporation's  bridge loan
                    litigation, along with a decrease in the deferred tax asset.
                    During the 1997  period,  the Bank did not make a  provision
                    for loan losses and transferred  loans totaling  $287,000 to
                    real estate owned for  properties  acquired in settlement of
                    loans.  Loan losses charged to the allowance  decreased from
                    $145,000 in fiscal 1996 to $101,000 in fiscal  1997.  Due to
                    the  reduction  in  loan   delinquencies  and  the  apparent
                    stabilization  of real estate values,  management feels that
                    increases  to  the   allowance  for  loan  losses  were  not
                    warranted  during the fiscal year ending September 30, 1997.
                    However,  there can be no assurances that further  additions
                    to the allowance  for loan losses will not become  necessary
                    in future  periods.  Total  deposits at  September  30, 1997
                    increased  $16.4  million  or 4.2% to  $411.0  million  when
                    compared with $394.6 million at September 30, 1996.

4
<PAGE>
--------------------------------------------------------------------------------

                    During  the  1996  period,  the  Bank  instituted  a plan to
                    leverage   its  capital  by   increasing   its  lending  and
                    investment  activity.  As a result of the  continued  use in
                    1997,  borrowings  were $67.7 million at September 30, 1997,
                    compared  to $64.3  million  at  September  30,  1996.  This
                    strategy has  contributed to the growth of the Bank's assets
                    and has afforded the Corporation the potential for increased
                    earnings per share.  The Bank is aware of the interest  rate
                    risk associated with this strategy.  Furthermore, it has the
                    ability to either sell certain securities available for sale
                    or to utilize  future cash flows to minimize the exposure to
                    fluctuations in market interest rates.

                    Stockholders'  equity  amounted  to $43.2  million and $38.5
                    million at September  30, 1997 and 1996,  respectively.  The
                    increase  of  $4.7  million   during  the  1997  period  was
                    primarily the result of net income of $5.7  million.  During
                    the years ended  September 30, 1997 and 1996, cash dividends
                    of $2.1 million and $2.4 million, respectively, were paid on
                    the  Corporation's  common stock. At both September 30, 1997
                    and 1996, treasury stock totaled $ 16.7 million.

Results of Operations 
for the three years ended
ended September 30, 1997

                    Net Income

                    Net  income  increased  to $5.7  million  for the year ended
                    September  30, 1997 when  compared with $3.5 million for the
                    year ended  September  30, 1996, an increase of $2.2 million
                    or 62.5%.  The increase in net income during the 1997 period
                    resulted primarily from the after tax impact of $1.7 million
                    for  a  special   assessment  by  the  Savings   Association
                    Insurance  Fund (SAIF)  during the 1996  period.  Net income
                    decreased to $3.5 million for the year ended  September  30,
                    1996 when  compared  with $5.3  million  for the year  ended
                    September 30, 1995, a decrease of $1.8 million or 33.7%. The
                    decrease  in net  income  during  the 1996  period  resulted
                    primarily from the SAIF Special  Assessment enacted into law
                    on September 30, 1996, discussed above.

                    Interest Income

                    Interest income on loans during the year ended September 30,
                    1997  decreased  $848,000  or 7.2%  to  $11.0  million  when
                    compared to $11.9 million  during the same 1996 period.  The
                    decrease  during the 1997 period resulted from a decrease of
                    $9.7  million in the average  balance of loans  outstanding.
                    Interest income on loans during the year ended September 30,
                    1996  decreased  $543,000  or 4.4%  to  $11.9  million  when
                    compared to $12.4 million  during the same 1995 period.  The
                    decrease  during the 1996 period resulted from a decrease of
                    $5.8 million in the average balance of loans outstanding.

                    Income on securities  available  for sale  increased by $2.5
                    million  or 75.7% to $5.8  million  during  the 1997  period
                    compared to $3.3 million  during 1996.  The increase  during
                    1997 was a direct  result of an increase of $35.0 million in
                    the average  balance of securities  outstanding.  During the
                    1996 period,  the Bank took  advantage of the limited window
                    of  opportunity   provided  by  "Special  Report-  Guide  to
                    Implementation  of Statement 115 on  Accounting  for Certain
                    Investments on Debt and Equity  Securities," and transferred
                    approximately  $29.0 million of  mortgage-backed  securities
                    and $29.8 million of  investments  from the held to maturity
                    classification  to  available  for sale.  As a result of the
                    reclassification,  the  Bank  recorded  interest  income  on
                    securities  available  for sale of $3.3  million  during the
                    1996 period compared to $-0- during the 1995 period.

                    Income on securities held to maturity increased $1.8 million
                    or 10.6% to $18.5  million  during  1997  compared  to $16.7
                    million during the comparable 1996 period.  The increase was
                    primarily due to an increase of $19.2 million in the average
                    balance of securities held to maturity. Income on securities
                    held to maturity decreased $879,000 or 5.0% to $16.7 million
                    during 1996 compared to $17.6 million  during the comparable
                    1995 period. The decrease was primarily due to a decrease in
                    the average  balance of securities  held to maturity,  which
                    was a direct  result of the transfer of $58.8 million to the
                    available for sale  classification  and calls and repayments
                    of $73.2  million,  which  more  than  offset  purchases  of
                    securities held to maturity of $116.6 million.

                    Income from other interest-earning assets decreased $126,000
                    or 14.7% to $734,000  for the 1997 period from  $860,000 for
                    the  1996  period.  The  decrease  in  income  was  due to a
                    decrease in the average balance  maintained in federal funds
                    sold. Income from other interest-earning assets

                                                                               5
<PAGE>
                    increased  $139,000 or 19.3% to $860,000 for the 1996 period
                    from  $721,000 for the 1995 period.  The increase was due to
                    an  increase in the average  balance  maintained  in federal
                    funds  sold,  which was a direct  result of the excess  cash
                    which was needed to complete the 1996 stock repurchase.


                    Interest Expense

                    Interest on deposits  increased by $851,000 or 4.8% to $18.7
                    million  during  the year  ended  September  30,  1997  when
                    compared to $17.8 million  during the same 1996 period.  The
                    increase  during the 1997 period was primarily  attributable
                    to an increase in the average  balance of deposits  held and
                    an  increase  in rates  from 4.53% in 1996 to 4.63% in 1997.
                    During the 1997 period, deposit growth and interest credited
                    exceeded  deposits  withdrawn by $16.4 million.  Interest on
                    deposits  increased  by  $577,000  or 3.4% to $17.8  million
                    during the year ended  September  30, 1996 when  compared to
                    $17.2  million  during the same 1995  period.  The  increase
                    during the 1996  period  was  primarily  attributable  to an
                    increase  in the  average  balance of  deposits  held and an
                    increase  in  rates  from  4.40%  in 1995 to  4.53% in 1996.
                    During the 1996 period, deposit growth and interest credited
                    exceeded  deposits  withdrawn  by  $3.5  million.   Interest
                    expense on  borrowings  increased  $2.4 million or 180.0% to
                    $3.7  million  for  the  year  ending  September  30,  1997,
                    compared to $1.3 million  during 1996. The large increase is
                    due to the fact that the Bank's  leverage  strategy  was not
                    implemented  until the latter part of the 1996 fiscal  year.
                    As a result,  the 1996 expense only  represents  the 5 month
                    period  borrowings  were  outstanding.  Interest  expense on
                    borrowings  was  $1.3  million  for  the  year  ending  1996
                    compared to $-0- during the same 1995  period.  The increase
                    during the 1996 period was a result of borrowing  agreements
                    the  Bank  entered  into  in  order  to  finance   increased
                    investment activity.

                    Provision For Loan Losses

                    During the years ended  September  30, 1997,  1996 and 1995,
                    the Bank did not record any provisions for loan losses.  The
                    allowance  for loan losses  amounted to $2.4  million,  $2.5
                    million and $2.6  million at September  30,  1997,  1996 and
                    1995,  respectively.  Charged-off  loans  during  the  years
                    ending  September 30, 1997,  1996 and 1995,  were  $101,000,
                    $145,000, and $765,000,  respectively. At September 30, 1997
                    and 1996, allowance for loan losses as a percentage of loans
                    receivable were 1.85% and 1.82%, respectively. The allowance
                    for loan losses is based on  management's  evaluation of the
                    risk   inherent  in  its  loan   portfolio   and  gives  due
                    consideration to changes in general market conditions and in
                    the  nature  and  volume  of  loan  activity.   Due  to  the
                    stabilization  of the real  estate  market in New Jersey and
                    continued  reduction  in  non-performing  loans,  management
                    feels that  increases  to the loan loss  provision  were not
                    warranted during the fiscal years ending September 30, 1997,
                    1996 and  1995.  However,  there can be no  assurances  that
                    further additions to the loan loss allowance will not become
                    necessary in future periods. At September 30, 1997 and 1996,
                    the Bank's  non-performing  loans  totaled  $1.7 million and
                    $1.8 million, respectively.  Although the Bank maintains its
                    allowance  for loan  losses  at a level  which it  considers
                    adequate to provide for  potential  losses,  there can be no
                    assurance  that  such  losses  will  not  exceed   estimated
                    amounts.

                    Non-Interest Income

                    Non-interest  income  increased  to $511,000 or 56.8% during
                    the year ended September 30, 1997 from $326,000 for the same
                    1996 period. The increase of $185,000 during the 1997 period
                    resulted  primarily from the settlement of $100,000 the Bank
                    received in exchange  for the release of its first  mortgage
                    lien on a  residential  property  which was  deemed to be an
                    environmental  hazard.   Non-interest  income  increased  to
                    $326,000 or 10.9% during the year ended  September  30, 1996
                    from  $294,000  for the same 1995  period.  The  increase of
                    $32,000  during the 1996 period  resulted  primarily from an
                    increase  in fees and service  charges of $34,000  resulting
                    mainly from an increase in mortgage prepayment charges.

6
<PAGE>
--------------------------------------------------------------------------------
                    Non-Interest Expense

                    Non-interest expenses decreased $3.2 million or 37.8% during
                    the year ended  September  30, 1997 when  compared  with the
                    same 1996 period.  The large decrease in the 1997 period was
                    a result of decreases in federal deposit insurance  premium,
                    net gain from foreclosed real estate,  and occupancy of $3.3
                    million, $373,000 and $14,000, respectively, which more than
                    offset increases in salary, miscellaneous,  advertising, and
                    equipment  expenses  of  $232,000,   $101,000,  $98,000  and
                    $15,000, respectively.  Federal deposit insurance expense in
                    1996 reflected the FDIC's  one-time  special SAIF assessment
                    for  deposit  insurance  which  totaled  approximately  $2.7
                    million. Furthermore, beginning January 1, 1997, the premium
                    the  Bank  pays  for  deposit   insurance   was  reduced  by
                    approximately 70%. The increase in salary expense was due to
                    an  increase  in the number of  full-time  equivalent  staff
                    required,  along  with a general  increase  in  compensation
                    levels. Non-interest expenses increased $2.8 milion or 50.2%
                    during the year ended  September 30, 1996 when compared with
                    the same 1995 period.  The large increase in the 1996 period
                    was  primarily  due  to the  FDIC's  one-time  special  SAIF
                    assessment  for deposit  insurance  totaling  $2.7  million,
                    enacted into law on  September  30,  1996.  Also  increasing
                    during the 1996  period were  losses  from  foreclosed  real
                    estate,  advertising,  salaries  and  employee  benefits and
                    occupancy expense of $269,000, $54,000, $36,000, and $21,000
                    These  increases  were  somewhat  offset  by a  decrease  in
                    miscellaneous   expense  of   $251,000.   The   decrease  in
                    miscellaneous  expense was primarily  due to the  writedowns
                    taken  during the 1995  period  regarding  the  bridge  loan
                    receivables  which were not required  during 1996.  Although
                    increased  prices and higher volume continue to be reflected
                    in  the  increases  in  non-interest  expenses,   management
                    continues  to  limit  discretionary   expense  items,  where
                    practical.

                    A great deal of information has been disseminated  about the
                    global computer year 2000.  Many computer  programs that can
                    only distinguish the final two digits of the year entered (a
                    common  programming  practice in earlier years) are expected
                    to read  entries  for the  year  2000 as the  year  1900 and
                    compute payment,  interest or delinquency based on the wrong
                    date  or are  expected  to be  unable  to  compute  payment,
                    interest or delinquency.  Rapid and accurate data processing
                    is essential  to the  operation  of the Savings  Bank.  Data
                    processing  is  also  essential  to  most  other   financial
                    institutions and many other  companies.  All of the material
                    data  processing  of the Savings Bank that could be affected
                    by this problem is provided by a third party service bureau.
                    The  service  bureau of the  Savings  Bank has  advised  the
                    Savings Bank that it expects to be year 2000 compliant prior
                    to December  31,  1999.  However,  if the service  bureau is
                    unable  to  resolve  this  potential  problem  in time,  the
                    Savings  Bank could  possibly  experience  significant  data
                    processing  delays,  mistakes  or  failures.  These  delays,
                    mistakes or failures could have a significant adverse impact
                    on the  financial  condition and results of operation of the
                    Savings Bank.

