UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549


                                   FORM 10-QSB

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


        For the Quarter ended March 31, 1998 Commission File No. 0-21113


                              AFSALA BANCORP, INC.
                              --------------------
             (Exact name of registrant as specified in its charter)



          DELAWARE                                   14-1793890
          --------                                   ----------
 (State or other jurisdiction of         (I.R.S. Employer Identification Number)
 incorporation or organization)


                        161 CHURCH STREET, AMSTERDAM, NY
                        --------------------------------
                      12010 (Address of principal executive
                                    offices)

       Registrant's telephone number, including area code: (518) 842-5700


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

Indicate the number of shares of outstanding of each of the issuer's  classes of
common stock, as of the latest practicable date:

                                          Number of shares outstanding
Class of Common Stock                          as of May  7, 1998
---------------------                     ----------------------------

Common Stock, Par $.10                        1,378,440


Transitional Small Business Disclosure Format (Check One):  Yes     No    X
                                                                ---      ---

<PAGE>


                       AFSALA BANCORP, INC. AND SUBSIDIARY

                                   FORM 10-QSB

                                 MARCH 31, 1998


INDEX

Part I    CONSOLIDATED FINANCIAL INFORMATION
------
                                                                            Page

Item 1.   Financial Statements..............................................  1

            Consolidated Balance Sheets as of March 31, 1998
            (unaudited) and September 30, 1997             .................  1

            Consolidated Statements of Income for the three
            months ended March 31, 1998 and 1997 (Unaudited) ...............  2

            Consolidated Statements of Income for the six
            months ended March 31, 1998 and 1997 (Unaudited) ...............  3

            Consolidated Statements of Cash Flows for the six
            months ended March 31, 1998 and 1997 (Unaudited)................  4

            Notes to unaudited consolidated interim financial statements....  5

Item 2.  Management's Discussion and Analysis
            of Financial Condition and Results of Operations................  8

Part II   OTHER INFORMATION
-------

Item 1.   Legal Proceedings................................................. 23

Item 2.   Changes in Securities and Use of Proceeds......................... 23

Item 3.   Defaults Upon Senior Securities....................................23

Item 4.   Submission of Matters to a Vote of Security Holders............... 23

Item 5.   Other Information................................................. 23

Item 6.   Exhibits and Reports on Form 8-K.   .............................. 23

Signatures.................................................................. 24


<PAGE>

                       AFSALA BANCORP, INC. AND SUBSIDIARY
                           Consolidated Balance Sheets
                                   (Unaudited)
<TABLE>
<CAPTION>

                                                                                  March 31,      September 30,
                                                                                    1998             1997
                                                                                -------------    -------------
Assets
------
<S>                                                                             <C>              <C>          
  Cash and due from banks                                                       $   4,583,591    $   5,127,320
  Federal funds sold                                                                6,350,000        2,675,625
  Term deposits with the Federal Home Loan Bank                                    11,000,000               --
                                                                                --------------   -------------
                   Total cash and cash equivalents                                 21,933,591        7,802,320
                                                                                -------------    -------------

  Securities available for sale, at fair value                                     41,050,515       37,705,373
  Investment securities held to maturity                                           22,176,313       35,263,826
  Federal Home Loan Bank of New York stock, at cost                                   565,300          565,300
  Loans receivable                                                                 77,964,987       76,927,350
  Less:  Allowance for loan losses                                                 (1,142,231)      (1,108,080)
                                                                                -------------    -------------
       Net loans receivable                                                        76,822,756       75,819,270
                                                                                -------------    -------------

  Accrued interest receivable                                                       1,322,478        1,405,687
  Premises and equipment, net                                                       1,786,212        1,659,444
  Other assets                                                                        268,208          186,066
                                                                                -------------    -------------
                   Total assets                                                 $ 165,925,373    $ 160,407,286
                                                                                =============    =============

  Liabilities and Stockholders' Equity
  ------------------------------------
  Liabilities:
           Deposits                                                               138,892,716      135,316,322
           Federal Home Loan  Bank of New York long term
              borrowings                                                            1,705,611        1,415,625
           Escrow accounts                                                            319,603          266,656
           Accrued expenses and other liabilities                                   4,878,484        2,789,562
                                                                                -------------    -------------
                   Total liabilities                                              145,796,414      139,788,165
                                                                                -------------    -------------

  Commitments and contingent liabilities

  Stockholders' Equity:
    Preferred stock, $0.10 par value;  authorized 500,000 shares; none issued              --               --
    Common stock, $0.10 par value; authorized 3,000,000 shares;
                1,454,750 shares issued                                               145,475          145,475
    Additional paid-in capital                                                     13,525,263       13,465,092
    Retained earnings, substantially restricted                                     9,456,008        9,048,824
    Common stock acquired by ESOP                                                    (969,325)      (1,080,105)
    Unearned Restricted Stock Plan                                                   (654,638)        (733,194)
    Treasury stock, at cost                                                        (1,379,541)        (238,125)
    Net unrealized gain on securities available for sale, net of tax                    5,717           11,154
                                                                                -------------    -------------

                   Total  stockholders' equity                                     20,128,959       20,619,121
                                                                                -------------    -------------

                   Total liabilities and stockholders' equity                   $ 165,925,373    $ 160,407,286
                                                                                =============    =============
</TABLE>

 See accompanying notes to unaudited consolidated interim financial statements.

                                       -1-
<PAGE>

                       AFSALA BANCORP, INC. AND SUBSIDIARY
                        Consolidated Statements of Income
               For the three months ended March 31, 1998 and 1997
                                   (Unaudited)
<TABLE>
<CAPTION>
                                                                                                1998         1997      
                                                                                             ----------   ----------
            <S>                                                                              <C>          <C>       
            Interest and dividend income:                                                    
                  Interest and fees on loans                                                 $1,548,607   $1,518,471
                  Interest on federal funds sold                                                127,815       87,595
                  Interest on FHLB term deposits                                                 67,888       35,149
                  Interest on securities available for sale                                     571,998      269,149
                  Interest on investment securities                                             420,887      704,153
                  Dividends on Federal Home Loan Bank of NY stock                                10,315        8,851
                                                                                             ----------   ----------
                         Total interest and dividend income                                   2,747,510    2,623,368
                                                                                             ----------   ----------
                                                                                             
            Interest expense:                                                                
                  Deposits and escrow accounts                                                1,419,692    1,294,221
                  Federal Home Loan Bank of New York long term                               
                     borrowings                                                                  29,476       28,678
                                                                                             ----------   ----------
                         Total interest expense                                               1,449,168    1,322,899
                                                                                             ----------   ----------
                                                                                             
                         Net interest income                                                  1,298,342    1,300,469
                                                                                             
            Provision for loan losses                                                            15,000       70,000
                                                                                             ----------   ----------
                         Net interest income after provision for loan losses                  1,283,342    1,230,469
                                                                                             ----------   ----------
                                                                                             
             Non-interest  income:                                                           
                  Service charges on deposit accounts                                            87,000       88,698
                  Other                                                                          13,800       16,409
                                                                                             ----------   ----------
                         Total  non-interest income                                             100,800      105,107
                                                                                             ----------   ----------
                                                                                             
            Non-interest expenses:                                                           
                  Compensation and benefits                                                     482,861      365,270
                  Occupancy and equipment                                                       139,808      139,355
                  FDIC deposit insurance premium                                                 21,588       20,696
                  Data processing fees                                                           74,540       72,107
                  Professional services fees                                                     43,670       72,874
                  Advertising                                                                    10,003       10,101
                  Supplies                                                                       30,583       23,803
                  Acquisition-related expenses                                                   29,421           --
                  Other                                                                         133,017      191,018
                                                                                             ----------   ----------
                         Total  non-interest expenses                                           965,491      895,224
                                                                                             ----------   ----------
                                                                                             
                         Income before income tax expense                                       418,651      440,352
                                                                                             
            Income tax expense                                                                  162,500      157,500
                                                                                             ----------   ----------
                                                                                             
                         Net income                                                          $  256,151   $  282,852
                                                                                             ==========   ==========
                                                                                             
                         Earnings per share:                                                 
                               Basic                                                         $     0.21   $     0.21
                                                                                             ==========   ==========
                               Diluted                                                       $     0.20   $     0.21
                                                                                             ==========   ==========
</TABLE>                                            
                                                                   
  See accompanying notes to unaudited consolidated interim financial statements.

                                      - 2 -


<PAGE>

                       AFSALA BANCORP, INC. AND SUBSIDIARY
                        Consolidated Statements of Income
                For the six months ended March 31, 1998 and 1997
                                   (Unaudited)
<TABLE>
<CAPTION>
                                                                                    1998         1997
                                                                                  ----------   ----------

<S>                                                                               <C>          <C>       
Interest and dividend income:
      Interest and fees on loans                                                  $3,113,236   $3,037,125
      Interest on federal funds sold                                                 181,929      197,647
      Interest on FHLB term deposits                                                  67,888      142,037
      Interest on securities available for sale                                    1,209,368      503,904
      Interest on investment securities                                              939,184    1,339,911
      Dividends on Federal Home Loan Bank of NY stock                                 20,360       18,244
                                                                                  ----------   ----------
             Total interest and dividend income                                    5,531,965    5,238,868
                                                                                  ----------   ----------

Interest expense:
      Deposits and escrow accounts                                                 2,849,036    2,596,727
      Federal Home Loan Bank of New York long term
         borrowings                                                                   58,901       59,575
                                                                                  ----------   ----------
             Total interest expense                                                2,907,937    2,656,302
                                                                                  ----------   ----------

             Net interest income                                                   2,624,028    2,582,566

Provision for loan losses                                                             50,000      150,000
                                                                                  ----------   ----------
      Net interest income after provision for loan losses                          2,574,028    2,432,566
                                                                                  ----------   ----------

Non-interest income:
      Service charges on deposit accounts                                            176,733      199,036
      Other                                                                           16,603       29,420
                                                                                  ----------   ----------
             Total  non-interest income                                              193,336      228,456
                                                                                  ----------   ----------

Non-interest expenses:
      Compensation and benefits                                                      945,397      737,073
      Occupancy and equipment                                                        263,370      272,793
      FDIC deposit insurance premium                                                  43,016       76,013
      Data processing fees                                                           145,746      142,074
      Professional service fees                                                       64,151      131,624
      Advertising                                                                     27,135       24,490
      Supplies                                                                        59,580       49,641
      Acquisition-related expenses                                                    29,421           --
      Other                                                                          291,662      370,131
                                                                                  ----------   ----------
             Total non-interest expenses                                           1,869,478    1,803,839
                                                                                  ----------   ----------

             Income before income tax expense                                        897,886      857,183

Income tax expense                                                                   330,825      304,731
                                                                                  ----------   ----------

             Net income                                                           $  567,061   $  552,452
                                                                                  ==========   ==========

             Earnings per share:
                   Basic                                                          $     0.46   $     0.41
                                                                                  ==========   ==========
                   Diluted                                                        $     0.44   $     0.41
                                                                                  ==========   ==========
</TABLE>

  See accompanying notes to unaudited consolidated interim financial statements.
                                      - 3 -


<PAGE>
                       AFSALA BANCORP, INC. AND SUBSIDIARY
                      Consolidated Statements of Cash Flows
                For the six months ended March 31, 1998 and 1997
                                   (Unaudited)
<TABLE>
<CAPTION>
                                                                                               1998            1997
                                                                                           ------------    ------------
<S>                                                                                        <C>             <C>         
            Increase  (decrease) in cash and cash  equivalents: 
            Cash flows from operating activities:
                     Net income                                                            $    567,061    $    552,452
                     Adjustments to reconcile net income to net
                         cash provided by (used in) operating activities:
                          Depreciation                                                           77,560          91,273
                          Provision for loan losses                                              50,000         150,000
                          Allocation of ESOP stock                                              170,951          32,406
                          RSP compensation expense                                               78,556            --
                          Decrease (increase) in accrued interest receivable                     84,834        (207,821)
                          (Increase) decrease in other assets                                   (82,142)        204,061
                          Decrease in accrued expenses and other liabilities                   (263,505)     (3,416,891)
                                                                                           ------------    ------------
                                Total adjustments                                               116,254      (3,146,972)
                                                                                           ------------    ------------
                                Net cash provided by (used in) operating activities             683,315      (2,594,520)
                                                                                           ------------    ------------

            Cash flows from investing activities:
                      Proceeds from the maturity and call of securities
                             available for sale                                              13,746,619       4,180,531
                      Purchases of securities available for sale                            (14,600,000)    (10,550,000)
                      Proceeds from the maturity and call of investment securities           13,626,853       4,089,885
                      Purchases of investment securities                                       (539,340)    (11,001,844)
                      Net loans made to customers                                            (1,053,486)     (1,892,465)
                      Capital expenditures                                                     (204,328)        (46,269)
                                                                                           ------------    ------------
                                Net cash provided by (used in) investing activities          10,976,318     (15,220,162)
                                                                                           ------------    ------------
            Cash flows from financing activities:
                      Net increase in deposits                                                3,576,394       1,896,369
                      Borrowing from the Federal Home Loan Bank                                 500,000            --
                      Repayments on long term borrowings from the
                             Federal  Home Loan Bank                                           (210,014)       (193,750)
                      Net increase (decrease) in escrow accounts                                 52,947        (158,689)
                      Purchase of treasury stock                                             (1,287,812)           --
                      Cash dividends paid on common stock                                      (159,877)           --
                                                                                           ------------    ------------
                               Net cash provided by financing activities                      2,471,638       1,543,930
                                                                                           ------------    ------------

            Net increase (decrease) in cash and cash equivalents                             14,131,271     (16,270,752)
            Cash and cash equivalents at beginning of period                                  7,802,320      27,016,392
                                                                                           ------------    ------------
            Cash and cash equivalents at end of period                                     $ 21,933,591    $ 10,745,640
                                                                                           ============    ============

            Additional  Disclosures Relative to Cash Flows:
                              Interest paid                                                $  2,905,770    $  2,664,664
                                                                                           ============    ============

                             Taxes paid                                                    $    608,268    $    135,228
                                                                                           ============    ============

            Supplemental schedule of non-cash investing and financing activities:
              Change in net unrealized gain on securities available for sale, net of tax   $      5,437    $     88,840
                                                                                           ============    ============
              Net increase in amounts due to broker from purchases of
                     securities available for sale                                         $  2,501,625    $       --
                                                                                           ============    ============  
              Decrease in amounts due to broker from purchases of treasury stock           $    146,396    $       --
                                                                                           ============    ============  
</TABLE>
 See accompanying notes to unaudited consolidated interim financial statements.

                                      -4 -
<PAGE>
                       AFSALA BANCORP, INC. AND SUBSIDIARY
          NOTES TO UNAUDITED CONSOLIDATED INTERIM FINANCIAL STATEMENTS


NOTE 1.  Presentation of Financial Information

The accompanying unaudited consolidated interim financial statements include the
accounts of AFSALA  Bancorp,  Inc. and its  subsidiary  (the Company)  Amsterdam
Federal  Bank.  The  accompanying   unaudited   consolidated  interim  financial
statements  have been  prepared  in  accordance  with the  instructions  to Form
10-QSB.  Accordingly,  they do not include all of the  information and footnotes
required by generally  accepted  accounting  principles  for complete  financial
statements.  The accounting and reporting policies of the Company conform in all
material  respects to generally  accepted  accounting  principles and to general
practice within the savings bank industry.  It is the opinion of management that
the accompanying unaudited consolidated interim financial statements reflect all
adjustments  which are  considered  necessary  to report  fairly  the  financial
position as of March 31, 1998,  the  Consolidated  Statements  of Income for the
three months and six months ended March 31, 1998 and 1997, and the  Consolidated
Statements  of Cash Flows for the six months ended March 31, 1998 and 1997.  The
results  of  operations  for  the six  months  ended  March  31,  1998,  are not
necessarily  indicative  of results  that may be  expected  for the entire  year
ending  September 30, 1998.  The  accompanying  unaudited  consolidated  interim
financial  statements should be read in conjunction with AFSALA Bancorp,  Inc.'s
September  30,  1997  consolidated  financial  statements,  including  the notes
thereto,  which are included in AFSALA Bancorp, Inc's 1997 Annual Report on Form
10-KSB.