                    Income Taxes

                    Income tax expense  totaled $3.2  million,  $2.0 million and
                    $2.9 million during the years ended September 30, 1997, 1996
                    and 1995,  respectively.  The  increase  during the 1997 and
                    1995  periods  was  primarily  due to an increase in pre-tax
                    income.  The decrease in 1996 was a direct result of the tax
                    benefit of  $971,000  recorded  as a result of the  one-time
                    special SAIF  assessment  to the FDIC for deposit  insurance
                    recorded during the period.

                                                                               7
<PAGE>
--------------------------------------------------------------------------------
Liquidity and 
Capital Resources
                    Liquidity is a measurement of the Bank's ability to generate
                    sufficient  cash  flow,  in order to meet  all  current  and
                    future financial  obligations and commitments as they arise.
                    The  Bank  adjusts  its  liquidity  levels  in order to meet
                    funding needs for deposit  outflows,  payment of real estate
                    taxes from escrow accounts on mortgage  loans,  repayment of
                    borrowings,  when applicable,  and loan funding commitments.
                    The Bank also adjusts its liquidity  level as appropriate to
                    meet its  asset/liability  objectives.  The  Bank's  primary
                    sources of funds are deposits,  amortization and prepayments
                    of   loan   and   mortgage-backed    securities   principal,
                    borrowings,  maturities of investment  securities  and funds
                    provided   by   operations.   While   scheduled   loan   and
                    mortgage-backed   securities   amortization   and   maturing
                    investment securities are relatively  predictable sources of
                    funds, deposit flow and loan and mortgage-backed  securities
                    prepayments are greatly influenced by market interest rates,
                    economic  conditions and  competition.  The Bank manages the
                    pricing  of  its  deposits  to  maintain  a  steady  deposit
                    balance.  In addition,  the Bank invests its excess funds in
                    Federal Funds and  overnight  deposits with the Federal Home
                    Loan Bank of New York (FHLB-NY), which provides liquidity to
                    meet   lending   requirements.   Federal   Funds   sold  and
                    interest-bearing  deposits  at  September  30, 1997 and 1996
                    amounted to $11.9  million and $500,000,  respectively.  The
                    Bank's liquidity,  represented by cash and cash equivalents,
                    is a  product  of its  operating,  investing  and  financing
                    activities.

                    These activities are summarized as follows:
<TABLE>
<CAPTION>
                                                                           Year Ended
                                                                        September 30,
                                                                -----------------------------
                                                                   1996                1997
                                                                ---------           ---------

                                                                      (In Thousands)
<S>                                                             <C>                 <C>     
Cash and cash equivalents at beginning of period ............   $  8,762            $  4,750
                                                                --------            --------
Operating activities:
  Net income ................................................      3,493               5,675
  Adjustments to reconcile net income to net cash provided by
    operating activities ....................................      1,555                 896
                                                                --------            --------
Net cash provided by operating activities ...................      5,048               6,571
Net cash used in investing activities .......................    (59,969)
Net cash provided by financing activities ...................     50,909              18,090
                                                                --------            --------
Net (decrease) increase in cash and cash equivalents ........     (4,012)             10,726
                                                                --------            --------
Cash and cash equivalents at end of period ..................    $ 4,750            $ 15,476
                                                                ========            ========
</TABLE>


                    Cash was  generated by operating  activities  in each of the
                    above  periods.  The primary  source of cash from  operating
                    activities  during each of the  periods was net income.  The
                    primary uses of cash for investing  activity are for lending
                    and  the   purchase  of   investment   and   mortgage-backed
                    securities.  Net loans  amounted to $127.3  million,  $134.5
                    million and $134.3  million at September 30, 1997,  1996 and
                    1995,    respectively.    Purchases   of   investments   and
                    mortgage-backed  securities  held to maturity  totaled $33.8
                    million,  $116.6 million, and $48.1 million during the years
                    ended  September  30, 1997,  1996,  and 1995,  respectively.
                    Purchases  of  investments  and  mortgage-backed  securities
                    available  for sale totaled  $40.7 million and $25.1 million
                    during the years ended  September  30, 1997 and 1996.  There
                    were  no  available  for  sale  purchases  during  1995.  In
                    addition to funding new loan production and the purchases of
                    investment and mortgage-backed securities through operations
                    and financing  activities,  principal repayments on existing
                    loans,   investments  and  mortgage-backed   securities  and
                    borrowings provided funds. .

                    The primary source of financing  activities  during the 1997
                    period was from an increase  in  deposits of $16.4  million,
                    along with increased borrowings of $3.4 million. The primary
                    source of  financing  activities  during the 1996 period was
                    from  increased  borrowings  of $64.3  million along with an
                    increase in deposits of $3.5 million.

                    During the 1996 period,  the Corporation  purchased  837,080
                    shares of its  common  stock at $17.75  per share  under the
                    method  of  a  modified   dutch   auction  for  a  total  of
                    $14,975,000.  The main purpose of the buyback was to improve
                    the  Corporation's  return on average equity by reducing its
                    overcapitalized  condition.  The  Corporation has no current
                    plans to buyback 

8
<PAGE>
--------------------------------------------------------------------------------
 
                    additional  stock,  however,  this  does  not  preclude  the
                    Corporation  from  buying back  additional  shares in future
                    periods.

                    Liquidity  management is both a daily and long-term function
                    of  business  management.   Excess  liquidity  is  generally
                    invested in  short-term  investments,  such as federal funds
                    and  interest-bearing  deposits.  If the Bank requires funds
                    beyond its ability to  generate  them  internally,  the Bank
                    utilizes  repurchase  agreements  with certain  brokers that
                    will  advance  short  term  funds in  exchange  for  pledged
                    securities  held in the  portfolio.  Furthermore,  borrowing
                    agreements   exist  with  the  FHLB-NY,   which  provide  an
                    additional source of funds.

                    The Bank  anticipates  that it will  have  sufficient  funds
                    available to meet its current commitments to originate loans
                    and to purchase  mortgage-backed  securities  and investment
                    securities.   At  September  30,  1997,   such   outstanding
                    commitments amounted to $16.4 million. Additionally,  unused
                    lines of credit,  at  September  30, 1997  amounted to $10.7
                    million.  Certificates of deposit scheduled to mature in one
                    year or less, at September 30, 1997, totaled $213.9 million.
                    Management  believes,  based upon its experience and deposit
                    flow histories,  that a significant portion of such deposits
                    will remain with the Bank.

Impact of Inflation
and Changing Prices

                    The consolidated  financial  statements and the related data
                    presented  herein  have been  prepared  in  accordance  with
                    generally accepted  accounting  principles,  which require a
                    measurement of financial  position and operating  results in
                    terms of historical dollars,  without considering changes in
                    the  relative  purchasing  power of money  over  time due to
                    inflation.

                    Unlike  most  industrial  companies,  virtually  all  of the
                    assets and  liabilities of the  Corporation  are monetary in
                    nature. As a result,  interest rates have a more significant
                    impact on the Corporation's  performance than the effects of
                    general   levels  of  inflation.   Interest   rates  do  not
                    necessarily  move  in the  same  direction  or in  the  same
                    magnitude as the prices of goods and services,  because such
                    prices are  affected by  inflation  to a larger  extent than
                    interest rates are affected by inflation.


                                                                               9
<PAGE>
--------------------------------------------------------------------------------
PULSE BANCORP, INC. AND SUBSIDIARIES
--------------------------------------------------------------------------------
Consolidated Statements of Financial Condition
<TABLE>
<CAPTION>
                                                                                September 30,
                                                                        ------------------------------
                                                                               1996             1997
                                                                        -------------    -------------
ASSETS
<S>                                                                     <C>              <C>          
Cash and due from depository institutions ...........................   $   4,249,883    $   3,550,908
Federal funds sold ..................................................         500,000       11,925,000
                                                                        -------------    -------------
    Total cash and cash equivalents .................................       4,749,883       15,475,908
Investment securities available for sale (Note 2) ...................      39,054,697       60,741,955
Mortgage-backed securities available for sale (Note 3) ..............      40,255,064       53,393,335
Investment securities held to maturity; estimated fair value
  of $103,192,317 in 1996 and $96,386,850 in1997 (Note 2) ...........     105,549,457       96,551,885
 Mortgage-backed securities held to maturity; estimated fair value of
 $162,616,663 in 1996 and $163,645,986 in 1997 (Note 3)..............     164,091,98497    162,763,525

Loans receivable, net (Note 4) ......................................     134,547,804      127,310,525
Real estate owned ...................................................       2,232,624          136,491
Premises and equipment, net (Note 5) ................................       1,235,135        1,322,718
Federal Home Loan Bank of New York stock, at cost ...................       2,543,100        2,775,500
Interest receivable (Note 6) ........................................       4,527,354        4,584,337
Other assets (Notes 11 and 14) ......................................       3,712,747          959,530
                                                                        -------------    -------------
    Total assets ....................................................   $ 502,499,849    $ 526,015,709
                                                                        =============    =============

--------------------------------------------------------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities
Deposits (Note 7) ...................................................   $ 394,580,611    $ 411,020,719
Borrowings (Note 8) .................................................      64,275,000       67,675,000
Advance payments by borrowers for taxes and insurance ...............         628,243          805,394
Other liabilities ...................................................       4,557,461        3,308,037
                                                                        -------------    -------------
    Total liabilities ...............................................     464,041,315      482,809,150
                                                                        -------------    -------------
Commitments and contingencies (Note 13) .............................            --               --
Stockholders' equity (Notes 9, 10, 11 and 12)
Common stock; par value $1.00; authorized 10,000,000 shares;
 4,111,958 in 1996 and 4,142,628 in 1997 shares issued and 3,049,878
 in 1996 and 3,080,548 in 1997 shares outstanding ...................       4,111,958        4,142,628
Paid-in capital in excess of par value ..............................      12,105,541       12,293,206
Retained earnings -- substantially restricted .......................      39,147,609       42,676,884
Unrealized (loss) gain on securities available for sale, net of tax .        (229,074)         771,341
Treasury stock at cost; 1,062,080 common shares .....................     (16,677,500)     (16,677,500)
                                                                        -------------    -------------
       Total stockholders' equity ...................................      38,458,534       43,206,559
                                                                        -------------    -------------
    Total liabilities and stockholders' equity ......................   $ 502,499,849    $ 526,015,709
                                                                        =============    =============
</TABLE>
See accompanying notes to consolidated financial statements.

10
<PAGE>
PULSE BANCORP, INC. AND SUBSIDIARIES
--------------------------------------------------------------------------------
Consolidated Statements of Income
<TABLE>
<CAPTION>

                                                                     Year Ended September 30,
                                                            ------------------------------------------
                                                                1995           1996           1997
                                                            ------------   ------------   ------------
<S>                                                         <C>            <C>            <C>         
Interest income:
Loans ...................................................   $ 12,403,877   $ 11,861,002   $ 11,012,919
 Securities available for sale ..........................           --        3,277,058      5,757,544
 Securities held to maturity ............................     17,614,211     16,734,714     18,514,811
  Other interest-earning assets .........................        720,927        860,031        733,708
                                                            ------------   ------------   ------------
    Total interest income ...............................     30,739,015     32,732,805     36,018,982
                                                            ------------   ------------   ------------
Interest expense:
  Deposits (Note 7) .....................................     17,229,807     17,806,866     18,658,276
 Borrowings .............................................           --        1,325,972      3,717,034
                                                            ------------   ------------   ------------
     Total interest expense .............................     17,229,807     19,132,838     22,375,310
                                                            ------------   ------------   ------------

Net interest income .....................................     13,509,208     13,599,967     13,643,672
Provision for loan losses ...............................           --             --             --
                                                            ------------   ------------   ------------
Net interest income after provision for loan losses .....     13,509,208     13,599,967     13,643,672
                                                            ------------   ------------   ------------
Non-interest income:
  Fees and service charges ..............................        223,495        257,523        301,557
  Miscellaneous .........................................         70,670         68,199        208,967
                                                            ------------   ------------   ------------
    Total non-interest income ...........................        294,165        325,722        510,524
                                                            ------------   ------------   ------------
Non-interest expense:
  Salaries and employee benefits (Note 10) ..............      2,429,369      2,465,912      2,698,133
  Occupancy expense .....................................        263,788        285,267        271,765
  Equipment .............................................        536,064        538,308        553,480
  Advertising ...........................................        230,237        283,769        381,441
  Federal insurance premium (Note 15) ...................        902,993      3,600,986        341,712
  Loss (income) from foreclosed real estate, net ........         31,342        300,379        (72,208)
  Miscellaneous .........................................      1,249,597        998,993      1,100,459
                                                            ------------   ------------   ------------
    Total non-interest expense ..........................      5,643,390      8,473,614      5,274,782
                                                            ------------   ------------   ------------
Income before income taxes ..............................      8,159,983      5,452,075      8,879,414
Income taxes (Note 11) ..................................      2,894,770      1,959,466      3,204,255
                                                            ------------   ------------   ------------
Net income ..............................................   $  5,265,213   $  3,492,609   $  5,675,159
                                                            ============   ============   ============
Net income per common share
  and common stock equivalents (Notes 9 and 10) .........   $       1.34   $       0.94   $       1.80
                                                            ============   ============   ============
Dividends per common share (Notes 9 and 10) .............   $       0.70   $       0.70   $       0.70
                                                            ============   ============   ============
Weighted average number of common shares and common stock
  equivalents outstanding (Notes 9 and 10) ..............      3,928,205      3,728,116      3,156,741
                                                            ============   ============   ============
</TABLE>

 See accompanying notes to consolidated financial statements.

                                                                              11
<PAGE>
PULSE BANCORP, INC. AND SUBSIDIARIES
--------------------------------------------------------------------------------
Consolidated Statements of Changes in Stockholders' Equity
<TABLE>
<CAPTION>
                                                     Paid-in       Retained                    Net Unrealized (Loss)
                                                     Capital in    Earnings-                    Gain on Securities
                                      Common         Excess of   Substantially      Treasury    Available For Sale;
                                      Stock          Par Value     Restricted        Stock           Net of Tax         Total
                                   ------------   -------------- -------------    -------------   -----------------  ------------
<S>                                <C>            <C>            <C>             <C>             <C>                <C>         
Balance -- September 30, 1994 ...  $  4,016,128   $ 11,469,206   $ 35,509,392    $ (1,702,500)   $       --         $ 49,292,226
Net income for the year ended                                                                                       
  September 30, 1995 ............          --             --        5,265,213            --              --            5,265,213
Issuance of common stock ........        61,700        350,563           --              --              --              412,263
Cash dividends, $0.70 per share .          --             --       (2,696,111)           --              --           (2,696,111)
                                                  ------------   ------------    ------------    ------------       ------------
Balance -- September 30, 1995 ...     4,077,828     11,819,769     38,078,494      (1,702,500)           --           52,273,591
Net income for the year ended                                                                                       
  September 30, 1996 ............          --             --        3,492,609            --              --            3,492,609
Issuance of common stock ........        34,130        285,772           --              --              --              319,902
Purchase of treasury stock ......          --             --             --       (14,975,000)           --          (14,975,000)
Cash dividends, $0.70 per share .          --             --       (2,423,494)           --              --           (2,423,494)
Change in unrealized loss on                                                                                        
  securities available for                                                                                          
  sale, net of tax ..............          --             --             --              --          (229,074)          (229,074)
                                   ------------   ------------   ------------    ------------    ------------       ------------
                                                                                                                    
Balance -- September 30, 1996 ...     4,111,958     12,105,541     39,147,609     (16,677,500)       (229,074)        38,458,534
Net income for the year ended                                                                                       
  September 30, 1997 ............          --             --        5,675,159            --              --            5,675,159
Issuance of common stock ........        30,670        187,665           --              --              --              218,335
Cash dividends, $0.70 per share .          --             --       (2,145,884)           --              --           (2,145,884)
Change in unrealized (loss)                                                                                         
  gain on securities available                                                                                      
  for sale, net of tax ..........          --             --             --              --         1,000,415          1,000,415
                                                  ------------   ------------    ------------    ------------       ------------
Balance -- September 30, 1997 ...  $  4,142,628   $ 12,293,206   $ 42,676,884    $(16,677,500)   $    771,341       $ 43,206,559
                                   ============   ============   ============    ============    ============       ============
</TABLE>
See accompanying notes to consolidated financial statements.

12
<PAGE>
PULSE BANCORP, INC. AND SUBSIDIARIES
--------------------------------------------------------------------------------
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
                                                                                           Year Ended September 30,
                                                                                  ---------------------------------------------
                                                                                       1995             1996           1997
                                                                                  -------------   -------------   -------------
<S>                                                                               <C>             <C>             <C>         
Cash flows from operating activities:
  Net income ..................................................................   $  5,265,213    $  3,492,609    $  5,675,159
  Adjustments to reconcile net income to net cash provided by operating
  activities:
    Depreciation ..............................................................        157,945         142,007         147,749
    Amortization of premiums, discounts and fees, net .........................       (149,083)       (189,083)       (101,573)
    Provision for losses on real estate owned .................................         52,200         341,500          32,850
    Gain on sale of real estate owned .........................................        (52,208)        (62,462)        (72,208)
    Increase in interest receivable ...........................................       (694,447)       (456,275)        (56,983)
    Deferred income tax expense (benefit) .....................................         95,258        (805,042)      1,072,313
    Decrease in other assets ..................................................      4,338,383          37,092       1,680,904
    Increase (decrease) in other liabilities ..................................        341,922       2,547,953      (1,806,617)
                                                                                  ------------    ------------    ------------
      Net cash provided by operating activities ...............................      9,355,183       5,048,299       6,571,594
                                                                                  ------------    ------------    ------------

Cash flows from investing activities:
  Proceeds from calls and maturities of investment securities held to maturity      12,560,000      55,000,000      19,002,500
  Purchase of investment securities held to maturity ..........................    (39,000,000)    (75,932,187)    (10,000,000)
 Proceeds from principal repayments of investment securities available for sale           --         4,197,200            --
  Purchase of investment securities available for sale ........................           --       (10,000,000)    (20,787,500)
  Purchase of mortgage-backed securities held to maturity .....................     (9,120,219)    (40,624,537)    (23,838,620)
  Purchase of mortgage-backed securities available for sale ...................           --       (15,081,456)    (19,960,841)
  Principal repayments on mortgage-backed securities held to maturity .........     16,139,416      18,198,392      25,140,550
  Principal repayments on mortgage-backed securities available for sale .......           --         4,318,741       7,503,277
  Proceeds from sale of student loans .........................................         90,093           4,454            --
  Net (increase) decrease in loans receivable .................................      7,907,163        (790,568)      6,984,919
  Proceeds from sales of and repayments on real estate owned ..................      2,077,524         913,852       2,488,168
  Additions to premises and equipment .........................................        (31,864)       (169,980)       (235,332)
  Net decrease (increase) in Federal Home Loan Bank of New York stock .........        170,100          (2,900)       (232,400)
                                                                                  ------------    ------------    ------------
      Net cash used in investing activities ...................................     (9,207,787)    (59,968,989)    (13,935,279)
                                                                                  ------------    ------------    ------------

Cash flows from financing activities:
  Net (decrease) increase in deposits .........................................     (5,152,525)      3,542,768      16,440,108
   Net increase in borrowings .................................................           --        64,275,000       3,400,000
   (Decrease) increase in advance payments by borrowers for taxes and insurance        (75,177)        169,887         177,151
  Issuance of common stock ....................................................        412,263         319,902         218,335
  Purchase of treasury stock ..................................................           --       (14,975,000)           --
  Cash dividends paid .........................................................     (2,696,111)     (2,423,494)     (2,145,884)
                                                                                  ------------    ------------    ------------
      Net cash (used in) provided by financing activities .....................     (7,511,550)     50,909,063      18,089,710
                                                                                  ------------    ------------    ------------

Net (decrease) increase in cash and cash equivalents ..........................     (7,364,154)     (4,011,627)     10,726,025
Cash and cash equivalents -- beginning ........................................     16,125,664       8,761,510       4,749,883
                                                                                  ------------    ------------    ------------
Cash and cash equivalents -- ending ...........................................   $  8,761,510    $  4,749,883    $ 15,475,908
                                                                                  ============    ============    ============
Supplemental schedule of noncash investing activities:
 Transfer of loans held for sale to loans receivable ..........................   $  3,586,035    $       --      $       --
                                                                                  ============    ============    ============
 Transfer of loans receivable to real estate owned ............................   $  1,424,125    $    797,650    $    286,491
                                                                                  ============    ============    ============
   Transfer of mortgage-backed securities and investments held to
     maturity to available for sale ...........................................   $       --      $ 58,764,618    $       --
                                                                                  ============    ============    ============
Cash paid during the period for:
  Income taxes ................................................................   $  1,200,000    $  2,495,000    $  1,881,014
                                                                                  ============    ============    ============
  Interest ....................................................................   $ 17,466,043    $ 18,835,293    $ 22,295,412
                                                                                  ============    ============    ============
</TABLE>
See accompanying notes to consolidated financial statements.
                                                                              13
<PAGE>
PULSE BANCORP, INC. AND SUBSIDIARIES
--------------------------------------------------------------------------------
Notes to Consolidated Financial Statements

1. SUMMARY OF SIGNIFICANT
    ACCOUNTING POLICIES

                    Basis of consolidated financial statement presentation

                    The consolidated  financial  statements include the accounts
                    of Pulse Bancorp,  Inc. (the "Corporation"),  a savings bank
                    holding company,  and its wholly owned  subsidiaries,  Pulse
                    Savings Bank (the "Bank"),  Pulse Insurance Services,  Inc.,
                    Pulse Real  Estate,  Inc.,  and Pulse  Investment,  Inc. The
                    Corporation's  business is conducted principally through the
                    Bank.  The other three  subsidiaries  were formed during the
                    1996 period to afford  possible  economic  opportunities  in
                    future periods. All three,  however, are currently inactive.
                    All significant  intercompany accounts and transactions have
                    been eliminated in consolidation. The consolidated financial
                    statements  of  the   Corporation   have  been  prepared  in
                    conformity with generally accepted accounting principles. In
                    preparing the consolidated financial statements,  management
                    is required to make  estimates and  assumptions  that affect
                    the  reported  amounts of assets and  liabilities  as of the
                    date of the consolidated  statements of financial  condition
                    and income for the period then ended.  Actual  results could
                    differ   significantly   from  those   estimates.   Material
                    estimates that are  particularly  susceptible to significant
                    changes  relate to the  determination  of the  allowance for
                    loan  losses  and  the   valuation  of  real  estate  owned.
                    Management  believes  that the  allowance for loan losses is
                    adequate  and real  estate  owned is  appropriately  valued.
                    While  management  uses  available  information to recognize
                    losses on loans and real estate owned,  future  additions to
                    the allowance for loan losses or further  writedowns of real
                    estate owned may be  necessary  based on changes in economic
                    conditions  in  the  market  area.   In  addition,   various
                    regulatory   agencies,   as  an   integral   part  of  their
                    examination   process,   periodically   review   the  Bank's
                    allowance for loan losses and real estate owned  valuations.
                    Such agencies may require the Bank to recognize additions to
                    the  allowance  or  additional  writedowns  based  on  their
                    judgments about information available to them at the time of
                    their examination.

                    Cash and cash equivalents

                    Cash and cash equivalents  include cash and amounts due from
                    depository institutions,  interest-bearing deposits in other
                    banks having original maturities of three months or less and
                    federal funds sold.  Generally,  federal funds sold are sold
                    for one-day periods.

                    Investment and mortgage-backed securities

                    The   Company   classifies   its   securities   among  three
                    categories:  held-to-maturity,  trading,  and  available for
                    sale. Management  determines the appropriate  classification
                    of the  securities at the time of purchase.  As of September
                    30,  1997,  the  Bank has  classified  its  investments  and
                    mortgage-backed  securities  between  held to  maturity  and
                    available for sale.

                    Investment and mortgage-backed  securities are classified as
                    securities held to maturity based on management's intent and
                    the  Corporation's  ability to hold them to  maturity.  Such
                    securities  are  stated at cost,  adjusted  for  unamortized
                    purchase  premiums  and  discounts.  Purchase  premiums  and
                    discounts  are  amortized  over  the  life  of  the  related
                    security using the level yield method.

                    Investment and mortgage-backed  securities not classified as
                    securities  held to maturity or trading  account  securities
                    are  classified  as securities  available for sale,  and are
                    stated  at fair  value.  Unrealized  gains  and  losses  are
                    excluded  from  earnings,  and are  reported  as a  separate
                    component  of  stockholders'  equity,  net  of  taxes.  Such
                    securities  include  those that may be sold in  response  to
                    changes in interest  rates,  changes in  prepayment  risk or
                    other factors.

                    Loans receivable

                    Loans  receivable are stated at unpaid  principal  balances,
                    less the  allowance  for loan losses and net  deferred  loan
                    origination  fees  and  discounts.   The  Bank  defers 
14
<PAGE>
                    loan  origination  fees and certain direct loan  origination
                    costs and  amortizes  such amounts as an adjustment of yield
                    over the estimated lives of the related loans.