NOTE 2.  Proposed Merger

On April 23, 1998, AFSALA Bancorp, Inc. ("AFSALA") jointly announced that it had
entered into a Reorganization and Merger Agreement (the "Agreement") with Ambanc
Holding Co., Inc., Amsterdam,  New York ("Ambanc") for the merger of AFSALA with
and into Ambanc and the merger of AFSALA's  wholly-owned  subsidiary,  Amsterdam
Federal Bank, with and into Ambanc's wholly-owned subsidiary,  Amsterdam Savings
Bank, FSB (collectively, the "Merger"). The parties to the Agreement will in the
future jointly rename the resulting bank. In consideration  of the merger,  each
outstanding share of common stock of AFSALA will be exchanged for 1.07 shares of
Ambanc common stock.  Consummation of the Merger is subject to satisfaction of a
number of conditions,  including, among other things, stockholder and regulatory
approval  and the  receipt  of a written  fairness  opinion  by AFSALA  that the
consideration  offered  pursuant to the Agreement is fair from a financial point
of view to the stockholders of AFSALA. It is anticipated that the Merger will be
consummated during the fourth quarter of calendar 1998 and will be accounted for
as a purchase transaction.

In connection  with the  Agreement,  AFSALA and Ambanc have entered into a Stock
Option Agreement dated April 24, 1998, pursuant to which Ambanc has the right to
purchase  344,500  shares of AFSALA  common stock at a price of $20.75 per share
exercisable under certain circumstances.




                                      -5 -
<PAGE>

NOTE 3.  Earnings Per Share

On December  31,  1997,  the Company  adopted the  provisions  of  Statement  of
Financial  Accounting  Standards (SFAS) No. 128,  "Earnings per Share." SFAS No.
128 establishes standards for computing and presenting earnings per share (EPS).
SFAS No. 128 supersedes  Accounting  Principles  Board Opinion No. 15, "Earnings
per Share" and related interpretations.  SFAS No. 128 requires dual presentation
of basic and diluted EPS on the face of the income  statement  for all  entities
with  complex   capital   structures   and   specifies   additional   disclosure
requirements.

Basic EPS  excludes  dilution  and is computed by dividing  income  available to
common  stockholders by the weighted average number of common shares outstanding
for the period.  Unvested  restricted  stock awards are  considered  outstanding
common shares and included in the  computation  of basic EPS as of the date that
they are fully vested.  Diluted EPS reflects the  potential  dilution that could
occur if securities or other  contracts to issue common stock were  exercised or
converted  into common  stock or resulted in the  issuance of common  stock that
then shared in the earnings of the entity (such as the Company's stock options).

All prior period EPS data has been restated to conform to the provisions of this
Statement.

The following tables provide the calculation of basic and diluted EPS:
<TABLE>
<CAPTION>
                                                           For the Three Months Ended March  31,
                                      -----------------------------------------------------------------------------------
                                                               1998                                           1997
                                      ---------------------------------------------   -----------------------------------
                                                      Weighted      Per- Share                  Weighted      Per- Share
                                           Income    Avg. Shares      Amount         Income    Avg. Shares      Amount
                                           ------    -----------      ------         ------    -----------      ------
<S>                                     <C>           <C>           <C>           <C>            <C>          <C>       
Basic EPS:
   Net income available to
       common stockholders              $  256,151    1,223,374     $     0.21    $ 282,852      1,346,740    $     0.21
                                                                    ==========                                ==========

 Effect of  Dilutive Securities:
  Stock options                                           33,321                                        -
  Unvested restricted stock awards                        16,216                                        -
                                                     -----------                               -----------

Diluted EPS                             $  256,151     1,272,911    $     0.20    $ 282,852      1,346,740    $     0.21
                                      ============   ===========    ==========    =========    ===========    ==========

</TABLE>

<TABLE>
<CAPTION>
                                                                 For the Six Months Ended March 31,
                                      ------------------------------------------------------------------------------------
                                                               1998                                           1997
                                      ---------------------------------------------   ------------------------------------
                                                      Weighted      Per- Share                  Weighted      Per- Share
                                           Income    Avg. Shares      Amount         Income    Avg. Shares      Amount
                                           ------    -----------      ------         ------    -----------      ------

<S>                                     <C>           <C>           <C>           <C>            <C>          <C>       
Basic EPS:
   Net income available to
       common stockholders              $ 567,061     1,228,485     $     0.46    $ 552,452      1,345,355    $     0.41
                                                                    ==========                                ==========

 Effect of  Dilutive Securities:
  Stock options                                           33,789                                         -
  Unvested restricted stock awards                        15,271                                         -
                                                     -----------                               -----------
Diluted EPS                             $  567,061     1,277,545    $     0.44    $ 552,452      1,345,355    $     0.41
                                      ============   ===========    ==========    =========    ===========    ==========
</TABLE>



                                      -6 -

<PAGE>

NOTE 4.  Recent Accounting Pronouncements

In June 1997, the Financial  Accounting Standards Board (`FASB") issued SFAS No.
130,  "Reporting   Comprehensive  Income"  (Statement  130),  which  establishes
standards for reporting and display of  comprehensive  income and its components
in financial statements. Statement 130 states that comprehensive income includes
reported  net  income  of a  company,  adjusted  for  items  that are  currently
accounted for as direct entries to equity,  such as the net  unrealized  gain or
loss on securities  available for sale.  This  statement is effective for fiscal
years  beginning  after  December 15, 1997. As required,  the Company will adopt
Statement 130 in the first  quarter of fiscal 1999,  and will report and display
comprehensive income in accordance with the new statement.

In June 1997,  the FASB issued SFAS No. 131,  "Disclosures  about Segments of an
Enterprise and Related Information" (Statement 131), which establishes standards
for reporting by public  companies about  operating  segments of their business.
Statement 131 also establishes  standards for related disclosures about products
and services, geographic areas, and major customers. This Statement is effective
for periods  beginning  after December 15, 1997.  Management does not anticipate
that the adoption of this statement will have a material effect on the Company's
consolidated financial statements.


                                      -7 -


<PAGE>






                      MANAGEMENT'S DISCUSSION AND ANALYSIS
                OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS



General

AFSALA Bancorp,  Inc. (the Company) is a Delaware corporation  organized in June
1996 at the direction of Amsterdam  Federal Bank (the Bank) to aquire all of the
capital stock that the Bank issued upon the Bank's conversion from the mutual to
stock form of  ownership.  On September  30,  1996,  the Company  completed  its
initial public stock offering, issuing 1,454,750 shares of $.10 par value common
stock at $10.00 per share.  Net proceeds to the Company were $13.6 million after
conversion  costs.  Approximately  $1.1 million of the proceeds were utilized to
fund a loan by the Company to the Company's Employee Stock Ownership Plan (ESOP)
which  purchased  110,780  shares  of the  Company's  common  stock  during  the
offering.  The  Company is not an  operating  company and has not engaged in any
significant business to date. As such,  references herein to the Bank subsequent
to  September  30,  1996  include  the  Company  unless  the  context  otherwise
indicates.

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

 The Bank  has  been,  and  intends  to  continue  to be,  a  community-oriented
financial  institution  offering a variety of financial  services.  Management's
strategy  has been to try to  achieve a high  loans to  assets  ratio and a high
proportion of lower-costing, non-time deposit accounts in the deposit portfolio.
At March 31, 1998, the Bank's loans receivable,  net, to assets ratio was 46.3%.
At March 31, 1998,  $67.1  million or 48.3% of total  deposits  were in non-time
deposits accounts.


Forward-Looking Statements

This Form 10-QSB includes forward-looking statements that involve inherent risks
and  uncertainties.  The Company  cautions  readers  that a number of  important
factors  could  cause  actual  results  to differ  materially  from those in the
forward-looking  statements.  Those  factors  include  fluctuations  in interest
rates,   inflation,   government   regulations,   and  economic  conditions  and
competition in the  geographic and business areas in which the Company  conducts
its operations.  The interim financial information should be read in conjunction
with the Company's 1997 Annual Report on Form 10-KSB.

                                      - 8 -

<PAGE>

Mergers and Acquisitions

On April 23, 1998, AFSALA Bancorp, Inc. ("AFSALA") jointly announced that it had
entered into a Reorganization and Merger Agreement (the "Agreement") with Ambanc
Holding Co., Inc., Amsterdam,  New York ("Ambanc") for the merger of AFSALA with
and into Ambanc and the merger of AFSALA's  wholly-owned  subsidiary,  Amsterdam
Federal Bank, with and into Ambanc's wholly-owned subsidiary,  Amsterdam Savings
Bank, FSB (collectively, the "Merger"). The parties to the Agreement will in the
future jointly rename the resulting bank. In consideration  of the merger,  each
outstanding share of common stock of AFSALA will be exchanged for 1.07 shares of
Ambanc common stock.  Consummation of the Merger is subject to satisfaction of a
number of conditions,  including, among other things, stockholder and regulatory
approval  and the  receipt  of a written  fairness  opinion  by AFSALA  that the
consideration  offered  pursuant to the Agreement is fair from a financial point
of view to the stockholders of AFSALA. It is anticipated that the Merger will be
consummated during the fourth quarter of calendar 1998 and will be accounted for
as a purchase transaction.

In connection  with the  Agreement,  AFSALA and Ambanc have entered into a Stock
Option Agreement dated April 24, 1998, pursuant to which Ambanc has the right to
purchase  344,500  shares of AFSALA  common stock at a price of $20.75 per share
exercisable under certain circumstances.

Consolidated Financial Condition

Total assets  increased  by $5.5 million or 3.4% to $165.9  million at March 31,
1998 from $160.4  million at September  30, 1997.  This  increase was  primarily
attributable to an increase in federal funds sold of $3.7 million or 137.4%, and
an increase in term  deposits  with the Federal  Home Loan Bank from $0 to $11.0
million  or  100.0%,  offset  by a  decrease  in  total  securities  (securities
available for sale and investment  securities  held to maturity) of $9.7 million
or 13.4%. These shifts were primarily the result of the investment of funds from
maturities and calls of  securities,  in addition to the proceeds from growth in
deposits,  into federal fund sold and term  deposits  with the Federal Home Loan
Bank.  The Company's net loans  receivable  increased by $1.0 million or 1.3% to
$76.8  million at March 31, 1998 up from $75.8 million at September 30, 1997 due
to increased  loan activity  primarily in  residential  mortgage and home equity
loans.

The Company's  deposits  increased by $3.6 million or 2.6% to $138.9  million at
March 31,  1998 from  $135.3  million at  September  30, 1997 due in part to the
opening of a new supermarket branch in December 1997. In addition,  Federal Home
Loan Bank of New York long term  borrowings  increased $290 thousand or 20.5% to
$1.7 million at March 31, 1998 from $1.4 million at September  30, 1997,  due to
an  additional  borrowing  of  $500  thousand,  offset  by  repayments  of  $210
thousands.  Accrued  expenses and other  liabilities  increased  $2.1 million or
74.9% to $4.9 million at March 31, 1998 from $2.8 million at September 30, 1997,
primarily  due to  securities  purchases  which are due to  brokers at March 31,
1998.

Stockholders'  equity  decreased  by $490  thousand or 2.4% to $20.1  million at
March 31, 1998 from $20.6  million at  September  30,  1997.  The  decrease  was
primarily  the result of the purchases of treasury  stock,  offset by net income
for the six months ended March 31, 1998.  In addition,  11,078  shares of common
stock were  committed  to be released by the  Company's  ESOP as of December 31,
1997, which increased equity by $171 thousand.

                                      - 9 -
<PAGE>





Asset /Liability Management

The Bank's net interest income is sensitive to changes in interest rates, as the
rates paid on its interest-bearing  liabilities generally change faster than the
rates earned on its  interest-earning  assets. As a result,  net interest income
will  frequently  decline in periods of rising  interest  rates and  increase in
periods of decreasing interest rates.

To mitigate the impact of changing  interest  rates on its net interest  income,
the Bank manages its interest  rate  sensitivity  and  asset/liability  products
through its asset/liability management committee. The asset/liability management
committee meets weekly to determine the rates of interest for loans and deposits
and consists of the President and Chief  Executive  Officer,  the Vice President
and Chief Lending Officer, and the Treasurer and Chief Financial Officer.  Rates
on deposits are primarily based on the Bank's needs for funds and on a review of
rates  offered  by other  financial  institutions  in the Bank's  market  areas.
Interest  rates on loans are  primarily  based on the interest  rates offered by
other  financial  institutions in the Bank's primary market areas as well as the
Bank's cost of funds.

In an effort to reduce  interest rate risk and protect  itself from the negative
effects of rapid or prolonged changes in interest rates, the Bank has instituted
certain asset and liability management measures,  including (i) originating, for
its portfolio,  a large base of adjustable-rate  residential mortgage loans, and
(ii) maintaining  substantial levels of interest-bearing term deposits,  federal
funds, and securities with one to five year terms to maturity.

The  committee  manages the interest  rate  sensitivity  of the Bank through the
determination  and  adjustment  of   asset/liability   composition  and  pricing
strategies. The committee then monitors the impact of the interest rate risk and
earnings  consequences  of such  strategies  for  consistency  with  the  Bank's
liquidity needs, growth, and capital adequacy.  The Bank's principal strategy is
to reduce the interest rate  sensitivity of its  interest-earning  assets and to
match, as closely as possible,  the maturities of  interest-earning  assets with
interest-bearing liabilities.

The  experience  of the Bank has been that net  interest  income  declines  with
increases  in  interest  rates  and  that net  interest  income  increases  with
decreases in interest rates.  Generally,  during periods of increasing  interest
rates, the Bank's interest rate sensitive  liabilities would reprice faster than
its interest rate sensitive assets causing a decline in the Bank's interest rate
spread and  margin.  This would  result  from an  increase in the Bank's cost of
funds  that  would  not be  immediately  offset by an  increase  in its yield on
earning assets. An increase in the cost of funds without an equivalent  increase
in the yield on earning  assets  would tend to reduce net interest  income.  The
Bank's  interest rate spread  decreased for the three months ended March 31,1998
to 2.83% from 2.97% for the three months ended March 31, 1997. The interest rate
spread for the six months  ended March 31, 1998 was 2.81%,  as compared to 2.89%
for the six months ended March 31, 1997.

In times of decreasing interest rates, fixed rate assets could increase in value
and the lag in repricing of interest rate sensitive  assets could be expected to
have a positive effect on the Bank's net interest income.


                                      - 10-


<PAGE>
                       AFSALA BANCORP, INC. AND SUBSIDIARY
                Average Balance Sheet, Interest Rates and Yields
                                   (Unaudited)
<TABLE>
<CAPTION>


                                                                For the Three Months Ended March  31,
                                      ----------------------------------------------------------------------------------------------
                                                               1998                                           1997
                                      ---------------------------------------------   ----------------------------------------------
                                                               Interest     Average            Interest       Average
                                                Average         Earned/      Yield/            Average         Earned/      Yield/
                                                Balance         Paid         Cost(1)           Balance         Paid         Cost(1)
                                                -------         ----         -------           -------         ----         -------
                                                                              (Dollars in Thousands)
<S>                                          <C>               <C>         <C>              <C>              <C>            <C>  
Interest-earning assets:
   Federal funds sold                        $     9,501            128       5.46%          $    6,974            88        5.12%
   Term deposits with the FHLB                     5,015             68       5.50                2,581            35        5.50
   Securities available for sale (2)              35,666            572       6.50               18,286           269        5.97
   Investment securities held to maturity         25,420            421       6.72               42,988           704        6.64
   FHLB of NY stock                                  565             10       7.18                  565             9        6.46
   Net loans receivable (3)                       75,787          1,548       8.28               72,292         1,518        8.52
                                             -----------         ------    -------           ----------        ------     -------
       Total interest-earning assets             151,954          2,747       7.33              143,686         2,623        7.40
                                                                 ------    -------                             ------       -----
Non-interest earning assets                        7,678                                          6,679
                                                  ------                                         ------
       Total assets                          $   159,632                                     $  150,365
                                             ===========                                     ==========