                    An  allowance  for  loan  losses  is  maintained  at a level
                    considered  adequate to provide for  potential  loan losses.
                    Management  of the Bank,  in  determining  the allowance for
                    loan  losses,  considers  the  risks  inherent  in its  loan
                    portfolio  and  changes in the nature and volume of its loan
                    activities,  along with the general economic and real estate
                    market  conditions.  The Bank utilizes a two tier  approach:
                    (1) identification of problem loans and the establishment of
                    loss  allowances  on such loans;  and (2)  establishment  of
                    valuation allowances on the remainder of its loan portfolio.
                    The Bank  maintains a loan review  system which allows for a
                    periodic   review  of  its  loan  portfolio  and  the  early
                    identification of potential problem loans. Such system takes
                    into consideration,  among other things, delinquency status,
                    size of loans,  types of collateral and financial  condition
                    of the borrowers.  Loan loss  allowances are established for
                    identified  loans  based  on a  review  of such  information
                    and/or  appraisals  of  the  underlying  collateral.  On the
                    remainder of the loan  portfolio,  loan loss  allowances are
                    established  based upon a combination of factors  including,
                    but not limited to, actual loan loss experience, composition
                    of the  loan  portfolio,  current  economic  conditions  and
                    management's  judgment.  Although  management  believes that
                    adequate allowances for loan losses are established,  actual
                    losses  are  dependent  upon  future  events  and,  as such,
                    further  additions  to the level of the loan loss  allowance
                    may be necessary.

                    Non-accrual  loans include loans for which  reasonable doubt
                    exists  as to timely  collectibility.  At the time a loan is
                    placed  on  non-accrual   status,   previously  accrued  and
                    uncollected  interest is reversed against interest income in
                    the current  period.  Interest  collections  on  non-accrual
                    loans  are  generally   credited  to  interest  income  when
                    received.  After  principal and interest  payments have been
                    brought  current  and future  collectibility  is  reasonably
                    assured, loans are returned to accrual status.

                    Restructured  loans are  loans  whose  contractual  interest
                    rates have been reduced to below market rates or where other
                    significant  concessions  have been made due to a borrower's
                    financial  difficulties.  Interest  income  on  restructured
                    loans is generally accrued.

                    On October 1, 1995, the Bank adopted  prospectively SFAS No.
                    114,  "Accounting by Creditors for Impairment of a Loan", as
                    amended  by SFAS  No.  118,  "Accounting  by  Creditors  for
                    Impairment of a Loan - Income  Recognition and  Disclosure".
                    SFAS 114 defines an impaired  loan as a loan for which it is
                    probable based upon current information that the lender will
                    not collect amounts due under the  contractual  terms of the
                    loan  agreement.  The Bank has  defined  the  population  of
                    impaired loans to be all commercial  and  construction  real
                    estate  loans  as  well as  residential  real  estate  loans
                    greater  than  $500,000.  Impaired  loans  are  individually
                    assessed to determine that each loan's carrying value is not
                    in excess of the fair value of the related collateral or the
                    present value of the expected future cash flows.

                    Real estate owned

                    Real  estate  owned  consists  of real  estate  acquired  by
                    foreclosure or deed in lieu of foreclosure  and is initially
                    recorded  at the lower of cost or fair  value at the date of
                    acquisition.  Fair value is defined as the amount reasonably
                    expected to be received in a current  sale between a willing
                    seller (the Bank) and a willing buyer.  Real estate owned is
                    subsequently carried at the lower of cost or fair value less
                    estimated  selling  costs.  Costs  incurred in developing or
                    preparing  properties for sale are  capitalized.  Income and
                    expenses of operating and holding properties are recorded in
                    operations as incurred.  Gains and losses from sales of such
                    properties are recognized as incurred.

                                                                              15
<PAGE>



                    Concentration of risk

                    The  Bank's   real  estate  and   lending   activities   are
                    concentrated in real estate and loans secured by real estate
                    located primarily in the State of New Jersey.

                    Premises and equipment

                    Land is stated at cost.  Buildings,  building  improvements,
                    furnishings   and  equipment   are  stated  at  cost,   less
                    accumulated   depreciation  computed  on  the  straight-line
                    method  over  the  estimated  lives of each  type of  asset.
                    Significant  renewals  and  betterments  are  charged to the
                    property and equipment account.  Maintenance and repairs are
                    charged to operations in the year incurred.

                    Stock-based compensation

                    In  October  1995  the  FASB  issued   Statement   No.  123,
                    "Accounting   for   Stock-Based   Compensation".   SFAS  123
                    encourages recording in current period earnings compensation
                    expense  related to the fair  value of  certain  stock-based
                    compensation.  Companies may choose to follow the provisions
                    of Accounting  Principles Board Opinion No. 25,  "Accounting
                    for  Stock   Issued  to   Employees"   ("APB   25"),   where
                    compensation expense is not recorded for certain stock-based
                    compensation plans.  However,  companies will be required to
                    disclose  pro forma net income and  earnings per share as if
                    they adopted the fair value based method of accounting.  The
                    disclosure  requirements  for SFAS 123 are effective for the
                    Bank's fiscal year  beginning  October 1, 1996. The Bank has
                    elected to continue to account for stock-based  compensation
                    under APB 25 and the pro forma disclosures  required by SFAS
                    123  have  been  included  in  Note  10 to the  consolidated
                    financial statements. The adoption of SFAS 123 had no impact
                    on the Bank's consolidated financial statements.

                    Interest-rate risk

                    The  Bank  is   principally   engaged  in  the  business  of
                    attracting  deposits from the general public and using these
                    deposits,  together  with  borrowings  and other  funds,  to
                    reinvest in investment and mortgage-backed securities and to
                    make loans  secured by real estate and, to a lesser  extent,
                    consumer loans. The potential for interest-rate  risk exists
                    as  a  result  of  the   shorter   duration  of  the  Bank's
                    interest-sensitive  liabilities  compared  to the  generally
                    longer duration of  interest-sensitive  assets.  In a rising
                    rate  environment,  liabilities  will  reprice  faster  than
                    assets,  thereby  reducing  the  market  value of  long-term
                    assets and net interest income. For this reason,  management
                    regularly  monitors  the  maturity  structure  of the Bank's
                    assets  and  liabilities  in order to  measure  its level of
                    interest rate risk and plan for future volatility.


                    Income taxes

                    Federal and state income  taxes are  provided for  utilizing
                    the  asset  and  liability  method.   Under  the  asset  and
                    liability method, temporary differences between the basis of
                    assets  and  liabilities  for  financial  reporting  and tax
                    purposes  are  measured  as of the  statement  of  financial
                    condition  date.  Deferred tax  liabilities or  recognizable
                    deferred  tax assets  are  calculated  on such  differences,
                    using current statutory rates which result in future taxable
                    or  deductible  amounts.  The effect on deferred  taxes of a
                    change in tax rates is  recognized  in income in the  period
                    that includes the enactment date.

                    The  Corporation  and the  subsidiaries  file a consolidated
                    federal income tax return. Income taxes are allocated to the
                    Corporation and the  sudsidiaries  based on the contribution
                    of their income to the consolidated  return.  Separate state
                    income  tax  returns  are filed by the  Corporation  and the
                    subsidiaries.

                    Net income per common share and common stock equivalents

                    Net income per common share and common stock  equivalents is
                    based  on the  weighted  average  number  of  common  shares
                    actually  outstanding during the 

16
<PAGE>

                    period  plus the shares that would be  outstanding  assuming
                    the  exercise of dilutive  stock  options,  all of which are
                    considered  to be common  stock  equivalents.  The number of
                    shares  that  would be  issued  from the  exercise  of stock
                    options has been  reduced by the number of shares that could
                    have been  purchased  from the proceeds at the average price
                    of the Corporation's common stock. See Note 18.


                    Reclassification

                    Certain  amounts for the prior years have been  reclassified
                    to conform with the current year's presentation.

--------------------------------------------------------------------------------
2. INVESTMENT SECURITIES

A summary of investment securities held to maturity and available for sale is as
follows:
<TABLE>
<CAPTION>
                                                                        September 30, 1996
                                                    ---------------------------------------------------------
                                                                      Gross         Gross        Estimated
                                                      Carrying      Unrealized    Unrealized       Fair
                                                        Value         Gains         Losses        Value
                                                    ------------   ------------   ------------   ------------
<S>                                                 <C>            <C>            <C>            <C>         
Investment Securities Held To Maturity
U.S. Government (including agencies):
  After one year but within five years ..........   $ 27,989,889   $     52,500   $    410,234   $ 27,632,155
  After five years but within ten years .........     70,959,597         51,920      1,911,438     69,100,079
 After ten years ................................      6,000,000           --          161,677      5,838,323
                                                    ------------   ------------   ------------   ------------
                                                     104,949,486        104,420      2,483,349    102,570,557
                                                    ------------   ------------   ------------   ------------
Obligations of states and political subdivisions:
 Within one year ................................          2,500           --             --            2,500
After ten years .................................        597,471         21,789           --          619,260
                                                    ------------   ------------   ------------   ------------
                                                         599,971         21,789           --          621,760
                                                    ------------   ------------   ------------   ------------
                                                    $105,549,457   $    126,209   $  2,483,349   $103,192,317
                                                    ============   ============   ============   ============
Investment Securities Available For Sale
U.S. Government (including agencies):
After one year but within five years ............   $ 18,000,000   $       --     $    397,566   $ 17,602,434
After five years but within ten years ...........     21,813,748         12,500        373,985     21,452,263
                                                    ------------   ------------   ------------   ------------
                                                    $ 39,813,748   $     12,500   $    771,551   $ 39,054,697
                                                    ============   ============   ============   ============
</TABLE>
                                                                              17
<PAGE>


<TABLE>
<CAPTION>

                                                                     September 30, 1997
                                                    -----------------------------------------------------

                                                                      Gross         Gross      Estimated
                                                     Carrying      Unrealized    Unrealized      Fair
                                                       Value          Gains         Losses       Value
                                                    -----------   -----------   -----------   -----------
<S>                                                 <C>           <C>           <C>           <C>        
Investment Securities Held To Maturity
U.S. Government (including agencies):
 After one year but within five years ...........   $22,991,739   $     6,875   $    27,239   $22,971,375
 After five years but within ten years ..........    64,962,649       281,619       454,993    64,789,275
 After ten years ................................     8,000,000        25,000        21,300     8,003,700
                                                    -----------   -----------   -----------   -----------
                                                     95,954,388       313,494       503,532    95,764,350
                                                    -----------   -----------   -----------   -----------
Obligations of states and political subdivisions:
  After ten years ...............................       597,497        25,003          --         622,500
                                                    -----------   -----------   -----------   -----------
                                                    $96,551,885   $   338,497   $ 503,532 $    96,386,850
                                                    ===========   ===========   ===========   ===========
Investment Securities Available For Sale
U.S. Government (including agencies):
 Within one year ................................   $ 8,000,000   $      --     $    15,600   $ 7,984,400
  After one year but within five years ..........    10,000,000          --          90,100     9,909,900
  After five years but within ten years .........    41,822,275       333,264       131,384    42,024,155
                                                    -----------   -----------   -----------   -----------
                                                     59,822,275       333,264       237,084    59,918,455
                                                    -----------   -----------   -----------   -----------
Equity Securities ...............................       800,000        23,500          --         823,500
                                                    -----------   -----------   -----------   -----------
                                                    $60,622,275   $   356,764   $   237,084   $60,741,955
                                                    ===========   ===========   ===========   ===========
</TABLE>


There were no sales of investment  securities held to maturity and available for
sale during the years ended September 30, 1995, 1996 and 1997.

In November 1995 the Financial Accounting Standards Board issued guidance on the
implementation  of "Special Report-A Guide To Implementation of Statement 115 on
Accounting  for  Certain  Investments  in Debt and Equity  Securities"  (Special
Report). This Special Report provided an opportunity for a one-time reassessment
of the  classification  of  securities as of a single  measurement  date between
November 15,  1995,  and December  31,  1995.  As a result,  securities  held to
maturity with an amortized  cost of  $58,765,000  and a net  unrealized  gain of
$529,000 were transferred to securities available for sale on December 31, 1995.
These securities were transferred to increase the overall level of liquidity and
improve the ability to manage interest rate risk.