Interest-bearing liabilities:
   Savings accounts                         $    35,960             266       3.00           $   35,696            264       3.00
   NOW  accounts                                 12,053              67       2.25               10,781             61       2.29
   Money market accounts                         10,347             109       4.27                8,818             88       4.05
   Time deposit accounts                         70,069             976       5.65               63,997            879       5.57
   Escrow accounts                                  314               2       2.58                  261              2       3.11
   FHLB of NY
       long term borrowings                       1,745              29       6.74                1,651             29       7.12
                                            -----------          ------     ------           ----------         ------      -----
Total interest-bearing liabilities              130,488           1,449       4.50              121,204          1,323       4.43
                                                                 ------     ------                              ------      -----

Non-interest bearing deposits                     7,847                                           7,403
Other non-interest bearing liabilities            1,308                                             756
Equity                                           19 989                                          21,002
                                            -----------                                      ----------
       Total liabilities and equity         $   159,632                                      $  150,365
                                            ===========                                      ==========

Net interest income                                             $ 1,298                                        $ 1,300
                                                                 ======                                        =======

Interest rate spread                                                          2.83%                                          2.97%
                                                                            =======                                        ========


Net interest margin                                                           3.46%                                          3.67%
                                                                            =======                                        ========

Ratio of average interest-earning
        assets to average
        interest-bearing liabilities             116.45%                                         118.55%
                                            ===========                                      ==========
</TABLE>

(1)   Annualized
(2)   Average  securities  available for sale are included at  approximate  fair
      value.  The  adjustment  to  approximate  fair  value  is  not  considered
      material.
(3)   Calculated net of allowance for loan losses. Includes non-accrual loans.


                                     - 11 -
<PAGE>
                       AFSALA BANCORP, INC. AND SUBSIDIARY
                Average Balance Sheet, Interest Rates and Yields
                                   (Unaudited)
<TABLE>
<CAPTION>
                                                                    For the Six Months Ended March 31,
                                             ---------------------------------------------------------------------------------------
                                                               1998                                           1997
                                             --------------------------------------   ----------------------------------------------
                                                         Interest        Average             Interest                      Average
                                             Average      Earned/         Yield/             Average           Earned/     Yield/
                                             Balance       Paid          Rate(1)             Balance            Paid       Rate(1)
                                             -------       ----          -------             -------            ----       -------
                                                                         (Dollars in Thousands)
<S>                                         <C>           <C>            <C>               <C>               <C>       <C>  
Interest-earning assets:                    
   Federal funds sold                       $  6,830          182           5.34%           $   7,630             198       5.20%
   Term deposits with the FHLB                 2,480           68           5.50                5,220             142       5.46
   Securities available for sale (2)          37,319        1,210           6.50               17,536             504       5.76
   Investment securities held to maturity     28,764          939           6.55               40,856           1,340       6.58
   FHLB of NY stock                              565           20           7.10                  565              18       6.39
   Net loans receivable (3)                   75,729        3,113           8.24               71,871           3,037       8.47
                                            --------       ------        -------            ---------          ------      -----
       Total interest-earning assets         151,687        5,532           7.31              143,678           5,239       7.31
                                                           ------        -------                               ------      -----
Non-interest earning assets                    7,423                                            6,631
                                            --------                                        ---------
       Total assets                         $159,110                                        $ 150,309
                                            ========                                        =========
                                            
                                            
Interest-bearing liabilities:               
   Savings accounts                         $ 35,848          536           3.00            $  35,685             533       3.00
   NOW  accounts                              12,002          136           2.27               10,822             124       2.30
   Money market accounts                      10,393          219           4.23                8,485             168       3.97
   Time deposit accounts                      69,412        1,954           5.65               63,641           1,767       5.57
   Escrow accounts                               327            4           2.45                  299               4       2.68
   FHLB of NY                               
       long term borrowings                    1,721           59           6.88                1,701              60       7.07
                                            --------      -------        -------            ---------          ------      -----
Total interest-bearing liabilities           129,703        2,908           4.50              120,633           2,656       4.42
                                                          -------        -------                               ------      -----
                                            
Non-interest bearing deposits                  8,084                                            7,569
Other non-interest bearing liabilities         1,286                                            1,239
Equity                                        20 037                                           20,868
                                            --------                                        ---------
       Total liabilities and equity         $159,110                                        $ 150,309
                                            ========                                        =========
                                            
Net interest income                                       $ 2,624                                           $   2,583
                                                          =======                                           =========
                                            
Interest rate spread                                                        2.81%                                           2.89%
                                                                         =======                                           =====
                                            
                                            
Net interest margin                                                         3.47%                                           3.61%
                                                                         =======                                           =====
                                            
Ratio of average interest-earning           
        assets to average                   
        interest-bearing liabilities          116.95%                                          119.10%
                                            ========                                        =========
</TABLE>                                    
                                         
(1)   Annualized
(2)   Average  securities  available for sale are included at  approximate  fair
      value.  The  adjustment  to  approximate  fair  value  is  not  considered
      material.
(3)   Calculated net of allowance for loan losses. Includes non-accrual loans.

                                     - 12 -



<PAGE>
                       AFSALA BANCORP, INC. AND SUBSIDIARY
                              RATE/ VOLUME ANALYSIS
                                   (Unaudited)

                        THREE MONTHS ENDED MARCH 31,1998
                                  COMPARED WITH
                        THREE MONTHS ENDED MARCH 31, 1997
                        ---------------------------------

                                                    INCREASE (DECREASE)
                                             -----------------------------------
                                                           DUE TO
                                             -----------------------------------
                                              VOLUME        RATE          NET
                                              ------        ----          ---
Interest and dividend  income:
   Federal funds sold                       $  33,991        6,229       40,220
   Term deposits with the FHLB                 32,739            -       32,739
   Securities available for sale              276,978       25,871      302,849
   Investment securities held to maturity    (291,628)       8,362     (283,266)
   FHLB of NY stock                                 -        1,464        1,464
   Net loans receivable                        73,108      (42,972)      30,136
                                            ---------    ---------    ---------
Total interest and dividend income            125,188       (1,046)     124,142
                                            ---------    ---------    ---------

Interest expense:
   Savings accounts                             1,780            -        1,780
   NOW  accounts                                7,415       (1,028)       6,387
   Money market accounts                       15,448        4,840       20,288
   Time deposit accounts                       84,249       12,754       97,003
   Escrow  accounts                               378         (364)          14
   FHLB of NY long term borrowings              2,008       (1,210)         798
                                            ---------    ---------    --------- 
Total interest expense                        111,278       14,992      126,270
                                            ---------    ---------    ---------

Net change in net interest income           $  13,910    $ (16,038)   $  (2,128)
                                            =========    =========    =========


                         SIX MONTHS ENDED MARCH 31,1998
                                  COMPARED WITH
                         SIX MONTHS ENDED MARCH 31, 1997

                                                      INCREASE (DECREASE)
                                            ------------------------------------
                                                            DUE TO
                                            ------------------------------------
                                               VOLUME        RATE         NET
                                               ------        ----         ---
Interest and dividend  income:
   Federal funds sold                       $ (20,984)       5,266      (15,718)
   Term deposits with the FHLB                (75,182)       1,033      (74,149)
   Securities available for sale              633,340       72,124      705,465
   Investment securities held to maturity    (394,648)      (6,079)    (400,727)
   FHLB of NY stock                                 -        2,116        2,116
   Net loans receivable                       160,021      (83,910)      76,111
                                            ---------    ---------    ---------
Total interest and dividend income            302,547       (9,450)     293,097
                                            ---------    ---------    ---------

Interest expense:
   Savings accounts                             2,993            -        2,993
   NOW  accounts                               13,978       (1,565)      12,413
   Money market accounts                       39,105       11,386       50,491
   Time deposit accounts                      160,838       25,472      186,310
   Escrow  accounts                              (311)         102          413
   FHLB of NY long term borrowings                785       (1,459)        (674)
                                            ---------    ---------    ---------
Total interest expense                        218,112       33,523      251,635
                                            ---------    ---------    ---------

Net change in net interest income           $  84,435    $  42,973    $  41,462
                                            =========    =========    =========

                                     - 13 -


<PAGE>



Comparison  of  Operating  Results for the Three Months Ended March 31, 1998 and
1997.

Net Income.  Net income  decreased  by $27 thousand or 9.4% for the three months
ended March 31, 1998 to $256  thousand  from $283  thousand for the three months
ended March 31,  1997.  Net income for the three months ended March 31, 1998 was
reduced primarily as a result of increased non-interest expenses, offset in part
by a decrease in the  provision  for loan  losses.  These and other  changes are
discussed in more detail below.

Net Interest Income.  Net interest income remained  constant at $1.3 million for
the three months ended March 31, 1998 and 1997. During the period, total average
interest-earning  assets  increased  $8.3  million or 5.8%,  to $152.0  million.
However,  the  increase  in  the  average  balance  of  total   interest-bearing
liabilities of $9.3 million or 7.7%, to $130.5 million, exceeded the increase in
total  average  interest-earning  assets.  The  increase  in the excess of total
interest-bearing   liabilities  over  total  interest-earning   assets  was  due
primarily to the Company's repurchase of 76 thousand shares of stock for a total
cost of $1.4 million through March 31, 1998. The increase in the average balance
of  total  interest-bearing  liabilities  was  accompanied  by a 7  basis  point
increase in the average rate paid on these funds.

Interest-earning  assets primarily  consist of loans  receivable,  federal funds
sold,  securities  (securities  available  for  sale  combined  with  investment
securities held to maturity), and interest bearing deposits with the FHLB of New
York.  Interest  bearing  liabilities  primarily  consist  of  interest  bearing
deposits and long term borrowings from the FHLB of New York.

The interest rate spread,  which is the difference  between the yield on average
interest  earning assets and the  percentage  cost of average  interest  bearing
liabilities,  decreased  to 2.83% for the three months ended March 31, 1998 from
2.97% for the three months  ended March 31,  1997.  The decrease in the interest
rate  spread is  primarily  the result of a  decrease  in the  average  yield of
interest earning assets coupled with an increase in the average cost of interest
bearing liabilities during this period.

Interest  and  Dividend  Income.  Interest  and  dividend  income  increased  by
approximately  $124  thousand or 4.7% to $2.7 million for the three months ended
March 31, 1998 from $2.6 million for the three months ended March 31, 1997.  The
increase  was largely  the result of an increase of $8.3  million or 5.8% in the
average  balance of  interest  earning  assets to $152.0  million  for the three
months  ended March 31, 1998 as compared to $143.7  million for the three months
ended March 31, 1997.  The increase in the average  balance of interest  earning
assets consisted  primarily of increases in the average balance of federal funds
sold of $2.5 million or 36.2%, term deposits with the FHLB of NY of $2.4 million
or 94.3%, and an increase in the average balance of net loans receivable of $3.5
million or 4.8%.  These  increases  were  partially  offset by a decrease in the
average  balance  of  total  securities   (securities  available  for  sale  and
investment  securities held to maturity) of $188 thousand.  Also, offsetting the
effects of the increase in the average balance of interest-earning  assets was a
7 basis point decrease in the average yield on all interest earning assets.

The yield on the average balance of interest  earning assets was 7.33% and 7.40%
for the three months ended March 31, 1998 and 1997, respectively.


                                     - 14 -
<PAGE>

Interest  income on  securities  available for sale  increased  $303 thousand or
112.5% to $572  thousand  for the three  months  ended  March 31, 1998 from $269
thousand for the same period of the previous  year.  This  increase is primarily
the result of an increase in the average  balance of  securities  available  for
sale of $17.4  million  combined  with a 53 basis point  increase in the average
yield on these  securities.  Interest  income on investment  securities  held to
maturity  decreased $283 thousand or 40.2% to $421 thousand for the three months
ended March 31, 1998 from $704  thousand  for three months ended March 31, 1997.
This  decrease is primarily  the result of a decrease in the average  balance of
investment  securities  held to maturity of $17.6 million  offset in part by a 8
basis point increase in the average yield on these securities.

Interest  and fees on loans  increased  $30 thousand or 2.0% to $1.5 million for
the three months ended March 31, 1998. This increase was primarily the result of
an increase  in the  average  balance of net loans  receivable  of $3.5  million
offset  by a 24  basis  point  decrease  in  the  average  yield  on  net  loans
receivable.

Interest  Expense.  Interest on deposits and escrow  accounts  increased by $125
thousand for the three months ended March 31, 1998  compared to the three months
ended March 31, 1997.  This increase in interest on deposits and escrow accounts
was  substantially due to the increase in interest expense related to NOW, money
market,  and time  deposit  accounts.  Interest  expense on NOW accounts was $67
thousand for the three months ended March 31, 1998, compared to $61 thousand for
the three months March 31, 1997. Likewise,  interest expense on money market and
time deposit accounts was $109 thousand and $976 thousand, respectively, for the
three months ended March 31, 1998,  compared to $88 thousand and $879  thousand,
respectively,  for the three  months March 31, 1997.  These  increases  were due
primarily to increases in the average balances of the respective deposit types.

Interest on FHLB of NY long term borrowings, which is a less significant portion
of interest expense, was $29 thousand for the three months ended March 31, 1998,
and 1997. The average amount of borrowing  outstanding increased by $94 thousand
or 5.7% from the  comparable  period,  offset by an decrease in the average rate
paid by the  Company of 38 basis  points.  The Company  uses FHLB  advances as a
funding source and generally uses long term  borrowings to supplement  deposits,
which are the Company's primary source of funds.

Provision  for Loan Losses.  The Company's  management  monitors and adjusts its
allowance  for loan losses  based upon its analysis of the loan  portfolio.  The
allowance is increased by a charge to the provision for loan losses,  the amount
of which depends upon an analysis of the changing  risks  inherent in the Bank's
loan  portfolio.  Management  determines  the adequacy of the allowance for loan
losses  based upon its  analysis  of risk  factors in the loan  portfolio.  This
analysis includes evaluation of credit risk, historical loss experience, current
economic   conditions,   estimated   fair   value  of   underlying   collateral,
delinquencies,  and  other  factors.  The Bank has  historically  experienced  a
limited  amount of loan  charge-offs.  However,  there can be no assurance  that
additions  to the  allowance  for loan  losses  will not be  required  in future
periods or that actual losses will not exceed estimated  amounts.  The provision
for loan losses for the three months ended March 31, 1998 decreased $55 thousand
from $70 thousand for the three months ended March 31, 1997.

                                     - 15 -
<PAGE>

Non-Interest  Income.  Non-interest  income and its components  remained  fairly
constant for the three months ended March 31, 1998 and 1997.

Non-Interest  Expenses.  Non-interest expenses increased $70 thousand or 7.8% to
$965  thousand for the three months ended March 31, 1998 from $895  thousand for
the three months ended March 31, 1997.

Compensation  and  benefits  expense  increased  by $118  thousand  or 32.2% due
primarily to costs  related to the  Company's  ESOP,  the  establishment  of the
Restricted Stock Plan in May 1997, the opening of a new branch in December 1997,
as well as general  cost of living  and merit  raises to  employees.  Management
believes that compensation and benefits expenses will increase in future periods
as a result of the costs related to the Company's ESOP as well as the Restricted
Stock Plan.

Professional  service  fees for the three  months  ended March 31, 1998 were $44
down from $73 thousand for the same period in the previous  year.  This decrease
was due primarily to additional  legal and accounting  costs incurred during the
three months ended March 31, 1997 associated with being a newly-formed company.

Non-interest  expenses  for the  three  months  ended  March 31,  1998  included
non-tax-deductible   acquisition-related  expenses  totaling  approximately  $29
thousand  incurred to date in connection  with the previously  announced  merger
agreement with Ambanc Holding Co., Inc.  Management  expects to incur additional
acquisition-related expenses in future periods, which will increase non-interest
expenses.

Other non-interest expenses decreased $58 thousand or 30.4% to $133 thousand for
the quarter ended March 31, 1998 when compared to the same quarter of 1997. This
decrease is primarily attributed to general expenses incurred during the quarter
ended March 31, 1997, associated with being a newly-formed company.

Income Tax Expense.  Income tax expense increased by $5 thousand or 3.2% to $163
thousand for the three  months  ended March 31, 1998 from $158  thousand for the
three months ended March 31, 1997.  However,  the effective  tax rate  increased
from  35.8% for the three  months  ended  March 31,  1997 to 38.8% for the three
months ended March 31,  1998.  The  increase in the  effective  tax rate was due
primarily  to  the  non-tax-deductible  acquisition-related  expenses  mentioned
above.