3. MORTGAGE-BACKED SECURITIES

A summary mortgage-backed securities is as follows:
<TABLE>
<CAPTION>

                                                                                       September 30, 1996
                                                                 ---------------------------------------------------------
                                                                                    Gross          Gross        Estimated
                                                                   Carrying       Unrealized     Unrealized       Fair
                                                                     Value          Gains          Losses         Value
                                                                 ------------   ------------   ------------   ------------
<S>                                                              <C>            <C>            <C>            <C>         
Mortgage-Backed Securities Held To Maturity
Government National Mortgage Association ....................... $ 67,075,905   $    743,542   $    194,683   $ 67,624,764
Federal Home Loan Mortgage Corporation .........................   39,159,809        174,932        402,384     38,932,357
Federal National Mortgage Association ..........................   21,470,218         95,144        603,746     20,961,616
Collateralized Mortgage Obligations ............................   36,386,052         10,191      1,298,317     35,097,926
                                                                 ------------   ------------   ------------   ------------
                                                                 $164,091,984   $  1,023,809   $  2,499,130   $162,616,663
                                                                 ============   ============   ============   ============
Mortgage-Backed Securities Available For Sale
Government National Mortgage Association ....................... $ 39,848,435   $    406,629   $       --     $ 40,255,064
                                                                 ============   ============   ============   ============
</TABLE>

<TABLE>
<CAPTION>

                                                                                       September 30, 1997
                                                                 ---------------------------------------------------------
                                                                                    Gross          Gross        Estimated
                                                                   Carrying       Unrealized     Unrealized       Fair
                                                                     Value          Gains          Losses         Value
                                                                 ------------   ------------   ------------   ------------
<S>                                                              <C>            <C>            <C>            <C>         
Mortgage-Backed Securities Held To Maturity
Government National Mortgage Association ....................... $ 62,595,447   $  1,404,217   $       --     $ 63,999,664
Federal Home Loan Mortgage Corporation .........................   35,726,553        409,980        265,291     35,871,242
Federal National Mortgage Association ..........................   30,556,079        182,409        155,962     30,582,526
Collateralized Mortgage Obligations ............................   33,885,446          1,836        694,728     33,192,554
                                                                 ------------   ------------   ------------   ------------
                                                                 $162,763,525   $  1,998,442   $  1,115,981   $163,645,986
                                                                 ============   ============   ============   ============
Mortgage-Backed Securities Available For Sale
Government National Mortgage Association ....................... $ 33,217,483   $    774,300   $       --     $ 33,991,783
Federal Home Loan Mortgage Corporation .........................    9,473,817        189,614           --        9,663,431
Federal National Mortgage Association ..........................    9,616,497        121,624           --        9,738,121
                                                                 ------------   ------------   ------------   ------------
                                                                 $ 52,307,797   $  1,085,538   $       --     $ 53,393,335
                                                                 ============   ============   ============   ============
</TABLE>


There were no sales of mortgage-backed securities held to maturity and available
for sale  during  the  years  ended  September  30,  1995,  1996 and  1997.  The
contractual  maturities of the  mortgage-backed  securities  generally exceed 20
years; however, the effective average life is expected to be significantly less,
due to anticipated prepayments.

                                                                              19
<PAGE>

--------------------------------------------------------------------------------
 4. LOANS RECEIVABLE, NET

A summary of loans receivable is as follows:
<TABLE>
<CAPTION>
                                                                                          September 30,
                                                                                   ---------------------------
                                                                                        1996          1997
                                                                                   ------------   ------------
<S>                                                                                <C>            <C>         
Real estate mortgage:
  One-to-four family ...........................................................   $ 65,509,636   $ 77,761,695
  Multi-family .................................................................     28,190,149     15,088,127
  Commercial ...................................................................     29,882,549     22,321,707
                                                                                   ------------   ------------
                                                                                    123,582,334    115,171,529
Real estate construction .......................................................        125,000        219,256
                                                                                   ------------   ------------
Consumer:
  Passbook or certificate ......................................................        184,185        229,172
  Home equity ..................................................................     13,543,650     14,348,020
                                                                                   ------------   ------------
                                                                                     13,727,835     14,577,192
Total loans ....................................................................    137,435,169    129,967,978
                                                                                   ------------   ------------
Less: Allowance for loan losses ................................................      2,458,777      2,357,396
         Deferred loan fees and discounts ......................................        428,588        300,057
                                                                                   ------------   ------------
                                                                                      2,887,365      2,657,453
                                                                                   $134,547,804   $127,310,525
</TABLE>

 Non-accrual and restructured loans were as follows (in thousands):
<TABLE>
<CAPTION>
                                                                                                  September 30,
                                                                                   ------------------------------------------
                                                                                       1995           1996           1997
                                                                                   ------------   ------------   ------------
<S>                                                                                <C>            <C>            <C>         
   Non-accrual .................................................................   $      1,928   $        999   $        722
   Restructured ................................................................          4,167          2,135          2,103
                                                                                   ------------   ------------   ------------
                                                                                   $      6,095   $      3,134   $      2,825
                                                                                   ============   ============   ============
</TABLE>

The impact of non-accrual  and  restructured  loans  on  interest  income is  as
follows (in thousands):
<TABLE>
<CAPTION>
                                                                                              Year Ended September 30,
                                                                                   ------------------------------------------
                                                                                        1995           1996           1997
                                                                                   ------------   ------------   ------------
<S>                                                                                <C>            <C>            <C>         
Interest income if performing in accordance with original terms ................   $        622   $        325   $        303
Interest income actually recorded ..............................................            349            154            143
                                                                                   ------------   ------------   ------------
Interest income lost ...........................................................   $        273   $        171   $        160
                                                                                   ============   ============   ============
</TABLE>

At  September  30, 1996 and 1997,  the impaired  loan  portfolio  was  primarily
collateral  dependent as defined  under SFAS 114 and totaled  $654,000 for which
general and specific  allocations  to the  allowance for loan losses of $262,000
were identified.  The average balance of impaired loans during the 1996 and 1997
fiscal  year was  $654,000.  The amount of cash basis  interest  income that was
recognized on impaired  loans during the year ended  September 30, 1996 and 1997
was $-0- .

An analysis of the allowance for loan losses is as follows:


                                                 Year Ended September 30,
                                       ----------------------------------------
                                          1995            1996           1997
                                       -----------    -----------   -----------
                                                          
Balance-beginning .................... $ 3,368,816    $ 2,603,852   $ 2,458,777
Losses charged to allowance...........    (764,964)      (145,075)     (101,381)
                                       -----------    -----------   -----------
Balance-ending ....................... $ 2,603,852    $ 2,458,777   $ 2,357,396
                                       ===========    ===========   ===========

20
<PAGE>
The activity during the years ended September 30, 1996 and 1997, with respect to
loans to directors, officers and associates of such persons is as follows:

Balance -- September 30, 1995 ..................................    $   546,815
Loan principal repayments ......................................        (38,903)
                                                                    -----------
Balance -- September 30, 1996 ..................................        507,912
Loans originated ...............................................        118,000
Loan principal repayments ......................................       (123,173)
                                                                    -----------
Balance -- September 30, 1997 ..................................    $   502,739
                                                                    ===========
                                                                 
--------------------------------------------------------------------------------
5. PREMISES AND EQUIPMENT, NET

A summary of premises and equipment is as follows:

                                                        September 30,
                                                    --------------------------
                                                       1996           1997
                                                    -----------    -----------
Land .............................................. $   247,037    $   247,037
                                                    -----------    -----------
Buildings and improvements ........................   1,477,229      1,477,229
Less accumulated depreciation .....................     719,893        771,640
                                                    -----------    -----------
                                                        757,336        705,589
Furnishings and equipment .........................   1,219,222      1,454,554
Less accumulated depreciation .....................     988,460      1,084,462
                                                    -----------    -----------
                                                        230,762        370,092
                                                    -----------    -----------
                                                    $ 1,235,135    $ 1,322,718
                                                    ===========    ===========

Depreciation  charges are computed on the straight-line  method over the assets'
estimated  useful  lives,  which  range  from 10 to 40 years for  buildings  and
improvements and 3 to 10 years for furnishings and equipment
--------------------------------------------------------------------------------
6. INTEREST RECEIVABLE

A summary of interest receivable is as follows:
<TABLE>
<CAPTION>
                                                                          September 30,
                                                                   --------------------------
                                                                       1996           1997
                                                                   -----------    -----------
<S>                                                                <C>            <C>        
Loans ...........................................................  $   968,493    $   864,939
Mortgage-backed securities held to maturity .....................      968,245        971,265
Mortgage-backed securities available for sale ...................      216,679        305,044
Investment securities held to maturity ..........................    1,697,054      1,646,319
Investment securities available for sale ........................      676,883        796,770
                                                                   -----------    -----------
                                                                   $ 4,527,354    $ 4,584,337
                                                                   ===========    ===========
</TABLE>
--------------------------------------------------------------------------------
7. DEPOSITS

A summary of deposits by type is as follows:

                                               September 30,
                               ------------------------------------------------
                                      1996                     1997
                               ---------------------    ------------------------
                               Weighted                   Weighted
                               Average                    Average
                               Interest                   Interest
                                 Rate      Amount           Rate     Amount
                                -----   ------------       -----   ------------
Demand:
  Non-interest-bearing ........ 0.00%   $  3,941,492       0.00%   $  4,754,356
  Interest-bearing ............ 3.15%     87,091,543       3.11%     87,026,200
                                        ------------               ------------
                                3.01%     91,033,035       2.97%     91,780,556
Savings and club .............. 2.73%     57,429,028       2.74%     55,662,965
Certificates of deposit ....... 5.32%    246,118,548       5.51%    263,577,198
                                        ------------               ------------
                                4.41%   $394,580,611       4.57%    411,020,719
                                        ============                ===========
                                                                    
                                                                              21
<PAGE>

Certificates of deposit with balances of $100,000 or more totalled approximately
$15,322,000 and $17,500,000 at September 30, 1996 and 1997, respectively.

The scheduled maturities of certificates of deposit are as follows:

                                                                September 30,
                                                             -------------------
                                                               1996       1997
                                                             --------   --------
                                                               (In Thousands)
One year or less .........................................   $206,483   $213,917
After one to two years ...................................     28,380     36,809
After two to three years..................................      6,925      8,769
After three years ........................................      4,331      4,082
                                                             --------   --------
                                                             $246,119   $263,577
                                                             ========   ========



A summary of interest expense on deposits is as follows:
<TABLE>
<CAPTION>
                                                    Year Ended September 30,
                                                1995          1996          1997
                                             -----------   -----------   -----------
<S>                                          <C>           <C>           <C>        
Interest-bearing demand ..................   $ 3,499,629   $ 2,854,521   $ 2,735,882
Savings and club .........................     1,897,746     1,622,457     1,566,213
Certificates of deposit less than $100,000    11,288,140    12,604,742    13,466,098
Certificates of deposit $100,000 or more .       544,292       725,146       890,083
                                             -----------   -----------   -----------
                                             $17,229,807   $17,806,866   $18,658,276
                                             ===========   ===========   ===========
</TABLE>
--------------------------------------------------------------------------------
8.  BORROWINGS

The following is a summary of borrowings:
<TABLE>
<CAPTION>
                                                                          At September 30
                                                                     -----------    -----------
                                                                         1996          1997
                                                                     -----------    -----------
<S>               <C>      <C>                                       <C>            <C>         
                  Contractual Maturity
                           1997 .................................    $50,475,000    $      --   
                           1998 .................................      4,500,000     51,875,000
                           1999 .................................      9,300,000     15,800,000
                                                                     -----------    -----------
                                                                     $64,275,000    $67,675,000
                                                                     ===========    ===========
                                                                   
Weighted average interest rate at the end of the period .........           5.79%          5.84%
Weighted average interest rate during the period ................           5.77%          5.87%
Average amount outstanding during the period ....................    $22,951,000    $63,223,000
Maximum amount outstanding at any month-end during the period....    $64,550,000    $68,775,000
</TABLE>
                                                              
Securities  collateralizing the borrowings included agencies and mortgage-backed
securities, which had an amortized cost of $68.0 million and $74.3 million and a
fair value of $68.5  million and $74.4  million at September  30, 1996 and 1997,
respectively.  The  securities  underlying  the  borrowings are under the Bank's
control.

--------------------------------------------------------------------------------
9. STOCKHOLDERS' EQUITY

                    On June 21,  1996,  the  Corporation  completed a buyback of
                    837,080 shares of its common stock under a stock  repurchase
                    plan   utilizing  the  Modified   Dutch  Auction  method  of
                    repurchase.  The transaction  resulted recording of treasury
                    stock of $14,975,000.

                    Dividends  payable  by  the  Bank  to  the  Corporation  and
                    dividends  payable by the  Corporation to  stockholders  are
                    subject to various  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

22
<PAGE>

                    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 payments of such  dividends will
                    not reduce the surplus of the Bank.

--------------------------------------------------------------------------------
10. BENEFIT PLANS

Retirement plan

The Bank has a non-contributory  defined contribution plan covering all eligible
employees.  Pension plan costs are  determined by a money purchase type formula.
Total pension plan expense for the years ended September 30, 1995, 1996 and 1997
amounted to $144,000, $160,000 and $181,000, respectively.

Stock option plan

The Bank  maintains a stock option plan (Plan) for its  directors,  officers and
certain other employees. Options granted under the Plan are vested at grant date
and are exercisable over a period not to exceed ten years. Changes in the number
of shares  outstanding under the Plan and the weighted average exercise price of
those shares are as follows:
<TABLE>
<CAPTION>
                                                             1995                      1996                    1997
                                                     ------------------------ ------------------------ -------------------------
                                                                   Weighted                 Weighted                Weighted
                                                      Number       Average      Number      Average     Number       Average
                                                     of Shares Exercise Price of Shares Exercise Price of Shares  Exercise Price
                                                     --------- -------------- --------- -------------- ---------  --------------
<S>                                                   <C>          <C>         <C>          <C>         <C>          <C>      
Outstanding at beginning of period ................   318,552      $ 9.99      304,852      $11.29      273,858      $11.597  
Granted ...........................................    48,000       14.00        3,136       17.00       82,000       16.000
Exercised .........................................    61,700        6.68       34,130        9.37       30,670        7.119
Outstanding at end of period ......................   304,852      $11.29      273,858      $11.59      325,188      $13.095   

</TABLE>                                          

For options that were granted in 1995, 1996, and 1997, the exercise price of the
options equaled the market value of the stock at grant date.

The following table summarizes  information about the stock options  outstanding
at September 30, 1997:

                        Options Outstanding and Exercisable                 
                          -----------------------------------
        Range                               Weighted Average       Weighted
         of               Number of            Remaining           Average
      Exercise             Shares              Contractual         Exercise
       Prices           Outstanding           Life in Years         Price
   ----------------     ------------        ----------------       ---------
   $ 6.625-$ 8.8125       63,152                    5.0             $ 8.506
    13.000- 17.000       262,036                    7.3              14.201
   $ 6.625-$17.000       325,188                    6.8             $13.095
  

The Bank applies APB 25 in accounting for the Plan. Consistent with SFAS 123, if
compensation cost for the Plan was included as compensation  expense, the Bank's
net  income and  earnings  per share  would  have been  reduced to the pro forma
amounts indicated below:

                                    1996         1997
                                 ----------   ----------
           Net income:                                                 
               As reported ...   $3,492,609   $5,675,159
               Pro forma .....    3,476,713    5,274,212
           
           Earnings per share:
               As reported ...   $     0.94   $     1.80
               Pro forma .....   $     0.93   $     1.67
           

                                                                              23
<PAGE>

The fair value of stock options  granted by the Bank was  estimated  through the
use of the  Black-Scholes  option-pricing  model  that takes  into  account  the
following  factors as of the grant date: the exercise price and expected life of
the option,  the market price of the underlying  stock at the grant date and its
expected  volatility,  and the risk-free  interest rate for the expected term of
the option. In deriving the fair value of the stock options,  the stock price at
the grant date is reduced by the value of the  dividends  to be paid  during the
life of the option.  The following  assumptions were used for grants in 1996 and
1997:  dividend  yield of 3.00% and an expected  volatility  of 50% and the risk
free  interest  rate of 5.79% and 6.59%  for 1996 and  1997,  respectively.  The
effects  of  applying  SFAS  123  on  the  pro  forma  net  income  may  not  be
representative of the effect on pro forma net income for future years.

--------------------------------------------------------------------------------
11. INCOME TAXES

                    The bad debt reserve  method  which was  available to thrift
                    institutions has been repealed for tax years beginning after
                    December  1995. As a result,  the Bank may no longer use the
                    percentage of taxable income reserve method.  A large thrift
                    (one with more than $500  million  in  assets)  must use the
                    specific   charge-off   method  to  compute   its  bad  debt
                    deduction.

                    Upon  repeal,  the Bank is required  generally  to recapture
                    into income the portion of its bad debt reserve  (other than
                    supplemental  reserve) that exceeds its base year  reserves,
                    approximately $808,000.

                    The  recapture  amount  generally  will be taken into income
                    ratably (on a  straight-line  basis) over a six year period.
                    If the Bank meets the "residential  loan  requirement" for a
                    tax year  beginning  in 1996 or 1997,  the  recapture of the
                    reserves  will be  suspended  for such tax year.  Thus,  the
                    recapture can  potentially  be deferred for up to two years.
                    The  residential  loan  requirement  is met if the principal
                    amount of housing  loans made by the Bank during the year at
                    issue  (1996 or  1997)  is at  least as much as the  average
                    principal  amount of loans made  during the six most  recent
                    years prior to 1996.  Refinancing  and home equity loans are
                    excluded.  As of September  30,  1997,  the Bank has met the
                    "residential loan requirement".

                    The Bank has not  recognized  a deferred  tax  liability  of
                    approximately  $1,950,000  for "bad debt  reserves"  for tax
                    purposes which arose in tax years beginning  before December
                    31, 1987 (i.e., base year). A deferred tax liability will be
                    recognized  if the Bank expects that charges to the bad debt
                    reserves,  other than losses on loans or  recomputations  of
                    bad debt deductions resulting from operating loss carrybacks
                    to prior years, would result in taxable income.

                    Total  income  tax  expense  for  each of the  years  in the
                    three-year  period ended September 30, 1997 was allocated as
                    follows (in thousands):

<TABLE>
<CAPTION>
                                                                1995      1996      1997
                                                              -------   --------   -------
<S>                                                           <C>       <C>        <C>    
Income from operations ....................................   $ 2,895   $ 1,959    $ 3,204
Stockholders' equity:
   Net unrealized (depreciation) appreciation on securities
   available for sale , net of taxes ......................      --         (82)       360
                                                              -------   -------    -------
                                                              $ 2,895   $ 1,877    $ 3,564
                                                               ======    ======     ======
</TABLE>

24
<PAGE>
Income tax expense for the years ended  September  30, 1995,  1996,  and 1997 is
made up of the following components:

                                              Year Ended September 30,
                                      -----------------------------------------
                                          1995           1996           1997
                                      -----------    -----------    -----------
Current tax expense:
     Federal .......................  $ 2,578,063    $ 2,537,250    $ 1,925,478
     State .........................      221,449        227,258        206,464
                                      -----------    -----------    -----------
                                        2,799,512      2,764,508      2,131,942
Deferred tax expense:
     Federal .......................       82,846       (760,740)     1,013,303
     State .........................       12,412        (44,302)        59,010
                                      -----------    -----------    -----------
                                           95,258       (805,042)     1,072,313
                                      -----------    -----------    -----------
                                      $ 2,894,770    $ 1,959,466    $ 3,204,255
                                      ===========    ===========    ===========

A  reconciliation  between  the  effective  income  tax  expense  and the amount
calculated by multiplying  the applicable  statutory  Federal income tax rate of
34% for the years ended September 30, 1995, 1996 and 1997 is as follows:
<TABLE>
<CAPTION>

                                                        Year Ended September 30,
                                                   1995           1996           1997
                                               -----------    -----------    -----------
<S>                                            <C>            <C>            <C>        
Computed "expected" Federal tax expense ....   $ 2,774,394    $ 1,853,706    $ 3,019,001
State income tax, net of Federal tax benefit       154,348        120,751        175,213
Tax-exempt interest ........................       (13,135)       (13,145)       (13,046)
Other ......................................       (20,837)        (1,846)        23,087
                                               -----------    -----------    -----------
                                               $ 2,894,770    $ 1,959,466    $ 3,204,255
                                               ===========    ===========    ===========
</TABLE>

The tax effects of temporary  differences that give rise to significant portions
of the deferred tax assets and deferred tax  liabilities  at September  30, 1996
and 1997 are as follows:

                                                            September 30,
                                                      -------------------------
                                                          1996          1997
                                                      -----------   -----------
From operations:
 Deferred tax assets
   Allowance for loan and real estate losses ......   $   884,668   $   848,191
   Deferred fees ..................................       133,726       111,278
   Core deposit amortization ......................        74,358        66,562
   Organization costs .............................           651          --
   Non-accrued interest ...........................        36,700        36,700
   BIF/SAIF Special assessment ....................       971,460          --
                                                      -----------   -----------
          Total gross deferred assets .............     2,101,563     1,062,731
                                                      -----------   -----------

   Deferred tax liabilities
   Depreciation ...................................        35,417        35,011
   Discount accretion on bonds ....................        19,340        27,739
   Bad debt tax reserve in excess of base year ....       265,252       290,740
                                                      -----------   -----------
          Total gross deferred tax liabilities ....       320,009       353,490
                                                      -----------   -----------
   Net deferred tax asset from operations .........     1,781,554       709,241
   Shareholders' equity - unrealized (gains) losses
     on securities available for sale .............       123,348      (433,638)
                                                      -----------   -----------
      Total net deferred tax assets ...............   $ 1,904,902   $   275,603
                                                      ===========   ===========

                                                                              25
<PAGE>

                    Management  believes,  based upon current  facts,  that more
                    likely than not there will be sufficient  taxable  income in
                    future years to realize the net deferred tax asset. However,
                    there  can  be no  assurance  about  the  levels  of  future
                    earnings.

--------------------------------------------------------------------------------
12. REGULATORY MATTERS

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

Quantitative  measures  established  by  regulation to ensure  capital  adequacy
require the Bank to maintain  minimum  amounts and ratios.  Total Tier 1 capital
(as defined in the  regulations) to risk- weighted  assets (as defined),  and of
Tier 1 capital, (as defined), to total assets (as defined). Management believes,
as of September 30, 1997, that the Bank meets all capital adequacy  requirements
to which it is subject.

As of September 30, 1997, the most recent  notification from the Federal Deposit
Insurance  Corporation  categorized  the  Bank as  well  capitalized  under  the
regulatory  framework for prompt  corrective  action.  To be categorized as well
capitalized the Bank must maintain minimum total risk-based,  Tier 1 risk-based,
and Tier 1  leverage  ratios  as set  forth in the  table  below.  There  are no
conditions  or events since that  notification  that  management  believes  have
changed the institution's category.

The Bank's actual capital amounts and ratios are also presented in the table.
<TABLE>
<CAPTION>
                                                                      Required           To be well capitalized
                                                                     for capital         under prompt corrective
                                                 Actual           adequacy purposes         action provision  
                                          ---------------------   ----------------       -----------------------
                                            Amount       Ratio     Amount    Ratio          Amount     Ratio
                                            ------       -----     ------    -----          ------     -----
<S>                                        <C>           <C>      <C>         <C>          <C>         <C>   
As of September 30, 1996                                                                  
Total capital (to risk-weighted assets)    $38,112       24.49%   $12,448     8.00%        $15,560     10.00%
Tier 1 capital (to risk-weighted assets)    36,167       23.24%     6,224     4.00%          9,336      6.00%
Tier 1 capital (to total assets) .......    36,167        7.20%    20,100     4.00%         25,112      5.00%
-------------------------------------------------------------------------------------------------------------
As of September 30, 1997                                                                  
Total capital (to risk-weighted assets)    $41,550       27.74%   $11,982     8.00%        $14,977     10.00%
Tier 1 capital (to risk-weighted assets)    39,678       26.49%     5,991     4.00%          8,986      6.00%
Tier 1 capital (to total assets) .......    39,678        7.54%    21,041     4.00%         26,301      5.00%
-------------------------------------------------------------------------------------------------------------
</TABLE>


26
<PAGE>


--------------------------------------------------------------------------------
13. COMMITMENTS AND CONTINGENCIES

                    The  Bank  is  a  party  to   financial   instruments   with
                    off-balance  sheet risk in the normal  course of business to
                    meet the financing  needs of its customers and to reduce its
                    own  exposure  to  fluctuations  in  interest  rates.  These
                    financial  instruments  include commitments to extend credit
                    and purchase securities. The commitments involve, to varying
                    degrees, elements of credit and interest rate risk in excess
                    of the amount  recognized in the consolidated  statements of
                    financial  condition.  The Bank's exposure to credit loss in
                    the  event  of  nonperformance  by the  other  party  to the
                    financial  instrument  for  commitments  to extend credit is
                    represented  by the  contractual  notional  amount  of those
                    instruments.  The  Bank  uses the same  credit  policies  in
                    making   commitments  as  it  does  for   on-balance   sheet
                    instruments.  Commitments to extend credit are agreements to
                    lend to a customer as long as there is no  violation  of any
                    condition established in the contract. Commitments generally
                    have fixed expiration dates or other termination clauses and
                    may require  payment of a fee. Since  commitments may expire
                    without being drawn upon,  the total  commitment  amounts do
                    not necessarily represent future cash requirements. The Bank
                    evaluates each customer's creditworthiness on a case-by-case
                    basis.  The  amount  of  collateral   obtained,   if  deemed
                    necessary by the Bank upon extension of credit,  is based on
                    management's   credit   evaluation   of  the   counterparty.
                    Collateral  held varies but primarily  includes  residential
                    real  estate  and   commercial   real   estate   properties.
                    Commitments to purchase securities are contracts for delayed
                    delivery of  securities  in which the seller  agrees to make
                    delivery  at  a   specified   future  date  of  a  specified
                    instrument,  at a specified price or yield. Risks arise from
                    the possible  inability of  counterparties to meet the terms
                    of their  contracts and from movements in securities  values
                    and interest rates.  The Bank has the following  outstanding
                    commitments:

                                                          September 30,
                                                    -------------------------
                                                       1996           1997
                                                    -----------   -----------
                                                                        
To originate loans ..........................       $ 3,094,000   $16,409,000
                                                    ===========   ===========
Homeowners' Equity Credit Line Program.......       $11,002,000   $10,711,000
                                                    ===========   ===========
Commitments to purchase securities ..........       $      --     $   200,000
                                                    ===========   ===========

                    At September 30, 1997,  of the  $16,409,000  in  outstanding
                    commitments to originate loans,  $3,668,000 are for loans at
                    fixed  interest rates within a range of 7.125% to 8.625% and
                    $12,741,000 are for adjustable  rate loans.  The Homeowners'
                    Equity Credit Line Program represents undisbursed funds from
                    approved lines of credit.  Unless specifically  cancelled by
                    notice  from the  Bank,  these are firm  commitments  to the
                    respective  borrowers  on  demand.  The lines of credit  are
                    secured by the  respective  one to  four-family  residential
                    properties owned by the borrowers. The interest rate charged
                    for any month on funds  disbursed  under the program  ranges
                    from 1.00% to 1.50%  above the prime  rate as most  recently
                    published  in The  Wall  Street  Journal  prior  to the last
                    business day of the month immediately preceding the month in
                    which the billing cycle begins.