                                      - 16-
<PAGE>

Comparison  of  Operating  Results  for the Six Months  Ended March 31, 1998 and
1997.

Net  Income.  Net income  increased  by $15  thousand or 2.6% for the six months
ended  March 31, 1998 to $567  thousand  from $552  thousand  for the six months
ended  March 31,  1997.  Net  income  for the six months  ended  March 31,  1998
increased  primarily  as a result of an  increase in net  interest  income and a
decrease in the  provision  for loan  lossess,  offset in part by  increases  in
non-interest  expenses  and income tax expense  and a decrease  in  non-interest
income. These and other changes are discussed in more detail below.

Net Interest  Income.  Net interest  income  increased  $41 thousand for the six
months  ended March 31, 1998 as compared to the same period in 1997.  During the
period, total average interest-earning assets increased $8.0 million or 5.6%, to
$151.7  million.   However,  the  increase  in  the  average  balance  of  total
interest-bearing  liabilities  of $9.1  million  or  7.5%,  to  $129.7  million,
exceeded the increase in total average  interest-earning assets. The increase in
the excess of total  interest-bearing  liabilities  over total  interest-earning
assets was due  primarily to the Company's  repurchase of 76 thousand  shares of
stock for a total cost of $1.4 million  through March 31, 1998.  The increase in
the average balance of total interest-bearing liabilities was accompanied by a 8
basis point increase in the average rate paid on these funds.

Interest and Dividend  Income.  Interest and dividend  income  increased by $293
thousand or 5.6% to $5.5  million  for the six months  ended March 31, 1998 from
$5.2 million for the six months  ended March 31, 1997.  The increase in interest
and  dividend  income was largely  the result of an increase of $8.0  million or
5.6% in the average balance of interest earning assets to $151.7 million for the
six months ended March 31, 1998 as compared to $143.7 million for the six months
ended March 31, 1997.  The increase in the average  balance of interest  earning
assets  consisted  primarily  of an  increase  in the  average  balance of total
securities  (securities  available for sale and  investment  securities  held to
maturity)  of $7.7 million or 13.2%,  and an increase in the average  balance of
net loans  receivable of $3.9 million or 5.4%.  These  increases  were partially
offset by  decreases  in the  average  balance  of  federal  funds  sold of $800
thousand,  or 10.5%,  and term deposits with the FHLB of NY of $2.7 million,  or
52.5%.

Interest  income on  securities  available for sale  increased  $705 thousand or
140.0%  to $1.2  million  for the six  months  ended  March  31,  1998 from $504
thousand for the same period of the previous  year.  This  increase is primarily
the result of an increase in the average  balance of  securities  available  for
sale of $19.8  million  combined  with a 74 basis point  increase in the average
yield on these  securities.  Interest  income on investment  securities  held to
maturity  decreased  $401  thousand or 29.9% to $939 thousand for the six months
ended March 31, 1998 from $1.3 million for six months ended March 31, 1997. This
decrease  is  primarily  the  result of a  decrease  in the  average  balance of
investment  securities held to maturity of $12.1 million combined with a 3 basis
point decrease in the average yield on these securities.

Interest  and fees on loans  increased  $76 thousand or 2.5% to $3.1 million for
the six months  ended March 31, 1998 from $3.0  million for the six months ended
March 31, 1997.  This  increase was  primarily  the result of an increase in the
average  balance of net loans  receivable of $3.9 million,  offset by a 23 basis
point decrease in the average yield on net loans receivable.

                                      -17-
<PAGE>

Interest  Expense.  Interest on deposits and escrow  accounts  increased by $252
thousand  for the six months  ended  March 31,  1998  compared to the six months
ended March 31, 1997.  This increase in interest on deposits and escrow accounts
was  primarily  due to the increase in interest  expense  related to NOW,  money
market,  and time deposit  accounts.  Interest  expense on NOW accounts was $136
thousand for the six months ended March 31, 1998,  compared to $124 thousand for
the six months March 31, 1997.  Likewise,  interest  expense on money market and
time deposit accounts was $219 thousand and $2.0 million,  respectively, for the
six months ended March 31,  1998,  compared to $168  thousand and $1.8  million,
respectively,  for the six months ended March 31, 1997. These increases were due
primarily to increases in the average balances of the respective deposit types.

Interest on FHLB of NY long term borrowings, which is a less significant portion
of interest expense, decreased approximately $1 thousand or 1.1% to $59 thousand
for the six months ended March 31, 1998.  This  decrease was  primarily due to a
decrease of 19 basis  points in the average cost of  borrowings  offset by a $20
thousand or 1.2% increase in the average amount of borrowings outstanding during
the comparable periods.

Provision for Loan Losses. The provision for loan losses decreased $100 thousand
to $50 thousand  for the six months ended March 31, 1998 from $150  thousand for
the six months ended March 31, 1997. The Company's  provision for loan losses is
based upon its  analysis  of the  adequacy  of the  allowance  for loan  losses.
Management  determines  the adequacy of the allowance for loan losses based upon
its  analysis of risk  factors in the loan  portfolio.  This  analysis  includes
evaluation  of  credit  risk,  historical  loss  experience,   current  economic
conditions,  estimated fair value of underlying collateral,  delinquencies,  and
other factors.

Non-Interest  Income.  Non-interest income decreased during the six months ended
March 31, 1998 to $193  thousand  compared with $228 thousand for the six months
ended March 31, 1997.  Decreases in service  charges on deposit  accounts of $22
thousand and other  non-interest  income of $13 thousand  comprised the decrease
from the previous period.

Non-Interest  Expenses.  Non-interest expenses increased $66 thousand or 3.6% to
$1.9  million for the six months  ended March 31, 1998 from $1.8 million for the
six months ended March 31, 1997.

Compensation and benefits  expense  increased by $208 thousand or 28.3% from the
previous  period due  primarily  to costs  related to the  Company's  ESOP,  the
establishment  of the  Restricted  Stock Plan in May 1997,  the opening of a new
branch in December  1997,  as well as general cost of living and merit raises to
employees.  Management  believes that  compensation  and benefits  expenses will
increase  in future  periods as a result of the costs  related to the  Company's
ESOP as well as the Restricted Stock Plan.

FDIC deposit insurance premiums decreased by $33 thousand or 43.4% due primarily
to reduced  deposit  insurance  premium rates for the six months ended March 31,
1998, as compared to the same period in the previous year.


                                      -18-
<PAGE>

Professional  service fees for the six months ended March 31, 1998, decreased by
$67  thousand  or 51.3% from $132  thousand  for the six months  ended March 31,
1997,  primarily as a result of additional  legal and accounting  costs incurred
during the six months ended March 31, 1997  associated with being a newly-formed
company.

Non-interest  expenses  for  the  six  months  ended  March  31,  1998  included
non-tax-deductible   acquisition-related  expenses  totaling  approximately  $29
thousand  incurred to date in connection  with the previously  announced  merger
agreement with Ambanc Holding Co., Inc.  Management  expects to incur additional
acquisition-related expenses in future periods, which will increase non-interest
expenses.

Other non-interest expenses decreased $78 thousand or 21.2% to $292 thousand for
the six months  ended  March 31,  1998 when  compared  to the same period in the
previous  year.  The  decrease  is  primarily  attributed  to  general  expenses
associated  with being a newly-formed  company,  in addition to the write off of
certain items deemed uncollectible by management during the previous period.

Income Tax Expense.  Income tax expense  increased to $331  thousand for the six
months  ended March 31, 1998 from $305  thousand  for the six months ended March
31, 1997. The increase was the result of an increase in income before income tax
expense,  as well as the  impact of the  non-tax-deductible  acquisition-related
expenses mentioned above.

Liquidity and Capital Resources

The Bank is required by OTS regulations to maintain,  for each calendar month, a
daily average balance of cash and eligible  liquid  investments of not less than
5% of the average daily balance of its net  withdrawable  savings and borrowings
(due in one year or less) during the preceding  calendar  month.  This liquidity
requirement may be changed from time to time by the OTS to any amount within the
range of 4% to 10%. The Bank's average  liquidity ratio was 47.15% and 45.18% at
March 31, 1998 and September 30, 1997, respectively.