                    The Corporation  also has, in the normal course of business,
                    commitments  for services and supplies.  Management does not
                    anticipate losses on any of the above-mentioned commitments.
                    The  Corporation is also a party to litigation  which arises
                    primarily in the ordinary course of business. In the opinion
                    of management,  the ultimate  disposition of such litigation
                    should  not  have a  material  effect  on  the  consolidated
                    financial statements of the Corporation.

                                                                              27
<PAGE>

--------------------------------------------------------------------------------
14. FRAUD LOSS      On July 6, 1994,  the Bank  discovered  that a portfolio  of
                    approximately  $8.4 million of bridge  loans  believed to be
                    secured  by  residential  real  estate  were in fact made to
                    fictitious   borrowers  and   collateralized  by  fictitious
                    properties.   The  loans  had  been   extended   based  upon
                    fraudulent mortgage  applications and related  documentation
                    submitted to the Bank by its then general counsel.

                    Through September 30, 1996, the Bank received  approximately
                    $3.0  million from the  settlement  of its surety bond claim
                    and the liquidation of other assets and charged-off  amounts
                    approximating  $3.7 million.  As of September 30, 1996,  the
                    receivable in other assets was $1.7  million.  The Bank then
                    filed  claims  under  the  malpractice   insurance  coverage
                    available in order to recover all unpaid amounts.

                    During the 1997 fiscal period,  the Bank was able to reach a
                    settlement for its claim against the  malpractice  insurance
                    carriers  and the matter was  concluded  with no  additional
                    loss charged to operations.

--------------------------------------------------------------------------------
15. RECAPITALIZATION OF SAVINGS 
    INSTITUTION INSURANCE FUND
    ("SAIF")

                    On September 30, 1996,  legislation was enacted, which among
                    other things,  imposed a special one-time assessment on SAIF
                    member  institutions,  including the Bank, to  recapitalized
                    the  SAIF  and  spreads  the   obligations  for  payment  of
                    Financing  Corporation  ("FICO")  bonds  across all SAIF and
                    Bank Insurance  Fund ("BIF")  members.  The Federal  Deposit
                    Insurance  Corporation  ("FDIC")  special  assessment  being
                    levied  amounts  to 65.7  basis  points  on SAIF  assessable
                    deposits held as of March 31, 1995.  The special  assessment
                    was  recognized in the fourth quarter of fiscal 1996 and was
                    tax  deductible.  The  Bank  took a charge  of $2.7  million
                    before   tax-effect,   as  a  result  of  the  FDIC  special
                    assessment.  This legislation will eliminate the substantial
                    disparity  between  the  amount  that  BIF and SAIF had been
                    paying for deposit insurance premiums.

                    Beginning  on January 1, 1997,  BIF members  began  paying a
                    portion  of the FICO  payment  equal to 1.3 basis  points on
                    BIF-insured   deposits  compared  to  6.4  basis  points  on
                    SAIF-insured  deposits, and will pay a pro rata share of the
                    FICO payment on the earlier of January 1, 2000,  or the date
                    upon which the last savings association ceases to exist. The
                    legislation  also  requires  BIF and  SAIF to be  merged  by
                    January 1, 1999,  provided that  subsequent  legislation  is
                    adopted to eliminate the savings  association charter and no
                    savings associations remain as of that time.

                    The FDIC has lowered SAIF  assessments to a range comparable
                    to that of BIF members, although SAIF members must also make
                    the FICO payments described above. Management cannot predict
                    the level of FDIC insurance assessments on an on-going basis
                    or whether the BIF and SAIF will eventually be merged.

--------------------------------------------------------------------------------
16. FAIR VALUE OF FINANCIAL
    INSTRUMENTS

                    Statement  of  Financial   Accounting   Standards  No.  107,
                    "Disclosures  about  Fair  Value of  Financial  Instruments"
                    requires  disclosure of estimated  fair values for financial
                    instruments.

                    Limitations

                    The fair value  estimates  are made at a  discrete  point in
                    time based on relevant  market  information  and information
                    about the financial  instruments.  Fair value  estimates are
                    based  on   judgments   regarding   future   expected   loss
                    experience,     current    economic     conditions,     risk
                    characteristics  of various financial  instruments and other
                    factors.  These  estimates  are  subjective  in  nature  and
                    involve  uncertainties  and matters of significant  judgment
                    and, therefore, cannot be determined with precision. Changes
                    in  assumptions  could  significantly  affect the estimates.
                    Further,  the foregoing estimates may not reflect the actual
                    amount that could be realized if all or substantially all of
                    the financial instruments were offered for sale at one time.

<PAGE>

                    In addition,  the fair value estimates are based on existing
                    on-and-off  balance  sheet  financial   instruments  without
                    attempting to value the anticipated  future business and the
                    value of  assets  and  liabilities  that are not  considered
                    financial   instruments.   Other   significant   assets  and
                    liabilities  that are not  considered  financial  assets and
                    liabilities include mortgage servicing rights,  premises and
                    equipment  and  advances   from   borrowers  for  taxes  and
                    insurance. In addition, the tax ramifications related to the
                    realization  of the  unrealized  gains and losses can have a
                    significant effect on fair value estimates and have not been
                    considered  in  any of the  estimates.  Finally,  reasonable
                    comparability  between  financial  institutions  may  not be
                    likely  due  to  the  wide  range  of  permitted   valuation
                    techniques and numerous  estimates  which must be made given
                    the  absence  of active  secondary  markets  for many of the
                    financial  instruments.   This  lack  of  uniform  valuation
                    methodologies introduces a greater degree of subjectivity to
                    these  estimated fair values.  The estimation  methodologies
                    used and the  estimated  fair values and carrying  values of
                    financial instruments are set forth below:

                    Cash and cash equivalents and interest receivable

                    The   carrying   amounts  for  cash  and  cash   equivalents
                    approximate fair value.

                    Investment and mortgage-backed securities

                    Available  for  sale   securities   are  reported  at  their
                    respective  fair values in the  Consolidated  Statements  of
                    Financial  Condition.  These  values  were  based on  quoted
                    market  prices.  The  fair  values  of  securities  held  to
                    maturity were also based upon quoted market prices.

                    Loans receivable

                    The fair value of fixed rate loans  receivable  is estimated
                    by  discounting  the future  cash  flows,  using the current
                    rates  at  which  similar   loans  with  similar   remaining
                    maturities  would be made to borrowers  with similar  credit
                    ratings. For those loans with floating interest rates, it is
                    presumed that  estimated fair values  generally  approximate
                    their recorded book balances.

                    Deposits

                    The fair value of demand, savings and club accounts is equal
                    to the amount  payable on demand at the reporting  date. The
                    fair  value of  certificates  of  deposit  is  estimated  by
                    discounting  future cash flows using rates currently offered
                    for deposits of ar remaining maturities.  For those deposits
                    with floating  interest rates, it is presumed that estimated
                    fair  values  generally   approximate  their  recorded  book
                    balances.

                    Borrowings

                    The fair values for borrowings are calculated by discounting
                    estimated  future cash flows using current rates offered for
                    similar remaining maturities.

                    Commitments

                    The fair values of commitments  related to loans approximate
                    their fair  value and are  estimated  using  fees  currently
                    charged to enter into similar agreements taking into account
                    the  remaining  terms  of the  agreements  and  the  present
                    creditworthiness of the counterparties.  For fixed rate loan
                    commitments,   fair  value  also  considers  the  difference
                    between current levels of interest and the committed  rates.
                    The fair value of  commitments  to purchase  mortgage-backed
                    securities  is based upon  quoted  market  prices of similar
                    securities.

                                                                              29
<PAGE>

<TABLE>
<CAPTION>

                                                                    September 30,
                                                         ---------------------------------------
                                                                  1996              1997
                                                         ------------------- -------------------

                                                         Estimated            Estimated
                                                         Carrying     Fair    Carrying     Fair
                                                          Amount      Value    Amount      Value
                                                          ------      -----    ------      -----
                                                                      (In Thousands)
<S>                                                     <C>        <C>        <C>        <C>     
Financial assets
Cash and cash equivalents ...........................   $  4,750   $  4,750   $ 15,476   $ 15,476
  Investment securities available for sale ..........     39,055     39,055     60,742     60,742
  Mortgage-backed securities available for sale .....     40,255     40,255     53,393     53,393
Investment securities held to maturity ..............    105,549    103,192     96,552     96,387
Mortgage-backed securities held to maturity..........    164,092    162,617    162,764    163,646
 Loans receivable ...................................    134,548    134,270    127,311    128,035
 Financial liabilities
Deposits ............................................    394,581    393,419    411,021    409,844
Borrowings ..........................................     64,275     64,219     67,675     67,292

</TABLE>

--------------------------------------------------------------------------------
17. PARENT CORPORATION
      FINANCIAL DATA

                    The  following   condensed   financial   statements  of  the
                    Corporation  should be read in conjunction with the notes to
                    consolidated financial statements.


                        STATEMENTS OF FINANCIAL CONDITION

                                                         September 30,
                                                ----------------------------
                                                     1996           1997
                                                ------------    ------------
Assets
Cash ........................................   $     74,730    $     26,956
Loans receivable from subsidiary ............        950,000       1,950,000
Investment in subsidiaries ..................     35,941,076      40,436,444
Investment securities available for sale ....           --          (823,500)
Fraud loss receivable .......................      1,565,000            --
Due from subsidiary .........................        498,766         530,061
Other assets ................................           --             9,980
                                                ------------    ------------
  Total assets ..............................   $ 39,029,572    $ 43,776,941
                                                ============    ============

Liabilities and stockholders' equity
Liabilities
Dividends payable ...........................   $    533,729    $    539,096
Other liabilities ...........................         37,309          31,286
                                                ------------    ------------
  Total liabilities .........................        571,038         570,382
                                                ------------    ------------
Stockholders' equity
Common stock ................................      4,111,958       4,142,628
Paid-in-capital in excess of par value ......     12,105,541      12,293,206
Retained earnings--  substantially restricted     39,147,609      42,676,884
Unrealized loss on securities available for
  sale, net of tax ..........................       (229,074)        771,341
Treasury stock, at cost .....................    (16,677,500)    (16,677,500)
                                                ------------    ------------
  Total stockholders' equity ................     38,458,534      43,206,559
                                                ------------    ------------
  Total liabilities and stockholders' equity    $ 39,029,572    $ 43,776,941
                                                ============    ============

30
<PAGE>


                              STATEMENTS OF INCOME

<TABLE>
<CAPTION>

                                                          Year Ended September 30,
                                                   ------------------------------------
                                                       1995        1996         1997
                                                   ----------   ----------   ----------
Income:
<S>                                                <C>          <C>          <C>       
    Dividends from subsidiary ..................   $2,696,110   $2,423,495   $2,145,884
    Interest ...................................       90,524      170,732       81,887
    Miscellaneous ..............................         --           --         12,595
                                                   ----------   ----------   ----------
        Total Income ...........................    2,786,634    2,594,227    2,240,366
                                                   ----------   ----------   ----------
     Expenses:
         Miscellaneous .........................       83,550       58,422       64,438
                                                   ----------   ----------   ----------
        Total Expenses .........................       83,550       58,422       64,438
                                                   ----------   ----------   ----------
Income before income taxes and equity
    in undistributed earnings of subsidiary ....    2,703,084    2,535,805    2,175,928
   Income taxes ................................        5,362       39,293       10,760
                                                   ----------   ----------   ----------
Income before equity in undistributed earnings .    2,697,722    2,496,512    2,165,168
     Undistributed earnings of subsidiary ......    2,567,491      996,097    3,509,991
                                                   ----------   ----------   ----------
Net income .....................................   $5,265,213   $3,492,609   $5,675,159
                                                   ==========   ==========   ==========
</TABLE>


                            STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
                                                            Year Ended September 30,
                                                 ----------------------------------------------
                                                      1995             1996           1997
                                                 -------------    ------------    -------------
<S>                                               <C>             <C>             <C>         
Cash flows from operating activities:
  Net income .................................... $  5,265,213    $  3,492,609    $  5,675,159
  Adjustments to reconcile net income to net
  cash provided by operating activities:
    (Increase) decrease in undistributed
       earnings of subsidiary ...................   (2,567,491)        767,023      (3,494,953)
    Decrease (increase) in due from subsidiary ..       23,212          69,100         (31,295)
    (Increase) decrease in fraud loss receivable    (1,600,000)         35,000       1,565,000
    Decrease (increase) in other assets .........       18,731            --            (9,980)
    Increase (decrease) in dividends
      payable ...................................        9,255         (44,195)          5,367
    Increase (decrease) in other liabilities ....          448           9,861          (6,023)
                                                  ------------    ------------    ------------
      Net cash provided by operating
        activities ............................      1,149,368       4,329,398       3,703,275
                                                  ------------    ------------    ------------
Cash flows provided by investing activities:
  Purchase of investment securities ...........           --              --           823,500
  Distribution from Bank subsidiary ...........           --        12,733,880            --
  Decrease (increase) in loans receivable
    from subsidiary ...........................      1,100,000          50,000      (1,000,000)
                                                  ------------    ------------    ------------
       Net cash provided by (used in)
         investing activities .................      1,100,000      12,783,880      (1,823,500)
                                                  ------------    ------------    ------------
Cash flows from financing activities:
  Issuance of common stock ....................        412,263         319,902         218,335
  Cash dividends paid .........................     (2,696,111)     (2,423,494)     (2,145,884)
  Purchase of treasury stock ..................           --       (14,975,000)           --
                                                  ------------    ------------    ------------
       Net cash used in financing activities ..     (2,283,848)    (17,078,592)     (1,927,549)
                                                  ------------    ------------    ------------
Net (decrease) increase in cash ...............        (34,480)         34,686         (47,774)
Cash -- beginning .............................         74,524          40,044          74,730
                                                  ------------    ------------    ------------
Cash -- ending ................................   $     40,044    $     74,730    $     26,956
                                                  ============    ============    ============
</TABLE>

                                                                              31
<PAGE>
--------------------------------------------------------------------------------
18. IMPACT OF NEW ACCOUNTING STANDARDS

                    Statement  of  Financial   Accounting   Standards  No.  128,
                    "Earnings Per Share" ("SFAS 128") establishes  standards for
                    computing  and  presenting  earnings  per  share  (EPS)  and
                    applies to  entities  with  publicly  held  common  stock or
                    potential  common stock.  SFAS 128 replaces the presentation
                    of primary EPS with a presentation of basic EPS and requires
                    dual  presentation  of basic and  diluted EPS on the face of
                    the income  statement for all entities with complex  capital
                    structures  and requires a  reconciliation  of the numerator
                    and   denominator  of  the  basic  EPS  computation  to  the
                    numerator and  denominator  of the diluted EPS  computation.
                    SFAS 128 is effective  for financial  statements  issued for
                    periods  ending after December 15, 1997,  including  interim
                    periods;  earlier  application is not permitted and requires
                    restatement of all prior-period  EPS data presented.  If the
                    Bank had adopted SFAS 128,  basic EPS would have been $1.37,
                    $0.96,  and $1.85 for 1995,  1996,  and 1997,  respectively.
                    Diluted  EPS would  have been the same as the  earnings  per
                    share reported.

                    Statement  of  Financial   Accounting   Standards  No.  130,
                    "Reporting  Comprehensive  Income" ("SFAS 130")  establishes
                    standards for reporting and display of comprehensive  income
                    and its components (revenues,  expenses,  gains, and losses)
                    in a full set of general-purpose financial statements.  SFAS
                    130  requires  that  all  items  that  are  required  to  be
                    recognized  under  accounting  standards  as  components  of
                    comprehensive  income be reported  in a financial  statement
                    that  is  displayed  with  the  same   prominence  as  other
                    financial  statements.  SFAS 130 does not require a specific
                    format for that  financial  statement  but requires  that an
                    enterprise    display   an   amount    representing    total
                    comprehensive  income  for  the  period  in  that  financial
                    statement. SFAS 130 requires that an enterprise (a) classify
                    items of other  comprehensive  income  by their  nature in a
                    financial  statement and (b) display the accumulated balance
                    of  other  comprehensive  income  separately  from  retained
                    earnings  and  additional  paid  in  capital  in the  equity
                    section of a statement  of financial  position.  SFAS 130 is
                    effective  for fiscal  years  beginning  after  December 15,
                    1997.

                    Reclassification of financial statements for earlier periods
                    provided for  comparative  purposes is required.  Management
                    has not yet  determined  the impact of the  adoption  on its
                    reporting of operations.

32
<PAGE>


--------------------------------------------------------------------------------
19. QUARTERLY FINANCIAL DATA (UNAUDITED)

A summary of the quarterly consolidated financial data is as follows:
<TABLE>
<CAPTION>

                                                                  First    Second      Third    Fourth
Year Ended September 30, 1996                                     Quarter  Quarter    Quarter   Quarter
-----------------------------                                     -------  -------    -------   -------
                                                                  (In Thousands, Except Per Share Data)
<S>                                                               <C>       <C>       <C>       <C>    
Interest income ...............................................   $ 7,845   $ 7,857   $ 8,254   $ 8,777
Interest expense ..............................................     4,523     4,451     4,794     5,365
                                                                  -------   -------   -------   -------
  Net interest income .........................................     3,322     3,406     3,460     3,412
Non-interest income ...........................................        94        82        65        85
Non-interest expense ..........................................     1,341     1,388     1,363     4,382(1)
                                                                  -------   -------   -------   -------
Income before income taxes ....................................     2,075     2,100     2,162      (885)
Income taxes ..................................................       752       755       773      (320)
                                                                  -------   -------   -------   -------
Net income (loss) .............................................   $ 1,323   $ 1,345   $ 1,389   $  (565)
                                                                  =======   =======   =======   =======
Net income (loss) per common share and common stock equivalents   $  0.33   $  0.34   $  0.36   $ (0.18)
                                                                  =======   =======   =======   =======
Dividends per common share ....................................   $ 0.175   $ 0.175   $ 0.175   $ 0.175
                                                                  =======   =======   =======   =======
</TABLE>

(1)  Includes a pre-tax charge of approximately  $2.7 million as a result of the
     FDIC's one-time special SAIF insurance assessment. See Note 15.

<TABLE>
<CAPTION>

                                                           First    Second   Third    Fourth
Year Ended September 30, 1997                             Quarter   Quarter Quarter   Quarter
-----------------------------                             -------  -------  -------   -------
                                                          (In Thousands, Except Per Share Data)
<S>                                                        <C>      <C>      <C>      <C>   
Interest income ........................................   $8,843   $9,015   $9,086   $9,075
Interest expense .......................................    5,487    5,506    5,647    5,735
                                                           ------   ------   ------   ------
  Net interest income ..................................    3,356    3,509    3,439    3,340
Non-interest income ....................................      111       76      192      131
Non-interest expense ...................................    1,366    1,357    1,328    1,224
                                                           ------   ------   ------   ------
Income before income taxes .............................    2,101    2,228    2,303    2,247
Income taxes ...........................................      769      798      825      812
                                                           ------   ------   ------   ------
Net income .............................................   $1,332   $1,431   $1,478   $1,435
                                                           ======   ======   ======   ======
Net income per common share and common stock equivalents   $ 0.43   $ 0.45   $ 0.47   $ 0.45
                                                           ======   ======   ======   ======
Dividends per common share .............................   $0.175   $0.175   $0.175   $0.175
                                                           ======   ======   ======   ======
</TABLE>

                                                                              33
<PAGE>






Independent Auditors' Report

To the Board of Directors
And Stockholders
Pulse Bancorp, Inc.

We have audited the accompanying  consolidated statements of financial condition
of Pulse Bancorp,  Inc. and Subsidiaries (the "Corporation") as of September 30,
1996 and 1997 and the  related  consolidated  statements  of income,  changes in
stockholders'  equity  and cash  flows for each of the  years in the  three-year
period ended September 30, 1997. These consolidated financial statements are the
responsibility of the Corporation's management. Our responsibility is to express
an opinion on these consolidated financial statements based on our audits.

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

 In our opinion, the consolidated financial statements referred to above present
fairly, in all material  respects,  the financial position of the Corporation as
of  September  30, 1996 and 1997 and the results of their  operations  and their
cash flows for the each of the years in the  three-year  period ended  September
30, 1997 in conformity with generally accepted accounting principles.



/s/KPMG Peat Marwick LLP

Short Hills, New Jersey
October 24, 1997


34

<PAGE>



Executive Officers of the Corporation and the Bank

BENJAMIN S. KONOPACKI
Chairman of the Board, former 
President, Pulse Savings Bank

GEORGE T. HORNYAK, JR.
President and CEO and Director,
Pulse Bancorp, Inc. and Pulse 
Savings Bank

THOMAS B. KONOPACKI
Executive Vice President and CFO,
Pulse Bancorp, Inc. and Pulse
Savings Bank

RONALD E. VAUGHN, JR.
Senior Vice President and 
Chief Lending Officer, 
Pulse Bancorp, Inc. and Pulse 
Savings Bank

JEFFREY M. GOSTKOWSKI
Vice President of Operations,
 Pulse Bancorp, Inc. and Pulse
 Savings Bank

PATRICIA M. BARSZCZ
Vice President and Asst. Secretary,
Pulse Bancorp, Inc. and Pulse
Savings Bank

CATHERINE D. FRANZONI
Vice President and Treasurer, 
Pulse Bancorp, Inc. and Pulse
Savings Bank

NANCY M. JANOSKO
Secretary, Pulse Bancorp, Inc. and 
Pulse Savings Bank

Other Officers of the Bank

GLENN BROOKS
Asst. V.P./Internal Auditor

FLORENCE PAWLOWSKI
Branch Manager-Asst. Vice 
President

SYLVIA GAN
Asst. Vice President

GAIL WOLYNEC
Asst. V.P./Asst. Secretary

RENEE PARSONS
Asst. Secretary

NADYA CUPRYK
Asst. Vice President

ARLEEN FERRO
Asst. Vice President

Directors of the Corporation and the Bank

BENJAMIN S. KONOPACKI
Chairman, former President,
Pulse Savings Bank

JOSEPH CHADWICK
President of Thomas and 
Chadwick/Riverside Supply
Company

GEORGE T. HORNYAK, JR.
President and CEO, Pulse Bancorp,
Inc. and Pulse Savings Bank

EDWIN A. KOLODZIEJ
Counsellor at Law

WAYNE A. KRONOWSKI
Treasurer and Chief Financial
Officer of the Borough of Sayreville

EDWIN A. ROGINSKI
Former Vice President and 
Chief Compliance Officer of 
Chase Manhattan 
Investment Services, Inc.

ADAM RZEPKA
Director Emeritus

FRANK L. CHADWICK
Chairman Emeritus

ASSOCIATE BOARD

South Amboy

WALTER FABISZEWSKI
EDWARD GLEASON
JOHN JANKOWSKI
STANLEY KNAST


                                                                              35
<PAGE>

MAIN OFFICE

Pulse Bancorp, Inc.
6 Jackson Street
P.O. Box 193
South River, New Jersey 08882
(732) 257-2400
(732) 257-2400 - Mortgage Department

PULSE SAVINGS BANK OFFICES

MAIN OFFICE
6 Jackson Street
South River, New Jersey 08882
(732) 257-2400

Washington Avenue & Davis Lane
South Amboy, New Jersey 08879
(732) 721-1300

Prospect Plains and Applegarth Roads
Monroe Township, New Jersey 08512
(609) 655-1900

213 Summerhill Road
East Brunswick, N.J. 08816
(732) 651-6655

1225 Brunswick Avenue
Lawrenceville, New Jersey 08648
(609) 394-1500

CORPORATE INFORMATION

Nancy M. Janosko
Secretary
Pulse Bancorp, Inc.
6 Jackson Street
P.O. Box 193
South River, New Jersey 08882
(732) 257-2400

TRANSFER AGENT AND REGISTRAR

American Stock Transfer and Trust Company
40 Wall Street, 46th Floor
New York, New York 10005
(212) 936-5100

SPECIAL COUNSEL

Malizia, Spidi, Sloane & Fisch, P.C.
One Franklin Square
1301 K Street, N.W.
Suite 700 East
Washington, D.C. 20005

STOCK LISTING

The Corporation's Common Stock is traded over-the-counter on the Nasdaq National
Market appearing under the symbol "PULS".

MARKET MAKERS

Sandler O'Neill & Partners, L.P.
Ryan, Beck & Co., Inc.
F.J. Morrissey & Co., Inc.

ANNUAL MEETING
January 22, 1998, 10:00 A.M.
Forsgate Country Club
Forsgate Drive
Jamesburg, New Jersey 08831

10-K INFORMATION:

A COPY OF THE CORPORATION'S ANNUAL REPORT ON FORM 10-K FOR THE FISCAL YEAR ENDED
SEPTEMBER 30, 1997, AS FILED WITH THE SECURITIES AND EXCHANGE  COMMISSION,  WILL
BE FURNISHED  WITHOUT CHARGE TO  STOCKHOLDERS AS OF THE RECORD DATE UPON WRITTEN
REQUEST TO THE SECRETARY,  PULSE BANCORP,  INC., 6 JACKSON STREET,  SOUTH RIVER,
NEW JERSEY 08882.

36