The Company's sources of liquidity include cash flows from operations, principal
and interest payments on loans,  maturities of securities,  deposit inflows, and
borrowings from the FHLB of New York. During the six months ended March 31, 1998
and 1997, the primary source of funds was cash flows from deposit growth.

While  maturities and scheduled  amortization  of loans and  securities  are, in
general, a predictable  source of funds,  deposit flows and prepayments on loans
and  securities  are greatly  influenced  by general  interest  rates,  economic
conditions  and  competition.  In  addition,  the Bank  invests  excess funds in
overnight deposits which provide liquidity to meet lending requirements.

In addition to deposit growth,  from time to time the Company borrows funds from
the FHLB of New  York to  supplement  its cash  flows.  At  March  31,  1998 and
September 30, 1997, the Company had outstanding borrowings from the FHLB of $1.7
million and $1.4 million, respectively.

                                      -19-
<PAGE>

As of March 31, 1998 and September  30, 1997,  the Company had $41.1 million and
$37.7 million of securities, respectively,  classified as available for sale and
$22.2  million  and  $35.3  million  of  investment  securities,   respectively,
classified as held to maturity.  The liquidity of the  securities  available for
sale portfolio  provides the Bank with  additional  potential cash flows to meet
loan growth and deposit flows.

Liquidity may be adversely  affected by unexpected  deposit outflows,  excessive
interest rates paid by competitors, adverse publicity relating to the saving and
loan industry,  and similar matters.  Management  monitors  projected  liquidity
needs  and  determines  the  level  desirable,  based  in part on the  Company's
commitments to make loans and management's  assessment of the Company's  ability
to generate funds.

The Bank is subject to federal  regulations  that impose certain minimum capital
requirements.  At March  31,  1998,  the  Bank's  capital  exceeded  each of the
regulatory  capital  requirements of the OTS. The Bank is "well  capitalized" at
March 31, 1998  according  to  regulatory  definition.  At March 31,  1998,  the
Company's  consolidated tangible and core capital levels were both $20.1 million
(12.14% of total  adjusted  assets) and its total  risk-based  capital level was
$20.7 million (30.66% of total  risk-weighted  assets).  The minimum  regulatory
capital ratio  requirements of the Bank are 1.5% for tangible capital,  3.0% for
core capital, and 8.0% for total risk-based capital.

During fiscal 1997, the  stockholders  approved the Restricted Stock Plan, which
allows for a stock repurchase of 4% of the Company's  outstanding  common stock.
Under this plan,  58,190 shares were  repurchased  by the Company in open-market
transactions  at a total cost of $939 thousand or $16.14 per share. In addition,
the Company as been  approved by the OTS to  repurchase  up to 10% of its common
stock to be used for general  corporate  purposes.  As of March 31, 1998, 76,310
shares had been  repurchased  by the Company in  open-market  transactions  at a
total cost of $1.4 million or $18.08 per share.

Impact of the Year 2000

The  Company  is aware of the issues  associated  with the  programming  code in
existing  computer systems as the millennium (year 2000)  approaches.  The "year
2000" problem is pervasive  and complex as virtually  every  computer  operation
will be affected in some way by the  rollover of the two digit year value to 00.
The issue is whether  computer  systems will properly  recognize  date sensitive
information  when  the  year  changes  to  2000.  Systems  that do not  properly
recognize such  information  could generate  erroneous data or cause a system to
fail.

The Company is  utilizing  both  internal  and  external  resources to identify,
correct or  reprogram,  and test its  systems  for year 2000  compliance.  It is
anticipated  that all  reprogramming  efforts  will be complete by December  31,
1998,  allowing  adequate  time for testing.  To date,  confirmations  have been
received  from the  Company's  primary  processing  vendors that plans are being
developed to address  processing  of  transactions  in the year 2000.  Moreover,
testing has begun with its outside data processing service bureau.  Furthermore,
the Company expects any corrective measures required to be prepared for the year
2000 to be implemented on a timely basis. The Company's Y2K Committee reports on
a quarterly  basis to the Board of  Directors  as to the  Company's  progress in
resolving  any year  2000  problems.  Currently  management  does  not  expect a
material  impact  on the  Company's  earnings  as a result  of the year  2000
problem.

                                     - 20 -


<PAGE>

Effect of Inflation and Changing Prices


The  Company's  consolidated  interim  financial  statements  and  related  data
presented  herein  have been  prepared in  accordance  with  generally  accepted
accounting  principles,  which require the 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
industrial companies, virtually all of the assets and liabilities of a financial
institution  are  monetary in nature.  As a result,  interest  rates have a more
significant impact on a financial institution's  performance than the effects of
general levels of inflation.  Interest rates do not necessarily move in the same
direction or with the same magnitude as the prices of goods and services.

                                     - 21 -
<PAGE>
                       AFSALA BANCORP, INC. AND SUBSIDIARY
                              Key Operating Ratios
                                   (unaudited)

           The table below sets forth certain  performance and financial  ratios
            of the Company for the periods indicated:

<TABLE>
<CAPTION>
                                                          At or for the six    At or for the
                                                             months ended       year ended
                                                            March 31,1998    September 30, 1997
<S>                                                         <C>                 <C>           
Performance Ratios:                                                             
                                                                                
Earnings per share:                                                             
       Basic                                                $     0.46          $     0.89
       Diluted                                                    0.44                0.88
Return on average assets (annualized)                             0.71%               0.77%
Return on average stockholders' equity (annualized)               5.68%               5.65%
Interest rate spread                                              2.81%               2.89%
Net interest margin                                               3.47%               3.57%
Efficiency ratio (annualized) (1)                                64.99%              63.21%
Expense ratio (annualized) (2)                                    2.30%               2.32%
                                                                                
Asset Quality Ratios:                                                           
                                                                                
Non-performing loans to total loans                               0.73%               0.61%
Allowance for loan losses to non-performing loans               199.46%             236.09%
Allowance for loan losses to total loans receivable               1.47%               1.44%
Non-performing assets to total assets                             0.37%               0.31%
                                                                                
Capital Ratios (3):                                                             
                                                                                
Stockholders' equity to total assets at period end               12.13%              12.85%
Average stockholders' equity to average total assets             12.59%              13.68%
Tangible capital                                                 12.14%              13.00%
Core (Tier I) capital                                            12.14%              13.00%
Total risk-based capital                                         30.66%              30.90%
Book value per share (4)                                    $    16.45          $    16.19
</TABLE>                                                                        
                                                                                
                                                                        
(1)  Total non-interest expenses,  excluding other real estate owned expense and
     acquisition-related  expenses, as a percentage of net  interest  income and
     total non-interest income.

(2)  Total non-interest expenses,  excluding other real estate owned expense and
     acquisition-related expenses, as a percentage of average total assets.

(3)  Capital ratios are presented for the consolidated Company.

(4)  Excludes unallocated ESOP shares and unvested Restricted Stock Plan shares.



                                     - 22 -
<PAGE>






                                OTHER INFORMATION

Item 1.       Legal Proceedings
              Not applicable

Item 2.       Changes in Securities and Use of Proceeds
              Not applicable

Item 3.       Defaults upon Senior Securities
              Not applicable

Item 4.       Submission of Matters to a Vote of Security Holders  
              Not applicable

Item 5.       Other Information
              Not applicable

Item 6.       Exhibits and Reports on Form 8-K

              (a) Exhibits
                  None

              (b) Reports on Form 8-K
                  None





                                     - 23 -


<PAGE>



SIGNATURES
----------


Pursuant  to the  requirements  of the  Securities  Exchange  Act of  1934,  the
Registrant  has duly  caused  this  report  to be  signed  on its  behalf by the
undersigned, thereunto duly authorized.



                                            AFSALA BANCORP, INC.
                                            --------------------


DATE:  May  7, 1998                 BY:  /s/ John M. Lisicki
                                         ---------------------------------------
                                         John M. Lisicki
                                         President (principal executive officer)




DATE:  May  7, 1998                 BY:  /s/ James J. Alescio
                                         ---------------------------------------
                                         James J. Alescio
                                         Treasurer (principal financial officer)









                                 - 24 -